Compliance Digest – July 11

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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 No-Longer Disputed Debt

A District Court judge in California has granted a defendant’s motion to dismiss — although giving the plaintiff an opportunity to amend his complaint — after it was accused of violating the Fair Debt Collection Practices Act because it allegedly did not update information that was being furnished to the credit reporting agencies to indicate that a debt was no longer being disputed, ruling that such a communication falls outside the scope of “in connection with the collection of any debt.” More details here.

WHAT THIS MEANS, FROM COOPER WALKER OF MALONE FROST MARTIN: What stings more than pulling the trigger on filing a Motion to Dismiss and having it denied? Answer: pulling the trigger on filing a Motion to Dismiss and having the Court grant it without prejudice. This is exactly what the Court did here in the Samano matter. A fate such as this one is essentially impossible to avoid when it happens. There is no definitive way to know if a court will provide a plaintiff with more leash (and fully outline how to defeat a future motion to dismiss), but it sure does sting when it happens. Moreover, it is even more frustrating for the industry that this has happened with this highly manufactured claim that has become more  and more utilized wherein a consumer disputes the debt, revokes the dispute, and then sues the collector when the debt is still reported as disputed. One thing is certain though — that we should continue to explore avenues to push back against these claims at every opportunity. Good on the collector for fighting the good fight on this one, and here is to hoping that, regardless of the outcome of this battle, the war will be won!

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Complaint Alleges Collector Violated Reg F’s Debt Parking Prohibition

A lawsuit has been filed against a collection agency for violating the Fair Debt Collection Practices Act and the “debt parking” provisions of Regulation F — in what might be the first such lawsuit filed following the enactment of the debt collection rule last November. More details here.

WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: Florida continues to be a hotspot for FDCPA claims. This latest claim involves the “debt parking” prohibition under Regulation F based on a debt that was apparently credit reported before Regulation F went into effect. The complaint does not identify the date the debt was credit reported but, based on the surrounding allegations, it appears to have occurred prior to November 30, 2021. If true, the plaintiff is ostensibly asking to apply the “debt parking” requirements under Regulation F retroactively to debts credit reported prior to its implementation. The plaintiff’s attempt to apply the “debt parking” requirements retroactively is dubious because there is nothing under Regulation F that suggests it can be applied retroactively to debts previously credit reported. Nonetheless, we will want to keep an eye on this case and any others that come along attempting to apply Regulation F retroactively. 

Judge Refuses to Allow Incentive Award for Named Plaintiff in FDCPA Class Action

A District Court judge in Utah has approved a requested award for attorney’s fees in a Fair Debt Collection Practices Act case, but lowered the award for the named plaintiff in the class-action case, ruling that an incentive award beyond what is statutorily allowed was not authorized under the FDCPA. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: The Federal District Court for the District of Utah has squashed an attempt to obtain a larger payout for class representatives in a settlement than they are entitled to by law.  In Rodriguez v. Cascade Collections, a class action brought under the Fair Debt Collection Practices Act (“FDCPA”), the judge refused to approve an award of $1,500 for the named plaintiff, explaining that the FDCPA only authorized statutory damage awards of up to $1,000.  Since the plaintiff did not have any actual damages by which he could increase his recovery, he was limited to $1,000.  The parties amended the settlement agreement on the record to reduce the class plaintiff’s incentive award to the permissible amount, at which point the court approved the settlement award.

The ruling serves as a reminder that for settlements subject to court approval, courts will not permit plaintiffs to obtain a windfall.  This also means that when negotiating settlements on a class basis, defendants cannot offer named plaintiffs incentive awards greater than what they could obtain at trial to induce settlement, though such offers would be permissible on an individual basis.

CFPB Issues Rule Outlining How States Can Enact Credit Reporting Laws

Just because grandma allows your kids to run in her house does not mean that you have to let them run in yours, the Consumer Financial Protection Bureau announced to states yesterday, issuing an interpretive rule reminding them that the Fair Credit Reporting Act does not preempt states from enacting their own credit reporting laws, even going as far as to point out some of the ways that credit reporting could be regulated at the state level. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: The CFPB recently issued an Interpretive Rule essentially encouraging States to push through their own consumer reporting laws to regulate consumer reporting agencies (CRAs) and furnishers. If you were not aware this was coming, that is because Interpretive Rules, such as this one, are “exempt from the notice-and-comment rulemaking requirements of the Administrative Procedure Act.”

