Compliance Digest – September 6

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

A District Court judge in Texas has denied motions to dismiss filed by three defendants in a Fair Debt Collection Practices Act case, ruling that the one defendant who claimed not to have been properly served with the summons and complaint was, that all of the defendants can be sued in Texas because that is where the plaintiff lived, and that the plaintiff adequately stated a claim. More details here.

WHAT THIS MEANS, FROM MIKE FROST OF MALONE FROST MARTIN: In this case, multiple defendants filed a Motions to Dismiss under Rule 12(b)(5) for insufficient service of process, a Motion of Dismiss under Rule 12(b)(2) for lack of personal jurisdiction, and a motion to dismiss under Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Judge Reed O’Connor of the Northern District of Texas denied all three motions find adequate service of process, personal jurisdiction and that an agent which made the calls was sufficient to subject jurisdiction. 

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Ariz. Supreme Court Rejects Industry Arguments Attempting to Keep Garnishment Question off Ballot

The Arizona Supreme Court yesterday unanimously rejected an appeal from an industry group seeking to prevent a question from being added to the ballot in the upcoming November elections that would give voters the opportunity to raise the limits on what can be shielded from wage garnishments while also lowering the judgment interest rate, ending the group’s efforts. More details here.

WHAT THIS MEANS, FROM AMBER RUSSO OF KINO FINANCIAL: Protect Our Arizona, a Political Action Committee that was created to oppose the so-called Predatory Debt Collection Act, despite months of media campaigns and a legal challenge of the opposing committee’s signature collection process, was unsuccessful in keeping Proposition 209 off of the ballot. As we head into the November election, our coalition will continue to mobilize the message that Proposition 209 is bad for Arizona businesses and the community. The proposed statute amendments drastically increase the assets and earnings that are protected from creditors and will therefore have a significant negative impact on the access to credit for hardworking Arizona families. It is anticipated that, if Proposition 209 passes, lenders will have to approve loans more judiciously and increase down payment amounts and interest rates to make up for the restrictions placed on the collection of defaulted accounts. Industry professionals should be watching what happens in Arizona to prepare for similar challenges to the receivables management industry, potentially impacting the credit ecosystem in other states.           

Calif. Appeals Court Overturns Ruling in Favor of Collector That Stapled Note to Summons

This is one of those “no good deed goes unpunished” type of stories. A California Appeals Court has overturned a summary judgment ruling in favor of a collector that was sued for violating the Fair Debt Collection Practices Act and the Rosenthal Fair Debt Collection Practices Act by stapling a note to a court-provided summons, informing the individual to call the agency if he had any questions, ruling that the “communication” was materially deceptive or misleading to the least sophisticated consumer. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: This case exemplifies the almost ridiculous breadth a Court can give to the consumer protection laws provide by the FDCPA. California and several other states and federal law generally hold that consumer protection statutes should be interpreted broadly by Judges. In this case, that “broad” interpretation was taken by the Court to the nth degree.  

Can a debtor truly claim to have been misled or abused by a friendly note that was attached to a collection complaint filed against the debtor, asking the debtor to call the debt collector if he has any questions? Apparently, the California Court of Appeal thought so. Again, this is a California state court matter vs. a federal court matter, so the standing issue argument (no injury or harm = no right to sue) that has been so successful in so many federal court cases as of late does not have the same strength in this state court. 

Compliance lesson and reminder: As agencies are well aware, every communication they send to consumers will be scrutinized by opportunistic lawyers and their consumer clients for potential litigation. Caution should be exercised when communicating with consumers in any manner, especially in light of the FDCPA’s strict liability nature and the penchant of state and federal courts to interpret the FDPCA as broadly as they can in favor of consumers. Less is more and if a communication to a consumer does not have to be made – it should not be made. 

The silver lining here is that the California Court of Appeal’s decision is “not published,” which means that it does not constitute “precedent” or binding authority in the State of California and cannot be cited as authority by other California state courts. 

Colorado AG Issues Guidance Related to Collection Agencies Working Remotely

The Colorado Attorney General’s Consumer Credit Unit last week published new guidance related to the enactment of a law governing remote work for licensed lenders while also noting that the guidance originally enacted at the start of the pandemic in 2020 remains in effect for entities not covered by the new law, including collection agencies, debt management providers, and student loan servicers. The guidance for organizations not covered by the new law will remain in effect until May 2023. More details here.

WHAT THIS MEANS, FROM MAKYLA MOODY OF GREENBERG SADA & MOODY: Faced with a new employment landscape and the adoption of HB22-1410, the Colorado Administrator has issued a second Memorandum providing guidance for covered entities utilizing remote working arrangements. While the adoption of HB22-1410 did not directly impact third-party debt collectors, debt management providers, and student loan servicers the Administrator did, in the latest Memo, provide guidance for the covered entities that were outside the scope of HB22-1410. 

This guidance remains consistent with the earlier guidance that was issued at the onset of the COVID-19 Pandemic. There is, however, a small tidbit in the Memo that has generated some curiosity. The Memo specifies that this guidance will remain in effect until the last day of the upcoming state legislative session (May 10, 2023), signaling legislative action is on the horizon.

Although the local industry maintains a very active presence in the state legislative arena, no one, including the Administrator, has reached out to the industry for stakeholder input or involvement.  Unfortunately, the lack of communication and bi-partisan dialogue in the legislative process has become all too common in recent years, making it crucial for the industry to continue building and fostering its relationships with legislators from both sides of the aisle at all levels of government. Everyone can help these efforts by contributing, which can be as simple as sending monetary donations to the local and national industry advocates. Even small actions or donations can have profound impacts if we work together to secure and invest in the future of our industry.

