Archives for August 2016

FCC Releases Rules Limiting Federal Government Debt Collection Calls

August 14, 2016 By Leave a Comment

Yesterday the Federal Communications Commission (FCC) released its Final Rules (Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, CG Docket No. 02-278) to implement an amendment passed by Congress in the Bipartisan Budget Act of 2015. That 2015 Act exempted autodialed calls “made solely to collect a debt owed to or guaranteed by the United States” from the Telephone Consumer Protection Act’s prior express consent requirement and directed the FCC to issue a regulation to implement the amendments to the TCPA within nine months of enactment.

insideARM has written extensively about this issue, most recently in a July 25, 2016 blog. But see also our November 5, 2015 story and our June 21, 2016 story.

The rules apply to calls initiated through an automatic telephone dialing system (ATDS) for the purpose of collecting debts owed to the federal government without the consumer’s prior express consent. The rules are effective 60 days after the FCC publishes notice in the Federal Register.

insideARM will be providing more extensive analysis of the Rules in the coming weeks. However, for this Breaking News story we will discuss a few of the highlights included in FCC Chairman Tom Wheeler’s Statement that was published in connection with the rule.

  1. The rules limit the number of calls to a cellphone, including text messages, to three per month.
  2. The rules also only allow calls concerning debts that are delinquent or at imminent risk of delinquency, unless there is prior express consent otherwise.
  3. The rules require that, absent consent, callers only call the individual who owes the debt, not his or her family or friends.
  4. The rules limit the number of calls allowed to reassigned numbers, consistent with last year’s July, 10, 2015 TCPA Omnibus Declaratory Ruling and Order (Adopted on June 18th, released on July 10th).
  5. The rules reiterate that consumers have the right to stop calls they do not want at any point they wish, and require callers to inform consumers of that right.
  6. The rules apply to each caller, rather than each debt.  Otherwise, consumers who have multiple loans with a single owner of the debt, as many do, could be receiving an excessive number of calls per month to their cell phones.  This limitation prevents that from occurring.
  7. The rules limit the time of day when calls can take place, requiring that no calls can be made before 8 a.m. and after 9 p.m. local time at the called party’s location.

FCC Commissioner Michael O’Rielly issued a very strong Dissenting Statement. O’Rielly wrote, in part (emphasis added by insideARM),

“When Congress enacted the Bipartisan Budget Act of 2015 (Budget Act), which included certain relief from the Telephone Consumer Protection Act (TCPA), the intent seemed clear.  Faced with the alarming prospect that the FCC’s misguided interpretations of the TCPA, culminating in the order last June, might prevent the United States from collecting its debts, Congress stepped in to exempt calls regarding such debts from the TCPA’s prior express consent requirements.  In other words, out of all of the legitimate entities that have valid reasons to autodial consumers, the federal government, along with companies servicing loans or collecting debts on behalf of the federal government, were moved to the front of the line and granted significant relief from the FCC’s wrongheaded rules.

Against this backdrop, and without knowing how the FCC would ultimately decide pending petitions about whether federal agencies and their contractors were subject to the TCPA, Congress enacted the Budget Act exemption to ensure that, at a minimum, federal agencies and their contractors are protected when calling to collect debts owed to or guaranteed by the U.S. government. Just two months ago, however, a near unanimous Commission provided further clarification, determining that all federal agencies and their contractors performing any legitimate, government authorized functions are exempt from the TCPA.  That’s because the Commission determined, consistent with Supreme Court precedent, that the federal government and its agents are not “persons” under the TCPA.

Therefore, it is beyond disappointing that the order decides that the federal government and its contractors will face more restrictions when making calls to collect debts than for any other type of call they make.  That’s the exact opposite of what the Budget Act exemption was designed to accomplish. Clearly, no good law goes unabused in this Commission.

The order further restricts the exemption to three call attempts per month.  While the law gives the Commission the authority to limit the number of calls, this is far too narrow.  The Commission is counting calls that never even go through.  How is that supposed to help borrowers get the relief they might need or want?  Multiple commenters noted that it can take dozens of call attempts just to reach a borrower, much less help them navigate their loan options.  Counting call attempts as calls, therefore, will only hurt the people that the Budget Act exemption is trying to help.

Moreover, there is absolutely no justification for the number three other than the fact that some particular commenters liked it.  These commenters, however, did not provide any explanation or data to support a three call limit.  The Commission can’t make policies based on the number of likes it gets or emojis.  It is required to have a rational basis for its decisions, and that is utterly lacking here. 

The Commission’s laziness stands in sharp contrast to the comments of parties that could actually be impacted by the rules, who provided plenty of reasons and data for choosing a higher number.  Chief amongst these is that fact that some are required by federal laws and rules to place more than three calls per month.”

