FCC Will Rule on TCPA Petitions Next Month

The FCC has announced that Chairman Tom Wheeler has circulated a proposal to resolve more than 20 of the petitions pending before it concerning the TCPA.  The Commission will vote on June 18^th.  If approved, the rulings would be considered effective immediately.  According to the Fact Sheet released by the CFPB yesterday, the proposal, if passed, will resolve a number of issues:

1.  Whether calls made to reassigned numbers violate the TCPA where the prior subscriber provided consent to be called at that number? It appears that the Commission will answer this question in the affirmative.  According to the Fact Sheet, “[i]f a phone number has been reassigned, callers must stop calling the number after one call.”  If passed, the Commission intends to apply this ruling to both wireless and landline home service.
    
2. What constitutes an autodialer? If passed, the Commission will define an “autodialer” as “any technology with the capacity to dial random or sequential numbers.”
    
3. What about calls for urgent informational matters? If passed, it appears the Commission will carve out some limited exceptions for such things as fraud alerts and medication refills. 
    
4. How is consent revoked? If passed, the Commission will allow consumers the right to revoke their consent “in any reasonable way at any time.” 

Additionally, if passed, the proposal will give the green light to carriers to offer robocall-blocking technologies to consumers.   Additionally, the Fact Sheet indicates that it will reaffirm the following existing protections:

• The Do Not Call List would remain unchanged;
• Prior written consent will continue to be required for telemarketing robocalls to wireless and landlines;
• Autodialed and prerecorded calls and texts to wireless phones require prior consent, including debt collection calls;
• Political calls to wireless phones will remain subject to the general restrictions on prerecorded and autodialed calls.

 

While it is likely that the FCC will rule in favor of Chairman Wheeler’s proposal, it should not be assumed that it is a given and too many conclusions should not be drawn until it can be fully reviewed.  At least one commissioner has been fairly vocal regarding the TCPA and its implications for businesses.  Commissioner O’Rielly has on several occasions taken up the banner urging a resolution to the FCC petitions and recognizing the needs of legitimate business, including collection agencies, to be able to conduct business without looking over their shoulder.  See Remarks before the US Chamber of Commerce (November 17, 2014) (noting that “for too many American companies seeking to conduct legitimate marketing or collection efforts…the implementation and enforcement of TCPA has turned into a nightmare of serious problems” and affirming the characterization of the TCPA as a “bounty statute”); Remarks before the ANA (April 1, 2015) (recognizing that “FCC decisions and court rulings have broadened the scope of the TCPA, creating uncertainty and litigation risks for legitimate businesses”).

The June 18th meeting will be available by live webcast for those interested.

CFPB Publishes its Spring 2015 Rulemaking Agenda

Last week, the CFPB published its Spring 2015 Rulemaking Agenda.  While very few definitive dates were provided, the Agenda does give some insight as to an expected time frame for several hot button issues:

Payday Lending:   As they indicated in their Outline of Proposals, the CFPB has convened a Small Business Panel and anticipates issuing a proposed rule in late 2015.

Auto Lending Larger Participants:  The CFPB has indicated that they intend to finalize a proposal early this summer to define “larger participants” in the auto lending market.

Prepaid Financial Products:  The CFPB expects to issue a final rule in early 2016.

Mortgage Servicing Rules:  The CFPB expects to issue a final rule in the spring of 2016.

Mortgage Reform for Smaller Creditors Serving Rural or Underserved Areas: A final rule is expected in the fall of 2015.

By the same token, there are several hot button issues for which no definitive time frame was provided:

Arbitration:  The CFPB has not committed to rule making only indicating that they are reviewing feedback that they have received and “considering whether rules governing arbitration clauses may be warranted.”

Debt Collection:  Many of us have anticipated that a proposed rule would be issued in 2015.  The CFPB has not committed to any such time line. Prerule activities are now anticipated to continue until the end of the year.   The CFPB indicates that they are obtaining responses to a consumer survey and are involved in qualitative testing to “determine what information would be useful for consumers to have about debt collection and how that information should be provided to them.”

Overdrafts:  No time frame has been provided.  The CFPB indicates that they are continuing to conduct additional research to assess whether rulemaking is warranted. 

CFPB’S Study on Credit Invisibles: What's Next?

 

Earlier this month, the CFPB issued its research report on the demographics of the population who either do not have a credit record (tagged by the CFPB as being “credit invisible”) or who have insufficient credit histories to generate a credit score (tagged by the CFPG as being “unscorable”).   The Report documents the results of a research project undertaken by the CFPB’s Office of Research “to better understand how many consumers are either credit invisible or have unscored credit reports and what the demographic characteristics of such consumers are.” Data Point: Credit Invisibles, p. 5.

