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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.
OCC Updates UDAP, UDAAP Handbook
The Office of the Comptroller of the Currency (OCC) has issued an updated version of its guidance on unfair or deceptive acts or practices (UDAP) and unfair, deceptive, or abusive acts or practices (UDAAP), titled the “Unfair or Deceptive Acts or Practices and Unfair, Deceptive, or Abusive Acts or Practices” booklet of the Comptroller’s Handbook. Version 1.1 of the booklet brings several important updates for banks under OCC supervision, but these changes also carry implications for entities beyond traditional OCC-regulated institutions, such as debt collection agencies and fintech firms. More details here.
WHAT THIS MEANS, FROM STEFANIE JACMKAN OF TROUTMAN PEPPER: The updated OCC handbook is not only important for banks under OCC supervision but also carries implications for entities that partner with national banks to deliver services, such as debt collection agencies and fintech firms. The enhanced guidance on overdraft services and data protection, in particular, reflects broader regulatory trends and enhanced expectations for consumer protection. While we anticipate changes at the OCC in the new administration, I doubt that those changes will result in any meaningful roll back the overdraft fee requirements and protections pursued under the Biden administration in any significant way. I also anticipate that the guidance on ensuring consumer data privacy and security will likely remain and be a standard against which banks and their service partners may be held in future examinations. In my view, only the UDAP and UDAAP risk indicators present an area in which the industry may observe any discernable shift as to regulatory expectations. While UDAP and UDAAP certainly will remain areas for inquiry, OCC examiners will likely be less rigorous in pushing new and enhanced protections and legal positions through that channel during the incoming Trump administration.
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AI Transparency Bills Introduced in House by Rep. Waters as House Fin’l Services Committee Preps Tech Hearing
A pair of bills have been introduced in the House of Representatives by Rep. Maxine Waters [D-Calif.] that aim to provide regulators with more transparency about how companies in the financial services industry are using artificial intelligence. The bills were introduced days before the House Financial Services Committee holds a hearing on “How Technology is Shaping the Future of Finance.” More details here.
WHAT THIS MEANS, FROM HEATH MORGAN OF MARTIN GOLDEN LYONS WATTS MORGAN: Let’s start with the good news. Both Rep. Maxine Waters [D-Calif.] and friend to the ARM Industry Rep. Patrick McHenry [R-N.C.], chair of the House Financial Services Committee, have formed a bipartisan AI Working Group to explore AI technology regulation. The two new proposed laws are the products of that working group. And there are several ideas in the proposed laws that should have bi-partisan support, especially requiring transparency from government agencies that use AI technology.
Now the bad news. It’s still Congress, and a lame duck Congress at that. These laws will likely join the list of other proposed AI legislation that will remain pending and on hold until next year. With a new House of Representatives and a new Congress installed in 2025, it is possible that we will see some movement on some of this at which time it will be important for the industry to make their voice heard on this legislation.
In the testimony before the House, they acknowledged that there is no agreed-upon definition of AI, and that fact is one of the most important aspects of AI legislation is getting the definition of AI and AI technology correct. We have seen states struggle with this issue, namely in Colorado where the Colorado AI Act in its desire to rush to be first, defined AI broadly to encompass lots of technology that is not truly artificial intelligence. It is important that at a federal level that same mistake is not made and that we as an industry participate in those stakeholder conversations.
Judge Dismisses FDCPA Case Over SOL on Judgment
Sometimes it’s better to be lucky than good. Today’s webinar just happens to be on the topic of legal collections (register here) so it’s entirely timely to write about a court ruling involving a judgment. A District Court judge in Kentucky has granted a defendant’s motion to dismiss a Fair Debt Collection Practices Act case after it was sued for not informing the plaintiff that a debt was allegedly time-barred when it sent a letter informing the plaintiff of payment options on a judgment. More details here.
WHAT THIS MEANS, FROM NICK PROLA OF BASSFORD REMELE: Early evaluation of the sufficiency of pleading is an important defense tool. The amended complaint in this case brings claims against nine defendants in a meandering 108 paragraphs. Consumer attorneys often craft such pleadings (strategically or not) to increase their fees and to create difficulty in parsing exactly which facts or claims are being alleged against a particular party.
In this case, plaintiff was simply wrong about the debt at issue being time barred. Plaintiff’s lack of response to the motion to dismiss essentially concedes their failure to state a claim and made it easy for the court to make the correct call.
When a complaint isn’t well crafted or pled with care, a motion to dismiss can resolve a case without the need to engage in lengthy and expensive discovery. While not appropriate in every case, the viability of a motion to dismiss should part of every defense attorney’s initial case assessment.
