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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 Orders Non-Party Collection Operations to Share Info in FDCPA Case Over Whether Defendants Meet Definition of Debt Collector
A Magistrate Court judge in Utah has partially granted a plaintiff’s motion to compel several collection operations to comply with subpoenas in a Fair Debt Collection Practices Act case in which the defendants are attempting to argue they do not meet the statute’s definition of a debt collector. The ruling, delivered by Judge Daphne A. Oberg, found that while most of the plaintiff’s requests were valid and relevant, some limitations were necessary to avoid undue burdens on the non-party collection operations. More details here.
WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH: This case hides a greater battle taking place in New Jersey. Plaintiff’s counsel is on a state-wide rampage trying to hold debt buyers and debt collectors liable under an obscure licensing statute. The federal courts suggest that the statute applies; the state courts have recently held that the statute is only enforceable by the State.
Additionally, New Jersey has a unique precedent known as the Entire Controversy Doctrine, which requires a party to bring all claims, including counterclaims, in a single action or they are waived.
Plaintiff’s counsel has been foreclosed from bringing claims under the licensing statute due to scores of default judgments entered against consumers in previously filed collection actions as state courts have held that any such claim should have been brought in the collection action under the Entire Controversy Doctrine. Thus, plaintiffs are trying to vacate the default judgments to be able to bring these claims.
State appellate courts nevertheless have continued to reject these efforts as most of these default judgments are years old, and the courts refuse to recognize the licensing statute as a basis under public policy to re-open the defaults.
This process is being played out in hundreds of lawsuits with high stakes.
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Oklahoma District Court Judge Dismisses Class-Action Component of FDCPA Suit
A District Court judge in Oklahoma has dismissed the class-action component of a Fair Debt Collection Practices Act lawsuit, while also dismissing some of the claims, after the defendant was accused of not sending a collection lawsuit summons to the plaintiff’s correct address, which it allegedly had. More details here.
WHAT THIS MEANS, FROM CHUCK DODGE OF HUDSON COOK: This decision is a mixed one for the defendant, a law firm. On the one hand, the court dismissed the class allegations so the action is no longer a putative class action. On the other, the court was (unsurprisingly) not willing to dismiss the plaintiff’s “sewer service” claims. The opinion recites facts indicating that the law firm had at least four addresses in its system of record for the plaintiff, and tried to serve the collection lawsuit at three of them – all but her actual address. The law firm focused on the plaintiff’s claim that it intentionally attempted service at all addresses of record but the right one, arguing that the plaintiff’s claims about the intentional conduct were conclusory, and that there was no evidence to establish intention. But the court found that the facts that the law firm was able to use the plaintiff’s actual address to identify her in a phone call and that after the call the law firm sent the plaintiff at that good address were enough to plausibly should have known the right address, but used the wrong ones to try and obtain a default judgment. It is likely that more facts will come to light as the parties litigate these claims that will explain how the law firm did not send the process server to the fourth (good) address in its system, but we may not find out why if the case settles.
Judge Dismisses Most Claims in FDCPA Class-Action
A District Court judge in Virginia has dismissed the majority of claims against several defendants in a Fair Debt Collection Practices Act class-action lawsuit, but allowed one key claim against a collection agency to proceed. More details here.
WHAT THIS MEANS, FROM SHELLY GENSMER-CLEEK OF FROST ECHOLS: Plaintiff filed a class action alleging a variety of violations of the FDCPA, the Virginia Consumer Protection Act (VCPA) and vicarious liability causes of action against several defendants including but creditors and collection agencies. The case stems from student loans that Plaintiff had taken out in 2006 and 2007, which she later defaulted on. There’s a lot to unpack, here’s the summary of the results.
FDCPA violations: Plaintiff alleged that the defendants lacked proper documentation to establish their ownership of the debt and therefore did not have the legal right to collect it. She also alleged defendants’ communications were harassing and included improper representations about the amount owed on the loans.
VCPA Violations: Plaintiff claimed that the defendants violated the VCPA (and FDCPA) by communicating with third parties, her co-workers and husband, which she alleged was an invasion of privacy and caused her anxiety and distress. She added a claim of unauthorized practice of law by defendants.
Statute of Limitations Issues: Plaintiff argued that the debts defendants were trying to collect were time-barred and that the defendants failed to inform her that they could not legally sue her for these debts.
The court dismissed some of the FDCPA claims because they were brought after the one-year statute of limitations for such claims. The judge noted that the FDCPA requires claims to be filed within one year of the alleged violation and not at the time of discovery as Plaintiff attempted to argue. A portion of the Plaintiff’s FDCPA claims were dismissed: (1) the alleged misrepresentations of the original loan amounts and the failure to investigate the ownership of the loans, and (2) claim of third-party communication because Plaintiff had not met her burden of proof. The court ruled that the FDCPA does not require debt collectors to conduct independent investigations of the debt prior to collection, nor did Plaintiff plausibly allege that the amounts stated in the collection letters were false.
The court allowed part of Plaintiff’s FDCPA claim to proceed, but only to the extent that she alleged that one of the defendant’s communications were misleading because they failed to inform her that the debts were time-barred and legally unenforceable. The judge noted that an unsophisticated consumer could be misled by letters offering to “settle” a time-barred debt without an explicit disclaimer that the debt could not be enforced in court.
