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.
N.M. Judge Dismisses $4M Fraud Claim Against Collection Operations
In a case that was defended by a number of industry attorneys, including David Grassi and Chad Echols of Frost Echols and Brendan Little of Lippes Mathias, a State Court judge in New Mexico has granted a motion to dismiss filed by the defendants — seven different collection operations — that were sued by a former member of the New Mexico Attorney’s General Office for not complying with state licensing laws. The suit sought to recover $4 million in fees that were paid to the defendants and $30,000 in damages for each violation of the applicable statute. More details here.
WHAT THIS MEANS, FROM AYLIX JENSEN OF MOSS & BARNETT: While the Court disagreed with the Defendants as to whether the exhaustion requirement of Section 44-9-9(A) applies to the qui tam Plaintiff, it agreed that the Plaintiff failed to state a claim, thereby granting the motion to dismiss. This is a good win for the defense and serves as a reminder that the failure of a plaintiff to assert allegations for a violation addressed by the named statute is fatal to the case. In this matter, the Plaintiff argued that the Defendants obtained licenses based on misrepresentations made to the licensing entity, failing to recognize that such conduct is not covered by any of the prohibited actions set forth in the named statute.
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Appeals Court Affirms Ruling for 2 of 3 Defendants in FCRA Case
The Court of Appeals for the Eleventh Circuit has affirmed the dismissal of a Fair Credit Reporting Act case against two of the three defendants, but denied it for the third defendant, ruling that it may have reported inaccurate information relating to one of the plaintiff’s debts. More details here.
WHAT THIS MEANS, FROM DAVID SHAVER OF SURDYK, DOWD & TURNER: The Eleventh Circuit’s Opinion in McWhorter v. TransUnion, LLC, et al. serves as an excellent reminder that a few reasonably coherent allegations, whether from a pro se plaintiff or a consumer’s lawyer, may be sufficient to unlock the doors of discovery. Though McWhorter (representing herself) failed to plead factual matter sufficient to overcome the motion to dismiss of TransUnion and Nelnet (and the summary disposition they sought on her appeal of the dismissal of her claims against them), she plead enough facts to defeat Experian’s attempt to have the Northern District of Georgia’s decision granting it a dismissal summarily affirmed. Though the Eleventh Circuit made clear that it was only choosing not to summarily affirm the dismissal of the claims against Experian and that McWhorter may still not have stated a plausible claim (an issue to be decided after full briefing), Experian may now be fighting an uphill battle to keep McWhorter’s claims from going back to the District Court and keeping the doors of discovery shut. Only time will tell if McWhorter can convince the Eleventh Circuit (again, after full briefing) that she should be entitled to continue prosecuting her claims against Experian.
When facing an appeal after prevailing in a district court, ARM defendants should continue to work closely with their counsel to develop and implement the defense strategy that best suits their needs and goals. In this case, and based on the results achieved by TransUnion and Nelnet, it appears that seeking a summary disposition (a strategy less frequently deployed) was an effective decision. Unfortunately for Experian, McWhorter plead more facts as to it and those facts might be just enough to stave off dismissal (for the time being, anyway).
Judge Remands Hunstein Class Action for Lack of Standing
Over the objection of the plaintiff, a District Court judge in New Jersey has adopted a magistrate court judge’s recommendation and remanded a Hunstein class-action case to state court, ruling the plaintiff lacked standing to sue because he did suffer a concrete injury. Yes, hard as it is to believe, there are still Hunstein cases floating around out there. More details here.
WHAT THIS MEANS, FROM BRENDAN LITTLE OF LIPPES MATHIAS: Plaintiff’s attempt to keep his dozens of Hunstein cases alive in New Jersey has taken a serious hit. Given that the Appellate Division in New Jersey has recently rejected the letter vendor theory on the merits on multiple occasions, Plaintiff’s counsel was desperate to convince the District Court that this Plaintiff had Article III standing to proceed in federal court. Plaintiff argued that the disclosure of his personal and financial information was akin to the common law tort of “unreasonable publicity given to another’s private life.” However, in Barclift, the Third Circuit had already determined that when a debt collector transmits information to an intermediary tasked with contacting the consumer, that consumer has not suffered any harm traditionally associated with public disclosure. Recycling prior arguments, Plaintiff’s attempt to convince the Court that there was Article III standing fell flat as the District Court concluded “[b]ecause Plaintiff has failed to alleged that Defendant communicated his personal information beyond Defendant’s vendor, Plaintiff has not suffered the kind of privacy harm traditionally associated with public disclosure.”
