Compliance Digest – October 31

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 Grants MSJ for Defendant in FCRA Case Over Timing of Dispute

A District Court judge in South Carolina has accepted a Magistrate Judge’s Report and Recommendation and granted a motion for summary judgment in favor of a defendant that was accused of violating the Fair Credit Reporting Act related to how the defendant was furnishing payment information to the credit reporting agencies, because the suit was filed days after the plaintiff submitted his dispute, thereby not giving the defendant enough time to investigate and respond. More details here.

WHAT THIS MEANS, FROM DAVID SHAVER OF SURDYK DOWD & TURNER: As many agencies, furnishers, and ARM defendants are aware, opportunistic consumers sometimes like to bring claims in short order after anything occurs with respect to their debt. These consumers suffer from a condition that I like to call “premature litigation.” Shulman reminds ARM defendants to be mindful of analyzing when an FCRA claim is asserted against them as it may not be ripe yet. Additionally, Shulman also serves as a reminder to carefully consider the nature of the consumer’s dispute. Is it factual or legal? In Shulman, the consumer’s dispute centered around the effect of a loan modification and the Court found that this dispute was of a legal nature and was thus not capable of supporting a claim under 1681s-2(b). Ultimately, ARM defendants must continue to dot their i’s and cross their t’s in connection with credit reporting as consumers are sensitive to information appearing on their credit reports and will look to exploit anything they can, even if they don’t suffer from PL.     

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Judge Grants Summary Judgment for Defendant in FDCPA Case, After Ruling Receipt of Letter Enough for Standing

A District Court judge in Pennsylvania has granted summary judgment in favor of a defendant that was sued for violating the Fair Debt Collection Practices Act a second time, after the plaintiff filed a motion for reconsideration, ruling that a collection letter sent to the plaintiff was not false, deceptive, misleading, unfair or unconscionable. Separately, what makes this ruling interesting is that the judge ruled that receiving an allegedly deceptive letter is enough for the plaintiff to have standing to pursue the claim in federal court. More details here.

WHAT THIS MEANS, FROM LORAINE LYONS OF MARTIN LYONS WATTS MORGAN: In this allegedly deceptive letter case, all was not lost when the federal district court found that the consumer had standing to proceed in the case. The consumer failed to offer evidence to support her claims about the correct amount due on her medical bill. Plaintiff loses on the merits, and the court grants summary judgment in favor of Defendant. In sum, Defendant fought and won!

Judge Remands FDCPA Case Back to State Court, But Closes Door on Damages

A District Court judge in Illinois has granted a plaintiff’s motion to remand a Fair Debt Collection Practices Act case back to state court, but in doing so made some comments that I found to at least make the ruling more enjoyable to read, if not also being possibly incredibly helpful for the defendants going forward. More details here.

WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: This is precisely the kind of result we want to see from the ever-increasing remands back to state court. Even though it isn’t a “total win” and the plaintiff can pursue the case in state court, the federal court has effectively taken the proverbial wind out of the plaintiff’s sails. Judge Seeger let it be known in no uncertain terms that a loss in federal court should lead to a corresponding loss in state court.

Judge Grants MTD in TCPA ATDS Case Over Collection Calls

A District Court judge in California has granted a defendant’s motion to dismiss a Telephone Consumer Protection Act case, although giving the plaintiff the opportunity to amend his complaint, ruling that the plaintiff did nothing more than make conclusory allegations and that it is too “implausible” that the defendant would use a random or sequential number generator — a requirement to meet the definition of an automated telephone dialing system — to contact a debtor with an unpaid account. More details here.

WHAT THIS MEANS, FROM MIKE FROST OF FROST ECHOLS: What can we learn from this case? The Plaintiff filed this case alleging a violation of the Telephone Consumer Protection Act (TCPA) and the California Rosenthal Fair Debt Collection Practice Act (RFDCPA). The Court found that the pleadings were deficient by providing conclusory allegations and not meeting the second prong of the three minimum standards in pleading a TCPA claim: (1) Defendant called a cellular telephone, (2) Defendant used an ATDS or a prerecorded voice to deliver a message, and (3) Defendant did not have prior consent of Plaintiff.  

The RFDCPA claim, the Court found that the Defendant’s Complaint adequately alleged that the Defendant initiated communication with Plaintiff after the date of the Notice Letter, but it did not adequately allege that the Notice Letter provided actual notice to the Defendant since the Complaint did not identify the address in which the Notice Letter was sent to Defendant by Plaintiff.

The Court did grant Plaintiff leave to file an Amended Complaint which will allow the Plaintiff another attempt to adequately plead the allegations.

