I’m thrilled to announce that Bedard Law Group is the new sponsor for the Compliance Digest. Bedard Law Group, P.C. – Compliance Support – Defense Litigation – Nationwide Complaint Management – Turnkey Speech Analytics. And Our New BLG360 Program – Your Low Monthly Retainer Compliance Solution. Visit www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.
Every week, AccountsRecovery.net brings you the most important news in the industry. But, with compliance-related articles, context is king. That’s why the brightest and most knowledgable compliance experts are sought to offer their perspectives and insights into the most important news of the day. Read on to hear what the experts have to say this week.
Judge Grants MTD in FDCPA Case Over Dispute Sent to Creditor, Not Collector
A District Court judge in Michigan has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act by contacting the plaintiff after she had disputed the debt in question with the original creditor and for making a “hard inquiry” on her credit report. More details here.
WHAT THIS MEANS, FROM COOPER WALKER OF MALONE FROST MARTIN: This is a great win for the industry. More than that, this is a great win against the claim we’ve all seen too often where the plaintiff alleges he/she requested calls to stop and the debt collector continued to call regardless. While this isn’t going to make these claims go away overnight, it does give the defense bar some ammunition to make these consumer attorneys re-think whether they want to argue these claims in front of a court. Make sure your litigation counsel is aware of this case. It is worth investigating whether you are in a jurisdiction where a motion to dismiss similar to the one filed here makes sense.
THE COMPLIANCE DIGEST IS SPONSORED BY:
Judge Denies Defendant’s Motion in FDCPA Bankruptcy Case
A District Court judge in Florida has denied a defendant’s motion for judgment on the pleadings in a Fair Debt Collection Practices Act case for allegedly disregarded cease-and-desist letters sent by an individual after receiving text messages and collection letters from the defendant while the individual had a pending bankruptcy petition. More details here.
WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: It’s true what they say. Bad facts make bad law. Having said that, there are a couple of good lessons to be learned from Storey. First, both parties need to plead with intention. It’s too easy to casually answer complaints without thinking down the road. In this case, the defendant failed to plead judicial estoppel which was the basis for their motion for judgment on the pleadings. As noted by the Court, this was enough that the Court could deem the defense waived and deny its motion for judgment on the pleadings on that basis.
Despite this, the Court went ahead and addressed the merits of the claim and here’s where the second less comes. Make sure adequate policies and procedures are in place to ensure cease and desist notices and bankruptcy notices are documented to ensure further communications are not sent. As set forth in the Court’s Order, the debt collector not only continued communicating with the debtors regarding the debt post petition but also after receiving multiple cease and desist notices.
Finally, the third lesson: bad facts will not curry favor with the Court. In reviewing the motion on its merits, the Court looked at whether the debtors had provided notice of their FDCPA claim in the context of the bankruptcy. While doing so, the Court ascertained there had been some colorable notice of a claim (albeit nonspecific). It seems the Court then balanced the interests of the parties. In doing so, the Court noted that the debt collector in seeking to dismiss the suit based upon the debtor’s failure to clearly provide the Court and trustee with notice of the FDCPA claim (which was part of the bankruptcy) sought a “windfall victory that would limit recovery by Storey’s innocent creditors.”
Debt collectors should take the opinion as a cautionary tale and review their bankruptcy and cease and desist policies to ensure compliance.
Chopra: CFPB to Focus on ‘Repeat Offenders’
The Consumer Financial Protection Bureau is planning to “sharpen its focus on repeat offenders,” specifically those companies that violate agency or federal court orders, Director Rohit Chopra is planning on telling the House Financial Services Committee today, according to a copy of his prepared remarks. Chopra is making stops at the House Financial Services Committee today and Senate Banking Committee tomorrow to answer questions and give a semi-annual report to Congress. More details here.
WHAT THIS MEANS, FROM STEFANIE JACKMAN OF BALLARD SPAHR: Of course, entities that are subject to existing consent orders and related requirements should already be investing significant resources in building enhanced processes and controls to avoid the underlying issues that gave rise to the order. But, in evaluating alleged “repeat offenders”, I wonder if the CFPB will be open to engaging in conversation around alleged repeat violations before launching a full scale investigation. Will there be meaningful opportunities to address those specific complaints and concerns at the outset and avoid expensive, far-reaching inquiries and investigations? Is 100% perfection going to remain the standard or will there be some allowance for the reality that no system or process can function perfectly 100% of the time? I suspect the answer to these questions is “probably not” and entities subject to an existing or prior consent order are well advised to take stock of their current consent-order related practices. Are the original remedial measures that were put in place to ensure compliance still working effectively? Have you had to make intervening adjustments? Can you detail the basis for those adjustments? It is critical to assess all consent order-related controls to ensure they are functioning effectively to avoid the issues that gave rise to the order in the first place.
