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 Rules Undated MVN ‘Creates Confusion’ for Least Sophisticated Consumer
A District Court judge in New Jersey has partially denied and partially granted a defendant’s motion for judgment on the pleadings in a Fair Debt Collection Practices Act case involving an undated Model Validation Notice, following a similar ruling in Florida that determined the language in the MVN “creates confusion” for the least sophisticated consumer.`More details here.
WHAT THIS MEANS, FROM CHRISTOPHER MORRIS OF BASSFORD REMELE: Once again, a federal district court has allowed an FDCPA claim to go forward based on a theory that an undated initial collection notice also referring to the “total amount of the debt now” – just like the Model Validation Notice issued by the CFPB – may create confusion for the least sophisticated debtor. The defendant agency presented the obvious defense that it was simply following the Model Form issued by a federal agency under Reg F, and that the federal court ought to defer to that agency as to compliance with the federal statute – FDCPA. After all, that was the point of adopting the Reg F and Model Notice. Unfortunately, the Court focused on rather esoteric points that following the Model Form ensures compliance with Reg F, but that Reg F does not directly state that compliance with the Model Form satisfies the FDCPA, and that even if the Model Form provides a safe harbor that only applies to the “form” of the information, not the “substance”. In sum, the Court ruled that omission of a date in the initial notice may create confusion as to what amount of the debt is owed by the time the consumer receives the notice. Hopefully there will be a federal appellate court speaking soon as to whether compliance with the Model Notice is truly a safe harbor not only for Reg F, but also the FDCPA. Until then, we will likely see additional FDCPA claims pursued regarding undated initial notices. Even more concerning is the narrow view this particular court has announced in applying a safe harbor to the Model Notice.
THE COMPLIANCE DIGEST IS SPONSORED BY:
S.C. Appeals Court Rules Collector Has to Send Right to Cure Notice Before Filing Suit
A state Appeals Court in South Carolina has partially affirmed and partially reversed a Fair Debt Collection Practices Act case, ruling that even though it isn’t a creditor, a debt collector was required to send a consumer a right to cure notice under the South Carolina Consumer Protection Code (SCCPC) before filing a lawsuit to collect on an unpaid debt. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: This case reminds me of Portfolio Recovery Assocs., LLC v. King, 14 N.Y.3d 410, 901 N.Y.S.2d 575, 927 N.E.2d 1059 where the New York Court of Appeals made clear that CPLR 202 requires the cause of action to be timely under the limitation periods of both New York and the jurisdiction where the cause of action accrued” If the claimed injury is an economic one, the cause of action typically accrues “where the plaintiff resides and sustains the economic impact of the loss” Id. at 416, 1061. Why? you say. When the issue there was SOL and not a right to cure. Because up until the King decision, the majority of collection firms were ignoring the statute and applying only the New York SOL and after King the law suits flowed.
This looks like it was a case of first impression, applying the statute to a defaulted credit card account. A reading of the South Carolina statute and its requirements make no sense when attempting to apply it to a charged off credit card account. It appears to be focused on active installment contracts and not charged off accounts.
The notice shall be in writing and conspicuously state: the name, address and telephone number of the creditor to whom payment is to be made, a brief identification of the credit transaction, the consumer’s right to cure the default, and the amount of payment and date by which payment must be made to cure the default. S.C. Code Ann. § 37-5-110. Debtor has statutory right to cure any default on payments. The right to cure lasts until the expiration of 20 days following Creditor’s mailing of a notice of right to cure. S.C. Code Ann. § 37-5-111.
So, my question for those of you practicing in South Carolina is whether no one was issuing “right to cure notices” and this is the first time a court has applied it or was this a simply a mistake by the law firm in question. Either way, I’d suggest that the South Carolina collection bar address this issue, sooner rather than later.
On the other hand, the decision by the Court regarding how to prove up an account stated is worth a review for those of you utilizing that cause of action.
