Compliance Digest – February 28

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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.

Judge Grants MTD in Hunstein Class Action for Lack of Standing

A District Court judge in Pennsylvania has granted a defendant’s motion to dismiss a Hunstein copycat class-action case, ruling the plaintiff lacks standing to sue. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: The initial reaction to the Barclift v Keystone Credit Services opinion issued in the Eastern District of Pennsylvania, is to compare it to the Khimmat v Weltman, Weinberg & Reiss Co., LPA opinion issued one week prior in that same Court albeit by a different Judge. Both Complaints alleged “Hunstein” violations, i.e. using a third party mailing vendor to send a letter to the “consumer.” Defendant’s motion to dismiss in Khimmat was denied while in Barclift it granted. Is this a simple case of Judge’s roulette and the luck of the draw? Unfortunately, no.  

The Court in Barclift as opposed to the Court in Khimmat, viewed the arguments made by counsel through the lens of standing, pointing out “threshold issue that must be addressed in the case is whether the plaintiff has standing to pursue this lawsuit asking “[d]oes a simple procedural violation of the FDCPA automatically establish a concrete injury, thereby providing the basis for plaintiff to sue?”  After a lengthy review of other cases where various Courts opined on the merits of the “mail vendor claim” but never actually ruled on it, finding in all instances a lack of standing, the Barclift Court found “Barclift’s Complaint does not satisfy the injury-in-fact requirement because the alleged harm is not concrete.” And like in most of the other decisions, cited in its opinion, the Court offered several good quotes letting one know how little it thought of the actual claim.

So back to the earlier question, was Keystone just lucky to get a different Judge? In Khimmat, a review of Weltman’s moving papers reveals that they argued that there was Article III standing, thus shutting down that off ramp. Left with only an argument as to the meaning of the statutory language, the Court channeled Dr. Suess opening its opinion with: “I meant what I said and I said what I meant.” And then took a textualist approach to reviewing the language, which did not end well. In fairness, the reason Weltman argued there was Article III standing was to avoid a dismissal without prejudice allowing Plaintiff to refile in state court. And I get it, for most of us, state court is like the monster under the bed. But, was that a better result? 

My suggestion, if you are litigating Hunstein type claims you really need to read these two decisions, and review counsel’s approach in each when considering a strategy going forward. So far, the industry has been extremely successful arguing a lack of standing. At some point, however, it will be necessary to get into the weeds of the “communications” and prove there actually aren’t communications to third parties other than Connie Computer and her assorted servers. 

Irrespective of what the 11th Circuit does we will continue to see these claims for at least the next year or two. Variations on the theme, such as sending claims to a collection agency, a collection law firm, for a bankruptcy scrubs, skip tracing etc. can all be expected to provide alleged causes of actions. To paraphrase Sergei Lemberg, “Plaintiff’s lawyers are relentless like racoons. If they can’t get in one way, they will continue to look for another opening.” 

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Plaintiff Sues Collector for Violating FDCPA, Reg F for Sending Emails After Unsubscribing

A complaint has been filed in a Texas federal court, alleging a collector violated Regulation F by sending emails to an individual after that person allegedly unsubscribed from receiving such communications, according to a copy of the complaint. More details here.

WHAT THIS MEANS, FROM JONATHAN FLOYD OF TROUTMAN PEPPER: When implementing electronic communications such as emails, debt collectors should ensure that they are providing a “reasonable and simple” opt-out method in accordance with section 1006.6(d)(4)(ii)(C)(4) and that such requests are processed immediately. Debt collectors will likely benefit from maintaining written policies and procedures regarding the opt-out procedure because they can be protected from liability for violations of the Fair Debt Collection Practices Act if they demonstrate that the violation was unintentional “and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” See § 813(c). Good policies and procedures will also take into account section 1006.6(d)(3) which reinforces the bona fide error defense with respect to email and text communications that might inadvertently be sent to third parties in violation of the general prohibition described in section 1006.6(d)(1). Together with section 1006.6(d)(4), the regulation describes certain procedures regarding emails that are reasonably adapted to avoid an error as long as a debt collector does not communicate using an email address that has previously resulted in a prohibited disclosure to a third party.

Judge Grants MSJ for Defendant in FDCPA Case Over Calls to Plaintiff’s Wife

A District Court judge in Illinois has granted a defendant’s motion for summary judgment and denied a similar motion from a plaintiff in a Fair Debt Collection Practices Act case, ruling that 12 calls placed during a three-week period does not rise to the level of harassing or abusive behavior. More details here.

WHAT THIS MEANS, FROM LAURIE NELSON OF AUTOSCRIBE: While the claims in this case were made under the FDCPA, this case is different than most.  The Plaintiff in this case was not the debtor but the debtor’s wife. The Plaintiff asked the Court to apply FDCPA’s liability to any person, quoting the language found in FDCPA 1692k(a) and as such, find liability for both communicating to the wife after the debt was disputed and for what the wife claimed to be harassing phone calls. Thankfully as a whole this definition was rejected but the Court does agree that there are provisions under the FDCPA where third parties may have a claim. 

