Friday, July 20, 2018

Statement that Debt Collector Would Call Overshadows 1692g Notice

A recent case from a Wisconsin district court serves as a reminder that the best approach to a 1692g notice is that it stands alone.  In Maniaci v. The Receivable Management Services Corp., 2018 U.S. Dist. LEXIS 109087 (E.D. Wisc. June 29, 2018), the agency’s 1692g notice included a statement that

If you have not yet been contacted by an RMS representative, you will be receiving a call to bring this matter to a resolution.  Should you receive this letter after a discussion with our representative, we thank you for your cooperation.

Maniaci at *2. 

In determining the collection agency’s motion to dismiss, the court considered whether the above statement overshadowed the 1692g notice, leading the unsophisticated consumer to believe he could wait until he received a call to dispute the debt. 

The agency contended that the statement did not overshadow the remainder of the notice because it “clearly and unequivocally directs the consumer to provide the dispute in writing.”  Id. at * 5.  The court, however, disagreed.  In doing so, the court made two points.  First, the court concluded that a statement that the debt collector would be calling might lead the unsophisticated consumer to conclude that he would be receiving the call within the thirty-day debt validation window, at which time he could “bring this matter to a resolution” by disputing the debt.  Second, the court found the debt collector’s contention that it did not make calls within the thirty-day validation troubling because it presented the possibility that consumers would forfeit their rights under §1692g. 

Despite denying the motion to dismiss, however, the court was quick to point out that the threshold for motions to dismiss is high because “dismissal is only appropriate in cases involving statements that plainly, on their face, are not misleading or deceptive.”

The key take away from this, of course, is that 1692g notices are best when they contain no extraneous language which might obscure the notice.

Tuesday, July 10, 2018

Aftershocks Being Felt: The TCPA After ACA International v. FCC

The aftershocks from the D.C. Circuit’s opinion in ACA International v. FCC are beginning to be felt.  In ACA International, the D.C. Circuit set aside several elements of the FCC’s 2015 Declaratory Ruling.  A recent opinion by the Third Circuit demonstrates some of the repercussions of that decision.

In Dominguez v. Yahoo, Inc., 2018 U.S. App. LEXIS 17436 (3rd Cir. June 26, 2018), the Third Circuit affirmed a judgment in favor of Yahoo despite the fact that the consumer received 27,800 unwanted text messages.  In Dominguez, the consumer purchased a cell phone with a reassigned number.  The prior owner of the number had a subscription with Yahoo’s Email SMS Service which sent a text every time the prior owner received an email.  Because the prior owner of the number never cancelled the subscription, Mr. Dominguez became the recipient of 27,800 unwanted text messages.  Mr.  Dominguez filed a putative class action against Yahoo asserting violations of the TCPA.  The problem?  The district court concluded that the Email SMS Service did not qualify as an automated telephone dialing system (“ATDS”) because it did not have the capacity to store or produce telephone numbers using a random or sequential number generator.  On remand from a prior appeal, the consumer amended his complaint to take advantage of the FCC’s 2015 Declaratory Ruling and alleged that the Email SMS Service had the “latent or potential capacity” to store or produce telephone numbers using a random or sequential number generator.  The trial court again concluded that the Email SMS Service did not qualify as an ATDS.

On appeal, the Third Circuit relied upon the D.C. Circuit’s holding in ACA International to support its conclusion that the statutory definition of an ATDS requires the present capacity to function as an autodialer. In doing so, the court relied upon two key findings: first, that the Email SMS Service only sent messages to numbers that had been individually and manually inputted into its system by a user; and secondly, that the messages were sent because the previous owner of the message affirmatively opted to receive them and not because of a random number generation.  Dominguez, *9. 

The opinion is a positive for the ARM industry because it demonstrates the potential impact of the D.C. Circuit’s decision and will likely to be followed by others that will more narrowly define the meaning of an ATDS.

