Archives for January 2017

OGDEN, Utah — This past holiday season PDCflow and DAKCS Software sponsored a family of 4 children providing new winter coats, clothing and toys from each child’s wish list during YCC’s Spirit of Giving Initiative. Your Community Connection (YCC) Family Crisis Center, a local Ogden non-profit organization, recently expanded their shelter and had received applications for 124 more children than in 2015. With the support of many local companies and individual sponsors during the initiative, YCC was able to provide a Christmas morning filled with gifts for 658 children!

YCC is dedicated to saving and changing the lives of individuals and families in the Ogden community and includes a domestic violence shelter and rape crisis center providing services 24/7 to victims and their children.

“YCC Family Crisis Center owes a debt of gratitude to the great companies, DAKCS and PDCflow and to all the wonderful people who work there,” says Julee Smith, Executive Director of YCC. “The companies stepped right up in December and made a huge difference for those families who come to YCC for safety and help. These awesome people gave Christmas to four children who would have gone without gifts otherwise.”

Julee Smith, Executive Director of YCC continues, “They also did a clothing drive (many of the clients who come to YCC only have the clothes on their backs). When it’s cold and stormy outside, the need for clothing at YCC goes up dramatically and these amazing people didn’t stop there. They raised money that will go to feed the families who are living here. Wow! YCC wants to give a huge shout out to DAKCS and PDCflow for making such a difference in helping YCC save and change lives!”

DAKCS and PDCflow employees shopped for each child and brought unwrapped gifts to the shelter. “I’m grateful to have the opportunity to get involved with YCC’s Spirit of Giving project with DAKCS & PDCflow this holiday season. YCC is an incredible organization that provides resources for many families in need and is one that truly makes me proud to have in the city that I live in. I consider myself lucky to have been able to represent PDCflow with this project and look forward to working with YCC in the future,” said Angelica Iniguez, Customer Success Team Lead at PDCflow.

“Some of the victims who stay at the center have to start over and rebuild their lives. The impact of dress presentation while going on job interviews can make a huge difference, and some of us may take that for granted. By providing dress clothes for those in need, YCC offers a unique place for the betterment for Utah individuals and families,” says Ashlee Hyden, Director of Marketing at DAKCS.

In addition to the Spirit of Giving initiative, PDCflow, a leading provider of payment processing solutions and DAKCS Software, a leader in accounts receivable management and collection software, teamed up to collect warm clothing and career dress items, along with cash donations for YCC victims and their children.

For more information on DAKCS Software and PDCflow, please visit www.dakcs.com or www.pdcflow.com.

A recent opinion issued by the U.S. District Court for the Eastern District of Virginia in Biber v. Pioneer Credit Recovery, Inc. (United States District Court, E.D. Virginia, Case No. 16-00804) granted in part and denied in part motions by defendant Pioneer Credit Recovery, Inc. (Pioneer) that the plaintiff in a putative class action did not have standing to claim a violation of the Fair Debt Collection Practices Act (FDCPA) and/or that the complaint failed to state a claim upon which relief may be granted. The complaint involved letters that referenced administrative wage garnishment.

A copy of the opinion can be found here.

Background

Plaintiff Attila Biber alleged that on April 1, 2016, Pioneer sent a letter to her and others, captioned in bold and capitalized letters – “Administrative Wage Garnishment Proceedings Notice.” The letter contained the following statements:

• “This may be your last opportunity to make satisfactory payment arrangements on your student loan(s)”;
• “If these arrangements are not made, we will begin or continue the process of verifying your employment for Administrative Wage Garnishment”;
• “The United States Congress has enacted a law . . . that allows guarantors . . . to offset the wages of student loan defaulters without filing a lawsuit”;
• “[A] guaranty agency . . . may garnish the disposable pay of an individual to collect the amount owed by the individual, if he or she is not currently making required repayment … [T]he amount deducted for any pay period may not exceed 15 percent of disposable pay”;
• “This [statutory] provision overrides all applicable state law, and allows for the garnishment of student loan defaulter’s wages”;
• “Before an administrative order is issued, defaulters are given notice and an opportunity for a hearing as part of this federal wage offset program”;
• “After the completion of this administrative offset process, your employer may be ordered to deduct 15% of your disposable income before you are paid. If your employer does not comply with this order, a lawsuit may be filed against your employer”;
• “Because the use of this federal wage offset law could reduce your take-home pay substantially, we are providing you with the chance to establish a satisfactory payment arrangement so you can voluntarily satisfy your obligation on more reasonable terms. We are hoping we can reach a satisfactory agreement before we proceed with further action”; and
• “This is an attempt, by a debt collector, to collect a debt, and any information obtained will be used for that purpose.”

