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.
State Appeals Court Reverses Judgment for Collector Over Procedural Errors
The Appellate Division of the New Jersey Superior Court has reversed a pair of trial court rulings that granted summary judgment to the plaintiff in a collection lawsuit and dismissed the defendant’s Fair Debt Collection Practices Act counterclaims, sending the case back because the written order did not match what actually happened in the courtroom. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: This case presents another pothole to be weary of when dealing with a pro se litigant. Here the Plaintiff brought a motion for summary judgement and the pro se defendant moved to amend his counterclaim. Cutting to the chase, the two motions were still pending when the case was called for trial. Three days before trial, Plaintiff’s counsel sent in a letter asking to convert the trial to a settlement/motion hearing/case management conference. And left it at that. Per the record there was no response to that request.
On the day of trial, Plaintiff’s counsel appeared and the Defendant did not. The Judge asked if they wanted a summary judgement or default. As to the counterclaim, that was dismissed “for reasons stated in the moving papers.”
About two weeks later the Court issued an Order providing that on the trial date summary judgment was granted and the counterclaim was dismissed on the record and the reasons for same were set forth on the record. Except that was not actually what occurred and there was no record.
Here’s the rub, Counsel had to realize that the Order misstated what happened (see above). Had it been an attorney on the other side there would likely have been a letter to the Court seeking to correct the error but there was not, and the Plaintiff took the win, albeit temporary. The pro se defendant then appealed the Order and the Appellate Division vacated the Order and remanded the case back to the trial court to allow the parties to reply to each others motions and to make sure the decisions of the Court were explained.
Lesson: This decision was critical of the Judge not counsel. When dealing with a Pro Se recognize their limitations and proceed with caution. Counsel might have saved time and energy and gained some good will with the Court had they proactively alerted the Court to the errors in the Order, avoiding the appeal. Comments?
THE COMPLIANCE DIGEST IS SPONSORED BY:
CFPB Regulatory Agenda Puts Debt Collection Larger Participant Rule on September Timeline
The Consumer Financial Protection Bureau plans to pursue 20 rulemaking actions through the end of this year, including a proposed rule reconsidering the larger participant test that defines which debt collectors fall under the Bureau’s supervisory authority, according to its latest regulatory agenda released July last week. More details here.
WHAT THIS MEANS, FROM ARI DERMAN OF CLARK HILL: The most significant item for the ARM industry in the CFPB’s latest regulatory agenda is the Bureau’s planned reconsideration of the Debt Collection Larger Participant Rule, which is currently slated for September. This is not a new initiative, but rather the next step in the process that began with the CFPB’s August 2025 Advance Notice of Proposed Rulemaking (ANPR), where the Bureau solicited comment on whether the current $10 million annual receipts threshold should be increased. Among the alternatives discussed were thresholds of $25 million, $50 million, and $100 million.
While the ultimate proposal remains to be seen, we believe the threshold is more likely than not to increase under the current Administration. Such a change would be welcomed by many mid-sized collection agencies that have found CFPB supervision to be extraordinarily burdensome. Beyond the significant time and expense associated with preparing for and responding to examinations, many supervised entities have experienced highly granular oversight that can make it difficult to efficiently operate and manage a business. Raising the threshold would allow the Bureau to focus its supervisory resources on the largest market participants while reducing the compliance burden on agencies that have historically borne the costs of supervision disproportionate to their size.
Bill Would Cut Credit Reporting Window to Four Years, Ban Medical Debt from Consumer Reports
A bill introduced last week in the House of Representatives would significantly rewrite the Fair Credit Reporting Act, shortening how long most negative information can remain on a consumer’s credit report and banning medical debt from appearing on consumer reports entirely. More details here.
WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER LOCKE: The FAIR Credit Act would overhaul many aspects of the Fair Credit Reporting Act. Among its key provisions, the bill would significantly shorten how long negative information can remain on consumers’ credit reports: cutting the reporting period for most adverse information from seven years to four, the bankruptcy window from ten years to seven, requiring paid or settled debts to be removed from reports within 45 days, and broadly prohibiting the reporting of medical debt. The bill also includes credit restoration mechanisms for victims of predatory lending, defrauded student borrowers at for-profit schools, and economic abuse survivors, among other changes.