 

The Findings:

 

• According to the Report, 26 million consumers (11% of the adult population) in the United States were credit invisible, while an additional 19 million US consumers (8.3% of the adult population) had credit records that were unscorable. 
• The Report also found that there is a strong relationship between income and having a credit record: Almost 30% of consumers in low-income neighborhoods are credit invisible and about 16% have unscored records. This compares to only 4% of consumers in upper-income neighborhoods who are credit invisible and 5% who have unscored records.
• Additionally, Blacks and Hispanics are more likely to have limited credit history: About 15% of Blacks and Hispanics are credit invisible and 13% of Blacks and 12% of Hispanics have unscored records. This compares to only about 9% of Whites and Asians who are credit invisible and only about 7% of Whites who have unscored reports.

 

Noticeably absent from the Report are any recommendations to the industry as to how to address the concerns highlighted by the Report.  However, one thing appears certain – the Report is likely to be used as a foundation for concerns with fair lending down the road and consumer reporting agencies and users of credit reports should take careful note of the Report.  While no further rulemaking as to credit reporting appears imminent (based upon the CFPB’s Spring Rulemaking Agenda), interested parties should closely follow developments as to credit reporting within the CFPB.   

A special thanks to Lorne McManigle, a UNC law student for her assistance in preparing this blog entry.

Another District Weighs in on Proofs of Claim for Time Barred Debt

Another district court has declined to follow the 11^th Circuit’s holding in Crawford v. LVNV Funding LLC.  On a motion for summary judgment, the Western District of Missouri granted summary judgment in favor of LVNV Funding in an adversary proceeding alleging that LVNV’s filing of a time barred proof of claim violated the FDCPA.  Dunaway v. LVNV Funding, LLC, Adv. Pro. No. 14-4132 (W. D. MO. May 19, 2015).  This at least the sixth decision in recent months in which courts have outright refused to follow or have harshly criticized the rationale of Crawford. See Elliott v. Cavalry Invs., 2015 U.S. Dist. LEXIS 2423 (S.D. Ind. Jan. 9, 2015); Donaldson v. LVNV Funding, LLC, 2015 U.S. Dist. LEXIS 45134 (S.D. Ind. Apr. 7, 2015); Torres v. Asset Acceptance, LLC, C.A. 2015 U.S. Dist. LEXIS 45094 (E.D. Pa. Apr. 7, 2015); Torres v. Cavalry SPV I, LLC, 2015 U.S. Dist. LEXIS 45087 (E.D. Pa. Apr. 7, 2015); Owens v. LVNV Funding, LLC, 2015 U.S. Dist. LEXIS 52680 (S.D. Ind. Apr. 21, 2015).  We are advised that both Owens (7^th Circuit) and Torres (3^rd Circuit) are on appeal. 

In Crawford, the debtor commenced an adversary proceeding against a debt buyer, alleging that the filing of a time barred proof of claim violated the automatic stay and the FDCPA.  The debt buyer ultimately withdrew the proof of claim; however, the adversary proceeding proceeded forward.  The Bankruptcy Court granted LVNV’s motion to dismiss holding that the filing of a proof of claim, even one on time barred debt, did not constitute a violation of the FDCPA.  The district court affirmed. On appeal, the Eleventh Circuit reversed, holding that the filing of a proof of claim was an attempt to collect a debt and that the filing of a proof of claim for time barred debt violated the FDCPA.  In so holding, the court seemed to take issue with the fact that an otherwise uncollectible debt would result in some recovery under the Chapter 13 plan. “Such a distribution of funds to debt collectors with time-barred claims then necessarily reduces the payments to other legitimate creditors with enforceable claims.”  Crawford, 758 F.3d at 1261.   Additionally, the court premised its reversal on the notion that “a debt collector’s filing of a time-barred proof of claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt.”  Id. Recently, the Supreme Court refused to hear Crawford.

