Compliance Digest – April 18

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 Denies Plaintiff’s MSJ, Partially Grants Defendant’s Motion in FDCPA Case Over Disputed Debt

It’s a situation that happens all-too-often in collection agencies across the country. A consumer, in this case through her attorney, submits a letter disputing the debt. But the information included in the letter doesn’t match anything the agency can find in its system. Turns out, the agency had the debt under a different last name for the consumer — she had since remarried after the debt was incurred — as well as a different address. When searching for the last four digits of the consumers’ Social Security number, the agency had more than 200 matches, and its software did not allow for more than one search criteria to be used at a time. So it put the dispute in a folder with other disputes it could not identify and waited to see if more information came in. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: This case illustrates why it’s a good idea to have a designated point person for handling disputes/inquiries that can then escalate the investigation when necessary. It also brings home the reality that the burden is always going to be on the debt collector when there is a question inadequate information. No one should want a third party weighing “why didn’t he/she/them provide more information” vs “why didn’t the collector ask for more information.”

Johnson found a tradeline on her credit report she did not recognize, she thought it might relate to a debt from her former husband. She had her attorney contact Waypoint to dispute the debt. He provided her current name and address. However, the name and address associated with the debt were from her prior marriage (prior married name and marital residence) and therefore the information provided by the attorney did not match up with Waypoints records. This is not a unique occurrence. Johnson also provided the last four of her social, which turned out to match over two hundred account records maintained by Waypoint. 

Waypoint’s recordkeeping software didn’t give the option of searching by multiple data points, so Waypoint couldn’t search by Social Security number and first name or Social Security number and state of residence. 

Really

Waypoint’s procedures called for any dispute letter that couldn’t be matched to a debt to be marked with a question mark and put in a folder labeled “UNABLE TO LOCATE,” for future investigation. 

The old “out of sight, out of mind?”

So the tradeline was not updated as a disputed debt, because Waypoint could not identify the account in question. Hence the instant lawsuit. 

In moving for summary judgment, Waypoint argued it didn’t get enough information and Johnson counter-argued Waypoint should have known and could have manually reviewed all 200 accounts with the same last four SS#s to see if they could match it up. The Court acknowledged that John’s letter “contained identifying information that didn’t match Waypoint’s records.” But the Court, after discussing the various cases cited by the parties, focused on the obvious. Waypoint could have simply contacted Johnson’s attorney and advised it needed more information. No legal authority was provided to demand that Waypoint do that. But, do you really need a court decision to recognize that’s the easiest way to nip a situation like this in bud? Not every question will be answered by Reg F – some just require an attitude of risk aversion and common sense.

This case also contains what could be a helpful discussion regarding establishing actual damages and damages based on emotional distress.

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Judge Grants MTD in FCRA Case Against Collectors For Not Removing Dispute Notification

In a case that was defended by the team at Gordon & Rees Scully Mansukhani, a District Court judge in Michigan has granted a motion to dismiss filed by defendants in a Fair Credit Reporting Act case, after they were accused of not updating that the accounts in question were no longer being disputed. More details here.

WHAT THIS MEANS, FROM CHRISTOPHER MORRIS OF BASSFORD REMELE: This case presents a twist on the more frequent theme that a data furnisher failed to note an account as “disputed.” Here instead, the plaintiff complained about failure to remove earlier notations of “account in dispute” after she told credit bureaus that she no longer disputed the accounts. The court noted that the “form complaint” at issue had been used in “no-longer-disputed” cases around the country, with bare bones allegations and a dearth of facts. The court found the complaint to be defective, in that plaintiff never alleged she informed the data furnisher/defendants that she wished to have dispute notations removed, and because under the formulaic allegations, there was no basis to conclude the dispute notations were inaccurate. Finally, the court reasoned that when a consumer unilaterally changes her mind and informs a credit bureau she no longer disputes an account, but provides no particular reason for her change of heart, such a withdrawal simply does not constitute a new “consumer dispute” that would trigger re-investigation duties under the FCRA or liability for not deleting the once-accurate notation of dispute.

Appeals Court Upholds Dismissal of FDCPA Case Over Collection of Post-BK Student Loan

The Court of Appeals for the Third Circuit has affirmed the dismissal of a Fair Debt Collection Practices Act case against a student loan servicer for continuing to attempt to collect a student loan debt after it had been discharged in bankruptcy because the plaintiff failed to follow the proper procedure. More details here.

