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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 Dismisses FDCPA Claims in Long-Running Student Loan Case
When you file for bankruptcy protection and list certain entities as creditors, it can be hard to then file lawsuits accusing those creditors of violating the Fair Debt Collection Practices Act because they couldn’t prove they owned the debts in the first place, a District Court judge from Washington has ruled in partially granting motions to dismiss filed against a pair of plaintiffs in a long-running FDCPA case. More details here.
WHAT THIS MEANS, FROM JUSTIN PENN OF HINSHAW CULBERTSON: Too often the ARM industry finds itself defending federal litigation that arises out of unsuccessful state court collection lawsuits, and this case is helpful in at least two ways. First, it supports the notion that not all failed collection litigation should result in an FDCPA claim. Second, the court rejected the consumers’ shape-shifting positions from the bankruptcy court to the district court, correctly holding they were precluded from taking positions contrary to those from which they previously benefitted. These concepts should be kept in mind when defending FDCPA litigation arising out of underlying collection lawsuits.
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Judge Denies Defendant’s MSJ in FDCPA Class-Action Over Conflicting Attorney Fee’s Statements
A District Court judge in Minnesota has denied a defendant’s motion for summary judgment in a Fair Debt Collection Practices Act class-action lawsuit, ruling that there were genuine issues of material fact in dispute regarding whether the defendant law firm qualifies as a debt collector under the FDCPA and whether its actions violated the statute. More details here.
WHAT THIS MEANS, FROM JOSHUA HOWELL OF TROUTMAN PEPPER: In addressing whether the defendant law firm qualified as a “debt collector” under the FDCPA, the Kowouto court correctly focused on the regularity of the law firm’s debt collection activity — looking to the frequency and number of collection communications sent, whether the law firm had personnel or systems devoted specifically to collections, and whether collections were undertaken on behalf of clients that retained the firm specifically for that purpose—not whether debt collection comprised the firm’s principal source, or a significant percentage, of its business. As the court observed, the percentage of the law firm’s business devoted to collections had little bearing on whether it “regularly” collected debts on behalf of another and the lack of record evidence bearing on that point was no grounds for granting the law firm summary judgment. The Kowouto decision serves as a good reminder of the relevant documentation and information collection firms should retain to support arguments relating to FDCPA applicability.
CFPB Publishes Warning About Collecting From Surviving Spouses
The Consumer Financial Protection Bureau on Friday turned its spotlight on the risks of attempting to collect on unpaid medical bills from surviving spouses, highlighting potential legal violations by collectors who may ignore legal nuances. More details here.
WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS SUTHERLAND: Consistent with federal priorities to reduce the burden Americans face regarding medical debt, the Consumer Financial Protection Bureau (“CFPB”) has recently issued a series of advisories to consumers and to the debt collection industry suggesting that a final rule may not be far off related to the Fair Credit Reporting Act and medical debt. Relying on a report issued in March, 2022, the CFPB is cautioning the public about its concern regarding errors in medical debt, medical billing, and subsequently medical collections.
Beginning with cautionary guidance about debt collectors attempting to collect debt from surviving spouses and other family members, on September 20, 2024, the CFPB issued guidance for surviving spouses titled “debt collectors that take advantage of surviving spouses and their vulnerabilities.” In the guidance the CFPB reviewed some of the content of complaints it has received about surviving spouses’ difficult experiences with debt collectors who allegedly were attempting to collect debts from deceased loved ones or worse were credit reporting those debts against surviving spouses. The CFPB offered tips to consumers cautioning them that surviving spouses may not be responsible for their loved ones’ debts, that if a nursing home or other facility conditioned treatment of a loved one on the surviving spouse guaranteeing that debt – it is generally illegal; and that people who are struggling with their dealings with a debt collector should obtain legal representation or submit a complaint to the CFPB.
