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 Grants MTD in FDCPA Case Over Attempt to Collect on Time-Barred Debt
The statute of limitations can be a tricky situation to navigate, if you are going to attempt to collect on a debt. But as long as you don’t make the individual believe that the debt is still legally enforceable, you’re on pretty solid ground. I bring this up as a preface to a Fair Debt Collection Practices Act case in which a District Court judge has granted a defendant’s motion to dismiss because it was sued for attempting to just collect on a debt for which the statute of limitations had expired. More details here.
WHAT THIS MEANS, FROM DAVID SHAVER OF SURDYK DOWD & TURNER: Holmes illustrates how providing clear information and accurate disclosures to consumers in collection letters can help agencies insulate themselves from liability. Though Judge Briccetti declined to exercise supplemental jurisdiction over Holmes’ state law claim and dismissed it without prejudice, Holmes’ FDCPA claim was not plausible because of the information NewRez provided in its letter. NewRez was not prohibited from seeking payment from Holmes and it informed him using plain language that no legal action to collect could be brought (or threatened) because of the expiration of the statute of limitations. Judge Briccetti found that even the least sophisticated consumer would not read NewRez’s letter and conclude that legal action was on the horizon.
Statutes of limitation can present difficult questions at times and agencies should work closely with their counsel when working out-of-stat accounts. Underlying agreements should be examined, along with applicable state law. Depending on which state’s law applies, the expiration of an SOL might only extinguish the right to bring an action and not the underlying obligation itself. But state law varies and appreciating those nuances (which consumers often do not) could mean the difference between being positioned to successfully defend against an FDCPA claim like Holmes’ or not.
THE COMPLIANCE DIGEST IS SPONSORED BY:
Political Battle Brewing Over CFPB Funding Case
A partisan fight is brewing in Washington, D.C., after a liberal advocacy group released a report yesterday detailing how the Consumer Financial Protection Bureau has returned more than $240 million to consumers in 10 specific states — which are all home to Republicans seeking to “defund and defang” the Bureau. Rep. Bill Huizenga [R-Mich.] attacked the report, leading the advocacy group to say the lawmaker is more interested in representing “the scammers, not the scammed.” More details here.
WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: As the October 3 date for oral argument before the Supreme Court regarding the CFPB’s funding structure grows closer, and with various amicus briefs filed along political party lines, the CFPB remains highly politicized. A report by Accountable.US states that Congressional Republicans in a number of states who support the CFSA’s efforts against the CFPB’s funding structure are doing so are more interested in protecting the financial sector and their own campaign contributions than the citizens they were elected to represent. The report claims consumers in those states have received nearly $241 million combined as a result of the CFPB, while Republicans who signed on to the amicus brief contesting the CFPB’s funding have received over $51 million in campaign contributions from those affiliated with the financial services industry. At least one Republican Congressman noted that this amounted to less than $42 per year to less than 0.48% of Michigan residents, which is outweighed by the increased accountability that would result if the CFPB were subject to the normal appropriations process. Given the divisions in Congress and their general inability to get anything done, whatever the Supreme Court decides is likely to be the final answer … at least for now.
Judge Grants MTD in FDCPA Class Action Over Undated MVN
A District Court judge in New York has granted a defendant’s motion to dismiss a class-action lawsuit after it was sued for violating the Fair Debt Collection Practices Act because it sent an undated Model Validation Notice to the plaintiff, but on the grounds the plaintiff lacked standing to sue because he did not suffer a concrete injury and not on the merits of the case. More details here.
WHAT THIS MEANS, FROM DALE GOLDEN OF MARTIN GOLDEN LYONS WATTS MORGAN: While the case law is abundantly clear that federal judges i.e., Article III judges, must always ensure they have jurisdiction prior to issuing rulings, that edict isn’t consistently followed, leading to some odd situations such as courts granting relief only to later determine they lacked jurisdiction thereby rendering void prior rulings. In this case, the judge, when faced with the defendant’s Rule 12(b)(6) motion to dismiss, correctly recognized he was first obligated to determine if he had jurisdiction to review the motion, ultimately concluding he did not.
