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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.
Judge Rules Maine FCRA Partially Preempted by Federal Law
A District Court judge in Maine has granted partial declaratory relief to a trade organization representing credit reporting agencies that sued the state for overstepping its authority by enacting its own version of the Fair Credit Reporting Act. More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: We all know that the ARMs industry is subject to numerous laws and regulations and, unfortunately, by the federal, state and even local governments. It is difficult to keep up with all of these and then to comply with them. This is especially true when specific conduct is subject to multiple laws, such as credit reporting.
CDIA v Frey (the Maine Attorney General) deals with one such scenario, and it shows the complexity of the issue. The lawsuit addressed whether the FCRA preempted certain provisions of the Maine credit reporting laws. It is a dense read. The FCRA preemption requirements are in 15 U.S.C. § 1681t. If you have not reviewed it lately, take a look. The FDCPA addresses preemption in a relatively short paragraph. The FCRA spends well over a page with extremely nuanced statements of what are or are not preempted and under what circumstances. It is too complex to get into for purposes of this discussion. However, we know that the current CFPB encourages states to enact their own credit reporting laws, and that is happening. There will be more litigation over the nuances of § 1681t, which CDIA v Frey shows are pretty complicated.
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25 State AGs Back FCC’s Plan to Include AI Voices in TCPA Artificial Voice Definition
Attorneys General from 26 different states have filed a comment with the Federal Communications Commission, taking the position that artificial intelligence tools that mimic human voices are a form of an artificial voice as defined under the Telephone Consumer Protection Act. More details here.
WHAT THIS MEANS, FROM AYLIX JENSEN OF MOSS & BARNETT: It doesn’t come as a surprise that the FCC intends to include the use of artificial intelligence (“AI”) in the TCPA definition for “artificial voice.” Despite concerns from the Attorneys General regarding the new technology being “used as a loophole to barrage consumers with illegal calls,” the TCPA specifically prohibits calls using “artificial or prerecorded voices” (without prior express consent) and AI calls involve prerecorded and/or artificial voice elements. Nonetheless, this serves as reminder to ensure compliance with federal and state regulations when automating outbound collection calls with voice AI. Afterall, if it draws that much attention from the Attorneys General, it should be at the forefront of any compliance checklist.
Judge Denies Competing Summary Judgment Motions in FCRA Case Over Dispute Investigation
A District Court judge in Nevada has denied competing motions for summary judgment from both the plaintiff and the defendant in a Fair Credit Reporting Act case related to whether the investigation conducted by the defendant was adequate or not after the plaintiff disputed the debt. More details here.
WHAT THIS MEANS, FROM DAVID GRASSI OF FROST ECHOLS: This case serves as a friendly reminder just how hard it is to prevail on an FCRA case at summary judgment. The consumer disputed the account directly with the collector. In response, the collector contacted the creditor, who verified the debt. The consumer then disputed with the credit reporting agencies and the collector verified the account based on its investigation of the direct dispute. The consumer contended the collector was not permitted to rely on the prior investigation and, in any event, the investigation was inadequate. The collector maintains its investigation was adequate and it could rely on the prior investigation when nothing changed.
Not surprisingly, the judge denied the parties cross-motions for summary judgment based on these disputed facts and noted the reasonableness of an investigation is generally left to the fact finder to determine. As an interesting wrinkle, the collector asserted the “one satisfaction rule” as a defense, arguing the consumer could not recover from the collector because it already settled with the credit reporting agency. The court determined it could not yet reach this issue because liability had not yet been determined.
Judge Dismisses FDCPA, FCRA Suit Over Reporting Debt Without Plaintiff’s Permission
A District Court judge in Pennsylvania has dismissed a Fair Debt Collection Practices Act and Fair Credit Reporting Act case against a collector that was accused of violating both statutes by reporting information to the credit reporting agencies, without the plaintiff’s permission. The plaintiff’s primary claim was that because she did not approve or permit the defendant to have the information it used to report her debt, she was the victim of identity theft and the defendant failed to note the account as such. More details here.
WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: Since the middle of 2023, we have seen a dramatic increase of pro se litigation. Hayward is such a case. Under the best case scenario, the consumer applies for pauperis treatment which requires the court examine the complaint to ascertain its merits before it gets to the defendant for response. In those cases, the Court acts as a gatekeeper which does not let complaints without merit past the gate. Such was the case with Ms. Hayward’s complaint in which the Court ascertained Hayward’s FCRA claim “was predicated upon a fundamental misunderstanding of the statute” and her FDCPA claim similarly did not state plausible claims.
