Compliance Digest – March 28

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.

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 Denies Plaintiff’s MSJ Because Defendant Failed to Plead BFE Defense

If a defendant does not invoke the bona fide error defense when accused of violating the Fair Debt Collection Practices Act, does that mean it admits to have violating the statute? That is the argument that was made by one plaintiff who was seeking a partial motion for summary judgment, only to have to denied by a District Court judge in Washington. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: The plaintiff’s theory about automatic statutory liability for failure to plead the bona fide error defense is quite novel, but, unsurprisingly the Court did not buy it. The Court’s holding makes sense because regardless of a defendant’s failure to plead a defense, the plaintiff still holds the burden of proving that a violation did indeed occur. The plaintiff cannot attempt to avoid this burden by stating that the defendant’s failure to assert a particular defense equates to capitulation.  While the Judge’s holding regarding the bona fide error defense was certainly important, this holding reinforces that a violation of the FDCPA must be material. Materiality under the FDCPA is becoming increasingly important, especially in cases involving balances and Courts appear inclined to find that a de minimis misstatement of the balance is not material. 


Class Action Accuses Collector of Violating FDCPA Over Premature SOL Disclosure

A class action has been filed against a company for allegedly violating the Fair Debt Collection Practices Act by including a statement in a letter to the plaintiff that the statute of limitations had expired on the underlying debt when, according to the plaintiff, that expiration had not yet occurred. More details here.

WHAT THIS MEANS, FROM PATRICK NEWMAN OF BASSFORD REMELE: A classic title fits this one: No Good Deed Goes Unpunished (or Every Piece of Outgoing Mail is a Potential Liability).

This whole situation started after the defendant provided a dispute response — a decidedly pro-consumer practice. It is also worth noting that the out-of-statute notice was only a few days premature (if the complaint allegations prove accurate).

In short, we have a collector taking efforts to comply with the law and provide the consumer with verification. The reward? A class action lawsuit.

It is no surprise the case is filed in state court. There simply is no “injury” or “harm.” A federal court would likely boot this one on standing grounds straight away.

Which brings us to our take home messages. 

First, letter cases aren’t dead, they’ve just changed their address to state court. Consider very carefully the information you put in your letters, including when providing verification. Second, embrace the new state court forum. Wrap your arms around the lack of injury or harm and focus the narrative on the pro-consumer aspects of the case. As an industry, we can win battles (and the war) in state court if we work to educate the bench properly.

Judge Dismisses FDCPA Suit, But Gives Plaintiff Chance to Amend Complaint

A District Court judge in Arizona has dismissed a plaintiff’s amended complaint accusing a collector of violating the Fair Debt Collection Practices Act by reporting a debt to the credit reporting agencies that was incurred in another state and was owed by a third party with a different name and Social Security number than the plaintiff, while giving the plaintiff 30 days to file a “more carefully drafted and factually inconclusive” second amended complaint. More details here.

WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: The scenario presented by Taylor v. IC System is not an uncommon one. A debt incurred by one consumer appears on the credit report of another with either a similar name or similar social security number. Mixed credit files, unfortunately, are a common fact scenario in credit reporting. Furnishers are obligated to accurately report but their duties do not extend to ensuring that the credit reporting agency accurately assigns the tradeline to the correct credit report. In other words, the debt collector is obligated to correctly identify the consumer, their identifying information, and the status of the account. Likewise, the consumer reporting agency is obligated to correctly assign the account to the appropriate consumer report. 

Here, rather than bringing claims under the FCRA, the plaintiff seeks to bring claims under the FDCPA. The question to me is why? The answer seems pretty evident – this was not an issue as to the credit furnishing by the debt collector but as to the  credit reporting by the consumer reporting agency. Because there was no FCRA claim, the consumer then attempted to shoe horn a claim under the FDCPA.  The case breaks down for the plaintiff based upon their inability to plead facts sufficient to tie the debt collector to the inaccurate credit reporting and the tenuous connection between the facts and the provisions of the FDCPA at issue, 15 USC 1692e(8) and f. 