These rules are published two weeks after the Consumer Financial Protection Bureau (CFPB) published its Outline of Proposed Rules governing debt collection, and present the possibility that rules on calls to collect government debt could be more restrictive than calls to collect all other types of debt.

FCC Releases Rules Limiting Federal Government Debt Collection Calls
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Accounts Receivable Management

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Court Affirms Dismissal of Crawford Case for FDCPA ‘Time-Barred’ Proof of Claim, Case Was Itself ‘Time-Barred’

August 14, 2016 By Leave a Comment

This article was originally published on the Maurice Wutscher blog and is republished here with permission.

Brent Yarborough

Brent Yarborough

On July 10, 2014, the United States Court of Appeals for the Eleventh Circuit issued its opinion in Crawford v. LVNV Funding, LLC. That opinion began by decrying the “deluge” of proofs of claim filed by debt buyers on debts that are unenforceable under state statutes of limitations. It ended by holding that the filing of a “stale” claim in bankruptcy violates the Fair Debt Collection Practices Act. As expected, the Eleventh Circuit’s opinion led to another sort of deluge: numerous FDCPA claims based upon the filing of proofs of claim or other collector conduct in bankruptcy. While courts across the country are dealing with the fallout of Crawford, the adversary proceeding that started it all has been dismissed because, as it turns out, it was filed too late.

After the Eleventh Circuit’s ruling in July 2014, Crawford was remanded back to the United States Bankruptcy Court for the Middle District of Alabama. On remand, the defendants again moved to dismiss the debtor’s adversary proceeding, this time on the grounds that the debtor’s claim regarding a time-barred proof of claim was itself barred by the FDCPA’s one-year statute of limitations. The Bankruptcy Court granted the motion to dismiss and the debtor appealed that dismissal to the U.S. District Court.

Crawford’s Own FDCPA Claim ‘Time Barred’

On Aug. 9, 2016, the District Court affirmed the Bankruptcy Court’s dismissal of the adversary proceeding. The proof of claim at issue was filed on May 21, 2008, but the debtor did not file his adversary proceeding until May 3, 2012, well beyond the FDCPA’s one-year statute of limitations. The debtor argued that his adversary proceeding should be treated as a compulsory counterclaim or as a claim in recoupment. Under the debtor’s analogy, the filing of the proof of claim was like the filing of a lawsuit, which would serve to toll the statute of limitations for a compulsory counterclaim. And a claim in recoupment generally survives the expiration of the limitation period.

The District Court noted that compulsory counterclaims and claims in recoupment must arise out of the same transaction as the original claim. Here, the original claim arose out of the debtor’s purchase of furniture on credit back in 1999. But the debtor’s FDCPA claim concerned the method of collecting the resulting debt. Because the debtor’s FDCPA claim “does not rise out of the same transaction as and is ‘not logically related’ to [the collector’s] proof of claim,” it cannot qualify as a compulsory counterclaim or as a claim in recoupment.

The debtor can now appeal this dismissal to the Eleventh Circuit. But as things currently stand, he recovers nothing in this case. In fact, because he failed to timely object to the proof of claim, the very proof of claim that lead to his FDCPA claim is included in his bankruptcy plan.

Practice Still Violates FDCPA in 11th Circuit

While an ironic outcome, this latest chapter in the Crawford saga does not change the legal treatment of “time-barred” proofs of claim in the Eleventh Circuit. Indeed, the court just revisited the issue in a May 2016 opinion. In Johnson v. Midland Funding LLC and Brock v. Resurgent Capital Services, L.P., the Eleventh Circuit held that there is no irreconcilable conflict between the FDCPA and the Bankruptcy Code. But other circuits disagree with the Eleventh Circuit. In July, the U.S. Court of Appeals for the Eighth Circuit held in Nelson v. Midland Credit Management, Inc., that “[a]n accurate and complete proof of claim on a time-barred debt is not false, deceptive, misleading, unfair, or unconscionable under the FDCPA.” And on Aug. 10, 2016, the U.S. Court of Appeals for the Seventh Circuit, in Owens v. LVNV Funding, LLC, likewise declined to follow the Eleventh Circuit’s approach. It is anticipated that the U.S. Court of Appeals for the First, Third, Fourth and Sixth Circuits will issue opinions addressing the treatment of “time-barred” proofs of claim under the FDCPA within the next year.

