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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.
Appeals Court Upholds Ruling for CFPB in Case Over Deceptive Solicitations
The Court of Appeals for the Ninth Circuit has upheld a ruling in favor of the Consumer Financial Protection Bureau against a company and its owner that were sued for allegedly mailing deceptive solicitations to individuals that advertised help in applying for scholarships, determining that the owner meet one of the definitions for a “covered person” and that the solicitations failed the net impression test. More details here.
WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: The takeaways here are that the CFPB’s reach is broad and even “mostly true” statements may be deemed deceptive when considered as a whole. The owner of (the now defunct) Global Financial Support sent consumers mailers implying (without making specific promises) that it would individually match and enroll prospective students with eligible college scholarships. Of course, there was a fee to get the information. In the end, the students were not enrolled in any scholarships and no individual information was provided. The result? A slight expansion of the CFPB’s reach. The defendant was deemed to be a “covered person” under CFPA because, although nontraditional, the solicitations were found to be “financial advisory services.” Likewise, the Court concluded that the solicitations were deceptive because, while not outright false, they contained “false impressions” which created a “net impression” of falsity.
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Judge Grants Judgment for Defendant in FDCPA Case Over Garnishment from Joint Bank Account
In a case that was defended by Rick Perr at Kaufman Dolowich & Voluck, a District Court judge in Pennsylvania has granted a judgment on the pleadings for a defendant that was accused of violating the Fair Debt Collection Practices Act when it garnished a joint bank account despite allegedly knowing it contained funds immune from garnishment. More details here.
WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: Widmer challenges the debt collector’s actions in a post judgment garnishment, raising allegations that the debt collector law firm violated both sections 1692e and f. In Widmer, the debt collecting firm was able to successfully establish that they complied with Pennsylvania’s garnishment statute and thus, did not violate either section 1692e or section 1692f of the FDCPA.
Challenges to a debt collection lawyer’s actions in collecting the debt are becoming more common. Dating back to the Supreme Court’s decision in Heintz v. Jenkins, it is clear that a lawyer’s statements made in court filings are subject to scrutiny under the FDCPA (see 15 USC §1692e), as are its actions in collecting the debt (see 15 USC §1692f). While the FDCPA is a strict liability statute, it provides debt collectors with a bona fide error defense if they can establish: (a) that the violation was not intentional; and (b) that the error occurred despite the maintenance of procedures reasonably adapted to avoid any such error. 15 USC § 1692k. Thus, claims attacking a law firm’s statements or actions are subject to two levels of inquiry: first, whether the statements or actions violate the FDCPA and secondly, where there is a violation, whether the bona fide error defense can save the day. Readers should be reminded that while the Supreme Court in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich held that the bona fide error defense was not available as to misinterpretations as to the legal requirements of FDCPA, the Court stopped short from stating that it extends to all mistakes of law. Thus, the bona fide error defense remains an important consideration in a law firm’s defense. Recent cases such as Van Hoven v. Buckles & Buckles, P.L.C., 947 F.3d 889 (6th Cir. 2020) and Kaiser v. Cascade Rec. Servs., LLC, 989 F.3d 1127 (9th Cir. 2021) demonstrate the bona fide error’s viability where there may be a mistake of law and the mistake is one which lends itself to the defense.
Judge Grants MSJ For Defendant in FCRA Case Over Disputed Debts
A District Court judge in Maryland has granted a defendant’s motion for summary judgment in a Fair Credit Reporting Act case, ruling the plaintiff’s claim that the defendant did not conduct a reasonable investigation was without merit and that the plaintiff did not produce enough evidence to make his case. More details here.
WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: Summary judgment is appropriate if a defendant believes that a plaintiff doesn’t have the evidence to prove any element of their case. That is what happened here. In this case, the defendant created a credible record of evidence illustrating that it did conduct a reasonable investigation which Plaintiff could not rebut. As a result, the Court granted summary judgment for defendant. While the litigation in this case is straightforward, it should serve as a reminder to those companies that do credit report to have clear policies and procedures regarding disputes and investigations and to follow those policies and procedures.