Monday, April 16, 2018

Deeming the Tracking of a Debtor’s Every Move “Impractical,” District Court Finds a Bona Fide Error and Dismisses FDCPA Action Against Law Firm

A district court has dismissed an FDCPA action based on a bona fide error after reviewing the collection firm’s extensive pre-suit procedures and determining they were reasonably calculated to avoid any errors. Guynn v. Blatt, Hasenmiller, Liebsker & Moore, LLC, 2018 U.S. Dist. LEXIS 43032 (S.D. Ind. March 14, 2018).   

In 2006, Mr. Guynn, opened a personal credit card with Bank of America. A few years later, he purchased a home in Indianapolis, Marion County, Indiana, and lived there full time until he was transferred by his employer to a job in Edwardsville, Illinois in 2014. Due to the transfer, Guynn moved out of the property, but continued to own it, and arranged for his mail to be delivered to a P.O. Box in Marion County, Indiana.

Guynn defaulted on his Bank of America credit card in 2013, and in 2016 the account was referred to a law firm for collection. Two initial notices were sent to Mr. Guynn (one by defendant's predecessor in interest and one by defendant) and after receiving no response, defendant filed a collection suit in Marion County, Indiana.  In response to the debt collection action, Guynn filed this suit, alleging the law firm violated of § 1692i of the FDCPA because the suit was filed in Indiana rather than in Illinois where he was currently residing for his job. As an affirmative defense, the law firm asserted bona fide error. 


Policies and Procedures Implemented to Insure Compliance with the FDCPA

In support of its bona fide error defense, the law firm submitted its policies and procedures regarding its pre-suit procedures. 

Initial Demand 

After receiving an electronic download of the account, the law firm employed a “multi-step process to ensure compliance with” the FDCPA, including;
·     Utilizing an electronic interface to receive new case information and to store it directly onto its database, eliminating the possibility of clerical mistakes;
·     Sending the information to its Data Operations Department, which was responsible for drafting initial written notice letters; and
·     Requiring its attorneys to:
o   review and compare the information in the initial written notice with the information in the electronic download,
o      review the account’s scrub history,
o      review the account for disputes,
o      confirm the consumer was not represented by counsel, and
o      verify the listed address against the information in the firm’s system.

Pre-Suit Review

Prior to filing suit, the law firm employed a checklist to ensure that all FDCPA requirements had been met. Specifically, the law firm:

·     Verified that the PO Box was the consumer’s address of record,
·     Reviewed the County assessor’s website and property records to verify the consumer owned the Indiana real estate,
·     Verified the Indiana property was listed on Guynn’s Bank of America statements and most recent Change of Terms, and
·   Verified that through the US Postal Service that the PO Box still belonged to the consumer.

The Court’s Decision

Without reaching the question of where Guynn “resided”, the court found that any failure by the law firm to file the collection action in the proper venue was a result of a § 1692k(c) bona fide error.

In so finding, the court keyed in on a number of facts, including:

·    The law firm never received any information indicating that Guynn moved outside of Marion County;
·       Neither of the two letters sent to the P.O. Box were returned as undeliverable;
·     The law firm’s pre-suit investigation confirmed that Guynn still owned the Indiana Property; and
·        The law firm’s investigation also confirmed that the PO Box was registered to Guynn.

Moreover, the court noted, the law firm “could not find any connection between Guynn and Edwardsville, Illinois during the relevant times even after filing the Debt Action,” and as such, the court found any violation of § 1692i to be a “genuine, unintentional mistake.”

Guynn argued that the law firm failed to employ sufficient procedures to ensure that the collection action was filed in the correct venue, suggesting the law firm could have called him, sent a letter to the P.O. Box requesting his current address, or hired a private process server to confirm his residence. The court turned away these suggestions, noting that the FDCPA “does not require debt collectors to take every conceivable precaution to avoid errors,” but rather only requires “reasonable” procedures. “In fact,” the court surmised, “given the current economic climate in which businesses often demand greater fluidity from their employees in terms of travel and temporary relocation, it would be impractical to require debt collectors to track each debtor’s locations in order and to know where debtors, like Guynn, may be temporarily living at any given time.”  Id. at *16-17. Instead, the court found that the law firm took reasonable steps prior to filing suit to ensure compliance with §1692i, specifically noting the following:

(1) reviewing all of the information it received from Bank of America regarding Guynn's credit card account, including Guynn's address of record, billing statements, and most recent Notice of Change in Account Terms documentation; (2) utilizing RevSpring (a third party letter vendor) and the NCOA database to determine Guynn's proper address; and (3) researching Guynn's current property ownership information through the Marion County Assessor's website and the Indiana Property Record Cards.


