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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 Overturns Dismissal of Suit Involving Collection of Court Debts
The Court of Appeals for the Tenth Circuit has reversed a lower court’s dismissal of a lawsuit filed against a collection operation and its client — sheriffs in Oklahoma — that accused them of violating several sections of the Constitution and the Racketeer Influenced and Corrupt Organizations Act (RICO) by threatening the unlawful arrest and incarceration of impoverished individuals who are not able to pay their court fines. More details here.
WHAT THIS MEANS, FROM DAVID GRASSI OF FROST ECHOLS: The Tenth Circuit reminds us that federal courts can hear claims challenging post-judgment collection activities. The poverty-stricken plaintiffs brought suit under RICO and state law against sheriffs, state court judges, a collection agency, and others challenging the practice of detaining persons arrested on debt-collection warrants, without prior notice or hearing to challenge the warrant, based only on a failure to pay outstanding fines and fees resulting from a criminal conviction or a traffic offense. The Tenth Circuit overturned the district court’s dismissal for a lack of standing. Relevant to the ARM industry, the court reaffirmed that the Rooker-Feldman doctrine (which generally prevents a lower federal court from modifying or setting aside a state court judgment) and the Younger abstention (which generally prohibits a lower federal court from addressing federal claims related to an ongoing state court proceeding in which such claims can be addressed)are not implicated where consumers are only challenging post-judgment collection activities.
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Judge Denies Class Certification in Mass. Call Frequency Case
A District Court judge in Massachusetts has denied a plaintiff’s motion for class certification in a case in which the defendants — a first-party debt collector and a subsidiary that provides business support services — violated state law by calling the plaintiff’s cell phone five times in a three-day span back in 2018 to collect on an unpaid debt owed to a utility company. More details here.
WHAT THIS MEANS, FROM XERXES MARTIN OF MARTIN LYONS WATTS MORGAN: One of my most memorable lessons in law school was in my Federal Courts class on class actions. He wrote on the chalk board a gigantic CAN’T. He first said you can’t certify many classes. But second, it was his acronym for remembering the four requirements under FRCP 23(a): 1) Commonality; 2) Adequacy; 3) Numerosity; and 4) Typicality. Article III standing cases have now made it even harder to certify classes and strengthening his take on class actions.
The order in Nightingale is a great one that everyone finding themselves defending class actions should put in their file. While the argument that there must be an individual inquiry into each class member’s actual harm is not new, it has now taken new form with the wave of Article III case law. Previously, FDCPA and TCPA type classes have been certified based on the notion that common proof such as letters were sent, or calls were placed met the strict liability standard and therefore did not require an individual inquiry to each class member. Now, the influx of Article III case law and analysis really requires a showing of a concrete or particularized injury to have standing, and that is common to the named plaintiff and the class members. Lately, courts have been finding individual standing by a named plaintiff’s mental impressions, feelings, or harm from reading a letter or receiving a phone call described by affidavit or deposition testimony to establish standing. But with a class, you aren’t going to get affidavits or depositions of each class member to find out if they experienced similar. If you must do that, then you fail the commonality factor of FRCP 23(a), common questions of law or fact predominate over individual questions.
In letter cases, we have always asked, did each class member read the letter or did anyone throw it in the trash without opening it? In TCPA or call volume cases we have always asked, did each class member hear their phone ring, or listen to the voicemail? In Nightingale, the claim at hand was under the Massachusetts Consumer Protection Act, M.G.L. c. 93A § 2 which limits call frequency in Massachusetts to two calls within a seven-day period. The previously mentioned questions for TCPA and call volume cases are similar to the philosophical question “if a tree falls in a forest and no one is around to hear it, does it make a sound?” Apparently, in 1884 Scientific American determined “[s]ound is vibration, transmitted to our senses through the mechanism of the ear, and recognized as sound only at our nerve centers. The falling of the tree or any other disturbance will produce vibration of the air. If there be no ears to hear, there will be no sound.” If there is no proof of ears hearing the calls or voicemails, there is no sound, therefore you CAN’T have a class.
Thanks professor Harry L. Reed.
Colorado Legislature Passes Medical Debt Collection Bill
The Colorado legislature has passed a bill that caps the interest rate on medical debt, places new requirements on debt collectors collecting medical debt, and makes violations of the law an unfair or deceptive practice subject to additional penalties. The bill now goes to Gov. Jared Polis for his signature or veto. More details here.
WHAT THIS MEANS, FROM MAKYLA MOODY OF GREENBERG SADA & MOODY: Colorado continues to be a testing ground for national consumer advocacy groups and organizations. This year, the honor of supporting and advocating for the passage of SB23-09, a bill targeting medical debt collection which largely mirrors model legislation being promoted by NCLC, was given to Colorado’s Attorney General, Phil Weiser. Although touted as promoting transparency and reducing medical debt burdens on consumers, the final text of the bill does little to accomplish those goals. Instead, the bill imposes greater obstacles for legitimate collection activities and further incentivizes the non-payment of all medical debts in Colorado.
Local industry members, including a team of many talented and respected collection lawyers, were able to negotiate changes to the most problematic aspects of the bill. Unfortunately, without more support from our national colleagues and national trade organizations, more could not be done.
