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The FBI has calculated that global losses due to business email compromise exceeded 12.5 billion dollars in the period October 2013 to May 2018. The question is no longer “if” your company will be a victim but “when” and in-house counsel and practitioners must be ready to detect and respond.

Troutman Sanders attorneys regularly represent financial institutions, real estate companies, title firms, and businesses with online platforms confronting and responding to business email compromise. And good old-fashioned theft continues to plague even the most sophisticated entities.

On Wednesday, March 20, 2019, from 2:00-3:00 ET, Mary Zinsner and Andrew Buxbaum will speak on the topic of preparedness, best practices, response, and litigation strategy in connection with the rise of cyber theft, embezzlement, and wire fraud in today’s technologically interconnected world.

Click here to register.

Professional credit

Processing of Continuing Legal Education (CLE)  by state bars requires up to 90 days to receive approval. For those licensed in California, Illinois, New York, and/or New Jersey, certificates will be distributed within 7-10 business days. If you have questions, please email our Professional Development department at CLEManagement@troutman.com.

Webinar Series

We will continue to offer webinars related to legal issues and recent decisions affecting the consumer financial services industry. If you have any questions about this series, please contact us.

In a recent decision, the United States District Court for the Middle District of Florida denied a consumer’s motion for summary judgment and granted summary judgment in favor of a debt collector regarding claims under the Fair Debt Collection Practices Act. The case is Encarnacion v. Financial Corporation of America, No. 2:17-cv-00566-SPC-UAM (M.D. Fla. Feb. 26, 2019). 

The debtor, Omar Encarnacion, brought his minor child (referred to as “O.E.”) to the emergency room at Lehigh Regional Medical Center in 2016. About eight months later, Encarnacion received a letter from Financial Corporation of America (“FCOA”). The letter was on FCOA’s letterhead, including its name and contact information, and was addressed to the “Parent of [O.E.]” and listed Encarnacion’s address. The letter contained three paragraphs about the debt collection process and identified the relevant account as follows: 

ACCOUNT IDENTIFICATION

Re:                          Lehigh Regional Medical Center

Account Number:    [3948]

Patient Name:         [O.E.]

Date of Service:      11-07-16

Balance Due:          $53.27

The word “creditor” is not used anywhere in the letter, but one paragraph stated that the letter was “an attempt to collect a debt” and that the “communication is from a debt collector.” 

After receiving the letter, Encarnacion brought a class action against FCOA for violating the FDCPA and, in particular, 15 U.S.C. § 1692g, which requires that a debt collector “send the consumer a written notice containing . . . the name of the creditor to whom the debt is owed.”  Both Encarnacion and FCOA moved for summary judgment. 

In evaluating the cross-motions for summary judgment, the Court first noted the standard for evaluating a claim under § 1692g, which requires the Court to find that the “least sophisticated consumer” would have been deceived by the debt collector’s conduct. Under this standard, the least sophisticated consumer “possesses a rudimentary amount of information about the world and a willingness to read a collection notice with some care,” and “does ‘not receive [the] letter in a vacuum,’” but instead has “reasonable knowledge of her account’s history.”   

Applying this analysis, the Court found that the letter from FCOA would not have deceived the least sophisticated consumer. In so holding, the Court relied heavily on Lait v. Med. Data Sys., Inc., No. 18-12255 (11th Cir. Nov. 9, 2018). In Lait, the United States Court of Appeals for the Eleventh Circuit found that a debt collector did not violate § 1692g when it sent a letter to a debtor that listed only the account number, service date, patient’s name, outstanding balance, and name of the hospital, and indicated that the debt collector was a “collection agency,” but nowhere stated that the hospital was the “creditor.” 

Similarly, the Court in Encarnacion noted that the letter included the name of the hospital, account number, patient name, date of service, and amount of debt, and identified FCOA as a debt collector. Accordingly, “[b]ecause ‘the debt collector is obviously the agent of the creditor’, ‘there is no argument to be had that the least sophisticated consumer would think his creditor was anyone other than the hospital listed.’”  

