Compliance Digest – February 7

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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.

Reg F Lawsuit Filed Against Collector Over Credit Reporting

A plaintiff in Texas has filed a lawsuit against a debt collector, claiming it violated the Fair Debt Collection Practices Act and Regulation F by allegedly reporting a debt to the credit reporting agencies that had already been paid in full. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: My first comment on this recently filed complaint requires an initial disclaimer: “If the facts as pled are true.” 

If they are true, this falls into my “what were they thinking” bucket. Based on the detail provided in the complaint it does not look good. I’d also be curious to know if this stems from a faulty dispute review process at the law firm. But what appear to be terrible facts are not why this complaint is noteworthy.

This is the first complaint this writer has seen where there is a Count alleging a violation of Reg F. So, what is the effect of alleging a Reg F violation, when there is already a Count alleging an FDCPA violation of the same nature. We know that multiple violations do not lead to multiple recoveries, one violation is all you need. In those jurisdictions, where there is also a parallel state collection law, in this case it is the Texas Debt Collection Act, a prevailing consumer has a second source of recovery. It is unclear whether If Reg F is to become an additional vehicle for recovery, alongside the FDCPA, instead of in place of. If it can be additional, it would seem any Plaintiff’s attorney that does not add a claim under Reg F could be committing legal malpractice. 

We’ve collectively been waiting to see if Reg F was going to lead to a wave of new lawsuits. Based on this complaint, we do not have to wait. While Reg F may provide new claims, I now expect to start seeing the usual FDCPA claims, incorporating an additional Reg F claim. And not to be a killjoy, I would not be surprised if a few on the dark side try to amend existing claims, at least any filed since the end of November

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Judge Grants Motion for Reconsideration and Remands FDCPA Case Back to State Court

A defendant in a Fair Debt Collection Practices Act case may have won the battle in having its motion for summary judgment granted for lack of standing, but could end up losing the war after a Magistrate Court judge granted a plaintiffs’ motion for Reconsideration, Correction, and Remand, sending the case back to state court. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: In whose sand box to we play (or fight)? That is, in the federal court sandbox or the state court sandbox? Therein lies the first standing question. From there, it gets more interesting. 

The case involved a state court case being removed to federal court only to be tossed back to state court when the federal judge determined the “Plaintiffs failed to demonstrate that they suffered concrete harm from Defendant’s alleged violations of the FDCPA and therefore lacked standing on those federal claims.”

While there has been much consternation over “Oh no, a has been remanded back to state court,” I for one relish federal court orders that conclude the Plaintiffs don’t have a concrete harm or injury. And to add icing to that “remand cake,” what always happens after a remand is that the Plaintiff never appeals that conclusion such that the Plaintiff is stuck with a claim with no injury. 

Those are the cases that are truly fun to defend and try. Getting to tell a jury that the Plaintiff has no harm or injury. Think of the old adage – “If a tree falls in the woods and no one is there to witness it falling, does it make a sound.” No it really doesn’t if it falls in a state court “remanded” sand box. In short, embrace the remands and all that they represent.

Appeals Court Partially Overturns Ruling for Defendant in FDCPA Case

The Court of Appeals for the Ninth Circuit has partially affirmed and partially reversed a lower court’s ruling in a Fair Debt Collection Practices Act case, determining that the District Court judge should not have granted summary judgment for a collection law firm that “expressly” informed an individual in a collection letter that any dispute must be filed in writing. More details here.

WHAT THIS MEANS, FROM AMANDA GRIFFITH OF BERMAN BERMAN BERMAN LOWARY & SCHNEIDER: In relying on the least sophisticated consumer standard, the Ninth Circuit differentiated between the requirements of Section 1692g(a)(3) and 1692(b) – which is an all-too-common mistake. Section 1692g(a)(3) of the FDCPA does not require a dispute to be in writing for validity to be assumed while Section 1692g(b) requires a request for verification to be in writing. For those who have started to use Regulation F’s Model Validation Notice, such has been clarified under the heading “How can you dispute the debt?”