Application of Guynn

Guynn is a thorough and well-reasoned opinion regarding bona fide errors in collection lawsuits. The opinion also recognizes the difficulty – and impracticality – of tracking a transient debtor’s every move before filing a collection lawsuit. We recommend that collection firms look to Guynn as a representative example of the kind of policies and procedures that will pass FDCPA bona fide error defense muster.  

Tuesday, April 10, 2018

District Court Holds that the Verbiage, “Settlement Offers May Have Tax Consequences”, in a Debt Collector’s Form Collection Letter was not in Violation of the FDCPA

By: Hannah D. Choe


The Western District Court in New York has held that a debt collector did not violate § 1692e(10) of the FDCPA.  The Court held that a form collection letter with offers of settlement did not “use… false representation or deceptive means to collect or attempt to collect [a] debt” when the form letter contained language which stated, “[t]hese settlement offers may have tax consequences” following Defendant’s three offers to settle Plaintiff’s debt for less than the full amount that was due and owing.  


Specifically, Plaintiff (the consumer) found issue with the following language in Defendant’s (the debt collection agency) form collection letter:


“These settlement offers may have tax consequences. We recommend that you consult independent tax counsel of your own choosing if you desire advice about any tax consequences which may result from this settlement. FRS is not a law firm and will not initiate any legal proceedings or provide you with legal advice. The offers of settlement in this letter are merely offers to resolve your account for less than the balance due”. 


Plaintiff alleged that the language regarding tax consequences was a false representation and/or deceptive because the statement “these settlement offers may have tax consequences” could be interpreted to mean that the mere extension of the offers, whether or not these offers were actually accepted by the consumer, may possibly create tax consequences to the consumer.


A number of district courts have previously dealt with nearly identical language to this current case. Other district courts determined that the statement “this settlement may have tax consequences” did not violate § 1692e. However, the difference between this statement and the language in the Rozzi case is that Defendant included the word “offer”. Plaintiff argues that “these settlement offers may have tax consequences” is a false statement because unaccepted settlement offers cannot possibly cause a consumer to incur tax consequences.


In order to determine whether Defendant violated the FDCPA, the Court applied the “least sophisticated consumer” standard. This standard looks through the lens of the least sophisticated consumer in its assessment of how a consumer would understand the communication. Avila v. Riexinger & Assocs., 817 F.3d 72, 75 (2d Cir. 2016). A collection letter “can be deceptive if [it is] open to more than one reasonable interpretation, at least one of which is inaccurate.” E.g., Easterling v. Collecto, Inc., 692 F.3d 229, 233 (2d Cir. 2012) (quoting Clomon v. Jackson, 988 F.2d 1314, 1319 (2d Cir. 1993)).  


With that said, the Court stated that while the “least sophisticated consumer… lacks the sophistication of the average consumer and may be naïve about the law,” the consumer would still be “rational, and possess[] a rudimentary amount of information about the world.” Arias v. Gutman, Mintz, Baker & Sonnenfeldt LLP, 875 F.3d 128, 135 (2d Cir. 2017). Additionally, the least sophisticated consumer is “willing[] to read a collection notice with some care.” Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360, 363 (2d Cir. 2005). This distinction is important because it helps protect the naïve consumer while preserving the concept of what is reasonable and thereby not subjecting debt collectors to arbitrary results on the grounds of bizarre or idiosyncratic interpretations of their collection notices.


The Court pointed out that immediately after the statement “[t]hese settlement offers may have tax consequences”, it is followed by, “[w]e recommend that you consult independent tax counsel of your own choosing if you desire advice about any tax consequences which may result from this settlement.” While it is arguable that based on technicality, it is an inaccurate statement to say that settlement offers may have tax consequences, it is clear that the author of the letter intended to convey that tax consequences may result from an accepted offer, thus an agreed upon settlement. As such, the Court chalked up Defendant’s collection notice to a sloppy and poorly written notice and that even the least sophisticated consumer would have read the entirety of the paragraph and understood that tax consequences would only attach once the offer has been accepted. Therefore, the Court found that although this one sentence was arguably inaccurate, Defendant did not violate the FDCPA when the letter was read in its entirety.