Interesting Crawford Trivia

Those following Crawford as it has wound its way up and down the federal court system might be interested in one other tidbit from this recent opinion. When the Eleventh Circuit’s opinion was released in 2014, some commenters noted that it was written by a senior judge from the United States Court of International Trade. Of course, it is not unusual for judges from one federal court to take an assignment “by designation” with another federal court. When Crawford’s second bankruptcy appeal reached the United States District Court for the Middle District of Alabama, the chief judge of the district assigned the case to a different senior judge from the United States Court of International Trade.

Court Affirms Dismissal of Crawford Case for FDCPA ‘Time-Barred’ Proof of Claim, Case Was Itself ‘Time-Barred’
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Accounts Receivable Management

Filed Under: News

7th Cir. Deepens Split on FDCPA Liability for ‘Time-Barred’ Claims

August 14, 2016 By Leave a Comment

This article was originally published on the Maurice Wutscher blog and is republished here with permission.

Don Maurice

Don Maurice

Filing a proof of claim with a bankruptcy court representing a debt subject to an expired state law limitations period does not violate the federal Fair Debt Collection Practices Act (FDCPA) under an opinion released yesterday from the Seventh Circuit Court of Appeals.

Under the ruling, in Owens v. LVNV, the Seventh Circuit joins the Eighth Circuit Court of Appeals in rejecting the Eleventh Circuit’s holding under Crawford v. LVNV that such proofs of claim violate the FDCPA.

A copy of the opinion is available at:  Link to Opinion.

In this consolidated appeal of three cases, debt purchasers or their attorneys had filed proofs of claims in Chapter 13 cases. The debtors in each Chapter 13 case objected to the proofs of claim on the basis they were “time-barred.” The objections were sustained and each claim was disallowed.

Each objecting debtor then sued in federal district court alleging that because the debts represented by the proofs of claim were time-barred, the debts were not valid claims because they were not “legally enforceable.” Therefore, the claims filings in the bankruptcy courts amounted to false, unfair and deceptive practices in violation of the FDCPA.

The federal district courts dismissed the complaints, finding that the proofs of claim were complete and accurate and the mere filing of a proof of claim for a debt subject to an expired limitations period did not violate the FDCPA.

Out of Statute Debts are Claims

The Court of Appeals rejected the argument that the Bankruptcy Code only permits “legal enforceable” claims. Finding that the Bankruptcy Code’s definition of a claim is broadly construed, the Court pointed to Third Circuit law, which considered a claim “more extensive than the existence of a cause of action that entitles an entity to bring suit.” The Bankruptcy Code, the opinion notes, contemplates claims subject to expired state-law limitations periods and, through the bankruptcy process, the debtor can object and cause them to be disallowed.

Bankruptcy Process Provides Protections

The debtors also argued that the process of filing such proofs of claims can be false and deceptive because even though the claims may be subject to disallowance, debt collectors contemplate that no objection will be made because the “process sometimes will break down and fail.” This same rationale is behind the Eleventh Circuit’s decision in Crawford.

Here the Seventh Circuit, like the Eighth Circuit, looked to the Second Circuit Court of Appeals decision in Simmons v. Roundup Funding, decided long beforeCrawford. In Simmons, the Second Circuit held that the mere filing of a proof of claim representing an inflated debt did not violate the FDCPA. The bankruptcy process provides debtors with sufficient protections against, as the Seventh Circuit put it, an “invalid or enforceable” claim. Unlike a civil lawsuit, where the debtor may be misled to believe no defense exists to entry of a judgment and simply “give in,” in a bankruptcy case (particularly one where the debtor has counsel, as was the situation in all three of the consolidated cases here), the same concern is not present. The proof of claim must identify the age and the origin of the debt, providing sufficient information to determine whether the debt is subject to an expired limitations period.

Another factor distinguishing the bankruptcy process is the presence of trustees, who are “duty-bound” to object to claims and cause them to be disallowed for a variety of reasons, such as a defense that the claim is past a state-law limitations period.

Finally, unlike a civil lawsuit, because the debtor initiated the bankruptcy process, he “thus demonstrated a willingness to participate” and would be “unlikely to give in rather than fight the claim.”

No Evidence of False, Deceptive or Unfair Practices

The Seventh Circuit evaluates communications subject to the FDCPA by not examining how the plaintiff interpreted them, but instead considers how the communication would be interpreted by a hypothetical “unsophisticated consumer.” However, because in each of the three bankruptcy cases here the debtors were represented by counsel, the Seventh Circuit employed its less stringent, “competent attorney” standard. Under this standard the Court reasoned that a hypothetical competent attorney was provided all the information required from the face of each of the three proofs of claim to determine whether any were subject to a state-law expired statute of limitations.

Because the proofs of claim would not confuse the hypothetical competent attorney, no evidence was presented that any of the proofs of claim contained deceptive or misleading information or constituted unfair or abusive conduct.

