Compliance Digest – February 13

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Every week, 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 in FDCPA Case Over Settlement Offer in Letter

In a case that was defended by Cooper Walker and the team at Frost Echols, a District Court judge in New York has granted a defendant’s motion for summary judgment, ruling a plaintiff lacked standing to pursue a Fair Debt Collection Practices Act case because she did not suffer a concrete injury after receiving a letter offering to settle a debt for which interest could have been accruing, but wasn’t. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: United States District Judge Cathy Seibel (Southern District of New York) recently granted a defense summary judgment in favor of a creditor and a collection agency in an FDCPA case. In Snyder v. LVNV Funding LLC and Sequium Asset Solutions, LLC, No.  21-CV-7794, the plaintiff claimed that she was confused by a settlement offer that lacked an expiration date and left her unsure if the total due would increase through the addition of post-judgment interest, such that she was prevented from fully exploring options to accept the offer.

Judge Seibel dismissed the lawsuit without prejudice due to the plaintiff’s failure to establish a concrete harm sufficient to establish Article III standing. The Judge noted that, in fact, at the time the plaintiff filed the lawsuit, the offer remained open and no interest was being added to the balance. At most, the plaintiff alleged a risk of future harm, which is not sufficient.

In many cases, a standing win, while still a win, leaves the defense back at square one, having invested significant time and money into merits discovery and litigation in federal court only to win on a threshold jurisdictional issue that does not technically prevent the plaintiff from starting fresh with the same claim in state court. We cannot blame the federal judges for this. They are required to determine threshold issues of subject matter jurisdiction first, before they are authorized to issue rulings on the substance and merits of the claims and other defenses. And it is still valuable from a defense perspective to have the federal suit dismissed and gain the use of a ruling that the plaintiff incurred no harm.

Judge Seibel, perhaps tuned into the possibility that this lawsuit may be immediately re-filed in state court,  increased the value of her opinion by gifting the defense with some merits wisdom in a highly-sought-after, but rarely seen “I’m not allowed to make this ruling, but if I could, this is what I would do” concluding footnote: “If I had subject matter jurisdiction to reach the merits of this case, I would grant summary judgment in Defendants’ favor and dismiss the claims with prejudice (citing reasoning and case law).” While this is dicta, it is invaluable dicta. Yay, Judge Seibel!


CFPB Proposes Rule to Cap Credit Card Late Fees

The Consumer Financial Protection Bureau yesterday issued a proposed rule seeking to lower credit card late fees at $8, bring an end to the automatic inflation adjustment that occurs annually, and cap late fees at 25% of the minimum payment owed by the cardholder. The proposal would save consumers as much as $9 billion per year, according to CFPB estimates. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: On February 1, the Consumer Financial Protection Bureau (CFPB) proposed a rule limiting credit card late fees. The proposed rule would lower the maximum credit card late fees to $8, end the automatic annual inflation adjustment, and limit late fees to 25% of the cardholder’s required minimum payment. The CFPB’s proposal marks the agency’s increased attention to credit card transactions, specifically credit card “junk fees.”

Currently, under Regulation Z, a credit card issuer may impose a penalty fee only if the amount of the fee is reasonably proportional to the total costs incurred or it complies with the safe harbor provision. The safe harbor provision allows credit card issuers to impose a penalty fee of $30 for the first violation and $41 for subsequent violations without violating the reasonable and proportional fee requirement. The CFPB proposes to reduce the safe harbor amount to $8 for both initial and subsequent violations and would remove the automatic annual inflation adjustment of that safe harbor amount. However, the proposed rule recognizes a limited exception that would allow credit card issuers to charge more than $8 if they can prove that the higher fee is necessary to cover the incurred collection costs.  

Additionally, the CFPB seeks to cap late fees to 25% of the cardholder’s required minimum payment.  Regulation Z currently allows a credit card issuer to charge a late fee that is equivalent to the full amount of the cardholder’s required minimum payment. Notably, the proposed 25% limitation would apply even if the safe harbor provision would otherwise permit a higher fee.

The CFPB also seeks comment on other potential changes to the Credit Card Accountability Responsibility and Disclosure Act. For instance, while the proposed rule only applies to late fees, the CFPB requests comment on whether the rule should be expanded to apply to other types of penalty fees. Further, although Regulation Z does not require card issuers to provide customers with the chance to avoid penalty fees after the due date, the CFPB seeks comments on whether to require a 15-day courtesy period. 

This proposed rule should be viewed as part of a broader agency policy to implement additional consumer protection measures on credit card transactions and disclosures. In 2022, the CFPB targeted credit card “junk fees” and promised to ramp up credit card enforcement in the new year. This most recent proposal follows up on those promises and reinforces the CFPB’s efforts to regulate the credit card industry. 

Judge Remands FDCPA Case Back to State Court, Awards Attorney’s Fees to Plaintiff

A District Court judge in Wisconsin has granted a plaintiff’s motion to remand a Fair Debt Collection Practices Act case back to state court where it was originally filed and granted the plaintiff’s motion for attorney’s fees and costs because it was “objectively unreasonable” for the defendant to remove the case in the first place. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Aim first, shoot second (and shoot only if you aim is true!). This case addresses the potential consequences of removing an FDCPA case to federal court. It also addresses whether a complaint that includes a request for “actual damages”  and claims “stress” constitutes the pleading of a “concrete injury” for purposes of federal court standing (which, along with a federal question, is the underpinning of an FDCPA removal). Frankly, the complaint’s allegations of actual damages and stress were weak at best, and potentially subject to a Rule 11 motion (or at least a motion to strike). In this case, however, it was the pleading of “stress” and “actual damages” that gave rise to the removal.