On October 1, 2024, in conjunction with a White House press briefing, additional guidance was issued to the public about medical debt topics by the CFPB. These topics included the potential for double billing and inflated charges, falsified or fake charges, unsubstantiated medical bills, attempts debt collectors may make to collect hospital bills from patients who were eligible for but never received financial assistance or charity care, pressuring patients to pay disputed bills, and risks associated with debt collectors skirting the FDCPA by deciding medical debts are not “in default” when placed (even though a creditor’s accounting practices or the patients’ contracts might lead to another conclusion). The CFPB has warned the public that there may be illegal practices such as
The CFPB offered this advice to consumers:
- Request a detailed list of charges so a consumer can review the charges and determine if there are any charges “that can’t legally be collected”
- Negotiate the amount you owe because “debt collectors might not tell you that medical charges can be negotiated”
- Get legal help
- Submit a complaint.
There is now a robust resource area on medical debt on the CFPB’s website with infographics, blogs, reports, press releases, and links to various compliance circulars and bulletins.
Concurrent with the guidance the CFPB issued to consumers and featured in the medical debt area of the CFPB’s website is an Advisory Opinion confirming that debt collectors who attempt to collect amounts from consumers that consumers do not owe are strictly liable under the FDCPA – citing as examples Workers Compensation situations where employers are liable for medical bills, situations in which insurance may still be processing a claim or in which insurance paid a claim and a debt collector is attempting to collect the wrong amount from a consumer. The CFPB is clear: a debt collector must “ensure” before attempting to collect a medical debt (and before credit reporting a medical debt) that the consumer is truly responsible for the exact amount of the debt the collector will attempt to collect. Because the FDCPA is a strict liability statute, the CFPB explains that debt collectors should review medical debt substantiation that they are about to attempt to collect the right amount from the right person.
Debt collectors – and their healthcare provider creditor clients — are often in a difficult situation if communication with a consumer about whether or not illness or injury was work-related has never occurred, or if a consumer has not yet communicated with their healthcare provider about whether or not they want or need financial assistance, or has not yet provided information about health insurance or other third party sources of payment they may have available to pay for care.
Further information from the CFPB is expected in regard to medical debt collections … and a national town hall on scams and older adults is planned for later in October.
California Governor Signs Trio of Collection-Related Bills into Law
California Governor Gavin Newsom yesterday signed a trio of bills that will significantly impact the credit and collection industry in the state. These new laws, set to take effect in 2025, will reshape how medical debt is reported, expand consumer protections, and alter the landscape for commercial debt collection. More details here.
WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: This multi-level legislation by California is as follows:
SB 1061: Medical Debt Reporting Ban
- Prohibits medical debt from appearing on credit reports
- Aims to prevent medical debt from hindering access to housing, employment, and loans
- Aligns with a proposed CFPB rule on medical debt credit reporting
AB 2837: New Requirements for Wage Garnishments and Bank Levies
- Creates complex new service and execution requirements
- Will affect how creditors and collectors pursue judgments
SB 1286: Expansion of Rosenthal Fair Debt Collection Practices Act
- Extends consumer debt collection protections to certain commercial debts
- Applies to commercial debts up to $500,000
The above is more attacks by California to help consumers fail to pay their obligations. The proposed banning of credit reporting of medical debt merely follows the trend of the 7 other states who are banning medical debt collections and is unfortunately consistent with the CFPB’s position on the reporting of medical debt as well. The effective date of the CA legislation will be: January 1, 2025.
The California Assoc. of Collectors, in addition to other trade groups, fought this battle valiantly and sought concessions that were balanced for both consumers and health care providers. The impact of this legislation on health care providers could be staggering.
As to SB 1286 regarding the incorporation of the Rosenthal Act into certain commercial collections, this is just another means in which California seeks to broaden the scope of and to govern collection of all debts. It merely gives plaintiff’s bar more opportunity to bring more lawsuits in the context of collections.
The above is demonstrative of why our industry needs to continue strong advocacy on every level to seek to combat dangerous legislation. The California Association of Collectors has done tremendous work in this regard and has changed the shape of many pieces of legislation by constant engagement with legislators. We may not always prevail all of the time, but at least we will have a seat at the table and our voices will always be heard.
