Eighth Circuit Declines to Follow Crawford Proof of Claim Analysis

The Eighth Circuit has taken the middle ground in the debate as to whether the mere filing of a proof of claim outside the statute of limitations violates the FDCPA.  Gatewood v. CP Medical, LLC, Case No. 15-6008 (8^th Cir. Jul. 10, 2015).  In Gatewood, the creditor filed a proof of claim for medical debt.  The debtors filed an adversary proceeding asserting that the debt was time barred and that by filing a proof of claim on time barred debt, the creditor had engaged in a “false, deceptive, misleading, unfair and unconscionable” debt collection practice.  Slip Op. at 2-3.  In separating itself from the Eleventh Circuit’s opinion in Crawford v. LVNV Funding, the court held that while the filing of a proof of claim was debt collection, not all debt collection violates the FDCPA.  Instead, the court took a more moderate position, noting that the FDCPA “simply prohibits false, misleading, deceptive, unfair or unconscionable debt collection practices.  Filing in a bankruptcy court an accurate proof of claim containing all the required information, including the timing of the debt, standing alone, is not a prohibited debt collection practice.” Slip Op. at 10 (emphasis supplied).

ACA International Petitions for Review of the FCC's TCPA Declaratory Ruling and Order

ACA International, a major trade group of collection agencies, has filed a petition for review with the Court of Appeals for the DC Circuit.  See ACA International v. Federal Communications Commission, Case No. 15-1211 (D.C. Cir. June 10, 2015).  The petition seeks to set aside certain rulings contained within the FCC's Declaratory Ruling and Order which were filed late Friday.  Specifically, the ACA contends:

• the FCC's treatment of "capacity" within the definition of an "automatic telephone dialing system" ("ATDS") disregards the TCPA; and
• the FCC's treatment of predictive dialers exceeds the FCC's statutory authority and impermissibly expands the definition of an ATDS.

The ACA also takes issue with the FCC's treatment of "prior express consent" and asks the court to compel the FCC to "establish a viable safe harbpr fpr autodialed "wrong number" non-telemarketing calls to reassigned wireless numbers" or "define "called party" as a call's intended recipient."

FCC Issues TCPA Declaratory Ruling and Order

Late Friday afternoon, the FCC issued its highly controversial and long awaited Declaratory Ruling and Order regarding nineteen petitions which have been filed requesting clarification of the TCPA’s application.  I spent most of my Sunday afternoon and evening digesting the 138 page Order, looking for something positive for the business world and found very little to get excited about.  If there is any consolation to be found, and there are few, it is that the decision was not unanimous.  Two commissioners issued impassioned dissents, rightfully noting that the Order “expands the TCPA’s reach” and “twists the law’s words…to target useful communications between legitimate businesses and their customers.  This Order will make abuse of the TCPA much, much easier.  And the primary beneficiaries will be trial lawyers, not the American public.”  Dissenting Statement of Commissioner Ajit Pai.  The second consolation was the news that ACA International, a major trade group for the collection industry, immediately filed suit against the FCC in the United States Court of Appeals for the D.C.  Circuit seeking a judicial review of the Order. Over the course of this week, I will break down the potential impacts of the Ruling for key industries, but today I provide an overview of the Order’s highlights.

What is an Autodialer?

• The Order rejects any “present use” or current capacity test and holds that capacity of an autodialer is not limited to its current configuration but includes its potential functionalities even if it currently lacks the requisite software. Thus, the FCC affirms that “dialing equipment that has the capacity to store or produce, and dial random or sequential numbers…[is an autodialer] even if it is not presently used for that purpose.” Id. at ¶ 10.  While the FCC refused to “address the exact contours of the “autodialer” definition”, it did clarify that its focus is on whether the equipment can dial without human intervention and whether it can “dial thousands of numbers in a short period of time”.  Id. at ¶ 17. 
• The FCC also concluded that callers cannot avoid liability by dividing the ownership of pieces of dialing equipment that work in concert among multiple entities.  The Order holds that “equipment can be deemed an autodialer if  the net result of such voluntary combination enables the equipment to have the capacity to store or produce telephone numbers to be called, using a random or sequential number generator, and to dial such numbers.  The fact that two separate entities have voluntarily entered into an agreement to provide such functionality does not alter this analysis.”  Id. at ¶24.
• The dissent was highly critical of the majority’s holding, particularly as it related to capacity, its statutory interpretation of capacity and the TCPA’s potential application to smart phones which was not ruled out by the majority.  As noted by Commissioner Pai, if a system cannot store or produce telephone numbers to be called using a random or sequential number generator and it if cannot dial such numbers, it should not be included.  Pai described the majority’s test as being “whether there is “more than a theoretical potential that the equipment could be modified to satisfy the ‘autodialer’ definition.  Pai Dissent.
   