The plaintiff alleged that by sending this letter, Pioneer violated the FDCPA (15 U.S.C. § 1692e) by using “any false, deceptive, or misleading representation or means in connection with the collection of any debt” in the following ways:

• Pioneer “falsely represent[ed] that it was going to perform an Administrative Wage Garnishment, without first providing the notices required by 20 U.S.C. § 1095a and 34 C.F.R. §§ 34.1-30”;
• Pioneer “falsely implied that [the Letter] was the Notice of Proposed Garnishment required under” federal law;
• Pioneer “falsely represented [that] it had the authority to garnish wages at the time of the letter, if payment arrangements were not made at that time”;
• Pioneer “falsely represented the character, amount or legal status of [plaintiff’s] debts”;
• Pioneer “falsely represented and implied that the [Letter] was legal process”;
• Pioneer “deprived [Biber] of statutory verification rights which [Biber] would otherwise have under 20 U.S.C. § 1095a and 34 C.F.R. §§ 34.1-30 [such that] Plaintiff suffered an informational injury as a result of being deprived of information to which he was legally entitled”; and
• Pioneer “used unfair and unconscionable means to collect and attempt to collect from Plaintiff and the class members.”

In bringing their motion Pioneer argued that dismissal was required on two grounds. First, Pioneer argued that dismissal was required pursuant to Rule 12(b)(1), Fed. R. Civ. P., on the ground that Biber lacked standing to raise any of his FDCPA claims. Second, Pioneer argued that pursuant to Rule 12(b)(6) the complaint should be dismissed because it “lacked adequate factual allegations to support Biber’s claims for relief.”

Opinion

Judge T.S. Ellis III first considered the 12(b)(1) standing argument. The court considered the precedent set by Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016) and whether the plaintiff in this case sufficiently established an injury with respect to their claims. Judge Ellis determined the following:

“Not surprisingly, in the wake of Spokeo, the overwhelming majority of courts have held that FDCPA claims similar to Biber’s are sufficient to satisfy Article III’s requirement that a plaintiff establish an injury in fact. The underlying logic in these opinions is (i) that Congress, in the FDCPA, created a right to accurate debt-related information and non-abusive collection practices, and (ii) that a debt collector’s false, misleading, deceptive, or abusive conduct concretely harms a debtor by detrimentally affecting that debtor’s decisions regarding his debt.

1692e provides certain debtors a right to be free from false, deceptive, or misleading conduct or representations by debt collectors, precisely because such conduct or representations may cause harm or a material risk of harm. Thus, in many instances, violations of § 1692e differ significantly from the innocuous, bare “procedural violations” described by the Supreme Court in Spokeo. Applied here, the principles announced by the Supreme Court in Spokeo, and elucidated in the chorus of FDCPA cases decided following Spokeo, point persuasively to the conclusion that Biber has standing to raise most—but not all—of the FDCPA claims”

Judge Ellis then looked at each of Biber’s individual FDCPA claims and ruled that the plaintiff had standing to allege the following:

• A false representation over Pioneer’s conduct in sending a threat of Administrative Wage Garnishment. The Court rejected Pioneer’s argument that the plaintiff had failed to prove they had read the letter as irrelevant to the fact that the plaintiff could reasonably interpret the letter as implying imminent garnishment, which would potentially affect the plaintiff’s behavior.
• Whether Pioneer allegedly “falsely implied that [the Letter] was the Notice of Proposed Garnishment” required by law for similar reasons as above.
• That Pioneer “falsely represented” their authority to garnish wages at the time the letter was sent.
• The ability to question the representation of “the character, amount, or legal status of the debts” because “Biber has plausibly alleged that the Letter falsely, deceptively, or misleadingly represents that debt collection through garnishment was imminent, whereas, in reality, garnishment could not occur until after Pioneer had provided Biber the requisite notice of debtor rights and initiated garnishment proceedings.”
• That Pioneer “used unfair and unconscionable means to collect and attempt to collect from Biber and the class members,” although the claim was dismissed pursuant to Rule 12(b)(6).

However, Judge Ellis ruled the plaintiff did not have standing to allege the following:

• That Pioneer falsely represented and implied that the letter was legal process “for the simple reason that the Letter does not purport to be legal process.”
• That Pioneer “deprived [plaintiff] of statutory verification rights” that the plaintiff would otherwise have such that Biber “suffered an informational injury” because “Biber was not yet entitled to disclosure of debtors’ rights” when the letter was sent, “and thus there was no injury in fact.”