Appeals Court Affirms Jury Verdict for Defendant in FCRA Case
The Court of Appeals for the Ninth Circuit has affirmed a jury verdict in favor of the defendant in a Fair Credit Reporting Act lawsuit over a reported missed payment on a vehicle lease, rejecting the plaintiff’s challenges to the evidence, the handling of the trial, and the conduct of the trial judge himself. More details here.
WHAT THIS MEANS, FROM JEFF TURNER OF SURDYK DOWD & TURNER: I think statistics would support the statement that most FCRA lawsuits don’t end up in a jury trial. I would also like to think that most vehicle leases don’t end up with the consumer keeping the vehicle after the lease ends; at least not without paying an additional amount for the vehicle. You’d also like to believe that under those circumstances the consumer wouldn’t end up suing the company that leased the vehicle to him. In this case, we’ve got all of that and more.
In 2020, Plaintiff Chiddy Golden entered into a lease for a Ford Mustang at a Ford dealership. When the lease term ended, Mr. Golden did not return the vehicle and made no further lease payments. Defendant Ford Motor Credit Company (“Ford”) reported to the credit bureaus that Mr. Golden’s account was past due and that he had failed to make the required payments. Plaintiff sued Ford under the FCRA and state law claiming that Ford inaccurately reported that Plaintiff failed to make a car lease payment.
The case ultimately proceeded to a jury trial. At trial, Ford presented evidence of two versions of the lease agreement that included provisions requiring additional payments if the vehicle was not returned: a hand-signed copy and an electronically signed version. Mr. Golden claimed he only signed a paper version that did not include the additional payment requirement and that Ford representatives told him he did not need to make further payments because he had initiated a buyback claim.
After a two-day trial, the jury found that Plaintiff had entered into a contract requiring additional payments and that Defendant was not estopped from enforcing that requirement. In other words, Ford didn’t violate the FCRA or state law in connection with the credit reporting. Plaintiff wasn’t happy with the outcome and decided to continue pursuing the case. Although he was represented by counsel in the trial court, Plaintiff filed his appeal pro se with the Ninth Circuit Court of Appeals.
While it’s not the most exciting opinion you’ll ever read, the fact that the case got as far as a jury trial followed by the court of appeals is unusual given the facts presented. Nevertheless, Mr. Golden forged ahead, but it all ended at the Ninth Circuit where the jury verdict in favor of Ford was affirmed. The Court of Appeals found the evidence was sufficient to support the verdict and disposed of all other arguments made by Mr. Golden. Although this is likely the end of the road for Plaintiff as far as this case, maybe he’s still cruising the California coast in his Mustang.
Judge Rules Pre-Suit Settlement Emails Are Not Collection Attempts, Tosses FDCPA Case
A District Court judge in Texas has dismissed a Fair Debt Collection Practices Act lawsuit against a debt buyer, one of its executives, and one of its attorneys for lack of standing, ruling that emails seeking to settle the plaintiff’s threatened lawsuit could not plausibly be construed as attempts to collect a debt. More details here.
WHAT THIS MEANS, FROM JULIA STINER OF FROST ECHOLS: This 5th Circuit case addresses a couple different issues. Plaintiff brought suit against a debt buyer, a director, and one of its attorneys. Plaintiff received a debt collection letter and demanded validation. Plaintiff then claimed Defendants threatened to proceed with collecting with the courts. Defendants filed a motion to dismiss. In response, the court addressed subject matter jurisdiction and Plaintiff’s request to amend. Two important points:
- The 5th Circuit requires more than merely alleging an FDCPA violation to find the required concrete injury; and
- When seeking to amend a complaint, one should include the particular grounds on which the amendment is sought. Ultimately, the court dismissed Plaintiff’s Compliant for lack of subject matter jurisdiction finding a single unwanted message does not constitute a concrete harm.
New York Proposes BNPL Rule
The New York State Department of Financial Services yesterday formally proposed regulations that would require buy now, pay later lenders to obtain a license, cap most penalty fees, and impose new restrictions on how delinquent BNPL accounts can be reported and collected. The proposal, which implements the Buy-Now-Pay-Later Act passed as part of the state’s 2025 budget, opens a 60-day comment period running through Sept. 14. More details here.
