Debt Buyers & Collectors

On January 9, Georgia Attorney General Chris Carr announced a settlement with a debt collector that will wipe out $8.8 million in consumer debt.

“It is plain and simple, any debt collector that employs abusive, deceptive and illegal tactics in Georgia will be held accountable,” Carr said in announcing the settlement.

Carr alleged that the debt collector – Williamson and McKevie, LLC – violated the federal Fair Debt Collection Practices Act and the Georgia Fair Business Practices Act by:

  • threatening consumers with arrest or imprisonment if they did not pay a debt;
  • falsely representing that consumers had committed criminal acts and would be sued if they did not pay a debt;
  • falsely implying that its representatives were attorneys;
  • contacting third parties and divulging information about the debtors’ accounts; and
  • failing to disclose that they were attempting to collect a debt and that any information obtained would be used for that purpose.

Under the terms of the settlement, which was entered as an assurance of voluntary compliance, Williams and McKevie must stop collecting on 10,922 accounts that represent approximately $8.8 million in consumer debt and must also pay a $20,000 civil penalty.  In addition, Williams and McKevie agreed to a five-year monitoring period during which it will be subject to an additional $230,000 civil penalty if it violates any provision of the settlement.

Carr’s press release announcing the settlement is available here.

2017 was a transformative year for the consumer financial services world. As we navigate an unprecedented volume of industry regulation and forthcoming changes from the Trump Administration, Troutman Sanders is uniquely positioned to help its clients find successful resolutions and stay ahead of the compliance curve.

In this report, we share developments on consumer class actions, background screening, bankruptcy, credit reporting and consumer reporting, debt collection, payment processing and cards, mortgage, auto finance, the consumer finance regulatory landscape, cybersecurity and privacy, and the Telephone Consumer Protection Act (“TCPA”).

We hope you find this helpful as you navigate the evolving consumer financial services landscape.

ACCESS THE REPORT HERE

On February 6-8, 2018, DBA International will host its annual conference – Play Your Best Hand – at the Aria Resort & Casino in Las Vegas.

We are pleased to announce to announce that Troutman Sanders partner David Anthony will present on a panel entitled, “De-tangling Licensing Requirements – Monitoring for Changes, License Maintenance, and Practical Considerations.” This session will discuss the importance of monitoring case law and legislation for potential changes to licensing requirements, crucial steps to take in managing licenses, including compliance with licensing requirements, and allocating appropriate resources for supervision by the regulator.

To register or obtain additional information, visit the RMA 21st Annual Conference website.

On December 14, the Consumer Financial Protection Bureau officially withdrew a proposal to conduct a web-based consumer survey on the various debt collection disclosures required by the Fair Debt Collection Practices Act. According to the accompanying Notice of Action, the proposal was withdrawn at the CFPB’s request because the “Bureau leadership would like to reconsider the information collection in connection with its review of the ongoing related rulemaking.”

Published in June 2017, the purpose of the survey was to “explore consumer comprehension and decision making in response to debt collection disclosure forms” by collecting 8,000 completed surveys from targeted groups of participants. These groups would have included both individuals who have experienced debt collections in the past 24 months as well as a random sample of those with no such debt collections in the same timeframe. The CFPB expected the results of the survey to yield information regarding the clarity of debt disclosure forms as well information that would benefit the future development of effective debt collection disclosures. The estimated cost of the survey was set at just over $371,500.

Public comments on the proposal included submissions from the Association of Credit and Collection Professionals, the Consumer Bankers Association, the National Consumer Law Center, and the American Bankers Association. Most comments were critical of the proposed survey for failing to include the specific disclosures it was using as a basis for the survey questions. The commentators also pointed to certain methodological flaws within the survey that should be improved prior to implementation. In the end, the CFPB decided to scrap the proposed survey rather than implement the suggested changes.

Troutman Sanders will continue to monitor the activities of the CFPB under its new leadership and will report on any future developments.

On November 8, the Eastern District of New York rendered an opinion granting Credit Control Services’ motion to dismiss plaintiff Yendy Cruz’s claim. Specifically, the Court found Credit Control’s collection letter was not false or misleading under the Fair Debt Collection Practices Act because Credit Control was not including either interest or fees on its balance listed in its collection letter under either N.Y. C.P.L.R. § 5001 or the underlying credit documents.  

