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.
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.
Consumer’s Own Credit Report Undermines Case, Appeals Court Affirms Dismissal
The Court of Appeals for the Eleventh Circuit has affirmed a lower court’s ruling in favor of the third defendant which was sued for violating the Fair Credit Reporting Act, concluding that the plaintiff failed to demonstrate any factual inaccuracies in her credit report or that the defendants conducted unreasonable investigations into her disputes. More details here.
WHAT THIS MEANS, FROM LORAINE LYONS OF MARTIN GOLDEN LYONS WATTS MORGAN: The Eleventh Circuit’s decision in McWhorter provides a powerful defense strategy when FCRA plaintiffs attach documents that contradict their own allegations. In dismissing all claims against Experian, the Court reinforced the fundamental principle that attachments to complaints control over contradictory allegations. This doctrine proved dispositive for Experian, as McWhorter’s attached credit report directly contradicted her claims of inaccurate reporting.
The takeaway from this case is that when plaintiffs attach credit reports, defendants should view them as potential defense exhibits rather than just plaintiff evidence.
THE COMPLIANCE DIGEST IS SPONSORED BY:
Court Vacates Injunction in Case Over Non-Lawyer Representation in Debt Suits
This might be one of those rare instances where the industry and the Attorney General of New York are on the same side. The Court of Appeals for the Second Circuit has overturned a lower court’s preliminary injunction that prevented the Attorney General from enforcing the state’s unauthorized practice of law statute against a company that claimed it violated the First Amendment because it wanted to use non-lawyers to represent consumers in debt collection lawsuits. More details here.
WHAT THIS MEANS, FROM BRENDAN LITTLE OF LIPPES MATHIAS: Plaintiff is a non-profit that trained individuals (non-lawyers) to assist consumers with filling out a form answer to assist with the consumers’ defense in state court debt collection litigation. Plaintiff proactively sued the State of New York claiming that New York’s statute precluding individuals from practicing law without a license was a violation of Plaintiff’s First Amendment rights. The District Court agreed determining the statute, as applied to Plaintiff, constituted a regulation of content-based speech and entered a preliminary injunction. On appeal, the Second Circuit vacated the injunction that precluded the Attorney General’s enforcement and remanded the issue back to the District Court with direction to apply the correct and more favorable standard to the government. Specifically, the Second Circuit determined that while New York’s statute was a regulation of speech, the statute was not content based regulation as the restriction on the speech was not dependent on the content of the speech. As a result, the District Court’s use of the strict scrutiny test was an abuse of discretion as it should have applied the less rigorous intermediate scrutiny analysis when adjudicating Plaintiff’s request for a preliminary injunction. Said differently, the District Court will now have to determine whether New York’s statute precluding the unlicensed practice of law is substantially related to an important purpose.
Judge Tosses FDCPA and TCPA Claims Over ‘Spoofed’ Calls
A District Court judge in Oklahoma has granted a defendant’s motion to dismiss a lawsuit alleging it violated the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act, and Oklahoma state law because it used phone numbers with the same area code as the plaintiff’s and because the plaintiff believes the calls were made using an autodialer. More details here.
WHAT THIS MEANS, FROM NICK PROLA OF BASSFORD REMELE: The pro se plaintiff in Ioszpe v. Unifin, Inc. bases his claims on four telephone calls received at a newly acquired cell phone number. The Court, finding that Plaintiff failed to allege facts that Unifin purposefully directed any conduct towards Oklahoma, dismissed the claims on jurisdictional grounds.
However, it is the Court’s discussion of Plaintiff’s TCPA allegations that are concerning. From the bare-bones allegations contained in the complaint, the Court “infer[red] that Plaintiff received a call, answered, had to ‘wait for an agent’ to join the line, then had to ‘interact’ with the agent to ‘probe for’ Unifin’s name and the purpose of the call.” This, the Court states, supports an inference that an auto-dialer was used.
To constitute an autodialer, equipment must have the capacity either to produce numbers using a random or sequential number generator or to store numbers using a random or sequential number generator. Facebook, Inc. v. Duguid, 592 U.S. 395 (2021). Nothing in Plaintiff’s allegations implies the use or capacity of a random or sequential number generator and it is troubling for a court to make such an inference.
