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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.
N.J. Appeals Court Affirms Dismissal of CFLA, CFA Class Action
A New Jersey Appeals Court has affirmed the dismissal of case against a debt buyer accused of attempting to collect without having a proper license to do so, ruling the plaintiff lacked standing to pursue her claims. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: At the outset let me advise readers that I have been representing Razor throughout the litigation,and despite the recent Appellate victory, the litigation is far from over. While it might seem a little self-serving to write about my own victory, however strong, that is not what I want to focus on.
Most of us have heard the expression “zombie debt.” McQueen is an example not of “zombie debt,” but of the converse, “zombie plaintiff’s cases.” It all started with a collection action by Razor Capital against McQueen in 2015, in which she defaulted. In September 2021 after meeting with the New Jersey King of Zombie cases, a new action was filed against Razor Capital. (After the new case was filed McQueen moved to vacate the seven-year old judgment. That has no bearing on what transpired in the instant matter other then it removed certain addition defenses available to Razor) After two years of litigation and discovery disputes the Trial Court stayed the arguing and allowed for a motion to dismiss. The motion was granted on March 31, 2024. What stands out is the statement in the decision that it was granting the motion “‘for the various reasons expressed’ in other cases presenting the same allegations as in plaintiff’s complaint.” The appeal quickly followed. Unfortunately, this was not the first, or the last, case brought by the NJZK with the same identical allegations – he seemed to just swap out Plaintiff’s and Defendant’s names.
In the Appellate Court’s recent decision it pointed out that previous quoted language about other cases with the same allegations.
Case dead and over, right? No, you can’t kill a zombie case that easy. On May 16 McQueen filed a motion for reconsideration which was denied two weeks after without opposition. But still not dead. Later that same day, this past Thursday, a Petition for Certification was filed with the New Jersey Supreme Court.
I guess in the land of the Soprano’s and the home of the annual Asbury Park Zombie Walk and Undead Festival it’s not that surprising that we also have zombie plaintiff’s litigation.
On the academic side, this case was one of many where the NJZK has gone after debt buyers, and occasionally the collection agencies or law firms they use, claiming a violation of the New Jersey Consumer Financing Act (“NJCFLA”) and the New Jersey Consumer Fraud Act (“CFA”), The Courts repeatedly hold there is no private right of action under the NJCFLA and that the NJCFA does not apply to debt collection. So far however Plaintiff’s counsel, the NJZK,continues to argue that the pronouncement within a precedential opinion as to the NJCFLA was dicta (no courts have bought that argument) and that there is no “precedential opinion as the CFA and so the zombie legal theories continue to stumbles.
As an aside, the NJZK is also still filing and appealing Hunstein letter vendor cases.
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States, Cities Step Up as CFPB Pulls Back
States and municipalities across the country are taking steps to fill in where they think the Consumer Financial Protection Bureau has retreated from its positions of aggressively seeking to protect consumers, and those moves are likely to impact the credit and collection industry. The departure of the federal government from consumer protection enforcement has not resulted in a regulatory vacuum. In fact, it’s caused a state-level surge. More details here.
WHAT THIS MEANS, FROM STEFANIE JACKMAN OF TROUTMAN PEPPER LOCKE: The states stepping into fill a perceived regulatory oversight gap is the same as what we observed eight years ago. But whether and to what extent states will be able to impact oversight across both industry and product type remains to be seen. The CFPB has stepped back in a broader reaching way than under the last Trump administration and state regulators have yet to demonstrate a coordinated regulatory approach that will harness any sort of collective impact. But regardless of their success, industry members should expect to continue to navigate an ever-expanding array of individual state requirements.
Appeals Court Partially Overturns Dismissal of FCRA Case
The Court of Appeals for the Fifth Circuit has partially overturned a lower court’s dismissal of a Fair Credit Reporting Act and Texas Debt Collection Act case on the grounds the defendant may have been negligent under the FCRA. More details here.
WHAT THIS MEANS, FROM BRENDAN LITTLE OF LIPPES MATHIAS: With a complicated fact pattern, plaintiff commenced an action against the defendant for violations of the Fair Credit Reporting Act (“FCRA”) and the Texas Debt Collection Act. The defendant moved to dismiss the amended complaint and the District Court granted the motion. On appeal, the Firth Circuit restored the plaintiff’s claim for a negligent violation of the FCRA. Initially, the Firth Circuit determined that the District Court correctly dismissed Plaintiff’s claim for a willful violation of the FCRA because the plaintiff’s claims were tantamount to poor customer service and “far from reckless disregard of the FCRA.” Thereafter, the Fifth Circuit found that the amended complaint did contain sufficient factual allegations to support a negligent violation of the FCRA: “[the defendant]’s failure to investigate and correct the inaccurate reporting between January 2021 and March 2021 plausibly caused the claimed damages surrounding the [plaintiff’s] March 2021 financing application.”
