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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.
Appeals Court Affirms Ruling Over Default Judgment
The Court of Appeals for the Eighth Circuit has upheld a ruling in favor of a defendant that was sued for violating the Fair Debt Collection Practices Act, deciding that a default judgment obtained in state court is “conclusive” from the perspective of establishing the facts of a case. More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW & CULBERTSON: A lot of FDCPA litigation arises out of state court collection cases. Delgado v Midland is a recent and favorable opinion. It presents a somewhat common scenario. A collection case was filed and a default judgment awarded. The debtor filed an FDCPA case in federal court, alleging Midland tried to collect a debt without owning it. The district court judge dismissed the matter and the 8th Circuit affirmed. The court considered the issue based on the collateral estoppel defense. The issue was “whether a Minnesota state-court default judgment can bind the parties in a later federal lawsuit.” It does.
The federal court said that Minnesota law applies to the defense. Interestingly, it applied two lines of Minnesota estoppel law. First, it relied on a 1935 Minnesota Supreme Court that held a default judgment is “a final determination of the facts essential to its existence” and is “conclusive upon the parties” in later cases, even if the defendant took no part in the proceedings. Second, it applied a more modern approach to collateral estoppel, which requires: (1) the issue to be identical to one in the prior adjudication; (2) a final judgment on the merits; (3) the same parties from the prior adjudication; and (4) a full and fair opportunity to be heard on the adjudicated issue. Under either analysis, Midland prevailed.
This analysis likely applies in many jurisdictions, but some states have their own nuances to the issue.
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Appeals Court Rules Plaintiff Lacked Standing in FDCPA Case over Dispute Timing
In a case that was defended by the team at Barron & Newburger, the Court of Appeals for the Seventh Circuit has reversed a lower court’s ruling in favor of a plaintiff in a Fair Debt Collection Practices Act (FDCPA) case over the timing of when the defendant notified credit reporting agencies that the debt was being disputed, ruling the plaintiff didn’t have standing to sue in the first place because she did not suffer any injury while the dispute was not being reported. More details here.
WHAT THIS MEANS, FROM LORAINE LYONS OF MARTIN GOLDEN LYONS WATTS MORGAN: Just because statutory damages are available under the FDCPA, this doesn’t mean the plaintiff has Article III standing to proceed with her federal court case. No matter how much the plaintiff or a jury believes FDCPA statutory damages should be awarded, a belief alone is not enough. The plaintiff must demonstrate that the FDCPA violation resulted in harm (e.g., financial or reputational harm), otherwise, the plaintiff lacks standing.
Judge Partially Grants Defendant’s Motion for Reconsideration in FDCPA Case
The joke about lawyers is that their answer to any question is never a straight answer — it always depends. Well, maybe the joke applies to judges, too. After partially granting motions for summary judgment to both the plaintiff and the defendant in a Fair Debt Collection Practices Act case, the judge has partially granted and partially denied the defendant’s motion for reconsideration. More details here.
WHAT THIS MEANS, FROM MONICA LITTMAN OF KAUFMAN DOLOWICH: The agency here filed a motion for the court to reconsider its decision granting in part both sides’ motions for summary judgment. The agency argued in the motion for reconsideration that the plaintiff’s claims involving a 2009 collection action were barred by the statute of limitations. Unfortunately, the judge held that the agency could not raise this argument for the first time at this late stage of the case. It is important to remember to raise all defenses at the earliest stage in a lawsuit. This case also involved the Rooker-Feldman doctrine, which prohibits a losing party in a state court action from asking a federal court to review and reject the state court judgment. The Rooker-Feldman doctrine may seem straightforward, but courts take a strict view of it and limit its application. The court granted the agency’s motion for reconsideration in finding that there was a question of fact of whether the defendant’s alleged fraudulent conduct in obtaining the state court judgment would be barred by the Rooker-Feldman doctrine. The court maintained its prior holding that that the plaintiff’s alleged injuries based on the agency’s collection of the state court judgment were the result of the state court judgment and were barred by the Rooker-Feldman doctrine.