In Cruz v. Credit Control Servs., originally filed in New York state court, Cruz alleged Credit Control sent her a debt collection letter listing a balance owed after the words “amount of debt” but failed to disclose whether interest or fees were accruing on the debt. Cruz contended such a disclosure was necessary because Credit Control had the right to collect pre-judgment interest on the debt under N.Y. C.P.L.R. § 5001 as well interest and fees through the underlying credit documents. Cruz alleged Credit Control’s failure to include the disclosure made the collection letter false and misleading to the least sophisticated consumer. She also alleged Credit Control used unfair and unconscionable means to collect the debt and that Credit Control falsely represented itself in the collection letter. Credit Control moved to dismiss the Complaint because it never requested pre-judgment interest on Cruz’s balance.  Further, Credit Control contended the letter clearly stated that if the amount listed in the letter was paid, Credit Control would consider the claim settled in full. 

In holding for Credit Control, the Court noted statutory pre-judgment interest can only be awarded by a court upon a petition by the judgment creditor. Since Credit Control had not filed a lawsuit, the Court found that, as a matter of law, pre-judgment interest could not be accruing on Cruz’s debt. Further, the Court found the letter clearly laid out steps a debtor would have to take to satisfy the debt. 

The Court was also unmoved by Cruz’s argument that the Second Circuit’s decision in Avila v. Riexinger applied because she failed to allege that interest or fees were accruing on the debt. The Court recognized that the facts in this case were “fundamentally distinguishable” from that in Avila. For those reasons, the Court dismissed Cruz’s current balance claims. 

In dismissing Cruz’s unconscionable conduct claim, the Court held that Cruz had failed to allege any additional conduct beyond what was alleged to support her current balance claims. This fact was fatal to Cruz’s claim that Credit Control’s actions were unfair or unconscionable. 

As an aside, the Court recognized that Cruz filed an identical claim in the same court. Since the Court had specifically addressed the same allegations in deciding the current action, it resolved the second case in favor of Credit Control. 

Troutman Sanders will continue to monitor this case as well as other current balance decisions as the district courts of New York review this issue further. Updates will be provided as they become available.

Until last week, the CFPB was accepting comments on its proposal to conduct a survey on debt collection disclosures. This survey was closely linked to the CFPB’s planned debt collection rule that would impose additional restrictions and burdensome regulations on the debt collection industry. However, on December 14, 2017 – the last day to submit comments – the CFPB abruptly withdrew its proposal to survey consumers. In explaining the reason for the withdrawal, the CFPB stated that its leadership decided to reconsider collecting information in connection with its “ongoing related rulemaking” – a clear reference to the debt collection rule.

The CFPB had planned for this survey as early as December 3, 2013, when the CFPB announced that it was assessing the need for regulations in debt collection and would test consumer disclosures in connection with that aspect of its rulemaking agenda. The consumer disclosures survey was a long-standing endeavor and was mentioned along with the development of the debt collection rule in CFPB’s rulemaking agenda blog posts during 2014 to 2016. This web-based survey of 8,000 individuals was intended to “explore consumer comprehension and decision making in response to debt collection disclosure forms.”

The rule on debt collection as a totality was justifiably viewed with trepidation by the industry when it was first announced over four years ago. According to the CFPB’s outline of proposals issued on July 28, 2016, debt collectors would become subject to new strict limits and prohibitions in virtually all areas of debt collection:

  • Substantiation of Debt: Debt collectors would be required to substantially prove a debt is valid before starting collection, which would include obtaining information on the complete chain of title from the debt owner at the time of default to the collector and each charge for interest or fees imposed after default and the contractual and statutory authority source for such interest and fees.
  • Limits on Contact: The new rules would limit live communications to once per week if the collector has confirmed consumer contact. A collector would also be limited to no more than six communication attempts per week if the collector does not have confirmed consumer contact or three per week if the collector has confirmed consumer contact.
  • Consumer Disputes: The proposed rules would also require collectors to provide clearer and easier ways for that person to communicate the grounds for their dispute. This includes a proposed “tear off” portion of a collection notice or a telephone call. Additionally, under the proposed rules, if a disputed debt is sold, the new collector would inherit the dispute and would still have to provide validation.