FDCPA Not Precluded by Bankruptcy Code

The opinion notes that it is sympathetic to situations where claims subject to state-law limitations periods are not disallowed and are paid through a Chapter 13 plan because it “harms not only the debtor, who is forced to pay a portion of the stale debt out of limited means, but also creditors with legally enforceable debts whose share of the pie is reduced because an additional creditor is claiming a piece.”  But that risk did not support a finding of an FDCPA violation here because all three claims were in the bankruptcy process because all the plaintiffs here object to the claims, which were not allowed in their bankruptcy cases.

Further, the opinion does not preclude the FDCPA from the bankruptcy process when debt collectors file proofs of claim “with inaccurate information” or otherwise engage in “deceptive or misleading debt collection practices.”

Other Circuits Expected to Weigh in Soon

Appeals on the same issue are pending before the First, Third, Fourth and Sixth Circuit Courts of Appeals.

7th Cir. Deepens Split on FDCPA Liability for ‘Time-Barred’ Claims
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Accounts Receivable Management

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FDCPA Safe Harbor Buried within CFPB Mortgage Rules

August 14, 2016 By Leave a Comment

On August 4, 2016 the Consumer Financial Protection Bureau (CFPB) released a rule providing safe harbors from liability under the FDCPA for certain actions taken in compliance with mortgage servicing rules under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z).

According to the interpretive Rule, servicers that are debt collectors would enjoy safe harbors from liability in three situations:

  1. Servicers do not violate FDCPA section 805(b) when communicating about the mortgage loan with confirmed successors in interest in compliance with specified mortgage servicing rules in Regulation X or Z
  2. Servicers do not violate FDCPA section 805(c) with respect to the mortgage loan when providing the written early intervention notice required by Regulation X § 1024.39(d)(3) to a borrower who has invoked the cease communication right under FDCPA section 805(c)
  3. Servicers do not violate FDCPA section 805(c) when responding to borrower-initiated communications concerning loss mitigation after the borrower has invoked the cease communication right under FDCPA section 805(c)

The Bureau has determined that this rule is exempt from notice and comment rulemaking requirements under the Administrative Procedure Act pursuant to 5 U.S.C. 553(b).

The rule becomes effective 12 months from the date of publication in the Federal Register, which has not yet happened. insideARM contacted the CFPB to confirm the exact date when the rule will be in effect; we were told it generally takes about five business days for shorter rules like this to be published.

insideARM Perspective

It is very interesting that the CFPB has published a rule specifically providing safe harbor for certain debt collection activities. Perhaps this suggests that there could be similar treatment for other rules affecting debt collection which conflict with communications that are important for consumers to receive, even if they have made a cease communication request.

A few examples that come to mind include:

  • Right to Cure Notices as required by a number of states (applicable to a variety of types of consumer debts such as mortgage, auto, furniture, and others)
  • Notice of acceleration of a debt (notice that the debt is in default and all future payments will become due at once)
  • Payment reminders to third parties
  • Monthly and quarterly statements now required by New York in association with a payment arrangement
  • Statement of Rights as contemplated by the Outline of Proposed Debt Collection Rules, which states that a collector would be required to re-send the Statement of Rights in the first communication made more than 180 days after the initial validation notice
  • If a cease request is made in writing, all collection efforts made until the cease is received
  • If a consumer is represented by an attorney, any communication with the consumer until consumer communicates a name and phone number of the attorney
  • If a dispute or validation request is coupled with a cease communication request, the collector should be able to respond to the validation request in writing
  • If a settlement is coupled with a cease request, the collector should be able to communicate with the consumer regarding the settlement
  • Cease requests are only applicable to the debt stated in the specific cease request

Separate from Cease Requests, other safe harbors such as letter templates, would balance consumer notification against debt collection risks. For example:

  • Collection letters with mandated wording (for instance, regarding an accruing debt balance due to interest and collection costs, as required by the Second Circuit case Avila v. Riexinger & Associates, LLC)
  • The litigation disclosure as contemplated by the Outline of Proposed Debt Collection Rules, which states that a collector must notify the consumer of the intention to sue.

Meanwhile, First Party rulemaking is underway. This will be especially interesting as it relates to creditors, should the CFPB choose to apply the FDCPA (or parts of it) to actions of “First Parties.”

FDCPA Safe Harbor Buried within CFPB Mortgage Rules
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Accounts Receivable Management

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TransUnion’s TLOxp and Interactive Intelligence ARM Solution Integrate to Improve Right Party Contact Rates

August 14, 2016 By Leave a Comment

CHICAGO, Ill. – TransUnion and Interactive Intelligence announced today that TransUnion’s TLOxp® has integrated with accounts receivable management solution, Interaction Collector®. This integrated solution will help organizations improve right party contact rates by giving them access to unique data elements, such as one best phone number, best address, and place of employment.

