Compliance Digest – November 21

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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 MSJ For Defendant in TCPA Case Over One Wrong Number Call

A District Court judge in Texas has granted a defendant’s motion for summary judgment in a Telephone Consumer Protection Act case ruling that a single wrong number placed by a collector to the plaintiff did not violate the statute, while also warning the plaintiff — who has “repeatedly” filed similar cases, without success — that he must obtain permission before he files any other similar cases going forward. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: It is good to see when a Judge admonishes pro se plaintiffs (i.e., plaintiffs representing themselves) when the plaintiff files cases that have no merit. Here, the plaintiff claimed he was autodialed without any basis, when the dialing mechanism turned out to be a click to dial system. Although the defendant used pre- Facebook v. Duguid case law to support the argument that the system it used was not an autodialer, the plaintiff could not oppose the arguments. Also, the fact the plaintiff raised the Texas Telemarketing statute when the calls at issue were merely informational and not telemarketing did not help the plaintiff’s untenable positions.

Perhaps more Judges should admonish and threaten sanctions against these pro per plaintiffs when they file meritless claims so that they will not continue to perpetuate frivolous litigation.

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Third Circuit Upholds Ruling for Defense in FCRA Reasonable Investigation Case

The Court of Appeals for the Third Circuit has upheld a summary judgment ruling in favor of defendants that were sued for violating the Fair Credit Reporting Act because they allegedly reported false and inaccurate information and did not conduct a reasonable investigation of the plaintiff’s dispute. More details here.

WHAT THIS MEANS, FROM XERXES MARTIN OF MARTIN LYONS WATTS MORGAN: The industry is seeing a steady increase in FCRA claims, mainly due to Article III standing developments, and frankly also the ability to manufacture allegations. Currently, there is an overall lack of case law regarding reasonableness of an investigation under the FCRA given that certain facts and allegations can lead to a determination of reasonable is a “fact issue”. However, as we have seen in the past with cases like FDCPA section 1692d(5) call volume harassment claims, courts have the ability to make these determinations as a matter of law in certain situations.

This per curiam decision by the Third Circuit is a nice step in the right direction and hopefully will make a path forward to more determinations that Plaintiff has either failed to meet their burden of proof that an investigation was not reasonable, or that the collector established as a matter of law that the investigation was reasonable. But also, do not miss the third argument in footnote three, the plaintiff “failed to establish that the information furnished was either factually inaccurate, misleading, or material.” This can really support a front against the aforementioned manufactured allegations.

We all witnessed the inception of the Article III standing cases with Spokeo and Casillas, and then the growth to the more recent Ramirez and Perez cases. But between those cases, some cases found standing, while others did not, and you are never really sure of what you will get. Hopefully this case will set precedent for more courts to follow the same path like the section 1692d and standing cases.

Judge Denies Motion to Remand FDCPA Case Back to State Court

A District Court judge in New York has denied a plaintiff’s motion to remand a Fair Debt Collection Practices Act case back to state court, rebuffing the plaintiff’s argument that remand was required because all of the defendants in the case did not consent to removing the case to federal court in the first place. More details here.

WHAT THIS MEANS, FROM MIKE FROST OF FROST ECHOLS: There were three defendants in this case at the outset.  One settled or was dismissed early leaving two defendants in the matter. One defendant filed to remove the case to federal court and the other remaining defendant consented to the removal. Procedurally, since there was no case in controversy with the third defendant which was dismissed from the case, there was no need to obtain that prior-defendant’s consent for removal. The plaintiff challenged the removal on the grounds that the third defendant – absent the fact the company was no longer a defendant in the matter – was required to consent to the removal action. The Court found that a “reasonable reading” of the statue indicates that a discontinued defendant is not required to consent to removal. The Court also denied the Plaintiff’s request for fees and costs since the Plaintiff’s motion was not granted and the case was not being remanded back to state court.

Judge Blocks Student Loan Debt Cancellation Program

A District Court judge in Texas yesterday granted summary judgment in favor of plaintiffs who sued the federal government seeking to block a program that would cancel up to $20,000 of student loan debt for individuals making less than $125,000 annually, ruling that the Biden Administration overstepped its authority when it created the program without congressional approval. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: On October 12, 2022, the Secretary of Education published in the Federal Register a loan forgiveness program invoking authority under the HEROES Act (the Higher Education Relief Opportunities for Students Act of 2003) to waive a portion of certain student loans based on the COVID-19 pandemic national emergency. Generally, the program allows loan cancellation of up to either $10,000 or $25,000 for individuals making less than $125,000 per year or less than $250,000 per household.
A series of challenges in federal courts immediately followed implementation of the program, including those filed by states (Nebraska, Missouri, Arkansas, Iowa, Kansas, South Carolina, and the Arizona Attorney General), borrowers and policy groups/think tanks.
On November 10, Judge Mark T. Pittman of the United States District Court for the Northern District of Texas vacated the loan forgiveness program In Brown v. Department of Education, declaring it an unlawful exercise of legislative power by the executive branch because the Secretary lacks “clear congressional authorization” to implement a loan forgiveness program. Judge Pittman specifically declined to comment on whether the program constitutes sound public policy, finding that would be an inappropriate exercise for the judicial branch.

