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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 Vacates Default Judgment Against Defendant in FDCPA Suit
A District Court judge in Indiana has granted a motion to vacate a default judgment that was entered against a defendant in a Fair Debt Collection Practices Act case, ruling that the plaintiff never properly served the defendant with the summons and complaint, after the defendant removed the case to federal court. More details here.
WHAT THIS MEANS, FROM DAVID SHAVER OF SURDYK DOWD & TURNER: The Southern District of Indiana’s Order Vacating Default Judgment in Catlett v. Integra Credit serves as a good reminder to agencies and other ARM defendants who have been sued in a foreign jurisdiction to work with their counsel to understand the specific procedural rules around service requirements in that state to ensure that the plaintiff has correctly perfected service (whether in a default situation or otherwise). Additionally, if an agency does find itself in a default situation (regardless of whether that situation is the result of an inadvertent oversight on its part or through no fault of its own), act quickly after finding out. Courts want to decide cases on their merits and seem to appreciate litigants being responsive and taking issues seriously when they come to light. Engaging counsel and acting without delay to remedy whatever the situation might be is something that can only help the agency persuade the court to rule in the manner it desires. That is what Integra Credit did when it learned of the state court default Mr. Catlett had obtained and those efforts appear to have helped to yield the proper result: a void default judgment and an opportunity for Integra Credit to defend itself on the merits.
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Judge Denies MTD in FDCPA Class Action Over Eviction
A District Court judge in Colorado has denied a defendant’s motion to dismiss in a class-action Fair Debt Collection Practices Act case, ruling that a document it sends to individuals who are being evicted by their landlords was sufficiently alleged by the plaintiff to be a deceptive communication claim and that the actions of the defendant were intentional. More details here.
WHAT THIS MEANS, FROM CHRISTOPHER MORRIS OF BASSFORD REMELE: It has long been a subject of debate whether landlord-tenant eviction actions trigger the FDCPA. Lawyers involved in evicting residential tenants, seeking only to remove the individual from the premises but not seeking payment of rent, have been successful at times arguing their work does not constitute collection of a consumer debt. In this case, a law firm tried to walk that fine line, sending tenants a document entitled “Stipulation and Advisement” offering that if the tenant surrendered possession of the residence before a certain date, or otherwise “worked it out” with the landlord, a pending eviction action would be dismissed. Plaintiff alleged that the document was routinely used to leverage payment of rent and contained misleading statements, in violation of the FDCPA. The law firm defendant moved to dismiss, arguing that it had not acted as a debt collector and that the FDCPA simply did not apply. The Court denied the motion, reasoning that while an eviction action arising from a breach of lease having nothing to do with non-payment of rent may not trigger the FDCPA, the allegations in the Complaint here were sufficient, at the pre-discovery pleading stage, to support a claim.
Judge Grants MSJ For Defendant in FCRA Case Over Disputed Debt Investigation
A District Court judge in Arizona has granted a defendant’s motion for summary judgment in a Fair Credit Reporting Act case, ruling that any ambiguity in how debts are reported by the credit reporting agencies is not necessarily the fault of the furnisher as long as the information being furnished is accurate, and that the information supplied by the plaintiff when the tradeline was disputed was not comprehensive enough to support a claim that the defendant did not conduct a reasonable investigation. More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: Sanchez v JPMorgan Chase hits on many of the issues that arise in a challenge to a tradeline. The court spends 18 pages doing a nice analysis of FCRA law on disputes, ultimately ruling for the furnisher. The basic facts are that JPMorgan Chase accepted a small payment to resolve a debt. It then reported a $0.00 balance, that it was 120 days delinquent, and that it was settled for less than the full balance. Plaintiff disputed the report but was a bit vague on the grounds. Chase investigated the matter and kept reporting a payment rating of 120 – 149 days past due. This FCRA suit followed.
Plaintiff claimed that payment rating was not proper. The court disagreed. It said that it is neither patently inaccurate nor materially misleading. The court said the tradeline must be viewed in its entirety. When “Pay Status” is looked at in conjunction with the rest of the tradeline, it is clear that the tradeline is reporting a historical pay status. The tradeline lists a zero balance, states a last payment in September of 2018, notes it was closed in 2018, and it settled for less than the full balance.
Once the court determined that the information was no patently incorrect or materially misleading, it moved on to review whether the investigation was reasonable. Chase showed that it reviewed its internal notes and verified the account status, the payment rating, and the account history. It verified the accuracy of the dates opened, last payment, and account closure. It insured it was reporting consistent with Metro 2 standards. The court concluded the investigation was reasonable.
The case presents a nice analysis on the standards to address in a tradeline dispute case. The insight into Chase’s investigation is also helpful for furnishers.
