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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 Another ‘Inconvenient’ FDCPA Case
Where the Court of Appeals for the Seventh Circuit became known as the standing court, District Courts in Oklahoma are earning a reputation for being the court where inconvenient time and place caselaw is being written. This time, a District Court judge in Oklahoma has granted a defendant’s motion to dismiss after it sent a letter in response to a letter from the plaintiff stating that email was the only convenient channel of communication going forward. More details here.
WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: The consumer sent a letter to the collector disputing the debt and informing the collector that email was the only convenient means of communication. The dispute triggered the collector’s duty to send verification, which under a strict reading of 15 U.S.C. § 1692g(b) must be “mailed” to the consumer. Also, Regulation F requires collectors to comply with the E-SIGN Act when sending verification electronically and the consumer presumably had not given E-SIGN consent. Fortunately, Regulation F, at 12 C.F.R. § 1006.14(h)(2)(iii), authorizes a collector in this situation to mail verification to the consumer notwithstanding the consumer’s request to not communicate by mail.
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Judge Denies Class Certification Motion in FDCPA Case Over Second Validation Notice
A District Court judge in Illinois has denied a plaintiff’s amended motion to certify a class in a Fair Debt Collection Practices Act case, ruling the plaintiff did not adequately follow instructions from the Seventh Circuit Court of Appeals in defining the limits of who could be included in the class. More details here.
WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: This is case of good lawyering. The Court’s original order directing the consumer-plaintiff to limit their class definition to only those consumer who suffered “to their detriment” was clear. When the consumer-plaintiff came back and tried to certify a class where the plaintiff could not show that other consumers suffered any harm (without additional inquiries into each of the putative class members). Class actions can be an efficient method of adjudicating a dispute where a large number of people are affected, but only if no additional work is required to determine that those people were actually harmed. The attorneys for debt collector here did a good job of explaining to the court why the class definition was flawed and how a class action would be ineffective. While certainly a win for the debt collector, it likely came at an expensive cost as this case has been pending since 2018.
FDCPA Case Over Arbitration Ruling Dismissed
A District Court judge in New York has adopted the report of a Magistrate Court judge and dismissed a Fair Debt Collection Practices Act case after the plaintiff sought to vacate an interim arbitration award and stay ongoing arbitration proceedings — proceedings that the plaintiff actually initiated on her own. More details here.
WHAT THIS MEANS, FROM JACOB BACH OF MARTIN GOLDEN LYONS WATTS MORGAN: Compelling a lawsuit to arbitration based off an arbitration clause in the underlying contract is a standard defense approach in FDCPA lawsuits, and a case compelled to arbitration generally stays in arbitration. However, that does not stop a pro se plaintiff, who might have unreasonable expectations about both the judicial process and the arbitration process, from trying to avoid an unfavorable conclusion in arbitration by trying to involve a state or federal court, especially if they believe the arbitration process has been “unfair” in some manner. When dealing with pro se litigants, you should always be cognizant of the fact they might seeking alternative relief in different forums and be prepared to act quickly to keep the litigation contained to one forum.
California Appeals Court Upholds Dismissal of FCRA Suit for Lack of Standing
A California Appeals court has affirmed the dismissal of a Fair Credit Reporting Act lawsuit, citing the plaintiff’s lack of standing to sue in state court because she did not suffer a concrete injury when she received a copy of her credit report that was missing some disclosures. More details here.
WHAT THIS MEANS, FROM AKEELA WHITE OF HINSHAW CULBERTSON: The California fourth district court of appeal held that the superior court properly dismissed the case because the plaintiff failed to allege a concrete injury and therefore lacked standing to sue in state court. The lower court’s decision was based on Limon v. Circle K Stores, Inc. and similar precedents, which require plaintiffs to be beneficially interested in their claims for damages to have standing in California courts. The plaintiffs sued in state court, alleging the “Summary of Rights” portion of the consumer reports the defendant provided were missing information required by the FCRA. The defendant removed the case to federal court, and the plaintiffs successfully moved to remand the case back to state court based on the lack of Article III standing since they did not allege suffering any downstream consequences due to the missing disclosures. The plaintiffs argued that they were merely seeking to vindicate procedural violations of the FCRA, and therefore the alleged harm did not establish Article III standing.
