Compliance Digest – March 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 Partially Denies MJOP in FDCPA, TCPA Case Over Collection Texts

A District Court judge in California has partially granted a defendant’s motion for judgment on the pleadings, but denied counts related to text messages received under the Telephone Consumer Protection Act and the anti-harassment provision of the Fair Debt Collection Practices Act because the defendant sending 15 text messages in the span of one month. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: What makes this case interesting is the Judge’s assumption that because the complaint alleged that the plaintiff received 15 text messages within the span of a month an ATDS must have been involved. As some of the readers may know, I can send 15 text messages in 15 minutes if you want to talk to me about Star Wars! In my opinion, the Judge’s logic defies common sense; 15 text months over the span of one month is approximately a text message every other day. It is unclear how that leads to the assumption that an ATDS was involved. I have not seen any other court, post-Facebook allow a complaint to get past the pleadings stage based solely on the “high volume” of text messages. While I think this case is an outlier and I look forward seeing how the TCPA litigation unfolds at the summary judgment stage, this case is a good reminder for debt collection agencies and law firms to look at their overall communication strategy for consumers. If 15 text months in a month is enough to survive through pleadings in a TCPA case, how long before a consumer attorney makes the argument that 15 text months in a month, plus two letters, plus 10 e-mails, and 20 calls is considered harassing? Something for folks to consider.


Appeals Court Upholds Ruling for Defendant in Fake ID Theft Case

The Court of Appeals for the Tenth Circuit has upheld a ruling in favor of a defendant that was sued for obtaining a default judgment and garnishing the plaintiff’s wages after he defaulted on a student loan debt, by falsely claiming he was the victim of identity theft and claiming the defendants lacked standing to sue and did not own his loan. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: Taylor v National Collegiate Student Loan Trust, et al has an entertaining factual background and litigation history. Plaintiff sure seemed willing to engage in risky practices. He took out a $30,000 school loan but never went to the school. Chase sold the loan to one of the defendants. Years later he was sued and a $65,000 default judgment was entered. A year later he unsuccessfully tried to vacate the order, claiming lack of service. Two years later he filed a pleading in the collection case claiming he was a victim of identity theft. However, he later claimed the debt was discharged in bankruptcy – an inconsistent position that contributed to a later sanction order. He also went on the offensive, suing the defendants and alleging multiple causes of action. He lost and was sanctioned almost $38,000.

After failing at each level in the trial courts, he tried his luck on appeal. He lost again. There are a few appellate issues but two are interesting for the industry. Plaintiff challenged one of the defendant’s standing, claiming on various grounds that it could not establish ownership of the account. Debt buyers and those that work with them often run into a challenge to the chain of title. The court spends eight pages rejecting multiple such attacks. The case definitely can be used in other debt buyer situations to help prove ownership of an account.

The other interesting ruling was the sanctions award. The 10th Circuit Court of Appeals held that the trial court correctly relied on its “inherent authority” to sanction the plaintiff for misrepresentations he made about being a victim of identity theft. The Court discussed how 28 USC 1927 and Rule 11 did not fit with the sanction the trial court held most appropriate. It is pretty hard to get a sanction based on inherent authority, but Mr. Taylor found a way to make that happen. Interesting case indeed.

Judge Grants MTD in FDCPA Class Action Over Arbitration Clause with Debt Buyer

A District Court judge in Maryland has granted a defendant’s motion to compel arbitration and dismiss a Fair Debt Collection Practices Act class action, ruling that an underlying collection suit did not violate the terms of the agreement between the creditor and the plaintiff because the actions that led the plaintiff to file the lawsuit — allegedly harassing and rude debt collection calls — occurred after the collection suit was filed. More details here.

