Compliance Digest – December 13

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Every week, 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 Remands FDCPA Class Back to State Court, Orders Defendant to Pay Fees

Trying to convince a federal judge that a plaintiff has standing to pursue a lawsuit is a tightrope walk for companies in the accounts receivable management industry. The company doesn’t want to admit to making a mistake, yet also needs to convince a judge that the plaintiff was harmed by whatever action he or she is alleging the defendant engaged in that led to the lawsuit being filed. A District Court judge in Illinois was not impressed with a defendant’s attempt to move a class action Fair Debt Collection Practices Act case from state court to federal court and has granted the plaintiff’s motion to remand the case back to state court, while also ruling that the defendant has to cover the plaintiff’s attorney fees for fighting the removal. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Removing a case to federal court in the 7th Circuit can be tricky. To remove, the defendant in effect must allege that the federal court has subject matter jurisdiction. That is, the defendant must allege that the Plaintiff has “standing” such that he could have sued in federal court, but instead chose to sue in state court. In this case, after removal, the Plaintiff asked the court to remand the case back to state court with the Plaintiff admitting that he lacked federal court standing essentially arguing “that’s why I brought it in state court in the first place.”

The federal court agreed with the Plaintiff and remanded the case noting the high burden on proof of standing imposed by the 7th Circuit. The court buttressed its remand by noting that the defendant had conceded that the Plaintiff lacked standing to bring his primary claims in federal court. Moreover, the court went on to note that reliance on Hunstein and its finding of standing had become misplaced given that Hunstein was recently vacated by the 11th Circuit. All this led to the remand, and to add insult to the remand back to state court, the court also ruled that Plaintiff’s attorneys were entitled to an award of their fees/costs in moving to remand.

The takeaway — at least for the 7th Circuit — it’s important to not only allege the Plaintiff has federal court standing when removing a case based on federal question under the FDCPA, you must also be prepared to back that up if a remand motion is made.


Judge Dismisses Two Hunstein Cases for Lack of Standing

A District Court judge in New York has dismissed two cases — one of them a class action — that alleged the defendants violated the Fair Debt Collection Practices Act by sending private information to a third-party vendor to print and mail collection letters that were received by the plaintiffs, ruling that the information that was transmitted in these cases — names and addresses — was not private and therefore the plaintiffs do not have standing to pursue their cases in federal court. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: These cases illustrate the strong trend of FDCPA cases (whether Hunstein copycat claims or not) being dismissed for lack of standing. While some in the industry think of any dismissal as a win, I remain concerned about the long-term consequences of these decisions. Namely, that debt collectors are going to be stuck litigating in state courts throughout the nation where federal law is only considered “persuasive” authority. Not every federal state employs the same “standing” standard as federal courts and Article III, for instance, New Jersey has practically no standing requirement. Other states do tend to follow the federal jurisprudence on standing, but the case law will need to be developed with respect to consumer protection and FDCPA claims. While the standing issue will stick around, the more immediate concern is the continued onslaught of Hunstein copycat cases. The fact that any dismissal of a Hunstein copycat case is only based on standing does not assist the industry in the underlying substantive law fight regarding 15 U.S.C. § 1692c(b). Hopefully, we will see a motion for summary judgment on the substantive issue sooner rather than later which is much more likely to put a lightsaber through these types of claims.

Judge Rules Plaintiff Lacks Standing in Hunstein Copycat Case, Remands it Back to State Court

This is one of those cases where I feel like I need to make the “I’m not a lawyer” disclaimer because, to me, this looks like one of those “good news, bad news” type of cases, but there might be sides to this that I am not seeing. A District Court judge in Illinois has ruled that a plaintiff in a Hunstein copycat case does not have standing to sue — the good news — so he has remanded the case back to state court where it was originally filed — the bad news. More details here.

WHAT THIS MEANS, FROM DALE GOLDEN OF GOLDEN SCAZ GAGAIN: Hunstein created several interesting phenomena including decisions by many consumer attorneys to file Hunstein copycat cases in state court where Article III jurisdiction has no applicability. Defendants in these cases typically remove them to federal court since that is generally a better venue for litigating FDCPA claims because federal judges have more experience with the claims and more resources to handle litigation than state court judges.

The tactic by consumer attorneys to file in state court has led to situations in which defense counsel finds itself arguing its client’s alleged actions — if true — harmed the Plaintiff to the degree necessary to create jurisdiction in federal court. The consumer attorneys then find themselves is in the equally unusual position of arguing their clients haven’t suffered harm caused by the defendant. And because they filed first in state court, consumer attorneys can take solace in the fact that a finding of no jurisdiction by the federal court will result not in dismissal, but simply an order remanding the case to state court.