N.Y. DFS Fines Company $4.5M For Failed Controls That Led to Data Breach

The New York Department of Financial Services has assessed a fine of $4.5 million to a company for violating its cybersecurity regulations after an employee of the company was victimized by a phishing attack, which exposed non-public personal health data of hundreds of thousands of individuals, including minors. More details here.

WHAT THIS MEANS, FROM JONATHAN ROBBIN OF J. ROBBIN LAW FIRM: The New York Department of Financial Services’ assessment of $4.5 million fine to EyeMed Vision Care for violating cybersecurity regulations demonstrates that even the victim of a cyber-attack, without properly implemented cyber compliance and procedures, is liable. In this case, EyeMed lacked proper compliance as it related to its email environments. Specifically, multiple employees shared a common login and there were no retention and deletion policies. Further, EyeMed never conducted a risk assessment, which would have identified these cyber issues. As a result, the breach caused the dissemination of six years’ worth of non-public personal health data of hundreds of thousands of individuals, including minors. It is imperative that companies in the ARM industry, which maintain non-public consumer data, take note of this decision, and have sufficient cyber safeguards. Without them, regardless of your culpability in the attack, you will not escape liability.  

CFPB Reminds Furnishers About Sending Accurate Info to CRAs

The Consumer Financial Protection Bureau yesterday issued an advisory opinion reminding furnishers of information to the credit reporting agencies about the importance of insuring that the information being furnished is accurate and not “junk” data. More details here.

WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: Setting aside for the moment the looming question about whether the CFPB is constitutional in light of its funding mechanism, the Bureau continues to focus on credit reporting and the accuracy of furnished information being accurate. We recently saw them focus on this in a consent order with an auto finance industry participant, and more recently in an advisory opinion that reminded furnishers of their obligations when reporting to the Consumer Reporting Agencies (CRAs). 

In its most recent advisory opinion, and as it has in the past, the CFPB focused on logical inconsistencies that appear in credit reports. While it has focused its efforts on furnishers through supervisory and enforcement action, including the need to check for such inconsistencies prior to furnishing, the Bureau now appears ready to hold the CRAs responsible for allowing such inconsistencies to be published. As a result, furnishers should now expect attention on their pre-submission process from both the CFPB and CRAs.

MVN Not a Requirement Under Reg F, FDCPA, Judge Rules

Usually, when I write about cases being remanded back to state court, it’s not necessarily a good thing for the collector. In fact, it’s often the collector that sought to have the case heard in federal court in the first place. But, this time, a District Court judge granting a collector’s motion to remand a case back to state court is a good thing, because the underlying case hinges on whether sending the Model Validation Notice is a requirement to comply with the Fair Debt Collection Practices Act. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: A collector is not required to use the Model Validation Notice in order to comply with the Fair Debt Collection Practices Act (“FDCPA”), as long as the required information is provided in a clear and conspicuous manner, a federal judge for the Central District of Illinois has ruled, remanding the case to state court.

The plaintiff, Collection Professionals, Inc. (“CPI”), had been providing collection services for McDonough District Hospital, the defendant. Under the parties’ agreement, CPI was required to comply with the FDCPA and related regulations.  Regulation F, which was adopted several years into the parties’ relationship, requires debt collectors to include specific information about a debt, consumer protections, and ways to dispute the debt in their initial communication with the debtor.  Collectors may claim a safe harbor if they use the model notice the Consumer Financial Protection Bureau (“CFPB”) provided. 

The dispute arose when CPI informed the hospital that it would not be ready to use the model notice by Regulation F’s effective date. The hospital responded that CPI was in violation of the FDCPA because use of the model notice was required. CPI filed a declaratory judgment action seeking confirmation that the letter it was using in place of the model notice complied with the FDCPA, and the hospital removed to federal court. 

The federal district court explained that the hospital had not established an “embedded federal question warranting the exercise of federal question jurisdiction.” While it found that the federal issue of whether CPI had complied with the FDCPA was necessarily raised and actually disputed, it held that the issue was not substantial. Since Regulation F “clearly” did not require use of the model notice, the issue involved a case-specific application of law to facts, not a pure question of law, and would not be important to the federal system as a whole. Therefore, remand was appropriate.

The decision, though brief, offers reassuring clarity to debt collectors who have chosen to adapt the model notice to suit their needs, while still communicating the requisite points. While such adaptations may deprive the collector of the CFPB’s safe harbor, they may still be held to comply with the FDCPA and Regulation F.  