Troutman Sanders will continue to monitor and report on developments in this area of the law.

On February 26, the Supreme Court held in a unanimous decision that the deadline to seek permission for an interlocutory appeal of a decision granting or denying class certification cannot be extended through equitable tolling.  Rule 23(f) of the Federal Rules of Civil Procedure allows for an interlocutory appeal of class certification orders, but mandates that permission must be sought from the court of appeals within 14 days of the order.  The case is Nutraceutical Corp. v. Lambert.  The opinion can be found here. 

When the district court decertified Lambert’s class, he filed a motion for reconsideration.  Fourteen days after the Court denied the motion for reconsideration, and four months after the decertification order, Lambert petitioned the Ninth Circuit for permission to appeal the decertification order.  The Ninth Circuit allowed the appeal, holding that Rule 23(f)’s deadline should be tolled because Lambert had “acted diligently.”  The Supreme Court decisively disagreed, reversing the Ninth Circuit’s decision to allow the appeal. 

The Court first determined that Rule 23(f)’s time limitation was a nonjurisdictional claim-processing rule, but that “does not render it malleable in every respect.”  The Court searched the text of the rule for flexibility and found none.  Instead, it found the “Rules express a clear intent to compel rigorous enforcement of Rule 23(f)’s deadline, even where good cause for equitable tolling might otherwise exist.”  This is so because “Appellate Rule 26(b) says that the deadline for the precise type of filing at issue here may not be extended.” 

It is important to note that although the Court found no flexibility in Rule 23(f)’s deadline, objections to timeliness must still be raised.  Unlike jurisdictional rules, the deadline “can be waived or forfeited by an opposing party.”  In this case, equitable tolling could not save Lambert’s untimely petition because Nutraceutical had objected to the timeliness of the petition. 

This decision confirms how most have generally viewed the deadline for filing petitions under Rule 23(f), but still provides two key reminders for class action defendants.  First, when appealing an order certifying a class, defendants must be vigilant in adhering to Rule 23(f)’s 14-day deadline.  Second, when a plaintiff seeks permission to appeal an order under Rule 23(f), defendants should object to the timeliness if that petition was not filed within 14 days of the order, even if some intervening circumstances exist.

The attorneys general of all 50 states as well as the District of Columbia, Puerto Rico, the Virgin Islands, and Guam have offered their support to pending legislation, the Telephone Robocall Abuse Criminal Enforcement and Deterrence (“TRACED”) Act, aimed at significantly reducing robocalls.  The support was in the form of a letter sent by the AGs on March 5 to the U.S. Senate Committee on Commerce, Science, & Transportation.

In their letter, the AGs assert that the legislation takes “meaningful steps to abate the rapid proliferation of these illegal and unwanted robocalls.”  The AGs explain that their support for the bill is based on the fact that robocalls and telemarketing calls are currently the number one source of consumer complaints at many of their offices, as well as at both the Federal Communications Commission and the Federal Trade Commission.  Further, the letter points out that the total number of robocall complaints has risen by over one million in each of 2016 and 2017.

The state AGs also applaud the TRACED Act’s requirement that voice service providers participate in the call authentication framework and offer their support of its timely enactment.  The letter explains that because the hardware and software required to make robocalls is easy to obtain, is relatively inexpensive, enables “mass-dialing of thousands of calls for pennies,” and allows telemarketers to fake or “spoof” Caller ID information, virtually anyone can send millions of illegal robocalls and frustrate law enforcement with just a computer, inexpensive software (such as an auto-dialer and spoofing programs), and an internet connection.  The TRACED Act gives voice service providers between 12 and 18 months from its enactment to establish and implement a call authentication framework.  The AGs support this short implementation timeframe, as they believe it will greatly reduce the number of unwanted robocalls calls to consumers.

