Compliance Digest – May 9

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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.

Appeals Court Denies Creditor’s Bid for Attorney Fees in Spat with Former Collection Agency Partner

A battle between a failed partnership between a creditor and a collection agency has spilled over into the Court of Appeals for the Eleventh Circuit, with a panel of judges yesterday affirming a lower court’s decision not to award the creditor attorney’s fees after it accused the agency of breaching the terms of their agreement because it was not licensed to collect in a state and because the creditor’s clients were complaining about the agency’s conduct. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Perhaps a binding arbitration clause could have avoided this mess. A creditor and its collection agency aired “dirty laundry” in court. First in state court where the creditor originally sued the agency claiming the agency breached the subject collection contract. The agency then removed to federal court which meant another cycle of “dirty laundry” laundering there. Once there, the federal court granted the creditor’s motion to remand back to state court but denied the creditor’s request for its fees associate with the “wash cycle” in federal court. Still not “clean,” the laundry then proceeded to an “appeals court cycle.” There, the denial of fees to the creditor (notwithstanding the successful remand motion) was affirmed. The basis was, let’s say, a “close but no cigar” abuse of discretion holding when it comes to federal jurisdiction.

So, where is the laundry now? After several cycles in the “legal washing machine,” it’s right back where it started – in state court. That is, after numerous “quarters” were spent in the laundry machinery, neither side is any closer to folding up their dispute and once and for all putting it into the “clean clothes laundry basket.” To finish up the “laundry” metaphor, this case demonstrates that an incredible about of “agitation” can occur in a lawsuit before any “on the merits” water is added to the mix. Absent a merits analysis, the dirty laundry remains to be laundered another day. The moral perhaps – include a binding arbitration clause in your collection contracts to avoid this type of mess in the off-chance you are ever sued by your customer.

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Judge Certifies Class in FDCPA Suit Over Threat of Judgment

A District Court judge in Pennsylvania has certified a class action in a Fair Debt Collection Practices Act lawsuit that accused a defendant of violating the statute by mentioning in a letter that a judgment may be awarded before the expiration of a settlement offer that was being made, even though a collection lawsuit had yet to be filed. More details here.

WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: Butela highlights the dangers presenting by letter violations even where that violation was the result of a bona fide error. Brought as a putative class action, Butela alleged that a settlement letter which provided 30 days to respond and stated  “[a}] judgment could be awarded by the court before the expiration of the discount offer listed in this letter” violated the FDCPA when a collection complaint had not yet been filed against the consumer. The class definition (as amended) included individuals who received a similar letter and at the time the letter was sent, did not have a lawsuit pending against them and did not have a hearing scheduled before the settlement offer was set to expire. The Court certified the class, holding that the named plaintiff had met the initial burden of Article III standing and had met the requirements of Rule 23 sufficiently to certify the class.

Debt collectors should take notice of the Court’s opinion for a number of reasons. First, the Court held that only Butela, as the class representative, must have Article III standing at the class certification stage. The Court was not inclined to accept the defense’s suggestion that the Supreme Court in TransUnion had expanded the Article III inquiry to all class members at the certification stage. Secondly, the Court showed a predisposition to certify the class by looking for ways to overlook the inconsistencies in the class definition and reconcile it such that the class was ascertainable and plaintiff’s claims were included within the described class. In doing so, the Court redefined the class by formulating a “workable class definition” and redefined the class such that Butela’s claims were included within the class. Moreover, in doing so, the Court held that an FDCPA premised on 1692e and/or 1692f arises when the letter is sent, not when it was received. As acknowledged by the Court, “the modified definition cure[d] a potential overbroadness problem that may have precluded certification of the first amended class definition.” And finally, despite having raised the defense of bona fide error regarding the letter sent to Butela, the Court declined to deny class certification and determined instead that the bona fide error defense was not unique to Butela but would have arisen for all class members.

With an overabundance of class actions making their way through the courts, debt collectors should closely track this case, particularly as to two issues moving forward: (a) whether class members will be able to meet the Article III threshold moving forward at the summary judgment or trial stage; and (b) whether the class will be able to overcome the bona fide error defense at the summary judgment or trial stage.

Class Action Accuses Collector of Leaving out Some Reg F Disclosures in Initial Notification

A class-action lawsuit has been filed in federal court in Nevada, accusing a pair of companies of violating the Fair Debt Collection Practices Act by allegedly sending an initial notification to the plaintiff without including all of the required validation information required under Regulation F. The notification was sent in December, after Reg F went into effect. More details here.

