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.
Judge Rules Fintech’s Cash Advance Product Falls Under Military Lending Act, Denies Arbitration Request
A District Court judge in California has denied a defendant’s motion to compel arbitration in a class-action lawsuit, ruling the defendant meets the definition of creditor under the Military Lending Act, which prohibits arbitration claims for covered members of the armed forces. More details here.
WHAT THIS MEANS, FROM MICHAEL PONCIN OF BASSFORD REMELE: In Vickery v. Empower Finance, Inc., a court in the N.D. of California recently rejected a creditor’s motion to compel arbitration, finding that the fintech creditor’s cash advance product resulted in extensions of credit that were subject to a finance charge and thus not arbitrable. By way of background, the Military Lending Act (“MLA”) provides certain protections to military members, including caps on interest and a prohibition restricting creditors from requiring that military members be forced to arbitrate. The court conducted a two-part analysis, first finding that the cash advance was an extension of credit and second finding that the extension of credit was subject to a finance charge. The court also refused to compel arbitration of related claims under TILA and the Georgia Payday Lending Act, asserting that they were sufficiently intertwined. As the sole silver lining, the court did note that certain putative class members were likely not subject to the MLA, which might preclude class certification.
The defendant filed notice of appeal to the 9th Circuit Court of Appeals immediately after receiving the order, staying the underlying district court case.
Without questioning the court’s decision or guessing how the appeals court might rule, the main takeaway is that when considering whether to file a motion to compel arbitration, you should add MLA applicability to your checklist.
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Maryland Regulator Issues Guidance on New Medical Debt Collection Laws
The Maryland Office of Financial Regulation (OFR) has issued formal guidance outlining three major laws that significantly change how medical debts may be collected, reported, and enforced in the state. The laws — HB 428, HB 1020, and HB 268 — took effect on October 1. More details here.
WHAT THIS MEANS, FROM ALEX MCFALL OF HUSCH BLACKWELL: Maryland’s new medical debt laws (HB 428, HB 1020, and HB 268) went into effect on October 1, 2025, and they significantly restrict how medical debt is collected, reported, and enforced. Under these changes, plaintiffs seeking a money judgment must clearly identify medical debt in court filings and are prohibited from placing liens on a debtor’s primary residence for medical judgments. The definition of “medical debt” also now specifically includes debts from medical-only credit cards, but excludes general-purpose credit card charges.
Perhaps most notably, Maryland now prohibits healthcare providers, collectors, and credit bureaus from reporting medical debt altogether. Medical debt cannot be disclosed to consumer reporting agencies or factored into credit decisions. Hospitals face additional requirements, including a mandatory 240-day window for patients to apply for financial assistance before reporting to a credit bureau or filing suit, a three-year statute of limitations on hospital debt, and a prohibition on lawsuits for debts under $500. Hospitals are also barred from reporting medical debt or charging interest before judgment to patients who qualify for free or reduced-cost care.
These developments reflect the continuing shift toward state-level action on consumer protection, with medical debt a common area of focus (no surprise, given the Chopra CFPB’s interest).
Report Exposes Widespread Use of ‘Coverage Attorneys’ in Debt Collection Cases
A new academic paper from Harvard Law School warns that the widespread use of “coverage attorneys,” lawyers hired on a per-diem basis to appear in court for collection firms, has become a defining feature of modern debt collection litigation and raises significant ethical and procedural concerns. More details here.
WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER LOCKE: This academic paper from Harvard Law School suggests there could soon be more regulation of debt collection firms using coverage attorneys. Currently, the highest risk situation would be the coverage attorneys failing to notify the court and opposing parties of substitution of counsel. However, state bar associations and state courts across the country may implement new regulations on the use of coverage attorneys that could give rise to sanctions if the coverage attorneys are not authorized to negotiate settlement or are unfamiliar with the facts of the case. We will continue to monitor state bar and state court developments across the U.S. as this paper expands its reach and sheds light on this issue.
Borrower’s ‘Without Recourse’ Argument Fails in FDCPA, FCRA Case
A District Court judge in Florida has granted a defendant’s motion to dismiss claims it violated the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and several other state laws on the grounds that the complaint, which invoked a number of sovereign citizen claims, was “predicated on the ‘patently frivolous’ vapor money theory.” More details here.
