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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.
Seventh Circuit Affirms Dismissal of FDCPA Suit for Lack of Standing, Again
In a case that was defended by David Schultz at Hinshaw Culbertson, the Court of Appeals for the Seventh Circuit on Friday affirmed the dismissal of a Fair Debt Collection Practices Act lawsuit on the grounds the plaintiff lacked standing to sue — again — even though the plaintiff hired an attorney and paid an appearance fee, but a familiar voice also issued a dissenting opinion that the Court has strayed too far in how it interprets whether a plaintiff has suffered a concrete injury in FDCPA case. More details here.
WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: This decision in Choice v. Kohn Law Firm and Unifund CCR is another good standing decision out of the Seventh Circuit Court of Appeals.
The Seventh Circuit Court of Appeals is taking the lead on analyzing and dismissing weak claims for damages from technical violations of statutory provisions. In this case, the Court affirmed the dismissal of plaintiff’s FDCPA claims because the complaint failed to allege a concrete injury as required by Ramirez v. TransUnion. The ruling builds on a series of Seventh Circuit cases that have denied standing for technical violations such as: See Pierre v. Midland Credit Management, Inc., 29 F.4th 934, 939 (7th Cir. 2022) (decision to hire attorney or pay filing fee not sufficient “injury” to establish standing); Nettles v. Midland Funding LLC, 983 F.3d 896, 900 (7th Cir. 2020); Brunett v. Convergent Outsourcing, Inc., 982 F.3d 1067, 1069 (7th Cir. 2020)(decision to retain counsel based on confusion caused by technical statutory violation was insufficient to constitute a concrete injury necessary for standing). The court also noted that plaintiff’s claim that he lost sleep and had to hire an attorney due to alleged confusion was insufficient to constitute a concrete harm necessary for Article III standing, citing Wadsworth v. Kross, Lieberman & Stone, Inc., 12 F.4th 665 (7th Cir. 2021) as controlling.
Choice serves as a convenient checklist for the analysis of weak statutory claims for consideration for filing motions to dismiss based on a lack of standing. Standing requires a concrete, particularized injury in fact that is actual or imminent and is caused by the defendant and which can likely be redressed by the requested relief. Under Choice it is clear that such weak claims will not meet the requirements for Article III standing. The case, and the cases it cites, form an important first line of defense against weak statutory FDCPA claims.
NOTE: There is a vigorous dissent from Judge Hamilton. Does this bode for plaintiff seeking to file a petition for en banc (full 7th Circuit panel of Judges) review? We will let you know.
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Judge Halves Attorney Award in FCRA Case to $250k
A District Court judge in Arizona has essentially halved the award for attorney’s fees and costs in a Fair Credit Reporting Act lawsuit, but that still amounted to an award of nearly $250,000, which was $100,000 more than the defendants were attempting to pay. The judge called out the plaintiff’s attorneys for filing time records that were “so implausible that it renders the billing records, in their entirety, unreliable.” More details here.
WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: The good news here is that the Court cut the plaintiff’s attorney’s request for fees in half. But the order also includes some real downers. One of the more experienced plaintiff’s attorneys was awarded a rate of $725/hour without evidence that he had ever actually charged that amount. The only evidence of his rate was that during the year prior he told the defense attorney his rate was $650/hour. Nonetheless, the court granted the attorney’s request for a rate of $725/hour in 2023 on the basis of “inflation.” But perhaps the most astonishing part of this fee award is that the plaintiff’s attorneys requested over $480,000 in fees in a relatively run-of-the-mill FCRA case where the dispute centered around whether the defendant conducted a “reasonable investigation” of the dispute. Sure, the case was litigated all the way up to a trial and included an appeal but this was not a class action case, nor did it involve any significant actual damages. The individual plaintiff ultimately recovered $50,000 after accepting the defendant’s offer of judgment. The Court chastised the plaintiff’s attorneys’ exorbitant fee request and noted that the entries were “excessive, vaguely worded, or otherwise poorly itemized.” Indeed, the Court described the request as “so implausible that it renders the billing records, in their entirety, unreliable.” Yet, the plaintiff’s attorneys ultimately walked away with a $247,951.00 award. It is unlikely that the end result here will act as a deterrent. It’s more likely to act as an incentive to inflate fees. It’s worth noting that the Court did express frustration with both parties, indicating that the neither party acted “reasonably” in their settlement discussions. This serves as an important reminder to defendants that the Court will look at the conduct of both parties when considering a fee award – it is not only based on the plaintiff’s request.