WHAT THIS MEANS, FROM JONATHAN ROBBIN OF J. ROBBIN LAW FIRM: A class action was recently commenced in the District Court of Nevada, seeking damages for purported violations of 15 U.S.C. § 1692, et seq., the Fair Debt Collections Practices Act (“FDCPA”). In Lightfoot v. Aisen, Gill & Associates, LLP & Clark County Collection Service, LLC, Plaintiff alleges that Defendants Aisen, Gill & Associates LLP (“Aisen”) and Clark County Collection Service, LLC (“CCCS”) (together, “Defendants”), violated the FDCPA, 15 U.S.C. §§ 1692e and 1692g(a)(1), by purportedly sending Plaintiff a collection letter regarding the alleged debt, but failing to include all of the required validation information required under the recently passed 12 CFR § 1006 (“Regulation F”). Specifically, Plaintiff alleges that Aisen’s letter failed to include, itemization, validation information, disclosures, and statements required under Regulation F. Notably, the letter sent by Aisen was dated December 20, 2021, merely one month after Regulation F came into effect. As a result, Plaintiff is seeking actual damages, statutory damages, costs, and attorneys fees. The outcome of this action will be one of the initial determinations of plaintiff attorneys attempting to bootstrap FDCPA violations from the newly implemented Regulation F requirements.

CFPB Revives ‘Dormant’ Rule to Regulate ‘Risky’ Nonbanks

The Consumer Financial Protection Bureau has issued a procedural rule to expand its supervision over nonbank entities that the regulator “has reasonable cause to determine pose risks to consumers” and is seeking comment on reviving the rule, which has been “dormant” and unused for a number of years. More details here.

WHAT THIS MEANS, FROM LESLIE BENDER OF CLARK HILL: Since publishing its original procedures for supervising “nonbank covered persons” when the Consumer Financial Protection Bureau (the “Bureau”) has “reasonable cause to determine, by order, after notice to the person and a reasonable opportunity to respond, that such person is engaging, or has engaged, in conduct that poses risks to consumers with regard to the offering or provision of consumer financial protects or services.” 78 FR 40352-01 (7/3/2013, effective 8/2/2013). Among other things the original rule allows the Bureau to require reports from and conduct examinations of nonbank covered persons.  “Reasonable-cause determinations” must be based on “complaints collected by the Bureau … or on information collected from other sources.” In 2013 the then leadership of the Bureau did not feel the rule was necessary to give the Bureau authority; however it wanted to establish a “consistent procedure applicable to all affected entities for bringing a nonbank covered person under the Bureau’s supervisory authority … and thereby provide transparency.” The Rule confirmed that nonbanks “are subject to the Bureau’s regulatory and enforcement authority and any applicable Federal consumer financial law.”

The Rule was amended on December 24, 2020, to offer confidentiality for documents, records or other items submitted to the Bureau or prepared by or on behalf of or for the Bureau’s use. 85 FR 75220 (11/24/20). The latest revision to this Rule, effective April 29, 2022, now allows the Bureau to publish final decisions and orders publicly, in its discretion. A nonbank party who is responding to the Bureau’s regulatory and enforcement authority may, within seven days of a decision or final order, request confidentiality; however the Bureau may also decide to publicly release that request on its website as well.  

What does this mean? In brief this revision to the rule increases the “transparency” from the original rule by now allowing the Bureau to publish its decisions and final orders. So while the enforcement or regulatory proceedings would still be confidential, the outcome would now become publicly available. It is also important to read this revision in context with the original rule that allows the Bureau to make “reasonable-cause determinations” based upon “complaints collected by the Bureau.” An important take away for any entity supervised, regulated or subject to the Bureau’s enforcement is to look for opportunities to make it easy for consumers to complain directly to these entities, and to handle and resolve those complaints – while tracking and trending them.   

Mich. Appeals Court Upholds Ruling on Post-Judgment Interest Case

The Michigan Court of Appeals has upheld the dismissal of a post-judgment interest class-action on the grounds that state law in Michigan that precludes “actions” based on claimed violations of statutes that permitted recovery of statutory damages in lieu of actual damages means the plaintiff lacks standing to sue. More details here.

WHAT THIS MEANS, FROM JASON TOMPKINS OF BALCH & BINGHAM: It’s a dilemma as old as time:  federal court or state court. Cases like Hunstein bring up this age-old debate of whether debt collector defendants ever want to be in state court. But this case shows that sector 47 isn’t always a trap! (Hope there are some other Episode VI fans out there.) Here, Michigan has a rule that does exactly what many of us have said makes sense all along — prohibits class actions where nothing more than statutory damages are at issue. This decision points out that New York and Oregon have similar prohibitions. The key takeaway is that when you’re sued in state court, take a step back and re-orient yourself to see if any state-specific limitations apply. The more interesting debate, though, is whether these state statutes apply in federal court. That is an issues currently being debate in federal district courts around the country.

State Appeals Court Partially Overturns Ruling Against Collection Law Firm

A state Appeals Court in Washington has partially affirmed — and partially overturned — a lower court’s dismissal of a case against a creditor and collection law firm, ruling that the plaintiff pleaded sufficient facts to survive a motion to dismiss that the firm violated state law by not disclosing required information when filing a collection lawsuit and that the firm was licensed in the state. More details here.