Appeals Court Affirms Ruling for Defendants in FCRA, FDCPA Case
The Court of Appeals for the Seventh Circuit has upheld rulings in favor of the defendants who were sued by a consumer for allegedly violating the Fair Credit Reporting Act and the Fair Debt Collection Practices Act when they reported a loan as delinquent after it had been cured during the bankruptcy process, ruling that the plaintiff did not provide enough information in her dispute when she failed to identify which credit reporting agency she disputed the debt with, and because she lacked standing to pursue her FDCPA claim. More details here.
WHAT THIS MEANS, FROM NABIL FOSTER OF BARRON & NEWBURGER: “Back to basics, part deux” or “file first and ask questions later” is what you should remember about this case. All too often, it seems like plaintiffs and their counsel race to file lawsuits under the FDCPA (Fair Debt Collection Practices Act,§§ 1692 et seq.) and the FCRA (Fair Credit Reporting Act, 15 USC §§ 1681 et seq.) without much investigation or thought about the necessary proof. This recent 7th Circuit’s opinion harmonizes well (in a fundamental way) with the 8th Circuit’s opinion in Chiya Lloyd v. FedLoan Servicing, et al Case No. 22-2840 on June 21, 2024.
The 7th Circuit case is a very good reminder that the failure of a Plaintiff to meet their burden of proof is fatal to the case. Essentially, the appellate court held that the plaintiff failed to provide sufficient evidentiary support at the summary judgment (“put-up or shut-up”) stage for her claims of monetary and intangible harms to qualify for Article III standing to file a FDCPA claim in Federal Court. The court simply wrote: “Freeman’s argument fails as a matter of proof.”
As for the failure of the Plaintiff to state a claim under the FCRA, this relates back to the race to the courthouse steps to file the suit without investigating some basic facts. The FCRA claim was dismissed because the Plaintiff failed to name the specific credit reporting agency to which she allegedly sent her dispute. What makes this a glaring case of “file first and ask questions later” is the fact that the district court gave the plaintiff and her counsel (this wasn’t a pro-se plaintiff case) two opportunities to amend the complaint. One can only speculate about how they missed their second bite at the apple AND their third bite at the apple!
This 7th Circuit opinion should help the ARM industry weed out some of the “file first and ask questions later” type of FCRA and the FDCPA litigation threats.
FCC Proposes Rule Requiring Disclosure for AI-Generated Calls
The Federal Communications Commission is proposing new rules to combat the rise of robocalls generated by artificial intelligence, a growing concern for both consumers and businesses. If adopted, these rules could significantly impact the way companies communicate with consumers. More details here.
WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: FCC Chair Jessica Rosenworcel is bent on getting out in front of AI calls and AI content in communications, even though artificial voice calls have been around for decades. However, now that AI is far more sophisticated that it had been, and after the AI incident where AI can literally mimic another’s voice (i.e., the Biden deepfake AI call), the FCC is seeking to tamp down on the potential for fraud and scams.
But, some of the proposed rules appear to go too far – First, the requirement that the caller obtain prior express consent to make the AI call is nothing new – that has been the law since the TCPA was enacted in 1991. However, the requirement that callers using AI-generated voice would have to, at the beginning of each call, clearly disclose to the called party that the call is using AI-generated technology, will be deemed too onerous by many and will be subject to various challenges. But as we have seen, the FCC has been getting its way on so many proposed rules as of late, despite vigorous opposition from countless trade groups.
Also, The Federal Communications Commission (FCC) on Thursday, July 25, moved forward with a proposal to require the makers of political ads to disclose any use of artificial intelligence (AI).
