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.

Tuesday, April 3, 2018

Second Circuit Seeks to Provide Clarity as to Interest Disclosure

Last week, the Second Circuit attempted to clarify its position emanating from its decisions in Avila v. Riexinger & Assocs, 817 F.3d 72 (2nd Cir. 2016) and Carlin v. Davidson Fink LLP, 852 F.3d 207 (2nd Cir. 2017).  Taylor v. Financial Recovery Services, Inc., No. 17-1650 (2nd Cir. Mar. 29, 2017).  In Taylor, the issue before the court was whether a collection notice violates 15 U.S.C. §1692e when it fails to disclose that interest or fees are not currently accruing on a debt.  The court held that it did not.

In Taylor, the creditor instructed the debt collector not to accrue interest of fees on the debts at issue.  Each letter the debt collector sent, therefore, disclosed the same static balance.  None of the notices provided a statement disclosing whether those balances were accruing fees or interest and unrebutted evidence reflected that neither debt accrued interest or fees while placed with the debt collector. 

The consumers filed suit alleging that the debt collection letters violated §1692e and were false, deceptive or misleading and arguing that the court’s prior holding in Avila should be expanded. In Avila, the collection letter disclosed the “current balance” of the debt, but did not disclose that after the date of the collection letter, the account was continuing to accrue interest and late fees.  Avila, 817 F.3d at 75-76.  The Second Circuit held that because the collection notice “did not disclose that the balance might increase due to interest and fees,” it was a “deceptive [or] misleading representation” of the amount due under the general prohibition of 15 U.S.C. § 1692e.  Id.

Dismissing the consumers’ argument that a debt collector commits a per se violation of §1692e when it fails to disclose if interest or fees are accruing on a debt, the court declined to expand its holding in Avila and explained that, quite simply, the cases were factually dissimilar.  

In Avila, the collection notice was misleading because “’[a] reasonable consumer could read the notice and be misled into believing that she could pay her debt in full by paying the amount listed on the notice,’ whereas, in reality, such a payment would not settle the debt.  The debt collector could still seek the interest and fees that accumulated after the notice was sent but before the balance was paid.”  Taylor, Slip Op. at 5.  Moreover, in Avila, the damage was not theoretical, but in fact, one of the consumers had paid the stated balance of the debt only to find herself still obligated to pay a remaining balance with accruing interest.   In contrast, in Taylor, no interest or fees accrued while the account was assigned to the debt collector and had the consumers paid the balance reflected on the collection notices (which they didn’t), it would have paid the account in full.  In short, the statements were accurate and no harm befell the consumer.  “The difference is that, while the message was prejudicially misleading on the facts of Avila, on the facts of this case it was accurate: prompt payment of the amounts stated in Taylor’s … [notice] would have satisfied their debts.”  Id. at p. 6.

The court also went on to make the practical observation that had the debt collector informed the consumer that interest or fees were not accruing, the consumer would have been alerted to the fact that they could delay payment without their debt increasing.  “It is hard to see how or where the FDCPA imposes a duty on debt collectors to encourage consumers to delay repayment of their debts.”  Id.

The court also reconciled its decision in Avila, which reviewed collection notices under Section 1692e, with Carlin which reviewed a collection notice under Section 1692g.  Importantly, the court stated:

[I]f a collection notice correctly states a consumer’s balance without mentioning interest or fees, and no such interest or fees are accruing, then the notice will neither be misleading within the meaning of Section 1692e, nor fail to state accurately the amount of the debt under Section 1692g.  If instead the notice contains no mention of interest or fees, and they are accruing, then the notice will run afoul of the requirements of both Sections 1692e and Section 1692g.

Id. at pp. 7-8. 

The decision is good news for debt collectors. Since the Second Circuit’s opinion in Avila, numerous suits have been filed seeking to use Avila to support the proposition that it is a violation of the FDCPA to fail to disclose interest is not accruing.  The Court’s decision in Taylor should help quell those suits, as well as reflecting a pragmatic approach to interest disclosures which should prove helpful to debt collectors litigating this issue in other circuits.

Monday, April 2, 2018

Seventh Circuit Joins Others on Debt Validation Requirements

The Seventh Circuit recently joined the Fourth and Ninth Circuits in holding that a debt collection discharges its obligation as to debt validation by verifying that its letters accurately conveyed the information received from the creditor.  Walton v. EOS CCA, 2018 U.S. App. LEXIS 7075 (7th Cir. Mar. 21, 2018).  In Walton, AT&T forwarded the consumer’s account to EOS CCA for collection.  In doing so, AT&T inadvertently transposed the account number.  As a result, when EOS CCA sent its collection letter to the consumer and reported it to the credit reporting agencies, it likewise misstated the account number. Ms. Walton disputed the debt as a result and EOS CCA responded, stating that “based on ‘a review of our records,’ it had verified her name, address and the last four digits of her social security number matched the debt report it had received from AT&T.”  Id. at *2-3.

Ms. Walton filed suit alleging, among other things, that EOS CCA had violated 15 U.S.C. 1692g by not verifying the debt with the creditor.  The district court granted summary judgment in favor of EOS CCA.  The Seventh Circuit affirmed.  In doing so, the court noted that the purpose of the FDCPA is “to eliminate abusive debt collection practices by debt collectors.”  Id. at * 5 (emphasis supplied).  The court determined that consistent with that purpose, it as sensible to construe §1692g(b) as requiring “a debt collector to verify that its letters accurately convey the information received from the creditor.”  Id. at *6.  The court was dismissive of the additional requirement advocated by the consumer, that the debt collector should be required to undertake an investigation of whether the creditor is actually entitled to the money it seeks.  The court concluded that such a requirement would be unduly burdensome and beyond the Act’s purpose.  Because section 1692g(b) serves as a check on the debt-collection agency and not the creditor, the court determined that EOS CCA satisfied the statute when “[i]t checked its records and confirmed that the Deborah Walton to whom it had set a debt-collection letter was the same Deborah Walton identified by AT&T.”  Id. at *6-7.  The court likewise approved the communication by EOS CCA validating the debt, noting that EOS CCA sent Walton a notice that confirmed it had sent the demand to the person AT&T identified and for the amount AT&T sought and provided AT&T’s address. 

The decision is good news for the debt collection industry and confirms the narrow obligations provided by section 1692g(b).  The court’s decision joins decisions from the Fourth and Ninth Circuit which held similarly.  See Chaundry v. Gallerizzo, 174 F.3d 394 (4th Cir. 1999); Clark v. Capital Credit & Collection Servs., Inc., 460 F.3d 1162 (9th Cir. 2006).