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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.
Judge Awards $25k in Sanctions Against Collection Law Firm for Attempting to Collect on Discharged Debt
A bankruptcy court judge in Virginia has ordered a collection law firm to pay $25,000 in attorney’s fees to the plaintiffs for violating the discharge of a judgment through bankruptcy by sending a payoff letter to the plaintiffs after the plaintiff requested it. More details here.
WHAT THIS MEANS, FROM PATRICK NEWMAN OF BASSFORD REMELE: The Bankruptcy Code represents a “live wire” for the ARM industry — easy to trip over (and it can hurt!). As this case illustrates, the courts take very seriously the principle of providing the filing consumer a “fresh start.”
Of course, I’m not giving anyone legal advice in this space, but here’s the cost-benefit calculus I might employ when bankruptcy issues arise: “What is the potential upside of attempting collection efforts concerning an individual who, by virtue of a discharge order, has been adjudged unable — and legally not required — to pay the account? How hard might a court drop the hammer on me if I don’t adhere to that legally-binding adjudication?” If the answers are, respectively, “very little” and “hard,” there’s probably not much more to think about.
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Judge Grants MSJ for Plaintiff in FDCPA Class-Action Over Dispute Notification
This is one of those “This sounds like it might be a big deal, but I need to remind everyone that I’m not a lawyer so there’s a good chance this isn’t the big deal I think it is” type of case, but a District Court judge in Massachusetts may have just ruled that a plaintiff has standing to sue because he received a letter from the defendant that was “inconsistent with the required validation notice” language and granted the plaintiff’s motion for summary judgment. More details here.
WHAT THIS MEANS, FROM JACOB BACH OF MARTIN LYONS WATTS MORGAN: The court in Rocke found a violation of section 1692g(a)(3) because the letter included a statement that a dispute must be in writing. This highlights the importance of making sure your initial notice includes the proper language in order to thread the needle on disclosing which rights must be exercised in writing under the FDCPA. The court in Rocke was more generous regarding standing than some other district courts have been, which shows that standing in FDCPA cases continues to be an open question as the extent and scope of statutory FDCPA claims which afford sufficient Article III standing.
CFPB Launches Review of Credit Card Market
The Consumer Financial Protection Bureau yesterday published a request for information from consumers related to their experiences using credit cards as part of a required review of the industry. The request covers a number of different areas related to how consumers use their credit cards, how they are treated by credit card issuers, and includes a couple of questions related to debt collections. More details here.
WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN PEPPER: On January 24, the Consumer Financial Protection Bureau (CFPB) announced it is seeking public comment on how the consumer credit market is functioning as part of its biennial review required by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). The CFPB will be accepting comments until April 24. This request for public comment comes on the heels of the issuance of the CFPB’s 2022 Fall Rulemaking Agenda, where the CFPB indicated it was considering whether to propose amendments to the CARD Act relating to late payment fees levied by credit card issuers.
The CARD Act directs the CFPB to undertake a comprehensive review of the credit card industry to determine whether regulatory adjustments are needed. While public comment is not required for the review, the CFPB has specifically requested feedback on the following topics:
- Terms of credit card agreements – how have the substantive terms and conditions of agreements changed over the past two years?;
- Effectiveness of disclosures – how effective are current disclosures of rates, fees, and other costs in conveying to consumers the costs of credit card plans?;
- Adequacy of protections against unfair or deceptive acts – What unfair, deceptive, or abusive acts exist in the credit card market and how prevalent are they?;
- Cost and availability of consumer credit cards – How have the costs and availability of credit cards changed over the past two years?;
- Use of risk-based pricing – How have the CARD Act provisions related to risk-based pricing impacted the industry?; and
- Product innovation – How have broader innovations in finance (like rewards redemptions for cryptocurrency and environmental causes) and evolving digital tools impacted the credit card industry?
Appeals Court Affirms Dismissal of FDCPA, FCRA Case
The Court of Appeals for the Second Circuit has affirmed the dismissal of a case alleging violations of the Fair Credit Reporting Act, Fair Debt Collection Practices Act, and Racketeer and Influenced and Corrupt Organizations (RICO) Act involving a number of collection operations attempting to collect on a debt the appellant suspects was the result of identity theft. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: You have to love that that a pro se litigant complaining about FDCPA or FCRA violations, goes straight to the RICO claim. Has anybody actually The 2nd Circuit made short shrift of that noting that the Plaintiff failed to show how Verizon’s communications attempts qualified as “mail or wire fraud.”
The FCRA claims was dismissed, some for a lack of a private right of action and the other for failure “to allege cognizable damages caused by any alleged violations of those subsections.”
The Court dismissed the FDCPA claim citing to Henson v. Santander Consumer USA Inc., 137 S. Ct. 1718, 1724, 198 L. Ed. 2d 177 (2017) “you have to attempt to collect debts owed another before you can ever qualify as a debt collector” under the FDCPA” leaving it at that. Caution, Henson also acknowledged an alternative definition of “debt collector” — one that encompasses those engaged “in any business the principal purpose of which is the collection of any debts.” Henson, 137 S. Ct. at 1721.