Judge Ellis then turned to Pioneer’s 12(b)(6) arguments. With respect to Pioneer’s motion to dismiss for failure to state a claim, he ruled as follows:

• Denied the motion with respect to the claim about Pioneer having “falsely represented that defendant was going to perform an Administrative Wage Garnishment.”
• Denied the motion over Biber’s claim the Pioneer “falsely implied” that the letter was sent was the required Notice of Proposed Garnishment.
• Denied the motion with respect to Pioneer’s alleged authority to garnish wages at the time the letter was sent to the plaintiff.
• Denied the motion over whether Pioneer “falsely represented the character, amount, or legal status of the debts.”
• Granted the motion due to Biber lacking standing to raise the claim that the letter was legal process.
• Granted the motion due to lack of standing regarding Biber’s claim of a “deprivation of statutory verification rights.”
• Granted the motion over whether Pioneer “used unfair and unconscionable means to collect and attempt to collect from Biber and the class members.”

insideARM Perspective

This case is particularly interesting for any agency that collects guaranteed student loans. As noted above, the case is a putative class action involving language in a letter that advises a consumer of a potential administrative wage garnishment and advises the consumer of certain rights. It is possible that many agencies use a similar letter.

The Spokeo analysis and reasoning is consistent with the majority of FDCPA cases we have seen where Spokeo has been raised as a defense, though there have been differing results depending on the court hearing the case. insideARM has written about other similar cases on this issue. See the insideARM FDCPA Resources page and the FDCPA Case law grid (updated on a monthly basis thanks to Joann Needleman of the Clark Hill law firm) for links to other cases and insideARM articles about this issue.

The discussion and analysis of the 12(b)(6) Motion to dismiss for failure to state of claim should be reviewed closely. Judge Ellis goes into considerable detail regarding each of the FDCPA claims and whether they should or should not survive a motion to dismiss.

Finally, readers should be reminded that this opinion is merely in response to a motion to dismiss. There has been no final determination of the merits of the claims that survived the motion to dismiss.

The Forst City Summit, a publication of the Globe Gazette of Mason City, Iowa, published a Q&A today with U.S. Senator Chuck Grassley (R-IA) about the IRS private debt collection program, and his questioning of Steven Mnuchin, Trump’s pick for Treasury Secretary. 

Grassley was straightforward about his long-standing support for the program. He said:

According to the Government Accountability Office (GAO), the IRS has more than $130 billion of debt on its books. This so-called inactive debt is sitting in limbo until a 10-year window of enforcement closes the collection window for good.

He also explained a bit about the process that would differentiate the contracted private debt collectors from the scams both the IRS and the FTC has been warning about:

Firewalls are in place to protect taxpayers. First, taxpayers would be notified by mail that their outstanding debt has been turned over to a private debt collection company. Second, all payments are required to be processed directly by the IRS, not through third parties. The private debt collection program is another tool for the IRS to collect taxes that are owed and not in dispute.

Finally, he suggested that Trump’s pick for Treasury Secretary, who oversees the IRS, is on the same page:

I’m glad treasury secretary nominee Steven Mnuchin and I see eye to eye on these important tools to collect unpaid taxes.

insideARM Perspective

On September 26, 2016, the IRS announced plans to begin private collection of certain overdue federal tax debts next spring and has selected four contractors to implement the new program. The complete press release can be found here. The new program, authorized under a federal law enacted by Congress in December 2015, enables designated contractors to collect, on the government’s behalf, outstanding inactive tax receivables.

As a condition of receiving a contract, the agencies selected must respect taxpayer rights including, among other things, abiding by the consumer protection provisions of the Fair Debt Collection Practices Act. The IRS has selected the following contractors to carry out this program: CBE Group (Cedar Falls, Iowa), ConServe (Fairport, N.Y.), Performant (Livermore, Calif.) and Pioneer (Horseheads, N.Y.).

insideARM has also written about the recent scams, and the challenges they pose to legitimate collectors for the IRS. 

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Yesterday President Trump designated Maureen Ohlhausen acting chairwoman of the Federal Trade Commission.

Ohlhausen is a Republican, and has been serving as an FTC commissioner since 2012.

Prior to joining the Commission, Ohlhausen was a partner at Wilkinson Barker Knauer, LLP, where she focused on FTC issues, including privacy, data protection, and cybersecurity.

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Ohlhausen previously served at the Commission for 11 years, most recently as Director of the Office of Policy Planning from 2004 to 2008, where she led the FTC’s Internet Access Task Force. She was also Deputy Director of that office. From 1998 to 2001, Ohlhausen was an attorney advisor for former FTC Commissioner Orson Swindle, advising him on competition and consumer protection matters. She started at the FTC General Counsel’s Office in 1997.

