Compliance Digest – May 16

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.

Appeals Court Allows CFPB Enforcement Action to Continue, But Raises Constitutional Questions About How Agency is Funded

The Court of Appeals for the Fifth Circuit yesterday issued an en banc ruling, allowing the Consumer Financial Protection Bureau to continue an enforcement action against a payday lender that had been challenging the regulator’s constitutionality, while two separate opinions from judges on the panel say that the case against the lender should be dismissed. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: The Fifth Circuit Court of Appeals held that the district court erred in finding that the CFPB’s structure was constitutional based on the Supreme Court of the United States’ holding in Seila Law LLC v. CFPB, 140 S. Ct. 2183 (2020). But since Seila Law also heldthat the offending provision was severable, the Fifth Circuit held that All American was not entitled to judgment on the pleadings “under the present state of this record.” This latter phrase could be important if the litigation between the parties continues because it leaves open the possibility that the record could change as the case moves forward. 

Even more interesting is the concurrence wherein five (5) of the seventeen (17) judges stated that the CFPB’s structure is unconstitutional because it’s “funding structure violates the separation of powers principle enshrined in the Appropriations Clause.” Not only does the first concurrence also argues (persuasively, in my opinion) that this budgetary independence question is properly before the Fifth Circuit and the Court of Appeals should have addressed that prong of the district court order, but the second concurrence describing the procedural posture also endorses this viewpoint. In short, while it may be settled law that Seila Law settled the “for-cause” removal of the CFPB’s Director, almost half of the members of the Fifth Circuit believe that the CFPB is unconstitutional as a result of its funding structure.

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Appeals Court Upholds Ruling For Plaintiff in FDCPA Case Over Garnishment Jurisdiction

The Court of Appeals for the Sixth Circuit has affirmed a lower court’s ruling in favor of a plaintiff who accused a collection law firm of violating the Fair Debt Collection Practices Act by obtaining a writ of garnishment in the wrong jurisdiction. More details here.

WHAT THIS MEANS, FROM CHRIS MORRIS OF BASSFORD REMELE: The garnishment process can present gray areas under state law, and that uncertainty has at times inspired follow-on FDCPA claims.  Here, a judgment debtor cleverly filed a jurisdictional objection to a garnishment request sent to her out-of-state employer, which was sustained and affirmed on appeal, so no funds were actually garnished. That successful state court objection was followed by a federal FDCPA claim against creditor’s counsel, alleging use of deceptive means to collect the debt. The defense argued that no “affirmative” or “material” misrepresentation was made in the garnishment request, that general jurisdiction over an employer is decided on facts not fully known until discovery, that the employer might have simply consented to jurisdiction (even if discovery failed to reveal the necessary facts), and that any remedy in the matter was better left to the state court. But the federal courts disagreed, concluding the defendant had “no reasonable belief” that jurisdiction over the out-of-state employer existed at the time the garnishment request was signed, and comparing the situation to FDCPA claims that have arisen from state lawsuits filed after the statute of limitations expired with a hope that the affirmative defense will not be raised. This decision raises the stakes in making sure, at the front end, that a reasonable basis in fact and law exists for enforcing garnishment sent to an out of state employer.

CFPB Supervisory Highlights Report Spotlights Issues Found in Debt Collection Exams

The Consumer Financial Protection Bureau issued its latest Supervisory Highlights report yesterday, which offers violations uncovered by the regulator during supervisory exams that were conducted during the second half of 2021. The report spotlighted problem areas, including wrongful auto repossessions and failures to conduct reasonable investigations when consumers dispute debts, but also included violations related to the Fair Debt Collection Practices Act. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) has published 25 previous  issues of its Supervisory Highlights prior to the publication of the recent Spring 2022 edition. There is some utility to these publications but it is clear that the new/“auld” Bureau is regulating by supervision in certain areas. The current edition reflects findings during examinations that took place in the 2nd half of 2021 (June thru December).

Credit reporting still seems to be taking center stage with a strong emphasis by the Bureau on failures of the credit reporting agencies (CRAs) to conduct reasonable investigations of disputed information, to provide prompt notice of a dispute to a furnisher and to provide the consumer with written notice  of the results of an investigation. Of significant importance was a finding that rather than investigate disputes, the CRAs were deleting “thousands of disputed tradelines”. The Bureau found this wholesale deletion to be a violation of the Fair Credit Reporting Act (FCRA). ARM industry participants should pay particular attention to this finding, especially when consumers and credit repair organizations try to negotiate pay to delete. Deletions should only occur if it is evident that the information being reported is inaccurate.  

With respect to furnishers, the CFPB also found they too failed to conduct reasonable investigations of disputes and were improperly making determination of whether indirect disputes were frivolous. As noted by the Bureau, only the CRAs have the authority to do so. Overall the highlights suggest a significant breakdown in communications between the CRAs, furnishers and consumers.  

As to debt collection, there were only two issues addressed. First, that collectors were continuing to collect on debts where there was evidence of identity theft. In the second instance, the CFPB found that collectors where engaging in unfair practices by failing to timely refund over payments or credit balances to consumers. What is considered “untimely” is not explained in the highlights.

