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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.
CFPB Issues Statement Defining ‘Abusive’ Conduct
The Consumer Financial Protection Bureau yesterday issued a broad policy statement that bans abusive conduct in consumer financial markets — including debt collection — setting guardrails on a term that has confounded the financial services industry for more than a decade in terms that were described as being “tilted heavily” in favor of consumers. More details here.
WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) broad and wide-ranging Policy Statement on Abusiveness (“Policy Statement”) signals that the Bureau will likely migrate away from the hallmark “Unfairness” and “Deception” in favor of a more nuanced prong titled “Abusiveness”, which can be easily triggered. By way of this Policy Statement, it is evident the CFPB will now seemingly pivot to abusiveness as a violation du jour, in an effort to more autonomously design and enforce their own UDAAP framework, which will be stricter and more draconian.
The ARM industry should be concerned. It will not take extraordinary conduct to run afoul of the abusiveness prong. Evidence of proof will weigh little on the CFPB’s conclusions of abusiveness and a covered entities intent will have no bearing on any finding. Further, as the Bureau notes, there is no need to show the act or practice caused substantial injury in order to establish liability. That the situation results in an unreasonable advantage for the consumer or there was a material interference (an act or omission) which intended to impede the consumers’ ability to understand the nature of the financial product or service is enough. It should not go unnoticed and it is no coincidence that the CFPB called out debt collectors and credit reporting agencies in this Policy Statement.
There are four (4) important takeaways:
- A New Approach to Proving Discrimination. The Policy Statement, in its current format, seems to provide the CFPB with some newfound ammunition and support in its efforts to more closely scrutinize discriminating conduct that violates the principles of UDAAP. Almost a year ago, the CFPB created a stir by announcing an initiative to combat discrimination through the “Unfairness” prong of UDAAP. In response, a number of trade groups pointed out in a letter to Director Chopra that the Bureau conflated distinct statutory concepts and went beyond the fair lending laws “carefully set by Congress”, which has resulted in numerous contentious lawsuits being filed. The Policy Statement now reveals the CFPB’s next procedural attempt to expand some of the same concepts through a similar, but slightly different, UDAAP approach.
- Curtailing Defenses to Abusiveness. The CFPB’s repeated and express disregard for an entity’s true intent or existing market customs suggests that pursuing abusive claims will be easier lift for the Bureau if they proceed under this Policy Statement, which will likely result in higher demands to resolve investigations. It is also apparent that the agency will review abusiveness violations through the eye of consumers on a case-by-case basis, regardless of how reasonable the underlying action was.
- A Gift to the States. The Policy Statement offers a playbook for states regulators to pursue federal UDAAP claims, which was encouraged by the CFPB in its May 2022 Interpretive Rule. It is not a coincidence that the Policy Statement labels itself as a resource for “government enforcers” rather than merely for Bureau staff.
- Non-Bank Industry will see Biggest Impact. The sweeping declarations and demands in the Policy Statement, if and when implemented, create a nearly limitless web for potential violations. It isn’t difficult to dream up plausible hypotheticals. Consider the impact to debt collection and collection litigation for example. Can a debt collector still innocently state “we are here to help”? Can a collection representative even assist with a settlement? Can collection attorneys speak to pro-se litigants about their case? This is just the tip of the iceberg. Regulated markets each have standard practices that could come under fire in the wake of this Policy Statement.
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Appeals Court Affirms $130k Ruling for Plaintiff in FDCPA Case
The Court of Appeals for the Sixth Circuit has upheld a ruling for the plaintiff that ordered the defendant in a Fair Debt Collection Practices Act case to pay $51,000 in damages and $88,000 in attorney’s fees after a jury ruled the defendant misrepresented that a lien had been placed on the plaintiff’s house and falsely threatening to foreclose on the property if the plaintiff failed to pay the alleged debt. More details here.
WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN PEPPER: This decision serves as a helpful reminder about deciding which lawsuits to fight and the exposure companies face in FDCPA litigation when jurors are tasked with assessing actual damages, as well as the importance of conducting accurate skip tracing with complete consumer information. After losing a motion to dismiss where the court rejected the law firm debt collector’s arguments that not even a least sophisticated consumer could have felt deceived or threatened because “no reasonable person in plaintiff’s position would have believed that defendants could attach a lien to her home and proceed with foreclosure,” and presumably knowing early on in the litigation that the person against whom the judgment had been obtained was not the person to whom it had sent the collection letter, the law firm inexplicably continued to fight this case through a jury trial that resulted in a verdict for $50,000 in actual damages, $1,000 in statutory damages, and an award of attorneys’ fees and costs of nearly $89,000. And, then it continued fighting through an appeal, despite a clear failure to comply with the requirements for post-verdict motions that led to the Sixth Circuit disposing of its merits based challenges on purely procedural grounds.
Court Grants MTD in FDCPA Class-Action Over Unredacted Exhibit
A District Court judge in Kansas has granted a defendant’s motion to dismiss in a Fair Debt Collection Practices Act class action, ruling that the plaintiff lacked standing to sue after accusing a law firm of failing to redact the plaintiff’s personal information from an exhibit filed in an underlying collection lawsuit. More details here.
