Call Volume Alone Does Not Necessitate a Violation of the FDCPA

A decision from a New Jersey district court serves as a reminder that call volume alone will not support a violation of the FDCPA.  In Chisholm v. Afni, Inc., the issue before the court was “whether a series of 18 telephone calls from a debt collector, of which 17 were unanswered and one where the recipient hung up, unaccompanied by harsh or threatening language or back-to-back calls could reasonably be found to violate the FDCPA.”  Chisholm v. Afni, Inc., 2016 U.S. Dist. LEXIS 162303, *1 (D.N.J. Nov. 22, 2016).  The court held they could not.  In so ruling, the court reviewed the calls under the provisions of sections 1692d and f of the FDCPA.  Section 1692d makes unlawful “any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.”  15 U.S.C. §1692d.  The section also prohibits certain specific conduct including “[c]ausing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.”  15 U.S.C. §1692d(5).  Section 1692f is the FDCPA’s catch all provision for unfair conduct.

In reviewing the calls, the court first acknowledged that the number, frequency, and timing of the calls is an important factor, but not the only factor that must be considered.  While “[a]ctual harassment or annoyance turns on the volume and pattern of calls made,”… “courts around the country have held that the number of calls alone cannot violate the FDCPA; a plaintiff must also show some other egregious or outrageous conduct in order for a high number of calls to have the ‘natural consequence’ of harassing a debtor.” Chisholm at *10-11.

The competent evidence in this case showed that the 18 calls in this case were all made in a two-week period and made between 9:30 AM and 7:00 PM; of the 18 calls, 17 were unanswered; the debt collector never called more than three times in one day; there was at least three hours between each call; and the plaintiff was not called each day.  Moreover, the one call that was answered was a 40 second call in which “defendant’s representative conducted himself politely” and the plaintiff hung up.  In concluding that the calls did not rise to a level which violated the FDCPA, the court pointed out that the “FDCPA was not intended to prevent debt collectors from contacting debtors at all, or to ‘impose unnecessary restrictions’ on ethical collectors.”  Chisholm at *14.  In this case, the court concluded that, as a matter of law, there was no violation of the FDCPA. 

Two More Banks Fall to Redlining Consent Orders

The Department of Justice has entered into a proposed consent order with two Ohio based banks resolving allegations that the banks engaged in a pattern or practice of redlining in their mortgage lending practices by “structuring their businesses to avoid the credit needs of majority black neighborhoods” in four Ohio and Indiana MSAs. The banks, Union Savings Bank and Guardian Savings Bank, are both headquartered in Cincinnati Ohio and share common ownership and management.  The consent orders come just a few weeks after the CFPB reinforced its emphasis on fair lending violations.  The consent order, if approved, requires the banks to invest $7 million in loan subsidies and spend at least $2 million in advertising, outreach, financial education and community partnerships in the Cincinnati, Columbus, Dayton and Indianapolis metropolitan areas. The consent order additionally requires Union Savings Bank to add two full-service branches and Guardian Savings Bank to add one loan production office to serve the majority African American neighborhoods in their MSAs.

The complaint alleged that the banks violated both the Fair Housing Act and the Equal Credit Opportunity Act by serving the credit needs of predominantly white neighborhoods to a significantly greater extent than they served the credit needs of majority African American neighborhoods.  The complaint alleged that both banks engaged in a race-based pattern of locating branches, noting that all of the banks’ branches were in majority white census tracts and that statistical analysis of their loan applications revealed significant disparities in their loan activities when compared to similar lenders in the same MSAs.