WHAT THIS MEANS, FROM HEATH MORGAN OF MALONE FROST MARTIN: This is a bit of a complicated case that is ultimately a good ruling for the industry. The most relevant part of the Court’s decision for the industry is that a collection law firm is entitled to litigation privilege with regards to its court filings, and that a consumer must allege more for a claim for intentional infliction of emotional distress and that the filing of a motion post-dismissal cannot be extreme and outrageous conduct. This alone should be able to prevent future lawsuits based on inadvertent filings or motions filed in error.  It is a good reminder that collection law firms are entitled to a bit more protection from frivolous consumer claims based on the pleadings and court filings.

Plaintiff Files Reg F Lawsuit, Alleging Opt Out in Email Not Conspicuous Enough

A lawsuit has been filed in federal court in Georgia, alleging a collection agency violated the Fair Debt Collection Practices Act by violating Regulation F, and the Georgia Fair Business Practices Act by not making an opt-out statement conspicuous enough in an email message, even though the exhibit of the message in question clearly shows the opt-out option. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: The Regulation F lawsuits are starting to roll in. We knew this would happen eventually, and the plaintiff’s bar finally appears to be tiring of filing new Hunstein lawsuits (at least for now), as those cases are stayed or defended and dismissal opinions accumulate.

A recent Reg F Complaint in the Northern District of Georgia invokes the electronic opt-out requirement established by 12 CFR Part 1006.6(e): “A debt collector who communicates … with a consumer electronically in connection with the collection of a debt … must include in such communication … a clear and conspicuous statement describing a reasonable and simple method by which the consumer can opt out of further electronic communications … to that address or telephone number.”

The plaintiff alleges that the debt collector emailed her, but “fail[ed] to abide” by this new requirement and therefore “hindered and obscured the Plaintiff’s ability to opt out of electronic communications.” But, the Plaintiff also embedded into the allegations an image of the e-mail, which includes an opt-out statement right above the Mini-Miranda: “Click here to opt out of further emails for this account.”
Hmmmm, that seems like a reasonable, simple, clear, conspicuous, noticeable and legible opt-out instruction to me. More importantly, the CFPB agrees in its Official Interpretations, at Comment 6(e)1ii: “Assume that a debt collector sends the consumer an email that includes a hyperlink labeled: ‘Click here to opt out of further emails to this email address.’ Assuming that it is readily noticeable and legible to consumers, this instruction constitutes a clear and conspicuous statement describing a reasonable and simple method to opt out of receiving further emails from the debt collector to that email address consistent with § 1006.6(e). No minimum type size is mandated.”

So far, I’m not impressed with the Reg F claims I’ve seen filed, and I take that as a great sign. The collection industry hustled to implement updated Reg F compliance programs and is not leaving any low-hanging fruit to be picked off by the plaintiff’s bar. Unfortunately, that leaves us with lawsuits like this one.

Victims of Alleged Collection Law Firm Scammers Sue in State Court After Striking out in Federal Court

A trio of plaintiffs who unsuccessfully tried to sue a collection law firm and three attorneys — who are facing charges for multiple felonies after allegedly forging proofs of service in collection lawsuits — in federal court have taken their case to state court, claiming violations of the Michigan Collection Practices Act. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: I’m not sure where to go with this one – on the one hand it appears we have a set of “attorneys,” the Fishman Group (the firm and three individual attorneys) whom were charged more than a year ago by the Genesee County Prosecutor alleging criminal fraud due to filing fraudulent affidavits of service with Michigan Courts, which led to default judgments.  That matter is still pending.  On the other hand, we have three individuals who had default judgments entered against them by the Group, who brought a putative class action pursuant to the FDCPA and various state laws against the Group in the Federal Eastern District of Michigan.  This past February the Court granted the Group’s motion to Dismiss for Lack of Article III Standing. Kline v. Fishman Grp. PC,  2022 U.S. Dist. LEXIS 35288 (E.D. Mich. Feb. 28, 2022)

From a reading of the decision, it appears that the complaint, filed on May 27, 2021, left something to be desired in the Judge’s mind, particularly in regard to the allegations as to subsequent garnishments. And the Court noted that the plaintiffs’ failed to move to amend to strengthen the factual allegations. But still?

But, all of the above is merely the prelude to the current news. The case has now been refiled in the Michigan State Court. This matter has gotten and likely will continue to get a lot of publicity due to the parallel criminal proceedings. 

Two takeaways. One, TransUnion has given Federal Judges something I believe many of them wanted. A way to get FDCPA cases off their dockets. Two, “see something, say something.” This alleged behavior by attorneys working in the collection space only makes the industry look bad.

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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