WHAT THIS MEANS, FROM MIKE FROST OF FROST ECHOLS: This matter was brought in the United States District Court for the Middle District of Florida (Tampa Division), Case No. 8:25-cv-1280 (AAS). The plaintiff was Israel Malachi Zickafoose (“Plaintiff”). The defendants include Upstart Network, Inc. (“Upstart”), as well as Dave Girouard and FMA Alliance, Ltd, although Mr. Girouard was terminated as a party on October 4, 2025, and no claims remained against him. Plaintiff entered into a personal unsecured loan for $10,000 through Upstart’s digital lending platform. The proceeds were disbursed to him. The dispute centers on Plaintiff’s contention that by executing the loan agreement with a “qualified indorsement” stating “W/O Recourse” (above his signature) he purportedly created a counteroffer or changed the legal obligation, thereby discharging his liability to repay the loan. Upstart treated the loan as a standard consumer credit product for which repayment obligations exist. Plaintiff alleged that Upstart’s subsequent collection or reporting actions violated several statutes and obligations under contract law, the Uniform Commercial Code (UCC). On September 19, 2025, the matter was stayed pending the resolution of Upstart’s motion to dismiss. On October 9, 2025, the court granted Upstart’s motion to dismiss the amended complaint with prejudice.
Plaintiff asserted multiple counts, including: (i) violation of the Fair Debt Collection Practices Act (FDCPA); (ii) violation of the Fair Credit Reporting Act (FCRA); (iii) breach of contract; (iv) fraudulent misrepresentation; (v) violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA); (vi) invasion of privacy/harassment; and (vii) UCC violations. The court dismissed each count for distinct reasons:
- Plaintiff argued Upstart was a “debt collector.” The court found that Upstart, as the originator/servicer of the loan (which was not in default when originated/serviced), is not a “debt collector” under 15 U.S.C. § 1692(a)(6). The complaint did not plausibly allege facts to show otherwise. Therefore, the FDCPA claim failed.
- Plaintiff alleged Upstart continued furnishing credit information after he dishonored the loan via his “W/O Recourse” endorsement. The court held that Plaintiff did not allege Upstart received notice of a dispute from a consumer reporting agency (CRA), which is a required trigger for Section 1681 s-2(b). Accordingly, the claim failed.
- Plaintiff contended he modified the loan agreement via the “W/O Recourse” endorsement and thereby Upstart breached that altered contract by collecting. The court rejected that argument, finding (a) the note did not reflect “without recourse,” (b) Plaintiff’s arrangement appears based on the so-called “vapor money” theory (which courts routinely reject), (c) he was the maker of the note, not an indorser, so UCC § 3-415(b) did not apply. On those bases the contract claim failed.
- The court found Plaintiff did not sufficiently allege a false statement of material fact, nor did he allege reliance leading to injury (he brought suit to avoid injury), so the claim failed under Florida law. Plaintiff argued Upstart engaged in unfair/deceptive trade practices by collecting on a purportedly discharged debt. The court held that debt-collection activities do not qualify as “trade or commerce” under Fla. Stat. § 501.203(8), so FDUTPA did not apply.
- Plaintiff alleged unauthorized digital contacts after a purported cessation. The court held that mere debt-collection communications (without more) are not “so outrageous … beyond all possible bounds of decency” to sustain an intrusion claim under Florida law. Thus, no viable invasion of privacy claim.
- Plaintiff alleged that Upstart violated UCC Article 3 (negotiable instruments) by dishonoring his “restrictive qualified indorsement.” The court found the UCC is not an independent cause of action under federal law, and the factual theory (accepting loan proceeds then claiming no obligation due to “W/O Recourse”) was frivolous and based on the “vapor money” theory. Claim failed.
Because the claims were legally insufficient and based on a theory (“vapor money”) that courts routinely reject, the motion to dismiss was granted with prejudice and the case dismissed in favor of Upstart. Furthermore, in the fifth count the court issued a statement (bold above) that should serve useful to other intrusion claims in Florida.
For industry members in the digital lending, servicing and collection space, Zickafoose v. Upstart reinforces that well-documented origination/servicing roles, compliance with furnishing & dispute obligations, and avoiding contractual arguments in favor of standard documented rights remain foundational. While this case aligns neatly in favor of the lender/servicer on its facts, firms should nonetheless view this as an opportunity to audit processes and ensure they are defensible should a borrower raise unconventional defenses.