The consent order requires the banks engage an independent third party compliance management system consultant to assist in reviewing and revising their policies and practices to insure compliance with fair lending laws.  The Consent Order additionally requires that the banks:

• Conduct a detailed assessment of their policies and practices regarding “branch locations; loan officers’ solicitation of applications, including the geography covered by loan officers; product availability at branch locations; loan officers; assignment, training, oversight, and compensation; marketing; and fair lending compliance monitoring.”
• Submit a plan that includes a program for ongoing fair lending statistical monitoring of loan applications and originations, including statistical peer analysis of applications and originations from majority African American census tracts.
• Provide training to all employees with significant involvement in mortgage lending to insure their activities are conducted in a non-discriminatory manner and address the Fair Housing Act and the Equal Credit Opportunity Act and that the banks document employees’ participation and proficiency.
• Prepare a credit assessment of the needs of majority African American census tracts within their MSAs including analysis of demographic and socioeconomic data of those tracts, an evaluation of the credit needs and lending opportunities in those neighborhoods and a review of affordable loan products offered by other lenders and how products with those features can be adopted by the banks.
• Expand into majority African American neighborhoods.  Specifically, the Order requires Union Bank to open two new branches in majority African American tracts and requires Guardian to open one loan production office in a majority African American tract.
• Partner with local community based organizations or government organizations to provide residents in majority African American census tracts with loan products.  The banks are required to spend $750,000.00 over the term of the Consent Order.
• Advertise and conduct outreach in majority African American census tracts to effectively communicate the availability of the Loan Subsidy Program required by the Consent Oder and generate applications for mortgage loans from qualified residents in the majority African American census tracts.  The banks are required to spend $625,000 over the term of the Consent Order.
• Develop and Implement a consumer financial education and credit report program which includes the sponsoring of a minimum of twelve financial education events a year and the provision of a program for credit establishment or repair assistance to residents of majority African American census tracts.
• Provide a minimum of $7 million dollars in loan subsidies to residents and small businesses operating in majority African American census tracts within the banks MSAs.
• Maintain records relating to their compliance with the Consent Order and provide annually their HMDA data and a report as to their compliance to the Department of Justice to assist it in monitoring the banks’ compliance with the Order.

The Consent Order will remain in effect for 63 months.  A couple of other points worth noting:

• As with most consent orders, the order is made without any admission of liability;
• The DOJ’s findings are based upon a review of the banks’ HMDA data and a comparison of that data with HMDA data from other banks operating in the same MSAs.  Of particular note are allegations in the complaint comparing the percentage of mortgage applications generated and loans originated by both banks in majority black tracts compared with other “comparable lenders” in the same MSAs in the same time period; and
• The MSAs in question are in metropolitan areas which are highly segregated.  This undoubtedly makes these MSAs areas and others that are similar in racial makeup areas of focus for the DOJ.

CFPB Complaint Report Returns to Debt Collection

The CFPB recently issued its monthly report of consumer complaints and turned its focus back to debt collection.  The Report is a high level snapshot of trends in consumer complaints and provides a summary of the volume of complaints by product category, by company and by state.  Additionally, it highlights a product type and a geographic area. 

Here are the highlights:

• Debt collection, mortgage and credit reporting continue to be the leaders in complaint volume;
• Debt collections complaints comprise 27% of the total cumulative complaints received to date by the CFPB;
• Student loan complaints showed the greatest increase over the same period for 2015 with a 120% increase. The Bureau attributes a portion of this increase to the CFPB’s updated student loan intake form which now includes complaints about federal student loan servicing;
• Prepaid products showed the greatest percentage decrease for the September-November 2016 period with a 59% decrease;
• On a monthly basis, debt collection, credit reporting and mortgage complaints were all down in November with credit reporting showing the most significant decrease at 21%;
• While debt collection complaints were down in November, they still comprised 29% of all complaints submitted in the month;

DEBT COLLECTION SPOTLIGHTED

      This month’s report focused on debt collection complaints and revealed the CFPB’s concerns with first party collections and medical collections in particular.  As was the case when the CFPB last highlighted debt collection in March of 2016, the most common complaints involved continued attempts to collect debt the consumer claimed was not owed, as well as communication tactics. Specifically, the CFPB noted:

• Consumers complained they were contacted about debts that were no longer owed and were not being provided with documentation to verify the debt.  In keeping with this, first and third parties attempting to collect debt should note that validation of debts was one of the primary focuses of the CFPB’s third party debt collection proposal and compliance officers should be reviewing their policies and procedures to insure adequate measures are in place to verify debts are owed.
• Consistent with this observation, the CFPB reports that consumers complained that accounts were forwarded to third party debt collectors for debts that were not owed and that, upon dispute, the third party debt collector returned the account to the creditor who then forwarded it to another third party debt collector;
• Consumers also complained that accounts were forwarded to third parties prior to the first party making contact about an outstanding balance;
• Regarding communication tactics, the CFPB singled out excessive calls and calls to the consumer’s place of employment as the primary sources of complaints. 