Text Messaging/Calling Apps are Covered. 

• The Order confirms text messaging is covered, but with regard to text messaging apps, it depends on who makes the calls.  The Order requires some direct connection between the person or entity and the making of the call.  Order, ¶ 30.  The test is a totality of the circumstances and looks to: (a) who took the steps to physically place the call; and (b) whether another person or entity was so involved in placing the call as to be deemed to have initiated it.  Id.
• The FCC also determined that equipment used to send Internet to phone text messages may also be an autodialer because it is the functional equivalent to phone-to-phone texting.  In doing so, the FCC held that Congress intended the word “dial” to mean “initiating a communication with consumers through use of their telephone number.”  Order, ¶ 113.

What is Prior Express Consent?

• For purposes of app platforms, a contact list or address book does not establish prior express consent.
• Porting of numbers from land lines to wireless numbers does not necessarily revoke prior express consent.  Prior express consent may, under certain circumstances, carry over from a land line to a wireless line if prior express consent was given for the type of call in question.  So, for instance, if the consumer provided consent to receive calls from an automated dialing system or to receive prerecorded messages at 123-456-7890 when it was a land line and the number is then ported over to a wireless line, the Order suggests the consent remains effective unless and until it is revoked.
• Consent generally may be revoked through any reasonable means and the caller may not dictate how revocation may be made.  The FCC therefore held that “the consumer may revoke his or her consent in any reasonable manner that clearly expresses his or her desire not to receive further calls, and that the consumer is not limited to using only a revocation method that the caller has established as one that it will accept.”  Id. at ¶ 70.
• Consent must be given by either the current subscriber or the non-subscriber customary user of the phone.

What about Wrong Number Calls?

• FCC Order’s resolution of the wrong number call issues penalizes businesses and institutions acting in good faith to reach their customers using modern technologies.” Dissenting Statement of Commissioner Michael O’Rielly Dissent.   Several petitions requested clarification as to whether prior express consent must be provided by the intended recipient of the call or the actual recipient of the call, noting that in many instances, prior express consent is provided by the intended recipient for a particular number which is then reassigned to a third party.  The FCC Order ignores the significance of the issue and will, as noted by the dissent, open the floodgates to more litigation against good faith actors.  Pai Dissent.
• The FCC majority believes that “there are solutions in the marketplace to better inform callers of reassigned numbers, that businesses should institute new or better safeguards to avoid calling reassigned wireless numbers…and that the TCPA requires consent of the actual party who receives a call.” Id. at ¶ 72.  The FCC refused to put any burden on the wrong number consumer to inform the caller that it is the wrong party or opt out of the calls.  Instead, the FCC found that “where a caller believes he has consent to make a call and does not discover that a wireless number has been reassigned prior to making or initiating a call to that number for the first time after reassignment, liability should not attach for that first call, but the caller is liable for any calls thereafter.”  Id. at ¶85.
• As noted by the dissent, the “marketplace solutions” alluded to by the majority do not exist.  There is “no authoritative database-certainly not one maintained or overseen by the FCC, which has plenary authority over phone numbers- exists to track all disconnected or reassigned telephone numbers or link all consumer names with their telephone numbers.  Pai Dissent.

Certain Financial/Medical Exceptions for Free-to-End User Calls

• The Order does contain some limited good news for the financial service and medical industries.  Under certain limited circumstances, pro-consumer messages about time sensitive financial and healthcare issues may be provided. 

Call BlockingTechnology

• The Order affirms that carriers and VoIP providers may implement call-blocking technology “that can help consumers who choose to use such technology to stop unwanted robocalls.”

 

 

CFPB Releases Consumer Protection Principles for Faster Payment Systems

Continuing to flex its muscle, the CFPB has released its nine Consumer Protection Principles for new faster payment systems.  While fintech companies providing payment services are not governed by the CFPB, they should pay careful attention to the CFPB principles as they may foreshadow future CFPB action.  The CFPB historically has used its broad authority under Dodd Frank to regulate through enforcement, using the “unfair and deceptive” language of Dodd Frank to justify its authority to regulate and enforce practices that fall outside of its express jurisdiction and to expand requirements of other federal statutes.

