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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.
Appeals Court Affirms Ruling for Defendants in FDCPA Case
The Court of Appeals for the Third Circuit has upheld a summary judgment ruling in favor of the defendants in a Fair Debt Collection Practices Act case, ruling that the plaintiff’s claims were outside the FDCPA’s one year statute of limitations and his attempt to request verification of the debt “was untimely by many years.” More details here.
WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: This case is a lesson in the havoc that can be wreaked by a motivated plaintiff (i.e., serial litigant). The attempted FDCPA claim was obviously time-barred, yet this case was litigated for four years. This particular plaintiff was recognized by the Court as a “serial litigator” with over 17 filed cases. His former attorney was suspended from practicing law for “repeatedly taking frivolous positions in both federal and state courts.” And after the attorney was suspended, the plaintiff continued to represent himself in the case. This plaintiff was also previously sanctioned for frivolous litigation. I am not sure exactly what the takeaway here is but it is a great example of the significant costs that can be incurred in defending against claims brought by a pro se litigant.
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Judge Recommends Dismissal of FCRA ‘Permissible Purpose’ Case Against Collector
In a case that was defended by Martin Golden Lyons Watts Morgan with local representation by Smith Debnam, a Magistrate Court judge in South Carolina has recommended that a Fair Credit Reporting Act lawsuit against a debt collector be dismissed because the plaintiff failed to plead facts that the defendant did not have a permissible purpose for accessing his credit report. More details here.
WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: It seems like there has been an uptick in pro se litigation, and I have noticed some recent pro se cases (like this one) that are based on an allegation that the defendant did not have a permissible purpose for obtaining the plaintiff’s credit report. I expect that in most of those cases the defendants actually had a permissible purpose, but that is often an issue that cannot be addressed through a motion to dismiss. In this case, however, the complaint was vulnerable to a motion to dismiss because the plaintiff failed to plead sufficient facts to support his allegation that the defendant lacked a permissible purpose.
Judge Grants MSJ for Plaintiffs in FDCPA Case Over Expletive-Laced Communications
Being accused of calling someone a “mother [expletive]” when attempting to collect on a debt and then not responding to a motion of summary judgment filed by the plaintiffs is a bold strategy, but it might have more to do with the defendant not having a lawyer who is representing it anymore, and that might be why a District Court judge in Texas granted the plaintiffs’ motion. More details here.
WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: Frankly, there is not much to say about this case other than it serves as a stark reminder as to why the debt collection industry has a bad reputation. The mainstream collection industry has invested so heavily in compliance that it is sometimes hard to remember that there are still bad actors collecting debts. The case below is a good reminder of the stories that drive negative news and anti-collection industry legislation. The defendants in this case are not names I, personally, recognize and so they may be just outlier who dabble in collection. Unfortunately, their inability to treat these consumers with a basic level of respect created another news story for the consumer bar and legislators who look to punish the entire industry.
Appeals Court Affirms Arbitration Ruling in FDCPA Class Action Against Debt Buyer
The Court of Appeals for the Ninth Circuit has upheld a lower court’s order compelling arbitration in a Fair Debt Collection Practices Act class-action case, ruling that the defendant purchased the rights of the contract governing the underlying debt as well as purchasing the debt itself. More details here.
WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: Arbitration clauses are a defense attorney’s best friend when defending a putative class action because they generally include a class action waiver and therefore, reduce the matter to a single party claim. Those defending debt buyers (and particularly, those who purchase credit card debt) who seek to enforce arbitration clauses should take special note of the Ninth Circuit’s unpublished decision in Charles v. Portfolio Recovery Associates in which the Court provided a step by step analysis of arbitrability and the debt buyer’s right to enforce the arbitration clause. Of significance. the Court held that the assignment of all rights, title, and interest to the account included the right to enforce agreements associated with the account, including the arbitration clause. The opinion additionally provided a choice of law analysis which should prove helpful to those wrestling with the concept of arbitrability by clarifying in federal actions not involving diversity jurisdiction, the parties’ choice of law governs the validity of the arbitration clause. Those seeking to enforce arbitration clauses and those purchasing portfolios should save this opinion for later use.
Judge Dismisses FDCPA Suit Over Collection Disclaimer
A District Court judge in New York has granted a defendant’s motion to dismiss a Fair Debt Collection Practices Act case, ruling that the communication alleged to have violated the statute does not meet the threshold for being a communication in connection with the collection of a debt. More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: There are not a lot of rulings that hold a communication from a debt collector was not “in connection with the collection of a debt” – a threshold issue plaintiff must establish. Garrasi v Selene Finance does a good job laying out the issue and standard. First the court explains that the standard of review is an objective one. It thus does not matter that the complaint alleges plaintiff thought the communication was in connection with collecting a debt. Second, it was not issue determinative just because the letter had the e(11) disclosure, i.e., the defendant is a debt collector “attempting to collect a debt and any information obtained will be used for that purpose.”
Third, the court identifies some key criteria when reviewing the issue, such as whether the communication: (a) says the account belongs to plaintiff; (b) identifies a dollar amount owed; (c) directs plaintiff to make a payment to a particular address; (d) references the FDCPA; (e) provides validation rights, or (f) threatens consequences if Plaintiff fails to pay a debt.