WHAT THIS MEANS, FROM MONICA LITTMAN OF KAUFMAN DOLOWICH & VOLUCK: This court correctly rejected the plaintiff’s theories that she had standing based on the Supreme Court’s analysis in TransUnion v. Ramirez. None of the intangible injuries of emotional distress, aggravation, inconvenience, embarrassment, and frustration were enough. The plaintiff asserted no facts to support her claims that she lost any money due to the disclosure of her personally identifiable information. The plaintiff also failed to meet the requirements for diversity jurisdiction under the Class Action Fairness Act (“CAFA”). Under CAFA, a court has jurisdiction over a class action in which any member of a class of plaintiffs is a citizen of a state different from a defendant, the class includes more than 100 members, and the amount in controversy exceeds $5,000,000. 28 U.S.C. § 1332(d). The amount in controversy represents the aggregated claims of all putative class members. It was the plaintiff’s burden to meet the elements under CAFA. The plaintiff could not do that here when she provided no value of the amount of attorney’s fees and punitive damages and had no plausible allegations to establish the jurisdictional amount of $5 million.
Washington Legislature Passes Credit Repair Bill
Kudos to the Washington Collectors Association for getting a bill passed through the state legislature that will require credit repair services to obtain written authorization from a consumer prior to communicating with a consumer reporting agency, creditor, or collection agency while also placing other conditions on how credit repair services interact with consumers. More details here.
WHAT THIS MEANS, FROM MINDY CHUMBLEY OF SOLVERITY: We are excited about the opportunity to work with consumer advocates and a wide coalition of partners on a bill to regulate credit repair companies in Washington State. This bipartisan bill passed 91-6 out of the house and 46-0 out of the Senate and is headed to the governor’s desk for a signature. The bill greatly increases transparency for consumers and protects legitimate players in the industry. The Washington Collectors Association is thrilled to have been a part of the process and consider it an honor to have a bill move with such support.
Judge Denies Defendant’s Motion for Sanctions in FDCPA Case
A Magistrate judge in New York has denied a defendant’s motion for sanctions in a Fair Debt Collection Practices Act case after the plaintiff and her attorneys — from Credit Repair Lawyers of America — were accused of engaging in a frivolous action after filing a lawsuit alleging the defendant failed to remove a dispute notification from the plaintiff’s credit report when the plaintiff notified the defendant she was no longer disputing the debt in question. More details here.
WHAT THIS MEANS, FROM HEATH MORGAN OF MALONE LYONS WATTS MORGAN: For as often as we hear Courts and judges say that they are sick of frivolous FDCPA litigation, the often decline to act on sanctions motions for conduct that could be a deterrent. In this case, the Court’s denial on sanctions came down to the determination that it was reasonable for the Plaintiff to not rely on business records of the Defendant, but rather wait until Defendant’s sworn interrogatory answer before dismissing their case. This is certainly a judgment call of the Court to give this kind of deference to the Plaintiff.
The important takeaway here for debt collectors fighting frivolous litigation, is that if you are looking to tee up a sanctions motion under Rule 11, 15 U.S.C. 1692k, or 28 U.S.C. 1927, it is better to produce a sworn answer or affidavit in addition to producing business records to attempt to get plaintiffs to dismiss a case. That sworn document, according to this Court carries more weight than unsubstantiated account notes or documents.
Legislation Introduced in House, Senate to Allow CFPB to Compensate Whistleblowers
Bills have been introduced in the House of Representatives and the Senate aimed at providing financial compensation to individuals who report wrongdoing to the Consumer Financial Protection Bureau about issues at companies in the financial services industry. More details here.
WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: Identical bills were recently introduced to amend the CFPB Act of 2010 to provide for whistleblower incentives and protection: S. 1124 on March 30, 2023 (referred to the Committee on Banking, Housing, and Urban Affairs), and H.R. 2465 on April 3, 2023 (referred to the Committee on Financial Services).
The proposed addition to existing law would create incentives for a whistleblower who voluntarily provides “original information” regarding “a violation of Federal consumer financial law” outside the context of an “audit, examination, or investigation” where that information results in a successful enforcement.
Original information must be “derived from the independent knowledge or analysis of a whistleblower” and cannot be “known to the Bureau” from a source other than the whistleblower(s).
The award has the potential to be substantial: at least 10 percent, but not more than 30 percent, of the civil money penalties collected (not awarded) by the Bureau. If the collection is less than 1 million, the whistleblower will receive 10 percent or $50,000, whichever is greater. The 10-30 percent award range is at the Bureau’s discretion, considering the significance of the whistleblower’s information, the degree of assistance provided by the whistleblower, and any additional factors later established by rule. No award will be provided, however, if the whistleblower works for certain government agencies, is convicted of a related criminal violation or is found liable for (or who planned and initiated) the conduct at issue, submits the same information already submitted by another whistleblower, or knowingly submits false information. A whistleblower can also be denied an award if he/she “fails to submit information to the Bureau in such form” as the Bureau requires. The Bills do not include any instructions for submitting information, so presumably that would be addressed in implementing rules enacted later. Award payments will come from the existing Consumer Financial Civil Penalty Fund.
