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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.
Ninth Circuit Sides With Defendant in FCRA Permissible Purpose Case
In a case that was defended and argued by Troutman Pepper, the Ninth Circuit Court of Appeals yesterday upheld a summary judgment in favor of a defendant that was accused of violating the Fair Credit Reporting Act by obtaining credit reports on individuals without a permissible purpose. More details here.
WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: This Ninth Circuit decision is a very good result, but not completely unexpected. In Marino, et al. v. Ocwen Loan Servicing LLC, the sole question on appeal was whether the defendant “willfully” violated the FCRA when it obtained the plaintiffs’ credit reports after their mortgage loans had been discharged in bankruptcy. A favorable ruling on this question was anticipated, because the Ninth Circuit Court of Appeals previously held in a similar (but unpublished) case that there was no willfulness under almost identical circumstances. See Vanamann v. Nationstar Mortgage, LLC, 735 F. App’x 260 (9th Cir. 2018).
However, in Marino, the Ninth Circuit did not merely hold that there was no willfulness. On its own initiative, the Ninth Circuit went the extra mile to decide whether the defendant had violated the FCRA at all — and held that the defendant had not done so merely by obtaining the consumer’s credit report after a discharge in bankruptcy was obtained on a mortgage loan. As a result, we now have a “published” Ninth Circuit decision holding that there is a “permissible purpose” to obtain a credit report even after a bankruptcy discharge, in many (but perhaps not all) circumstances.
It is worth noting that the Ninth Circuit’s Marino decision was written by Judge Lynn S. Adelman, sitting on the Ninth Circuit panel by special designation. Judge Adelman is currently a Federal District Court Judge for the Eastern District of Wisconsin. Sitting on a Federal Court of Appeal by special designation means that he sits on the Ninth Circuit Court of Appeals panel for a limited time period or for a particular case assignment.
Based on this writer’s personal experience and humble opinion, Judge Adelman has issued industry-friendly FCRA/bankruptcy decisions in the Eastern District of Wisconsin in the past. He has now brought his industry-friendly legal acumen to the Ninth Circuit, which is a welcome boost to the defense of FCRA cases here on the specific issue raised on appeal. Appointing Judge Adelman to sit on the Ninth Circuit temporarily as a “guest”, so to speak, to rule on this case … brilliant. The decision that he issued … Priceless. This now shuts the door in cases pending in the Ninth Circuit (Yep, that means all nine states that sit in the western part of US) regarding whether there was a permissible purpose to obtain a consumer’s credit report after a debt had been discharged in bankruptcy. Note to all: We need more common sense rulings such as this.
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CFPB Issues ANPR on Consumer Access to Financial Records
The Consumer Financial Protection Bureau yesterday started the rulemaking process seeking to codify consumers’ rights to their financial records. In releasing an Advanced Notice of Proposed Rulemaking, the CFPB is continuing a process that it started several years ago to help it understand how it should implement such a rule, which it is required to do under the Dodd-Frank Act. More details here.
WHAT THIS MEANS, FROM KIM PHAN OF BALLARD SPAHR: Developments in what the CFPB characterizes as the “authorized data access ecosystem” may be outpacing the CFPB’s rulemaking efforts, which began back in 2016 with the CFPB’s initial request for information on this topic. In recent years, many of the participants in this market — including traditional financial institutions and non-bank “fintech” companies — have started to move away from screen scraping tools and are exploring tokenized access through application programming interfaces (APIs). As the industry develops its own self-regulatory standards, it may be prudent of the CFPB to permit these advancements to continue without regulatory interference. However, areas may emerge where large, established financial institutions (typically the holders of consumer data) may reach an impasse on providing access to new, innovative data aggregation companies. In these areas, the CFPB rulemaking may be valuable to resolve any uncertainty over who bears the liability if challenges arise involving issues such as data security, consumer privacy, data minimization, consumer control and transparent use of consumer data, data accuracy, accountability and liability for errors and other problematic transactions, and the mechanisms by which consumer-permissioned parties access records.
