Compliance Digest – July 5

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 MTD in FDCPA Case Over Lack of License

A District Court judge in Utah has denied a defendant’s motion to dismiss in a Fair Debt Collection Practices Act case alleging it violated state law by suing to collect unpaid debts without having a license to collect. More details here.

WHAT THIS MEANS, FROM JASON TOMPKINS OF BALCH & BINGHAM: In this case, the plaintiffs alleged that the debt collector violated both the FDCPA and state law by filing collection lawsuits without having first obtained a license under the Utah Collection Agency Act. The plaintiffs sought to void judgments that had been obtained and recover monetary damages, including statutory damages. The Court rejected that the plaintiffs could void the judgments because it would violate the Rooker-Feldman doctrine, which prevents a federal court from relitigating state court judgments. But the Court let the claim for damages go forward. Because the plaintiffs alleged the collection lawsuits were “criminal,” the Court concluded there was no protection under the Petition Clause of the First Amendment — a departure  from an earlier decision by a different judge on the same court.

This is a very active theory right now. As here, consumer plaintiff attorneys in several states have filed class actions attempting to void all judgments obtained while a debt buyer or debt collector was unlicensed. Similarly, class actions have sought similar relief — disgorgement — of amounts received in Chapter 13 bankruptcies by collectors who were unlicensed in the forum state at the time they filed proofs of claim. In the past two years, the CFPB also has investigated these types of situations, resulting in fines and other penalties. We expect the current CFPB to continue that trend based on its recent activities. There are often arguments on the merits — Rooker-Feldman, which prevailed here; the Petition Clause, as prevailed in the prior Utah case; no private right of action, as enforcement of some state licensing laws is reserved to the attorney general; and others. Those defenses, however, often require years of expensive litigation to establish for future case. The more immediate “fix” is for debt buyers and debt collectors to implement strong compliance programs that revisit state law requirements for collection agencies. The only way to avoid lawsuits like those above is determine on a state-by-state basis what activities require a license and ensure that you have it.

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Judge Rules for Defendant in FDCPA Case Over Dispute Response

A District Court judge in North Carolina has granted a defendant’s motion for judgment on the pleadings in a Fair Debt Collection Practices Act case, ruling that the plaintiff’s expectation for what he should have received when he disputed the debt was well beyond what the defendant had to provide under the statute and existing case law. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: “Wet ink” — wet “smink!” Whatever “smink” is (I just made it up!). Here’s a commonsense case where a judge addressed one of the “tilting at windmills“ claims we regularly see in frivolous litigation. That is, a “request for a verification” that specifically demands a “wet ink“ signature on the original source document that created the underlying financial obligation. The claim was dead on arrival. The court dismissed it off on a motion for judgment on the pleadings.

The court succinctly concluded: “Verification only requires a showing that the amount demanded ‘is what the creditor is claiming is owed,’ not conclusive proof of the debt.”

Complaint Accuses Agency of Texting Mother About Daughter’s Debt

A collection agency is being sued for allegedly violating the Fair Debt Collection Practices Act because it sent a text message to the plaintiff’s mother — who also had an account placed with the defendant — with the daughter’s name after the mother made a payment on her own account. More details here.

WHAT THIS MEANS, FROM NICK PROLA OF PFC: This case appears to lay out an example of the “rare” scenarios that compliance officers spend their nights worrying about. Servicing accounts for members of the same family can be a compliance landmine (Junior and Senior, parents with the exact same name as their child, etc. should all be very illegal). While short on details, the complaint allegedly shows a webpage that was accessed by the mother after receiving a text from the collector. The daughter’s name is clearly displayed, along with the amount of the debt owed to the collector. Perhaps more interestingly, the complaint omits any discussion of consent to receive text messages by the daughter. 

Though facts are limited, there are some important takeaways from these allegations. First, is it worth having personalized text messages or links to account information in lieu of a more vanilla “limited content” type of message? Comparing the return of both of those approaches would be wise, as a text that didn’t lead to account information would have likely avoided a suit here. Next, the procedure for account authentication has to be ironclad when any account information can be accessed through text or website. An additional authentication step could have prevented mom from accessing daughter’s account. Finally, though not addressed in the complaint, “consent” should be the first and last word when texting. Again, the complaint leaves a lot to the imagination, and perhaps there’s something more interesting going on in the background then first revealed, but the lessons that can be learned from these nightmare scenarios will lead to more compliant texting processes.

Judge Dismisses FDCPA Case Over Multiple Address, Third-Party Disclosure, for Lack of Standing

A District Court judge in New Jersey — taking the issue up all on her own — has ruled that a plaintiff lacks standing to sue a collection agency after accusing it of violating the Fair Debt Collection Practices Act because it used multiple addresses in a collection letter and because it purportedly used a third-party letter vendor to print and mail the letter in question. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: The issue over multiple addresses on collection letters still appears to be a favorite among some consumer attorney, but this court found that the consumer did not suffer the requisite harm to be in federal court. The court also found that the consumer lacked standing to bring her third-party disclosure (a/k/a “Hunstein claim”). While the court dismissed for lack of subject matter jurisdiction, the Judge found that the third-party disclosure claim lacked certain elements based on New Jersey state law. The discussion may be specific to New Jersey, but the argument could possibly be used in other parts of the country if other states have similar jurisprudence regarding public disclosure of private facts.

Mediation Program Drops Caseload for Judges in One Texas County, Wins Them Award

A Texas County’s approach to handling an “exploded” number of debt collection cases as a result of the COVID-19 pandemic has improved resolution rates before cases get to a judge and netted the county an achievement award from the National Association of Counties, according to a published report. More details here.

WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: Mediation is a requirement for collection suits filed in Lubbock, Texas … is it a boon to creditors and collectors resulting in a timely settlement they can live with or a strong arm tactic simply intended to clear the court’s docket by creating additional expense and time for collectors and creditors to recover less than the amount of legally owed debts? Time will probably tell, and may depend largely upon whether debtor’s who agree to a mediated settlement actually perform – always a question given how they got there. 

In Lubbock, where the backlog of debt collection cases increased significantly during COVID and due to increased civil jurisdiction caps for handling by Justices of the Peace, the justices got together and decided to require collection cases first go to mediation. Recognizing many of these cases would likely go to default because defendants frequently don’t respond, the program has been recognized as favorable to debtors, at least in part, because mediators will essentially advocate on their behalf, whereas at trial a judge remains impartial. Given the challenges with collection, the willingness of most to settle for reduced amounts, and the cost of litigating a case, perhaps the court should consider a pre-filing mediation program so collectors’ clients don’t have to incur the additional filing and service fees that we all recognize will be “part of” and negotiated settlement, further eroding the value of that recovery. Either way, it will be interesting to see how this turns out, whether debtors meet the terms of a mediated resolution, from which we can make an informed decision about whether this is actually a good idea.

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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