WHAT THIS MEANS, FROM COOPER WALKER OF MALONE FROST MARTIN: These pro se plaintiffs provide a good laugh until you’re the one footing the bill for dealing with three Complaints, a motion for reconsideration, and an appeal to the Third Circuit. The legal issues here aren’t terribly novel given this plaintiff’s insistence that the law doesn’t say what it says. My biggest takeaway here is that you should always consider how much it is going to cost to prevail on one of these claims with a rogue pro se or someone you know will “over litigate” a claim. In cases like Kaetz, a win is likely. So, then the question becomes—what is the best price I can get for this win for? In Kaetz, it unfortunately appears that not much could be done to save on costs. However, in many instances there is more than one way to skin the cat. Always consider whether there may be a more cost effective way to achieve the results you are looking for.

Appeals Court Overturns $350k Damages Award Against Collector

The Court of Appeals for the Seventh Circuit on Friday reversed a jury award of $350,000 against a collector in a Fair Debt Collection Practices Act case over the collection of a time-barred debt, ruling the plaintiff lacked standing. More details here.

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WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER BURNETTE: The majority’s opinion reversing the decision of the district court based on standing is unsurprising based upon recent 7th Circuit jurisprudence. In Pierre, the Seventh Circuit made easy work of reversing a jury verdict rendered in favor of a consumer debtor who complained of the failure to receive time-barred debt disclosures. The interesting party of this decision is found in Judge Hamilton’s lengthy dissent. Justice Hamilton provides a comprehensive analysis of the 7th Circuit’s FDCPA standing decisions beginning in 2020 and urges the Circuit to “overrule these cases’ rejections of standing based on emotional distress, anxiety, and other psychological harm caused by FDCPA violations.” This notable dissent, along with several others, begs the question of whether the Supreme Court will be poised to take up another standing case in the next term.

Judge Grants Motion for Defendant in FDCPA Case Over Unanswered Dispute

If you’re the second collection agency attempting to collect on a debt, are you responsible for the sins of the first? If the sin is not responding to a dispute notice and validation request, a District Court judge in Connecticut has ruled you’re not, granting a defendant’s motion for judgment on the pleadings because the plaintiff lacked standing to pursue her claim. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: Judge Alvin W. Thompson in the District of Connecticut recently dismissed an FDCPA claim based on a lack of standing. See Faherty v. Rubin & Rothman, LLC, 2022 WL 1025958 (D. Conn. April 6, 2022). The Court reasoned that plaintiff’s allegations of “informational harm, i.e. the defendants confused and deceived her,” fell short and plaintiff failed to provide any authority for the proposition that informational harm, such as confusion or deception, is a legally cognizable injury under Article III.” As a key distinction, the Court noted that the letter at issue “contained no misinformation.“ A win is a win, but as is the case with many recent standing dismissals, I find myself wishing for a merits decision.

Here, the plaintiff disputed and requested validation of a debt after receiving a collection letter from Agency 1. Agency 1 never responded with verification of the debt. Shortly thereafter, the creditor placed the debt with Agency 2, the defendant, who promptly sent an initial letter with the required 1692g(a) disclosures. Plaintiff claimed that Agency 2’s initial letter violated Section 1692g(b)’s requirement to cease collection efforts until debt verification is provided, contending that it made no difference that the unanswered validation request was sent to a prior collection agency. Collection Agency 2 argued that it “is not legally charged with knowledge of any prior dispute of [the] … debt which the Plaintiff may have conveyed either to [the creditor] or any prior debt collector.” And that is the issue I’d selfishly like to see directly addressed.

While Plaintiff cited supporting authority, those opinions each reference, if only in dicta, the fact that there was no indication the defendant had actual knowledge of the prior dispute. See Huebner v. Midland Credit Mgmt., 2016 WL 3172789 (E.D.N.Y. June 6, 2016) (rejecting argument that dispute made to Creditor 1 and its collectors should be imputed to Creditor 2 or its retained collector and noting there was “no reason that plaintiff’s prior dispute of the debt with [Creditor 1’s] debt collectors should have been known to” Creditor 2 or its debt collectors); Jacques v. Solomon & Solomon, P.C., 2012 WL 3581172 (D. Del. Aug. 21, 2012) (rejecting argument that a creditor’s and its prior collectors’ knowledge of disputes is imputed to a subsequent debt collector, but noting that “[p]laintiff does not allege that [defendant] had actual knowledge of the prior disputes with [the creditor] and other debt collectors”). I would argue that actual knowledge is irrelevant, as Section 1692g(b) requires only that “the debt collector” cease collection if the consumer notifies “the debt collector” – not “any debt collector” – of a dispute. But it would be nice to have a court agree. Regardless, it makes sense to negotiate contract terms that prohibit the placement of a debt a creditor knows is subject to an unanswered dispute and to attempt to avoid a creditor passing onto a debt collector any unstructured and unactionable data and account notes, which might contain hidden minefields of knowledge.