In total, the proposed rule, at least as it was envisioned in July 2016, would have created a long list of compliance requirements for debt collectors. Furthermore, in the outline of its proposals, the CFPB emphasized that it considered “future rulemaking … [that] would apply to first-party debt collectors (i.e., creditors collecting their own debt excluded from coverage of the FDCPA).” The CFPB thus encouraged these “first-party debt collectors [to] carefully consider their own business practices in light of the proposals.”

What has changed is the control of the CFPB. The CFPB’s inaugural Director, Richard Cordray, resigned, and President Trump appointed Mick Mulvaney, director of the Office of Management and Budget, as interim director. Mulvaney immediately put all rulemaking on pause, and had made critical comments of the CFPB’s activism.

This pivot on the survey could well indicate a reversal of plans to develop the rule, at least on a pace that could have led to the rule being issued early next year.

On November 15, the U.S. District Court for the Northern District of New York ruled that a law firm did not violate the Fair Debt Collection Practices Act when it stated in its collection letter that the “amount due” was $5,794.54 but failed to indicate that this amount could increase due to interest assessed pursuant to N.Y. C.P.L.R. § 5001.  In Altieri v. Overton, Russell, Doerr and Donovan, LLP, the Court reaffirmed the holding in Cruz v. Credit Control Servs., Inc., No 2:17-cv-1994, 2017 U.S. Dist. LEXIS 186125 (E.D.N.Y. Nov. 8, 2017), by finding that interest cannot be assessed on an account unless and until a civil action is commenced.  Further, the Court rejected the consumer’s argument that the creditor could sell the consumer’s account to a third party who, in turn, could seek interest and fees under N.Y. C.P.L.R. § 5001.  The Court stated that the potential for future events, such as the consumer’s debt being sold to a third party who would then seek to add interest pursuant to N.Y. C.P.L.R. § 5001, does not make the “amount due” in the collection letter false or in violation of the Second Circuit ruling in Avila v. Riexinger & Associates, LLC.

The Court further ruled that the law firm did not violate the FDCPA when it sent a collection letter on the firm’s letterhead providing a disclaimer that no attorney from the law firm had reviewed the particular circumstances of the subject account and that the consumer’s “failure to respond to [the law firm’s letter] within the 30-day period will result in the continuation of [the law firm’s] efforts to collect this debt and the reporting of this account to a credit reporting agency.”  The district court rejected the consumer’s argument that since the letter was sent on the law firm’s letterhead, “the ‘least sophisticated consumer’ will assume that actions which only an attorney can take such as the filing of a lawsuit will in fact be a part of the continuation of [the law firm’s] efforts to collect the debt which ‘will’ occur.”

District courts in the Second Circuit have struggled to apply the holding in Avila as it pertains to these “current balance” claims.  The Altieri holding gives the debt collection industry some reprieve by providing relief from creative consumer attorneys bringing actions on claims that cannot accrue statutory interest because a court of law has never ordered the interest under state statute.

We will continue to report as these “current balance” cases develop and shape the law.

On December 8, the United States Supreme Court agreed to decide whether the tolling rule adopted in American Pipe & Construction Co. v. Utah i.e., that the filing of a class action tolls the limitations period for a purported class member’s individual claims – permits a previously absent class member to bring a subsequent and otherwise untimely class action.

The federal appellate courts have split on that question.  The First, Second, Third, Fifth, Eighth, and Eleventh circuits have held that American Pipe tolling only permits subsequent individual actions.  However, the Sixth, Seventh, and Ninth circuits have held that American Pipe tolling also permits subsequent class actions.

In the case before the Supreme Court, China Agritech Inc. v. Resh, shareholders of China Agritech filed a putative class action alleging that the company committed securities fraud.  China Agritech moved to dismiss, arguing that the putative class action was filed after the applicable two-year limitations period had lapsed and was thus untimely.  In response, the plaintiffs argued that, under American Pipe, the action was timely because the limitations period was tolled during the pendency of two earlier-filed but defective class actions against the same defendants based on the same underlying events.

The district court granted China Agritech’s motion to dismiss, finding that the putative class action was untimely, but the Ninth Circuit reversed the district court’s decision.