The Brown suit was initiated by the Job Creators Network Foundation, who filed on behalf of two borrowers who are either completely or partially ineligible for the loan forgiveness program. They challenged the Program because it did not follow notice and comment rulemaking procedures under the Administrative Procedure Act, which would have allowed the borrowers to voice their objections to the programs’ eligibility criteria, and they argue that the Secretary lacked authority to implement the Program under the HEROES Act.

Judge Pittman’s ruling was immediately appealed to the United States Court of Appeals, Fifth Circuit (Case No. 22-11115). However, the ruling (as well as an injunction from the Eighth Circuit in a similar challenge) had the effect of blocking, at least temporarily, new applications for debt relief and preventing the granting of existing applications and discharge of debts. The application site (https://studentaid.gov/debt-relief/application) currently notifies visitors that “Courts have issued orders blocking our student debt relief program. As a result, at this time, we are not accepting applications. We are seeking to overturn those orders. If you’ve already applied, we’ll hold your application.”

Although these legal battles are moving fast, this is a legal mess unlikely to be resolved prior to December 31, 2022, the expiration of the existing COVID-19-based moratorium, which pauses federal student loan payments and interest.

Judge Certifies Class in FDCPA Suit Over Credit Reporting Language in Letter

A District Court judge in New Jersey has certified a class action Fair Debt Collection Practices Act case against a defendant accused of violating the statute because of a discrepancy in the amount of time it waited before reporting debts to credit reporting agencies and the amount of time it gave consumers to respond to its letters. More details here.

WHAT THIS MEANS, FROM CHRISTOPHER MORRIS OF BASSFORD REMELE: This case illustrates the potential class action risk when using letters that suggest a time limit for response, followed by comments about future collection activity. If the threatened future event does not happen within the referenced time limit, there is at least room to argue that the letter is misleading under the FDCPA, in the same way for each consumer who received it. Here, the letter instructed the consumer to respond within 7 days or “we may take additional collection efforts” and went on to discuss credit reporting, but according to plaintiff’s allegations, the collector never had any intention to credit report at 7 days. It is no particular surprise that the court certified a class in these circumstances, with the plaintiff’s allegations accepted as true for purposes of the motion (even if the weight of the actual evidence may show otherwise). But more importantly, the class definition accepted by the court oddly limited the case to New Jersey consumers who resided within a particular zip code. Plaintiffs’ counsel may have felt a need to limit class size in order to generate a meaningful per person recovery (in relation to a net worth damages cap), or to limit the costs of sending class notice. While federal courts in several different circuits have found such artificially limited class definitions to be improper and have rejected certification for lack of superiority, the court here decided that plaintiffs are not required to bring FDCPA class actions statewide and thus may properly limit geographic scope. Hopefully this kind of tactic does not become a trend permitted by other courts, because it could result in dozens of class actions within each state, contradicting the purposes of Fed.R.Civ.P. 23 and the FDCPA’s class action statutory damage cap.

Appeals Court Upholds Ruling for Defendant in FCRA Case Over BK Notation on Credit Report

The Court of Appeals for the Sixth Circuit has upheld a lower court’s summary judgment ruling in favor of a credit reporting agency that was accused of violating the Fair Credit Reporting Act because it erroneously reported a father’s bankruptcy on his son’s credit report because the original petitions both had the son’s Social Security number, determining that the agency followed reasonable procedures to assure maximum possible accuracy of the reported information. More details here.

WHAT THIS MEANS, FROM DAVID SHAVER OF SURDYK DOWD & TURNER: In Hammoud, which involved the reporting of bankruptcy information, the Sixth Circuit addressed the issue of what makes a credit reporting agency’s verification procedure “reasonable” under 15 U.S.C. 1681e(b). Though some circuits have found that whether a procedure is reasonable is a “fact-dependent inquiry” for a jury to decide, the Sixth Circuit has determined that a credit reporting agency’s procedures “are reasonable as a matter of law when they rely on information obtained from reputable sources.” According to the Sixth Circuit, it would be an unreasonable burden to require a credit reporting agency to have a live human being, with at least a little legal training, review every bankruptcy dismissal and then classify it. However, when a consumer disputes a specific piece of information, the credit reporting agency’s investigative burden changes because the agency now has a pinpointed piece of information to look into.

