Compliance Digest – January 23

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 Dismisses FDCPA Class for Lack of Standing Related to SOL Disclosure

A District Court judge in New York has granted a defendant’s motion to dismiss a Fair Debt Collection Practices Act class-action lawsuit, ruling the plaintiff lacked standing to sue after arguing that a violation of state law cause the alleged FDCPA infraction. More details here.

WHAT THIS MEANS, FROM COOPER WALKER OF FROST ECHOLS: Here is something you probably heard recently — a New York judge tossed out another case for lack of Article III standing. The good news is that the case was thrown out at the Motion to Dismiss as opposed to on a Motion to Remand. And, in fairness to Plaintiff’s counsel, this case (and most of the arguments made) were pre-TransUnion. In any event, Judge Cogan correctly applied post-TransUnion case law to the facts of the Complaint and reiterated that an “asserted informational injury that causes no adverse effects cannot satisfy Article III.” TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2214 (2021). Moreover, Judge Cogan provided a great reminder that “State law cannot piggyback on a federal statute (here, the FDCPA) to create an Article III injury that would not otherwise exist. Cf. Adams v. Skagit Bonded Collectors, LLC, 836 F. App’x 544, 545–47 & n.2 (9th Cir. 2020) (concluding that the doctrine of informational injury does not apply to FDCPA violations because the FDCPA does not create “a right to information per se”).” This is a good thing to keep in mind the next time you’re analyzing how to proceed with your case.

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FTC Seeks to Ban Non-Compete Clauses

The Federal Trade Commission has proposed a rule that would ban the use of non-compete clauses in employment contracts, which affect as many as 18% of all workers in the United States. More details here.

WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: The FTC has proposed a rule which in essence will ban non-compete agreements as soon as late 2023. The proposed rule is in its comment period and will impact employers in all verticals, including the ARM industry. As proposed, the rule defines “non-compete” broadly and would encompass traditional non-competes as well as clauses which have the effect of non-competes. Importantly, the rule will require employers rescind existing noncompetes and actively inform affected persons that they are no longer in effect. Less clear is the effect that the rule will have on Non-Disclosure agreements. While not expressly prohibited, if their effect is to effectively function as a non-compete they will likely be prohibited. Compliance officers, HR professionals, and others should begin reviewing the rule, their employment and other agreements to determining whether revisions are necessary.

Appeals Court Overturns Own Precedent in BK Case

The Court of Appeals for the Seventh Circuit has overturned a bankruptcy court’s decision and remanded a case with instructions to resolve claims from the bankruptcy trustee on the merits after a collection agency garnished an individual’s wages and seized $3,700 within the 90 days before the individual filed for bankruptcy protection. In issuing its ruling, the Appeals Court overturned a nearly 40-year-old precedent from the Seventh Circuit that was trumped by a Supreme Court ruling 30 years ago. More details here.

WHAT THIS MEANS, FROM ALAN HOCHHEISER OF MAURICE WUTSCHER: The Supreme Court of the United States held that Federal law not State law controls when defining a transfer on an alleged preference under 11 U.S.C Sec 547. The court held that it is the date that the funds are paid over not the date of the issuance of garnishment order or service of the same. As a result, Creditors will need to follow up regularly if funds are not paid in under a garnishment order timely. Employers or Banks may be slow in paying into the court or to the creditor the funds attached, which prior to this decision, was an advantage, as it limited some preference actions. Now, Creditors will no longer be able to rely on state law to provide a defense that the attachment was effective outside the 90-day preference period.

Appeals Court Affirms Ruling for Defendant in FDCPA Case

The Court of Appeals for the Third Circuit has upheld a lower court’s summary judgment ruling in favor of a defendant that was sued for violating the Fair Debt Collection Practices Act when it attempted to collect on a judgment that was later vacated. More details here.

WHAT THIS MEANS, FROM MONICA LITTMAN OF KAUFMAN DOLOWICH & VOLUCK: The agency’s collection activity all occurred while there was a valid and lawful judgment against the consumer. It did not matter that the judgment was vacated long after the collection activity took place. The court made the correct decision here.  

CFPB Proposes Rule Creating Registry of Nonbank Contract Terms

The Consumer Financial Protection Bureau yesterday announced a proposed rule to establish a public registry of the “take it or leave it” terms and conditions used in contracts that “claim to waive or limit consumer rights and protections” such as preventing private rights of action and making consumers agree to unenforceable waivers. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: Just a few days after the FTC announced a proposed rule banning noncomplete clauses, the CFPB entered the contracting regulatory ring with a proposed rule of its own: a mandatory public registry of “take it or leave it” terms and conditions in form consumer contracts. Under the proposed rule, nonbanks would be required to participate in the registry if they use specific terms and conditions in adhesion contracts that “attempt to waive consumers’ legal protections, to limit how consumers enforce their rights, or to restrict consumers’ ability to file complaints or post reviews.” The reported information would be published on the CFPB’s website.

The CFPB stated that it would use the registry to “monitor risks to consumers” and to prioritize examinations of companies as part of its “risk-based nonbank supervision program” under the Consumer Financial Protection Act of 2010. The proposed rule includes eight categories of terms and conditions which the CFPB intends to track initially:

  1. terms setting statutes of limitations, whether earlier than the otherwise applicable law or not, and which may be broadened to include pre-filing requirements;
  2. forum selection clauses; 
  3. class action waivers and terms limiting a consumer’s ability to participate in representative or consolidated actions;
  4. liquidated damages clauses and terms limiting the company’s liability or barring certain types of remedies;
  5. waivers of causes of action or responsibility;
  6. nondisparagement clauses and other limitations on communications reviewing, assessing, or complaining about the product (as proposed, this does not include the same exceptions as the Consumer Review Fairness Act); 
  7. expressly waiving any other “identified consumer legal protection” provided under law (such as Servicemembers Civil Relief Act protections); and
  8. arbitration agreements.