Implications of Rozzi 

The Rozzi Court’s holding that the inclusion of the term “offers” did not amount to a false representation or deceptive practice to collect a debt means that the Court will look at the language in a collection letter in its entirety to determine the reasonable interpretation of the least sophisticated consumer.  Although the hyper-technical reading of one sentence of an entire form letter may be inaccurate, the Court did not stretch to permit Plaintiff’s interpretation.  The collection letter read in its totality did convey that the tax consequences would only attach once an offer was accepted. Therefore, Plaintiff’s interpretation was unreasonable even based on the least sophisticated consumer standard. Therefore, as a matter of law, Defendant’s form letter did not violate § 1692e(10) of the FDCPA.



Hannah D. Choe is an attorney practicing in Smith Debnam's Creditors’ Rights and Collections Practice Group

Monday, April 9, 2018

Has Mulvaney Gone Too Far? A Look at the CFPB’s Semi Annual Report to Congress

The CFPB has issued its semi-annual report to Congress, leaving little doubt as to the agenda of Acting Director, Mick Mulvaney.  While the information contained in the actual report is largely inconsequential, it is Mulvaney’s opening message which should raise eyebrows of both consumer advocates and the consumer financial service industry.  Mulvaney quotes the Federalist Papers and draws on James Madison’s definition of tyranny when describing the CFPB’s Director (an accumulation of all powers, legislative, executive and judiciary in the same hands).  While scathingly describing the position he currently holds, Mulvaney blames Congress for creating an agency “primed to ignore due process and abandon the rules of law in favor of bureaucratic fiat and administrative absolutism.”    Citing the Bureau’s lack of accountability to any branch of government, Mulvaney includes a request that Congress amend Dodd Frank to:

  • Fund the Bureau through Congressional appropriations
  • Require legislative approval of major Bureau rules;
  • Ensure the Director is answerable to the President in the exercise of executive authority; and
  • Create an independent Inspector General for the Bureau.

By footnote, Mulvaney notes that the legislative proposals are his own and that no other officer or agency approved the legislative recommendations prior to submission.  Mulvaney is scheduled to appear before the House Financial Services Committee this week.

The proposal and the positions being advocated by Mulvaney should be of concern for both consumer advocates and the consumer financial services industry – particularly the second proposal.  Requiring legislative approval of all major Bureau rules essentially defeats the purpose of an agency delegated with rule making abilities if all such rules are to be subject to Congressional approval.  The debt collection industry, particularly, is clamoring for clarity as to how a statute adopted in the 1970s should be applied with today’s technology.  Agency rulemaking without the requirement of Congressional approval is a much more efficient means to provide that clarity if the positions of all stakeholders are fairly considered

Moving to the actual report itself, there is very little to report except that it acknowledges that the CFPB is still working towards a release of a proposed rules concerning debt collection.  Interestingly, it appears that the CFPB is now narrowing its debt collection focus to communication procedures and consumer disclosures and moving away from some of the other proposals contained in the original proposal. 

For those wondering, Mulvaney’s term as acting director is for 210 days but can be renewed and/or extended should Trump make a nomination for a permanent director prior to the expiration of that term.

Wednesday, April 4, 2018

DC Circuit Turns Away Healthcare Challenges to TCPA Declaratory Ruling

By Zachary K. Dunn

In ACA International v. Federal Communications Commission, 2018 U.S. App. LEXIS 6535 (2018), the DC Circuit rejected a series of challenges to the FCC’s 2015 Declaratory Ruling brought by Rite-Aid related to the partial-exemption to the prior-consent requirement for healthcare related calls. The Court rejected two separate arguments: first, that the Declaratory Ruling conflicts with HIPPA; and second, that the Declaratory Ruling’s exemption for “certain healthcare calls” but not others was arbitrary and capricious.

