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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.
CFPB Issues Rule to Update Supervisory Appeals Process
The Consumer Financial Protection Bureau on Friday announced it had issued a rule updating the process by which companies can appeal supervisory findings uncovered during examinations. The changes are intended to reflect updates to the Bureau’s organizational structure and to remain in line with the processes recently put into place by other banking regulators. More details here.
WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) latest proposal to revise the Supervision Appeals process is a head-scratcher for several reasons. While the changes seem subtle, my skeptical “Spidey-senses” told me otherwise. As we all know, the CFPB acts deliberately and transparently, building upon previous work to achieve their policy objectives. Here, it appears to me that while the CFPB is trying to infuse more due process into the supervision process, they are doing so in order to expand their ability to find more violations of consumer law. Here is what changed and why the ARM Industry should take notice:
1. The new appeals process will be overseen by a Supervision Director, however the CFPB’s current organizational chart shows no such title as “Supervision Director”. Former Acting Director of the CFPB, David Ueijo, is back at the Bureau as the Associate Director of Supervision, Enforcement and Fair Lending (SEFL). The position of the Assistant Director of the Office of Supervision Examination is currently vacant.
2. The Supervision Director can appoint any CFPB manager from any division of the CFPB who did not participate in the underlying supervisory matter and who is familiar with the topic to the supervisory appeals committee. The prior appeal process anticipated only managers from Supervision would take part. This could mean that an enforcement manager could be involved.
3. The possible outcomes of the appeal have been expanded. Under the prior process, a supervisory appeal could only be resolved by upholding or rescinding the appealed finding. Under the new proposal, in addition to these remedies, the appealed matter may be remanded to Supervision staff for consideration of a modified finding but it could also mean an expansion of the finding.
4. The proposed rule provides that supervised entities may appeal any CFPB compliance rating or underlying adverse finding, rather than only adverse 3, 4 or 5, rating, or other associated findings. While this might seem an opportunity on the part of the supervised entity to further argue against the adverse finding, the appeals committee could not only agree with the finding but modify it in a way that would be even more detrimental.
5. If an oral presentation is requested, a member of the Board of the supervised entity must make the presentation. The supervised entity must decide whether an individual of the Board is the appropriate person to argue before the CFPB.
This new proposals suggests a more centralized and consolidated approach to supervision, but in some ways eliminating the perspective of field managers, who were in the trenches when the examination occurred.
Industry would be wise to look critically at this new proposal. Rather than siloing the work of supervision examiners, it appears that the CFPB is going to bring more divisions into the process. The CFPB’s proposal seems to be in line with other prudential regulators, like the FDIC, who has reinstated the Supervision Appeals Review Committee (“SARC”), a similar board-based committee of both FDIC Board members and non-board members who were not involved in the supervision process.
While the CFPB’s supervision process is to assess compliance with Federal consumer financial law and detect risk for consumers, it can lead to enforcement in certain situations. Therefore, industry would be wise to continue to fine-tune its compliance and compliance management systems so that an appeal would be unnecessary.
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Appeals Court Affirms Dismissal of Hunstein Copycat, but Dissent Argues Plaintiff Has Standing
The Court of Appeals for the Third Circuit has upheld a ruling in a Fair Debt Collection Practices Act Hunstein case, largely ruling the plaintiff lacks standing to pursue her claim because she did not suffer a concrete injury, but one of the three judges on the panel disagreed and wrote a dissenting opinion saying that the plaintiff should get her “day in court.” More details here.
WHAT THIS MEANS, FROM DAVID SHAVER OF SURDYK DOWD & TURNER: Like many decisions that focus on the concept of Article III standing, the 3rd Circuit’s majority Opinion in Barclift is a measured and reasoned analysis rooted in history and precedent. Problem is, so is Judge Matey’s dissent.
Though this writer agrees with the Barclift majority’s conclusion that a print-and-mailing vendor is like a stenographer (or the modern-day telegram company), there are cases and interpretations of Article III standing that can lead logical legal minds to very different places. For proof of this, look no further than the majority Opinion and dissent in Barclift.
Undoubtedly, Barclift will be cited as the latest precedential decision in the great weight of authority finding that FDCPA claims based on the “mailing vendor theory” do not pass muster under Article III. And rightfully so. But, there is language in Barclift (in both the majority Opinion and the dissent) that will almost assuredly be seized upon by the opponents of our industry to attempt to fan the smoldering embers of Hunstein back into a flame.
In other words, and though agencies and their defenders will chalk Barclift up as another well-earned win for the industry, I fear that it will likely do little to numb the pain of the constant thorn in our side that Hunstein has become.