The CFPB has sought comment on the scope of the categories in the proposed rule. The proposed rule appears to err on the side of inclusiveness to “minimize the burden” on companies to analyze their contracts – taking a “when in doubt, report it” approach instead. However, given that this registry will likely be used to facilitate targeted drafting of regulations limiting use of these terms, businesses may wish to consider whether narrower reporting requirements would be worth the additional burden. Comments are due by March 13, 2023 or 30 days after publication of the proposed rule in the Federal Register, whichever is later.

N.Y. State Court Judge Dismisses FDCPA Case for Lack of Standing

One of the big concerns regarding the trend of federal judges dismissing cases because the plaintiff lacked standing to sue in federal court is that those cases would end up being filed in state court, and the decisions might not be as favorable for the defendants. To give everyone a little hope, I give you a ruling from a state court judge in New York, who has dismissed a complaint filed against a collection law firm for allegedly violating the Fair Debt Collection Practices Act because the plaintiff did not suffer any “specific injury.” More details here.

WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: This is exactly the kind of outcome we need to strive for in the “lack of standing” cases. Even though a dismissal for lack of standing in federal court doesn’t end the case (assuming the plaintiff re-files in state court), it definitely weighs in favor of a defense win. We need to collectively stack these wins up so that when we are in state court, we have state court orders to point to in getting cases dismissed. If we amass enough of these, the cases being filed with no actual injury are likely to die down altogether.  

CFPB Report Analyzes Credit Reporting Complaints

The Consumer Financial Protection Bureau is looking at instituting new rules regulating credit reporting agencies, based on the volume of consumer complaints that it has received related to consumers’ credit reports. The Bureau yesterday released a report that analyzed the complaints filed by consumers against Equifax, Experian, and TransUnion, spotlighting the changes that the companies have made in responding to complaints filed by consumers. More details here.

WHAT THIS MEANS, FROM JONATHAN ROBBIN OF J. ROBBIN LAW: The Consumer Financial Protection Bureau (CFPB) is looking at instituting new rules regulating credit reporting agencies, based on the volume of consumer complaints that it has received related to consumers’ credit reports. This is in response to a report analyzing the complaints filed by consumers against Equifax, Experian, and TransUnion. Specifically, the Report is overly critical of the credit reporting industry noting that the three largest credit reporting agencies largely rely on template complaint responses, no longer respond to consumers’ complaints when such complaints are suspected to have been submitted by a third-party, and Equifax and TransUnion specifically promised to investigate but failed to provide their respective investigations’ outcomes to the CFPB. In total, while the CFPB did not note what specific rules it was considering, it is fair to assume that the findings are likely to lead to heightened scrutiny and regulation from the CFPB to ensure substantive responses to consumers’ complaint of reporting inaccuracies.

FCC Chair Calls on Congress for Help Redefining ATDS, Right to Collect

The chair of the Federal Communications Commission has asked Congress to “fix” the definition of an automated telephone dialing system because the current definition may be the reason why the number of robotexts is increasing, and wants to be able to collect on the fines it assesses, according to a letter sent to a number of members of Congress who had inquired about the Commission’s fight against robocalls. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ AT ACTUATE LAW: Last month, Jessica Rosenworcel, FCC Chairwoman, wrote to multiple members of the U.S. Senate to discuss robocalls. After briefly outlining the steps the FCC has taken to track, block, and fine those responsible for mass robocall schemes, Ms. Rosenworcel asked for additional authority from Congress to help combat robocalls and robotexts – “one of [the FCC’s] top consumer protection priorities.” Ms. Rosenworcel’s letter outlines three FCC objectives: (1) Fix the definition of autodialer in the TCPA, (2) Expand tools to catch robocallers, and (3) Increase court enforcement of fines.

As to the first objective, the FCC is concerned that the increased volume of “robotexts” in 2022 was caused by the U.S. Supreme Court’s April 2021 decision in Facebook, Inc. v. Duguid. As a reminder, in that decision the Court held “that a necessary feature of an autodialer under §227(a)(1)(A) is the capacity to use a random or sequential number generator to either store or produce phone numbers to be called.” No source data is cited to support any causal connection between that opinion and an increase in the number of robotexts being sent in the U.S. Regardless, the Court’s Facebook decision opened the door for legislative changes to the TCPA, pointing out that for those receiving calls in the same context as Duguid, the “quarrel is with Congress, which did not define an autodialer as malleably” as some would like to account for modern technology.

To assist with the FCC’s second and third objectives – tracking down the robocallers and collecting penalties – Ms. Rosenworcel asks for FCC authority to access financial reports that institutions must produce regarding suspicious activities under the Bank Secrecy Act. Finally, Ms. Rosenworcel asks for FCC authority to enforce and collect the fines and penalties it assesses. It is apparent that Ms. Rosenworcel does not believe the Department of Justice is up for the task.

Ms. Rosenworcel’s letters are not surprising. Unwanted calls (and now texts) are a topic increasingly appearing on the agendas of state and local governments over recent years. Unfortunately, nearly every new law and court interpretation seems to bring unintended and broad consequences, compliance uncertainty, and financially damaging pitfalls for unsuspecting businesses trying to reach a customer base. Whether triggered by these letters or not, I would expect Congress (and state governments) to continue to try to get it right this year through new legislation.

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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