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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 Partially Grants MSJ for Plaintiff in FDCPA Case Over Text Message
A District Court judge in Alabama has ruled that a debt collector that outsourced the scrubbing of its accounts for bankruptcy filings is not entitled to the Fair Debt Collection Practices Act’s bona fide error defense and that the requirement of including the mini-Miranda notice in any communication thus turns any communication into an attempt to collect on a debt, partially granting a plaintiff’s motion for summary judgment. More details here.
WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: An unfortunate and perplexing result here.
A Judge in the Northern District of Alabama concluded that bona fide error defense did not apply to the facts of this case. In it, the “debt collector” (see below, as that too was in dispute) relied on the creditor when it came to scrubbing for bankruptcies prior to placement. The court concluded that this “reliance on the creditor” procedure did meet “the low threshold” of the “first step” for a BFE defense. From there, unfortunately, it went downhill for the collector.
The Judge then looked deeper into the criteria for a successful BFE defense and concluded that procedure of “relying exclusively on [the creditor] – with no internal [collection agency] controls – is not ‘reasonably adapted to avoid the specific error at issue.’” In short, in this Court’s view, relying completely on another party to scrub for BK filings was not enough. The Court in effect concluded that the agency must have unspecified “internal controls” in place as well.
Lastly, the court next addressed a text sent to the involved Chapter 13 consumer. That text did not ask for any sum, but did include the mini-miranda, including the statement “This is an attempt to collect a debt.” The involved agency argued it wasn’t a “collection” text as it didn’t demand any sum/money. Nonetheless, including the mini-miranda was enough for this Court to rule that the involved agency was a debt collector. Having ruled against the asserted BFE defense, and having concluded that the agency was a debt collector, the Court went on to rule in favor of the consumer because she had received the text while she was in bankruptcy.
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Judge Denies Defendant’s MSJ, Partially Grants Plaintiff’s Motion in FDCPA Case
A District Court judge in California has partially granted a plaintiff’s motion for summary judgment while denying a defendant’s motion in a Fair Debt Collection Practices Act case, ruling that the defendant violated its discovery obligations by not providing documentation to prove the current creditor owned the debt in question and had a right to collect on it. More details here.
WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: Back to Basics: Produce Before Relying
Failure to satisfy discovery obligations comes with costly consequences, as a loan servicer was recently reminded by the Northern District of California, which excluded key pieces of the servicer’s evidence from consideration at the summary judgment stage due to the servicer’s failure to timely produce the documents. Without those documents, the servicer was unable to meet the burden of proof for its summary judgment motion or defend against the plaintiff’s countermotion.
In this case, Lizarraga-Davis v. Transworld Systems Inc., Plaintiff claimed that Transworld, the custodian of records for a number of trusts holding student loans, and the entity which collects on any defaulted student loans in those trusts, violated the Fair Debt Collection Practices Act by engaging in collection activities without adequate documentation that a trust serviced by Transworld actually owned the loan in question. Transworld moved for summary judgment, relying on a redacted page of a spreadsheet and a “roster” of loans created during the litigation. But because Transworld had previously refused to produce the spreadsheet on the basis that it contained sensitive consumer information, and there was no admissible evidence in the record that the spreadsheet had in fact been produced, even in redacted form (just an unsupported assertion in Transworld’s reply brief), the court excluded the spreadsheet from consideration under Fed. R. Civ. P. 37, finding that Transworld had violated its discovery obligations. And because the roster had been created for purposes of the litigation, the court held that it was hearsay and did not fall under the business records exception. Since Transworld had proffered no other evidence that Plaintiff’s loan was actually owned by the trust it serviced, the court denied Transworld’s motion for summary judgment and granted Plaintiff’s motion for partial summary judgment on liability.
The case serves to remind litigants that efforts to hide the ball can backfire badly. Rule 26 places an affirmative obligation on litigants to produce the documents on which they will later rely, and that obligation is doubled when the document falls within the scope of a discovery request. Before filing for summary judgment, litigants should ensure that the documents they need have in fact been produced to the other party in order to avoid suffering similarly fatal consequences.
Judge Grants MTD in FDCPA Case Over Mis-Spelled Name in Letter
A District Court judge in New York has granted a defendant’s motion to dismiss, ruling that it did not violate the Fair Debt Collection Practices Act by including additional information in a collection letter that the plaintiff said made him confused about to whom to pay and because the letter accidentally omitted one character from his first name. More details here.
WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: Judge Cathy Seibel of the United States District Court, Southern District of New York, recently dismissed with prejudice the FDCPA claims of plaintiff Vincent Williams.