FTC Takes Steps to Protect Consumers from AI Deepfakes
The Federal Trade Commission last week announced it was seeking public comment on a rule that would prohibit the impersonation of individuals while also announcing a final rule prohibiting scammers from impersonating businesses or government agencies. The rulemakings are intended to combat the use of tools like artificial intelligence that are being used to create deepfakes and impersonate celebrities and others. The FTC noted that consumers lost more than $10 billion to fraud in 2023, the first time that fraud losses have surpassed that benchmark. More details here.
WHAT THIS MEANS, FROM VAISHALI RAO OF HINSHAW CULBERTSON: The Federal Trade Commission’s bread and butter consumer protection cases have always been true scammers, including entities that falsely imply a connection with the government. In the past, the FTC has used its Section 5 (or unfair or deceptive trade practices) authority to bring those cases, but since the 2021 AMG Capital Management Supreme Court ruling, those cases have become harder for the FTC to achieve their goals. This rule would solidify the FTC’s ability to return money to consumers who are victim to impersonation scams. It is also a clean way for the FTC to regulate on something very current in the area of AI. While this rule is less controversial than others, we should expect more proposed regulation on AI-related topics in the near term.
Judge Denies Competing Summary Judgment Motions in FDCPA Case
A District Court judge in Washington has denied competing motions for summary judgment in a Fair Debt Collection Practices Act case that stretches back more than 13 years, ruling that both sides point to facts that could be ruled in their favor, thus leaving it for a jury to decide. More details here.
WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: This FDCPA case stems from 10+-year old default judgment. This decision is also not the first decision regarding the matter. Two years ago, the court denied the debt collector’s motion to dismiss premised on a statute of limitations defense. As readers will recall, in the Supreme Court case of Rotkiske v. Klemm, 140 S. Ct. 355 (2019), the Court held that the FDCPA has a 1-year statute of limitations from the date the violation occurred and declined to adopt a “discovery rule” to extend the statute of limitations in FDCPA cases. However, the Supreme Court left open the possibility of extending the statute of limitations based upon common law doctrines such as equitable tolling. The district court’s decision denying the debt collector’s motion to dismiss based on the statute of limitations applied equitable tolling in holding that the plaintiff plausibly stated a cause of action.
Now, in the summary judgment decision, the district court was presented with various documentary evidence from both parties in briefing regarding whether the plaintiff’s claims could proceed under equitable estoppel. Plaintiff’s theory was that the defendant-debt collector’s actions, as evidenced by the documents presented, “engaged in fraudulent deception” when it did not note plaintiff’s notice of appearance in the underlying state court case (which subsequently led to the entry of a default). Pitera v. Asset Recovery Grp., Inc., 2023 U.S. Dist. Lexis 26894, *14 (W.D. Wash. Feb. 15, 2024), quoting Allen v. A.H. Robins Co., 752 F.2d 1365, 1372 (9th Cir. 1985). The district court held that there was a genuine issue of material fact with respect to the documentary evidence presented, precluding the entry of summary judgment for either party.
The larger underlying issue is the fact that plaintiff alleged reached out to the debt collector after being served, but the debt collector failed to note plaintiff’s communication as an “appearance” in the court case which would require it to provide plaintiff with notice when moving for a default judgment. The summary judgment decision reinforces the decision on the motion to dismiss that, while the definition of an “appearance” can vary by jurisdiction, a debt collector or their attorney should take the broadest definition possible otherwise they may face contentious litigation down the road; especially where a judge, like this case, perceives there to have been any sort of dishonesty in obtaining a judgment.
Judge Grants MSJ For Defense in FDCPA Case Over Unrecognized Debt
In a case that was defendant by Mitch Williamson at Barron & Newburger, a District Court judge in Pennsylvania has granted a defendant’s motion for summary judgment in a Fair Debt Collection Practices Act case in which the plaintiff claimed he did not procure the underlying debt and that the defendant falsely reported it to the credit reporting agencies. More details here.
WHAT THIS MEANS, FROM MARISSA COYLE OF FROST ECHOLS: Plaintiff filed a Complaint alleging violations of the FDPCA when he found an account on his credit report he allegedly did not recognize. The parties engaged in discovery and Defendant filed a Motion for Summary Judgment based on Plaintiff’s failure to produce any evidence supporting his allegations and because it produced evidence showing Plaintiff actually owed the debt. What was Plaintiff’s rebuttal? Plaintiff attacked the way Defendant presented its information rather than the actual information itself. Plaintiff argued the affidavits submitted were not made on personal knowledge or asserted to be so and that the affiants did not identify themselves as the custodian of records. The Court did not give weight to Plaintiff’s attacks. Rather, the Court noted there are no magical words required to evidence personal knowledge of the information included in an affidavit. Instead, the affiant simply must demonstrate he/she is discussing information within his/her own knowledge.
This case is helpful in figuring out how to present information via an affidavit when submitting those in support of a motion for summary judgment. While the affidavit has to meet certain requirements, it does not have to include certain key words or phrases.