The Interpretive Rule itself is 16 pages that mostly analyze preemption provisions in the FCRA and conclude that: (1) State laws are preempted only to the extent they are “inconsistent” with the FCRA, and State laws that are “more protective of consumers than the FCRA … are generally not preempted”, and (2) The “express preemption provisions “ in the FCRA “have a narrow and targeted scope.”

While the CFPB is not making new law, the CFPB is handing over its preemption analyses to the States as ammunition against preemption challenges that may be raised to seek to invalidate new laws. The CFPB specifically calls out a few areas where it apparently would like to see “more protective” reporting and furnishing laws for consumers:

  • Forbidding furnishers from furnishing to CRAs information about “medical debt, evictions, arrest records, or rental arrears”;
  • Forbidding (or delaying) CRAs from including in consumer reports information about “medical debt, evictions, arrest records, or rental arrears”; and
  • Requiring CRAs “to provide information required by the FCRA at the consumer’s requests in languages other than English.”

Complying with different requirements in different states is not a new concept for this industry. States already have been busy passing new reporting and collection laws, especially in the area of medical debt. With this fresh statement of encouragement from the CFPB, I would not expect that trend to slow down anytime soon.

N.J. Appeals Court Upholds Ruling Over Suit Filed During Pandemic

A New Jersey Appeals Court has upheld a ruling in favor of a debt collector that was sued for filing a collection lawsuit against an individual, after the individual claimed, among other issues, that the collector should not have been allowed to file suit during the pandemic because of a clause in the agreement with the original creditor barring collection actions in a disaster area. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: I found this case particularly interesting as two years ago this same defendant’s counsel, (with whom I battle all the time) took the position with the Court that he “did not do defense law” and therefore could not have advised his client regarding a settlement in a collection matter entered into by that client. I think this appellate decision and the one below corroborates that position

On a serious note, notwithstanding that there was a “baseless claim” made regarding redefining the “Covid-19” pandemic into a “specific disaster area” there is some good language regarding using business records to prove up a collection case. I offer my favorite quote for setting the stage to use the business exception to the hearsay rule: 

The problem was well stated by Judge Learned Hand in Massachusetts Bonding & Ins. Co. v. Norwich Pharmacal Co., 18 F.2d 934, 937 (2nd Cir 1927): “The routine of modern affairs, mercantile, financial and industrial, is conducted with so extreme a division of labor that the transactions cannot be proved at first hand without the concurrence of persons, each of whom can contribute no more than a slight part, and that part not dependent on his memory of the event. Records, and records alone, are their adequate repository, and are in practice accepted as accurate upon the faith of the routine itself, and of the self-consistency of their contents. Unless they can be used in court without the task of calling those who at all stages had a part in the transactions recorded, nobody need ever pay a debt, if only his creditor does a large enough business.” 

Palmer v. Hoffman, 318 U.S. 109, 112 (U.S. 1943)

CFPB Cracks Down on Convenience Fees Charged By Collectors

Any debt collectors still charging convenience fees or other fees to consumers that are not covered in the contract between the consumer and the original creditor are breaking the law and may be subject to lawsuits from consumers and regulatory scrutiny from the Consumer Financial Protection Bureau, the agency announced yesterday by issuing an Advisory Opinion. More details here.

WHAT THIS MEANS, FROM LESLIE BENDER OF CLARK HILL: Noting that “debt collectors play a critical role in the consumer finance ecosystem,” on June 29, 2022, the Consumer Financial Protection Bureau (“CFPB”) issued an advisory opinion confirming that the Fair Debt Collection Practices Act (“FDCPA”)prohibits debt collectors from charging “pay-to-pay” fees (unless expressly permitted by a contract/agreement creating a specific date or other provision of law). This opinion is consistent with a CFPB bulletin issued in 2017 discussing the applicability of unfair or deceptive acts or abusive practices (UDAAP) provisions to the so-called “convenience fees.” Earlier this year the State of Maryland had issued a similar advisory about “pay-to-pay” fees also interpreting the FDCPA – but noting that in Maryland by statute, the FDCPA is applicable to all collections, not just collections on defaulted debt. 