 Declaratory Ruling’s Partial Exemption for Healthcare Related Calls

The TCPA contains a prior-consent requirement for calls to wireless numbers, but permits the FCC to exempt from that requirement “calls to a telephone number assigned to a cellular telephone service that are not charged to the called party, subject to such conditions as the [FCC] may prescribe as necessary in the interest of the privacy rights this section is intended to protect.” 47 U.S.C. § 227(b)(2)(C).

During the rulemaking process which resulted in the Declaratory Ruling, the FCC was petitioned to exempt from the prior-consent requirement “certain non-telemarketing, healthcare calls” alleged to “provide vital, time-sensitive information patients welcome, expect, and often rely on to make informed decisions.” While the FCC found that calls “regarding post-discharge follow-up intended to prevent readmission, or prescription notifications” were in the public interest – and chose to exempt them from the prior-consent requirement – the FCC “fail[ed] to see the same exigency and public interest in calls regarding account communications and payment notifications.” It therefore did not exempt those calls from the TCPA’s prior-consent requirement. It was this partial exemption, which did not include exemptions for billing and payment notifications, that was challenged and ultimately upheld by the Court.

Conflict between Declaratory Ruling and HIPPA

In ACA International, Rite Aid first contended that by “restricting otherwise permissible HIPPA communications,” the Declaratory Ruling conflicts with another federal law. Under HIPAA regulations, covered entities and their business associates presumptively “may not use or disclose protected health information,” 45 C.F.R. § 164.502(a), but they are generally permitted to use or disclose that information “for treatment, payment, or health care operations.” Id. § 164.506(a).

At the DC Circuit, Rite Aid argued that that the partial exemption conflicts with HIPAA because it stops short of exempting billing- and account-related communications—i.e., ones “for . . . payment” and therefore conflicted with 45 C.F.R. § 164.506(a). The Court did not agree, and reasoned that while § 164.506(a)’s exclusion carves out an exception to civil and criminal liability for using or disclosing protected health information, it says nothing about the FCC’s “authority to exempt (or refrain from exempting) certain kinds of calls from the TCPA’s consent requirement.” Therefore, the Court held, “the [FCC] did not restrict communications that HIPAA requires be permitted to flow freely. It simply declined to make certain exchanges even less burdensome than they would have been by default.”

Whether the Partial Exemption is Arbitrary and Capricious

Rite Aid also contended that the Declaratory Ruling’s partial exemption for certain healthcare related calls, but not others, was arbitrary and capricious. Rite Aid made two arbitrary and capricious arguments.

First, Rite Aid argued that the FCC had failed to explain the reason for its departure from its earlier practice of exempting all HIPPA-protected communications to landlines from TCPA’s regulations. The Court recognized that in a 2012 Order, the FCC exempted all “health care message[s]” to residential numbers – including messages related to billing – from the TCPA’s requirements because such messages were “already regulated by” HIPPA. The Court also acknowledged that the 2012 Order “swept more broadly than” the 2015 Declaratory Ruling’s partial exemption.

However, the Court refused to find the differing treatment regarding residential and wireless numbers to be arbitrary and capricious, holding that “[e]ven if one might hypothesize important reasons for treating residential and wireless telephone lines the same, the TCPA itself presupposes the contrary—that calls to residential and wireless numbers warrant differential treatment.”

Rite Aid also challenged the partial exemption as arbitrary and capricious because it failed to “recognize that all healthcare-related calls satisfy the TCPA’s ‘emergency purposes’ exception to the consent requirement.” As used in the TCPA, “[t]he term emergency purposes means calls made necessary in any situation affecting the health and safety of consumers.” 47 C.F.R. § 64.1200(f)(4). Rejecting this challenge, the Court held that Rite Aid had identified “no calls satisfying that exception that were not already subject to the 2015 exemption.” The Court also found that it would be “implausible” to conclude that calls concerning telemarking, solicitation, or advertising content, or which include accounting, billing, debt-collection, or other financial content are made for emergency purposes.

Zachary Dunn is a member of Smith Debnam's Consumer Financial Services Litigation and Compliance practice.