The plaintiff responded to the removal with a motion to remand back to state court. The defendant responded by explaining why it had removed (see above) but then consented to the remand. The defendant’s briefing, instead, served as opposition to the plaintiff’s request for attorneys fees — which are allowed in some instances when a motion to remand is successful. The Judge concluded that the mere inclusion of “stress” and “actual damages” references in the complaint was not enough of a basis to remove; citing existing 7th Circuit caselaw, which in turn interpreted Spokeo. The court ultimately remanded back to federal court, but not before it also ordered plaintiff to submit its fee request (with the defendant afforded time to respond to the amount requested).

The upshot of this case? You truly must aim first and be sure that what you are aiming at is “in season.”  If a defendant does pull the removal trigger, it’s then up to the defendant to essentially prove that the plaintiff alleged a “concrete injury” sufficient to invoke federal court standing. If not, be ready for the remand and the “fine” for hunting “out of season.”

Judge Denies Certification, Defendants’ MSJ in FDCPA Class Action

A District Court judge in Washington has denied a plaintiff’s motion to certify a class while also denying motions for summary judgment from a number of defendants in a Fair Debt Collection Practices Act case stemming from a consent order between one of the defendants and the Consumer Financial Protection Bureau. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: There is a lot to unpack in the 36-page ruling in Hoffman v Transworld. The part I liked the most – and I suspect Transworld did as well – is the ruling that denies class certification. Plaintiff’s theory basically was that the defendant filed collection lawsuits without the ability to prove them up and used false information. The plaintiff did not use “fail safe” class definitions, but the analysis was similar to what courts do in that situation. The court analyzed the nature of the claims and determined they could not be resolved on a class basis. There were two quotes that go to the heart of the analysis, and likely has application in many other putative class actions we face: (1) “Individual inquiry is required to determine whether TSI or the NCSLTs can present sufficient documentation to support ownership of each class member’s loan” and (2)“Similarly, whether the affidavits and declarations of TSI employees are false, deceptive, and/or misleading requires inquiry concerning the individual affiants.” Good stuff.

The court had less favorable things to say on the defendant’s summary judgment but that only related to the individual claims. The overwhelming part of the case was knocked out. Hopefully we can use this case and those quotes in other consumer cases.  

Calif. Appeals Court Upholds Denial of Motion to Compel Arbitration in RFDCPA Case

The California Court of Appeals has upheld a lower court’s ruling denying a motion to compel arbitration filed by a collection operation, reaching the same conclusion that the plaintiff never officially consented to arbitration with the original creditor, and allowing a Rosenthal Fair Debt Collection Practices Act case to proceed. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: This case is part of a trend of recent cases holding that where there is no evidence of a “signed” arbitration agreement or some indicia that the consumer assented or agreed to the specific arbitration terms, it is difficult today to win on a motion to compel arbitration in state or federal Court. The online arbitration agreements seem to fare better, where there is a fairly conspicuous arbitration clause that the Consumer was able to find, read, and click to agree. As in the case of Felderman v. United States Bank N.A., 2022 U.S. Dist. LEXIS 22413, out of the Central District Federal Court in California, the Court held: Here, Defendant has produced adequate evidence of an Arbitration Agreement, which Plaintiff was given notice of in several monthly account statements. See (ECF No. 44-1 at 6, 10, 16). However, Defendant has not provided evidence that Plaintiff ever signed or saw the Arbitration Agreement. That is the problem in a nutshell.  

Another critical issue is to insure that the arbitration provision at issue was at least one that was sent to and received by the Cardholder. Absent a finding that the company at issue can demonstrate that the consumer “received” the arbitration clause at issue, courts are quick to criticize and deny a motion to compel arbitration provision.

It is time for all companies to button up their arbitration provision opt ins to insure that they can demonstrate that consumers received and agreed to the arbitration provision by some affirmative act.    

Judge Denies MSJ Motions from Plaintiff, Defendant in FDCPA Case over Dispute Removal Request

A District Court judge in Michigan has denied a plaintiff’s motion for summary judgment, while also denying the defendant’s motion to dismiss or, in the alternative, for summary judgment in a Fair Debt Collection Practices Act case involving the alleged failure of a credit reporting agency to remove a dispute flag from the plaintiff’s account after she notified the defendant she no longer wanted to dispute the account. More details here.

WHAT THIS MEANS, FROM DALE GOLDEN OF GOLDEN SCAZ GAGAIN: Charting a course for defending a lawsuit is integral to obtaining a good result for the client. In this case, it appears as though the defendant had a strong bona fide error defense. But the court denied summary judgment on that defense, likely because the Judge was swayed by the plaintiff’s claim that the defendant failed to provide its policies and procedures in discovery despite a specific request. Regardless of whether this assertion was in fact accurate, the Judge thought enough of it to reopen discovery and permit the plaintiff to depose the defendant on the BFE defense. Clients are sometimes reluctant to produce policies and procedures in discovery. But if a valid BFE defense exists, early production of those items can produce long-term benefits by removing one argument from the plaintiff’s arsenal.

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, email John H. Bedard, Jr., or call (678) 253-1871.

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