Judge Grants MTD for Lack of Standing in FDCPA Case Where Letter was Sent to Represented Individual
Sending a letter to an individual who is represented by an attorney is not automatically a violation of the Fair Debt Collection Practices Act, a District Court judge in Illinois has ruled, determining that the injuries alleged to have been suffered by the plaintiff were not sufficient for the plaintiff to have standing to sue. More details here.
WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH & VOLUCK: We are beginning to see the outlines of standing in federal court manifest themselves in a myriad of opinions. It is not just Hunstein-style cases that are being remanded for lack of standing, but also cases pertaining to other aspects of the FDCPA. Here, the issue was whether the receipt of a letter by a consumer where the consumer had notified the agency that the consumer was represented by a lawyer caused concrete injury, or whether such a violation was similar to a mere-statutory violation without manifesting injury. The court concluded there was no concrete injury. Many of the alleged FDCPA violations against the ARM industry are statutory violations without real injury. For this reason, the next decade will see most cases in state court and not federal court. The ARM industry will need to adjust its litigation strategy to deal with the new normal.
*just because a consumer does not have standing in federal court does not mean that the case cannot proceed. It simply means the case has to be litigated in state court.
CFPB Proposes Creation of Repeat Offender Registry
The Consumer Financial Protection Bureau yesterday issued a proposed rule that would require non-banks — such as debt collectors — to report enforcement actions and court orders to a public registry that would be used to detect repeat offenders and give the CFPB and other enforcement agencies insights to help it “take action to stop further large-scale harm or continued illegal efforts across the country.” The repeat offender registry would be a central repository that unifies the efforts of enforcement agencies while increasing transparency, according to the CFPB. More details here.
WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: Anyone in the financial services industry, who is not a bank or credit union, should be very concerned by the Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) proposed rule that would set up a public registry and require non-banks to report all federal and state final enforcement actions and orders. The proposed rule would also require supervised non-banks to submit annual written statements affirming compliance with examination orders. These statements would need to be signed by an attesting executive who has knowledge of the entity’s relevant systems and procedures.
Why is the Bureau doing this? This certainly is a head-scratcher. The CFPB’s enforcement orders are public. They are rolled out with a flashy press release and in many instances the national media picks up the story. The consent orders themselves are on the Bureau’s website and can be easily accessed. Similarly, many states’ attorneys general and regulators post consent orders and notices of violations on their website and do similar press releases. Further, any licensed entity that uses the National Multistate Licensing System & Registry (NMLS) is required to post information about any consent orders or judgments; that information is also available to consumers in a searchable and free section of the NMLS website.
In the pre-amble of the rule, the CFPB says that this registry, as well as the annual written statement, are necessary to more effectively monitor and reduce risks to consumers posed by the entities that violate consumer protection laws, especially those entities who are repeat offenders. Both, the Bureau’s says, will better assist in identifying risk and assisting in their rulemaking functions.
One cannot help but view this as the “naughty list”. Jokes aside, there are serious concerns with what the CFPB is proposing that will have significant legal consequence to non-bank entities including ARM industry participants.
The naughty list will cover any final and alleged violation of consumer protection law. Entities who agree to a consent order or stipulated judgment accept a fine or penalty but rarely admit liability. That lack of admission now becomes irrelevant under the CFPB’s proposed rule. It also seems apparent that obtaining a close letter after an investigation will be next to impossible. The Bureau will simply have no incentive to do so. Even more troubling is the label that once an offender always an offender. What is the pathway for a non-bank financial institution entity to rehabilitate and move beyond a mistake? Even hardened criminals are given opportunities for a 2nd chance. Additionally, the proposed rule would require any consent order that was entered as of January 1, 2017 to be included in the registry. This would have been a critical factor in the negotiations of the consent order. While the right to self-incrimination does not extend to civil proceedings, notice and due process does. Adding to the complications are violations of state law which may not otherwise violate a federal law, For example, the entity failed to pay an annual licensing fee, failed to re-register or their bond premium was insufficient. How would the registry differentiate these instances of non-compliance?