Judge Remands FDCPA Case Over Duplicate Notices, Hunstein Claims Back to State Court

A District Court judge has granted a plaintiff’s request to remand a Fair Debt Collection Practices Act case back to the state court in which it was originally filed, but declined to award attorneys’ fees, ruling that “jurisprudence in this District and the Second Circuit” on the topic of standing “is still evolving.” More details here.

WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: Hunstein cases are still percolating through the courts at various procedural stages and there is little consistency among the courts regarding the merits of these claims. There does seem to be a collective jurisprudence among federal courts, however, as it pertains to a plaintiff’s standing to assert these claims in federal court. The majority of federal courts appear to agree that the “mailing vendor” theory is insufficient to confer Article III standing and are remanding these cases back to state court. In light of these claims (and other similar no-injury claims), Defendants should proceed with caution and pay close to attention to recent case law before removing such claims to federal court.  It didn’t happen here, but other courts have assessed attorney’s fees and sanctions against defendants where cases were removed only to be quickly remanded for lack of standing.

Federal Gov’t Instructs Agencies to Remove Medical Debt from Loan Underwriting Factors

The federal government, noting it has “a responsibility to set the standard for how medical debt is treated,” announced yesterday that it is instructing its agencies with direct loan and guarantee programs to “wherever possible” reduce the impact of medical debt when making underwriting decisions. The announcement is the latest in a string of decisions this year aimed at de-emphasizing the impact that medical debt has on the financial situations of individuals. More details here.

WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS-SUTHERLAND: A month after VantageScore Solutions LLC announced it would stop factoring all medical debts that are in collections into the latest versions of its scores, Major Credit-Score Provider to Exclude Medical Debts – VantageScore, the director of the federal Office of Management and Budget (OMB) has challenged “all agencies with direct loan and loan guarantee programs that focus on consumer loans or small and medium businesses where a consumer’s credit history is a factor” to take a hard look at their underwriting and loan servicing programs.  The OMB challenges federal agencies to take whatever action is possible to “reduce the impact of medical debt in the underwriting of Federal credit programs.” A laundry list of next steps are mapped in this OMB directive including the following:  1) identify what statutory/regulatory/administrative changes would be needed to exclude medical debt “consideration or underwriting” in Federal lending programs; 2) perform an initial “qualitative assessment and cost-benefit analysis” of any of these changes and whether or not any could be regarded as “economically significant;” 3) identify any forms or templates that would need to be updated to accomplish this change; 4) assess whether “model updates are required for FCRA cost estimation,” particularly if this change would have some effect on debt-to-income ratios; and 5) communications and plans for a “time-phased execution.” While federal agencies are required to incorporate these plans in their FY 2024 budget submissions – the OMB notes that a brief extension may be requested by any agency. There is no immediate “to do” for the credit and collections industry here; however, to the extent that some version of credit scores are relied upon in collections processes, industry may want to do some testing to evaluate whether using the updated VantageScore (minus medical debt) has an impact on operations. It is interesting to see this latest push from the Administration – again not yet in the direction of health plans or other third party sources of payment or reimbursement for medical care.

Biden Announces Student Loan Cancellation Plan, Extends Moratorium on Payments

Surprising nobody yesterday, President Biden announced that the federal government will forgive up to $10,000 in student loan debt for anyone making less than $125,000 per year and up to $20,000 for anyone with a Pell grant, while also extending the moratorium on making student loan payments through the end of the year. More details here.

WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: There is a lot to unpack with regard to the Federal government’s decision to forgive hundreds of millions of dollars in federal student loans and the basis for doing so. Did the government have the authority to do so without Congress? Which borrowers will benefit the most? Does this address the root cause of student loan debt, namely the high cost of a college education and the ability to repay these loans? More importantly, for the ARM industry the ability for the federal government to pick winners and losers in the credit ecosystem will have lasting implications.

Let’s get the obvious out of the way. Certainly any loan forgiveness will assist consumers in the short term, especially with rising interest rates. The question remains whether these consumers will save or spend. If consumers decide to spend, then this will not in any way help reduce inflation. 

Never in modern history has there been anything similar to a broad public forgiveness program, outside of bankruptcy and without legislation. The White House released with their fact sheet an opinion from the Department of Justice which concluded that the Higher Education Relief Opportunities for Students (HEROES) Act of 2003 gave the Secretary of Education the authority for loan cancellation during a national emergency, which still exists because of the COVID-19 pandemic. While the economy is seeing record levels of inflation and high interest rates, unemployment is still hovering at 3-3.5% and wage levels are at some of the highest in 2 decades. All these factors line up nicely for a legal challenge, but who would have standing to bring such an action remains to be seen.

The mechanics of this forgiveness program have not been worked out. The fine print of the program says up to $10,000.00  will be forgiven for non-Pell grants and up to $20,000.00 for recipients of Pell grants. Who determines how much of that $10,000.00 or $20,000.00 is forgiven and what will be the criteria? Expect a ground swell of anger and frustration among those borrowers who do not receive the maximum amount of forgiveness.

Finally, the precedent set by simply erasing debt will undoubtedly impact collection efforts for all financial services verticals. Forgiveness has now become the buzzword of the moment. This week its student loan debt. Next week it will be medical debt given the recent scrutiny.  The proverbial genie has been let out of the bottle. There is a mistaken believe that our credit economy survives if debt is not paid. The consumer psyche will now be that if I don’t have to pay my student loan debt why should I pay my credit card, my auto loan, or my rent. For the ARM Industry, seeking to ensure that our creditor clients are repaid just got a lot more difficult.

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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