Judge Denies MTD in FDCPA Case, Rules Plaintiff Has Standing
A District Court judge in Ohio has denied a defendant’s motion to dismiss a Fair Debt Collection Practices Act case, ruling the plaintiff has standing because he was forced to defend himself in a collection lawsuit. More details here.
WHAT THIS MEANS, FROM NICK PROLA OF BASSFORD REMELE: The evaluation of Article III standing in FDCPA cases varies by District Court and Circuit. What may constitute an alleged concrete harm in the 6th Circuit might not be sufficient to confer standing in the 7th Circuit. In the FDCPA context, we’re often discussing harms related to paper notices, disclosure language, and consumer confusion. However, federal courts generally consider the ante upped once collection litigation begins.
Article III standing exists for a statutory procedural violation where the plaintiff can prove that a procedural harm itself is a concrete injury of the type traditionally recognized or that a procedural violations caused an independent concrete injury. Here, Plaintiff’s alleged injury was (1) having to defend against a baseless claim of unjust enrichment when a written contract existed that precluded such a claim and (2) being deprived of the benefit of information requested from the debt collector.
The Court analogized this alleged harm to one where a debt collector filed suit on a debt they did not own, such that the collection lawsuit had no right to be brought in the first place. As stretch, to say the least. It’s possible the Court has taken into account that Plaintiff is proceeding pro se and is providing more than a bit of relief to the usual pleading standards. It’s unlikely that courts within the 7th Circuit find that the harms alleged are concrete enough to confer standing. Yet, this is a cautionary tale that the game changes a bit once a consumer is subject to collection litigation and that care must be taken to comply with all statutory requirements prior to suing a consumer.
Michigan Appeals Court Affirms Ruling for Debt Buyer
A Michigan appeals court has affirmed a ruling in favor of a debt buyer that won a collection lawsuit to recover an unpaid debt, although a dissenting opinion contends the debt buyer did not have standing because a clear chain of title did not exist. More details here.
WHAT THIS MEANS, FROM HEATH MORGAN OF MARTIN GOLDEN LYONS WATTS MORGAN: This is a good ruling for the industry that helps provide clarity for creditors and law firms as to what evidence is needed to support the debt in court. The court rejected the argument that a typographical error in the preamble to the bill of sale made the bill of sale “false.” The court further looked at all of the evidence before the case to determine the debt was valid. While the opinion is unpublished, it helps provide a framework for Michigan creditors, and helps dismiss unsubstantiated challenges on a chain of title that frequently emerge in fintech debt.
California Appeals Court Overturns Dismissal of Suit, Rules Plaintiff has Standing
A California Appeals Court has overturned a lower court’s dismissal of a suit alleging a debt buyer violated the Fair Debt Collection Practices Act, the Rosenthal Fair Debt Collection Practices Act, California’s Fair Debt Buying Practices Act, and the Private Student Loan Collections Reform Act. More details here.
WHAT THIS MEANS, FROM MARISSA COYLE OF FROST ECHOLS: To get straight to the point, the Court ultimately held that depending on the language of the statute, a plaintiff suing in a California court is not required to show concrete harm to confer standing. In reaching its decision on standing, the Court relied heavily on the 2025 ruling of Chai v. Velocity Investments, LLC (2025) 108 Cal.App.5th 1030.
The Court specifically addressed the California’s Debt Buyer’s Act, Private Student Loan Collections Reform Act, Rosenthal Act, and FDCPA. The Court determined that under the language of each of these statutes, a consumer’s case does not fail simply because he has not suffered concrete harm. Interestingly, related to the FDCPA, the Court acknowledges the rulings of Spokeo and TransUnion. However, the Court stated: “California courts are not bound by the restrictions that Article III imposes on the federal judiciary.”
While some states are willing to consider the requirement of concrete harm (including California trial courts), the appellate courts of California seem committed to the idea that statutory harm is enough. This issue will likely be addressed by the California Supreme Court at some point in the future providing guidance to the industry regarding how trial and appellate courts will handle the standing question.
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.
