I’m thrilled to announce that Frost Echols is the new sponsor for the Compliance Digest. Frost Echols reputation has been built on aggressively protecting the rights of businesses throughout our local jurisdictions. Founding partners, Mike Frost and Chad Echols, developed a deep understanding of regulatory compliance, commercial litigation and business operations through years of advising executives in the collection industry. We are committed to a strategic, economic, and aggressive approach to your legal representation.
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.
RMAI, ACA Challenge California Licensing Fees as ‘Unlawful Tax’
RMAI, in conjunction with ACA International and a collection operation based in California this week filed a lawsuit against California’s Department of Financial Protection & Innovation challenging the licensing fees being assessed by the regulator. The case, filed in California state court, seeks to invalidate the fee structure under the state’s Debt Collection Licensing Act, arguing that the assessments imposed on licensed businesses are excessive, unpredictable, and unconstitutional. More details here.
WHAT THIS MEANS, FROM ARI DERMAN OF CLARK HILL: Good to see trade group allies ACA and RMAI working together in a coordinated approach to address a fee structure that has generated significant industry discussion since its rollout. The complaint highlights familiar themes: costly median fees around $8,500 with a wide range of outcomes, the use of a 0.0041 multiplier tied to reported “net proceeds,” and questions around how that methodology was derived and communicated. It also puts a spotlight on the DFPI’s fee-funded model, which is common across financial regulators but can create tension around predictability and transparency. Regardless of outcome, the case is likely to provide helpful clarity on how licensing fees are structured and evaluated going forward, and could be a template for challenges in other states. Hopefully, some sort of agreement can be reached where industry works productively with the regulators to find a middle ground.
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Judge Rejects ‘Show Me the Contract’ Theory in FCRA Case Against Debt Buyer
A District Court judge in North Carolina has granted a debt buyer’s motion to dismiss claims it violated the Fair Credit Reporting Act by not providing an original signed contract, and chain of title or forward flow agreement. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: If I’ve seen one of these complaints I seen a hundred and my bet is so have many of the people reading this blog. This idea as to what constitutes “verification” has been floating around the internet for over a decade, offering pro se debtors a form letter they can use without having to do anything more. So what’s the takeaway? Have a blurb with a case citation (preferably for a court in your jurisdiction) to address the request in the same manner as the Judge did here. The second takeaway is when someone claims FCRA violations try to get as much detail as possible from the debtor as soon as possible to see if there’s a basis for the claim under the statute. There may be a claim but it’s not against you.
Unfortunately, for the near future it’s a pro se world and we only work in it.
Judge Draws Line on Default Judgment Challenges While Letting Narrow FDCPA Claim Proceed
A District Court judge in Michigan has mostly overruled objections filed by a plaintiff in a Fair Credit Reporting Act and Fair Debt Collection Practices Act case over a default judgment that was obtained for an unpaid debt. More details here.
WHAT THIS MEANS, FROM JOHN MAREES OF MESSER STRICKLER BURNETTE: This decision reinforces limits on using the federal courts or the FDCPA to collaterally attack state-court collection judgments, with the court dismissing most claims outright. The Court emphasized that disputes over service, jurisdiction, or the validity of a default judgment generally belong in the state-court forum where the judgment was entered. At the same time, the court drew a clear distinction between challenges to a judgment itself and scrutiny of post-judgment collection activity, allowing a narrow FDCPA claim to proceed based on alleged conduct after the entry of judgment. The ruling highlights the importance of maintaining effective compliance and risk management controls around post-judgment communications and enforcement activities given the potential residual FDCPA exposure even when the underlying judgment itself is not subject to challenge.
Judge Grants MSJ For Defendant in FCRA Case Over Lack of Evidence of Inaccuracy
A District Court judge in Michigan has granted a defendant’s motion for summary judgment in a Fair Credit Reporting Act case, that accused the defendant of publishing inaccurate information about the plaintiff and failing to reinvestigate disputed information. More details here.