Judge Recommends Denying Defendant’s MSJ in FDCPA Case Over Disputed Debt
A computer glitch accidentally added an individual’s name to an apartment lease document, which was then assigned to a debt collector for recovery. When the individual disputed the debt, the collector sent an email to the creditor seeking additional information, then deleted the information from the individual’s credit report four months later. That was not enough to satisfy a Magistrate Court judge in Texas who denied the defendant’s motion for summary judgment and summary judgment based on the Fair Debt Collection Practices Act’s Bona Fide Error defense. More details here.
WHAT THIS MEANS, FROM XERXES MARTIN OF MARTIN GOLDEN LYONS WATTS MORGAN: It is never fun to primarily rely on a bona fide error defense to prevail in a case, but sometimes you have to. It is more unfavorable when it is in a gray area without much case law. Most cases using a bona fide error defense have unique facts like this suit, rather than a cookie cutter case we see more often. You then have to determine whether your facts and evidence amply cover themselves to the necessary elements to prevail on the bona fide error defense. The Fifth Circuit has made these elements clear: (1) the violation of the statute was unintentional; (2) it resulted from a bona fide error; and (3) the collector had reasonably adopted procedures in place to avoid such an error. Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232, 1239 (5th Cir. 1997). The Magistrate Judge in Reed recommends denying Defendant’s Motion for Summary Judgment on the defense due to not establishing the first element, an unintentional violation, due to not having enough evidence to establish the lack of intent.
Different people can come to different conclusions—may believe enough evidence was there, and others can say it was lacking. A few years ago I had a summary judgment hearing in the middle of a trademark fight between two Texas gas stations, Buc-ee’s and Choke Canyon. Search those names to read about it, and especially Buc-ee’s. Buc-ee’s logo a beaver, taking on an alligator, both wearing hats. All five of us attorneys involved in our hearing looked down at the table of evidence and all generally said “that’s a beaver and that’s an alligator, how could it possibly be infringement?” The logos were on similar cups and shirts, but those are not the logos at issue. Two days later, headlines ran that the jury found in favor of Buc-ee’s. Go figure.
When trying to establish bona fide error, give them everything you can. It’s what Buc-ee’s did, and it worked. And in other Buc-ee’s news, within the last month, viral pictures of a “Buk-ii’s” market with a gopher, instead of a beaver, logo are opening in Mexico. It’s said that Buc-ee’s will be going after them as well. Stay tuned.
CFPB Plans FCRA Rulemaking to Regulate Data Brokers
The Consumer Financial Protection Bureau is expected to announce today at the White House that it plans to issue a rule regulating how companies track and sell consumers’ personal data. More details here.
WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS SUTHERLAND: Earlier this year the Consumer Financial Protection Bureau (CFPB) launched an inquiry into the business practices of data brokers. It invited public comment in order to “shed light” on the information being tracked and collected by data brokers on individuals and whether they “play by the same rules” as organizations that must comply with the Fair Credit Reporting Act (FCRA).
Last week CFPB Director Rohit Chopra provided remarks at a White House Roundtable on Protecting Americans from Harmful Data Broker Practices. The CFPB confirmed its plan to “modernize” certain aspects of the FCRA by regulating data brokers under that law. Director Chopra noted that artificial intelligence and other predictive decision-making “increasingly relies on ingesting massive amounts of data about our daily lives.” He is concerned that these emerging technologies and financial incentives for mining consumers’ data spark more surveillance, and lead to potential “misuse or abuse of our private information and activities.”
The CFPB is expected to release its SBREFA outline for FCRA rulemaking next month. Director Chopra has indicated that among the topics the CFPB will include in its outline for FCRA rules would be clarity around a definition of consumer reporting agencies (or other key FCRA terms) to assure that data brokers who sell information to businesses that use it to make decisions about lending, employment and insurance will be subject to the FCRA’s guardrails.
The CFPB’s as yet unpublished FCRA rules could potentially require data brokers to:
- Obtain consumers’ consent before collecting or selling their personal information.
- Provide consumers with access to their personal information and the right to dispute errors.
- Take steps to ensure the accuracy and completeness of the information they collect and sell.
Once the CFPB’s proposed FCRA regulations are unveiled it is unclear how long it may take for them to be finalized. The CFPB hopes that the new FCRA regulations it will propose could serve as a major step forward in protecting consumers from the potential misuse of their personal information by data brokers.