What's New?

Medical debts are at the forefront of the Report.  The CFPB noted the following concerns with regard to collection of medical debt:

• Third party debt collectors attempting to collect incorrect balances;
• Third party debt collectors attempting to collect accounts where there was an existing payment plan in place with the service provider;
• Amounts being pursued that were covered by insurance; and
• Failure by the third party debt collectors to verify the debt;

There is also a notable addition to the debt collection spotlight.  While the report has typically singled out debt collection complaints by company, this month’s report additionally includes a table showing the companies with the highest and lowest rates of untimely responses to debt collection complaints.  

A Look Back and 2016 and a Look Ahead at 2017

The end of the year is always a time for reflection for me.  As we kick 2016 to the curb, I thought I'd take this opportunity to look back at 2016 and look ahead to 2017. 

2016: A Look Back

Looking back at 2016, the first things that come to my mind are the aggressive rule making agenda undertaken by the CFPB and their struggle to implement rules based upon a less than full understanding of the industries they attempt to regulate.  With 2016 came proposed rules on arbitration and payday lending, adjustments and clarification to the mortgage servicing rules and TRID, as well as an unwieldy and incomplete proposal on debt collection.  The year also saw the CFPB continued to flex its muscle expanding its reach into data privacy and fintech , as well as to inthe way attorneys litigate collection law suits (covered in our prior edition).  Continuing its infatuation with technology, the CFPB also introduced new data tools including its ”Consumer Credit Trends” tools.  In many ways, it was the most ambitious of years for the CFPB. 

As we look forward to 2017, we will closely follow the D.C. Circuit’s en banc review of the CFPB’s jurisdiction.  Coupled with the election of Donald Trump and a Republican majority in Congress here are a couple of things ) think we can expect to see in 2017:

• Reform of the CFPB:  It would not be surprising to see the makeup of the CFPB change to a five person commission and/or to see the CFPB lose its designation as an independent agency.  Challenges have come from the judiciary and legislative branches of government in recent months and we can expect to see reform from the Trump administration. The Financial Services Committee of the House attempted last year to replace Cordray with a bipartisan commission through introduced legislation.  Similarly, the incoming administration has echoed a desire to reign in the Bureau.  Finally, the D.C. Circuit has weighed in on the constitutionality of the CFPB and its ruling is now being considered en banc by its entire panel of judges. Depending upon the outcome of the D.C. Circuit’s en banc review of the PHH decision, the CFPB may become an executive agency vs. an independent agency.  The net result may be that the CFPB and its regulations become subject to the regulatory review process of the Office of Management and Budget. 
• Pending Rules. The CFPB’s pay day and arbitration rules are in jeopardy and may never see the light of the day if the PHH holding is upheld and the CFPB loses its status as an independent agency or if any of the other forces outlined above come to play.
• When all else fails, UDAAP Carries the Day. The CFPB will continue to regulate through enforcement using the UDAAP provisions of Dodd Frank when regulatory authority does not otherwise exist.
• Debt Collection: the CFPB will continue to struggle with the two ton gorilla of debt collection by first putting forward a proposal for first party collections.  We expect to see a SBREFA panel scheduled for some time in the first half of 2017.  Looking further forward, we are likely to see a proposed rule on debt collection by the end of 2017.
• Marketing and Sales. Regulators will continue to focus on marketing and sales aspects of consumer financial service products and continue to emphasize comprehensive compliance management systems.
• Status Quo. Institutions subject to enforcement need to continue to do business under the assumption that nothing will change and remain vigilant in their compliance.  As we sit here today, the status quo remains the order of business.