Wisconsin Appeals Court Affirms Class Certification in FDCPA Case
A state Appeals Court in Wisconsin has affirmed the certification of a class in a Fair Debt Collection Practices Act case, agreeing with the lower court that the plaintiff’s claims were not mooted by an offer of individual relief made by the defendant. More details here.
WHAT THIS MEANS, FROM DALE GOLDEN OF MARTIN GOLDEN LYONS WATTS MORGAN: To borrow a line from Forest Gump: courts are like a box of chocolates, you never know what you’re gonna get. Having been born and raised in Wisconsin, I can confirm that the overwhelming majority of the population would fit today’s definition of “conservative.” But the opposite in true in Madison and Milwaukee. This appeal was venued in the latter jurisdiction. And it’s therefore far from shocking that the court would side with the plaintiff. The “sky is falling” rationale the lower court offered and the appeals court blessed i.e., if defendant could avoid class actions by offering the named plaintiff complete relief, the court system might be overwhelmed by individual lawsuits, doesn’t really hold water, in my opinion. I’ve simply never experience a situation in which class certification has been denied thereby resulting in scores of individual claims being filed. The court here was tilting at windmills—a nod to my Dutch friends back in Wisconsin. If there’s a take-away from this case, it’s probably little more than making sure you’ve fully investigated your venue—through appeal—before pinning your hopes to a strategy the aligns too closely with common sense.
CFPB Seeks to Expand Scope of FCRA: Data Brokers Now in the Crosshairs
The Consumer Financial Protection Bureau has proposed a sweeping new rule that seeks to bring data brokers under the Fair Credit Reporting Act. This rule would classify these brokers as consumer reporting agencies (CRAs), subjecting them to stringent requirements. More details here.
WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS SUTHERLAND: As 2024 is winding down, the Consumer Financial Protection Bureau (“CFPB”) released its long-awaited proposed rule to bring the “sprawling data broker industry” within the guardrails of the Fair Credit Reporting Act (“FCRA”). Citing concerns about national security and foreign surveillance risks, criminal exploitation by scammers, violence and stalking of domestic violence survivors – the proposed rule clarifies that, among other things, sellers of reports containing any of the following four categories of information about consumers are consumer reporting agencies selling credit reports and are subject to the FCRA:
- A consumer’s credit history
- A consumer’s credit score
- A consumer’s debt payments, or
- Information about a consumer’s income or financial tier.
The proposed rule would restrict data brokers from selling consumers’ information for marketing purposes and for assuring consumers consent to future uses and disclosures after having received clear and conspicuous information about how their information would be used. Consumers would be entitled to revoke their consent.
Many speculate that the new Administration will curtail or roll back the CFPB’s attempts to rein in the proliferating data broker business. Nonetheless, companies who compile and monetize consumer information, as well as companies that use the reports and information from data brokers, should keep an eye on some additional key facts before assuming there is no need to take note and comment on this proposed rule by March, 2025.
First, the incoming President, has announced Commissioner Andrew Ferguson, a champion of innovation and free speech, will become the Chair of the Federal Trade Commission (“FTC”). In its recent Mobilewalla enforcement action last week, Commissioner Ferguson criticized practices of data brokers who fail to obtain meaningful consent from consumers to the collection and sale of their sensitive information. Commissioner Ferguson stated that “we will end Big Tech’s vendetta against competition and free speech.”
Second, now that twenty US states have enacted comprehensive privacy laws the top law enforcers in states, including Texas, are taking aim at big tech companies who appear to be collecting, processing and monetizing consumers’ data without their knowledge or consent.
In both the CFPB’s rulemaking, the FTC’s enforcement, and privacy lawmaking and enforcement at the state level, these three themes are important for the credit and collections industry to keep top of mind: 1) any potential for the unauthorized collection and use of person data leads to privacy concerns; 2) individuals are typically unaware of the extent to which their data is being collected and sold by others – be sure to be transparent in any collections of consumer data and be true to the scope of permissions consumers have given you to use and disclose it; and 3) if you use technology vendors or resources to deliver a digital experience for your consumers, determine whether or how they are aggregating, processing and sharing data for advertising or other purposes as part of their strategy.
Judge Grants MSJ for Defendant in FCRA Case Over Dismissal of Collection Suit
A District Court Judge in Michigan has granted a defendant’s motion for summary judgment in a Fair Credit Reporting Act case, ruling that the defendant did not violate its obligations under the law by continuing to report a disputed debt. More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ FROM HINSHAW CULBERTSON: The facts and claims here are relatively straightforward, and the ending has a nice twist. Plaintiff had a $9000 unpaid credit card balance and the bank filed a collection suit. At the day of trial, counsel for the bank was not ready and the court dismissed the case with prejudice as a sanction. The bank did not remove its tradeline and the debtor disputed it. There was an investigation and subsequent reinvestigation, but each time the bank responded that the information on the report was accurate.