In Dunaway, LVNV filed a proof of claim which included in its attachment: (a) the name of the party from whom LVNV purchased the debt; (b) the date of charge off; (c) the date of last payment; and (d) the last transaction date.  The debtor objected to the claim and the objection (as amended by the debtor) was granted.  The debtor additionally filed an adversary proceeding alleging that by filing the proof of claim, the creditor violated 15 U.S.C. §§1692d, e and f.  On summary judgment, the court first acknowledged that the filing of a proof of claim is action taken in connection with collection of a debt.  In addressing the argument, the court stated that “[a] proof of claim, of course, is intended to result in some recovery for the creditor on the debt set out in the proof of claim, and so filing a proof of claim would be within the ordinary meaning of “debt collection.” Dunaway, Slip OP. at 7.  However, while filing a proof of claim is an action to collect a debt, it is “well established that the automatic stay does not prohibit actions taken in the bankruptcy case itself.” Id.

The court then turned to the specific provisions of the FDCPA asserted by the debtor and determined:

• The filing of a time barred proof of claim does not violate 15 U.S.C. §1692d.  Section 1692d generally prohibits a debt collector from engaging in conduct the natural consequences of which is to harass, oppress, or abuse any person in connection with the collection of a debt.  The court held that “there is no “threat” in a proof of claim that accurately reflects information about an unsecured debt the debtor has listed on his own schedules.  “It is neither a lawsuit nor a threat of a lawsuit; it’s a statement that a debt exists…and there is no prohibition in the Bankruptcy Code against filing a proof of claim on an unsecured, stale debt.”  Id. at 8 (internal citations omitted).
   
• The filing of a time barred proof of claim does not violate 15 U.S.C. §1692e.  Section 1692e generally prohibits a debt collector from using any false, deceptive, or misleading representation or means in connection with the collection of a debt.  While the court agreed that the filing of a proof of claim was an attempt to collect a debt, the court noted that the proof of claim accurately reflected information on the debt and that there was nothing false, misleading or deceptive on the face of the proof of claim.  Moreover, the court noted that the debtor has listed the debt on their schedules.  Additionally, “[t]he argument that filing a proof of claim on a time-barred debt mischaracterizes the legal state of the debt also fails because a debt that is legally enforceable or uncollectible is not extinguished; the money is still owed and only the creditor’s remedies are regulated.” Id. at 9.
   
• The filing of a time barred proof of claim did not violate 15 U.S.C. §1692f.  Section 1692f generally prohibits unfair or unconscionable debt collection activities.  The court noted that there was nothing unfair or unconscionable in the filing of a truthful and accurate proof of claim on a debt that is known to the debtor. 

The court then went on to distinguish the act of filing a proof of claim from the filing of a lawsuit on a time barred debt.  “[T]he deception and unfairness of untimely lawsuits is not present in the bankruptcy claims process.”  Id at 11.  The representations in a proof of claim are made to the court not directly to the debtor and in most cases, the debtor is represented by counsel “who can both advise them about the existence of a statute of limitations defense and file an objection if the trustees does not.  The process of filing an objection to a proof of claim is much simpler and more streamlined than defending a civil lawsuit.” Id.  Additionally, the court observed that a debtor in bankruptcy has much less at stake with the allowing of a proof of claim than a defendant facing a potential judgment.  The court concluded that “the present statutes and procedural rules do not preclude… [the filing of claims barred by the statute of limitations] by creditors.  Until the Bankruptcy Code is amended…or the procedural rules modified to render such claims invalid, creditors such as these defendants are entitled to file proofs of claim even for stale debts.” Id. at 13.

Not All Assisted Dialing Programs Are Created Equal: Click Dialing Does not Violate TCPA

According to a federal court in Illinois, not all assisted dialing programs violate the TCPA.  In Modica v. Green Tree Servicing, LLC, the plaintiffs filed suit seeking damages under the TCPA for calls made to their cell phones though automated telephone dialing systems without their prior express consent.  See Modica v. Green Tree Servicing, LLC, C.A. No. 14 C 3308 (N.D. Ill., Apr. 29, 2015).  In Modica, Green Tree used two methods to make outgoing calls.  The first was a predictive dialing system (the “dialer”) which both parties agreed was an ATDS.   The second was a custom built user interface software that accessed the customer’s phone number that was stored on a server and required a human to “click” a dial option.  The click option required the agent to first locate the number by connecting to the server and then clicking the telephone number on his computer.  While the click software was capable of interacting with the dialer, it required that the agent take an additional step to do by signing in to the dialer.