The Complaint alleged that the defendant violated the FDCPA by sending an “undated letter” to the Plaintiff. The defendant sought a ruling on the merits of that claim, but the court never reached the issue. It instead dismissed the case for lack of jurisdiction because “the only cognizable harm Plaintiff asserts is for a loss of time, which he claims has been squandered as a direct consequence of Defendant’s actions.” According to the court, “the expenditure of time alone is insufficient to establish standing unless it is inextricably linked to a concrete, tangible injury,” which the Plaintiff failed to allege.
One takeaway from this case is that there is a lack of consistency among federal judges in terms of recognizing the absolute requirement to first determine whether jurisdiction exists before doing anything. And this lack of consistency can create issues for defense counsel in determining the best strategy to recommend to the client for defending a case. Here, the Defendant decided to invest in defending the case on the merits. And that will often be a reasonable decision because the assigned judge won’t investigate the jurisdictional issue unless its raised by one of the parties. But because this judge actually did what was required, the Defendant lost its opportunity for a ruling on the merits of its defense. Plus, its possible the Plaintiff will refile the same lawsuit in state court, which can creates its own potential problems since state court judges often have little experience with FDCPA cases.
Suit Challenges New Student Loan Forgiveness Plan
A lawsuit was filed on Friday by the New Civil Liberties Alliance against the federal government, seeking to block a plan that would forgive $39 billion of student loan debt, claiming the violates the Appropriations Clause of the Constitution because only Congress has the authority to cancel debts owed to the Treasury Department. More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF AUTOSCRIBE: Does the executive branch have the authority? Once again, the judicial branch is asked to answer this question regarding student loan payments. Per the complaint, “(b)efore the ink dried on the Supreme Court’s June 30 decision striking down a $430 billion student-loan cancellation program … the (Education) Department announced a host of equally unlawful loan cancellation schemes(.).” Specifically, after the June 30th decision, the Department of Education announced its newest action to forgive $39 billion of student loan debt due to the need to correct inaccuracies in the loan administration process.
The discharge proposed is to correct what it claims to be historical inaccuracies found in the administration of the loans to count payments that qualify toward forgiveness as well as to address concerns about practices by loan servicers that put borrowers into forbearance in violation of Department rules, known as “Forbearance Steering.” In 2022, the loan servicer, Navient, settled with 39 states, which included $95 million in relief to federal student loan borrowers over claims of Forbearance Steering .
That said, the Plaintiff, in this case, is not questioning the Department’s right to correct historical inaccuracies nor if Forbearance Steering occurred. Instead, the case is brought to the Plaintiff’s belief that the Department does have the authority to count non-payments as payments. This plan does not provide an accurate account of inaccuracies but rather provides a one-time broad correction adjustment to all borrowers that includes those on applicable IDR loan programs who were in forbearance for more than 12 consecutive months or more than 36 months in aggregate.
This case asks the Court whether this newest action is an attempt to unlawfully cancel loans as such payments were not made that were required before loan discharge, or does the Department have the right to enact such a correction due to the findings of inaccuracies and forbearance steering. If the Court finds the Department has the right to make such a correction, is there a limit to what the Department can do to correct when it discovers bad practices?
Judge Grants MTD in FDCPA Case With ‘Patently Frivolous’ Arguments
A District Court judge in Pennsylvania has granted a defendant’s motion to dismiss a Fair Debt Collection Practices Act suit, ruling that the plaintiff appeared to be “acting in bad faith” because the suit contained “patently frivolous and faulty legal interpretations and arguments.” More details here.