The Sixth Circuit’s analysis should be useful in other factual scenarios (outside of reporting bankruptcy information) where the credit reporting agency relies on information from third-parties. So long as the agency is using reputable sources to obtain the information at issue and is taking steps to ensure that the information from those sources is being matched to the correct consumer, claims that the agency did not have reasonable procedures to ensure maximum possible accuracy should be defensible. In addition to confirming that there are not reasons to suspect information from third-party sources might be unreliable, credit reporting agencies should take care to ensure that their investigative procedures are tailored to conduct a deeper dive, if necessary, when a consumer disputes a specific piece of information. Hammoud makes clear that a dispute about a specific piece of information requires a different kind of investigation from the agency.  

CFPB Publishes Guidance Addressing ‘Shoddy’ FCRA Dispute Investigation Practices by Furnishers, CRAs

The Consumer Financial Protection Bureau yesterday issued guidance that warns furnishers of information to credit reporting agencies — and the agencies themselves — about the perils of not conducting reasonable investigations when consumers submit disputes about items on their credit reports. More details here.

WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: On November 10, the CFPB published Circular 2022-07 addressing certain expectations around reasonable investigation of a consumer reporting dispute. In particular, they make clear that furnishers and CRAs are not permitted to create obstacles or otherwise limit a consumer’s right to dispute in any way not provided for within the FCRA. Nothing in this position should be particularly surprising. While furnishers in the direct dispute context may require the disputes be sent to a specific location to be deemed a valid under the FCRA, furnishers and CRA may not require that it be in a particular format, include additionally “required” materials, or perform some other act before the obligation to investigate will arise.

The Circular also notes the obligation to conduct a reasonable investigation, and that doing so when the CRA fails to provide the furnisher with information the consumer provided to the CRA may not be possible. The CRA’s obligation in the indirect context is to provide the furnisher with “all relevant information” regarding the dispute, which generally includes materials provided by the consumer to the CRA. It is similarly important that the furnisher review those materials when conducting its investigation, even if it ultimately determines the materials are not relevant to the dispute. Failing to look at such materials is likely to result in the furnisher being deemed not to have conducted a reasonable investigation, as such information may be unusually probative.

In this instance, while directed to both furnishers and CRAs, this Circular appears directed more toward the CRAs and how their practices may negatively impact the furnisher’s ability to conduct a reasonable investigation. It also may be helpful in seeking indemnification from a CRA in future FCRA litigation if there is a failure of the type identified. That said, no real surprises in this one.

NY DFS Proposes New Cybersecurity Regs

The New York Department of Financial Services yesterday announced proposed amendments to its cybersecurity regulation, including increasing the size threshold for companies that are exempt from following much of the regulation, while also requiring more risk and vulnerability assessments and investing in training and cybersecurity awareness programs, among other changes. More details here.

WHAT THIS MEANS, FROM JONATHAN ROBBIN OF J. ROBBIN LAW: Since 2017, DFS Cybersecurity Requirements have been consistent. Now, for the first time, DFS is proposing significant changes to the existing Cybersecurity Regulation, including the introduction of new requirements with respect to governance, risk assessments and reporting obligations in connection with cybersecurity events.

Covered entities – that is, any person operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the Banking Law, the Insurance Law or the Financial Services Law, regardless of whether the covered entity is also regulated by other government agencies – will now be required to, inter alia, conduct penetration testing of their information systems from both inside and outside their boundaries by a qualified internal or external independent party at least annually, have a monitoring program in place to ensure entities are promptly informed of new vulnerabilities, create policies for passwords, implement written policies documenting all of their assets, and conduct “social engineering” exercises as part of a more robust training and awareness program and develop a business continuity and disaster recovery plan.

The proposal also creates tiers of companies based on sizing and provides more extensive requirements for “Class A companies”, or those covered entities with at least $20 million in gross annual revenue in the last two fiscal years from business operations of the covered entity and its affiliates in New York State and with either (1) over 2,000 employees averaged over the last two both fiscal years, including those of both the covered entity and of its affiliates no matter where located or (2) over $1 million in gross annual revenue in each of the last two fiscal years from all business operations of the covered entity and all of its affiliates.

According to the DFS press release upon announcing the changes, “ DFS has taken a data-driven approach to amending the regulation to ensure that regulated entities address new and increasing cybersecurity threats with the most effective controls and best practices to protect consumers and businesses.” Ultimately, time will tell if these regulations curtail and prevent additional cyber breaches.

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.