Unfortunately, not all consumers seek pauperis treatment and for those, the industry is left with the difficult decision of whether to defend or settle due to the costs of litigation. ARM industry members should be tracking the increase in pro se litigation, tracking the nature of claims and their costs associated with these matters to ascertain an enterprise wide strategy as to how to handle these matters.
Supreme Court Denies Petition to Hear TCPA ATDS Case
The Supreme Court has rejected a petition to hear arguments in a Telephone Consumer Protection Act case that sought to challenge the definition of 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 DAVID KAMINSKI OF CARLSON & MESSER: The Trim cases (Trim I and II) are interesting, but ridiculous at the same time. Both are TCPA decisions by the Ninth Circuit Court of Appeal – in one of them, the plaintiff’s counsel tried to push the envelope by arguing that a Text message was the equivalent of a prerecorded message and therefore should invoke the same type of potential liability as a voice message. However, the 9th Circuit looked at the plain language of the TCPA and held that the text messages did not use prerecorded voices under the TCPA, because they did not include any “audible components”. This conclusion follows from the statutory context of the TCPA, and the ordinary meaning of voice, which show that Congress used the word “voice” to include only an audible sound. Text messages have no audible sound.
In TRIM II, the 9th Circuit also had occasion to look at what is the correct definition of an automatic telephone dialing system (an “ATDS”) is under the TCPA. Relying on prior 9th Circuit authority in Borden v. eFinancial , the 9th Circuit held that the definition of an ATDS is a system which “generate[s] and dial[s] random or sequential telephone numbers.” Since plaintiff admitted that after analyzing defendant’s text message platform, he learned that REWARD ZONE USA’s system did not generate telephone numbers using a random or sequential number generator, Reward Zone’s text messages were not sent via use of an autodialer in violation of the TCPA. The Court granted Judgment in favor of defendant.
The moral of this story is: When plaintiffs counsel push the envelope too far, it breaks. Plaintiff’s argument that texts messages were voicemails was ridiculous from the start, and counsel had to have known his arguments were going nowhere. Also, this case merely strengthened the definition of an autodialer per 9th Circuit case law which many had sought to challenge as erroneous.
Defendants in FDCPA Stalking Case Ordered to Show Cause Why Case Should Stay in Federal Court
A District Court judge in Washington has given the defendants in a Fair Debt Collection Practices Act and Gramm-Leach Bliley Act case 14 days to demonstrate why the case should remain in federal court or it will be sent back to state court where it was originally filed. Two employees — a mother and her son — are being accused of using software and skiptracing tools to track the whereabouts of the son’s wife, who was allegedly the victim of abuse by her husband, and the collection operation they work for is also being sued for allowing the stalking to occur. More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF AUTOSCRIBE: While the Defendants in this case were successful in their initial motion to move the original case to Federal Court, the Judge’s ruling makes it clear they may not stay out of State court after all. The question presented in this order is whether the Federal Court will invoke supplemental jurisdiction over the state claims. When a federal district court entertains claims within its usual jurisdiction, the federal supplemental jurisdiction statute, 28 U.S.C. § 1367, authorizes the court also to consider certain state claims that it could not otherwise hear when the claims are part of the same case or controversy as the jurisdiction-conferring claims. For the Judge to authorize it, it is rightfully asking whether the state claims in this case are part of the same controversy or, better put by the Judge in the order, factual overlap exists.
The burden of showing the overlap is now on the Defendant, who moved the case to the Federal court. On its face, it is easy to conclude that the facts that will be reviewed to determine claims under the FDCPA and GLBA will differ from those that will be reviewed for the many other state claims made in this case, including defendants who are not debt collectors. While the Defendants may prove this conclusion wrong, it would be hard to consider what they could illustrate that would find evidence that the claims are similar in the facts needed to establish the claims.
A party should not rely on supplemental jurisdiction without thoroughly analyzing the claims and facts. Supplemental jurisdiction is a discretionary Court right and not a party right. While one case would make the litigation more economically and timely, if the facts for the state claims are not factually related, the state claims will not qualify for supplemental jurisdiction.
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.