WHAT THIS MEANS, FROM DAVID SHAVER OF SURDYK, DOWD & TURNER: Morrow v. Experian serves as a good reminder that concrete injuries, even if minimal, will confer standing for purposes of Article III. In this case, even though Morrow had received a credit denial letter after she initially filed suit, and she went to therapy for only one week for her claimed emotional distress, both were sufficient to confer standing to sue under the FCRA.
Standing was, however, the only issue decided in Morrow’s favor. Because Morrow failed to present any evidence that the information included on her Experian report was inaccurate, her failure-to-follow-reasonable-procedures-to-ensure-maximum-possible-accuracy claim failed as a matter of law. The Court was further persuaded by the evidence presented by Experian – of its procedures for vetting data furnishers on the front end – and because Morrow relied on her nothing but her own self-serving statements.
On her failure-to-conduct-a-reasonable-investigation claim, the Court once again found Morrow’s failure to present any evidence of inaccuracy to be dispositive. The Court was also persuaded by Experian’s evidence that it conducted a reasonable investigation – i.e., it sent ACDVs to the data furnishers involved to determine if the information disputed by Morrow was accurate.
Boiled down, agencies and practitioners would be wise to remember that information accuracy is a threshold question when dealing with these kinds of FCRA claims. And, internal procedures and policies need to be reasonable. In today’s litigious environment, individuals often seem to believe, incorrectly, that perfection is the standard to which agencies and CRAs are to be held.
Appeals Court Upholds Voluntary Dismissal Doesn’t Equal Favorable Termination
The Court of Appeals for the Third Circuit has affirmed a District Court ruling that a collection operation’s decision to voluntarily dismiss a lawsuit does not automatically mean the consumer “won” for purposes of bringing a follow-on claim under state law. In a nonprecedential opinion issued last week, the court upheld summary judgment in favor of the defendant, reinforcing a key takeaway for collection operations: timing and context matter when it comes to how courts interpret dismissed lawsuits. More details here.
WHAT THIS MEANS, FROM KAREN M. SCHEIBE ELIASON OF FROST ECHOLS: The recent decision in Kinner v. Portfolio Recovery Associates is a helpful reminder of how courts look at litigation conduct, both when claims are filed and when they are later dismissed.
At a basic level, the court reaffirmed a point that should not be controversial. In any litigation, a plaintiff may decide not to move forward with a claim for a range of legitimate business or legal reasons. That includes debt collectors and their creditor clients. A voluntary dismissal, even after suit has been filed, does not by itself suggest anything improper. The facts and timing in Kinner fit squarely within that framework and do not indicate that the claim was brought in bad faith.
Where things become more difficult is on the other end of the spectrum. When a case is carried through most of the litigation process and then dismissed right before trial, it can raise questions. That timing can create the appearance that the claim may not have been fully supported and was instead used to push for settlement. Courts and plaintiffs’ counsel may view those situations as potential evidence of bad faith.
For the ARM industry, the practical takeaways are fairly straightforward.
First, focus on front end diligence. Before filing suit, make sure the file contains the documentation and admissible evidence needed to prove the claim at trial, not just enough to get past initial pleadings or motions.
Second, ensure alignment with creditor clients. The client should understand what litigation requires and be prepared to participate if the case proceeds through trial. Filing cases without that level of commitment can create unnecessary risk later.
Third, put structure around your decision making. Clear internal standards for when to file suit, and when not to, are critical if those decisions are ever challenged.
It’s also worth taking a closer look at your legal inventory. Agencies should be tracking when cases are dismissed, how often dismissals occur, and whether certain clients or portfolios stand out. Patterns in dismissal timing or frequency are the kinds of issues that tend to surface in discovery, regulatory exams, or class actions.
The bottom line is simple. Dismissing a case is often a normal and appropriate outcome. A pattern of late-stage dismissals is what draws attention. Kinner is a good reminder to make sure your legal collection practices are disciplined, well documented, and aligned with the realities of taking a case all the way to trial.
