Maybe there wasn’t a “Hunstein” or a “Facebook” in 2023 that everyone will remember, but there was still a lot of meaningful caselaw that came out of the courts last year. Taking a step back from the ins and outs of each individual ruling, AccountsRecovery.net asked a number of legal and compliance experts for the ruling or rulings that they will remember most from 2023. Here is what they said:
Manny Newburger, Barron & Newburger
I would suggest that what should be most impactful on the ARM industry from 2023 is a series of cases with a common theme – rejection of the CFPB’s interpretation of statutes that it enforces. In a series of cases, courts rejected the CFPB’s allowance of undated model validation notices, not even bothering to conduct a Chevron analysis to reach that conclusion. And in CFPB v. Townstone Financial (now fully briefed and argued to the Seventh Circuit), the district court did a Chevron analysis and rejected the CFPB’s interpretation of the Equal Credit Opportunity Act, showing that even when the conduct at issue is offensive and obnoxious, the CFPB’s “end justifies the means” approach to statutory interpretation will not necessarily succeed.
But the case that most got my attention was the Texas suit brought by the American Bankers Association and the Chamber of Commerce to challenge changes to the CFPB’s exam manual. In that case the district court applied the Major Questions doctrine to hold that the CFPB exceeded its authority in equating disparate impact with UDAAP. The case is significant not just for the CFPB’s loss but because the holding is not dependent on the outcome of the fight over the CFPB’s funding structure in the CFSA case that has been argued to the Supreme Court. Even if the Court reverses the Fifth Circuit’s decision and holds that the CFPB’s funding structure is constitutional, the analysis from the ABA’s case provides an alternative (and possibly stronger) basis on which to challenge CFPB interpretations that overreach.
Stefanie Jackman, Troutman Pepper
One of the most significant trends impacting the accounts receivable industry in 2023 was the ongoing attack on past due furnishing, particularly for medical debt. A variety of proposals seeking to curtail different aspects of delinquent account furnishing were introduced at both the federal and state levels, a substantial number of which ultimately were signed into law. In addition, furnishing-related issues was a mainstay of CFPB bulletins, guidance, advisory pieces, and consent orders throughout the year. On the litigation front, the Ninth Circuit Court of Appeals became the most recent circuit court of appeals to endorse narrowly construing FCRA preemption to uphold a state collection law curtailing furnishing activities. See Aargon Agency, Inc., et. al v. O’Laughlin, No. 22-15352 (9th Cir. Jun. 15, 2023). The Ninth Circuit’s opinion followed a similar position being adopted last year by the First Circuit in upholding a Maine law constricting medical debt reporting. See CDIA v. Frey, No. 20-2064 (1st Cir. 2022). And lawsuits asserting an evolving theory of liability against debt collectors based on the furnishing of credit information continued to gain momentum in 2023. These hybrid consumer claims typically assert violations of the FDCPA for multiple or ongoing tradeline disputes and attempt to sidestep the FCRA’s threshold requirement that the consumer submit their dispute to a consumer reporting agency before filing a lawsuit. In general, these lawsuits essentially challenge the ability of the available Metro 2 Compliance Condition Codes to adequately convey a consumer dispute under the FDCPA, which states that “the failure to communicate that a disputed debt is disputed” may be a “false, deceptive, or misleading representation” in connection with the collection of a debt under 15 U.S.C. § 1692e(8). I expect these challenges to continue forward in 2024, as receivables industry members continue to search for effective, compliant, and cost-effective solutions to remain compliant with ever-evolving law and regulatory expectations.
Dale Golden, Martin Golden Lyons Watts Morgan
From my perspective, the rulings with the biggest impact on our clients were those involving the CFPB’s “Model Validation Form” under Reg F. The MVF was supposed to provide a “silver bullet” for collection agencies. Yet some agencies were successfully sued for not including a date on their versions of the letter, despite the fact that the CFPB’s MVF didn’t contain a date and the Bureau specifically indicated that the inclusion of a date was optional. What’s worse, some judges ruled that the “safe harbor” provision of Reg F related to the MVF only shields debt collectors from regulatory violations and not FDCPA violations. While these rulings were unfortunate, the good news is that consumer attorneys haven’t seemed very interested in pursuing litigation against agencies that use the MVF, perhaps because they don’t believe their client suffered a “harm” sufficient to create Article III jurisdiction in federal court.
Jessica Klander, Bassford Remele
I’m going to cheat a bit here and say that the biggest “case” in 2023 was actually the CFPB’s enforcement action against Phoenix Financial Services, LLC. Looking back on 2023, I think it’s fair to say that the bulk of litigation against our industry has been asserted under the FCRA and what constitutes a “reasonable investigation.” Much of the increase in FCRA claims is undoubtedly due to the sharp decline of FDCPA claims in the wake of Regulation F. But I think another reason there has been an increase in FCRA-reasonable-investigation claims is due to the CFPB’s June 2023 enforcement action against Phoenix Financial Services. In that action, the CFPB concluded that Phoenix violated the FCRA by failing to conduct reasonable investigations of consumer disputes. The CFPB based its conclusion on Phoenix’s alleged “lack of documentation” regarding the debts, failing to obtain “additional documentation” about the disputed debts in its investigations, and “insufficient” policies and procedures concerning dispute investigations. Ultimately, the CFPB determined that merely matching consumers’ personally identifying information against its own information was insufficient and amounted to a “circular and cursory review” which assumed (rather than investigated) the accuracy of the information furnished. The CFPB’s interpretation of what constitutes a “reasonable investigation” certainly suggests that something more than verifying the furnisher’s internal documentation is required, irrespective of the nature of the dispute. That interpretation arguably led to more lawsuits testing the case law interpreting the scope of a reasonable investigation under the FCRA. Unfortunately, we don’t have a clear answer to that question and I suspect we will see a lot more litigation on that issue in the years to come.