If you are keeping score or trying to put the puzzle pieces together let’s recap. The supervision findings from the last 6 months of 2021 had a significant impact on the Bureau’s efforts to shape policy and to methodically build their case around credit reporting and the credit reporting of medical debt. Look what the CFPB has put out in 2022 with regard to medical debt alone:

  • 1/5/2022 – Report Detailing Consumer Complaint Response Deficiencies of the Big Three Credit Bureaus.
  • 1/13/2022 – Bulletin on the No Surprises Act (CFPB will take action for credit reporting on debts prohibited by law).
  • 1/27/2022 – CFPB releases annual list of consumer reporting agencies (for public to hold accountable).
  • 3/1/2022 – CFPB releases report on medical debt,  including the credit reporting of medical debt.
  • 3/3/2022 – CFPB has field hearing in Georgia to discuss challenges of medical debt.
  • 4/12/2022 – CFPB brings action against Trans Union and Senior Executive.
  • 4/20/2022 – Complaint Bulletin: Medical billing and collections in consumer complaints ( Suspect unpaid medical bills are being surreptitiously and unlawfully placed on credit reports).

It should also be remembered that all three Bureaus made significant changes with regard to how medical debt is reported including not reporting medical debt under $500.00. These changes coincided with the CFPB’s report on medical debt this past March.

The playbook the CFPB has used to attack credit reporting, including shaping policy through supervisory examinations, should be a clear warning that all financial services verticals will be in play. Credit reporting and the reporting of medical debt is only the beginning.

Complaint Accuses Collector of Violating Reg F By Leaving out Itemization Info

A lawsuit has been filed in federal court in Texas accusing a collector of violating the Fair Debt Collection Practices Act and Regulation F by not including the itemization information required in an initial collection notice that was sent to the plaintiff. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: Mills v Nationwide adds to a still relatively short list of FDCPA suits that reference the Regulation F safe harbor letter. In this instance, the agency did not use the proposed Reg F letter. It sent an initial letter on a medical bill that just stated the amount due but without an itemization date or references to any component parts of the balance. Plaintiff does not claim the amount due was wrong, which probably means the balance was correct. Instead, plaintiff claims not to have recognized the debt because it did not have an itemization date. Plaintiff also claims the debt was not broken down to its component parts, though plaintiff fails to claim there are any parts besides principal. Plaintiff did not dispute the debt or seek validation, but did sue and allege violations of 1692e and g. It is highly unlikely this case would have been filed before the advent of Reg F’s safe harbor letter. Over the next six months or so we will start to see if the courts allow claims like this to stand or if they will be dismissed either at the pleading or summary judgment phase. I think the odds are pretty good for the agency. 

Medical Debt Collection Bill in Colorado Moves Closer to Becoming Law

A bill in Colorado that would ban hospitals from placing unpaid debts with collection agencies if the hospitals do not comply with federal price transparency rules is rapidly moving closer to becoming a law, after the state Senate yesterday approved the bill unanimously. More details here.

WHAT THIS MEANS, FROM NICK PROLA OF PFC: Federal CMS rules mandate price transparency for hospital standard charges for the public to make more informed decisions about their care, increase market competition, and drive down costs for healthcare services. According to PatientRightsAdvocate.org, only 6% of Colorado Hospitals are complying with these rules, compared to a national average of 14.3% compliance.  As a result, enforcement of the price transparency rules has received broad bipartisan support in the Colorado legislature.

Enter Colorado HB22-1285, which prohibits hospitals that fail to comply with price transparency rules from placing debts with third-party collection agencies, filing lawsuits to collect on unpaid debts, and reporting debts to credit reporting agencies. The bill also provides a private right of action for patients, with remedies including the unwinding of any collection action, a penalty paid to the patient for the amount of the debt, and attorney fees and costs.

HB22-1285’s original draft included a clause that made the collection of debts by a debt collector while the hospital was not in compliance with price transparency rules a violation of the Colorado Fair Debt Collection Practices Act. Talk about the complete erosion of the right of debt collectors to rely on the information provided by the original creditor! Thanks to the involvement of Associated Collection Agencies of Colorado, Wyoming, and New Mexico and their lobbyists, any reference to debt collectors and the Colorado Fair Debt Collection Practices Act was removed.  As this was a bipartisan bill, the coalition successfully argued that debt collectors should not be responsible for the compliance of their hospital clients. While this limits the exposure for collection agencies somewhat, debt collectors need to have discussions with their Colorado hospital clients to ensure compliance with price transparency rules (and attempt to get the ever-elusive indemnification clauses included in their service agreements).  Plaintiffs’ attorneys will argue that collection of implicated debts is an unfair practice and FDCPA violation, nonetheless. Further, lack of compliance by the hospital will delay or decrease the volume of accounts eligible for collection placements. Still, this bill is another example of how industry involvement in state legislative matters can help to mitigate some of the impact of legislation meant to curb medical debt collection.

Class-Action Complaint Accuses Collector of Listing Wrong Validation Date in Notice

A class-action complaint originally filed in state court in Florida has been removed to federal court at the request of the defendant, which is being sued for violating the Fair Debt Collection Practices Act for a number of alleged violations, including not providing a proper end of the validation period as required under Regulation F. More details here.

WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: According to the consumer’s complaint, the validation notice was dated February 10 and included a validation period end date (dispute deadline) of March 22. If the notice was posted on February 10, the collector built in more than enough time because § 1006.34(b)(5) provides that a collector may assume that a consumer receives the notice five business days after it is mailed. The consumer alleges that the notice was not mailed until sometime after February 10, though she does not attach (or even mention) an envelope reflecting a later postmark date. Accurate records and documented mailing procedures will help collectors defend claims like these. 

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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