TLOxp offers actionable information that can be used for identity authentication, fraud prevention and detection, compliance, and debt recovery. TLOxp is built on proprietary linking algorithms and a massive repository of data.

“TransUnion and Interactive Intelligence’s integrated solution will allow accounts receivable managers to more easily identify connections between individuals, businesses and assets,” said Peter Ghiselli, vice president at TransUnion. “Our powerful technology helps the ARM industry streamline the research and collection process by providing accurate, actionable information.”

Interaction Collector is a scalable and configurable collection software application offering a browser-based collector workstation. Built as a true collection and recovery application, it manages the debt lifecycle from early-stage delinquency through post charge-off and sales.

The integrated TLOxp and Interaction Collector solution gives organizations collecting early stage delinquencies, as well as third parties performing recovery collections on their behalf, the following capabilities:

–       Access to public and proprietary alternative data.

–       Actionable data covering approximately 95 percent of the U.S. population.

–       Over 700 million unique identities.

–       More than 200 million place of employment records.

“Accurate and complete information about individuals and businesses is critical to driving a successful outcome during the collections negotiation phase and curing the debt,” said Ian Winder, Interactive Intelligence product manager, ARM Division. “Leveraging the information available from TransUnion via this integration puts the agent in the driver’s seat, reinforcing the overall concept of ‘right account, to the right collector, at the right time, with the right information.’”

About Interactive Intelligence

Interactive Intelligence Group Inc. (Nasdaq: ININ) is a global leader of cloud services for customer engagement, communications and collaboration designed to help businesses worldwide improve service, increase productivity and reduce costs. Backed by a 20-plus year history of industry firsts, 150-plus pending patent applications, and more than 6,000 global customer deployments, Interactive offers customers fast return on investment, along with robust reliability, scalability and security. It’s also the only company recognized by the top global industry analyst firm as a leader in both the cloud and on-premises customer engagement markets. The company is headquartered in Indianapolis, Indiana and has more than 2,000 employees worldwide. For more information, visit www.inin.com.

About TransUnion (NYSE:TRU) 

Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion reaches consumers and businesses in more than 30 countries around the world on five continents. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.

We call this Information for Good. www.transunion.com/business.

TransUnion’s TLOxp and Interactive Intelligence ARM Solution Integrate to Improve Right Party Contact Rates
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Accounts Receivable Management

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Problems with Payment Processing and Reg E? This Works Like Crazy

August 14, 2016 By Leave a Comment

Is your business Reg E Compliant?

What do your REG E communications look like? Letters? Email? Sending them to your website?

How’s that working for you?

Reaching delinquent customers and getting paid is a lot like Fly Fishing.  You cast the line out many times, and often must try different types of bait before you get a fish on the line. Then you reel the fish in, but if you pull too hard, or too fast, you will lose them.

Delinquent customers may avoid calls, but respond to text messages. They may ignore mailed letters, but respond to emails. When you finally get a response, (or get them on the line so to speak), you have one shot at getting paid. A disjointed payment collection process that fails to secure a payment arrangement while the agent is on the line can lead you back to square one with the consumer. Casting the line and trying to get another bite.

Payment Plans are the best solution

Getting payments from consumers with debt collection accounts has always been difficult. As a result, companies take partial payments and establish payment plans in an effort to collect the most money. This process has been going on for decades.

The consumers are not in a position to borrow money to pay the debt in full. They do not have financial reserves or savings to pay off past due accounts. In many cases, a payment arrangement is the only way to get paid on past due accounts. Debt collectors figured out years ago that customers with delinquent accounts are past due because they neglect to pay their bills. They do not have adequate cash flow or good enough money management skills to keep debts current, let alone catch up old accounts. For these customers setting up a payment arrangement, is a bit like putting your finger in a dike.

Payment Collection Process and staying Reg E Compliant 

Debt collectors have tried many different ways of collection money. In the 70’s they took postdated checks. Even today, postdated arrangements are common. With the emergence of debit cards and the popularity of credit cards, setting up auto debits on these accounts have become the go-to solution for automating the payment collection process with delinquent consumers.

The entrance of Reg E has thrown another roadblock into the payment collection process.

Companies MUST find new processes that remain Reg E Compliant during the payment collection process, along with establishing reliable repayment plans customers will actually follow for more than a single payment. The new Reg E compliance requirements is precisely why PDCflow created our Reg E solution allowing the consumer to sign the payment arrangement agreement on their Smartphone, while still on the line with the bill collector. The representative can see the signature in real time, which allows them to be much more effective in setting up those all important recurring schedules.