Following remand, the defendant provided the Limon case as supplemental authority to rebut the plaintiffs’ argument that they had standing to sue under California law. The superior court agreed and granted the defendant’s motion for judgment on the pleadings. On appeal, the court affirmed this decision, relying on California’s general rule that to have standing to sue in California state court, the plaintiff must demonstrate a concrete beneficial interest, which is the equivalent to alleging that they suffered a concrete injury, as that term is used in Article III standing jurisprudence. The plaintiffs alleged that they had a beneficial interest because the non-disclosure caused an informational injury that entitled them to statutory damages under the FCRA. The court rejected their assertion, explaining that “although proof of actual harm is not required to recover statutory damages, this does not obviate the need for an injury in fact when bringing an FCRA claim purely for statutory damages.”
Although states are not constrained by the case or controversy provisions of Article III, some states have doctrines that may be equivalent to or broader than the injury-in-fact prong of the Article III test for standing in the federal courts. Therefore, defendants in FCRA cases should review state court’s precedent on standing and consider whether a plaintiff’s complaint alleges harm that would satisfy the threshold standing requirement when determining litigation strategy.
CFPB Issues Guidance Further Cracking Down on Medical Debt Collection
The Consumer Financial Protection Bureau issued new guidance yesterday regarding unlawful medical debt collection tactics. The advisory opinion clarifies that debt collectors, including third-party revenue cycle management companies, violate federal law when collecting inaccurate or legally invalid medical debts. More details here.
WHAT THIS MEANS, FROM JOANN NEEDLEMAN OF CLARK HILL: The CFPB’s attack on medical debt shows no signs of letting up. The combination of a vicious election cycle and the imminent release of the final rules around the Fair Credit Reporting Act and Regulation V suggest that attacks on the collection of medical debt will remain in the public narrative. However, the recent “advisory opinion” by the CFPB, shows, in my opinion, some cracks not only in the CFPB’s strategy but in their logic as well.
In the last decade, the CFPB has walked a very thin line between guidance and rulemaking. Jumping between both sides of this line has gotten them into trouble in the past. Recall that back in 2013, the CFPB issued “guidance” on indirect auto lending and compliance with the Equal Credit Opportunity Act (ECOA). Specifically, the guidance discussed some policies used by indirect auto lenders that allowed dealers to mark up the interest rate charged to consumers above the indirect auto lenders’ “buy rate”. The CFPB stated in the guidance that the incentives created by these policies resulted in significant risk for pricing disparities and discriminatory behavior. The CFPB said these practices violated the ECOA. Four years after that guidance was issued, the guidance was brought to the attention of the Government Accountability Office (GAO), who agreed and found the guidance to be a rule. Since it was deemed a rule, and because there was no opportunity for notice and comment, it was subject to the Congressional Review Act (CRA). By joint resolution the guidance was in fact repealed in 2017.
In this current medical debt advisory opinion, the CFPB states that under the FDPCA a debt collector is required to substantiate a medical debt prior to undertaking collection efforts. Since 1977, the FDCPA has been silent on the issue of substantiation. In fact the plain language of the FDCPA intentionally omits any substantiation of the debt prior to the debt collector’s first communication with a consumer. Even in response to a dispute by a consumer or request for verification of the debt, the FDCPA still makes no mention of substantiation, rather the statute only requires a debt collector to provide the name of the original creditor or validate or confirmation of the balance owed. To suggest that a debt collector would be required to do more is simply an attempt by the CFPB to engage in rulemaking through guidance.
The CFPB already took a bite out of this apple in its debt collector rulemaking. In June 2017, after the CFPB convened the small business review panel under the SBREFA for the debt collection, then Director Cordray withdrew the substantiation portion from the FDCPA rulemaking proposals, recognizing that it was troublesome to write rules for debt collectors when it came to the issue of substantiation. Now the CFPB is attempting to re-ignite this proposal by issuing a “rule” disguised as an advisory opinion, in complete disregard for the Administrative Procedures Act.
The CFPB’s sloppiness should be addressed by industry trade associations immediately.
Appeals Court Reverses Dismissal of TCPA Case Involving Collection Calls
The Court of Appeals for the Ninth Circuit has overturned a lower court’s dismissal of a Telephone Consumer Protection Act case involving calls made to an individual after she defaulted on a debt. More details here.
WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: In the wake of Facebook v. Duguid, TCPA claims have significantly declined. Facebook was a big win for the industry because it decided that an auto-dialer isn’t considered an ATDS unless it makes calls “using a random or sequential number generator.” This means most auto-dialers in our industry don’t qualify as an ATDS. However, it’s crucial to remember that the TCPA still applies to calls made with a prerecorded or artificial voice, even if an ATDS isn’t used. The Ninth Circuit overturned the lower court’s dismissal, which wrongly said you needed an ATDS to make a TCPA claim. This case is a key reminder that the TCPA covers calls with prerecorded or artificial voices to consumers, regardless of the dialing system. Make sure you get the right consents for any communications using those types of messages!
Judge Dismisses FDCPA Case Over Failure to Report Dispute for Lack of Standing
A District Court judge in New York has dismissed a Fair Debt Collection Practices Act case, ruling the plaintiff did not have standing to sue because he did not allege to have suffered any concrete injuries in his complaint, which accused a collection operation of allegedly not marking his account as disputed with the credit reporting agencies. More details here.
WHAT THIS MEANS, FROM KHARI FERRELL OF FROST ECHOLS: This case addresses the level of specificity a plaintiff must have in alleging harm to meet the concrete injury requirement for Article III standing. While the plaintiff claimed he was harmed by having to spend money on mailing the dispute at issue instead of paying his bills, his failure to quantify these expenses ultimately proved fatal to his argument.
I find this case noteworthy as a reminder that dismissals for lack of Article III standing are rendered without prejudice. This means that in many cases, a plaintiff can and will refile the same complaint in state court after it was dismissed by the federal district court. Because of that, as a litigator, it is important to be strategic when considering if/when to raise a standing argument in a case. Factors such as the expiration of the relevant statute of limitations period should always be taken into account when making this decision. Doing so may help establish a statute of limitations defense to a subsequent state court action filed by a plaintiff after the dismissal of their precedent federal action for lack of Article III standing.
Bill Introduced in House to Allow Furnishers to Report Positive Medical Debt Information to Credit Bureaus
A bipartisan bill has been introduced in the House of Representatives that seeks to amend the Fair Credit Reporting Act so that individuals making payments on unpaid medical debts would see their credit scores boosted. More details here.
WHAT THIS MEANS FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: On October 1, the Reporting Medical Debt Payments as Positive Consumer Credit Information Act of 2024 was introduced in the House of Representatives as H.R. 9890 and referred to the House Committee on Financial Services. The bipartisan bill seeks to amend the Fair Credit Reporting Act to improve the credit scores of individuals making payments on unpaid medical debts. The bill would permit furnishers of medical debt information, such as debt collectors or healthcare providers, to report positive information to credit reporting agencies. Under the bill, a furnisher could report:
- information about a fully paid or settled medical debt, even if the debt originated more than a year prior to the consumer’s current credit report; and
- positive payment performance if a consumer is actively and satisfactorily making payments under an agreed-upon payment plan for medical debt.
The bill would require consumer reporting agencies and credit score providers to adopt reasonable procedures to ensure this positive information is included in credit reports, utilized in credit score generation, and fairly provided to users of credit reports. Currently, medical debt negatively affects credit scores, but making positive payments on such debt does not improve credit scores.
Meanwhile, the Consumer Financial Protection Bureau proposed a rule which would ban medical debt from certain credit reports and requested comments before August 12, 2024. The proposed rule would:
- remove financial information exception that currently allows creditors to use medical information related to medical debt when making credit eligibility determinations;
- prohibit consumer reporting agencies from including medical debt information in credit reports provided to creditors, when it believes that creditors are prohibited from considering it; and
- would ban repossession of medical devices.
The bill to amend the FCRA and the CFPB proposed rule would work harmoniously to improve consumer credit reports. Although the CFPB proposed rule does not completely eliminate the appearance of medical debt on credit reports, taken together, the proposed rule and the bill would keep the least amount of medical debt information possible on a consumer credit report, and boost a consumer’s credit when making payments towards the medical debts remaining on a report. If the bill is passed and the proposed rule takes effect, we anticipate advising clients on procedures to ensure medical debt information is properly reported and reflected on client reports.
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.