Court Rejects Bona Fide Error Defense in FDCPA Case
A District Court judge in Florida has granted a plaintiff’s motion for partial summary judgment in a Fair Debt Collection Practices Act case after the defendant filed a collection lawsuit in the wrong jurisdiction, ruling that a violation of the statute’s venue provision occurs when the suit is filed, not when the plaintiff is served, and that the defendant was not entitled to the FDCPA’s bona fide error defense because it did not follow its own procedures. More details here.
WHAT THIS MEANS, FROM CHUCK DODGE OF HUDSON COOK: This was a tough one that failed for the law firm on both counts. At the heart of the matter is the apparent failure by the law firm to follow its procedure to skip trace the consumer the firm was prepared to sue in collections to confirm the appropriate venue. That led to the firm filing suit in the wrong county, which the court found to violate the FDCPA even though the firm had not yet served the consumer in the case (she learned of the case from a law firm looking to defend her), on the theory that some harm was done because the lawsuit was then public record. And then, after the court found that the consumer had standing to sue because of the potential for harm resulting from the filing of the suit, the court told the law firm its bona fide error defense would not work because the firm did not follow the procedure designed to void errors (the firm ran the skip trace after filing suit). We like the back-up arguments that “even if” our first defense fails, the second one should prevail – but in this case because the facts suggested that the firm did not follow its procedure that back-up argument did not appear to have much chance of success. Compliance policies and procedures can provide great protection from expensive litigation outcomes, but only if they cover all the bases and then only if we adhere to those policies and procedures. Tough loss.
Vought: CFPB To Close in ‘Two or Three’ Months
Russell Vought, the Director of the Office of Management and Budget and the Acting Director of the Consumer Financial Protection Bureau announced yesterday during an appearance on “The Charlie Kirk Show” that the CFPB will be closed “within the next two to three months,” claiming the agency “is not protecting consumers” and instead weaponizes financial law against small lenders. He pointed to what he called the CFPB’s “DNA of Elizabeth Warren” as evidence of partisan overreach. More details here.
WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS SUTHERLAND: Against the backdrop of as-yet unresolved litigation over the Administration’s ability to dismantle the Consumer Financial Protection Bureau (“CFPB”) without Congressional action, Acting CFPB Director Russell Vought publicly announced plans to close the CFPB. Meanwhile, in the litigation challenging whether or not the Administration has the authority to make the drastic changes that are pending (or have occurred) at the CFPB, the DC Court of Appeals denied the Administration’s request to delay events in its scheduling order, signaling the judiciary intends to remain engaged in monitoring the agency downsizing. The implications for financial services companies may include the following:
- As you prepare for more change and potential regulatory realignment, use this opportunity to review your compliance programs to ensure they align to state and federal privacy and consumer financial protection laws.
- Keep an eye on state regulators and lawmakers in the coming year as they evaluate whether and how to potentially step in to fill any gaps they perceive are resulting from the drastic reduction in scope and resources at the CFPB;
- Continue to comply with state and federal consumer protection laws and regulations – stay the course;
- Monitor court rulings and communications from other federal and state regulators – for example, the FTC has announced it remains committed to detect and enforce in instances in which acts or practices may be unfair, deceptive or abusive to consumers under its regulatory authority;
Collector Asks Supreme Court to Clarify FDCPA Duties Before Working Account
A collection operation has filed a petition with the Supreme Court for it to hear arguments in a Fair Debt Collection Practices Act case, seeking answers to three questions related to the work that should be done before starting collection activity on an account, and whether a medical debt incurred after someone was injured while working is considered a consumer debt. More details here.
WHAT THIS MEANS, FROM AKEELA WHITE OF HINSHAW & CULBERTSON: The Eleventh Circuit’s opinion confirms that medical bills remain “consumer debts” even when workers’ compensation places the payment obligation on the employer or its insurer, and the decision will likely be persuasive beyond the circuit. Collectors cannot rely on hospitals’ internal triage to filter out non‑collectible accounts. They need documented, front‑end screening to determine workers’ compensation status before sending a validation notice. The bona fide error defense requires internal, preemptive systems and is not satisfied by reliance on creditors or by after‑the‑fact notices. NACS’s petition asks the Court to clarify the scope of pre‑validation duties, whether creditor‑coordinated safeguards can count toward the bona fide error defense, and how to classify work‑related medical bills. In the interim, medical collectors operating in or touching the Eleventh Circuit should treat these accounts as covered debts and adopt auditable intake controls, workers’ compensation flags, and clear escalation paths they can substantiate in the record.
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.