Before coming to the FTC, Ohlhausen spent five years at the U.S. Court of Appeals for the D.C. Circuit, serving as a law clerk for Judge David B. Sentelle and as a staff attorney. Ohlhausen also clerked for Judge Robert Yock of the U.S. Court of Federal Claims from 1991 to 1992.

Ohlhausen graduated with distinction from Antonin Scalia Law School, George Mason University in 1991 and graduated with honors from the University of Virginia in 1984.

The new chairwoman is known for advancing the concept of “regulatory humility,” such as in this 2015 speech to the American Enterprise Institute in which she relates a tale from Greek mythology.  She said:

The story of Procrustes warns us against the very human tendency to squeeze complicated things into simple boxes, to take complicated ideas or technologies or people and fit them into our preconceived models. …The lesson of Procrustes for regulators and policymakers is that we should resist the urge to oversimplify. We need to make every effort to tolerate complex phenomena and to develop institutions that are robust in the face of rapid innovation.

In a speech on Wednesday to the conservative Heritage Foundation, Ohlhausen opened with these comments:

Today, I will provide my ideas for how the FTC can improve its work for consumers and the American economy. Although well intentioned, the majority Commission under President Obama at times pursued an antitrust agenda that disregarded sound economics. It imposed unnecessary costs on businesses, and substituted rigorous analysis of competitive effects for conclusory assertions of “unfair competition.”

insideARM Perspective

Earlier this week President Trump appointed Ajit Pai to lead the Federal Communications Commission, a move widely viewed with optimism by the ARM industry. Ohlhausen’s appointment is another positive development for legitimate firms in one of the most regulated industries in the U.S.

While Chairwoman Ohlahusen does not have rulemaking authority for debt collection — an extremely complex market — one can’t help but think about how the CFPB’s proposed rulemaking might look different under the concept of regulatory humility.

Thomas Pahl, a partner at Arnall Golden Gregory LLP, has known Ohlhausen for more than two decades and has worked closely with her.  He added this:

“President Trump made a wise choice in selecting Ohlhausen.  She is a superb lawyer who is a fighter for her deeply-held commitment to free markets and less regulation.   While she is at the FTC’s helm, the collection industry should anticipate that her views will be reflected not only in the FTC’s enforcement work, but also in the views that the FTC advocates before other federal and state agencies.”

This article was written by Megan C. Nicholls, Ronald I. Raether, Jr. AND Mark C. Mao, and originally published on the Troutman Sanders LLP Consumer Financial Services Law Monitor and is republished here with permission.  

Last month the FTC issued a new video and updated guide for businesses on how to respond to a data breach.  The three steps identified in the guide and discussed in the video are:

Secure your operations – This step focuses on preventing further attacks due to the same vulnerabilities.

• Mobilize your breach response team
• Engage a third-party forensics investigator, if appropriate, and legal counsel
• Secure the physical perimeter
• Take affected equipment offline, but leave the equipment turned on so your forensics investigator can evaluate the equipment effectively
• Change usernames and passwords
• Ensure your website is not displaying personal information
• Ensure other websites are not displaying the data exposed during the breach
• Interview witnesses
• Preserve evidence

Fix vulnerabilities – This step focuses on fixing the root cause of the security incident.

• If the breach involved a third-party service provider, determine if you need to change their privileges to limit the personal information they can access
• Determine if your segmentation plan was effective, possibly with the help of your forensics investigator
• Gather facts about the breach
• Create a plan to communicate about the breach to affected audiences (such as employees, consumers, and business partners)

Notify appropriate parties – This step is focused on who needs to be notified that a breach has occurred.  The guide provides a model notification letter that may be used in the event of a breach.

• Determine who you are legally required to notify and when you are required to notify such individuals, governmental bodies, or businesses
• Notify your local police department
• If the breach involved electronic health information, make sure to look at the HIPAA Breach Notification Rule and the FTC’s Health Breach Notification Rule

As may be obvious, the key to an effective data breach response is adequate preparation before a breach occurs.  Businesses should proactively consider having: (1) a data breach response team informed and ready to respond in case a security incident is discovered; (2) an effective communication plan to involve legal counsel as soon as possible to preserve privilege; and (3) a documented incident response plan to guide the data breach response team and legal department through the steps identified above.  Additionally, businesses may find that conducting mock data breach exercises help prepare and build confidence in the individuals that will be required to act quickly and effectively when a breach occurs.

The Cyber Security, Information Governance & Privacy team at Troutman Sanders maintains a 50-state survey on data breach laws, which can be found here.  Because of our team’s technical background, we are uniquely positioned to understand your business’s information technology concerns and to help you address any risks from a legal perspective.  We advise businesses throughout their data security lifecycle, from developing a pragmatic incident response plan to assisting with data breach identification, response, and recovery efforts.