Problem Solved!

For more information on PDCflow’s eSignatureflow, click HERE or call 877-732-4814.

Problems with Payment Processing and Reg E? This Works Like Crazy
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Accounts Receivable Management

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PRAA Announces Financial Results for Q2 2016; Comments On CFPB Outline of Proposed Debt Collection Rules

August 14, 2016 By Leave a Comment

On Monday, PRA Group (PRAA) reported its financial results for the second quarter of 2016. The company also hosted a conference call for investors.  PRAA is one of the largest purchasers of defaulted receivables worldwide.

Second Quarter 2016 Highlights

  • Cash collections of $387.2 million, (currency adjusted cash collections of $391.3) million versus $389.6 million in the prior year period.
  • Cash collections for the first six months of 2016 were $771.5 million versus $789.4 million in the prior year period.
  • Total revenues for the quarter of $228.5 million, currency adjusted revenues of $230.0 million versus $237.2 million in the prior year period.
  • Total Revenues for first six months of 2016, were $453.3 million versus $482.4 million in the prior year period.
  • Income from operations of $72.8 million, non-GAAP income from operations of $75.1 million.
  • Net income for the quarter of $36.5 million, non-GAAP net income of $38.3 million, compared with $51.4 million in the prior year period.
  • Net income for the first six months of 2016 was $68.4 million, compared with $109.6 million in the prior year period.
  • Net income margin in the second quarter of 2016 was 16.1%
  • Net income margin for the first six months of 2016 was 15.4% compared with 22.7% in the prior year period.
  • $249.5 million in investments.
  • Estimated remaining collections of $5.3 billion

In the press release that accompanied the earnings announcement, Steve Fredrickson, PRA Group Chairman and Chief Executive Officer, commented on the quarter,

“We are beginning to see signs that may indicate the credit cycle is turning, which could ultimately increase the supply of nonperforming loans in the U.S. In Europe, we see a strong acquisition pipeline and strong cash collections in most markets. Global sellers are increasingly looking for buying partners that offer competitive pricing, a strong compliance system, and a reputation for treating customers respectfully.

insideARM Perspective

insideARM suggests that parties interested in PRAA also review the quarterly earnings announcement for Encore Capital Group (ECPG) to get a broader picture of the debt buying industry. See here for that story.

Echoing a similar sentiment about the state of the U.S. market from the ECPG earnings call Frederickson commented,

“Although the U.S. core market remains competitive, we have been awarded portfolios at higher IRRs throughout Q2 and into Q3. We feel these returns better reflect the current operational intensity, regulatory complexity, and ambiguity and general risk in the market then did the lower returns prevailing prior to this year.”

Frederickson also commented on the CFPB’s recent release of the Outline of Proposed Debt Collection Rules,

“We support the CFPB’s efforts in rule making for our industry and are glad to see them take another step in the process in a manner that levels the playing field for third-party debt collectors. We believe that most of the rules considered in this document generally are aligned with what we’ve seen from them previously in public documents, industry consent orders, and periodic bulletins. However, we’re still digesting it and we’ll continue to monitor the process.”

The issue of the CFPB ultimately imposing call limits also came up on the conference call.  Frederickson did a nice job or articulating the importance of the issue:

“It’s a critical issue and it’s one that we hope through this rulemaking process is [an area] where everybody can fall into a good common ground.

On the one hand, we don’t want the collection industry enabled to make abusive or vast amounts of phone calls. That’s not what we do and that’s certainly not something that I think the consumer advocates or regulators want to see. But on the other hand, you can’t cut off that dialogue between the collector and the consumer because what’s going to happen especially in a world that these days is largely driven by upfront documentation and very thorough documentation.”

In short, Frederickson suggested that if communication attempts are substantially reduced, increased collection litigation could necessarily follow.

Finally, during the Q&A session an unidentified analyst asked about changes in the regulatory environment in the UK.  It seemed as though this analyst was referencing a dialogue on the issue in last week’s ECPG call.

Tiku Patel, Chief Executive Officer, PRA Group Europe responded:

“The FCA and CSA have had guidelines for a couple of years now and they have remained pretty consistent. And we’ve been in line with those or indeed ahead of those as we sought to be a standard there of customer centricity, and in particular compliance in all of our markets. I think maybe you’re referring to affordability checks, would that be right. And if that’s the case, I mean, we specifically been using affordability checks for all one-off payments and repayment plans in our UK businesses since about 2013 and in particular income and expenditure analysis.”

It is interesting to compare the PRAA comments on this issue with those articulated in the ECPG call last week.