It’s hard to envision any executive from a supervised entity who will agree to raise their hand and sign their name to the annual statement of compliance under penalty of perjury. Given that the CFPB has come out with no less then 30 guidance documents in 2022 which have provided novel theories of UDAAP, the FCRA and the FDCPA, it would be virtually impossible to make such an attestation without exposing any entity to claims of misrepresentation, that were not considered the year before. If this is not rulemaking by enforcement, I am not sure what else is.
Much like industry rallied around Reg F and Hunstein, this proposal will require industry comment. The costs to implement and set up such a registry far outweigh any benefit to consumers and certainly results in significant and needless harm to industry. Assuming this proposal becomes a final rule, expect lengthy legal challenges as clearly much of what the Bureau is seeking violates basic due process rights.
In the interim, as the ARM industry enters into 2023, there is no time like the present to ensure that your compliance management system is well-coordinated and well-executed. The CFPB’s proposal leaves no room for error.
Judge Denies MTD in FDCPA Case Over Attempt to Collect Unrelated Court Costs
A District Court judge in Alaska — yes, Alaska — has denied a defendant’s motion to dismiss after it was sued for violating the Fair Debt Collection Practices Act because it accidentally included costs in an unrelated case when filing a motion to recover its litigation costs after successfully suing the plaintiff for the unpaid debt in Alaska — yes, Alaska — state court. More details here.
WHAT THIS MEANS, FROM CHUCK DODGE OF HUDSON COOK: This case has a few interesting twists but the Alaska court appears to have decided the motion to dismiss correctly. A debt buyer sued a consumer to collect a credit card debt and won a judgment in Alaska state court. In its motion to the state court recover costs, the debt buyer included certain costs attributable to the collection of another matter. The state court awarded costs to the debt buyer in an amount less than what the debt buyer asked. Then the consumer sued the debt buyer in federal court in Alaska, alleging that the misstatement of the litigation costs violated the FDCPA rule prohibiting a debt collector (or debt buyer) from misrepresenting the amount or legal status of a debt. The debt buyer moved to dismiss, arguing that under the Rooker-Feldman doctrine the federal district court should not hear the case because it was effectively an appeal of the state court order on costs and that its request to the court for costs was not an attempt to collect a debt. The federal court denied the motion, noting that the FDCPA claim was an independent cause of action based on facts different from the state court’s facts related to its judgment – and that deciding whether there was an FDCPA violation in the petition for costs did not require the federal court to re-think the state court rulings. The court also did not accept the premise that communication with the court about costs was something other than an attempt to collect a debt based on 9th Circuit precedent and the Supreme Court’s decision in Heintz v. Jenkins. The debt buyer may prevail on a motion for summary judgment or at trial, but at the motion to dismiss stage the court found that these communications with the court about fees could plausibly be attempts to collect a debt from the consumer.
Republicans Warn Chopra that More Oversight of CFPB is on the Horizon
Rohit Chopra, the Director of the Consumer Financial Protection Bureau, got a taste yesterday of what it’s going to be like for at least the next two years every time he heads up to Capitol Hill to visit the House Financial Services Committee, with Republicans calling on the CFPB to rescind a number of actions it has taken and blasting what they described as an “appalling” lack of transparency. More details here.
WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS SUTHERLAND: Bringing the year to a close just as he began it, Director Chopra highlighted the broad array of topics of import to him to the House Financial Services Committee. Although the Committee’s composition had not yet changed to reflect the new majority in Congress, Director Chopra’s breadth of knowledge and passion for regulating everything from Big Tech’s influence on banking to lightening the load of medical debt on consumers’ credit files met with a less than friendly response. Although Director Chopra’s vision is clear, the authority of the Consumer Financial Protection Bureau to take on all these challenges is anything but clear. Not only is Congress challenging the Director’s authority to use the vehicle of the Bureau to effect the change in the consumer financial ecosystem he wants to see, but the Fifth Circuit has challenged the constitutionality of the Bureau’s funding in regard to the payday lending rule, and prominent financial services professional associations and other are mounting a challenge on the Bureau’s manner of interpreting its UDAAP authority to reach issues like financial discrimination. What does this mean for industry? At this point for industry the clear strategy is to stay the compliance course. The Bureau continues to pursue its examinations and is rumored to be investigating a number of key companies in the evolving consumer finance market. Happy holidays and best wishes for the new year!
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.