While the parties agreed that the predictive dialer constituted an automated telephone dialing system under the TCPA, they disagreed as to whether the equipment used to make calls through the click technology also was an ATDS.  On cross motions for summary judgment, the issue before the court was “whether the equipment used to make calls to Plaintiffs through the “click” method, which was connected to a server but not directly logged into the Dialer also had the present capacity to produce, store, and automatically dial phone numbers such that it qualified as an ATDS under the TCPA.”  Plaintiff contended that even though the agent was not logged into the dialer when she made the “click” calls, she had the capacity to log into the dialer from her computer and therefore had the capacity to auto-dial customer’s numbers.  Defendant, relying on an earlier opinion from the same district, contended that manually made calls do not have the “capacity” to be made from an auto-dialer just because the agent could theoretically sign on to the dialer.  The court agreed with Green Tree and granted summary judgment in its favor as to the calls made with the click technology. 

There were two keys to the court’s decision that interested parties should pay particular attention to.  First, the court found that the agent would not have had the capacity to make auto dialed calls without logging into the dialer.  Since the agent was not taken the additional step to log into the dialer, there was no capacity to make auto dialed calls.  Second, absent that additional step, the equipment did not have capacity to make calls without human intervention. 

           

Student Loan Servicing May Soon Resemble Mortgage Servicing

The CFPB has issued a Request for Information (the “RFI”) seeking comments concerning student loan servicing issues and potential solutions.  Based upon the content of the RFI and the prepared remarks of Cordray, it is likely that student loan servicers can soon expect rules and regulations to be implemented which will largely resemble those adopted for mortgage servicers and the credit card industry.  

The Rationale:

In March, President Obama issued his “Student Aid Bill of Rights” in which he directed the Secretary of Education, in cooperation with the CFPB, to issue a report assessing the potential applicability of consumer protections in the mortgage and credit card markets to student loans and recommendations as to statutory and regulatory changes. According to the CFPB, student loans are now the second largest consumer debt product.  The theme from the CFPB is a common one- consumers do not pick their student loan servicers and therefore there is no market control over the service industry. Currently, there is no comprehensive regulatory scheme in place governing the servicing of student loans and the CFPB believes that many of the issues it has identified with the servicing of student loans are similar to those that the Bureau has seen in the mortgage servicing and credit card markets.  The RFI “is meant to find ways to put the “service” back into the student loan servicing market and help people avoid unnecessary defaults.” Prepared Remarks of CFPB Director Richard Cordray at the Field Hearing on Student Loans (May 14, 2015).

The RFI:

The RFI focuses on the following key areas:

1. Specific practices that create repayment problems – for instance, billing error dispute procedures and timely processing of payments;
2. The compensation practices between lenders and servicers – specifically, whether student loan servicers are compensated in such a way as to encourage good service; 
3. Transitions between servicers- particularly, whether adequate notice is provided to the consumer and whether adequate information is transferred between the prior and successor servicers;
4.  Whether there are protections in other markets, specifically mortgage servicing and credit cards, that should be adopted in the student loan servicing market; and
5.  Whether there is adequate information available in the market to determine whether servicers are being effective.

The Future Regulations:

The CFPB appears to be focusing in on the mortgage servicing and credit card market reforms that have been implemented since the inception of the CFPB.  “Loan servicing generally includes many common functions, irrespective of the underlying consumer financial product, including account maintenance, billing and payment processing, customer service, and managing accounts for customers experiencing financial distress.”  Request for Information Regarding Student Loan Servicing, Docket No. CFPB-2015-0021, p. 20.  It is therefore likely that student loan servicing reform will bear some similarities to reform in the mortgage servicing and credit card markets.

Some of the provisions being considered for implementation in the student loan servicing sector are:

• Notice of transfer of loan servicing- expect to see some sort of notice provisions implemented and potentially, a provision that will require where there is a transfer, some sort of grace period in which the successor servicer cannot treat a consumer’s payment as late if the consumer made the payment in a timely manner to prior servicer;

• Transfer of Information Between Servicers - some requirement that student loan servicers implement policies and procedures to facilitate a transfer of information during servicing transfers;

• Payoff Statements – a requirement that servicers provide payoff statements within some set period of receiving a request for payoff from a consumer;

• Error Resolution Procedures – the CFPB appears to be contemplating a provision similar to the Qualified Written Response requirement imposed on mortgage servicers;

•  Early Intervention with Delinquent Borrowers – there is likely to be some provisions put in place for early rehabilitation of delinquent account and potentially modification rules to prevent defaults;

•  Timely Posting of Payments – a requirement that payments be credited within a certain time of receipt;

• Periodic Billing Statements – a requirement that monthly billing statements be provided; and

•  Application of Payments – some provision as to how payments in excess of the minimum payment will be applied where there are multiple accounts.

Time Frame:

The deadline for comments is July 13, 2015.  It is therefore unlikely that any proposed rule will be published before 2016.