Judge Denies Competing MSJs in FDCPA Case Over Garnishment
A District Court judge in New York has denied motions for summary judgment filed by the plaintiff and the defendant in a Fair Debt Collection Practices Act case over the garnishment of a bank account that may have included funds that were exempt seeking to pay a rental debt from more than two decades ago. More details here.
WHAT THIS MEANS, FROM BRENDAN LITTLE OF LIPPES MATHIAS: In 2005, Plaintiff’s landlord obtained a default judgment against Plaintiff for past due rent. In 2018, the Defendant-law firm was hired to liquidate the judgment. Plaintiff contended that the default judgment was improper because: (1) Plaintiff was not properly served; and (2) the amount requested was resolved in prior litigation. Defendant served a subpoena and restraining notice on M&T Bank where Plaintiff had an account. Plaintiff contended that the money frozen by the restraining notice was exempt. At M&T Bank’s direction, Plaintiff called Defendant and the parties had a telephone conversation about what Plaintiff needed to do in order to remove the restraint on his account if the funds were truly exempt. Later, Plaintiff successfully vacated the default judgment due to improper service and the state court ordered Defendant to return all monies it had collected as a result of the vacated judgment. Defendant returned the money it collected with the exception of $79.44, which Defendant claims was poundage retained by the Sheriff. Both parties moved for summary judgment on the FDCPA cause of action and state law claims and the Court denied both motions due to factual discrepancies. Specifically, the Court stated: “the parties genuinely dispute whether [Defendant] told [Plaintiff] that he needed to sign an agreement to remove the restraint on his account when such an agreement was not the ‘only way’ to obtain that relief. This precludes summary judgment in favor of either party.”
CFPB Seeks to Vacate Settlement in Case Against Mortgage Lender
Nobody was surprised when the Consumer Financial Protection Bureau began dropping enforcement actions and lawsuits after replacing Rohit Chopra as director and installing Russell Vought as acting director. But Vought went beyond that yesterday, announcing that the Bureau was seeking to vacate a settlement the CFPB reached last Fall with a mortgage lender and repay the lender $105,000. The twist? The enforcement action was actually started under former director Kathy Kraninger, not Chopra. More details here.
WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS SUTHERLAND: The details of a regulator’s investigation, including the Consumer Financial Protection Bureau’s (“CFPB”) are not typically public; however, in one of the few public actions the CFPB under acting Director Vought has taken, it seeks to vacate a settlement from what Vought called a “seven-year harassment saga.” In addition, the CFPB announced in its press release it is seeking to “make Townstone whole by returning the six-figure penalty they were forced to pay.”
You probably recall that the enforcement action, brought by the CFPB under POTUS 45, caught the public’s eye immediately after the Supreme Court rolled back years of “Chevron deference” in the Loper Bright decision. The Seventh Circuit was one of the first courts to apply Loper Bright and in so doing chose to defer to the CFPB’s analysis of whether or not the financial services company ran afoul of the Equal Credit Opportunity Act (“ECOA”) by discouraging applications well before consumers may submit formal mortgage applications. The Seventh Circuit had determined that the CFPB did have discretionary authority in regard to Regulation B when Townstone’s chief executive made racially-derogatory remarks about minority neighborhoods in Chicago. The mortgage company moved to dismiss, asserting the CFPB had overstepped its authority and the district court agreed. Applying Loper Bright in reaching its decision, the Seventh Circuit court of appeals employed statutory interpretation principles to examine the statute’s language to confirm Congress’ intent. There the Seventh Circuit concluded that the CFPB’s action was well within its grant of authority. Although the various courts in the Townstone matter did not address any First Amendment issues, the CFPB under Acting Director Vought has taken the position that “Townstone was targeted for their protected free speech.”
What does all this mean for industries potentially regulated by the CFPB? Industries look to courts and regulators for guardrails and bright lines that interpret laws and regulations so that they can map their day-to-day practices accordingly. It is nearly impossible for businesses to efficiently map strategies and operate with significant and unpredictable regulatory pendulum swings. With the dynamic impact of artificial intelligence and innovative and consumer-driven technology resources, industry may want to continue to apply basic legal and regulatory principles to day-to-day choices and strategies.