The stated purpose of the CFPB principles is to further “safe, transparent, accessible and efficient, faster payment systems” without compromising certain consumer protection concerns. The principles contain concepts common to other federal statutory protections, including the Gramm Leach Bliley, Electronic Funds Transfer and Truth in Lending Acts.

1.  Consumer Control over Payments.  New, faster systems should enable consumers to control the time period for which an authorization is valid, the amount and the payee.  They should also include procedures allowing consumers to easily revoke authorization.
2. Data and Privacy.   Similar to the disclosures required by Gramm Leach Bliley, consumers should be informed as to how data will be transferred and used, who has access to the data, and the potential risks associated with electronic transfers. 
3. Fraud and Error Resolution Protections. New systems should contain robust consumer protections against “mistaken, fraudulent, unauthorized or otherwise erroneous transactions.”  The CFPB suggests that systems should contain mechanisms for facilitating post-transaction evaluations and for reversing erroneous and unauthorized transactions quickly.  Systems should “also provide consumers with regulatory protections, such as Regulation E and Regulation Z…”
4. Transparency.  The CFPB principles promote transparency with regard to real time status of transactions, as well as disclosures as to costs, risks, funds availability and security of payments.
5. Cost.  Fee structures need to be affordable and disclosed in a meaningful manner to allow consumers to compare the costs of different payment options.
6. Access.  Newer systems need to be broadly accessible and accepted including through non-depositories, including mobile wallet providers and payment processors.
7. Funds Availability.  Faster payments need to bring faster, guaranteed access to funds.
8. Security and Payment Credential Value.  Systems need to include built-in protections to detect and limit errors, unauthorized transactions and fraud and to safeguard and respond to data breaches.
9. Strong Accountability Mechanisms that Effectively Curtail System Misuse.  Commercial participants must be held accountable for “risks, harm, and costs they introduce to payment systems and are incentivized to prevent and correct fraudulent, unauthorized or otherwise erroneous transactions for consumers.”

In the accompanying release, the CFPB indicates its intent to continue working with other regulators, entities developing new payment systems, and other stakeholders to ensure these new systems address consumer needs and interests.

Federal Regulators and State AGs “Pile On” Chase Entities with Consent Orders

 

 

In an orchestrated fashion, the OCC, CFPB, 47 states and the District of Columbia have entered into consent orders with JP Morgan Chase and related entities.

The OCC Consent Order: Today’s OCC Consent Order resolved an enforcement action that was taken against J.P. Morgan Chase Bank and two of its affiliates in 2013. At that time, a Consent Order was entered into which required corrective action to address deficiencies with Chase’s debt collection practices, as well as its compliance with the Servicemembers Civil Relief Act (the "SCRA"). The Consent Order entered today requires an additional $30 million civil money penalty which comes on top of the $50 million already paid out in restitution pursuant to the 2013 Consent Order. According to the Statement released by the OCC, today’s consent order comes after the OCC has had a "time to assess the full extent of the deficiencies." Like the prior consent order, the OCC Consent Order includes the following findings:

The bank filed or caused to be filed affidavits which were not based upon the affiant’s personal knowledge or review of the bank’s relevant books and records;


The bank filed or caused to be filed inaccurate sworn documents, resulting in judgments which contained financial errors favorable to the bank;


The bank filed or caused to filed affidavits which were not properly notarized;


The bank did not have effective policies or procedures in place to ensure compliance with the SCRA;


The bank inadequately staffed its sworn documents and collections litigation processes;


The bank failed to provide adequate internal controls, policies and procedures, compliance risk management, internal audit, third party vendor management and training as to its sworn document and collection litigation processes; and


The bank failed to properly oversee its outside counsel and other third party vendors responsible for the sworn document and collection litigation services.

 

The CFPB Consent Order: The bigger news is the draconian CFPB Consent Order which is directed to Chase Bank, USA N.A. and its subsidiary Chase BankCard Services, Inc., focuses on the bank’s consumer credit card business line, and places onerous restrictions on Chase’s ability to sell accounts to debt buyers. The order includes findings that Chase violated the unfair and deceptive prohibitions of Dodd Frank by:

Selling accounts to debt buyers containing inaccurate information. Specifically, the Order finds that Chase sold:


accounts without adequate documentation;


accounts that previously had been settled by agreement;


accounts that had been paid in full;


accounts that were no longer owned by Chase;


accounts that had been identified as fraudulent;


accounts that were stayed in bankruptcy;


accounts that were subject to payment plans; and


accounts where the account holder was dead.