Judge Grants MTD in FDCPA Case Alleging Hunstein Disclosure

A District Court judge in Kansas has granted a defendant’s motion to dismiss a Hunstein case, ruling that the plaintiff lacked standing to sue because she did not suffer a concrete injury when the defendant used a third-party vendor to print and mail a collection letter. More details here.

WHAT THIS MEANS, FROM LORAINE LYONS OF MALONE FROST MARTIN: This is a positive case for the industry. In this Hunstein letter vendor copycat lawsuit, the court found the Plaintiff failed to allege a concrete recognizable injury and granted the Defendant’s motion to dismiss for lack of standing. Other District Court outside the 11th Circuit are reaching the same conclusion. Notable is even though the 11th Circuit has vacated Hunstein II and granted en banc review, the Court found the reasoning of Judge Tjoflat’s dissent in Hunstein II more persuasive than that of the majority. Let’s hope Judge Tjoflat’s dissenting opinion will be similarly compelling during the upcoming 11th Circuit en banc hearing.  Good win!

Judge Grants MSJ for Defendant on Hunstein Claim, Denies MSJ on TCPA ATDS Claim

There have been a number of rulings in Hunstein cases and a number of rulings in post-Facebook Telephone Consumer Protection Act cases, but rarely, if ever, has there been a ruling that addresses both of these landmark cases. A District Court judge in Tennessee has partially granted a defendant’s motion for summary judgment in a case alleging that the defendant violated the Fair Debt Collection Practices Act by using a letter vendor to send collection notices to the plaintiff and the TCPA by contacting the plaintiff on her cell phone without her consent. More details here.

WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: Stewart joins a growing trend of district court opinions which are scrutinizing a consumer’s Article III standing to bring Hunstein claims. Interestingly, the plaintiff in Stewart is a bit of trend setter in that the claim regarding use of a mail vendor precedes the Hunstein opinion. No matter, the result is the same – another court scrutinizing standing under the lens of Article III and the Supreme Court’s decision in Ramirez and concluding that standing for the claim does not exist. 

Unlike Hunstein and the series of cases it has spawned, the Stewart court makes the determination at the summary judgment stage – post discovery. The big takeaway here – and the growing trend – is an examination of whether there are allegations or evidence to support publication and whether the information was in fact read and not merely processed. 

CFPB to Take Closer Look at Credit Card Rates, Fees

The Consumer Financial Protection Bureau may have sent another canary down the coal mine, this time on the topic of interest and fees charged by credit card issuers. More details here.

CFPB Launches Crackdown on ‘Junk’ Fees

The canary didn’t make it. Less than a week after publishing a blog post noting that consumers spend $120 billion annually on credit card interest and fees every year, the Consumer Financial Protection Bureau yesterday announced it had published a Request for Information on what it calls “exploitative junk” fees charged by banks and financial services companies. More details here.

WHAT THIS MEANS, FROM STEFANIE JACKMAN OF TROUTMAN PEPPER: The CFPB does not like fees. It has never liked fees. It still does not like fees. I am sure everyone recalls the pressure from the Cordray CFPB to ensure late fees, NSF fees, convenience fees, and other ancillary fees were defensible, permitted by law, and justifiably tied to an actual business need or expense. We need to again take a hard look at a number of critical pieces of information relating to consumer fees. How much revenue is received from such fees? How are fees disclosed to consumers? How clearly are they disclosed? What value do the fees offer consumers or what legitimate business expense do they cover? Are there options to avoid or reduce fees? In the past few months, both the CFPB and various U.S. Senators have accused the largest banks in the country of impermissibly profiting off consumer fees. While many astutely argue that the CFPB’s objections to various fees are unwarranted in the current legal environment, there is no doubt that fees of all kinds will be heavily scrutinized by the CFPB during examinations and may result in enforcement. Now is the time to review fee practices and strategies to ensure that companies are prepared to defend and justify that they are lawful and appropriately disclosed to customers.