Eleventh Circuit Issues New Ruling, But With Same Conclusion, in Hunstein Case
The original panel from the Court of Appeals for the Eleventh Circuit that ruled in the Hunstein case issued a new opinion this morning, vacating its earlier decision, but still ending up in the same place that the plaintiff had standing to sue, even in the wake of the Supreme Court’s ruling in TransUnion v. Ramirez and that the use of a third-party mail vendor constituted a communication under Section 1692c(b) of the Fair Debt Collection Practices Act. While on the surface it appears as though the Eleventh Circuit doubled down on its original ruling, the new decision was not unanimous, and one of the three judges — Judge Gerald Bard Tjoflat issued a dissenting opinion that the TransUnion ruling means that the plaintiff does not have standing to sue because he did not suffer a concrete injury. More details here.
WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: Well, this is certainly an interesting twist in this saga. We were all waiting for the Eleventh Circuit Court of Appeal to decide whether they will re-hear “en banc” (full panel of 11th Circuit Judges), the issues raised in Hunstein I. Then, Judge Newsom, who wrote the original controversial opinion in Hunstein I, vacates that decision and writes a new opinion which is equally problematic.
In the original Hunstein I decision (Hunstein v. Preferred Collection & Mgmt. Servs., Inc., 994 F.3d 1341 (11th Cir. 2021)), Judge Kevin C. Newsom of the Eleventh Circuit Court of Appeals wrote that the plaintiff had standing to bring a claim for violation of Section 1692c(b) of the FDCPA because the defendant disclosed information about the debt to the defendant’s letter vendor. Then, defendant Preferred asked for a rehearing en banc. Separately, the Supreme Court issued a decision in an unrelated case (TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021)) clarifying and narrowing the scope of “standing” in federal Courts and suggesting that disclosures to printing/letter vendors may not be an actionable claim.
Now, the original Eleventh Circuit panel led by Judge Kevin C. Newsom has sua sponte (on its own initiative) vacated the original Hunstein I decision and substituted it with a new one. Clearly, Judge Newsom took note of the massive criticism the original Hunstein decision received. It is apparent that he is now trying to justify it (doubling down), and the new ruling (Hunstein II) reaches the same unreasonable conclusion: A debt collector cannot use a letter vendor without risking a third-party disclosure violation of the FDCPA.
The new decision is lengthy (65 pages including the dissent) and is primarily designed to distinguish the Supreme Court’s ruling in TransUnion LLC v. Ramirez. Since the new Hunstein II decision reaches the same conclusion as the original Hunstein I decision, it is clearly troubling. Technically, debt collectors can still not use letter vendors to send letters in the Eleventh Circuit until the issues therein are resolved. Therefore, the main consequence of the new Hunstein decision will likely be delay, in that the collection industry’s process to contest the Eleventh Circuit’s prohibition of letter vendors may have to start anew.
But, there is a potential silver lining – Judge Tjoflat, who previously sided with the two Judges who issued the original decision in Hunstein I, said the following in his dissent:
When we originally held that Hunstein had standing, the Supreme Court had not yet issued its opinion in TransUnion LLC v. Ramirez. Now, with the benefit of the Supreme Court’s reasoning in TransUnion, I have changed my mind because this Court’s standing analysis sweeps much more broadly than TransUnion would allow.
This statement, among others in Judge Tjoflat’ s overall dissent, should help pave the way for a further challenge to the 11th Circuit panel of Judges who will be petitioned, once again, for an en banc (full panel) hearing on the decision in Hunstein II.
Yes, the circus regarding the Hunstein saga is not over, but there is a new arsenal that may tip the scales of justice in the right direction. Fight on!
Judge Grants MSJ For Defendant in FDCPA Case Over Communication Issues
You ever have a situation where you and someone else just don’t see eye to eye on anything? A debt collector is having that problem with a husband and wife, where both sides agree that a debt is owed, but disagree on just about everything that happened after that debt was placed with the collector. Fortunately for the collector, a District Court judge in Washington has granted its motion for summary judgment, thanks to transcripts of the call recordings between both sides and the mailbox rule. More details here.
WHAT THIS MEANS, FROM LAUREN BURENTTE OF MESSER STRICKLER: I took two important things away from this opinion. First — good record-keeping goes a long way! Consumers rarely recall receiving a specific piece of mail — especially one sent to them years prior — and debt collectors will never be able to prove a consumer actually received and read a letter. Here, the agency was able to satisfy the court that it sent the 1692g notice through its account notes and the testimony of its corporate representative, and the plaintiffs’ self-serving insistence that the letter wasn’t received wasn’t enough to rebut the debt collector’s evidence.