The court ended the ruling by dismissing the case with prejudice and without leave to amend. Garassi is nice ruling and should be helpful for all FDCPA defense lawyers.
Judge Dismisses ‘Convenient Communication’ Case for Lack of Standing
It might not be a ruling on the merits of the plaintiff’s claim, but a District Court judge in New York has dismissed a Fair Debt Collection Practices Act “only convenient way to communicate” case on the grounds the plaintiff did not suffer a concrete injury and does not have standing to sue. More details here.
WHAT THIS MEANS, FROM DAVID GRASSI OF FROST ECHOLS: The plaintiff here found a debt on her credit report and mailed a letter to the defendant saying “the only convenient way [for the defendant] to contact her was via electronic mail.” The defendant responded to this inquiry via letter sent regular mail. The plaintiff brought suit under 15 U.S.C. § 1692(a) contending the method of communication was inconvenient.
The judge here dispatched quickly with this matter, finding the plaintiff lacked standing. The judge found the plaintiff did not allege a concrete injury. Simply put, her claim was not sufficiently analogous to an invasion of privacy claim because she did not allege anything that would be highly offensive. Another federal court in Texas recently dismissed a similar claim on the merits, which hopefully suggests the filing trend of these types of cases will be slowing down.
CFPB Updates Rule For Supervising Nonbanks
The Consumer Financial Protection Bureau yesterday issued a final rule updating its processes for how it identifies and designates non-banks for supervision. The rule was issued as a result of organizational changes at the Bureau, the CFPB said. More details here.
WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The “final rule” issued on April 16, 2024 represents a culmination of activity by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) over last two years to reshape and expand its supervision authority. The latest salvo reorganizes the Bureau structure in order to give the Director enhanced discretion in determining whether a covered entity poses risk to consumers, and thus subject to examination.
The CFPB has always had the authority to make a risk-based determination for supervision. In April 2022, the CFPB made a formal announcement that it would start relying on “the reasonable cause to determine” section of Dodd Frank, 12 USC §5514(a)(1)(C) to determine whether a nonbank entity should be subject to supervision. See also, 12 CFR §1091.100-.115. Entities would have an opportunity to respond and be heard on the designation, but the CFPB Director made the ultimate decision. In the April 2022 announcement, the CFPB issued a propose procedural rule authorizing the public release of any risk-based determination made. This is a departure from traditional supervision oversight which is usually kept confidential, other than to publish de-identified findings in quarterly supervisory highlights. In November 2022, the CFPB issued a final rule allowing publication of any final supervision designation. We saw firsthand in February of this year what such publication would look like when the CFPB published its first designation order against World Acceptance.
It should also be noted that in March 2024, the CFPB updated its process for supervisory appeals, expanding the pool of CFPB managers, not just those who participated in the underlying supervision, to reconsider the supervision finding.
The April 2024 procedural rule informs the public of a new organizational structure for the Bureau. Previously, the heads of Supervision and Enforcement would report to the Associate Director of Supervision, Enforcement and Fair Lending (SEFL). Now those division heads report to the Director, creating separate enforcement and supervision units. The position of the Associate Director of SEFL has been dissolved. It has been reported that the CFPB Director has said that, “this flatter organizational structure will allow [the Bureau] to be more agile in [their] response to emerging risk and will facilitate faster decision-making”. In the previous structure, differences on whether a matter should be referred to confidential supervision or enforcement were voted on by the unit heads, with the SEFL associate director having the deciding vote. The new head of supervision is now the “initiating official” in supervisory designation proceedings, similarly the new head of enforcement will initiate enforcement actions. The decision of whether the supervision proceeding will be public or confidential now rests solely with the CFPB Director. In the recent rule, the CFPB disclosed that there have been several supervision designations made since November 2022. World Acceptance opposed the CFPB’s designation, which suggests that opposition to the Director’s determination now runs the risk of public disclosure.
For the ARM industry as well as for any non-bank entity, the stage is now set for a broader expansion of oversight across many industries of difference size and scope. It must be remembered that the goal of the supervision process is to: (1) to gain an understanding how the entity manages risk and (2) whether the entity has engaged in any harm to consumers. This means that the CFPB will be diving into an entity’s compliance management system to ensure that it identifies and remediates risk. The label of “non-bank” does not alleviate that responsibility. Expect the CFPB to use this expanded supervision as a form of pre-enforcement discovery. If the CFPB identifies risk and the failure to manage it, rest assured they will conclude that harm will follow.
CFPB GC Talks About Debt Collection, Credit Reporting With Consumer Advocates
The general counsel of the Consumer Financial Protection Bureau gave a speech yesterday to a group of consumer advocates and the two main areas of focus were debt collection and credit reporting. Within those two areas, Seth Frotman drilled down into discussing medical billing and collections, and landlord-tenant screening and debt. More details here.
WHAT THIS MEANS, FROM MICHAEL PONCIN OF MOSS & BARNETT: The fact that the CFPB continues to have its sights set on debt collection and credit reporting comes as no surprise. But the words of the CFPB’s General Counsel provide a timely reminder of the importance of having procedures in place to increase the odds that collectors are contacting the right party and seeking the correct balance. Procedures should be routinely reviewed to ensure the use of best practices and to establish a bona fide error should it be needed. Moreover, it should go without saying, but partnering with diligent and compliant creditor-clients is a must.
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.