WHAT THIS MEANS, FROM MIKE FROST OF FROST ECHOLS: Our industry continues to see a growing trend of pro se plaintiff’s or “assignments” of legal claims to non-attorneys who then file frivolous lawsuits claiming sovereign citizen-style conspiracies or faulty legal arguments. The assignment cases provide an opportunity to argue the unauthorized practice of law and honestly the Courts are not fond of these perpetrators. As an industry, we have obtained some good rulings under the UPL theory. Here, in this case, the complaint was filed by a pro se plaintiff after receiving a collection letter from the defendant. As we are all aware, the courts usually provide considerable latitude to pro so plaintiff’s related to deficiencies in pleadings. In this case, the complaint alleged violations of the Fair Debt Collection Practices Act for the use of profane or obscene language. That “profane or obscene” language was allegedly based on statements like: “Total amount of debts now” or “Contact us about your payment options.” One of the allegations suggested a violation of the FDCPA because the amount of the debt in the letter provided $721.94, indicating a positive balance – instead of -$721.94. The Judge dismissed most of the counts in the complaint and denied the pro so plaintiff’s request for leave to amend the complaint in part because the Judge felt the pro se plaintiff was acting in bad faith. The courts, much like our industry, are tired of wasting time, money and effort on bad faith or insufficiently plead cases! Great work by Capio Partners for standing up to this pro se plaintiff’s charades.
Judge Stays CFPB, NY AG Lawsuit Against Auto Lender Pending Outcome of Supreme Court Case
A District Court judge presiding over a lawsuit filed by the Consumer Financial Protection Bureau and the Attorney General of New York yesterday granted a motion from the defendant to stay the case pending the outcome of a case before the Supreme Court that will determine the constitutionality of the CFPB’s funding structure. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: To stay or not to stay, that is the question. It appears that the first line of defense in any case brought by the CFPB is to claim that the funding of the CFPB is unconstitutional and therefore may not prosecute the action in question. The Fifth Circuit “held that the CFPB’s statutory funding mechanism violates the Constitution’s Appropriations Clause, U.S. Const. art. I, § 9, cl. 7” in Cmty. Fin. Servs. Ass’n of Am. v. Consumer Fin. Prot. Bureau, 51 F.4th 616 (5th Cir. 2022). On February 27, 2023 the United States Supreme Court (“SCOTUS”) granted Cert. Subsequently the 2nd Circuit, in Consumer Fin. Prot. Bureau v. Law Offices of Crystal Moroney, P.C., 63 F.4th 174 (2d Cir. 2023) disagreed stating it found “no support for the Fifth Circuit’s reasoning in the Constitution’s text.” Id. at 182. Against this backdrop the Defendant here moved for a stay pending resolution of Cmty. Fin. Servs. Ass’n of Am.
There are two important factors supporting the instant stay: One, On June 28, 2023, the Second Circuit granted a motion to stay its mandate in Crystal Moroney pending the filing of a petition of a writ of certiorari in that case given the fact that SCOTUS had granted Cert regarding the 5th Circuit’s ruling. Secondly, argument has been scheduled for October 3, 2023, and SCOTUS is expected to issue a decision in its 2024 term, which provides some certainty to the Court granting the stay.
But this is a good news, bad news situation in that while a favorable decision by SCOTUS as to the 5th Circuit’s ruling would probably get CAC out from under as to the CFPB’s action, it would leave the co-Plaintiff, the New York AG’s office free to proceed on the merits.
Notwithstanding the factors discussed above, the Court could have denied the stay, or allowed the NY AG’s part of the action to continue. For the record, Judge Rearden is relatively new on the bench, receiving her commission on October 7, 2022. Given the current national debate on the relationship of politics and the courts, Judge Rearden’s path to the bench is worth noting, particularly if you are a practitioner in the SDNY where she sits. She was originally nominated by former President Trump despite being recommended by Democratic NY Senator Kirsten Gillibrand. That nomination expired before it could be acted on. On January 19, 2022, President Joe Biden nominated her again. Her nomination was heavily criticized by the progressive wing of the Democratic party based on the fact she was a “corporate lawyer,” and a partner at Gibson Dunn & Crutcher.
Appeals Court Affirms Ruling that Texts are not Prerecorded Messages Under TCPA
The Court of Appeals for the Ninth Circuit has affirmed the dismissal of a Telephone Consumer Protection Act case, ruling that text messages sent to an individual are not considered “prerecorded messages” because they do not include auditory components. In a separate appeal in the same case, the Court also affirmed the dismissal of a claim that the technology used by the defendant was an automated telephone dialing system because it did not generate telephone numbers using a random or sequential number generator. More details here.
WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: Liability for use of an artificial or prerecorded voice is separate from liability for use of an automatic telephone dialing system, so if the consumer bar can convince courts that text messages somehow use an artificial or prerecorded voice they won’t have to prove that those messages were sent using an ATDS. Of course, ordinary text messages don’t utilize a “voice” at all, so it was rather easy for the court to reject the consumer’s effort in this case. However, the text messages at issue did not include any audible components. If those texts had contained embedded audio or video files, the result might have been different.
Bill Introduced in House to Amend FCRA by Removing Medical Debt, Shortening Adverse Reporting Period to 4 Years
A bill has been introduced in the House of Representatives that reduce the amount of time that adverse information stays on consumers’ credit reports and prohibit any medical debt from being included on a credit report — among other provisions. More details here.
WHAT THIS MEANS, FROM STEFANIE JACKMAN OF TROUTMAN PEPPER: Credit reporting changes and reforms are coming. How and to what extent remains to be seen. The CFPB will publish its proposed rulemaking relating to the FCRA’s implementing regulation, Reg. V, in the coming months. Many of the proposals in Representative Tlaib could also appear in that proposed rulemaking. Medical debt, student loan debt, and paid/settled debt all seem to remain front and center in the furnishing world for attention now and moving forward.
Judge Grants Plaintiff’s Motion to Voluntarily Dismiss FDCPA Case, but Denies Defense’s Motion for Fees & Costs
Details matter, don’t they? Take, for instance, this Fair Debt Collection Practices Act lawsuit. The plaintiff — who lives in Texas — received an email from the defendant. The email includes the following disclosure. More details here.
WHAT THIS MEANS, FROM LAUREN BURNETTE OF MESSER STRICKLER BURNETTE: The sad reality is that it’s really hard to convince courts to sanction conduct like this. “Clear and convincing evidence” can take a long time to compile — and even then, courts’ caution in sanctioning litigants for exercising their rights of access to the court more often yields a sternly-worded order instead of a sanctions award. Although the defendant in this case wasn’t able to recoup its fees, it nonetheless came away with a victory: the consumer’s attorney now knows, first-hand, that this particular defendant will defend itself vigorously, and that perhaps it’s not worth pursuing reality-defying statutory claims. TO BE CLEAR, I AM NOT ADVOCATING THAT DEFENDANTS FILE SANCTIONS MOTIONS AT THE OUTSET — whether such a motion is appropriate is and will always be circumstance-specific! But in this case particularly, the message sent through this defense strategy may itself be considered a victory.
Appeals Court Reverses Ruling on Standing
The Court of Appeals for the Third Circuit has reversed a lower court’s ruling and concluded that a plaintiff has standing in federal court to pursue a class-action lawsuit against trusts that owned a student loan and the collection agency that was managing the account. More details here.
WHAT THIS MEANS, FROM CHUCK DODGE OF HUDSON COOK: This decision on standing does not address a critically important substantive issue that will play out in the case: whether a non-bank trust entity holding financial assets need a license under state law when the trustee of the trust is a national bank. Those appear to be the facts of this case – one or more trusts owned student loans plaintiff Browne owed, Browne repaid the loans, and then Browne sued the trusts (he later amended his complaint to add the trustee, the servicer of the loans and a collection agency as defendants) claiming that they were not properly licensed in New Jersey to hold and enforce those loans. The court below dismissed the plaintiff’s complaint twice on standing grounds because the court found that he had not alleged a concrete injury. But the Third Circuit found in this appeal that the plaintiff had alleged a concrete injury based on his claim that the trusts had “deceived” him into making payments on his loans because either (a) they could not demonstrate the chain of title or (b) the loans were void under New Jersey law because the trusts were not licensed. So the court found that the plaintiff had sufficiently alleged a concrete harm as a result of the alleged deceptive inducement to payment. But this technical, procedural decision does not address what should be the more interesting substantive issue of whether the trusts needed state licenses in New Jersey to hold and enforce the student loans when the trustee is a national bank with federal preemption powers. Expect that to be the subject of motions in the next phase of litigation in this case, unless the case settles.
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.