Second — let’s all take this opinion as an opportunity to refresh our familiarity with the rules of evidence! In this case, the call recordings flatly contradicted the plaintiffs’ version of their conversations with the debt collector — but that didn’t deter plaintiffs from moving forward. They pivoted from attacking the substance of their discussions with the agency to attacking the authentication, credibility and admissibility of the call recordings, the transcripts of those recordings, and the account notes detailing the recorded conversations. In its opinion, the court provides a lengthy but comprehensive explanation of why the plaintiffs’ evidentiary arguments failed, and ultimately rejected their efforts to keep the call recordings and transcripts out of the record. But the opinion is a good reminder that sometimes, similar evidentiary arguments are available to defendants too, and should be explored as part of a comprehensive defense to any case.
Federal Gov’t Announces Crackdown on Discrimination in Financial Services
It might not specifically mention debt collection or the accounts receivable management industry, but everyone’s ears should still be perking up after a number of departments within the federal government on Friday announced a crackdown on discrimination in the financial services industry. More details here.
WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: It should come as no surprise that various agencies are prioritizing fair lending and fair servicing within the financial services industry, and the recent Trustmark $5 million settlement shows how costly these can be without even considering the cost to get to a settlement. A focus on fair lending is certainly consistent with the recent efforts to address racial and gender inequality, and may be viewed as more of a return to Obama-era policies than the introduction of something new.
Collectors do not lend, so why is fair lending important to the industry? The short answer is that the Equal Credit Opportunity Act prohibits discrimination in all aspects of a credit transaction, including collections. Rarely any more do we see disparate treatment – treating people differently based on membership in a particular group. Rather, the focus is frequently on disparate impact – discriminatory outcomes resulting from application of a facially neutral policy. In the context of collections, this can potentially occur when making different settlement offers to groups of people. Imagine two campaigns, one of which offers debtors the opportunity to settle for 60% of the outstanding balance and a second that offers settlement at 70% of the outstanding balance. If it turns out that those offered the opportunity at 70% were more likely to be members of a protected class (e.g., African-American, Hispanic, Female, etc.) than those who received the 60% offer, and therefore it cost members of the protected class more, that could potentially be viewed as disparate impact discrimination.
We can argue over whether disparate impact claims are valid under the ECOA, but there’s no question the agencies take the position they are and have been willing to pursue such claims. And if you’re wondering who might be interested, the CFPB, Department of Justice and Federal Trade Commission are all interested. In the end, we should all think about how a given tool – use of AI to predict who should receive a given offer to maximize response – or particular action may lead to results that negatively impact protected classes in unintended ways when planning such activities, what legitimate business purpose do we have for taking using those tools or taking those actions, and whether there is a less discriminatory alternative that would accomplish our goal.
Judge Remands FDCPA Class Back to State Court After Ruling Plaintiff Lacks Standing
A District Court judge in Illinois has granted a plaintiff’s motion to remand a Fair Debt Collection Practices Act case back to state court, while denying the motion for attorney fees and costs, after the plaintiff received two collection emails from the defendant in which the name of the original creditor was slightly different in each message, ruling that the plaintiff lacked standing to sue in federal court. More details here.
WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: A District Court decision out of the Northern District of Illinois represents a unique spin on a familiar debate over Article III standing.
In Montgomery v. Everest Receivable Services, district judge Gary Feinerman granted the Plaintiff’s Motion to Remand the case back to state court. Here, the plaintiff had received two collection emails from the Defendant. In the first email, the defendant listed the original creditor as “Indigo MasterCard / Celtic Bank,” while the second email listed the original creditor as “Indigo MasterCard. The Plaintiff sued, alleging that the incongruent names caused her to believe that she owed two separate debts. However, the plaintiff’s alleged “informational injury” theory of harm was unlikely to prevail in a Seventh Circuit court in view of the flurry of recent decisions dismissing such claims for lack of Article III standing.
In an unusual reversal of roles, the defendants in the case argued that the plaintiff did have Article III standing, while the plaintiff – who was seeking to have the case remanded – argued that she did not. In ruling for the plaintiff, Judge Feinerman reasoned that the plaintiff’s “complaint does not allege that the emails gave rise to the risk that she would overpay her debt,” and that the plaintiff’s “request for ‘actual damages’ does not establish Article III standing.”
The Seventh Circuit’s trend of dismissing FDCPA cases alleging mere “informational” injuries has thus far been viewed as a positive development for collectors. However, this outcome illustrates how these types of cases are likely not going away, but rather are ultimately destined to be litigated in state court.
I’m thrilled to announce that Bedard Law Group is the new sponsor for the Compliance Digest. Bedard Law Group, P.C. – Compliance Support – Defense Litigation – Nationwide Complaint Management – Turnkey Speech Analytics. And Our New BLG360 Program – Your Low Monthly Retainer Compliance Solution. Visit www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.