PRAA Announces Financial Results for Q2 2016; Comments On CFPB Outline of Proposed Debt Collection Rules
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Accounts Receivable Management

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Illinois Governor Bruce Rauner Nixes Bill Connected to His Former Business Life in Debt Collection

August 14, 2016 By Leave a Comment

According to an article in the Chicago Sun Times today, Illinois Governor Bruce Rauner vetoed a bill last Friday that would have allowed Cook County and Chicago to use third party debt collectors to pursue delinquent tax debts. Evidently, Rauner felt that this would “penalize property owners who are already facing skyrocketing property taxes.”

The article also noted that the proposal’s backer, Cook County Department of Revenue President Toni Preckwinkle, said that the bill was intended to apply to other revenue, such as taxes on amusement, tobacco, and bounced checks – not to property taxes.

insideARM Perspective

An interesting twist in this story is that the Illinois Governor himself used to be an investor in debt collection and BPO companies. As former Chairman of private equity firm GTCR Golder Rauner, LLC, Rauner was involved in an active series of partnerships and acquisitions in the early 2000’s, including Risk Management Alertnatives, Lason, Zenta and Hilco Receivables. Rauner retired from GTCR in 2012.

Earlier this year, Governor Rauner signed into law Senate Bill 1369, reversing provisions adopted in the Illinois Collection Agency Act (August 2015) that conflicted with the FDCPA.

Illinois Governor Bruce Rauner Nixes Bill Connected to His Former Business Life in Debt Collection
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Ninth Circuit Court of Appeals Rules – Failure to Specifically State “This Communication is From a Debt Collector” is Not FDCPA Violation

August 14, 2016 By Leave a Comment

Yesterday, the Court of Appeals for the Ninth Circuit reversed a decision from a district court in a bench trial that a collection law firm had violated the Fair Debt Collection Practices Act (FDCPA) by failure to specifically state in a voice message: “This communication is from a debt collector.”

The case is Davis v. Hollins Law, a Professional Corporation, (Ninth Circuit Court of Appeals, Case No 2:12-cv-03107). A copy of the opinion can be found here.

Background

Plaintiff Michael Davis obtained an American Express TrueEarnings Business Card at Costco in 2009.  In order to qualify for a business card, Davis filled in the credit card application with information about his wife’s real estate practice, even though his wife had stopped working in real estate the previous year. He subsequently used the card to purchase a number of personal items at Costco, including groceries, gas, and a 65-inch television. Neither Davis nor his wife ever used the card for business purposes.

Davis failed to pay the balance on the American Express card and his debt was referred to Hollins Law. The firm’s first contact with Davis was on July 23, 2012.  Between July 23, 2012 and September 25, 2012 the law firm and the plaintiff had significant interaction regarding a potential settlement of the account. The interaction included voice messages, telephone conversations, and email exchanges.

Then, on September 25, 2012 an employee of the law firm (Gregory Daulton) left the following voicemail message for Davis:

“Hello, this is a call for Michael Davis from Gregory at Hollins Law. Please call sir, it is important, my number is 866-513-5033. Thank You.”

In the voicemail message, the employee did not state that Hollins Law was a debt collector. However, Davis later admitted in response to a discovery request that, “Upon hearing the voice message, . . . Plaintiff understood that it was from a debt collector by combining the message itself with Plaintiff’s prior knowledge that Defendant was a debt collector.”

After September 25, 2012 (from October 4 to October 12) Davis and the law firm employee exchanged eleven additional emails discussing a potential settlement of the account. By October 12 (the last email in the record), the two parties had still not reached an agreement to settle the debt.

On December 28, 2012, Davis filed suit against Hollins Law, alleging a violation of the FDCPA. In his complaint, Davis stated that Hollins Law was “attempting to collect a debt” on behalf of American Express and that by leaving the September 25th voicemail message, Hollins Law violated the FDCPA by (among other things) “failing to disclose in subsequent communications that the communication was from a debt collector” in violation of § 1692e(11).

The district court held a bench trial on April 15, 2014, and ruled in favor of Davis. The trial court held that the debt at issue was consumer debt because the credit card was “primarily used for household purposes” even though Davis had applied for a business credit card. Therefore, the FDCPA (which applies only to consumer debt) was applicable to communications from Hollins Law to Davis.

Further, the trial court held that because the September 25th voicemail message failed to disclose that “the communication is from a debt collector,” it technically violated § 1692(e)(11), which imposes liability for the “failure to disclose in subsequent communications that the communication is from a debt collector.”

Although the trial court recognized that the violation was “clearly de minimis,” it proceeded to enter judgment in favor of Davis on June 24, 2014. Hollins Law timely appealed the district court’s judgment.