I'm looking forward to see what's next. On a more personal note,thanks to all who continue to support this blog.  What started out as a six month experiment has become a passion.  This blog has brought new people and opportunities into my life and continues to make me a better lawyer.  I'm grateful to my law firm for supporting me in this endeavor, to my good friends Jerry Myers and Mark Dobosz for their guest posts and to NARCA, WebRecon and the many other blogs and trade associations who continue to pass on my posts to others.  We continue to look for guest posts and I invite anyone with an interest in writing on consumer financial service issues to reach out to me.  Happy New Year!

Guest Post: CFPB Seeks Information for Third Party Debt Collection Rules

Editor’s Note: On November 3, 2016, Smith Debnam’s Jerry Myers attended a meeting with the CFPB to discuss the proposed rules for third party debt collection.  Below, he shares his thoughts from the meeting.

On Thursday November 3, 2016 I joined a group of colleagues for a meeting with the CFPB to discuss its proposed rules for third party debt collection.  I was one of four attorney members of the National Creditors Bar Association in attendance.  We were joined by representatives from the American Collectors Association and the Debt Buyers Association. The CFPB had invited us to meet with them following their Small Business Review Panel discussion a couple of months earlier. 

Each of the industry groups was given an opportunity to speak about the impact of the proposed rules on their respective industries.  There were areas of common concern among the groups.  Examples include the numerous notices and disclosures the proposed rules would require, the limits on communications with consumers, and the definition of certain terms, such as “default” and “date of default” which are included in the rules on substantiation.  There was also considerable discussion about determining what constitutes a dispute and how disputes should be handled.  All of the groups are concerned about the costs of complying with the new rules. The groups also expressed a shared concern that the new rules, once effective, not be applied retroactively, as was the case in the PHH litigation.  Lastly, all groups encouraged the Bureau to publish the rules for creditors at the same time as the rules for the third party collectors.

The attorneys pointed out additional ways that the proposed rules raise difficult issues for attorneys handling debt collection cases.  First, the proposed rules require that the attorney provide the consumer with numerous disclosures and notices.  These notices, such as the proposed Statement of Rights, make it appear that the collection attorney is providing legal advice to the consumer.  Such advice would violate the Rules of Professional Conduct, since the attorney for the creditor may not also provide legal advice to the debtor.  The proposed rules would also require the attorney to provide a “litigation disclosure” in connection with each communication which includes or evidences a threat of litigation.  Since some have argued that most communications by a collection attorney at least imply a threat of litigation, must the attorney provide the litigation disclosure in every communication with a debtor?

The attorneys also pointed out the problems we will face under the proposed rules which impose restrictions on communication with consumers.  For example, contacts with a consumer are capped at two per week if the collector, or any collector who previously worked on the account, has had a “confirmed consumer contact” with the consumer.  Under the rules, a “confirmed consumer contact” exists once any collector, even a prior one, has communicated with the consumer about the debt, and the consumer has answered when contacted that he or she is the debtor or alleged debtor.  We explained that such a rule imposes an untenable restriction on attorneys involved in litigation.  Depending on how many contacts have been made in a given week, the attorney might not be able to inform a consumer, for example, that a hearing date had been changed by the court or that a settlement offer had been accepted by the creditor.

As mentioned above, the proposed rules require a collector to “substantiate” a debt before taking any action to collect it.  Among the items the attorney must substantiate are the date of default and amount owed at default; however, the terms “default” and “date of default” are used differently for different types of debt.  For example, on a credit card account, there could be several defaults, followed by charge-off, followed by additional payments.  Also, on an auto loan, there could be more than one missed payment, followed by a repossession, followed by a sale of the collateral and establishment of a deficiency balance.  Trying to define default, date of default, and amount due at default for all types of debt would be a daunting task.  We reminded the panel that accounts placed with third party collectors are by definition delinquent.  That being the case, we suggested that the creditor be allowed to pick a logical point in time, such as the date of charge-off for a credit card, to provide a statement indicating the balance at that time, and then account for any additional charges or credits experienced thereafter?