Appeals Court Overturns FCRA Ruling on ‘Factual’ Question CRA Should Have Resolved
The Court of Appeals for the Seventh Circuit has partially affirmed, but also partially reversed and remanded that part of a Fair Credit Reporting Act case back to the District Court, ruling that credit reporting agencies bear some responsibility for investigating disputes filed by consumers and that the credit reporting agencies need to conduct reasonable investigations. More details here.
WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: Courts are increasingly scrutinizing the obligations of furnishers and consumer report agencies to review and assess credit reporting disputes. For the furnisher, this requires a detailed inquiry or systemic examination of the available records to determine whether the disputed information can be verified. Johnson v. MBNA Am. Bank, 357 F.3d 426, 430 (4th Cir. 2009); Gorman v. Wolpoff & Abramson,584 F.3d 1147, 1161 (9th Cir. 2009) (“We emphasize that the requirement that furnishers investigate consumer disputes is procedural. An investigation is not necessarily unreasonable because it results in a substantive conclusion unfavorable to the consumer, even if that conclusion turns out to be inaccurate.”). Until recently, the circuits uniformly concluded that the consumer reporting agency’s obligation to investigate a credit reporting dispute was limited to an investigation of the factual accuracy of the reporting. Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 891 (9th Cir. 2010) (“Because CRAs are ill equipped to adjudicate [legal] disputes, courts have been loath to allow consumers to mount collateral attacks on the legal validity of their debts in the guise of FCRA reinvestigation claims.”).
Since the spring of 2022, however, the sands have been shifting with at least four circuits having issued opinions which further shape the obligations of both furnishers and consumer reporting agencies to conduct reasonable investigations. See Sessa v. TransUnion LLC, 74 F.4th 38 (2d Cir. 2023) (reversing the district court’s holding that there is a bright line rule providing that only purely factual or transcription errors are actionable under the FCRA and instead holding that allegedly inacccurate information reported on a consumer’s credit report must be objectively and readily verifiable to be actionable under section 1681e(b).); Gross v. CitiMortgage, Inc., 33 F.4th 1246 (9th Cir. 2022) (holding that the “FCRA does not categorically exempt legal issues from the investigations that furnishers must conduct.”); Milgram v. Chase Bank USA, 72 F.4th 1212 (11th Cir. 2023) (upholding furnisher’s investigation as reasonable and noting that to prove an investigation was unreasonable, a plaintiff must point out “some facts the furnisher could have uncovered that establish that the reported information was, in fact, inaccurate or incomplete.”).
The Seventh Circuit’s decision in Chaitoff v. Experian Information Solutions further blurs the obligations of consumer reporting agencies. In Chaitoff, the Seventh Circuit held that issues of fact remained as to whether the consumer reporting agency’s investigation as to a dispute over the impact of a TPP Agreement was reasonable. In doing so, the Court treated the omission of the TPP from the credit report as a factual question, not a legal one.
Compliance and credit reporting teams should continue to track this line of decisions carefully. With collateral attacks on the validity of debts vis-a-vis credit reporting on the rise, this recent line of cases emphasizes the importance of creating clear policies, processes and documentation of investigations to mitigate risk.
Judge Rules in Favor of Plaintiff in FCRA Case Over Reasonable Investigation
A District Court judge in Arizona has given partial wins to both sides in a Telephone Consumer Protection Act and Fair Credit Reporting Act case involving the use of an automated telephone dialing system, whether the volume of calls placed invaded the plaintiff’s privacy, and whether the investigation that the defendant conducted after a debt was disputed was reasonable. The defendant must face claims that the volume of calls it placed was excessive and that it did not conduct a reasonable investigation. More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: In Berrow v Navient Solutions LLC, two counts survived summary judgment. Preliminarily, plaintiff conceded the TCPA count failed in light of Facebook v Duguid. The next count was for Intrusion Upon Seclusion. We often see this as a tag along count that does not get much traction but that was not the case here. The court noted the number of calls – 323 in 14 months – and said call volume is not enough to survive a challenge; there had to be something more. There was more. The calls were for three student loans of plaintiff’s deceased daughter, plaintiff had no obligation on at least one of the loans, and he repeatedly asked for the calls to stop. These facts may be enough for the jury to determine the conduct was “highly offensive.”
The second count that survived summary judgment was under the FCRA for alleged failure to conduct a reasonable investigation of a dispute. The court determined that the investigation was insufficient. The main basis for the ruling was that “the credit bureau department seemed to be no more than reviewing the records on the computer which show that Mr. Berrow’s name and social security number are associated with three loans” but it was clear plaintiff had no responsibility for at least one of the loans.