Appeals Court Remands Case Over Issue of Arbitration
A change in precedent has led the Court of Appeals for the Third Circuit to remand a case back to the District Court to determine whether the owners of a debt that was purchased from the original creditor can compel arbitration after being sued for allegedly violating the Fair Debt Collection Practices Act. More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF AUTOSCRIBE: As someone who’s been defending consumer cases in Florida for nearly 27 years, this ruling is a cautionary tale for me. The Florida Consumer Collection Practices Act, unlike the FDCPA, applies not only to debt collectors and buyers, but original creditors as well, and allows consumers to seek punitive damages. Yet many companies don’t necessarily have the right infrastructure in place to deal with issues that debt collectors face every day. In this case, the plaintiff’s debt was discharged in bankruptcy and her attorneys faxed a notice of representation to Dish Network multiple times. Yet Dish Network continued to contact the plaintiff about the debt, leading to a six-figure punitive damage award,. While I’m not suggesting it happened in this case, debtors and their attorneys will sometimes search the internet to find obscure fax numbers or P.O. boxes owned by creditors and then, send attorney rep letters to those numbers or addresses. There is frankly not a lot that can be done if those situations result in FCCPA lawsuits, but one piece of advice we give our clients is to include specific fax numbers and addresses on their billing statements for customers to send bankruptcy notices or attorney rep letters. Doing so should, at the very least, provide a strong argument against punitive damage claims under the FCCPA.
Judge Grants MTD in FDCPA Case Over Attempt to Evict Disabled Individual
A District Court judge in California has granted a defendant’s motion to dismiss the Fair Debt Collection Practices Act counts in a lawsuit filed against a collection law firm for filing a lawsuit to evict a disabled individual — the plaintiff, in this case — when the regional center that had been receiving the plaintiff’s Social Security checks and paying his rent with them stopped doing so. More details here.
WHAT THIS MEANS, FROM JENNA WILLIAMS OF FROST ECHOLS: Consumers typically face a higher bar regarding FDCPA claims based solely on the filing of a collection lawsuit to recover a debt. Creditors (via their collection attorneys) have contractual rights to initiate legal proceedings. Attorneys must still abide by the FDCPA, but courts seem to protect the basic right to file.
As seen in Tinsley v. Brentwood, filing a detainer action (regardless of notice requirements) is alone insufficient to assert a valid 1692e(5) claim based on “threating to take an action that cannot legally be taken.”
Appeals Court Upholds Ruling for Defendant in FDCPA Case Over SOL, Bona Fide Error Defense
The Court of Appeals for the Ninth Circuit yesterday upheld a ruling in favor of collector that was sued for violating the Fair Debt Collection Practices Act because it allegedly failed to disclose that the statute of limitations had expired on a pair of debts when it sent collection letters to her. The defendant argued that a different statute of limitations applied, and if it did not, that it was entitled the FDCPA’s bona fide error defense. More details here.
WHAT THIS MEANS, FROM JONATHAN ROBBIN OF J. ROBBIN LAW: The Ninth Circuit Court of Appeals recently affirmed a debt collector’s grant of summary judgment based on a bone fide error relating to the status of time-barred debts. A consumer incurred a debt on two store-branded credit cards and thereafter fell behind on payments. A debt collector purchased the respective debts and sent two sets of collection letters. The consumer brought an FDCPA putative class action lawsuit in Oregon District Court alleging that the debts were time-barred by Oregon’s four-year statute of limitations for the sale of goods and the debt collector’s letters failed to disclose that the debts were time-barred. The debt collector moved for summary judgment contending, inter alia, that it had met the elements of a “bone fide error” under the FDCPA. The District Court held that the debt collector met the elements of a “bona fide error,” because the debt collector reasonably believed the six-year statute of limitations applied and, even if the Oregon Supreme Court disagreed and held that a four-year statute of limitations was applicable, any FDCPA violation necessarily resulted from a bona fide error in light of the unsettled question of state law. The District Court also noted that the debt collector maintained procedures reasonably adapted to avoid any error in determining the applicable statute of limitations.