The pro se plaintiff then filed an FCRA case under 15 U.S.C. § 1681s–2(a), (b), and the case went to the summary judgment phase. There are two interesting rulings. First, plaintiff argued that the bank had to prove its report was accurate and complete. The court disagreed. It held that plaintiff had the burden to prove it was inaccurate or incomplete. That was not done.
Second, plaintiff argued that she was not liable for the debt due to the dismissal with prejudice. The court said plaintiff presents a legal defense that could be asserted if a subsequent collection case was filed. It then ruled that even if plaintiff is right on the law, most courts hold that the reasonable investigation required by the FCRA does not encompass such legal issues. Judgment was thus entered for the bank.
Nice victory. This legal/factual issue is still winding its way through the courts and we’ll have to watch how it ends.
N.J. Appeals Court Affirms Dismissal of FDCPA Case Over Multiple Names in Letter
A New Jersey Appeals Court has affirmed the dismissal of a Fair Debt Collection Practices Act lawsuit after the plaintiff claimed to be confused about to whom the debt was owed. More details here.
WHAT THIS MEANS, FROM SARAH DOERR OF MOSS & BARNETT: The Caprio decision adds to the growing body of case law that distills and limits the FDCPA (and its state law counterparts) to its intended purpose and scope. The industry should be encouraged that Courts, both state and federal, are no longer giving quarter to specious arguments regarding the deceptiveness of communications nor further lowering the floor of the “least sophisticated consumer” standard.
Court Rules on FDCPA Case Over Unreceived Request For Additional Information to Clear Up Dispute
A collection operation that couldn’t find a consumer’s information in its system to note the account was disputed. A plaintiff’s attorney who claims never to have received the request for additional information that the defendant sent when it couldn’t locate the account. This case has a lot going on. A District Court judge in Illinois has denied claims for summary judgment from both the plaintiff and the defendant in a Fair Debt Collection Practices Act case, while also ruling the defendant cannot invoke the FDCPA’s bona fide error defense and that the plaintiff is not entitled to actual damages. More details here.
WHAT THIS MEANS, FROM KHARI FERRELL OF FROST ECHOLS: This case highlights the challenges of successfully employing a bona fide error defense under the Fair Debt Collection Practices Act (“FDCPA”). Specifically, it emphasizes the necessity of identifying an actual error that led to the alleged violation. In this instance, the defendant did not identify a “good faith mistake” that resulted in the alleged FDCPA violation. Instead, the defendant referred only to its general policies regarding how it typically handles the identification of accounts with disputed debts, without pinpointing any specific error that contributed to its alleged failure to appropriately mark the debt at issue as disputed. In its response, the District Court noted that the Seventh Circuit has previously established that an FDCPA violation is distinct from a bona fide error. Thus, for a party to successfully utilize a bona fide error defense, there must be a specific error that led to the alleged violation in addition to procedures in place aimed at preventing the specific error that occurred.
Musk Calls for Elimination of CFPB
And you thought the Thanksgiving holiday weekend was going to be a slow news day … Billionaire Elon Musk, who has been tasked by President-elect Trump with identifying ways to reduce government spending, suggested in a post on his social media platform on Wednesday that the Consumer Financial Protection Bureau be eliminated because it is a “duplicative regulatory” agency. More details here.
CFPB Plans to Move Forward with Medical Debt Credit Reporting Rule: Report
While other agencies are planning on going quiet during the transition of power from President Biden to President-elect Trump, the Consumer Financial Protection Bureau appears to move forward with a number of pending regulations, including its proposed medical debt credit reporting prohibition, according to a published report. More details here.
WHAT THIS MEANS, FROM ARI DERMAN OF CLARK HILL: These two headlines come from opposite sides of the consumer protection realm. On the one hand, we have the CFPB continuing their longstanding “war on medical debt” (something that I have mentioned quite a few times on this very Digest), and doubling down on one of their most volatile positions a month before a new administration takes over. On the other hand, we have the DOGE guys floating ideas about eliminating the agency altogether. In a nutshell, this sort of displays the regulatory tension we will see in the coming months as certain federal agency personnel and policy makers swap in and out, but while certain holdovers (i.e. career federal employees that usually remain despite election changes) continue to push forward on initiatives already in motion until they are directed to stop. In reality, it is unlikely that the CFPB will cease to exist in the near future – abolishing it would require hallmark legislation which may be harder to pass based on the current Congressional margins. It is more likely, however, that we see less draconian enforcement actions and less punitive rulemaking from a new CFPB director in short order. As to the medical debt rule specifically, it could be one of the first rules on the chopping block – we know its unpopular with our industry and many adjacent industries. But we do need to see how the Trump Administration views it. After all, Medical debt is a hot button issue that sometimes creates strange bedfellows.
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.