We see these counts regularly and here there was enough for both to survive for trial.
Judge Recommends Denying Plaintiff’s Motion for Default Judgment
A Magistrate Court judge in South Carolina has recommended denying a plaintiff’s motion for default judgment in a Fair Debt Collection Practices Act case because he hasn’t met the burden for proving that the defendant was actually served with a copy of the summons and complaint. More details here.
WHAT THIS MEANS, FROM MARISSA COYLE OF FROST ECHOLS: Pro se Plaintiff filed a motion for default judgment against the agency Defendant for failing to answer the complaint. The Magistrate issued a Report and Recommendation denying Plaintiff’s motion for default judgment as it found Plaintiff failed to properly serve the agency Defendant. This is a refreshing ruling – oftentimes courts bend over backwards to assist a pro se litigant. However, this Court pointed to the very direct service rules, found Plaintiff did not comply with those rules, and recommended Plaintiff show good cause for failure to properly serve Defendant if he wanted an extension of time to properly serve the agency defendant. The district court judge adopted the Report and Recommendation. If pro se Plaintiff does not show good cause why the time for service should be extended, the district court judge may dismiss the matter without prejudice.
Ultimately, if you initiate a lawsuit, be sure you’re timely complying with the service rules. A summons does not live indefinitely and the summons and complaint must comply with service rules in order for service to be properly effectuated.
CFPB Fines Lender $1.75M For Illegal Kickbacks
The Consumer Financial Protection Bureau yesterday announced a mortgage lender was being fined $1.75 million for providing illegal incentives to real estate brokers and agents for referring business to the lender, including cash payments, paid subscription services, and catered parties. The CFPB also fined Realty Connect, a real estate brokerage, $200,000 for accepting numerous kickbacks from the lender. More details here.
WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: It has been some time since the Consumer Financial Protection Bureau(“CFPB” or “Bureau”) has brought an action under the Real Estate Settlement Procedures Act (“RESPA” or “Act”), specifically Section 8(a) of the Act’s prohibition against giving things of value for referrals. The last time the CFPB brought an action under Section 8(a) was the PHH case in 2018, where the CFPB’s interpretation of RESPA was rejected by the D. C. Circuit particularly on due process grounds. The current case against Freedom Mortgage and Realty Connect signals a renewed interest in RESPA but also reinforces the CFPB’s priorities with respect to enforcement of that statute; the ARM industry should take notice.
First, Freedom Mortgage (“Freedom”) is a repeat offender. In 2019, Freedom entered into a consent order with the CFPB for violations of the Home Mortgage Disclosure Act (HMDA) and regulation C. Freedom paid a $1.75 million civil money penalty in that action.
Second, the CFPB has showed signs of renewed interest in RESPA. In 2020, the CFPB issued new FAQs on RESPA, which rescinded prior guidance from 2015 with respect to the legality of Marketing Services Agreements (“MSAs”). The CFPB has never liked MSAs especially when they are designed or implemented in a way that disguises the payment for a kick back or referral. At the beginning of the summer, June 2023, the CFPB issued an Advisory Opinion regarding Section 8(a) and mortgage comparison websites. In its analysis, the Bureau found that these sites “non-neutral[ity] use or presentation of information has the effect of steering the consumer to use, or otherwise affirmatively influences the selection of, those settlement service providers, thus constituting referral activity”. The Bureau sees these websites as a way to disguise referral fees. Finally, it should not go unnoticed that in that same month, Director Chopra signaled that the CFPB will be identifying ways to simplify and streamline existing mortgage rules. The CFPB is requesting petitions for rulemaking on potential amendments to RESPA. Certainly recommendations and guardrails for Section 8(a) will be sought in those petitions.
As the ARM industry has learned since Director Chopra took the reins of the CFPB, the actions of the Bureau are deliberate and strategic. The CFPB is building upon a now-decade of work. They are not shy nor are they covert about their priorities. Whether industry agrees or disagrees with their analysis or interpretation, the guidance cannot be ignored. Further, industry must not overlook the fact that the CFPB has many tools to assess conduct they do not like. In the case of mortgage servicing, Section 8(a) and MSAs are showing a renewed focus, but for the ARM industry we are seeing an expansion of UDAAP, abusiveness and potentially the Fair Credit Reporting Act. Whether the law is actually broken may not really matter. How industry responds will.
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.