Judge Rules Subrogation Claim Not ‘Debt’ Under FDCPA

In a case that was defended by the team at Kaufman Dolowich & Voluck, a District Court judge in Pennsylvania has granted a motion for judgment on the pleadings filed by defendants in a Fair Debt Collection Practices Act case, ruling that insurance subrogation claims do not meet the definition of “debt” under the statute. More details here.

WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: The Eastern District of Pennsylvania’s decision in Chavane v. Second Look, Inc. is a win for the good guys. In Chavane, the Court ruled that an insurance subrogation claim was not a debt under the FDCPA or the Pennsylvania equivalent. In reviewing whether the insurance subrogation claim was a debt under 15 U.S.C. §1692a(5), the Court looked at the origin of the debt. One of the court’s focal points was the nature of the transaction. The Court noted that for FDCPA purposes, a debt only arises from a transaction which encompasses a consensual or contractual arrangement, not tort damages. Because the claim flowed from the plaintiff’s tort liability for negligence, the Court determined that it was not a debt covered by the FDCPA. The Court also was not persuaded by the consumer’s argument that the claim (and her liability) arose from her lease agreement with the landlord (and therefore, was contractual in nature). The Court noted that because the contract at issue was not with the parties seeking to collect (the insurance company), it was of no significance.   

Credit Unions File Suit to Block New Judgment Interest Rate From Taking Effect in N.Y.

A trio of credit unions from Western New York yesterday filed a class-action complaint seeking an expedited hearing in an attempt to block a new law from going into effect that lowers the maximum rate of post-judgment interest that can be charged in the state to 2%, from 9% currently. More details here.

WHAT THIS MEANS, FROM JONATHAN ROBBIN OF J. ROBBIN LAW: On April 20, the Southern District of New York will hear arguments on the question of whether New York’s recently enacted Fair Consumer Judgment Interest Act (FCJIA) runs afoul of the Fifth and Fourteenth Amendments. Three credit unions have brought a class action challenging the provision of the FCJIA retroactively applying the reduction of post-judgment statutory interest on “consumer debt” from 9% to 2% to consumer-debt judgments entered, but not fully-paid, prior to the law’s effective date of April 30, 2022. In addition to arguing that the Act deprives Plaintiffs of their property rights in previously accrued interest, Plaintiffs also take issue with the fact that the Act lacks clear instructions as to how the interest should be recalculated and enforced.  Judicial review of retroactive laws in the civil sphere generally has been deferential to legislatures, with the Supreme Court holding that laws “supported by a legitimate legislative purpose furthered by rational means” violates Due Process only if the legislation is “particularly harsh and oppressive” or “arbitrary and irrational,” Pension Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729-733 (1984), and constitutes taking only in relatively extreme cases where the law imposes “severe retroactive liability . . . and the extent of that liability is substantially disproportionate to the parties’ experience.” Eastern Enterprises v. Apfel, 524 U.S. 498, 528-29. Here though because of the Act’s lack of both temporal limitation and clear instruction regarding re-calculating interest and enforcement of retroactive reduction in interest, the Court hopefully will determine that the law violates due process and hold that further legislative clarification is needed before the FCJIA can be lawfully implemented.

CFPB ‘Cautiously Optimistic’ About Medical Debt Credit Reporting Changes, But Chopra Questions Whether CRAs Went Far Enough

While expressing cautious optimism for “certain aspects” of the recent announcements from the three major credit reporting agencies regarding how they will handle medical debts, Rohit Chopra, the Director of the Consumer Financial Protection Bureau raised a number of issues and continued to ramp up the rhetoric with respect to credit reporting in his first public comments since the announcement was made last month. More details here.

WHAT THIS MEANS, FROM LESLIE BENDER OF CLARK HILL: Last week the White House announced a “Fact Sheet” confirming the Biden Administration’s commitment to help Americans address the burden of medical debt. Applauding the efforts of the Department of Veterans Affairs in February requiring the exhaustion of all debt collection activities before credit reporting medical accounts, the White House initiative tasks the Consumer Financial Protection Bureau with increasing consumer education about disputing medical debt and pursuing repeat offenders who unfairly treat consumers with medical debt. In addition, the White House has challenged the U.S. Department of Health and Human Services to investigate hospitals’ billing and collection practices.  

With regular challenges to medical debt occurring at the federal level, what should the credit and collections industry do? First, there is no more important time to evaluate your compliance management system to assure you have a good understanding of the patterns and trends in complaints and disputes. Second, assure you are investigating and responding to consumer disputes and complaints in a timely manner. Finally, if you are furnishing data to the consumer reporting agencies regarding medical debts, assure you are performing due diligence on the medical debts subject to collections and eligible for credit reporting to trust but verify they are accurate and complete (and refine and update your other data furnisher policies and procedures to assure they are compliant with the Fair Credit Reporting Act and Appendix E of Regulation V). Stay tuned for further developments related to medical debt.

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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