As most know, plaintiffs cannot simply make conclusory allegations as to the elements of their claims but must instead plead enough facts to make the claims plausible. Section 1692e(8) prohibits a debt collector from communicating to any person credit information which is known or should have been known to be false. Because the consumer failed to allege that the debt collector communicated information in reference to this particular consumer, the Court correctly concluded that, for now, no claim has been stated. The Court also correctly concluded that the claim failed to state  sufficient facts to establish that the debt collector was required to correct or notate the underlying debt as disputed when it did not originally attribute the debt to the consumer.

Non-Profit Sues Companies for Allegedly Engaging in Sewer Service

A non-profit legal organization in California has filed a lawsuit against a series of allegedly interconnected companies and the individuals involved in running those companies, including a debt buying and collection operation called Sue Ya Inc., claiming they violated the Fair Debt Collection Practices Act as well as state law in California for allegedly filing false proofs of service in an effort to obtain default judgments against consumers. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: Another purported “sewer service” scheme has been uncovered in California. A lawsuit filed earlier this month by Bay Area Legal Aid, a free legal services provider in the Bay Area, provides compelling facts and details about a group of “closely intertwined individuals and businesses” – debt collectors, debt buyers, law firms, attorneys, a process serving company, and a process server – that allegedly “conspire to obtain default state court judgments against California consumers through illegal and fraudulent means.” 

The investigation started with a single consumer who received notice of a default judgment, sought assistance from Bay Area Legal Aid, and challenged the affidavit of substitute service, which vaguely described substitute service on a “John Doe” Hispanic co-occupant who the consumer claimed did not exist. Bay Area Legal Aid then sought court records filed by the Defendants in three counties and found proofs of service that were identically suspicious: all signed by James Crawford, who has no individual process service registration number, with an “X”, all substitute service on John Doe or Jane Doe, a “co-occupant” that is “Hispanic” in “late 30’s” or “late 40’s” with “brown eyes,” and nearly all resulting in no appearance by the defendant and a default judgment. The kicker? Cross-referencing the dates, times, and locations of the purported substitute service from different cases shows that Mr. Crawford – if he exists at all – must have teleporting capabilities because he can be in multiple places at the same time. 

Sewer service schemes are nothing new, and many of the bad actors and false proofs of service are sloppy and obvious enough to reveal the fraud, as long as someone is looking. For example, in 2009, the New York’s AG Office conducted an investigation that found large-scale sewer service schemes, mostly related to American Legal Process, resulting in civil and criminal actions. The investigation uncovered service records that, to be true, would have required a single process server to driver over 10,000 miles in one day. In 2012, multiple sewer service lawsuits were filed against a process serving agency in the Bay Area, with proofs of service claiming service at residences on dates and times when the consumers were demonstrably not home as they were, for example, in the hospital, coaching a basketball game, and in one case deceased.

With the recent uptick in regulatory activity, it would be nice to see renewed focus on detecting and stopping this type of activity. It’s unfortunate that a few bad actors generate headlines that tend to cast a negative light on the whole industry. 

CFPB Updates Debt Collection Examination Procedures

Now that Regulation F has gone into effect and the industry has had time to digest all of the changes that needed to be made, it seems only fitting that the Consumer Financial Protection Bureau would update its guide detailing how collection operations are examined, to coincide with the new requirements of Reg F. More details here.

WHAT THIS MEANS, FROM STEFANIE JACKMAN OF TROUTMAN PEPPER: It will be interesting to see how the CFPB uses the information it receives through the examination process to further refine and contour Reg. F. Certainly, the CFPB will use the examination process to ensure compliance with the regulation but also, will very likely aggregate and evaluate information gathered through these exams to learn and reflect on how different companies have managed implementation and compliance. One area I anticipate will be of particular interest is the industry’s adoption and use of text, email, and social media in collections. Are consumers engaging through those channels? Is industry being judicious with how it utilizes those communication channels? What are the outcomes of such collection efforts? Industry members are likely well advised to capture how their current collections practices are leading to positive consumer outcomes and responsible debt collection in order to position for a positive exam outcome.

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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