This holding underscores the importance of educating the judiciary of the nuances of consumer finance litigation and the industry’s use of compliant technology.
FDCPA Suit Collapses After Court Finds No Underlying Licensing Violation
A District Court judge in Pennsylvania has granted a defendant’s motion to dismiss a Fair Debt Collection Practices class-action lawsuit that alleged the defendant violated the statute when it filed a proof of claim in the plaintiffs’ bankruptcy case on a loan it was allegedly not lawfully allowed to collect on. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: Consumer attorneys are increasingly seeing state licensing statutes in various forms as providing an avenue of attack against debt collection. Where this is a particular problem where a specific state does not have a statute that clearly and directly addresses the purchase of defaulted accounts. The instant case is a prime example of such a situation. The question here was whether Portfolio Recovery Associate, LLC (“PRA”) as a purchaser of the Neffs’ defaulted loan account was subject to and regulated by the Pennsylvania’s Consumer Discount Company Act, 7 P. S. § 6201, et seq. (the “CDCA”), which regulated the original creditor, OneMain Financial. In this case the claim was PRA attempted to collect the debt by filing a proof of claim in a bankruptcy proceeding. The CDCA was instituted as a response to sharp practices by certain lenders.
By way of background, the Neffs first filed their lawsuit in 2019, and due to motion practice it was still in litigation in 2022, when the appeal in Petro v Lundquist Consulting Inc. was filed with the 3rd Circuit Court of Appeals. In Lundquist, the issue was also the application of the CDCA to purchased debt. Neff was stayed pending a 3rd Circuit ruling in Petro. Once the decision in Petro was issued on February 7, 2024, the Neffs filed an Amended Complaint and PRA moved to dismiss the Amended Complaint. The District Court relying on the Petro and prior 3rd circuit decisions granted PRA’s Motion to Dismiss. (Note those decisions all came after the Neffs’ complaint was filed)
The key takeaway from this opinion to the Court’s repetition of the Petro court’s explanation as to the difference between a defaulted account and a charged off account worth repeating here:
default occurs when a borrower fails to pay a contract at the agreed upon “fixed or determinable time.” CDCA Sections 6213.K, 6213.P, 6214.B, and 6215 address the kinds of charges and fees that a licensee may collect in the event of default. But these provisions place no limitations on the right of the licensee to charge off a defaulted loan balance and close an account where there is no longer any reasonable expectation of payment. Unlike a default, which the borrower cancure, a charge-off is a post-default decision made by the lender once the debt hasbeen deemed uncollectible. Thus, a licensee that sells a charged-off obligation isnot selling a defaulted loan contract; it is selling unsecured debt. Petro, 2024 WL 467542, at *3 (my emphasis added). Based on that the Court ruled that the CDCA did not regulate purchased debt and PRA did not require a license to purchase same.
There are multiple states where statues promulgated to regulate certain categories of lenders are being alleged to regulate purchased debt, New Jersey being a hotbed currently. While there are multiple other arguments that can be raised, The Neff, Petro and Lutz v Portfolio Recovery Associates (also cited in Neff) should prove useful to anyone out there handling indirect licensing claims.
California Appeals Court Says Font Size Error Enough for Rosenthal Act Standing
A California Appeals Court has reversed a summary judgment ruling in favor of a defendant that was sued for violating the Rosenthal Fair Debt Collection Practices Act because of the font size of a disclosure in a letter that was sent to the plaintiff, ruling that standing, when seeking statutory damages, “arises from a debt collector’s violation of those statutes, not from the plaintiff’s suffering of actual injury.” More details here.
WHAT THIS MEANS, FROM JAMES SCHULTZ OF SESSIONS, ISRAEL & SHARTLE: Standing is one of those boring but important legal issues that has dramatically changed the litigation risks faced by collection agencies over the last few years, as federal courts have largely — but not uniformly — closed their courthouse doors to FDCPA cases claiming technical violations of the law seeking statutory damages alone. This has forced those cases to move to state court, but several states, like New York and Florida, have not been very welcome to these “no damage” cases as well. There was some optimism that California state courts were going to follow New York’s lead on this, meaning consumers in California would be largely left with no place to file their lawsuits. But the appellate court in Kashanian eliminated any hope we might have that California was going to force consumers to first suffer an actual injury before bringing suits, saying that the violation of a statutory right, such as having a disclosure provided in a sufficient font size, is enough to gain access to the courthouse. It is tough to imagine a less important “injury.” The fight over federal court standing is largely fought and settled, and now it is likely settled in California state court as well. But the fight will continue in states across the country.