By using affidavits in lawsuits and providing affidavits to debt buyers that were "robo signed."

Not only does the Order require Chase to pay an additional $30 million in civil penalties to the CFPB, a minimum of $50 million to consumers, and $136 million in penalties to the states, it also:

Requires Chase to implement effective processes, systems and controls to provide accurate information to debt buyers and consumers in connection with debt sales after the effective date of the order:


including providing the debt buyer with account level documentation confirming the debts are accurate and enforceable, including the first date of delinquency for purposes of credit reporting, the date and amount of the last payment, the date the account was charged off, the unpaid balance due on the account with details of the post charge off balance;


making certain account information available to the debt buyer for a minimum of three years after the sale, including the effective contract agreement and statements;


providing notice of the sale to the consumer, including the identity of the purchase, the amount owed at the time of sale and making further information regarding the account available to the consumer at no charge;


Prohibits Chase from selling certain accounts, including any account:


• In which the debt has been discharged in a no asset Chapter 7 bankruptcy;
In which the consumer has notified Chase of a dispute, identity theft or unauthorized use and Chase has not been able to determine the consumer owes the debt;


In which the account holder is deceased;


In which the account is more than three years past charge off or the date of last payment;


In which the account holder is a serviceman;


Involved in litigation; or


Which is currently under a payment plan.


Requires Chase to Do Due Diligence Regarding their Relationships with Debt Buyers. The Order:


Requires that the Bank properly vet new relationships with debt buyers;


Requires periodic due diligence reviews of current forward flow contracts;


Prohibits the sale of accounts to debt buyers who cannot certify they or their vendors are not properly licensed or authorized to collect in the states where consumers reside;


Requires Chase to include provisions in their sale agreements prohibiting the resale of accounts, and expressly prohibiting certain specified unlawful conduct by debt buyers;


Specifies the contents and other requirements for Chase affidavits relative to collection accounts moving forward including a requirement that all affidavits be signed by hand and based upon the direct knowledge of the person signing based upon their review of Chase’s business records;


Specifies how Chase is to conduct any collections litigation moving forward;


Requires withdrawal, dismissal or termination of all prejudgment collections litigation pending at any time between January 1, 2009 and June 30, 2014; and


Requires Chase to cease all post judgment enforcement actions and request that the consumer reporting agencies delete/amend/suppress any reporting of the judgments.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FDCPA: Third Circuit Joins Others in Requiring Materiality

The Third Circuit joined other circuits last week by requiring that false statements must be material in order to be actionable under 15 U.S.C. §1692e.  In doing so, the Third Circuit joins the Fourth, Sixth, Seventh and Ninth Circuits in so ruling.  In Jensen v. Pressler & Pressler, 2015 U.S. App. LEXIS 11188, No. 14-2808 (3^rd Cir. June 30, 2015), the law firm issued an information subpoena post judgment in an effort to obtain personal and financial information to aid in collection.  The information subpoena, which under state law could be issued by the law firm as the agent of the clerk of court, erroneously listed “Terrence D. Lee” as the clerk of Superior Court.  Mr. Lee, however, was not the clerk of Superior Court and the plaintiff knew it.  The plaintiff filed a putative class action based on 15 U.S.C. §1692e which prohibits making false, misleading, or deceptive statements in the collection of consumer debts.  The plaintiff also asserted claims under 15 U.S.C. §§1692e(9) and (10).  The court of appeals in affirming the lower court decision determined that a technically false representation is not actionable unless it is material.  “[A] statement in a communication is material if it is capable of influencing the decision of the least sophisticated debtor.” [Slip Op. at 12].  The court also gave little credence to plaintiff’s argument that the subpoena violated 15 U.S.C. §1692e(9) which prohibits the use or distribution of any communication which falsely represents itself to be a document authorized, issued or approved by any court, official or agency of any State.  The court “was not persuaded that the information subpoena bearing Lee’s name is actually invalid under New Jersey law” noting that New Jersey courts have repeatedly declined to invalidate similar documents based on “hypertechnical errors.”  [Slip Op. at 14].  Finally, the court declined to consider the issue as one of mixed fact and law requiring a remand, holding that “[n]o reasonable juror could find that the mistake in this case was material.” [Slip Op. at 16].