The Ninth Circuit noted that the American Pipe tolling rule was adopted to “promote economy in litigation” and that, absent tolling, “[p]otential class members would be induced to file protective motions to intervene or to join in the event that a class was later found unsuitable.”  Relying in large part on that rationale, the Ninth Circuit then held that “once the statute of limitations has been tolled, it remains tolled for all members of the putative class until class certification is denied,” and that, at that point, members of the putative class are entitled to bring individual suits “either separately or jointly.”

In urging the Court to grant certiorari, China Agritech argued that the Ninth Circuit’s decision would lead to forum shopping.  The U.S. Chamber of Commerce agreed, arguing that the Ninth Circuit’s decision “erroneously extends a judicially created tolling doctrine to effectively eliminate Congressionally mandated statutes of limitations.”

The Court is expected to issue a decision in the case before the end of its term in June 2018.

On November 21, the United States District Court for the Northern District of Illinois granted preliminary approval of a proposed $600,000 settlement of a class action lawsuit filed by a consumer against M3 Financial Services, Inc., an Illinois-based health care debt collector. The lawsuit, styled Elaine Mason et al. v. M3 Financial Services Inc., alleged that M3 placed more than one million calls to cellular telephones without prior express consent in violation of the Telephone Consumer Protection Act.

Originally filed on May 12, 2015, the lawsuit alleged that M3, in its attempts to contact debtors, placed autodialed and prerecorded calls that were instead received by individuals who were not debtors. The proposed class is based on 19,385 unique cell phone numbers contacted between May 2011 and May 2016 that did not belong to a debtor or guarantor on the underlying account for which a call was placed. This represents approximately one-fourth of the cell phone numbers called by M3 during the time period at issue.

The proposed settlement, which requires private mediation and considerable subsequent negotiations, provides for a fund of $600,000 from which will be paid class members as well as attorneys’ fees and costs and administration costs.

Troutman Sanders LLP has unique industry-leading expertise with TCPA compliance, with experience gained trying TCPA cases to verdict and advising Fortune 50 companies regarding their compliance strategies. We will continue to monitor regulatory and judicial interpretation of the TCPA to identify and advise on potential risks.

A federal district court in Connecticut recently ruled that a debt collector’s 29 telephone calls to a debtor’s home telephone over a period of 24 days was sufficient to establish a claim under the Fair Debt Collection Practices Act. In denying in part the defendant debt collector’s motion for judgment on the pleadings, Judge Jeffrey A. Meyer found that the frequency of the telephone calls could support plaintiff Peter Lundstedt’s claim that the debt collector made the calls to harass, abuse, or coerce him.

Lundstedt, who is representing himself, filed the action in Connecticut state court in May of 2015. The debt collector removed the action to federal court later that month. Lundstedt alleged the debt collector made 29 “terrorizing collection calls” in an attempt to collect on a $160 debt he owed to Verizon even though Lundstedt requested the debt collector to stop calling him. The complaint also alleged the debt collector violated the Telephone Consumer Protection Act as well as Connecticut state and common law. Attached to the complaint was a call log which purportedly showed 29 phone calls from the debt collector to Lundstedt from February 16 through April 11, 2015.

On August 25, 2015, the debt collector filed its motion for judgment on the pleadings in which it asked the Court to dismiss Lundstedt’s complaint. With regards to Lundstedt’s FDCPA claim, the debt collector argued the number of calls it made to Lundstedt is not sufficient to support a claim of harassment under the FDCPA. The debt collector also argued that Lundstedt failed to plead facts sufficient to support a claim under the TCPA or Connecticut state and common law.

Judge Meyer agreed with the debt collector’s analysis of Lundstedt’s TCPA and Connecticut state law claims and dismissed those counts of the complaint with prejudice. However, Judge Meyer found the 29 telephone calls over a period of 24 days was not “so insubstantial that it fails as a matter of law.” Judge Meyer further cited the fact that Lundstedt had orally requested that the debt collector stop calling him as well as evidence that the debt collector made multiple calls per day to support his decision that Lundstedt had pled facts sufficient to support a claim under the FDCPA.

This decision adds to the series of cases in which courts have attempted to quantify the number of telephone calls that constitute harassing or abusive conduct under the FDCPA. However, application of this decision to future cases is notably limited due to the procedural posture of the case. Further, claims of harassing or abusive telephone calls remain highly fact-specific inquiries for courts to consider, which may lessen the effect of a given court’s decision.