House Subcommittee Chair Accuses CRAs of Failing to Fully Investigate Disputes

The chair of the House Select Subcommittee on the Coronavirus Crisis has sent a letter to the Consumer Financial Protection Bureau, asking it to investigate the three major credit reporting agencies for possible violations of the Fair Credit Reporting Act, including potentially failing to investigate disputes filed by consumers. The 12-page letter, from Rep. Jim Clyburn [D-S.C.], says that the committee has obtained information indicating “there are longstanding problems” in how the three CRAs respond to consumer disputes. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: Rep. Jim Clyburn [D-S.C.], the chair of the House Select Subcommittee on the Coronavirus Crisis, has requested that the CFPB investigate the three main consumer reporting agencies (CRAs) – Equifax, Experian, and TransUnion – for a purported failure to properly investigate and respond to consumer disputes. 

This call to investigate comes on the heels of the Subcommittee’s inquiries to the CRAs for information regarding their dispute statistics and procedures. The Subcommittee learned that from 2019 through 2021 “at least 13.8 million dispute submissions were discarded without investigation,” mostly based on CRA “suspicion that unauthorized third parties” were involved in submitting the disputes. The Subcommittee’s letter acknowledges that CRAs “are not required to investigate disputes submitted by unauthorized third parties,” but still questions whether CRAs are “dismissing some legitimate disputes” due to the “vague,” “broad and speculative criteria” used to detect unauthorized third party involvement. Each of the CRAs looks at certain dispute letter and envelope characteristics that reveal identical language, format, and appearance, which tends to indicate “a letter has come from a credit repair clinic and not an individual consumer.” But, the Subcommittee points out that identical letters may also be caused by consumers’ legitimate use of CFPB and other available template dispute letters and do not always indicate the involvement of an unauthorized third party.  

The Subcommittee also complains that the CRAs are too reliant on the investigations of furnishers, as CRAs may be understaffed and reliant on a certain level of automation, and are known to merely parrot the responses of furnishers with no independent investigation. This is especially problematic because the furnishers themselves are accused of conducting “pro forma, perfunctory investigations” and “ignoring consumer-submitted documents and information.” In its request for the CFPB to investigate these problems and take action, the Subcommittee takes another shot at furnishers, noting that the Bureau also may consider whether the CRAs “have made sufficient revisions to their procedures for identifying and taking corrective action against unreliable furnishers.” 

The Subcommittee’s investigation and letter request to the CFPB are the latest in a government push for more thorough and accurate FCRA dispute investigations, both from the CRAs and furnishers. If you are a furnisher and have not recently reviewed your policies and procedures for reporting accurate data and handling FCRA disputes, now would be a good time to assess, update and enhance them, and ensure they are being consistently implemented.

Appeals Court Rules CFPB’s Funding Structure is Unconstitutional

The Court of Appeals for the Fifth Circuit yesterday took a leg out from under the Consumer Financial Protection Bureau yesterday, ruling that the manner in which the agency is funded is unconstitutional and invalidating a rule on payday lending that was issued back in 2017 and was subsequently amended in 2020. More details here.

WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS SUTHERLAND: The Fifth Circuit’s recent ruling vacated the Consumer Financial Protection Bureau’s (the “Bureau”) 2017 Payday Lending Rule on the grounds that the funding used to promulgate that rule was “wholly drawn through the agency’s unconstitutional funding scheme” and there was a “nexus” between the infirm funding and this rulemaking. Industry experts discussed this decision in a recent Accounts Recovery webinar and noted that the impact of this ruling on the Bureau and its work is mixed and perhaps challenging for industry. Clarity and guidance on regulators’ interpretations of statutes are essential so industry has bright lines for developing and maintaining compliance programs. As the recent court decision noted, federal agencies are generally entitled to great deference in interpreting laws and regulations. The applicable standard is “arbitrary or capricious.” Courts do not generally regard a federal regulator’s actions as “arbitrary and capricious” unless the “agency relied on impermissible factors, failed to consider important aspects of the problem, offered an explanation for its decision that is contrary to the record evidence, or is so irrational that it could not be attributed to a difference in opinion or the result of agency expertise.” Since its inception there have been numerous challenges to the constitutionality of the Bureau or actions it has taken but not all arrows have “found their targets” as in this case. Folks in industry are asking whether or not this decision may impact Regulation F or even the new rulemaking the Bureau announced last week it is undertaking under Section 1033 of the Consumer Financial Protection Act. With eyes on what may now occur in the recent Chamber of Commerce suit, pending also in a Texas court, https://www.uschamber.com/finance/u-s-chamber-sues-to-hold-consumer-financial-protection-bureau-accountable-to-the-rule-of-law-and-consumers in the wake of this decision – experts agree that what the credit and collections industries should do in regard to this decision is stay the course, continue to comply with the regulations promulgated under the Fair Debt Collection Practices Act known as Regulation F.

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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