Calif. Appeals Court Affirms Ruling for Defendant in FDCPA Case
A California appeals court has upheld a lower court’s ruling striking a complaint in a Fair Debt Collection Practices Act case under the state’s anti-SLAPP statute. More details here.
WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: This shows some creative strategy on the defendants’ part. The plaintiff attempted to side-step an arbitration determination by re-initiating the claims in state court. The defendant correctly opposed the plaintiff’s attempt and moved to dismiss. But instead of just moving on res judicata grounds (the claim was already decided in arbitration), the defendant also moved to strike the complaint under the state’s anti-SLAPP statute. Some (not all) states have some version of an anti-SLAPP statute. Generally speaking, anti-SLAPP statutes attempt to limit lawsuits that are aimed at restricting the right to speak or petition. In some states, it prevents any would-be plaintiff from asserting claims that may have a “chilling” effect on the right to speak or petition on matters of public concern. In other states, it only protects defendants from cases brought in retaliation for petitioning the government. California has a more wide-reaching anti-SLAPP statute. The defendant used it to argue that the plaintiff’s repeated attempt to assert FDCPA claims against a collection lawyer based on a litigation-related activity were improper under California’s anti-SLAPP statute. Under California’s statute, litigation-related activities are considered a “protected activity.” Because it was a protected activity, the plaintiff bore the burden of showing that the alleged claim was likely to be successful. The plaintiff could not do so. The court dismissed the complaint. This is a really interesting strategy and undoubtedly very fact-specific. But defense attorneys should take a closer look at this opinion and consider whether asserting an anti-SLAPP defense in response to a frivolous claim might be successful.
Judge Grants MTD in FDCPA Case Over Emails Sent to Represented Consumer
Some good news to all the companies that are being sued for allegedly violating the Fair Debt Collection Practices Act because they contacted an individual after being notified that he or she is being represented by an attorney — a District Court judge in Illinois has granted a defendant’s motion to dismiss after it was accused of doing so, ruling the plaintiff lacked standing to sue because she did not suffer a concrete injury as a result of the communication. More details here.
WHAT THIS MEANS, FROM DAVID SHAVER OF SURDYK DOWD & TURNER: “[U]nder Article III, an injury in law is not an injury in fact. Only those plaintiffs who have been concretely harmed by a defendant’s statutory violation may sue that private defendant over that violation in federal court.”
Those were the words of Justice Kavanaugh in TransUnion LLC v. Ramirez. And that is exactly the situation presented in Branham v. TrueAccord. TrueAccord violated the FDCPA by sending e-mail communications directly to Branham, who it knew was represented by counsel. But those e-mails – fundamentally different than phone calls – did not actually cause Branham harm. And, without a concrete harm flowing from the statutory violation, there can be no Article III standing. The District of Illinois determined that Branham’s conclusory allegations were not sufficient. Facts showing detrimental reliance, actual monetary loss, physical manifestations caused by intangible psychological injuries, or whatever the actual harm is claimed to be, must be alleged.
ARM defendants should continue to work with their counsel to carefully analyze the complaints that are filed against them and identify exactly (1) what the alleged violation is and (2) what concrete harm is claimed to flow from that violation. And, once the alleged concrete harm is identified, check your court’s precedent to find out whether it has been found to be sufficient to confer Article III standing in the past. Different courts sometimes view similar allegations differently so something that may not have passed muster in the District of Illinois, for example (like in Branham), might be sufficient somewhere else.
P.S. The District of Illinois did provide Branham with another opportunity to amend her pleadings to try and state a claim, and her deadline to do so expires on Tuesday, April 18. As of this writing (April 13), Branham had not yet filed anything further.
Judge Orders Defendant in FDCPA Case to Comply with Subpoenas
A District Court judge in New York has denied a plaintiff’s motion for contempt in a Fair Debt Collection Practices Act case, and ordered the defendant to comply with subpoenas as part of the enforcement of a judgment after the defendant attempted to argue that the suit was brought against the wrong corporate entity despite engaging in litigation for three years. More details here.
WHAT THIS MEANS, FROM MARISSA COYLE OF FROST ECHOLS: Have you ever heard most wrecks happen when you’re near your home? We’re probably all guilty of paying less attention to the basic information in a case (case caption/names of parties) and quickly moving to the alleged facts and causes of action. Be sure to closely review what we may consider the more mundane – although not any less important – details at the outset of the case to avoid the issue seen here. The party sued was a defunct company; however, it litigated the case for years and made multiple admissions it was the defendant named in the complaint before it asserted this defense. Not until after a judgment was issued and the plaintiff issued a subpoena did defendant bring to light the issue of the suit being against a defunct company rather than the correct entity. To avoid the fees associated with trying to address this issue on the back end, take an extra moment to ensure the parties are properly identified (and be sure to drive safely when near your home!).
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.