WHAT THIS MEANS, FROM CHUCK DODGE OF HUDSON COOK: For any BNPL provider who has been monitoring New York developments since it passed its Buy-Now-Pay-Later Act in 2025, and then the regulations proposed about 6 months ago for comment, much of this updated, comprehensive proposed regulation touching on everything from licensing to substantive product limitations and privacy will look familiar. There are the basic provisions that reflect what the Act required, but there is plenty of new material in this proposal that was not in the February proposal. The fingerprints of the former CFPB attorneys who found their way to the DFS are apparent in the proposal, from the effort to compare BNPL products to credit cards so that the billing rights rules under Reg. Z apply, to the requirement to send a due date notice before a payment due date as a prerequisite to imposing a late payment fee. If DFS finalizes this one-of-a-kind rule as proposed, we’re going to need that full six-month period the rule gives for implementation to make the required updates to BNPL products in New York.
NYC Adopts First Municipal Click-to-Cancel Rule, Proposes Junk Fee Ban
New York City is moving aggressively into consumer protection territory that federal regulators have largely vacated, finalizing a Click-to-Cancel rule and proposing a citywide ban on hidden junk fees. Both actions come from the Department of Consumer and Worker Protection, the same agency that licenses and regulates debt collectors operating in the five boroughs. More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF AUTOSCRIBE: New York City’s new Click-to-Cancel Rule may initially appear unrelated to accounts receivable management, and, for most collection activity, it probably is. An ordinary recurring payment arrangement pays down an existing obligation; it is not an automatically renewed subscription for goods or services. The more important development for ARM companies is the City’s proposed junk-fee rule. It would apply broadly to services offered to New York City consumers, require unavoidable charges to be included in the advertised price, prohibit misrepresenting the purpose of a “processing” or “service” fee, and require businesses to maintain records substantiating each fee. That language could reach online, telephone, expedited-payment, and other processing charges used by creditors, servicers, collection agencies, and their payment providers. The Click-to-Cancel Rule becomes effective October 1, 2026, while the junk-fee proposal remains open for comment through August 7.
The larger warning is that disclosure alone may no longer be an adequate defense. In Glover v. Ocwen Loan Servicing, LLC, 127 F.4th 1278 (11th Cir. 2025), the Eleventh Circuit held that optional online and telephone payment fees violated FDCPA § 1692f(1) because they were not expressly authorized by the underlying debt agreements or affirmatively permitted by law. The existence of a free mail option, and even the consumer’s agreement to pay the disclosed fee, did not save the practice. The Fourth Circuit reached a similar conclusion in Alexander v. Carrington Mortgage Services, LLC, 23 F.4th 370 (4th Cir. 2022). My view is that New York City is creating an additional layer of risk: a fee must not only be legally authorized under the FDCPA and applicable state law, but may also need to be accurately described, properly displayed, economically supportable, and thoroughly documented. Calling something a “convenience fee” will not make it lawful and placing it conspicuously on the payment screen will not cure the absence of underlying legal authority. ARM companies should now review fee authority, processor revenue flows, consumer choice, disclosures, and cost documentation, as this municipal approach is unlikely to remain confined to New York City.
New Bill Would Regulate AI Chatbots, Require Disclosure and Human Transfer Option in Customer Service Interactions
A pair of House Democrats has introduced sweeping legislation to regulate artificial intelligence chatbots, a bill that could have significant implications for companies in the accounts receivable management industry that are deploying or considering AI-powered consumer communication tools. More details here.
WHAT THIS MEANS, FROM HEATH MORGAN OF MARTIN GOLDEN LYONS WATTS MORGAN: First, this bill has little chance of passing as a stand alone piece of legislature without bipartisan sponsorship. That being said, the bill does give us some insight into both the concerns that legislators will have with chatbots, and issues the industry will have with broad definitions of AI technology.
If we look at the definitions and carveouts, Section 5(3) defines artificial intelligence chatbots as “any interactive computer service or software application that (I) generates responses that are not fully predetermined; and (II) accepts open-ended natural-language or multimodal user input and produces adaptive or context-responsive output.”
There is a narrow carve-out: the term does not include an application “(I) the responses of which are limited to contextualized replies; and (II) that is unable to respond on a range of topics outside of a narrow specified purpose.” Therefore a rigid, menu-driven IVR or a single-task scripted bot would likely fall outside, but the safe harbor disappears the moment a tool handles free-form consumer questions across topics, which many modern generative collections bots do.