On appeal, the Ninth Circuit affirmed the District Court’s ruling because mistakes about the time-barred status of a debt can be bona fide errors where a debt collector demonstrates by a preponderance of the evidence that the violation was not intentional and resulted from a bone fide error notwithstanding the maintenance of policies and procedures reasonably adapted to avoid any such error. Specifically, the Ninth Circuit noted that the debt collector was under no obligation to demonstrate it had considered the consumer’s theory that store-branded credit card agreements are contracts for the sale of goods because Oregon law was unsettled. In addition, the debt collector demonstrated the maintenance of procedures to avoid seeking to file a collection action on a time-barred debt, namely through the collector’s own counsel’s testimony that he reviewed and analyzed statutes and case law in Oregon to determine that a six-year statute of limitations applied in 2012, that his analysis “would have gone through compliance and general counsel” departments to double-check his research, and that the debt collector has a “systematic approach” in place to determine whether the law regarding a statute of limitations had changed over time, while also requiring all employees to undergo regular compliance training regarding statute of limitations issues and not filing collection lawsuits on accounts that are within 90 days of expiration.
This case provides the perfect example of why having strong policies and procedures in place prior to instituting the collection of a debt is essential. Often laws can be open to various reasonable interpretations and so long as you can point to a detailed procedure of verifying whether a debt is time-barred, debt collectors may be entitled to avail themselves of the FDCPA’s bona fide error defense when the interpretation they follow may be incorrect.
Subject of FTC Action Fails in Appeal Over $5M Restitution Award
The Court of Appeals for the Seventh Circuit has largely upheld an appeal in favor of the Federal Trade Commission that may wrap up a case that has been in the courts for more than six years including a trip to the Supreme Court and deals with how the regulator assesses fines for violations of federal law. More details here.
WHAT THIS MEANS, FROM CHUCK DODGE OF HUDSON COOK: This six-year litigation journey started with negative-option advertising, which appears to be profitable but which the Federal Trade Commission does not like. It ended with the 7th Circuit effectively re-writing the way the FTC can seek relief. It was pretty technical. The FTC sued a company that was marketing credit report monitoring services and obtained a permanent injunction against the defendant, barring him and his company from doing business and. The FTC also sought and obtained an order requiring the defendants to refund consumers’ money based on the alleged deceptive advertising in an amount close to $5.3M. The appeals all focused on the damages award and the way the FTC requested it. There are several provisions in the FTC Act giving the FTC the ability to stop businesses from engaging in conduct that is unfair or deceptive and allowing the FTC to require those businesses to provide consumer redress, including refunds and damages. The 7th Circuit on its first pass at this case undid some of the custom of the FTC in seeking judgment, where the FTC (with the apparent blessing of the courts) sued for both injunctions and the consumer redress under the section (13(b)) of the FTC Act granting the FTC the authority to seek injunctions. The Supreme Court agreed with the 7th Circuit’s stricter read of the FTC Act (notably, the 7th Circuit in this opinion says that in its first opinion it was reacting to the Supreme Court’s more restrictive view of “judicially implied remedies” by reading the FTC Act more strictly than the courts traditionally had) and disallowed the monetary relief if the FTC did not seek it under the appropriate section of the Act. The defendants raised several arguments against the relatively simple re-awarding of the financial redress when the FTC amended its petition, but the arguments did not work. As a result, these defendants still had to pay the consumer redress piece, and when the FTC seeks both injunctive and financial relief against a company, it has to plead separately for that relief (heads up for the litigators).
CFPB Reaches Settlement with Lexington Law
On the same day that a bankruptcy court judge approved the sale of the assets of Lexington Law and its parent company, PGX Holdings, Inc., the Consumer Financial Protection Bureau announced it had reached a settlement with the companies that will impose a $2.7 billion judgment and ban the companies from telemarketing credit repair services for 10 years. More details here.
WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: The agreed judgment is an eye-popping number, but it probably won’t do much to reduce the barrage of disputes driven by various credit repair services. It is interesting, though perhaps not surprising, that in announcing the settlement of claims related to marketing and billing practices in the credit repair industry the CFPB remarked that the credit reporting system itself needs to be repaired.
Judge Denies MTD in CFPA, FDCPA Case Brought by CFPB
A District Court judge in New York has denied a motion to dismiss filed by the defendants that were sued by the Consumer Financial Protection Bureau last year, rejecting a number of arguments put forth that the lacked standing to pursue its claims because the defendants were not covered persons under the Consumer Financial Protection Act, that they could not be held vicariously liable for violations made by collectors, and because the statute of limitations on some of the violations had expired. More details here.
WHAT THIS MEANS, FROM DAVID SHAVER OF SURDYK DOWD & TURNER: Debt buyer beware! Salacious headlines aside, reading the Western District of New York’s Decision & Order in Consumer Financial Protection Bureau v. Craig Manseth, et al. might give debt buyers (and their executives) some heartburn about the prospect of being held liable for compliance violations by the debt collectors they use. Nevertheless, it is important to remember that the Decision & Order was on the defendants’ motions to dismiss and Judge Vilardo was required to accept the truth of the CFPB’s factual allegations at that stage. It will be interesting to see how this case develops going forward and whether the defendants can come forward with evidence to undercut the CFPB’s allegations.
However, if even some of what the CFPB has alleged is established, the takeaway for debt buyers seems clear: if you have the ability to direct or control aspects of the collection processes used by the debt collectors you hire, don’t ignore compliance issues you learn about and address problems head-on when they arise. This seems like a common-sense best practice and most debt buyers are likely already doing this very thing. Just as the vast majority of debt collectors are working hard to maintain a culture of compliance. But, collectors are humans and violations will happen. It is when those violations become commonplace or a strategy unto themselves and nothing is done about it that regulators are going to take notice.
There are other portions of Judge Vilardo’s Decision & Order that should be noted. First, Judge Vilardo was not persuaded that the FDCPA’s one-year statute of limitations for private actions should be applicable to the CFPB. Second, Judge Vilardo concluded that vicarious liability claims under the FDCPA are available to both the government and private litigants. These interpretations are likely to be cited by the CFPB in the future as it seeks to expand its reach and enforcement capabilities.
Judge Denies Defendant’s Motion to Set Aside $225k Punitive Damages Award in FCCPA Case
A District Court judge in Florida has denied a defendant’s attempt to set aside a jury’s award of $225,000 in punitive and emotional damages that were awarded to a plaintiff in a Florida Consumer Collection Practices Act case because the defendant continued to contact the plaintiff after being notified that she was represented by an attorney. More details here.
WHAT THIS MEANS, FROM DALE GOLDEN OF MARTIN GOLDEN LYONS WATTS MORGAN: As someone who’s been defending consumer cases in Florida for nearly 27 years, this ruling is a cautionary tale for me. The Florida Consumer Collection Practices Act, unlike the FDCPA, applies not only to debt collectors and buyers, but original creditors as well, and allows consumers to seek punitive damages. Yet many companies don’t necessarily have the right infrastructure in place to deal with issues that debt collectors face every day. In this case, the plaintiff’s debt was discharged in bankruptcy and her attorneys faxed a notice of representation to Dish Network multiple times. Yet Dish Network continued to contact the plaintiff about the debt, leading to a six-figure punitive damage award,. While I’m not suggesting it happened in this case, debtors and their attorneys will sometimes search the internet to find obscure fax numbers or P.O. boxes owned by creditors and then, send attorney rep letters to those numbers or addresses. There is frankly not a lot that can be done if those situations result in FCCPA lawsuits, but one piece of advice we give our clients is to include specific fax numbers and addresses on their billing statements for customers to send bankruptcy notices or attorney rep letters. Doing so should, at the very least, provide a strong argument against punitive damage claims under the FCCPA.
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.