Compliance Digest – June 6

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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 in FDCPA Case Over Identity Theft Letter

A District Court judge in New Jersey has granted a defendant’s motion to dismiss a class-action Fair Debt Collection Practices Act lawsuit over a letter that was sent to the plaintiff providing information about how to file an identity theft claim. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: Ozturk v Amsher falls in the category of “no good deed goes unpunished.” Amsher sent a collection letter that advised the debtor what to do if she was a victim of identity theft. It even included a form to use to assert identity theft. The rest of the letter was a fairly benign collection communication. Plaintiff did not claim to be a victim of identity theft and took no adverse action based on the letter’s language. However, she filed a class action lawsuit that alleged violations of three sections of 1692e, one of 1692f, and the New Jersey Declaratory Judgment Act.

The court granted defendant’s motion to dismiss. It first analyzed Article III. It looked like a close call but the court said there was enough of an “injury” to stay in federal court. Other courts may have ruled differently on that issue. The court then succinctly rejected each of plaintiff’s claims.

This is another nice recent victory knocking out thin letter claims. Let’s hope the trend continues. 

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Appeals Court Overturns Dismissal of FDCPA Suit Based on Description of Debt in Letter

The Court of Appeals for the Seventh Circuit has overturned a lower court’s dismissal of a Fair Debt Collection Practices Act case for lack of standing, ruling that the plaintiff had standing because he alleged a concrete injury — that interest was continuing to accrue on an unpaid judgment — by not acting on a settlement offer he received which did not mention that interest was accruing. More details here.

WHAT THIS MEANS, FROM LORAINE LYONS OF MALONE FROST MARTIN: When there is a collection letter at issue, expect it to be picked apart for a finding of any possible misleading or confusions statements that could give rise to a FDCPA claim. However, the consumer must still satisfy Article III standing.

The consumer alleged the collection letter sent by the debt collector was misleading because the debt, which had been reduced to a judgment, was identified as an account instead of a judgment and there was no mention of interest accruing as per the state statute. There is also a disagreement on whether the consumer suffered an Article III concrete injury due to the confusion over the collection letter.  The Circuit Court vacated the district court’s order and remanded for further proceedings.  

The key takeaway is, if collecting a judgment, include language in the collection letter that identifies the account as a judgment. Also, if post-judgment interest is accruing, there should be language regarding interest too. Additionally, sometimes the letter drafter is too close to the situation and does not detect issues at a first glance. Knowing collection letters will be dissected for any misleading or confusing statements, consider having someone who does not work in collection operations like an IT person or HR person review drafted letters to see if they detect any misleading or confusing statements.

Judge Grants Injunction Allowing Non-Lawyers to Help Individuals Sued for Unpaid Debts

A District Court judge in New York has granted a preliminary injunction prohibiting the state Attorney General from enforcing a law that bars non-lawyers from practicing law in the state, in a case that was filed to allow volunteers to help individuals being sued for their unpaid debts. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The ARM industry should pay particular attention to the case of Upsolve v. James, and the implication it may have upon the practice of law in the State of New York.

Upsolve is a non-profit technology platform started by public interest entrepreneur Rohan Pavuluri. Their mission is to provide assistance and free legal advice to low-income and indigent individuals facing debt collection law suits. Many non-profits in New York and elsewhere provide this type of assistance, whether legal or otherwise, to low income consumers who are facing financial distress, including those who are sued. The Attorney General of New York (NY AG) is charged with enforcing the laws of the State of New York including whether an individual is engaging in the unauthorized practice of law. Ironically, the NY AG made no affirmative attempt to stop Upsolve from training non-lawyers to provide these services. Rather Upsolve filed suit against the NY AG and sought a preliminary injunction which was granted by the District Court.

Non-profit consumer advocates and legal services entities are no strangers to courtrooms. Over a decade ago, Judge Annette Rizzo, started the Mortgage Diversion Program in the City of Philadelphia, and invited numerous non-profits into her foreclosure court to assist home owners during the mortgage crisis. Courts around the country followed with similar consumer assistance programs. Getting a default judgment is not always a win in the collection litigation world. If a consumer is represented the likelihood that the case can be resolved will increase. Of course, there are those advocates and non-profits who will use the opportunity to leverage an FDCPA claim in the process, but that can happen regardless of whether there is a debt collection lawsuit.

Call me skeptical (or maybe crazy) but what necessitated Upsolve’s lawsuit? The NY AG gave no indication that it objected to what Upsolve was doing. Maybe it was a calculated risk, but one that certainly paid off for Upsolve. Now the NY AG will have to defend this action and defend the rights of all lawyers against the unauthorized practice of law, including debt collection lawyers in the state of New York. An interesting irony indeed.

Judge Approves $2M Settlement in FDCPA Case

A debt collector in Oregon has agreed to pay $2 million to settle claims it violated the Fair Debt Collection Practices Act against a class of plaintiffs for charging an “issuance fee” of $45 when garnishing the assets of individuals with unpaid debts. More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF POLSINELLI: A defendant collection agency agreed to pay $2 million to settle claims brought by Oregon residents that it charged unlawful garnishment fees. While Oregon state law allows collectors to add fees to help them recover the expense of hiring attorneys who issue garnishments, the Complaint alleged that the defendant never incurred those fees because it used in-house attorneys to issue the garnishment orders. The parties reached a tentative class-wide settlement prior to the plaintiff moving for class certification. Under ninth circuit law, district courts must employ a higher level of scrutiny for evidence of collusion or other conflicts of interest when considering a motion to approve a class settlement that has been reached pre-certification. Under this standard, courts in the ninth  have established three “subtle signs of collusion” deserving of higher scrutiny: counsel receiving a disproportionate share of the settlement, parties negotiating a “clear sailing” agreement, and funds reverting to the defendant if unclaimed. In this case, the court found that the higher standard was satisfied. Specifically, the plaintiff’s counsel stated their intent to request the standard fee of 25%, dependent on the Court’s sole approval and immaterial to the settlement agreement’s validity. The court found that the agreement was void of any “clear sailing” agreements or fund reversion provisions. The class administrator of the agreement was set to make all reasonable attempts to contact class members and whatever funds remain would be sent to the proposed cy pres recipients. When a collection agency agrees to settle a putative FDCPA class action prior to class certification, it must be prepared to satisfy an additional hurdle for the court that no collusion or other conflicts of interest were involved.