Appeals Court Affirms Fee Award in FDCPA Case
The Court of Appeals for the Eighth Circuit has affirmed a lower court’s award of attorney’s fees and costs in a Fair Debt Collection Practices Act case, but issued a note that under different circumstances, it would have lowered the amount by an additional $5,000 while also noting that the briefs filed by the plaintiff’s attorney were “disrespectful” to the lower court judge, court staff, and opposing counsel. More details here.
WHAT THIS MEANS, FROM COOPER WALKER FROM FROST ECHOLS: I’m sure no one reading this needs the reminder (especially me)—but this case is a good reminder that civility is expected in the law. It can be difficult at times depending on the circumstances, but it’s never good if a Court is saying that your “briefs of appeal are disrespectful of the district judge, court, staff, and opposing counsel.” As emotionally charged as some of these cases might be, Courts are generally not amused when faced with needing to sift through that emotion. While this is certainly the juiciest headline from this opinion, there are some other issues that are worth noting. For starters, the Court acts as a reminder that the language in a Rule 68 Offer of Judgment really matters. Sending an Offer of Judgment can feel routine, but the Court was clear that it upheld the lower court’s deduction in time because of the language in the Offer of Judgement. Also, it is worth noting that although the Offer of Judgment was accepted early on in the case, the Court still awarded $12,075 in costs and fees (down from the $26,205 requested).
Senate Passes Resolution Voiding CFPB’s Overdraft Rule
The Senate yesterday passed a resolution to repeal the Consumer Financial Protection Bureau’s recent rule capping overdraft fees, advancing a measure that would nullify the regulation before it takes effect. More details here.
WHAT THIS MEANS, FROM STEFANIE JACKMAN OF TROUTMAN PEPPER LOCKE: The Senate’s passage of this resolution moves the CFPB’s overdraft fee limit rule one step closer to repeal. Earlier this month, the House Financial Services Committee approved a companion measure from Chair Hill (R-Ark.) to reverse the rule and the full House is expected to vote once it reconvenes next week. This resolution is among several that have been introduced in the House and Senate since the election and which include resolutions to overturn the CFPB’s medical debt credit reporting rule under Regulation V. Hopefully, Congress will act swiftly to pass all such pending resolutions, as the time for CRA-related actions is nearing its end. In my view, clear action by Congress regarding its position on these rules and their enforceability is preferable to options in pending litigation, as it brings closure and finality to the issue.
Barr Introduces Bills to Curb Investigatory, Enforcement Powers of CFPB
Rep. Andy Barr [R-Kent.], a longtime critic of the Consumer Financial Protection Bureau, recently introduced two bills in the House of Representatives aimed at limiting the Bureau’s investigatory and enforcement authority. The legislation seeks to redefine key aspects of unfair, deceptive, or abusive acts and practices (UDAAP) enforcement and reform the civil investigative demand (CID) process. More details here.
WHAT THIS MEANS, FROM HEATH MORGAN AT MARTIN GOLDEN LYONS WATTS MORGAN: Both pieces of legislation would help curb what industry experts have called excessive enforcement actions and regulation by enforcement from the CFPB. HR 1652 would help better define UDAAP which past CFPB administrations have used to expand regulation by enforcement against regulated entities. The notice and opportunity to cure provision would also be a reasonable requirement to balance consumer protection with excessive investigations. HR 1652 which would cap Civil Investigative Demands to six years would also be a reasonable restriction on the CFPB’s enforcement authority.
That all being said, it is hard to tell if any of this legislation will clear the House, much less the Senate when so many other legislative matters. Ideally, Congress would identify one path to take to bring more balance to the CFPB, whether that be through a five member board, or other provisions, that could pass both the House and Senate and provide more notice, structure, and balance to the CFPB’s regulatory enforcement authority so it becomes less political in the future.
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.