Beyond capping the statutory interest rate for medical debts at 3%, this bill also requires debt collectors to furnish itemizations containing very specific information to any consumer that makes a written request, mandates the suspension of collection activities during insurance appeals, imposes requirements and restrictions on payment plans requiring four (4) or more installment payments to debt collectors, and imposes a litany of requirements on any lawsuits being filed by debt collectors.
In addition to this legislation, there is also another bill (HB23-1126) working its way through the General Assembly that will essentially prohibit all medical debts from appearing on consumer credit reports. Although local industry members continue to monitor this bill, it is expected to pass in the format that came out of the state Senate, and like SB23-093, it will eventually be signed into law by Governor Polis in the coming days.
Appeals Court Affirms Ruling Saying Text Platform was Not ATDS
The Court of Appeals for the Ninth Circuit has affirmed a lower court’s summary judgment ruling in favor of a defendant that was accused of violating the Telephone Consumer Protection Act when it communicated with the plaintiff via text messaging, ruling that the platform used by the defendant did not meet the definition of an automated telephone dialing system. More details here.
WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: The Ninth Circuit has affirmed another summary judgment victory for callers under the Telephone Consumer Protection Act’s automatic telephone dialing system (ATDS) provisions. This case involved an online texting platform, Textedly, used by a healthcare company to send a campaign promoting physical therapy careers.
The district court had previously ruled that Textedly was not an ATDS because it did not randomly or sequentially generate phone numbers, and because the phone numbers to be texted were uploaded by a preexisting, manually created list and dialed in the same order they were uploaded. The Ninth Circuit affirmed in a short opinion, citing its prior ruling in Borden v. eFinancial, which had concluded that a system consisted an autodialer only if it “generate[s] random or sequential telephone numbers.”
This case thus continues the line of favorable post-Facebook rulings for would-be callers in the Ninth Circuit. However, the summary judgment posture serves as a reminder to callers that they may not be guaranteed an early exist on a motion to dismiss, even if they are ultimately successful on the merits.
Judge Grants MSJ in FDCPA Case Over Cease Communication Response
In a case that was defended by the team at Malone Lyons Watts Morgan, a District Court judge in California has granted a defendant’s motion for summary judgment in a Fair Debt Collection Practices Act case, ruling the plaintiff lacked standing to sue because he testified during his deposition that he never read the letter that was the basis for the suit in the first place. More details here.
WHAT THIS MEANS, FROM CHRISTOPHER MORRIS OF BASSFORD REMELE: This case brings to mind the age-old question, “if a tree falls in the forest, and there is no one around to hear it, does it make a sound”? Here, the similar question presented was: “if a consumer does not open and read a collection letter, can that letter mislead and cause a concrete injury”? In the Central District of California, the answer is no. The Court logically reasoned that if a consumer admits he did not read the letter that allegedly gives rise to an FDCPA claim, he simply has no Article III standing to pursue a lawsuit in federal court. The plaintiff tried to oppose the agency’s motion through a declaration stating that he received the letter and found it “unsettling” and felt “anxious and uneasy.” But the Court held that these statements were directly contradicted by his own prior testimony that he had never seen the agency’s letter before his deposition. As such, the Court refused to even consider the belated declaration testimony, and held that the rights Congress meant to protect through the FDCPA cannot arise from mere “receipt” of a letter, because a letter must be read in order to mislead the recipient. This is also yet another vivid illustration of the value in deposing consumers early in the discovery process, which can lead to testimony such as this that dooms their own claim.
CFPB Asks Judge in Lexington Law Case to Levy $3.1B in Fines and Redress
The Consumer Financial Protection Bureau has filed a motion in its case against Lexington Law, asking the judge to assess $3.1 billion in penalties — in the form of redress to consumers and fines — arguing that is the amount that the defendants “took” from four million consumers. More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF AUTOSCRIBE: In this case, the CFPB looked at the violations found under the Credit Repair Organizations Act and the Telemarketing Sales Rule, both forbidding credit repair organizations from using deceptive practices and accepting up-front fees. In this case, the substantial amount of$3,112,176,549 is being requested in the CFPB motion to reflect the amount of illegal upfront fees collected by the Defendants. Yes, that is correct; they collected $3.1 billion in upfront fees, not a small number. The Defendants will have the opportunity to oppose this amount as the burden now shifts to the Defendants to show if any amounts should be offset. As the court judgment declared the Defendants did not comply with the regulations, this will not be an easy task for the Defendants. They must show refunds or proof that the fee total was incorrectly calculated to offset this.
In truth, the idea that the Defendants will have the $3.1 billion to pay out is unlikely, and even with offsets, the Defendants will likely have to work with the CFPB to agree on an amount they can pay. And to add to the potential financial burden in addition to the redress requested, the CFPB has asked for civil fines totaling $52,975,693. This case is an example of the aggressive stance the CFPB continues to take to protect consumers from bad actors in the credit repair space as they continue to receive reports of illegal practices. In 2022 the CFPB received 604,221 complaints relating to credit reporting or credit repair services. Also another great example is that the CFPB does not exempt companies due to size; the more prominent players need to ensure compliance, as well as the smaller companies.
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.