WHAT THIS MEANS, FROM JONATHAN ROBBIN OF J. ROBBIN LAW: In further showing the strength of defendants’ use of an arbitration provision to compel arbitration, the Maryland District Court compelled arbitration pursuant to a borrower’s personal loan agreement. The Court rejected Plaintiff’s arguments that (1) the successor creditor was not a party to the agreement and (2) that the filing of a collection action waived the right to seek arbitration in a matter separate from the collection action. First, the Court held that the Agreement was clear to apply to successors. Second, the Court agreed with the Defendants and held that the Plaintiff would have brought the FDCPA action regardless of whether the collection action had been previously filed in state court, as the alleged conduct was did not arise out of the collection action. As a result, the FDCPA action and the state court collection action were not sufficiently related to show Defendants waived their right to compel arbitration. This case provides another important example that even after a collection action is commenced, the right to seek arbitration on FDCPA claims is not foreclosed as courts will continue to enforce arbitration agreements in situations where the FDCPA claims do not arise from the collection litigation.

Appeals Court Vacates Judgment in Favor of Plaintiff in FDCPA Case Over Interest Disclosure in Letter

The Court of Appeals for the Eighth Circuit has overturned a lower court’s ruling in favor of the plaintiffs in a Fair Debt Collection Practices Act class action, ruling they lacked standing to pursue their lawsuit after claiming a statement that “Interest and other charges may accrue daily” was deceptive and misleading. The ruling hopefully brings an end to a case that had its share of legal twists and turns. More details here.

WHAT THIS MEANS, FROM MICHAEL KLUTHO OF BASSFORD REMELE: Good things come to those who wait! So what happened here. The appellate court described the issue as follows:  “The collectors sent … a letter demanding payment for medical bills. The letter listed amounts owed without distinguishing interest from principal. The letter said, “Interest and other charges may accrue daily.” The amounts included interest on [the] debts for which assessing interest was disputed and legally uncertain.” The case was sued out as a class action.

Before getting to the punch line [that is, the win aspect], a bit of interesting (and costly) background is worth noting. The collector first moved for summary judgment. The court denied the motion. A jury trial thereafter followed and the collector won on the FDCPA claims but lost on the Nebraska equivalent. The judge, on his own, decided he had given an “inaccurate” jury instruction, and based on that tossed out the jury verdict in favor of the collector and ruled in favor of the Plaintiff on the FDCPA counts. So now, the collector faced a loss on the FDCPA and the NCPA. 

The collector appealed to the 8th Circuit. After a prolonged and tortuous battle, the collector again prevailed on the FDCPA counts. The 8th Circuit reversed on the FDCPA claims holding that the Plaintiff lacked standing.  In short, the court concluded that the evidence revealed that the “Plaintiff received a letter” and then “neither took nor failed to take any action” after receiving it. Given this reality, Plaintiff lacked a concrete injury, and such absent injury, plaintiff lacked standing. Is this the end? That’s uncertain, but likely. The appellate court remanded the case back to the same federal district court judge. All that’s potentially left is a Nebraska-state law claim. A standalone state law claim cannot be pursued in federal court.  So, the federal court case should be dismissed. And any state law claim is likely time-barred even if it were viable. So, fingers crossed, this should be the end of this most unfortunate saga involving a Plaintiff who wasn’t injured.

Judge Dismisses FDCPA Class Action Over Multiple Addresses in Letter for Lack of Standing

A District Court judge in Pennsylvania has dismissed a Fair Debt Collection Practices Act class-action suit because the plaintiff lacked standing to sue after claiming a collection letter was deceptive and misleading because it included two different addresses on it, rendering the plaintiff unable to determine which one to use to dispute or otherwise seek validation of his debt. Ruling that being “paralyzed” by the choices in the letter is not enough to convince a juror that a least sophisticated debtor would not know how to proceed. 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.

Ninth Circuit Affirms Dismissal of Creditor’s Suit Over Debt Collection Phone Calls

The Court of Appeals for the Ninth Circuit has affirmed a lower court’s ruling that refused to enjoin an action filed in state court in California that accused Credit One Bank of violating the Rosenthal Fair Debt Collection Practices Act by employing a vendor to make “extensive harassing debt collection” calls to California residents. More details here.

WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: For the past couple of years, we have seen an increasing number of cases dismissed by federal courts for lack of jurisdiction when a plaintiff fails to properly allege or prove Article III standing. Here, the Ninth Circuit affirmed a lower court’s dismissal based on something called Younger abstention. This abstention doctrine is named for a 1971 case, Younger v. Harris, in which the Supreme Court held that federal courts should generally abstain from staying or enjoining criminal prosecutions pending in state court. Younger abstention was subsequently extended to civil enforcement actions, such as the one at issue in this case involving Rosenthal Fair Debt Collection Practices Act claims asserted against a national bank. Even though the federal court had jurisdiction, it chose to dismiss the case rather than interfere with the state-court enforcement action. 

Judge Recommends Sanctions Against Plaintiff’s Attorney in FDCPA Case

A Magistrate judge in Florida has recommended that an attorney with Credit Repair Lawyers of America be sanctioned and pay the defendant’s attorney’s fees in a Fair Debt Collection Practices Act case, after the attorney sent a letter indicating the plaintiff was no longer disputing the debt, when in fact the plaintiff was still disputing the debt. More details here.

WHAT THIS MEANS, FROM XERXES MARTIN OF MARTIN LYONS WATTS MORGAN: Agencies subscribed to this newsletter are not trying to cut corners, but instead are doing everything they can to abide by regulations and law. The “abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors” found by Congress in 1977 is not present anymore. This is why we are seeing more and more lawsuits based on “manufactured” claims like these, because the plaintiff’s bar must resort to hyper technical potential violations, creating claims based on ambiguous correspondence, abuse of the dispute processes, then hoping to catch a human error. The Dukes case is a perfect example of this and sends a great message by the industry and the Court, that it should not be tolerated. Dukes also shows why a deposition in your litigation defense is your best weapon to get a dismissal and possibly more.

New Data Privacy Bill Passed by House Financial Services Committee

A financial data privacy bill introduced last week by Rep. Patrick McHenry [R-N.C.], the chair of the House Financial Services Committee, was passed out of committee yesterday, and now moves to the full House of Representatives for its consideration. The bill seeks to amend the Gramm-Leach-Bliley Act by giving consumers the right to opt out of having data about them collected while creating a national standard for companies to follow. More details here.

WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS-SUTHERLAND: Although the proposed new financial privacy bill promises to provide a national standard and thus certainty for consumers and industry alike, consumer advocates expressed immediate and strong opposition to new House Bill 1165, named the Data Privacy Act of 2023 (HR 1165). House Financial Services Committee Chair, Rep. Patrick McHenry [R-N.C.] who recently keynoted at an ACA event, introduced the bill on Feb. 24, which bill is designed to update and reform the Gramm-Leach-Bliley Act. HR 1165 contains a pre-emption clause affecting any state law that regulates “financial institutions” (a phrase very broadly defined in the bill to include credit reporting agencies, debt collectors, auto dealers, even travel agencies, among others) in their “collection or disclosure of personal information.” Privacy buffs will remember that last year California’s attorney general organized a dozen or so attorneys general (and other well known privacy advocates) from states with strong privacy laws or regulations to trounce the bicameral/bipartisan American Data Privacy and Protection Act (ADPPA) based largely on opposition to its preemption feature. California’s Privacy Protection Agency Board voted unanimously last year to oppose the ADPPA based upon its preemption feature. If states’ attorneys general along with consumer advocates last year objected to a federal privacy bill designed to impede states’ rights to enact laws offering more privacy protection to their residents, it is likely that the same opposition will be leveled this year against HR 1165. Although industry and consumer advocates alike would welcome clarity and a national standard for financial privacy, any such bill containing a preemption clause is unlikely to earn bipartisan support. The National Consumer Law Center has already raised concerns that the law poses the potential to undo all the state medical debt laws that have been passed during or in the aftermath of the pandemic. Other features of HR 1165 that have not been well-received by consumer advocates are the absence of a private cause of action. Although the bill would give consumers the ability to “opt out” of any data collection to which they’ve not consented – based upon a clear national standard (and not subject to state by state variations in  protection). Consumer advocates insist the bill would not update the Gramm Leach Bliley Act in ways that would protect consumers’ rights. Despite the early and strong opposition, Rep. McHenry’s bill passed out of committee and will move to the full House of Representatives for its consideration. Says Rep. McHenry, “HR 1165 simply brings our privacy guardrails into the 21st century.”

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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