Assuming a tool clears that definitional gate, the ARM industry can be regulated on two independent theories. Section 2(d) plainly reaches any “business entity that initiates or receives a customer service communication and uses an artificial intelligence chatbot for customer service communication.” Separately, “artificial intelligence chatbot provider” is defined as “any person who creates, distributes (including to a third party), or otherwise makes publicly available” a chatbot. This means that a collector that deploys a vendor’s bot to consumers could be argued to “make publicly available” that chatbot, which would attach the full Section 2 regime, including monthly safety assessments and quarterly public reporting designed for companion AI, not collections scripts.10
Another provision of the bill, the customer-service provision requires disclosing “that a nonhuman, artificial intelligence, or machine is being used” at the beginning of each communication, and giving the consumer an immediate transfer to “a human operator who is physically located in the United States” on request, including by voice command such as saying “agent.” We have already seen states move in this direction, and it is a general good practice.
Lastly, the bill discusses data, and the proposed legislature bars selling chat logs, caps retention at five years “unless retention is necessary to comply with this Act or otherwise required by law,” requires affirmative opt-in consent before using adult users’ data for training, and grants access and deletion rights plus a bar on retaliating against users who refuse consent. The biggest issue for the industry would be the affirmative opt-in consent to use data for training.
While this specific legislation has a low likelihood to pass, it is important for any creditor, collection agency, collection law firm, or debt buyer to keep apprised of proposed legislation to determine how easy it would be to comply, and choose AI vendors that can make compliance with future legislation frictionless.
Senate Bill Would Rewrite Bankruptcy Rules for Medical Debtors, Keep Filings Off Credit Reports
Sen. Sheldon Whitehouse [D-R.I.] and Rep. Steve Cohen [D-Tenn.] have introduced the Medical Bankruptcy Fairness Act of 2026, a bill that would carve out a new class of “medically distressed debtors” in the Bankruptcy Code and hand them a set of protections with significant implications for creditors, debt buyers, and collection operations. More details here.
WHAT THIS MEANS, FROM STEPHANIE STRICKLER OF MESSER STRICKLER BURNETTE: The Medical Bankruptcy Fairness Act of 2026 would create a special category of “medically distressed debtors” and significantly ease their path through bankruptcy. Qualifying debtors, who are defined by specific medical‑expense or medical‑related hardship thresholds, could bypass the Chapter 7 means test, avoid Chapter 13 disposable‑income requirements, skip pre‑filing credit counseling, and discharge student loans without proving undue hardship. The bill also authorizes an elective federal exemption of up to $250,000 in residential property for medically distressed debtors. Of particular importance to creditors and debt buyers, bankruptcies filed under this status would be excluded entirely from consumer credit reports, affecting underwriting, account valuation, and post‑bankruptcy recovery strategies. Although the bill’s prospects are uncertain, it underscores continuing federal attention to medical debt and its treatment in consumer credit reporting.
Federal Banking Agencies Roll Out Coordinated Approach to Protecting Sensitive Data During Exams
The three federal banking agencies are changing how they handle the most sensitive information they collect during examinations, announcing a coordinated approach that gives supervised banks a direct role in flagging data they believe warrants extra protection. More details here.
WHAT THIS MEANS, FROM JOHN CULHANE OF BALLARD SPAHR: Recognizing the importance of protecting a bank’s most sensitive information, including its network diagrams, penetration test results, and technology control weaknesses, and that the exam process itself can pose a risk to that information, the Fed, OCC, and FDIC have issued a joint statement establishing a coordinated approach for protecting and handling such information during exams. That approach relies on bank management to identify data and documents considered highly sensitive at the outset and to discuss their concerns with the examiner-in-charge or their primary agency contact. The examining agency will then consider various options for minimizing the collection and storage of that information, including an on-site review, a direct digital review from the bank’s systems, a review of redacted or summarized versions of documentation, and additional measures related to the transmission of and access to that information. Importantly, subject to applicable legal considerations, the agencies have committed to notify an affected bank of a potential or confirmed security breach within 72 hours, once the agency has a reasonable basis for believing that the bank’s information has been compromised.
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.