The rule means advertisers on broadcast television, radio and cable will be required to reveal the use of AI technology for voice and image generation, amid concerns that the rapidly advancing tech could be used to mislead voters as the 2024 election draws closer. There will undoubtedly be legal challenges thereto, especially by the Federal Elections Commission. It is doubtful this rule will come into play before the election.
So much is happening so quickly on the FCC front. Sit tight and let the games begin!!
Judge Awards Defendant $4k in Fees and Costs After Plaintiff Misses Deposition
A Magistrate Court judge in New York has denied a plaintiff’s attorney’s motion to withdraw as counsel in a Fair Debt Collection Practices Act lawsuit and granted a motion from the defendant for fees and costs, ordering the plaintiff’s attorney to pay $4,358.93 after the plaintiff failed to appear for a deposition. More details here.
WHAT THIS MEANS, FROM CHUCK DODGE OF HUDSON COOK: This decision focuses on a procedural outcome, but it highlights a real issue with the consumer finance bar: the plaintiffs’ lawyers are not engaged with their clients. According to the decision, which never gets into the FDCPA claims (because it didn’t have to), the plaintiffs’ lawyers were simply not talking to their client. That became a problem in connection with a deposition of the consumer and she ultimately did not appear. As the consumer’s lawyer (not the attorney debt relief company) attempted to withdraw from representation, counsel for the collection agency rightfully pumped the brakes to figure out what was happening. The facts about the regrettable representation came to light in hearings and briefings, but it was clear to the court that the problem was more with the consumer attorneys than the consumer. The court cites seven other reported cases involving the lawyers for the consumer where it appears they were similarly admonished for less-than-diligent prosecution of their cases, sensing a pattern. Unfortunately, making the consumer attorneys brief and argue the motion to withdraw and pay the collection agency’s attorney’s fees before allowing them to withdraw is unlikely to have a material impact on the conduct of high-volume consumer lawyers.
House Report on AI Includes Interview with Debt Collector
The House Committee on Financial Services Working Group on Artificial Intelligence yesterday released a bipartisan report that summarized six different roundtable meetings that were had with different companies — including one from the accounts receivable management industry. More details here.
WHAT THIS MEANS, FROM HEATH MORGAN OF MARTIN GOLDEN LYONS WATTS MORGAN: This report is a great development for the industry as it continues to try engage with Congress on future legislation. The House report represents a true information gathering approach that looks objectively at use cases and concerns. It is a stark contrast to previous regulatory publications on AI technology from the CFPB that suggest predetermined conclusions and concerns not supported by data.
While most regulatory efforts have historically been adverse to industry interests, artificial intelligence regulation provides an opportunity for the industry to reach across the isle and engage in bipartisan efforts. Many of the industry’s concerns about AI technology and data security, and the potential for fraud are or should be shared by consumer advocates, and there is an opportunity for industry stakeholders to stand out as thought leaders in AI legislation. It is important for the industry to have clear rules and definitions on AI technology and permissible uses. And as consumers begin to use AI technology to communicate with collection agencies, it is important to have a regulatory framework that allows collection agencies to verify they are communicating with the consumer or an AI technology that is authorized by the consumer.
The House report and the participation from the collection agency should be commended as a great first step in helping shape regulation that protects consumers and is fair to businesses. Other members of the industry should be encouraged to look for opportunities to participate in future conversations on AI technology at both the state and federal level.
Appeals Court Affirms Dismissal of FCRA Suit
The Court of Appeals for the Third Circuit has affirmed the dismissal of a Fair Credit Reporting Act suit after the plaintiff alleged the defendant reported inaccurate information on his credit report. Like the lower court, the Appeals Court determined each of the plaintiff’s arguments lacked merit. More details here.
WHAT THIS MEANS, FROM CHELSEY PANKRATZ OF FROST ECHOLS: Pro se Plaintiff here sued one of the credit reporting agencies, alleging that it included inaccurate information on his credit report. However, he failed to specify how or what information was inaccurate, or any detail on what the credit reporting agency allegedly did wrong. The Third Circuit held that Plaintiff did not state an FCRA claim, stating that “conclusory allegations do not suffice.”
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.