Judge Denies MTD in FDCPA Case, Rules Defendant ‘Obligated’ to Avoid Practices that Would Mislead Least Sophisticated Consumer
A District Court judge in Maryland has denied a defendant’s motion to dismiss claims it violated the Fair Debt Collection Practices Act by not clearly itemizing the fees it was attempting to charge the plaintiff, ruling that the plaintiff plausibly alleged the defendant’s practices were misleading or deceptive from the perspective of the least sophisticated consumer. More details here.
WHAT THIS MEANS, FROM MIKE FROST OF FROST ECHOLS: In this case, the Court has denied Defendant’s motion to dismiss based on an allegation that the itemization of fees was misleading and deceptive to the least sophisticated consumer. A denial of a motion to dismiss means that the Court has decided not to dismiss the case at this early stage, allowing the claim to proceed to the next phases of litigation, such as discovery, additional motion practice or trial. The denial of a motion to dismiss does not mean that the plaintiff has or will win the case; it just means that, at this stage, the Court believes there is enough merit to continue.
Cases like this involving the itemization of fees can be difficult to resolve early in litigation due to the inherent nature involving the underlying consumer agreement terms, definitions, and intricate contractual requirements. It will be important to track this litigation to see if the Court ultimately renders an opinion at a later motion stage or at trial. However, at this point the denial of the motion to dismiss does not mean much more than defining fees is an area that this and possibly other plaintiff attorneys may consider testing such legal theories.
Appeals Court Affirms Ruling for Defendants in FDCPA Case
The Fourth Circuit Court of Appeals has affirmed a District Court’s dismissal of a lawsuit filed under the Fair Debt Collection Practices Ac. The plaintiff claimed that a debt collector violated the FDCPA by improperly serving a summons and complaint to the wrong address, obtaining a default judgment, and garnishing her wages. The District Court’s dismissal was based on the plaintiff’s failure to file the complaint within the statute of limitations. More details here.
WHAT THIS MEANS, FROM NABIL FOSTER OF BARRON & NEWBURGER: Unless you look at the docket for the underlying district court case, you would have no idea how much effort it took to reach this appellate decision. This 3-page unpublished appellate court opinion from the 4th Circuit is an example of “Occam’s razor” (aka “Ockam’s razor”) at work in more ways than one. The elegance of the Occam’s razor principle is also reflected in the more contemporary concept of the KISS method (“Keep It Simple, Stupid”). The 3-page unpublished opinion in Paxton v LVNV Funding LLC , No. 24-1177 (4th Cir. Sept. 23, 2024) affirmed the district court’s opinion to dismiss based on the one year statute of limitations for FDCPA claims.
The alleged FDCPA violation occurred in 2018 and to try to avoid the cut of the one-year SOL, the Plaintiff’s counsel used the permissive Federal notice pleading standard to allege in 2021, without any factual support, that the defendants “employed a contrivance intended to prevent inquiry concerning a debt and the complaint against the Plaintiff” by bringing the case in Mississippi rather than North Carolina. See Am. Compl., docket entry No. 4 at ⁋ 46. The problem is that Plaintiff had no evidence or facts to support the wild accusation of such a “contrivance” to fraudulently conceal the collection suit from Plaintiff. Basically, the Plaintiff moved 5 months before the suit was filed and there were no facts to suggest that Defendants (the collection law firm & its client) knew she had moved. Thus, despite the extensive legal jousting over the application of the Rooker-Feldman doctrine, the intermediate trip to the Mississippi appellate court and the extensive appellate briefs, in the end it all came down to the simple fact that, in more ways than one, it seems as if the plaintiff wrote a check that could not be cashed. According to Occam’s razor or the KISS method, the simpler explanation for why the 2018 collection suit was filed in MS rather than NC is the preferred choice, as suggested by a 3-page unpublished appellate court opinion.
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.