Judge Denies MTD in FCRA Case Over Lack of Investigation
A District Court judge has denied a defendant’s motion to dismiss after it was sued for violating the Fair Credit Reporting Act because it did not perform a reasonable investigation into a dispute even though the plaintiff disputed the debt 42 times with three different credit bureaus. More details here.
WHAT THIS MEANS, FROM MIKE FROST OF MALONE FROST MARTIN: The Court in Ardoin v. Citibank N. A. et al., Case No. 2:20-cv-01088_JDC-KK (W.D. LA), addressed the issue of whether the FCRA’s two-year statute of limitations is restarted each time a consumer disputes an account, where the dispute is the same as the original consumer dispute. In this case, the consumer disputed the account 42 times, which the consumer claims should have triggered a notification from the bureaus to the creditor (data furnisher) and then an new and independent investigation would be required by the data furnisher even though the dispute was the same as the prior 41 disputes. Many other Courts have reviewed this same scenario under the FCRA and the majority rule is the consumer cannot restart the limitation clock under the FCRA by simply resending the same dispute over and over. To do so would allow the consumer to indefinitely extend the limitations period by simply sending another complaint letter to the credit reporting agencies. Despite well-settled case law, the Ardoin Court denied Citibank’s Motion to Dismiss and agreed with the position that new disputes create a new duty upon Defendant to investigate, and each failure to do so creates its own limitation period. It will be good to follow this case as it transpires to see if the defendant continues to pursue the defense of this claim through additional motion practice or trial. Clearly, this outcome provides direction from this one district court that follows no reasonableness in the law nor in practical application of the regulation.
Judge Grants MTD in FDCPA Case Over Lack of Standing
In a case that was defended by The Echols Law Firm, with local counsel provided by Charles McHale of Golden Scaz Gagain, a District Court judge in Florida has granted a defendant’s motion to dismiss after it was sued for violating the Fair Debt Collection Practices Act because the plaintiff claimed to have been misled by a disclosure in a collection letter, but failed to explain how she was impacted by said omission. More details here.
WHAT THIS MEANS, FROM SARAH DEMOSS OF PREMIERE CREDIT OF NORTH AMERICA: The Ruffin case is the kind of case the industry was hoping to see more of after Spokeo was handed down. However, the Ruffin opinion appears to dismiss the matter more on a pleading technicality than anything substantive. I could see “frequent flyer” consumer attorneys reading this case to help them better beef up the injury statement in their complaints, even if no injuries actually occurred, instead of seeing this case as a deterrent for bringing frivolous matters. Regardless, it is nice to see another common sense approach by a judge, and we should take any win we can get in 2020 without complaint.
CFPB Reorg Could Lead to Fewer Investigations of Collectors: Report
The Consumer Financial Protection Bureau is reorganizing its supervision and enforcement units which could lead to less scrutiny of smaller companies in the financial services industry, including debt collectors, according to a published report. More details here.
WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: In a memo to CFPB staff last week, a top official working under CFPB Director Kathy Kraninger announced a reorganization meant to streamline how enforcement decisions are made. The reorganization was apparently a result of infighting within the agency between Supervision and Enforcement divisions. Specifically, Bryan Schneider, the CFPB’s Associate Director of Supervision, Enforcement and Fair Lending, said in the memo and accompanying documents to staff that the changes will address tensions between the Bureau’s two main offices of enforcement and supervision. “To be candid, we spend too much time in [Supervision, Enforcement, and Fair Lending] arguing over which institutions to examine or investigate and, over the years, this has deteriorated morale,” Schneider wrote in the messages to staff on Oct. 14.
As background, the CFPB was created as a somewhat unique regulator, combining the traditional tools of prudential regulators like the Federal Reserve or Office of the Comptroller of the Currency (supervision and examination) and those of law enforcement agencies like the Federal Trade Commission (investigation and litigation). The CFPB’s enforcement jurisdiction is much broader, however, than the defined set of covered persons over whom it has supervisory jurisdiction, extending to any company or individual that is subject to one of eighteen different statutes or who offers or provides a consumer financial product or service.