In Lui v MRS BPO, venued in federal court in Illinois, Judge Ronald A. Guzman reviewed Hunstein IHunstein II, and TU v. Ramirez to find jurisdiction lacking. And he relied heavily on Judge Tjoflat’s dissent in Hunstein II to support his position. Judge Guzman’s finding of no jurisdiction implies that he would likely also find no FDCPA violation based on the use of a letter vendor, stating: “Applying the definition of publicity to the allegations at issue, the Court concludes that no publicity has occurred — only communication with a mailing vendor.” He then cites Judge Tjoflat’s statement in his Hunstein II dissent that “simple transmission of information along a chain that involves one extra link because a company uses a mail vendor to send out the letters about debt is not a harm at which Congress was aiming.”

It’s fair to conclude that if Congress didn’t consider sending information to a “mail vendor” to be harmful when enacting the FDCPA, the statute doesn’t prohibit that action. Because the Eleventh Circuit has requested the parties in Hunstein focus on the jurisdictional issue in their briefing, it seems clear the court intends to rule on the jurisdictional issue. And I would expect a finding of no Article III jurisdiction with perhaps, some dicta addressing the merit — or lack thereof — of Hunstein’s “letter vendor” theory.

CFPB Announces Crackdown on NSF, Overdraft Fees

The Consumer Financial Protection Bureau yesterday put overdraft fees in its crosshairs yesterday, and already banks are responding by announcing they will no longer assess NSF fees when consumers spend more than they have in their bank accounts. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: Overdraft has been on the CFPB’s radar since day one. In 2015, 2016 & 2017, the CFPB brought an enforcement action and obtained a consent order against Regions Bank, Santander, and TCF National Bank, respectively for what it deemed illegal overdraft practices through marketing or otherwise. After a three-year hiatus, the CFPB, in 2020, entered into a consent order with TD Bank for their marketing practices regarding overdraft.

The Data Point issued by the CFPB shows that the fees generated by many banks since 2015 were extremely steady and significant. The CPFB report raises questions about the banks continued reliability of NSF’s fees as a consistent source of revenue. Many banks have gotten rid or are seriously thinking about abandoning overdraft fees all together. Certainly, having Director Chopra at the helm of the CFPB has been a factor in that decision.

But what is the flip side for consumers? Putting aside for the moment the amount of the fees or whether the consumer agreed to overdraft protection, is having a consumer bounce checks or over-drawing their account in their best interest? Let’s also assume that for the most part consumers do not intentionally write a check or make a withdraw that puts their account into the negative. Wouldn’t it be better for the consumer to have their bank cover the check or debit, especially if the debt was for an essential need like rent or food. While many banks are now getting in line to eliminate overdraft fees, little have stated what they are going to do in the event of overdraft. Does the CFPB really think that banks are going to gratuitously pay NSF checks on a consistent basis?

The CFPB’s statement, research and report certainly reminds me of the CFPB of old, where practices are deemed “good” or “bad” without looking at overall outcomes.


Judge Remands FDCPA Class Action Back to State Court

A defendant has lost its attempt to keep a Fair Debt Collection Practices Act class action in federal court, with a District Court judge in Wisconsin ruling that even though the plaintiff sought the help of an attorney and that interest continued to accrue on the underlying debt, she did not suffer a concrete injury needed to keep the case out of state court. More details here.

WHAT THIS MEANS, FROM HEATH MORGAN OF MALONE FROST MARTIN: This case is an interesting role reversal for the industry where the plaintiff argued to the Court that she lacked standing under Article III, and the defendant agency was left to argue that the Plaintiff had alleged an injury in fact to give her standing in federal court. I would expect that this ruling, and the arguments made by the plaintiff will be used by collection agencies in the future to argue Article III standing.

This case also brings up the important issue of whether it is more beneficial to be in state court or federal court for an agency. Indeed, the situation will depend on the facts, the case, and the plaintiff’s attorneys. While removing a case to state Court may often be beneficial for an agency defending a case against a national plaintiff’s firm who does not have local counsel licensed in the state, there are other scenarios where a defendant may incur more expenses and time defending a matter in state courts. Regardless, this ruling underscores the importance of deciding where to fight early on in your litigation strategy.

Judge Grants $71k in Legal Fees in FDCPA Case

A District Court judge in New Jersey has granted a plaintiff’s motion for more than $71,000 in attorney’s fees — exactly what the plaintiff was asking for — after the plaintiff agreed to an offer of judgment in a Fair Debt Collection Practices Act case. More details here.