The state AGs conclude by offering their support of the Interagency Working Group established by the legislation, and encourage the Working Group to consult and coordinate with them given their years of experience bringing enforcement actions against illegal telemarketers and robocallers.

The attorneys general of all 50 states as well as the District of Columbia, Puerto Rico, the Virgin Islands, and Guam have offered their support to pending legislation, the Telephone Robocall Abuse Criminal Enforcement and Deterrence (“TRACED”) Act, aimed at significantly reducing robocalls.  The support was in the form of a letter sent by the AGs on March 5 to the U.S. Senate Committee on Commerce, Science, & Transportation.

In their letter, the AGs assert that the legislation takes “meaningful steps to abate the rapid proliferation of these illegal and unwanted robocalls.”  The AGs explain that their support for the bill is based on the fact that robocalls and telemarketing calls are currently the number one source of consumer complaints at many of their offices, as well as at both the Federal Communications Commission and the Federal Trade Commission.  Further, the letter points out that the total number of robocall complaints has risen by over one million in each of 2016 and 2017.

The state AGs also applaud the TRACED Act’s requirement that voice service providers participate in the call authentication framework and offer their support of its timely enactment.  The letter explains that because the hardware and software required to make robocalls is easy to obtain, is relatively inexpensive, enables “mass-dialing of thousands of calls for pennies,” and allows telemarketers to fake or “spoof” Caller ID information, virtually anyone can send millions of illegal robocalls and frustrate law enforcement with just a computer, inexpensive software (such as an auto-dialer and spoofing programs), and an internet connection.  The TRACED Act gives voice service providers between 12 and 18 months from its enactment to establish and implement a call authentication framework.  The AGs support this short implementation timeframe, as they believe it will greatly reduce the number of unwanted robocalls calls to consumers.

The state AGs conclude by offering their support of the Interagency Working Group established by the legislation, and encourage the Working Group to consult and coordinate with them given their years of experience bringing enforcement actions against illegal telemarketers and robocallers.

The New Jersey Attorney General’s Office filed suit against two automobile dealerships and their owner in the Superior Court of New Jersey, alleging that the dealerships should be closed and their owner barred from the industry because they targeted financially vulnerable consumers with a variety of unconscionable and deceptive business practices.

According to the AG’s Office, Nu 2 U Auto World and Pine Valley Motors, Inc., both owned by Kenneth R. Cohen, allegedly sold high-mileage used vehicles at inflated prices, financed sales through in-house loans with high interest rates that created a substantial risk of default, then “churn[ed]” the vehicles by repossessing and selling the same cars over and over again.

The AG’s Office asserts violations of the New Jersey Consumer Fraud Act, the Used Car Lemon Law, and the state’s vehicle advertising regulations related to the dealerships’ alleged sales tactics, including:

  • Selling and financing used motor vehicles at prices that exceeded the vehicle’s estimated value and compounding the inflated prices by offering financing at double-digit interest rates in excess of the rates offered by banks and credit unions;
  • Requiring consumers to make high up-front payments for the vehicles they purchased despite advertising that all vehicles required a down payment of only $488;
  • Advertising and offering for sale used motor vehicles without disclosing that they were previously damaged or required substantial repair or body work, including motor vehicles branded as “salvage”;
  • Requiring consumers who financed their purchase of used motor vehicles to sign a “right of repossession” form that prohibited consumers from keeping personal property in their motor vehicle during the duration of the financing term and permitting the dealerships to repossess the vehicles for late payment without providing advance notice; and
  • Failing to provide consumers with complete copies of signed sales documents, including financing agreements.

The state seeks closure of both dealerships and an order preventing the owner from ever owning, managing, or operating any business that sells or advertises vehicles for sale in New Jersey.  The requested relief also includes penalties under the state’s Consumer Fraud Act for each violation and restitution to affected consumers.