Ultimately, supervision and enforcement are just different legal authorities by which the agency can gather information from institutions subject to its jurisdiction to determine if legal violations occurred. It appears that the reorganization truly is an effort to streamline and focus what is now the SEFL (the new Division of Supervision, Enforcement and Fair Lending). And while it is correctly been described as taking some power away from the traditional independence of the CFPB’s Enforcement office, it is not clear that the efforts are to weaken the reach or power of the CFPB. Of course, Kraninger likely will not maintain her position if the election shifts the power.
Judge Denies MTD in FCRA Case Over Discharged Debt
A District Court judge in Missouri has denied a defendant’s motion to dismiss after it was sued for violating the Fair Credit Reporting Act, ruling that an individual does not have to notify a furnisher or credit reporting agency of a discrepancy in his or her credit report and allow enough time for the dispute to be investigated before a lawsuit can be filed. More details here.
WHAT THIS MEANS, FROM JUNE COLEMAN OF MESSER STRICKLER: Gibson v. Experian Information Solutions, Inc. is a cautionary tale for the ARM industry. It is important to remember that this is a case against a credit reporting agency, and not a furnisher of credit reporting information, in that there are different obligations under the Fair Credit Reporting Act (FCRA) for credit reporting agencies and for furnishers. But the Gibson case also stands for the proposition that courts disfavor motions to dismiss, and that such motions may be denied because the Court does not want to decide an issue that might kill a legitimate case before discovery has fleshed out the issues. And when a court denies a motion to dismiss, it may create a hurdle to a subsequent motion addressing the same issue after discovery has occurred.
In Gibson, the debtor had filed for bankruptcy, and the bankruptcy had discharged her debts. Five months later, the debtor reviewed her credit report and noted that one of the discharged debts, a payday loan, was still on her credit report, and that the credit report also noted that the debtor’s bankruptcy was completed and debts had been discharged. Notably, the other two credit reporting agencies did not list the debtor’s discharged payday loan on her credit report. And Experian had agreed in a class action settlement agreement to establish reasonable procedures for systematically correcting information pertaining to Chapter 7 bankruptcies, such as the information in the instant case.
In the case of inaccurate credit information furnished to a credit reporting agency, the debtor would have been obligated to report this dispute to the credit reporting agencies, who would have been required to report the dispute to the furnisher in an ACDV, and then the furnisher would have been required to investigate and respond to the credit reporting agency, correcting the erroneous information or reporting that the information was correct. The credit reporting agency argued that the debtor also had an obligation to report the dispute to the credit reporting agency and allow the credit reporting agency to review and correct, before liability could attach to the credit reporting agency.
The Gibson Court explained that the FCRA does not require an initial dispute prior to holding a credit reporting agency liable for failure to follow reasonable procedures to ensure accuracy. But given that the discrepancy of reporting that the bankruptcy was complete and debts were discharged, on the one hand, and reporting that the payday loan, which was listed in the bankruptcy schedules, was still owing, on the other hand, gave the Gibson Court sufficient reason to deny the motion to dismiss, at this stage in the litigation.
It is this part of the decision that the ARM industry should take note of. This is another case that highlights the importance of looking at all information available to a collection agency or creditor who furnishes credit information when investigating a dispute. This is true, whether the issue is the discharge of debts in bankruptcy or whether a debt is actually owed in the first instance. And this rule of thumb applies outside the credit reporting context, to other Fair Debt Collection Practices Act issues, such as addressing a dispute.
And the Gibson case is also a reminder that settlements that set forth a future standard of conduct, whether through private litigation or a CFPB investigation, may establish standards that go beyond the requirements of the FCRA or the Fair Debt Collection Practices Act. The credit reporting agency did argue that the requirements set forth in the settlement agreement did not apply to the debtor because the account fell within several exceptions to the agreed to automatic scrubbing. Nonetheless, the Court noted that while the prior settlement agreement might set a standard as to what the credit reporting agency should have done, at this early stage, it was better to have that issue fleshed out further before the Court made a substantive ruling on the legal issues. This is a good reminder to be aware of any injunctive relief that the collection agency or creditor may have agreed to in the past.
It will be interesting to see where this case goes from here, and whether the credit reporting agency will end up winning the legal issue of liability sometime in the future.