WHAT THIS MEANS, FROM JASON TOMPKINS OF BALCH & BINGHAM: Offers of judgment can be effective tools to settle a case, but they are not without risk. For them to have some effect if rejected, offers of judgment often leave the attorney fees component open—i.e., “plus reasonable fees and costs.” In doing so, the defendant loses the ability to limit that amount and runs the risk that the court awards all fees, as it did here. Because offers of judgment are contractual in nature, defendants can limit fees, either to a certain amount or cut off at a certain defined time. And if accepted, a plaintiff will be constrained by those limits. However, if a limited offer is rejected, it may not provide much insurance should the case proceed to trial and verdict.

Judge Grants MTD in FDCPA Case Over Use of Word ‘Summons’

A District Court judge in Pennsylvania has granted a defendant’s motion to dismiss after it was sued for violating the Fair Debt Collection Practices Act when one of its representatives used the word “summons” during a conversation with the plaintiff, who had been sued by the defendant to recover an unpaid debt. More details here.

WHAT THIS MEANS, FROM JUNE COLEMAN OF MESSER STRICKLER BURNETTE: Ohai v. Patenaude & Felix, case no. 21-3539-KSM, 2021 U.S. Dist. LEXIS 226884 (E.D. Penn. November 23, 2021) is a great reminder that the least sophisticated debtor standard is an objective standard, and a plaintiff’s personal feelings about language used by a debt collector may not meet that objective standard. This case also gives great examples of how reasonable explanations by a defendant will showcase how a plaintiff’s interpretation of language is unreasonable. In Ohai, after the defendant law firm had filed suit, Plaintiff called Defendant twice to settle a $4,800 debt for $500, and then $1,000. During the first call, the consumer asked if the amount stated as owed included court costs and legal fees. During the second call, the collection law firm noted that the suit was filed and asked if Plaintiff had received the summons. The consumer claims that she was misled and confused by the word “summons,” which had not been issued in the collection case.  Plaintiff also claimed that the use of the word “summons” caused her to believe that she was required to come to court.

The Court first noted that false and misleading statements are only violative if the statement is material, having “the potential to affect the decision-making process of the least sophisticated debtor.” The Court also explained that “[a]lthough the least sophisticated debtor may be gullible, courts need not hold a debt collector hostage to incredulous claims of falsity or deception. The least sophisticated debtor standard does not require courts to credit bizarre or idiosyncratic interpretations of collection notices, because even the least sophisticated debtor is expected to possess a quotient of reasonableness.” (Internal quotes and citations omitted.) This objective standard “is important; it protects debt collectors from the avarice of unscrupulous debtors who might misrepresent their actual state of mind and ensures that debt collectors treat debtors in a manner that is consistent and fair.” Interestingly, the Court noted that it was hard pressed to describe Plaintiff as a least sophisticated debtor when she had repeatedly attempted to negotiate a settlement and that she had previously brought an FDCPA lawsuit against a different debt collector. The Court ultimately concluded that how the consumer felt about the use of the word “summons” was immaterial given the objective least sophisticated debtor standard.

The Court also explained that liability for false or misleading statements in a telephone call falls into one of the following three categories: “misleading consumers about the debt collector’s identity, about the character of the debt itself, [or] about the consequences of a consumer’s decisions about the debt.”

Plaintiff argued that Pennsylvania courts only issue summonses for criminal matters, and thus, no summons was issued in the collection case, a civil case. Plaintiff also noted that she was not required to appear in court. The Court was skeptical of the claim that “summonses” were not issued in civil cases because it found the phrase “writ of summons” on the civil court docket for the Ohai collections case and because that phrase is used in published opinions regarding several civil cases. The Court further explained that if the collection law firm mistakenly used the word “summons” rather than some other word used in civil cases, such a minor mistake “could not possibly have affected the least sophisticated debtor’s ability to make intelligent decisions.”  (Internal quotes and citations omitted.) “What matters is not the precise term used to refer to mandatory civil process, but rather whether such process had issued or was expected to be issued, because that fact could have materially impacted the debtor’s decision about how to address the debt.” “[W]hether the mandatory process that issued in the underlying state court case is technically called a summons is semantic, pedantic, and irrelevant” because the case had been filed against the consumer and process had been issued. Moreover, the Court found that the allegation that she did not have to appear in court was false – she either had to appear or risked default. 

The Ohai case is a good example of a plaintiff whose allegations went too far.  Courts have been careful to recognize when a consumer has alleged bizarre or idiosyncratic interpretations to assert claims that language was false or misleading.  This case also notes that courts have made a distinction between false or misleading statements in written language and language during telephone calls.  While I am not certain whether this distinction is a distinction without a difference, this Court clearly emphasizes the materiality standard that applies in both written language and language in telephone calls.  And in this case, whether the word “summons” was the legally correct term, this was the same as say six of one, half a dozen of the other.  (One might also analogize this to you say tomato, I say tomato – but that doesn’t translate well into the written word.)

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, email John H. Bedard, Jr., or call (678) 253-1871.

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