The court ruled that Plaintiff lacked prudential standing to challenge the Trusts’ ownership of her loans. The judge explained that under Virginia law, a plaintiff cannot challenge the validity of a debt assignment unless they are a party to that assignment or an intended beneficiary. Since Plaintiff was neither, her claims related to the Trusts’ ownership of the loans were dismissed. The judge found that whether the Trusts had the proper documentation to collect the loans was a matter between the original lenders and the Trusts, not the borrower (Plaintiff).
Unsurprisingly, the court dismissed Plaintiff’s claim of vicarious liability. The judge found that vicarious liability is not an independent cause of action under Virginia law. Instead, it is a legal theory that must be tied to another actionable claim, which Plaintiff failed to properly do in this instance. In the same way, the allegation of unauthorized practice of law was dismissed because the VCPA applies to fraudulent practices related to consumer transactions, not legal services, or debt collection.
In conclusion, the court granted the defendants’ motions to dismiss in large part, dismissing multiple counts without prejudice (meaning Plaintiff could potentially refile them if she corrected the deficiencies). The Trusts and U.S. Bank were dismissed entirely from the case, while some claims against two defendants were allowed to proceed. However, most of Plaintiff’s claims were dismissed due to issues such as lack of standing, the statute of limitations, and the failure to state a valid claim under the FDCPA or VCPA.
Judge Dismisses FDCPA Case Over Request for Email Communication Only
A District Court judge in Oklahoma has dismissed yet another “inconvenient” time or place case under the Fair Debt Collection Practices Act in which a plaintiff mails a letter to the defendant requesting or demanding that all future contact between the parties be conducted via email, ruling that both the FDCPA and Regulation F gave the defendant the authority to respond via traditional mail and not via email. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: This is another of those inconvenient method of communication cases. As we know, under the FDCPA only time and location are covered, not the medium and most Courts seem to limit the inquiry to the FDCPA. Here, on a motion to dismiss, the Court assumes without question that Reg F applies, which does discuss the medium, and goes on to review the complaint against 12 C.F.R. § 1006.14(h)(1) which states:
In connection with the collection of any debt, a debt collector must not communicate or attempt to communicate with a person through a medium of communication if the person has requested that the debt collector not use that medium to communicate with the person.
The Court then reviews § 1006.14(h)(2) which provides three exceptions, summarized as (i) if its to opt out of electronic communications, one can confirm (only) same electronically; (ii) you can respond once through the same medium as the debtor used and (iii) if otherwise required by applicable law, you can still use a medium the debtor asked you not to, i.e. debtor asks for email only but law says letter must be mailed.
The takeaway here – notwithstanding the US Supreme Court decision Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (June 28, 2024) which overruled Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) which stood for deference to agencies (here the CFPB), and future litigation over what extent Regulation F will control – is best practices to assume it will and protect yourself. If your company is not doing it already add a code to signify the method of communication used by the debtor to contact your office. And insert into your operational manual, that before communicating with a debtor, the file is checked, in particular to get the protection of 1006.14(h)(2)(ii) above.
In Lockhart, the debtor contacted Lockhart by letter to advise she only wanted email. The Court found that responding to that letter, by letter fell within the exceptions and dismissed the case.
Judge Denies MJOP in FDCPA Class Action Over ‘Junk’ Fees
A District Court judge in Washington has denied a defendant’s motion for judgment on the pleadings in a Fair Debt Collection Practices Act class-action case over alleged “junk” fees, ruling that the plaintiffs adequately pleaded plausible claims under the FDCPA and related state consumer protection laws. What makes this case even more interesting is that the Consumer Financial Protection Bureau has filed its own amicus brief in favor of the plaintiffs. More details here.
WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: In 2022, the CFPB declared war on convenience fees and issued an advisory opinion specific to debt collectors and the FDCPA. In its advisory opinion, the CFPB opined that the collection of pay-to-pay fees, or convenience fees, for making payment in a particular way violated 15 USC § 1692f unless those fees were expressly authorized by the underlying agreement or affirmatively permitted by law. Convenience fees are ripe for class actions because they are generally reflective of a standing policy or procedure with widespread impact. And debt collectors are not the only target of convenience fee actions – original creditors and servicers are also susceptible to such actions as evidenced by Salom v. Nationstar Mortgage in which the mortgage servicer was sued for collecting convenience fees associated with expedited payoff requests.
Consumer finance organizations should assess any desire to charge convenience fees for risk and be aware that while the FDCPA is one avenue of attack, state UDAAP laws and common law theories such as unjust enrichments are also being used as a basis for class actions alleging unlawful convenience fees. Third party debt collectors may want to mitigate risk by use of a third party payment processor to receive and process payments. While the CFPB has not fully endorsed the use of third party payment processors, the advisory opinion seems to suggest insulation from risk so long as there no kick back payments from the payment processor to the debt collector from the collection of the pay-to-pay fee. In a nutshell, this is an area where compliance professionals should be hyper vigilant in assessing risk vs. cost benefit.
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.