“Governor Murphy promised New Jersey consumers increased protections against financial exploitation and we’re making good on that promise,” said Attorney General Burbir S. Grewal in a statement. “As this lawsuit demonstrates, we are prepared to use the broad enforcement powers of New Jersey’s Consumer Fraud Act, and other laws and regulations at our disposal, to protect New Jersey consumers from unconscionable and deceptive lending practices.”

A copy of the complaint is available here.

A Florida magistrate judge recommended that debt collector Retrieval-Masters Creditors Bureau’s motion for summary judgment be granted in a suit alleging the company violated the Fair Debt Collection Practices Act by overshadowing the 30-day window to dispute a debt in a collection letter sent to plaintiff Cheryl Rafferty.  The case is Rafferty v. Retrieval-Masters Creditors Bureau, Inc. et al., and a copy of the judge’s Report and Recommendation is available here.   

Rafferty asserted a number of overshadowing claims in connection with the debt collection letter she received, including claiming that the language in the letter: (1) created a false sense of urgency; (2) requested payment in full; (3) stated that the matter had been referred to a credit bureau; (4) included superfluous language above the validation notice; and (5) positioned the validation notice of the back of the letter.  While Rafferty took issue with multiple provisions in the letter, she specifically noted the language “Now is the time for you to address this seriously past due account” and the statement that the account had been “outstanding for some time.”  

The magistrate judge concluded that the language did not overshadow the validation notice because it “does not preclude disputing the debt” and “did not demand any action within a specified timeframe inconsistent with the validation notice.”  The judge also found that including the validation notice on the reverse side of the document was not problematic where the letter used “the same font and size throughout the main body of text on the front and back sides of the letter” and “where one of the most substantial uses of emphasis in the letter is the referral to see the reverse side of the letter, which leads the consumer to the validation notice.”  Ultimately, the Court held that Rafferty “failed to meet her burden of establishing that [the] defendant’s letter would make a least sophisticated consumer uncertain as to her rights.”

 

Last week a district court judge in the Northern District of Illinois granted a collection agency’s motion to dismiss, ruling that a collection letter, even coupled with a voicemail, did not present a sense of urgency sufficient to confuse an unsophisticated consumer in violation of the Fair Debt Collection Practices Act. 

At issue in the case was a collection letter sent by Harris & Harris, the collection agency.  The collection letter contained details on how to make payment and presented a possible payment plan.  At the bottom of the collection letter was a detachable payment coupon.  The letter also contained the requisite debt verification rights notice pursuant to 15 U.S.C. § 1692g.  About a month after the letter was sent, Harris & Harris left a voicemail wherein it identified itself as a debt collector.  The plaintiff, Angela Thompson, alleged that by leaving the voicemail, Harris & Harris demanded immediate payment from her. 

Thompson filed suit, alleging that the letter and voicemail demanded immediate payment, which “overshadowed” the disclosure of her rights –  specifically, her right to dispute the debt.  

The Court disagreed and ruled that, pursuant to Seventh Circuit precedent, merely demanding payment does not “contradict or overshadow” the validation notice.  The Court further emphasized that because the collection letter did not contain a due date and included payment plan options, it was far more benign than previous communications that the Seventh Circuit deemed to be compliant with the FDCPA. 

Similarly, the Court was unpersuaded that the voicemail overshadowed the validation notice.  Indeed, the Court dismissed Thompson’s claim as speculative because she did not actually allege that Harris & Harris demanded immediate payment from her, but rather that the voicemail itself implied the demand for immediate payment.   

The Court dismissed the complaint without prejudice and gave Thompson until March 20 to file an amended complaint.

On February 28, Senators Elizabeth Warren (D-Mass.) and Marco Rubio (R-Fla.) re-introduced the Protecting Job Opportunities for Borrowers (“Protecting JOBs”) Act (S.609).  The legislation would prevent states from suspending, revoking, or denying state professional, teaching, or driver’s licenses solely because a borrower falls behind on their federal student loan payments.

Government entities may seize state-issued professional licenses from residents who default on their educational loans in 19 states.  A 2017 New York Times investigation identified at least 8,700 cases in which licenses were revoked or at risk of suspension in recent years.