Judge Approves $633k Settlement in FDCPA Case
A District Court judge in New York has approved a class-action settlement in a Fair Debt Collection Practices Act case that will see the defendant pay $633,500 in debt relief, cash relief, attorney’s fees, and an award to the named plaintiff. More details here.
WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: Two issues arise in this case we should address: (1) the collector allegedly sought relief not requested by the creditor; and (2) assignments of judgements were improper. As to the first issue, a claim like this can be easily defeated language exists in the creditor and collection agency. That agreement should specify the creditor authorizes the collector to attempt to collect any and all assets legally available. This type of language inoculates both parties from exposure.
The second issue highlights the dangers of attempting to collect purchase debt. It also emphasizes the need to make sure proper documentation is in place that conveys ownership of the debt to the company placing the account with the agency. While collection agencies do not need to meet the “meaningful review standard” like a collection attorney, more review should go into purchased debt accounts to prevent violations that can result in a class action depending upon the number of accounts. Checking a small sample set is most likely sufficient to ensure a class-wide problem does not exist. As with a lot of things in this industry, you cannot catch all problems, but you need to focus on the ones that could result in class action lawsuits and/or large recoveries.
Judge Grants MSJ For Defense in FDCPA Case Over Multiple Addresses in Letter
In a case that was defended by Malone Frost Martin, with local representation from Lippes Mathias Wexler Friedman, a District Court judge in New York has granted a defendant’s motion for summary judgment in a Fair Debt Collection Practices Act case, ruling the plaintiff lacked standing to argue that multiple addresses in a collection letter were misleading because the plaintiff admitted during a deposition to never reading the letter. More details here.
WHAT THIS MEANS, FROM PATRICK NEWMAN OF BASSFORD REMELE: Just last week I wrote in this space that FDCPA litigation and reality are not always on speaking terms. But this case brings us a refreshing change of pace! In fact, it’s a much needed double-dose of real-world perspective: (1) you don’t read the letter, you can’t be “harmed” for purposes of standing; and (2) the least sophisticated consumer is capable of making the basic logical deduction that a mailing address located right next to the g-notice is in fact the address to which disputes should be mailed. Love to see a commonsense application of constitutional doctrines and the FDCPA in the same order.
Notably, the plaintiff in this case sunk his own ship, standing-wise, during his deposition. This is not an unheard-of phenomenon. The rise is positive standing decisions like this one underscores the utility of deposing your plaintiff using intelligent, probing questions (like those posed in this case) regarding the plaintiff’s understanding of the claim and the nature of their alleged harm.
Take home message: consider whether putting the plaintiff in the hotseat could undermine the claim before opting to settle.
Plaintiff in Incentive Award Case Files En Banc Petition
As first noted by Eric Troutman at TCPAWorld.com, the plaintiff in an Appeals Court decision that ruled incentive payments for the named plaintiff in a class-action lawsuit are illegal under Supreme Court precedent dating back more than 130 years has filed for an en banc hearing before the Eleventh Circuit. More details here.
WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW FIRM: A new challenge has been raised to the Eleventh Circuit’s September holding that class representative incentive awards are per se unlawful. See Johnson v. NPAS Solutions, LLC, 975 F.3d 1244 (11th Cir. 2020). Should a majority of circuit judges (who are active and not disqualified) grant Johnson’s recently filed Petition for Rehearing En Banc, the panel opinion will be vacated, and briefing will begin anew for consideration by the entire court.
For those of you that missed the Eleventh Circuit’s landmark ruling, let’s recap. Johnson filed a putative class action TCPA lawsuit in the Southern District of Florida in March 2017, and reached a class settlement agreement around eight months later. The case and the settlement terms were typical, with the defendant to create a settlement fund in excess of $1 million to compensate over 9,500 settlement class members, and Johnson to receive an incentive award of $6,000. A single class member objected, arguing that the incentive award was too large and unlawful. The district court disagreed and approved the settlement. The objector appealed in June 2018, and oral argument was held on June 12, 2020.
