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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.
Court Denies Motion to Arbitrate FDCPA Claims Over Time-Barred Lawsuit
A District Court judge in Maryland has denied a defendant’s motion to dismiss and a motion to compel arbitration in a Fair Debt Collection Practices Act class-action lawsuit, ruling the defendant waived its right to arbitration by filing a collection lawsuit first. More details here.
WHAT THIS MEANS, FROM DAVID GRASSI OF FROST ECHOLS: This case represents a nightmare scenario for a debt buyer. The consumer brought a class action against a debt buyer and its attorneys alleging they filed collection lawsuits past the statute of limitations in violation of the FDCPA and various Maryland statutes. The law firm and the debt buyer each filed a motion to compel arbitration. The court denied both, finding the law firm was not a party to the agreement and that the debt buyer waived its right to arbitrate by filing suit against the consumer.
The court’s decision turned on Maryland law, which included finding the consumer’s claims were related to the claims asserted in the underlying lawsuit. The debt buyer’s actions in bring suit in state court were therefore inconsistent with exercising its right to arbitrate. Such an inquiry is very much state specific, as some jurisdictions require a higher threshold for finding waiver (such as prejudice to the other party). An arbitration agreement can be a powerful tool in killing a class action but, if you want to rely on one, you need to closely scrutinize its terms and applicable law to make sure you are not inadvertently waiving your right use it.
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Judge Grants MSJ for Defendant in FDCPA Case Over Verification Letters Sent Post-Cease Request
A District Court judge in Louisiana has granted a defendant’s motion for summary judgment in a Fair Debt Collection Practices Act case over verification information that was sent to the plaintiff after the plaintiff submitted a cease request. More details here.
WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: Last month, a Louisiana district court entered a defense summary judgment for a debt collector accused of violating the FDCPA by sending a verification letter in response to a dispute, where the consumer had separately invoked a cease by refusing to pay and demanding not to be contacted about the debt.
The judge succinctly explained that when “a consumer disputes a debt in writing” pursuant to 1692g(b), a “debt collector must cease collection until it has verified the debt” and “[w]hile the statute does not expressly require a verification letter, it does prohibit further action on the debt without this communication.” Thus, “verification letters do not violate the FDCPA even when a consumer has already sent notice to cease communication under § 1692c(c),” as long as they are limited to the verification. That is because the consumer has affirmatively “invited the answer and waived any claim that a response would violate” the cease demand. The court cited opinions from around the country supporting this result.
The industry is seeing an uptick in this type of claim, where a consumer (in some cases, apparently at the direction of counsel), sends conflicting instructions or invokes arguably conflicting rights under the FDCPA and/or Regulation F. There is good case law to assist with defending these claims, and this Louisiana opinion should be added to the list. As variations of this type of claim continue to develop (with apparently conflicting instructions to cease, communicate only via certain mediums or times and only for certain purposes, and disputes that request no written response, etc.), it is important for debt collectors to review their communications policies and procedures to confirm that they adequately address these situations and provide a clear and consistent response plan. Update written procedures as necessary and train agents to look out for these types of “setups,” as we are seeing them more frequently this year.
Preemption Shields Credit Union From Returned Check Fee Lawsuit
The Court of Appeals for the Ninth Circuit has affirmed the dismissal of a lawsuit brought by a consumer who alleged a credit union engaged in unfair practices when it charged a returned check fee even though he was not at fault, ruling the credit union is entitled to preemption from the state law it was accused of violating. More details here.
WHAT THIS MEANS, FROM JIM SANDY OF MCGLINCHEY STAFFORD: King is another in a long line of recent lawsuits challenging so-called “junk fees” allegedly charged by financial institutions, credit unions, and banks. And while the CFPB under the second Trump Administration has signaled it does not intend to aggressively target such fees (unlike the Bureau under the Biden Administration), private litigants continue to bring lawsuits, often on a class-wide basis, challenging such fees as unfair or deceptive under state and federal law. But as the Ninth Circuit recognized in King, there is a limit to such claims under state law. Many financial institutions and credit unions, which are regulated, chartered, and supervised by the federal government, have viable preemption defenses to such state law claims when they conflict, expressly or implicitly, with federal law.
Appeals Court Overturns Ruling, Says Arbitration Agreement Must Be Enforced in FCRA Case
Arbitration is all the rage these days. This time, it is the Court of Appeals for the Fourth Circuit weighing in, overturning a district court ruling denying a defendant’s motion to compel in a Fair Credit Reporting Act case after the plaintiff complained the defendant failed to ensure the accuracy of what it was reporting and for not conducting a reasonable investigation into his dispute. More details here.