Judge Dismisses FCRA, FDCPA Case Over ‘Laundry List’ of Violations
A Magistrate judge in California has recommended that a defendant’s motion to dismiss be granted, although saying the plaintiff should have the opportunity to submit an amended complaint, in a Fair Debt Collection Practices Act and Fair Credit Reporting Act case that contained a “laundry list” of alleged violations without any factual allegations to substantiate the claims. More details here.
WHAT THIS MEANS, FROM NATHAN COPELAND OF DREHER TOMKIES: The Magistrate in this case rightfully dismissed this case for failure to state a claim and because the plaintiff’s claims were barred by the relevant statute of limitations under federal law. As consumers’ understanding of federal laws like the Fair Credit Reporting Act and the Fair Debt Collection Practices Act increases, creditors and debt collection agencies will see more pro se lawsuits. Unfortunately, pro se actions are generally not beneficial for either party to a lawsuit in this context. For pro se litigants, the FCRA and the FDCPA are very complex statutes and it is difficult for the average consumer appearing pro se to properly articulate their potential claims under either statute. For creditors and debt collection agencies, the process of defending against pro se actions in this context can be difficult because (as is the case here) it is difficult to determine what the factual allegations are and what, if any, violations actually occurred. Even though pro se lawsuits can be difficult to defend, it is important to always respond and appear in accordance with the applicable state or federal court’s rules of civil procedure to avoid a potential default judgement.
Judge Grants Motion to Set Aside Default Judgment in FDCPA, FCRA Case Over Complaint Sent to Empty Office
An interesting ruling out of South Dakota in which a District Court judge has agreed to set aside a default judgment that was obtained against a Buy Now, Pay Later service after it was sued for allegedly violating the Fair Debt Collection Practices Act and the Fair Credit Reporting Act because the company never received the summons or complaint because its office was largely unstaffed during the COVID-19 pandemic. More details here.
WHAT THIS MEANS, FROM CARLOS ORTIZ OF POLSINELLI: In Steffen, a U.S. district court in South Dakota granted Defendant Uplift, Inc.’s motion to set aside a default judgment that a small claims court entered against it. While Uplift did not file an answer in the small claims case, the district court found that service of the lawsuit was improper when it was made upon an individual who worked for the owner of the building where Uplift’s office was located. After it discovered that a default judgment had been entered against it, Uplift removed the case to federal court and filed a motion to set aside the default judgment under Fed. R. Civ. P. 55(c) and 60(b). Under Rule 55(c), a district court should consider whether the conduct of the defaulting party was blameworthy or culpable, whether the defaulting party has a meritorious defense, and whether the other party would be prejudiced if the default were excused. While the court acknowledged that Uplift’s website directed that all legal correspondence should be mailed to an address that had been largely unstaffed for some time, the court did not find that Uplift was blameworthy or culpable despite service of the lawsuit having been made to the mailing address on its website but to an employee of the building’s owner. Because Uplift filed the motion to set aside within days after it discovered that a default judgment had been entered against it and the small claims case had been pending for less than a year, the district court also reasoned that the plaintiff would not be prejudiced if Uplift’s motionwas granted. The court found that Uplift provided evidence of a meritorious defense, including that it was not subject to the FDCPA, which was the basis for the lawsuit, because it was the original creditor of the underlying debt. This case provides a good reminder to businesses to review their internal procedures for receiving mail and to have personnel properly trained to identify legal correspondence and to designate individuals who should be notified of that mail within a reasonable amount of time.
Draft Medical Debt Collection Bill Circulating in Colorado
A bill is being circulated in the Colorado legislature — which is also backed by the state’s Attorney General — that would cap the interest rate on medical debt, establish requirements on medical debt payment plans, and make violations of surprise or balance billing laws a deceptive trade practice, among other provisions. More details here.
WHAT THIS MEANS, FROM MAKYLA MOODY OF GREENBERG SADA & MOODY: Two separate bills have been introduced in Colorado targeting medical debt collection. One, SB23-093, is backed by the Colorado Attorney General, and seeks to impose onerous requirements on debt collectors. This includes limiting debt collectors’ ability to bring suit in their own name, removing the writing and timing requirements on consumer requests for verification, requiring debt collectors to answer all verification requests (oral or written) within 30 days, increasing the items needed by debt collectors to verify debt, placing requirements and limitations on payment arrangements, and slashing the interest rate on medical debts. The other bill, HB23-1126, which is backed by a progressive policy group, seeks to eliminate credit reporting on all consumer debts while imposing obligations on all debt collectors to advise consumers that medical debts cannot be factored into the credit score in all communications with consumers. Local industry representative are engage on these bills, but more support from the medical community is desperately needed. Committee hearings on both bills are expected to be scheduled next week and stakeholder meetings are being held this week. We encourage our industry colleagues to join our efforts to fight this bad legislation and help to get medical professionals involved. For more information, please reach out to Colorado’s Local ACA chapter or the Colorado Creditors Bar Association.
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.