Group Sues N.Y. to Allow Non-Lawyer Volunteers to Represent Consumers in Collection Suits

A company that helps consumers file for bankruptcy protection has filed a lawsuit against the state of New York, alleging that the state is violating the First Amendment of the Constitution by requiring consumers to have a licensed lawyer represent them when defending themselves against debt collection lawsuits. More details here.

WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: In a time where non-lawyers have sought to enter the legal market, whether through efforts to allow ownership of law firms (e.g., Utah) or expanding into areas traditionally addressed by law firms (e.g., consultant expansion into compliance areas), this suit relies on alleged violations of the First Amendment to engage in activities traditionally viewed as the practice of law. Citing the lack of sufficient volunteer attorneys to represent low income defendants in debt collection lawsuits, Upsolve and Rev. John Udo-Okon have brought suit requesting non-lawyers already engaged in public service activities, after receiving appropriate training, be allowed to advise those low income defendants in collection actions without running afoul of New York’s unauthorized practice of law (“UPL”) provisions, citing the lack of representation for these defendants while plaintiffs are granted “sophisticated representation” in these actions. Interestingly, the suit does not seek the right to appear in court, but rather to help clients determine whether they would benefit from the advice and responding to the complaint, help them complete New York’s standard debt collection suit answer form, and advise them how and where to serve the answer. No further action would be taken and consumers would not pay for the services.  It will be interesting to see how the New York Attorney General reacts to this suit and is willing to fight it or will instead seek to settle it and allow these types of services to be performed by non-lawyers.

If successful, this effort may open a new avenue for low income defendants to gain meaningful access to the judicial system, a laudable goal. It may also have potentially meaningful implications for the receivables management industry, as it is likely to increase the number of collection cases that are contested. And while some may legitimately contest those actions, one has to assume that it could also be used as a delaying tactic or a means to unnecessarily increase the cost of litigation on legitimate claims. In addition, if successful, this may present a model to be used in other jurisdictions, so is certainly worth keeping an eye on.

Suit Alleges Collector Violated Reg F’s 7-in-7 Provision

It is short on details, but another Regulation F lawsuit has been filed, this time in California, and, for the first time, it’s accusing a collector of violating the rule’s prohibitions on call frequency. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: Early this year a California consumer brought one of the first lawsuits relying on Regulation F’s call frequency restriction rule. Specifically, the plaintiff alleges “that Defendant violated 12 CFR Part 1006.14 (Regulation F) by contacting Plaintiff more than seven (7) times in seven (7) consecutive days.” See Santander v. General Revenue Corp., Inc., Case No. 2:22-cv-00096-JFW-SK (C.D. Cal.).

While this is noteworthy as an example of the Plaintiff’s Bar beginning to incorporate Regulation F’s Rules, it remains to be seen if this attempt to invoke the 7-in-7 Rule will hold water. The sole Regulation F allegation fails to really invoke the 7-in-7 call frequency Rule. Plaintiff alleges merely that Defendant contacted Plaintiff more than seven times in seven consecutive days. The Rule places a specific numeric limit on “telephone call[s]” not “contact,” and for each call to count toward the same 7-call limit, they each must be placed in connection with the collection of the same particular debt. 12 CFR § 1006.14(b)(2)(i)(a), (b)(2)(ii). Moreover, a debt collector may exceed the call limitand overcome the presumption of a violation if the debt collector had the consumer’s consent. 

The Complaint, in other words, is pretty thin on supporting facts. While Plaintiff elsewhere alleges that “Defendant has regularly placed calls to Plaintiff in its attempt to collect the alleged debt,” that also fails to show that the 7-in-7 call limitation was exceeded. Plaintiff will need to prove significantly more than what is alleged to prevail on a 7-in-7 claim.

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.

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