N.J. Appeals Court Affirms Ruling for Defendant in FDCPA Case
A New Jersey Appeals Court has affirmed the dismissal of a Fair Debt Collection Practices Act case that was dismissed by an arbitrator, with the plaintiff arguing the arbitrator refused to consider evidence and that the underlying agreement was unenforceable. More details here.
WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH: From the court perspective, it is a very simple decision – unless there is manifest injustice or some degree of fraud or malfeasance, an arbitrator’s decision will be upheld by the judicial system. The appellate court here found that none of those conditions existed. The more interesting analysis is from within the arbitration itself. There, the consumer tried to argue that the agreement to arbitrate was not proven because the defendant relied upon affidavits and exemplars instead of the actual signed credit agreement. The arbitrator rejected this position and found the affidavits to be qualified evidence. While the result here was favorable to the agency, there are many such instances where a different presiding official would disagree and reject arbitration. The safest course of action is always to have a clear chain of title and original supporting documentation.
State Appeals Court Overturns Ruling in Favor of Debt Buyer on Grounds it Did Not Have Enough Proof it Bought Account in Question
In a ruling that could cause ripples throughout the debt buying and collection industry, a state Appeals Court in Virginia has overturned a lower court’s decision in favor of a debt buyer, ruling that the debt buyer had “scanty and incomplete” evidence to prove it owned the debt and thus had a right to collect on it, and has ordered the lower court to enter a judgment indicating the plaintiff does not owe the debt. More details here.
WHAT THIS MEANS, FROM STACY RODRIGUEZ AT ACTUATE LAW: Say it with me: “Full and Complete Account-Specific Chain of Title.” Debt buyers, please make sure you have this at the time of sale. This is not just a litigation concern, although a Virginia appellate court just reminded us that it definitely can be. It is also a regulatory and compliance concern, and a material factor in the value of the product you buy, especially if your strategy and contract rights include the ability to file suit or re-sell. Maine, for example, already requires a debt buyer, as a statutory prerequisite to any attempt to collect, to possess documentation establishing that the debt buyer is the owner of the specific debt, including each assignment or other writing evidencing a complete and unbroken chain of ownership starting with the original creditor.
As with the example in the Virginia lawsuit, in the fintech world, chain of title is not always simple, and the documentation is not cookie-cutter. There are often multiple transfers involved with fintech loans, and each transfer matters and must have proper documentation. Make sure you know what you are buying, and don’t rely on an assumption that each transfer was sufficiently documented and authorized, or that a prior purchaser already ensured that evidence of the chain of title was complete.
So, what can a debt buyer do to protect itself? Make sure you have the contractual right to receive a complete chain of title, and specify what that means with minimum requirements. During pre-contract diligence, make sure you (and the seller) truly understand the chain of title, starting with the original creditor, and explore with the seller the documentation that is available and will be provided to evidence those transactions. Request and review a sample chain of title during diligence to make sure it is sufficient and complete, and ask for reps and warranties related to chain of title. Finally, if you cannot obtain these things from the seller due to lack of documentation or cooperation, be prepared to pass.
Judge Denies Competing Summary Judgment Motions in FDCPA Case Over BK
A Magistrate Court judge in Illinois has denied competing summary judgment motions in a Fair Debt Collection Practices Act case, ruling the plaintiff failed to follow proper procedure and that the defendant is not entitled to the FDCPA’s bona fide error defense that it initiated collection activity on a debt that had been discharged in bankruptcy because some of the alleged infractions occurred after the defendant of bankruptcy. More details here.
WHAT THIS MEANS, FROM CHANTEL WONDER AT MCGLINCHEY: The judge denied both parties’ summary judgment motions in this case due to several technical errors. However, the Court still gave an indication of how it might rule on the issues and ordered the parties to provide supplemental briefing on the threshold jurisdictional question of whether the Federal District Court has jurisdiction to hear this claim, or if it must be brought in the bankruptcy court because the underlying violation alleged should have been the violation of the court’s discharge order- not the violation of the stay, as allege and argued by both parties. The Court cited many cases that ruled different ways on this issue- Dore, 2015 WL 4113203, at *2 (citing Cox v. Zale Del., Inc., 239 F.3d 910, 916-17 (7th Cir. 2001)) (dismissing claim under 11 U.S.C. § 524(a)(2) without prejudice but granting summary judgment on FDCPA in favor of defendant). But see Parente v. Fay Servicing, LLC, 2020 WL 1182714, at *6 (N.D. Ill. Mar. 12, 2020) (denying motion for lack of subject matter jurisdiction on claim for violation of bankruptcy discharge, noting district court has original jurisdiction over claims for violations of the bankruptcy discharge injunction). Final briefing on the jurisdictional issue is due by early April.
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.