Wash. Appeals Court Overturns Ruling for Collector
The Court of Appeals for the State of Washington has reversed a lower court’s ruling and has held a debt collector vicariously liable for the creditor refusing to return an individual’s security deposit when she abandoned the lease for her townhome and required the collector to pay attorney fees and costs for the plaintiff covering two appeals of the original ruling. More details here.
WHAT THIS MEANS, FROM LORAINE LYONS OF MALONE LYONS WATTS MORGAN: What is the contractual relationship between the collection agency and its client? In this case, the landlord assigned the tenant’s outstanding balance to the collection agency who then sued the tenant to collect the balanced owed. The landlord-client is the assignor, and the collection agency is the assignee.
Generally, an assignee takes a contract subject to any defenses the account debtor may have against the assignor. On appeal, the court found the landlord did not comply with the state landlord-tenant deposit requirements under state law, and this defense applied to the collection agency (assignee).
The takeaway is to know the contractual relationship with the client and the obligations and liabilities that may arise under the relationship.
Senate Bill Seeks to Place Restrictions on Medical Debt Collection
A bill has been introduced in the Senate that seeks to cap the interest rate that can be charged on unpaid medical debts, create a private right of action, and force providers to wait 180 days after a bill has been sent before engaging in “extraordinary” collection actions. More details here.
WHAT THIS MEANS, FROM STEFANIE JACKMAN OF TROUTMAN PEPPER: There is a lot in this bill: limited English proficiency support requirements, required legal disclosures, mandatory waiting periods before certain collection activities, establishment of a medical debt database, annual reporting to the CFPB, and much more. If enacted as currently proposed, healthcare providers and their collection partners across the nation will likely have to make massive investments in and changes to their current patient servicing and collection practices. This could have a potentially destabilizing impact on the healthcare industry as a whole. Healthcare providers may face significant challenges in shifting into compliance if the bill is passed as proposed. This is likely to be especially true with respect to smaller providers who make possible critical access to care in small and rural communities. Investments in infrastructure, staff, data systems, and a host of other operational areas and oversight functions could prove to be cost-prohibitive for many healthcare providers around the country. If so, this bill risks exacerbating existing healthcare accessibility issues across the nation. Of course consumers should not face financial ruin because they got sick but we need a solution that also allows for the continued functioning of a robust healthcare system in the United States – which means being able to recover amounts that are owed on these accounts for services rendered.
Calif. Appeals Court Upholds Ruling For Creditor in RFDCPA Case
A California Appeals Court has upheld a summary judgment ruling in favor of a creditor that was sued for violating the Rosenthal Fair Debt Collection Practices Act, ruling that a medical service provider that uses an unaffiliated third-party billing service to collect payments for services renders does not meet the statute’s definition of “debt collector.” More details here.
WHAT THIS MEANS, FROM CARLOS ORTIZ OF POLSINELLI: In Olson, a California-state appellate court held that a medical service provider that exclusively uses an unaffiliated, third-party billing service to collect payment for services rendered to patients is not a debt collector within the meaning of the Rosenthal Act, Civ. Code, § 1788 et seq. The Complaint alleged that the defendants, a neurologist and his solely-owned professional corporation, violated the Rosenthal Act by sending multiple bills and making incessant phone calls seeking payment for neurological services they had provided to the plaintiff’s deceased spouse. In deciding that the defendants were not debt collectors, the court reasoned that while the Rosenthal Act applies to those who collect debts on behalf of themselves, it requires that the defendant must regularly and in the ordinary course of business “engage in” debt collection. To “engage in” an activity does not ordinarily mean to hire someone else to do it; it means to take part in doing it oneself. In this case, the evidence showed that the defendants used an unaffiliated, third party billing services, which they selected based on online advertising, customer reviews, interviews, and referrals. According to the court, there was no evidence that the defendants and the third party billing service were affiliated with one another, operated under common ownership, or were otherwise part of a single economic enterprise where they operated under common ownership pursuant to an agreement under which debts purchased by the former were immediately placed with the latter for collection.
The Olson Court also declined the plaintiff’s vicarious liability theory because it held that the Rosenthal Act does not impose vicarious liability on a creditor for the actions of an independent contractor who is not the creditor’s agent. According to the court, the most important factor in distinguishing an agent from an independent contractor is whether the principal has a right to control the manner and means by which the work is to be performed. While the court acknowledged that there may be some circumstances where a debt collector acts as a creditor’s agent, those circumstances depend on the nature of their relationship and the level of control the creditor exercises over the debt collector’s operations. In this case, there was no evidence that the defendants exercised control over the third-party billing service regarding its conduct in the actual performance of the debt collection work. This case underscores the importance of how a service agreement between a creditor and collection agency is structured and that a creditor should give serious consideration to the implications of the level of control it maintains over the collection agency.
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.