Representatives from the CFPB present at the meeting were actively engaged in the discussions and asked many questions seeking to clarify the information the industry panelists provided.  They invited written follow up expanding on points raised during the meeting.  Deadlines previously established for publication of the debt collection rules have been extended several times.  It appears likely that the deadline will be extended again as the CFPB seeks to better understand the inner workings of the industry they are attempting to regulate.

ABOUT THE AUTHOR: Jerry Myers practices law with the Smith Debnam firm in Raleigh NC and serves as its Managing Partner. He concentrates his practice in creditors' rights with an emphasis on debt collection, judgment enforcement, and commercial litigation.  He is certified as a specialist in the field of Creditors' Rights Law by The American Board of Certification.  Jerry is also a past President of the Commercial Law League of America.  Having practiced in the creditors' rights field for more than 25 years, he has written and lectured extensively on debt collection and judgment enforcement. Jerry was also instrumental in forming the North Carolina Creditors Bar Association, a specialty bar whose members are committed to advocating for the rights of those who make credit available, as well as to educating the general public on managing credit effectively.  He served as the organization's President 2010-2012.

 

Law Firm's Garnishment Activities Do Not Violate FDCPA

Courts have long debated  the extent to which a debt collection attorney’s representations to opposing counsel or the court during the course of litigation may violate the FDCPA and the results from different circuits have varied greatly.  See, e.g.,  Hemmingsen v. Messerli & Kramer, 674 F.3d 814 (8^th Cir. 2012);  O’Rourke v. Palisades Acquisition XVI, LLC, 635 F. 3d 938 (7^th Cir. 2011); Miller v. Javitch, Block & Rathbone, 561 F.3d 588 (6^th Cir. 2009); Sayyed v. Wolpoff & Abramson, 485 F. 3d 226 (4^th Cir. 2007).  A recent decision by a Minnesota district court sheds some light on the issue and provides a positive decision for debt collection attorneys. Carney v. Unifund CCR, LLC, 2016 U.S. Dist. LEXIS 168707 (Dec. 6, 2016). 

The case arose from the law firm’s post judgment efforts to garnish wages.  After serving a garnishment summons, the consumer claimed the funds  as exempt.  The collection attorney filed an objection to the exemption, but filed it one day late.  Because of the untimeliness of the objection, the court ordered the funds released without making a ruling on the merits.  The defendants then made four additional attempts to garnish funds. The consumer filed suit against the creditor and its attorneys asserting the defendants violated sections 1692e and f by making further attempts to garnish wages which defendants knew were exempt and by making false representations in the objection as to its merits and as to its timeliness.  The defendants moved to dismiss.

In ruling in favor of the defendants, the court determined that there was nothing unlawful in defendants’ multiple efforts to garnish wages and noted that there had been no adjudication on the merits as to whether the consumer’s funds were exempt. 


Turning to whether the defendants had made false representations to the state court over the timeliness of their objection, the court looked to whether the defendants’ actions were permissive litigation activity.  The court began its analysis with a review of the Supreme Court’s decision in Heintz v. Jenkins before turning to the Eighth Circuit’s analysis of permissive litigation activities.  The court noted that, at least in the Eighth Circuit, the analysis is done on a case by case basis.  In reviewing the representations at issue, the court looked to whether the representations were closely related to the actual debt collection.  In determining the representations were permissive litigation activity, the court noted the purported misrepresentations were as to a filing deadline and had nothing to do with the amount of the debt or the debt itself and were not made to the debtor.  Carney at * 12.  To the contrary, the “alleged misrepresentations were arguments that, if accepted, would have permitted the state court judge to hear the merits of Defendants’ objection.  That Defendants’ arguments were rejected does not lead to a plausible inference that the statements were false or misleading.”  Id.  The key to the decision was the attorney’s ability to put as much separation as possible between the representations at issue and the consumer and the associated debt.