Compliance Digest – April 25

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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 on FDCPA Claims in Class-Action, But Denies RICO Claim

A District Court judge in Virginia has granted motions to dismiss on claims that defendants in a class-action lawsuit violated the Fair Debt Collection Practices Act, but denied a motion to dismiss that the defendants — a group of debt buyers — and the debt collectors it used to collect on the debts in question formed a RICO enterprise whose purpose was to allegedly collect unlawful debts. More details here.

WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: We generally think of RICO as a statute used by federal prosecutors to combat organized crime, but in certain instances an individual can use RICO to recover treble damages and attorneys’ fees from a defendant that participated in the conduct of an “enterprise” in the collection of usurious loans. This case is still at the pleadings stage, so the allegations remain unproven. However, this decision provides a reminder of the potential consequences of collecting unlawful debt. If you are unsure about the legality of any debts, have an attorney review them before you take any action. 

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Judge Grants MTD in Hunstein Case for Second Time Over Lack of Standing

A plaintiff alleging a collection agency violated the Fair Debt Collection Practices Act by using a letter vendor to print and mail the collection letter she received has had her case dismissed by a federal judge for lack of standing, although this time the judge is not giving the plaintiff a third kick at the can. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: For those in the industry looking for a dismissal on the merits relating to a Hunstein copycat claim, this is not the case they are looking for. In fact, this is the second time this case was dismissed on standing grounds. The first time around, even though the decision relied on Plaintiff’s lack of standing, the Court made a particular point of stating that the alleged disclosure of Plaintiff’s information to a small handful of people (the mail vendor’s employees) did not amount to the publication necessary for an invasion of privacy claim. It would seem that the Court tipped its hand that, even if Plaintiff had standing, the Court would likely find that a cause of action had not been alleged. Yet, Plaintiff and her attorney, instead of re-filing in state court where the standing argument (and motion to dismiss) could have been avoided, filed an amended complaint which again failed to state any concrete harm. Generally cases dismissed on standing are dismissed without prejudice which allows the Plaintiff to either amend and re-file in the federal court or re-file in state court (and side step the Article III issue); however, the judge dismissed Plaintiff’s Amended Complaint with prejudice – meaning she cannot refile. The Court reasoned that a dismissal with prejudice was warranted because Plaintiff was already presented with an opportunity to amend (or file in state court) and chose not to.

Judge Denies Default Judgment Motion in FDCPA Case

Better late than never, a federal judge in Nevada has ruled, denying a motion for default judgment against a defendant in a Fair Debt Collection Practices Act case because the defendant has now starting to defend itself “in earnest.” More details here.

WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: This case emphasizes the importance of staying on top of lawsuits. If a case has been filed, defendants are best served playing by the rules and remaining diligent with deadlines set by the Court. Of course, things fall through the cracks or you may rely on the word of opposing counsel – but that can sometimes be to your own detriment. Luckily, the Court concluded that the prudent thing to do here would be to proceed with the case, rather than enter a default judgment.

Judge Grants Motion for Judgment in Favor of Defendant Over Interest Disclosure, Settlement Offer Expiration in Letter

In a case that was defended by the team at Malone Frost Martin, a District Court judge has granted a defendant’s motion for judgment on the pleadings in a Fair Debt Collection Practices class action after alleging that the amount owed listed in a collection letter was lower than it should have been and that a settlement offer did not provide a deadline by which it had to be accepted. More details here.

WHAT THIS MEANS, FROM AMANDA GRIFFITH OF BERMAN BERMAN BERMAN LOWARY & SCHNEIDER: In the never-ending line of decisions related to interest disclosures in the Second Circuit, the Weiss Court was able to bridge the gap between the well-known rulings of Avila v. Riexinger & Assoc. (2nd Cir. 2016) 817 F.3d 72 and Taylor v. Financial Recovery, Services, Inc. (2nd Cir. 2018) 886 F.3d. 212 and it’s lasts ruling in Cortez v. Foster &  Garbus, LLP (2nd Cir. 2021) 999 F.3d. 151 with regards to settlement offers. In Weiss, the debtor argued that a violation of the FDCPA occurred because the letter which offered to settle the debt in full did not include any statement of interest nor an expiration date.

Relying on Taylor and Cortez, the Court found that neither argument was a tenable violation. In drawing from Taylor and Cortez, the Court found that the settlement offer was for a sum specific amount. Thus, any accrual of interest calculation would be mooted by the acceptance of the offer. Essentially, the settlement number offered was not a moving target based on the accrual of interest. The reason for the disclosure of interest in Avila were not present here.  Moreover, the court found that the exclusion of an expiration date was actually favorable to the debtor since it gave a longer period of time in which to accept the offer.

The morale of the story…even in the Second Circuit where Avila mandates an interest disclosure in certain circumstances, Courts will not fall for every bizarre interpretation which a debtor may put forth especially when the terms are more favorable.

State Court Judge Grants Motion to Compel Arbitration in FDCPA Case

In a case that was defended by the team at Gordon & Rees Scully Mansukhani, a state court judge in Wisconsin has granted a defendant’s request to compel arbitration after it was accused of violating the Fair Debt Collection Practices Act and state law in Wisconsin when it did not respond to a hardship application that was submitted by the plaintiff. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: A Wisconsin state court judge recently ruled, in Portfolio Recovery Assoc., LLC v. Hankins, No. 21CV5172 (Apr. 1, 2022), that a debt collection company which purchases an account may enforce an arbitration clause in the account agreement as an assignee of the account. The debtor had brought an Fair Debt Collection Practices Act counterclaim when the collection company filed suit to collect on the account, arguing that the collection company acted deceptively by doing so without first responding to the debtor’s permanent hardship application form. The collection company then moved to enforce the arbitration clause. The court rejected the debtor’s arguments that the “we” and “our” language in the arbitration agreement could only apply to the original holder of the debt, reasoning that the collection company’s purchase agreement made clear that it purchased the account along with all of the rights pertaining to the account.