New Jersey Court Keeps Hunstein Theory Alive in Letter Vendor Case
A State Court judge in New Jersey has denied a motion to dismiss a Hunstein lawsuit, ruling that because letter vendors are not specifically mentioned in the Fair Debt Collection Practices Act as an exempted entity, any alleged communications between the defendant and the vendor it uses are not exempt, either. In doing so, the court embraced a strict, plain-language interpretation of Section 1692c(b) and signaled that, at least in New Jersey state court, the long-debated “letter vendor” theory remains very much alive despite federal courts largely sidestepping the issue on standing grounds. More details here.
WHAT THIS MEANS, FROM NICK PROLA OF BASSFORD REMELE: This New Jersey state court ruling creates exposure even where federal courts have sidestepped the issue on standing, increasing forum-shopping risk and forcing a reassessment of routine vendor workflows as potential third-party disclosures under § 1692c(b). In practical terms, it elevates what has long been treated as a back-office function into a front-line litigation risk, particularly in state jurisdictions willing to apply a strict, text-driven interpretation of the statute.
To mitigate that risk, agencies may need to take a layered approach: minimize the data shared with vendors (e.g., redaction or tokenization where feasible), evaluate bringing letter generation in-house or structuring vendors as tightly controlled agents (or attorneys-in-fact), and update vendor agreements to include strong indemnity, insurance, and audit provisions. Another (more costly) option may be implementing jurisdiction-specific workflows and maintaining clear audit trails of what data is transmitted. Still, none of the above will prevent the plaintiff’s bar from bringing these lawsuits where it is clear a letter vendor is involved. Ultimately, without a court willing to take a common-sense approach to third-party disclosure claims, agencies will need to rely on processes that prevent the actual disclosure of debt information to their vendors.
Colorado Court Dismisses FCRA Preemption Challenge Over Criminal Record Reporting Law
A District Court judge in Colorado has granted a motion to dismiss filed by the Attorney General of Colorado, who was sued by a trade group, attempting to assert that the Fair Credit Reporting Act preempts portions of a state law that prohibits the reporting of criminal conviction records, as well as sealed and expunged records that do not result in a conviction. More details here.
WHAT THIS MEANS, FROM ISSA MOE OF MOE LAW GROUP: This opinion is a reminder that who you sue can matter just as much as what you’re suing about. In the case, a background screening association filed a lawsuit to enjoin enforcement of a Colorado law imposing a 7-year credit reporting limit on certain criminal records which, according to the trade group, conflicts with federal law. According to the trade group, the FCRA permits those records to remain on reports indefinitely and Colorado’s state law should be preempted by federal law as a result. Whether you agree or not, the argument seems sufficiently colorable to at least get its day in court. But here’s the thing, the trade group filed their preemption lawsuit against the Colorado Attorney General. They claimed that based on certain public statements and press releases, they believed the AG intended to use his authority to enforce the state law. Unfortunately, the AG had no enforcement authority under the statute. And without any duty to enforce the statute, the AG was entitled immunity. So, the judge kicked the claim on subject matter jurisdiction grounds, meaning the court never reached the preemption challenge.
What’s the compliance takeaway? For industry participants, the preemption question remains unresolved. That means Colorado’s state reporting restriction appears to remain in effect, at least for now. And from a litigation perspective, this decision serves as a cautionary tale about the importance of carefully and thoroughly analyzing jurisdictional, enforcement authority, and other constitutional issues to ensure you’re bringing your claim against the right defendant before launching a high-stakes constitutional challenge. Because again, who you sue can matter just as much as what you’re suing about.
Frost Echols reputation has been built on aggressively protecting the rights of businesses throughout our local jurisdictions. Founding partners, Mike Frost and Chad Echols, developed a deep understanding of regulatory compliance, commercial litigation and business operations through years of advising executives in the collection industry. We are committed to a strategic, economic, and aggressive approach to your legal representation.