The Court’s Opinion

The appellate court began its analysis with a review of discussion of the standard for reviewing the message in question. The court wrote,

“We first apply an objective standard that takes into account whether Daulton’s voicemail message would be sufficient to disclose to the least sophisticated debtor that the call was on behalf of a debt collector. See Tourgeman, 755 F.3d at 1119. In applying this standard, we presume that the debtor has a basic level of understanding, which does not include “bizarre or idiosyncratic interpretations” of the communication at issue. Evon, 688 F.3d at 1027. We also must avoid taking a hypertechnical approach. See Tourgeman, 755 F.3d at 1119.”

The court then applied the law to the facts of this case. The court wrote,

“Before the September 25 voicemail message, Davis and Daulton had been involved in settlement negotiations for about a two week period. Davis had made a “telephone inquiry” to Daulton and had exchanged eight emails with him. At the time Daulton left the voicemail for Davis on September 25, Davis had a pending settlement offer to settle the debt for 30 percent of the total due and had asked Daulton for a status report regarding the creditor’s response. In the voicemail in question, Daulton identified himself as “Gregory at Hollins Law.”

We conclude, given the extent of the prior communications, that the voicemail message’s statement that the call was from “Gregory at Hollins Law” was sufficient to disclose to a debtor with a basic level of understanding that the communication at issue was “from a debt collector,” 15 U.S.C. § 1692e(11). Indeed, any other interpretation of Daulton’s voicemail message would be “bizarre or idiosyncratic.” Evon, 688 F.3d at 1027 (quoting Campuzano- Burgos, 550 F.3d at 298). Given the context, the call was not “false, deceptive, or misleading,” 15 U.S.C. § 1692e, and would not frustrate consumers’ ability to intelligently chart a course of action in response to a collection effort, see

Donohue, 592 F.3d at 1034. Although Daulton’s voicemail message did not expressly state that Hollins Law is “a debt collector,” § 1692e(11) does not require a subsequent communication from the debt collector to use any specific language so long as it is sufficient to disclose that the communication is from a debt collector, as it was here. See Tourgeman, 755 F.3d at 1119.

Because Daulton’s September 25th voicemail message was sufficient to disclose to the least sophisticated debtor that the communication at issue was “from a debt collector,” Hollins Law did not violate § 1692e(11) in its communications with Davis, and the district court erred in so holding.”

insideARM Perspective

It is always refreshing to see a court take a common sense approach to a FDCPA case. This court rejected the notion that the debt collector must say certain precise “magic words” to avoid liability under the statute.

On the other hand, industry best practices would suggest using the “magic words” could or would have avoided the time and expense of this litigation. That is the more conservative approach. This case is precedential for the ninth circuit.  Other circuits may come up with a contrary result under the same or similar facts.

insideARM would suggest the more conservative approach is probably the best approach. Use the full: “This communication is from a debt collector” language.

Ninth Circuit Court of Appeals Rules – Failure to Specifically State “This Communication is From a Debt Collector” is Not FDCPA Violation
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Stellar Recovery Unveils New Website

August 14, 2016 By Leave a Comment

JACKSONVILLE, Fla. — Stellar Recovery is pleased to announce the unveiling of its new leading edge website that went live Monday, August 8.  The new website offers consumers a very robust and user friendly method of interacting with Stellar Recovery for all of their needs.  Kim Harvey, EVP of Client Services and Administration said “The new site gives consumers a variety of options to contact us when it is convenient for them, using whatever method they are most comfortable with.”  Kim added “consumers will be able to negotiate payments for their account on-line, easily make payments, and get information about their debt by using the Contact Us page.”

The user friendly website also gives consumers the ability to submit any dispute or complaint directly to the company for quick resolution.  Garrett Schanck, CEO, commented, “We built this web site to enhance the customer experience by giving them the most user friendly way to contact us, or self-serve using the full suite of options for customer interaction.  We want to allow consumers to interact with us using a method of their choice, and our new web site enables them to do that.”

Stellar Recovery expects to see contact rates increase leading to more revenue and fewer complaints for Stellar and their clients.  The goal is to give consumers an exceptional customer experience with every interaction.  The website’s payment portal will be upgraded in the coming weeks to give straightforward payment options that are easy to understand and execute, while maintaining the strictest security standards.  Stellar will also launch its mobile website within a week, which allow consumers to pay via hand held devices. In today’s compliance driven environment, the easier it is for a consumer to self-serve the more cost effective and compliant each transaction will be.

Stellar Recovery, Inc. is located in Jacksonville, FL.  Please visit the new website at www.stellarrecoveryinc.com.

Stellar Recovery Unveils New Website
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