In rejecting the broad application to any person, the Court pointed out that the FDCPA references “consumer” multiple times in different provisions, including the provision protecting debtors from communication after a debt is disputed. The debtor being the “consumer”. If Courts were to broaden the term “consumer” to include any person, it simply would not be practical. How could a third party dispute a debt that was not their own, therefore how could they have a right of protection upon such a claim.  Sometimes, common sense does apply a little. 

That said, the Court did agree that there are certain provisions of the FDCPA that could apply to third parties such as the protection against harassment. In the 2012 Swearingen v. Portfolio Recovery Assocs., LLC case, another Illinois case, the court found standing for a third party under Section 1962d(5) which prohibits repeated calling with the intent to annoy. This case however was much different in facts then the 2012 case. The defendant only called about 12 times and only once more than one time in a single day. In addition, no threats were made, and no information was given to the wife during the calls. The wife did not ask the caller to stop calling and even volunteered to take a message during one call.  

The Defendant was successful in this case as they were able to provide documented procedures and policies in place to ensure compliance. For example, the Defendant had written procedures that required accounts to be marked for incorrect contact information and all calls were recorded. Had the defendant not been able to produce such policies and procedures, it is unclear if the Court would have ruled in favor of the Defendant on this summary judgement motion. 

CFPB Opens Rulemaking Petition Doors to General Public

The Consumer Financial Protection Bureau announced yesterday that it wants to make it easier for John Q. Public to get new rules enacted or current rules changed, while requiring lobbyists and others “who are paid to influence the agency’s rulemaking agenda behind the scenes” to have their petitions vetted by the public. The announcement is part of the CFPB’s effort to allow the public to “meaningfully engage” and be able to suggest regulatory changes. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: Public requests for rulemaking is nothing new despite the CFPB’s  latest announcement. In years past, there have actually been three (3) formal petitions for rulemakings. Ironically those three petitions were all denied. You can view those petitions on the CFPB’s website. All three were submitted by industry associations.

What appears to be different this go around is that the public will be made more aware of the petitions being filed. The public will have an opportunity to comment on those petitions, either for or against granting the petition: having the CFPB engage in rulemaking or in amending or repealing a rule. It is unclear what recourse a petitioner has if there is a denial of a request for rulemaking, but revisions to an existing rule may be subject to the appeal process pursuant to the Administrative Procedures Act (APA). This is where the ARM industry should pay special attention, especially in instances of a petition which seeks to repeal all or parts of a  rule like Regulation F. We know that consumer advocates have looked unfavorably to many of the provisions of the debt collection rule. This process may now provide an opportunity to air their grievances in a very public way. On the flip side, the ARM industry could file their  own petitions with respect to revisions to Regulation F as well.

It is unclear why the CFPB is currently seeking to highlight this process. Their current regulatory agenda is certainly packed with high priority items like 1071(Small Business Lending Data Collection ), 1033 (Portability of Electronic Consumer Financial Account Data) and LIBOR. Whatever petition is filed, it is unlikely it will be addressed quickly as rulemaking can take years. It is for this reason many think this is a process to repeal and change existing rules and not develop new ones.

Notifying Represented Consumer Instead of Attorney Not Enough for Plaintiff to Have Standing to Sue, Appeals Court Rules

The Court of Appeals for the Eighth Circuit has overturned a lower court’s ruling in favor of a plaintiff, determining that he lacked standing to pursue a claim in federal court after suing a collection law firm for allegedly violating the Fair Debt Collection Practices Act in relation to communicating with the plaintiff rather than the attorney who was representing him. More details here.

WHAT THIS MEANS, FROM COOPER WALKER OF MALONE FROST MARTIN: Article III standing is certainly an issue that the industry is familiar with at this point. However, the Eighth Circuit’s Ojogwu opinion is a great reminder to look at standing from every angle when defending a case. It can be easy to focus on the standing defenses that we have became familiar with, but it’s always worth stepping back to see if the facts of your case provide a new theory that can be tried. However, be cautious about when you make your standing argument. If you win on standing before the statute of limitations is up, you might find yourself relitigating the issue in state court.

Class Action Accuses Defendant of Violating FDCPA, TCPA, Reg F For Making Too Many Calls

The database maintained by Jack Gordon and the team at WebRecon has yielded yet another Regulation F lawsuit, this one a class-action against a company accused of not only violating Reg F, but also the Fair Debt Collection Practices Act and the Telephone Consumer Protection Act by making at least 47 phone calls to an individual’s cell phone — including 22 in one seven-day period alone — without first obtaining the individual’s consent to contact him on his cell phone. More details here.

WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: While in large part this case has the look and feel of a traditional TCPA / FDCPA class action, we also have a Reg F claim thrown into the mix.  In this putative class action, relative to Regulation F, the plaintiff claims the debt collector placed 22 calls to the named plaintiff during the first week of January 2022, well in excess of the permitted seven attempts within seven-days permitted under Regulation F. If the allegations regarding the volume of calls placed on a single account are true, we are left to wonder how that was allowed to happen given the volume of pre-implementation warnings and guidance provided on the allowable call limitations. Whether true or not, this case demonstrates the importance of auditing procedures to ensure that controls put in place to avoid violating Regulation F (or any other law / regulation that may apply) are working as intended and quickly corrected if not.

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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