Maryland Regulator Issues Guidance Regarding Convenience Fees

The Maryland Commissioner of Financial Regulation has issued a notice to lenders and servicers, calling on them to review their practices with respect to charging fees when accepting payments and to check whether any improper fees have already been collected, in the wake of a ruling from the Court of Appeals for the Fourth Circuit. More details here.

WHAT THIS MEANS, FROM RON CANTER OF THE LAW OFFICES OF RONALD S. CANTER: The ruling in the Alexander case presents a regulatory challenge to Maryland debt collectors who charge processing fees to consumers for credit card or other online forms of payment. The decision also presents challenges to original creditors because of the unique provisions in Maryland law that extend that state’s debt collection law, the Maryland Consumer Debt Collection Act (MCDCA), to original creditors.

Until 2018, the MCDCA unlike the Federal Fair Debt Collection Practices Act (FDCPA), did not impose strict liability, instead a consumer was required to prove that the creditor or collector acted with intent or knowledge of the improper conduct. The 2018 amendment added a provision that a violation of the FDCPA, a strict liability statute, is deemed a violation of the MCDCA.

In Alexander, the Fourth Circuit Court of Appeals applied the 2018 amendment deeming a violation of the FDCPA to be a violation of the MCDCA. The Court determined that a consumer lawsuit alleging that a mortgage servicer’s assessment of a $5.00 processing fee for online monthly payments stated a claim for a violation of the FDCPA’s prohibition set out in 15 U.S.C. §1692f(1) on the collection of any amount not authorized by the agreement or permitted by law, and thereby also stated a claim under Maryland law. Because the claim arose under Maryland and not Federal law, Maryland’s three-year statute of limitations exposes creditor and collectors to expanded to liability under this state law.

Maryland’s Commissioner of Financial Regulation, responding to the Alexander decision notified Maryland creditors and collectors that this ruling may make illegal the charging of processing fees unless permitted by the underlying agreement creating the debt. The Commissioner also put creditors and collectors on notice of an obligation to refund those fees if collected. Although the regulator’s notice only applies to creditors collecting debt in Maryland, the interpretation of the FDCPA in Alexander is consistent with several rulings under the FDCPA holding that a third-party debt collector may not collect or even ask for processing fees if the charge is not allowed by the agreement creating the debt.

Appeals Court Overturns Ruling Over ‘This is an Attempt to Collect’ Disclosure in Statement

This is one of those cases where I am going to remind everyone that I am not a lawyer and I could be completely off-base, but as I read this ruling, I thought it offered an interesting lesson that putting the mini-Miranda on every communication might not be the best idea. The Court of Appeals for the Eleventh Circuit has reversed a lower court’s dismissal of a suit alleging violations of the Fair Debt Collection Practices Act and the Florida Consumer Collection Practices Act, ruling that mortgage statements that had incorrect information on them should be subject to the FDCPA because they included the mini-Miranda notice that was not required by the Truth in Lending Act. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Words matter (at least they were deemed to in this case). The lowly mini-miranda ended up biting the alleged “collector” in this case. A debt servicer (that likely fell within an exception to the application of the FDCPA, see comments below), chose to voluntarily add the following statements — “This is an attempt to collect a debt. All information obtained will be used for that purpose.” — onto monthly mortgage statement sent to a consumer. The servicer was then sued under the FDCPA (allegations that the amounts were wrong). It defended by arguing it was required as a servicer to send mortgage statements under TILA and therefore, the mortgage statements that were being challenged could not be deemed “FDCPA communications.”

The Eleventh Circuit disagreed. It reversed the District Court that ruled in favor of the servicer on this argument. In effect, it appears that once the appellate court saw the “mini-miranda” tattoo on the mortgage statement, it was lights out for the servicer. It reasoned: 

Viewed holistically, a communication that expressly states that it is “an attempt to collect a debt,” that asks for payment of a certain amount by a certain date, and that provides for a late fee if the payment is not made on time is plausibly “related to debt collection.”

Frankly, and from my vantage point, that analysis seems to have skipped over a significant step. Was the servicer a “debt collector?” After all, merely stating that the mortgage statement was an attempt to collect a debt is really nothing more than stating the obvious. All bills/mortgage statements are attempts to collect a debt. The critical issue here is whether the entity sending the statement was an FDCPA “debt collector.” While apparently not yet raised (and no doubt will once the case lands back in district court), the FDCPA provides an exemption for “(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; . . . (iii) concerns a debt which was not in default at the time it was obtained by such person; . . .

The involved servicer appears to have been on this mortgage account for some time. It’s entirely likely it was the servicer before the debt went into default. And it’s also likely it can establish that it was sending the statements in its capacity incidental to a bona fide fiduciary obligation owed to the creditor. If either applies, this important step was missed and it could exonerate the servicer in the end. 

The upshot of this perplexing case seems to be this. Be very sure you are in fact a “debt collector” before you add the mini-miranda to on a statement or bill is sent out by you, lest it will come back to bite you.

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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