In a press release, Senator Warren explained, “We shouldn’t punish people struggling to pay back their student loans by taking away their drivers’ or professional licenses, preventing them from going to work and making a living.  Our bipartisan bill removes these senseless roadblocks so that borrowers can build better financial futures.”

Senator Rubio added, “It is wrong to threaten a borrower’s livelihood by rescinding a professional license from those who are struggling to repay student loans, and it deprives hardworking Americans of dignified work.  Our bill fixes this ‘catch-22’ and ensures that borrowers are able to continue working to pay off their loans, instead of being caught in a modern-day debtors prison.”

If enacted, the Protecting JOBs Act would:

  • Prevent states from denying, suspending, or revoking:
    • state-issued driver’s licenses;
    • teaching licenses;
    • professional licenses; or
    • a similar form of licensing to lawful employment in a particular field;
  • Give states two years to comply; and
  • Provide borrowers with legal recourse by allowing them to file for injunctive relief.

The bill was referred to the Senate Health, Education, Labor and Pensions Committee.  Senators Warren and Rubio first introduced the bill in June 2018, but no action has been taken.

A district court in Texas, in Young v. ProCollect, Inc. (N.D. Tex. Feb. 21, 2019), granted summary judgment in favor of a defendant debt collector, ProCollect, Inc., where claims were asserted by the plaintiff, Ronnie Young, on behalf of himself and a putative class, under the Fair Debt Collection Practices Act.

In the complaint, Young alleged that ProCollect violated the FDCPA by sending him a debt collection letter offering to settle an alleged debt owed by him.  The letter stated that Young’s balance on the account was $0.00 but that $7.50 was owed.  According to the district court’s review of the record, ProCollect received a letter from Young disputing that monies were owed.  ProCollect also received a payment from Young for the alleged amount owed; upon receiving the payment, ProCollect marked the account at issue as “paid in full.”  Thereafter, Young’s spouse contacted ProCollect to obtain proof of payment, and “the employee who took the call obtained the spouse’s email address and emailed a ‘paid in full’ letter.”  However, “[d]uring the process of taking the call and generating the letter, the employee moved the account from the ‘paid in full’ category to the ‘information request return’ category, and neglected to return the account to the ‘paid in full’ category, which had the effect of causing defendant’s records to show that the account was active again.”  As a result, the debt collection letter central to the case was generated, stating that Young’s account had a $0.00 balance, but listed a collection fee of $7.50 as due.

The Court held that (i) “the FDCPA does not apply to the conduct at issue in this case, which occurred after the debt was paid,” and (ii) “defendant is entitled to the bona fide error defense under 15 U.S.C. § 1692k(c).  In doing so, the Court determined:

The law is clear that once a consumer has paid a debt in full, there is no debt as defined in the FDCPA and the FDCPA does not apply to post-collection activities.  Here, as in those cases, plaintiff paid his debt in full and defendant properly noted that the debt was paid and so reported it.  The July 7 letter was an obvious mistake and not an attempt to collect the debt, which had been paid in full. And, indeed, plaintiff was notified on multiple occasions that such was the case.

[…]

Even if the FDCPA applied, and it does not, defendant is entitled to the bona fide error defense. That is, a debt collector may not be held liable if the debt collector shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adopted to avoid such error. 15 U.S.C. § 1692k(c).  In response, plaintiff simply argues that whether defendant is entitled to the bona fide error defense is a fact question.  He has not, however, come forward with any summary judgment evidence to rebut the declaration supporting defendant’s motion.  Defendant has met its burden of establishing the defense and is entitled to judgment.

(emphasis added and internal citations omitted).

Based on the district court’s decision, it is clear the debt at issue in an FDCPA case must be closely analyzed and understood.  Moreover, the bona fide error defense under 15 U.S.C. § 1692k(c) is a critical tool in the defense of FDCPA claims.