The decision deals a blow to plaintiffs who may try to take advantage of the often-lower standing requirements in state courts, reminding parties that federal courts are not the only courts to enforce arbitration agreements and adding to the body of persuasive authority defendants may draw on in state court matters. It also tacitly confirms that collection companies may raise an arbitration agreement for the first time in response to a counterclaim. Finally, it reminds entities purchasing a contract or account to ensure that their purchase agreements contain sufficiently broad language to assign any arbitration rights or similar limitations on liability over to them as well as collection rights.

Bill in Colo. Prohibiting Collections of Medical Debt Without Price Transparency Advances out of Committee

A bill has been introduced in the Colorado state legislature that would prohibit hospitals from engaging in certain debt collection practices if they are not in compliance with a federal price transparency law, a mandate that only 6% of hospitals in Colorado are currently in compliance with, according to a published report. More details here.

WHAT THIS MEANS, FROM LAURIE NELSON OF AUTOSCRIBE: This action is no surprise as we see a recent uptick in the regulatory attention given to medical debts. Just days ago, on April 11th, the White House outlined an aggressive plan to crack down on medical debt practices. This Colorado action does not impose new regulatory requirements. Instead, it is a penalty for those who remain non-compliant with the executive order that went into effect in January of 2021, requiring hospitals to post prices online to allow patients to compare costs between hospitals.  

Hospitals were made aware of the new rule two years before the January 2021 effective date providing sufficient time to secure the means to comply. If the new Colorado bill is enacted, non-compliant hospitals can continue to bill the patients; however, the new bill will make attempting to collect the debt an unfair practice under the “Colorado Fair Debt Collections Act.”

As was reported, only 6% of Colorado hospitals are fully compliant with the federal rule today, more than one year after it went into effect, well below the national average of 14.3% compliance.   If this bill is enacted, potentially 94% of hospitals would be legally prohibited from collecting on a debt owed. Patients, as a result, could ignore bills from non-compliant hospitals without any repercussions.  

While I can understand the hospitals’ argument that this bill could lead to frivolous legal actions and possibly threaten smaller hospitals’ business, the fact that approx. 94% of hospitals remain non-compliant is damaging to patients. If all hospitals complied, would patients have gone to that hospital, or would that patient have shopped for a better rate? The fact that the hospitals have had over three years now to comply significantly diminishes the argument that this would be burdensome on their end. 

In addition, this bill provides a means for the patients to enforce the rule, eliminating the need to create another government agency. This method results in a cost-effective solution for the Colorado taxpayers to enforce the federal regulation. If this bill is successful, I would predict we will see other states draft similar bills.

Bill Introduced in Congress to Require Cost-Benefit Analysis for CFPB Rules

A bill has been introduced in the House of Representatives that, if passed, would require the Consumer Financial Protection Bureau to conduct a comprehensive cost-benefit analysis for every regulation it proposes, as a means of limiting “regulatory overreach” by the regulator. More details here.

WHAT THIS MEANS, FROM AVANTI BAKANE OF GORDON & REES: If this bill passes – and we may not want to hold our collective breath – the ARM industry will benefit from transparency concerning the CFPB’s self-proclaimed authority to promulgate a sought-out regulation. The legislation will further provide a glimpse into the CFPB’s understanding of how this industry works. Specifically, the CFPB will be required to gauge the significant costs to our clients of implementing its forced measures, and be motivated (indeed, required) to consider “reasonable” alternatives. As to the practical implementation of Regulation F, as a prime example, many in the industry hold the belief that the CFPB hardly understood or considered this aspect.

The focus on small businesses and collaboration with the SBA will be tremendously beneficial to our smaller clients who feel the pressure of being subject to M&A transactions as the costs of compliance, security, and technology continue to trend upward.

Class-Action Complaint Accuses Collector of Violating FDCPA By Not Explicitly Detailing to Where Disputes Should be Sent

A class-action lawsuit has been filed against a collection agency for allegedly violating the Fair Debt Collection Practices Act by having multiple addresses on a collection letter it sent and not explicitly communicating to which address disputes or requests for original creditor information should be sent. More details here.

WHAT THIS MEANS, FROM JONATHAN HOFFMANN OF BALCH & BINGHAM: For my money, this case has two takeaways. First, clarity. While few would say having more than one address for an agency on a letter causes actual confusion or causes one address or piece of information to overshadow another, there’s no substitute for clear, concise instructions. When looking to comply in murky waters, ask yourself if the statement is true and clear. If so, you’ve set yourself up for the best shot at defending the practice. Second, it’s going to be a whole year before we reach the anniversary of Nov. 30. Seems obvious to state, but the letter here is dated Nov. 10, 2021 — almost a full three weeks before the sweeping changes to Reg. F finally took hold. So, while these types of cases are likely to go the way of the dodo for agencies fully embracing the Model Form, prior letters floating out there still have a shelf life to form the basis of claims.

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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