WHAT THIS MEANS, FROM JUSTIN PENN OF HINSHAW CULBERTSON: We are seeing more arbitration now than ever. Not surprisingly, we are seeing a corresponding increase in the number of decisions evaluating when arbitration is proper. This decision is notable for at least three reasons. First, it is helpful for those who want to arbitrate because it reverses the trial exclusion of essentially a business record’s declaration, finding that the declarant corporate officer’s knowledge of the day to day business was sufficient under the federal standard. Second, it explained that under the circumstances – where plaintiff did not need to scroll and bold typeface referred to the terms and conditions link – there was sufficient notice if the arbitration clause to the plaintiff. Finally, this decision is a departure from a Seventh Circuit opinion taking a narrower view of what is required to give conspicuous notice of the arbitration. The first two points are two of the most common challenges we see, and the Fourt Circuit’s more reasoned approach to notice should be helpful in future cases to those seeking to compel arbitration.
Court Weighs Whether Medical Recovery Company is a Debt Collector
I will say at the start that this is one of those “this appears interesting to me but I am not a lawyer and sometimes things I think are interesting turn out in fact to be not interesting at all” cases, but a District Court judge in Maryland has issued a ruling in a case that seems to involve a new type of company and whether it meets the state’s definition of debt collector. More details here.
WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH: Third parties engaging in activity designed to collect money owed to a creditor have to be careful when communicating with a consumer. While not all such third parties are collection agencies (the fiduciary exception), just because one does not think it is a collection agency does not mean that the statutes do not apply. Here, a third party entity hired by a medical provide to negotiate with plaintiff lawyers bringing personal injury lawsuits in an attempt to secure payment of outstanding medical debt as part of the recovery in the lawsuit was not able to dismiss a lawsuit accusing it of acting as a debt collector. The third party exhibits characteristics of both a collection agent as well as a fiduciary. While the court will consider the evidence after discovery, in the meantime, the third party is stuck in a costly lawsuit. This could have been avoided had it used the magic words prescribed by consumer statutes.
Repeat Offender: Judge Rejects Another FDCPA Lawsuit from Serial Filer, Reinforces Permanent Injunction
A Magistrate judge in Ohio has once again dismissed a Fair Debt Collection Practices Act lawsuit filed by a frequent filer, reaffirming the need for prior court approval before the plaintiff can proceed with any future lawsuits. Judge J. Philip Calabrese of the District Court for the Northern District of Ohio went as far as to say that the claims were “so unsubstantial, frivolous and devoid of merit” that they did not warrant further proceedings. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: Who amongst us hasn’t at some point had to deal with a pro se who won’t give up and to everyone’s consternation files complaint after complaint, irrelevant to their lack of merit. In the instant case, Mr. Blue (true name) filed seven (7) suits in the Northern District of Ohio. After the eighth case the Court finally stepped in an issued an Order that Blue would need to seek leave of the Court to before filing any more. Plaintiff wasn’t phased by the Order and started filing in State Court, which wasn’t covered by the Federal Order. Those subsequent five cases were all removed to the Federal Court where the Order to seek leave remained in effect. That maneuver was shut down when the prior Order was modified and enjoined Mr. Blue from “filing or proceeding with any new lawsuits or other documents in this Court without first seeking leave of court . . . regardless of whether a case is filed in this federal court originally or transferred or removed to this Court by another federal or state court.”
Here, First Credit’s Counsel astutely mentioned the prior Order in his removal papers. The Court then moved sua sponte to issue an Order to Show Cause against Blue for filing without seeking leave and subsequently dismissed the case with prejudice.
Score one for the good guys. Not really. First Credit incurred legal expenses to deal with a case that never should have existed. Unless there are financial consequences, Orders like these, are as an former colleague of mine used to say “like water off a duck’s back.” It is suggested that when faced with a similar case, you might want to use the Blue v First Credit decision as Exhibit A to a motion for sanctions, as evidence merely enjoining a frequent frivolous filer has no real effect. But that’s just my opinion.
CFPB Proposes Sharp Cutbacks to Oversight of Debt Collectors and Others
The Consumer Financial Protection Bureau is exploring changes that could dramatically reduce the number of nonbank companies subject to its supervision in the debt collection, credit reporting, auto finance, and international money transfer markets. More details here.
WHAT THIS MEANS, FROM LORAINE LYONS OF MARTIN GOLDEN LYONS WATTS MORGAN: The CFPB’s proposal to significantly raise the debt collector supervision threshold would largely return the industry to a pre-Dodd-Frank regulatory environment. While debt collectors would still be bound by the FDCPA’s requirements and subject to FTC enforcement, the proposed change would eliminate proactive CFPB supervision for most of the industry. This federal shift is occurring as many states intensify their oversight through new laws, regulations, and licensing requirements that mandate examinations regardless of a company’s size or revenue. This creates an increasingly complex regulatory landscape where decreased federal supervision is offset by a patchwork of varied state-level scrutiny.
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.