On September 17, the Eleventh Circuit issued its shockwave of an opinion, recognizing that class representative incentive awards are commonplace, but nevertheless holding that such awards are strictly prohibited. The opinion was not unanimous, with the Honorable Judge Beverly B. Martin authoring a strong and well-reasoned dissent on the issue.
It will be interesting to see how this challenge unfolds and, if the petition is accepted, who joins the fight. Several public interest advocates already have appeared in the case since the October 22 petition was filed. That isn’t surprising, as Johnson is not just a TCPA ruling, and its consequences will ripple through virtually every industry, potentially causing the greatest harm to consumers with legitimate small claims appropriate for class treatment. With no hope of compensation for their time and efforts, it remains to be seen how many individuals will raise a hand to volunteer for the serious responsibilities that come along with championing the rights of others.
Judge Grants MSJ For Defense Over Lack of Itemization in Letter
In a case that was spotlighted by Barron & Newburger, a District Court judge in Illinois has granted a defendant’s motion for summary judgment after it was sued for violating the Fair Debt Collection Practices Act by not itemizing a debt in the initial collection letter, but doing so in a subsequent letter, which the plaintiff claimed was misleading. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: “As the name itself suggests, the Fair Debt Collection Practices Act addresses the fair collection of a debt, not the validity of that debt.” Vogel v. McCarthy, Burgess, & Wolff, Inc., 2020 U.S. Dist. LEXIS 193781, * 33. (Emphasis in the original) My new favorite quote.
Vogel claimed that MBW failed to breakdown the components of the amount identified as the debt in its initial letter. Cutting to the chase, the court ruled that the line of cases emanating from Fields v Wilber Law Firm stand for the “limited proposition that debt collectors must itemize any collection-related fees, including attorneys’ fees” and not the amount presented as the debt by the creditor.
Of note, Vogel’s claim (that the amount needed to be broken down) raised a “factual allegation.” Thus, the Court denied MBW’s initial motion to dismiss advising that with some factual development the finding might well be different. Since a breakdown is only required when subsequent monies have been added to the debt, and at that point it had not yet been shown no amount was added.
By way of background, MBW was retained by Payless the car rental company sought to collect a balance due from Vogel’s rental agreement with it. The original rental agreement was for only two days, premised on a two-day trip from Dallas to Chicago at an estimated cost of $592.
However, Vogel ended up returning the car 37 days later in Dallas with a “mangled side view mirror.” Suffice it to say the final bill to Vogel was a bit higher, $3,717.88. When Vogel received a detailed itemized invoice from Payless she called in to complain and saying she “would like to know why [it] is she’s been charged this amount for the rental if she brought the vehicle back on time and there was no issues with it.” (Give Vogel credit for “hutzpah”) She ended up sending in $681.05 with no explanation after additional correspondence from Payless. Payless then sent the balance, $3,063.83 to MBW to collect. After MBW sent the initial letter, Vogel asked for validation and MBW sent a second letter, this time attaching the detailed Payless invoice which showed the all the various charges that made up the original balance and included the $681.05 credit for the payment. So, Vogel did in fact get her breakdown, however not with the initial letter and thus she found an enterprising attorney to sue on her behalf.
The problem here for MBW was to get that invoice before the Court, to show that MBW added nothing to the amount of the debt. Which meant it did not have to explain how the debt was calculated. From a reading of the Court’s decision, it appears that the Plaintiff did not contest the authenticity of the Payless invoice. Suggestion – contact Plaintiff’s counsel and provide the invoice and get Counsel to consent to moving forward on stipulated facts so the only question is the legal one. In counsel refuses asking for a conference with the Court may help as moving in this direction would streamline the litigation and avoid the typical discovery war.
Getting back to the decision itself, Judge Steven Seeger addressed the issue of the underlying debt stating the “FDCPA declines to invade the ken of contract law to determine the rights and responsibilities of Vogel and Payless under their rental agreement.”
It would be both burdensome and significantly beyond the Act’s purpose to
interpret § 1692g(b) as requiring a debt collector to undertake an investigation into whether the creditor is actually entitled to the money it seeks. Section 1692g(b) serves as a check on the debt-collection agency, not the creditor.
Helpful language.
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