Mr. Williams complained, among other things, that the collection letter is addressed to “Vicent Williams,” leaving out the “n” in his first name, Vincent. Mr. Williams claims this one-letter typo “confused” him “as he thought the account in question may not be his at all, or subject to fraud.” However, as Judge Seibel pointed out, the letter “apparently arrived at his proper address” and was still “clearly directed to the Plaintiff” despite the “minor misspelling” of his first name. Moreover, even if the Court were to accept Mr. Williams’ “farfetched” position, the least sophisticated consumer would understand that their recourse in the wake of such claimed confusion would be to seek validation of the debt as the remainder of the letter explains.
This is a great one to keep in your toolbox, as “minor misspelling” errors are bound to happen, even if not a debt collector error. While this case was limited to the pleadings and the available briefing does not raise the issue, such “typos” may originate at any point in the debt lifecycle. It is plausible that Mr. Williams himself created the “error” when he applied for credit. Mr. Williams’ pre-charge-off account statements may all have been sent to “Vicent Williams” and he never flagged the typo. Or, the “n” could have been inadvertently dropped by the original creditor at the time of initial account setup or post charge-off sale, or by the current creditor following a purchase. Alternatively, the debt collector may have made a mistake during account onboarding or while generating the letter.
While the origination of an error in account information most often will fall outside of the pleadings for purposes of a motion to dismiss in this type of case, it highlights the need for debt collectors and debt buyers to request representations and warranties at each step about the accuracy of the account data being provided.
DFPI Invites Comments on Rulemaking Related to State Licensing Law
The California Department of Financial Protection and Innovation on Friday released draft text of a rulemaking related to the scope, annual report, and document retention requirements of the state’s Debt Collection Licensing Act. More details here.
WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The proposed regulations published by the Department of Financial Protection and Innovation (DFPI) provide a mixed bag of requirements for the ARM industry. On the one hand the regulations do provide some clarity for the scope and coverage of the Debt Collection Licensing Act (DCLA). However the regulations do propose some extremely onerous requirements for annual reporting and record retention.
First some potential good news. The proposed regulations would excludes some creditors from licensing, who are collecting in their own name arising from credit they extended and who are not in the business of debt collection. This exemption would not apply if the creditor met one or more of three (3) criteria related to: (1) thresholds with respect to annual profits, (2) the creditor’s inventory (i.e. collateral) that was repossessed, or (3) a certain percentage of accounts, over a period of the last 12 months, that were 90 days or more past due. Additionally, servicers who are collecting non-defaulted debt for another, health care providers collecting on their own behalf, public utilities and governmental bodies would be excluded from licensing.
In addition to providing some perimeters around the scope of licensing, the proposed regulations seek to provide a definition to the term “consumer credit transaction” by excluding residential rental debt, debt owed to HOAs, debt arising from the deferral of payment for healthcare or medical services and bounced checks.
The annual reporting requirements, among other things, proposes that the licensee identify the total number of California debtor accounts in the preceding year and the amount of those accounts that were collected, but it also requires the licensee to state how many were paid in full, settled for less and the balance remaining due for each of those accounts. Additionally, a licensee must provide the total dollar amount of debts purchased and the balance due on those debts before fees and other charges.
Finally, the regulations propose that a licensee make and preserve a record of any contact or attempted contact with “anyone associated with a debtor account, regardless of who initiated the contact and whether the contact was successful”. There are six (6) additional data points associated with this record keeping including the name of the employee making the contact, date and time of the contact, whether it was an indirect or direct communication with the debtor, and the substance of the communication. More importantly, the regulations propose a seven (7) year retention period, far greater than required under Regulation F.
We all know that doing business in California can be challenging. It is hard to imagine that the amount of data sought by these regulations will ever be reviewed by DFPI. It certainly suggests that rather than entice business to come to California, companies maybe re-thinking whether “All Dreams are Welcome” in California.
Judge Grants MTD in FDCPA Class Action Over Different Settlement Offers in Letters
A District Court judge in New York has granted a defendant’s motion to dismiss a Fair Debt Collection Practices Act class-action, albeit for lack of standing even though both sides agreed that the plaintiff suffered a concrete injury, after the plaintiff received two collection letters that offered to settle the unpaid debt for different amounts. More details here.
WHAT THIS MEANS, FROM JASON TOMPKINS OF BALCH & BINGHAM: Parties often forget that federal courts have an independent duty to examine subject matter jurisdiction, which includes the plaintiff’s injury-in-fact. I’ve had appellate arguments where the Court of Appeals asks the parties to argue standing even though no party raised it before the district court or court of appeals. In this case, both the plaintiff and defendant agreed that the plaintiff had adequately alleged an injury-in-fact. But the district court disagreed, holding that mere confusion was not enough and the plaintiff had not alleged any concrete action or inaction in response to the debt collector’s letters. This is good lesson that sometimes the debt collector would prefer to reach the merits on a technical violation but may be unable to do so because the plaintiff did not actually suffer a concrete harm.
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.