To eliminate any confusion, the CFPB clearly states that if there is neither a provision in an agreement expressly authorizing a “pay-to-pay” fee nor a law expressly permitting it – silence cannot be interpreted as “authorization.” The CFPB has also explained that debt collectors will be deemed to have violated the FDCPA by using third party payment processors who charge unauthorized fees if the debt collector receives a kickback from the payment processor. Collection agencies are encouraged to carefully read this advisory opinion and analyze their practices and those of their third party payment processors to assure they align with this guidance. For example, a collection agency may consider additional due diligence in regard to the underlying consumer agreements giving rise to accounts now in collections to confirm the express authorization(s) consumers gave to ultimately “pay-to-pay” for any method of payment at any time in the “consumer finance ecosystem.”

Judge Grants MTD in FDCPA Case Over ‘Generic’ References in Letter

A District Court judge in New Jersey has granted a defendant’s motion to dismiss, ruling the plaintiff lacked standing filing a class-action lawsuit against a collection law firm, accusing it of violating the Fair Debt Collection Practices Act because the pronouns used in a collection letter were too generic. More details here.

WHAT THIS MEANS, FROM JONATHAN ROBBIN OF J. ROBBIN LAW: Continuing the trend of holding that a violation of the Fair Debt Collection Practice Act does not confer Article III standing, a New Jersey District Court judge granted Defendant’s motion to dismiss Plaintiff’s putative class-action complaint because Plaintiff failed to satisfy the concreteness element of the injury-in-fact requirement for Article III standing. Here, Plaintiff received a collection letter from the defendant collections law firm and alleged that the collection letter misstated, inter alia,the amount that was due because it did not reference whether interest was accruing or whether interest had been waived.

Attempting to establish standing, Plaintiff argued that (1) the letter’s misleading information regarding the amount owed and the generic references to the parties is a core concern of the FDCPA that confers standing, (2) the harm alleged has a common-law analogue in fraud, and (3) Plaintiff’s expenditure of time and money in response to the collection letter establishes a tangible injury conferring standing.

In granting Defendant’s motion, the Court held that (1) Plaintiff’s allegations fail to account for the Transunion concreteness requirement, (2) the claim does not equate to common-law fraud because Plaintiff did not allege the element of detrimental reliance;  specifically Plaintiff does not allege what he would have done differently had the letter not made misrepresentations, and (3) where a Plaintiff has not established a sufficient risk of harm from a letter’s misrepresentations, efforts to mitigate that risk do not constitute concrete harm and the burdens of bringing a lawsuit cannot be a sole basis for standing. Without clear allegations of specific concrete damages, it is becoming more and more evident that the FDCPA is going to be predominantly litigated in the state courts.

Judge Grants MSJ for Defendant in FDCPA Case Over Email Sent to Represented Plaintiff

A District Court judge in Illinois has granted a defendant’s motion for summary judgment in a Fair Debt Collection Practices Act case, ruling that emails sent to the plaintiff by the defendant did not violate the statute. The case presents an interesting twist on standing to sue under the FDCPA and communicating with consumers via email. More details here.

WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: The court dismissed the consumer’s § 1692e claim for lack of Article III standing, but found that it had jurisdiction to consider the merits of her § 1692c claim. In support of her § 1692e claim, the consumer asserted that an allegedly deceptive communication caused her to waste time and refrain from making purchases. This was not enough to establish a concrete injury so the court dismissed that claim for lack of standing. In support of her § 1692c claim, the consumer alleged that a communication received after she hired a lawyer caused her to shake. The court explained that even a slight or trifling physical harm is a concrete injury and thus held that she had standing to pursue that claim. However, the court dismissed the § 1692c claim because the consumer could not show that the collector had actual knowledge that she was represented by counsel with respect to that particular debt. 

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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