CFPB Publishes Rulemaking Agenda
For an agency that is supposedly not doing much, the regulatory agenda for the Consumer Financial Protection Bureau looks pretty full. The federal government released its long-awaited agenda of rulemaking and administrative actions, and the CFPB’s portion contains two dozen different rules in stages of development. More details here.
WHAT THIS MEANS, FROM STEFANIE JACKMAN OF TROUTMAN PEPPER LOCKE: I hope the financial services industry will not miss the opportunity to be heard in connection with these rulemaking initiatives. There is a meaningful window to influence the CFPB’s rulemaking agenda by advocating for clear, pragmatic approaches to defining larger participants, UDAAP, identify theft and consumer data use more generally. A well-developed record could help develop defensible rulemakings that withstand any future ideological swings.
Ohio Appeals Court Upholds Debt Buyer’s Win in FDCPA Case
An Ohio Appeals Court has affirmed a summary judgment ruling in favor of a debt buyer that was accused of violating the Fair Debt Collection Practices Act in a case that centered on the documentation provided by the consumer in attempting to make her case. More details here.
WHAT THIS MEANS, FROM AKEELA WHITE OF HINSHAW & CULBERTSON: This case is an example of how to win (or lose) a debt collection case on summary judgment. Debt buyers need to make sure their affidavits are sworn, their business records are properly authenticated, and that any computer printouts are clearly tied to the account in question. Unsworn expert reports or declarations won’t suffice. On the flip side, consumers can’t rely on speculation or unsworn statements to create a genuine dispute of material fact. The ruling also makes clear that if you want to compel arbitration, you need to do it early, as substantial participation in litigation can waive that right. Finally, yelling, and rude language used by an agent do not by themselves violate the FDCPA without being supported by admissible evidence.
Credit Reporting of Paid Debt Constitutes ‘Discrete’ FDCPA Violations, Judge Rules
A District Court judge in California has denied a defendant’s motion for summary judgment in a Fair Debt Collection Practices Act case, even though the plaintiff filed this lawsuit two years after receiving a letter from the defendant attempting to collect a debt that had already been paid, ruling that reporting the inaccurate account information to the credit reporting agencies constituted “discrete” violations of the statute. More details here.
WHAT THIS MEANS, FROM MIKE FROST OF FROST ECHOLS: This case stems from an apartment lease where the Plaintiff was charged $138.07 in unpaid water and sewer fees. The Court denied Defendant Motion for Summary Judgment as to both claims (FDCPA and CCRAA) and denied Plaintiff’s Motion in limine. The Court also sustained Plaintiff’s evidentiary objection under Rule 37 to a key defense declaration and excluded that declaration and related exhibits from consideration.
The Court denied Defendant’s Motion for Summary Judgment (MSJ) under the FDPCA and CCRAA concluding that a triable dispute exists whether a May 18, 2021, email notifying Defendant of a dispute was sent and received. The Court also denied a motion in limine filed by the Plaintiff where the Plaintiff attempted to restrict specific testimony from Defendant. The factual conflict (and other record evidence) precludes summary judgment that Defendant did not violate 15 U.S.C. § 1692e(8) and § 1692f(1). The Court also rejected Defendant’s arguments that the purported charges were not “debts” under the FDCPA.
The more concerning ruling by the Court was the scope of the statute of limitations argument proposed by the Defendant. The Court held that only reporting transmissions occurring before August 16, 2021 (two years before the initial complaint filed Aug. 16, 2023) are time-barred; later re-reporting on/after Aug. 16, 2021, could constitute new CCRAA violations and therefore remain at issue. It will be interesting to see how this Court ultimate concludes, as it did here, that each time an inaccurate debt was reported to the credit bureaus, it constituted a “discrete” violation of the FDPCA. This interpretation means that while claims tied to the 2021 letter are time-barred, the Plaintiff’s claims based on credit reporting actions on or after August 16, 2022, survive.
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.