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insideARM Editor’s note: All organizations in the ARM industry should be evaluating their policies and procedures to ensure that cyber security is addressed before a breach occurs. Earlier this month, the New York State Department of Financial Services (NYDFS) issued revised proposed Cybersecurity Requirements for Financial Services companies that are Covered Entities. The regulation will be effective March 1, 2017. These requirements can certainly be used as a roadmap, regardless of whether you do business in New York. 

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

The U.S. Court of Appeals for the Seventh Circuit recently held that a bank’s lawsuit against the husband of a debtor who had filed for bankruptcy did not violate the co-debtor stay because the husband’s credit card debts were not a consumer debt for which the debtor was personally liable.

A copy of the opinion in Smith v. Capital One Bank (USA), NA is available at:  Link to Opinion.

A debtor filed for bankruptcy in 2011. During the course of the bankruptcy proceedings, a bank filed suit and obtained a judgment against the debtor’s husband on a credit card debt that he owed.

In 2015, the debtor initiated an adversary proceeding in bankruptcy court against the bank, alleging violations of the co-debtor stay, 11 U.S.C. § 1301(a); the Wisconsin Consumer Act, Wis. Stat. § 427.104; and the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692(d)-(e). The debtor claimed that her husband’s credit card debt was covered by the co-debtor stay due to the operation of Wisconsin marital law, Wis. Stat. § 766.55.

As you may recall, in addition to automatically staying claims against the debtor, the Bankruptcy Code provides protections when co-debtors are involved.  See 11 U.S.C. § 1301(a).

For the co-debtor stay to apply: (1) there must be an action to collect a consumer debt (11 U.S.C. §§ 101(8), (12)); (2) the consumer debt must be of the debtor (Id. § 102(2)); and (3) the action to collect must be against an individual that is liable on such debt with the debtor. (11 U.S.C. § 1301(a).)

Here, the parties agreed that the debtor’s husband’s credit card debt was a “consumer debt” and that the bank’s action was against the husband, but disagreed as to whether the credit card bills were a “consumer debt of the debtor,” which triggered the co-debtor stay protections, as opposed to simply being a consumer debt of the husband.

The bankruptcy court granted summary judgment for the debtor, holding that the bank’s lawsuit against the debtor’s husband violated the co-debtor stay due to the operation of Wisconsin marital law, Wis. Stat. § 766.55, which makes marital property available to satisfy certain kinds of debts.

On appeal, the district court reversed the bankruptcy court, holding that the husband’s credit card debt was not the debtor’s consumer debt, and the co-debtor stay did not apply despite the application of Wisconsin marital law. The district court concluded that “consumer debt of the debtor,” as used in 11 U.S.C. § 1301(a), does not include a debt for which the debtor is not personally liable but which may be satisfied from the debtor’s interest in marital property.

The debtor then appealed to the Seventh Circuit, arguing that under a broader definition of “consumer debt of the debtor,” and by operation of Wisconsin marital law, her husband’s credit card debt became her debt for purposes of the co-debtor stay.

The Seventh Circuit disagreed with the debtor, and agreed with the bank that the credit card debt was not covered by the co-debtor stay.

Relying on In re Thongta, 401 B.R. 363, 368 (Bankr. E.D. Wis. 2009), and River Rd. Hotel Partners, LLC v. Amalgamated Bank, 651 F.3d 642, 651 (7th Cir. 2011), and noting that any attempt to collect a judgment from a spouse’s marital property would likely violate the automatic stay that already protects the filing spouse, the Court observed that interpreting the co-debtor stay to eliminate the same liability, and thus providing the same protections against collection, would impermissibly render that co-debtor stay duplicative of the automatic stay applicable to the debtor.

The Court therefore held that because the debtor did not demonstrate that her husband’s credit card debt was her own, the co-debtor stay did not apply.

Moreover, because Wisconsin courts made clear that the state’s marital laws do not give rise to liability on the part of the non-incurring spouse, the Court held that the debtor, as the non-incurring spouse, was not liable for her husband’s credit card debt.

The Court noted that, in Wisconsin, “married individuals can have both individual and marital property.” See Wis. Stat. § 766.55.  “Debts incurred during marriage are ‘presumed to be incurred in the interest of the marriage or the family,’ id. § 766.55(1), and ‘[a]n obligation incurred by a spouse in the interest of the marriage or the family may be satisfied only from all marital property and all other property of the incurring spouse’ [the debtor’s husband], id. § 766.55(2)(b).”  In addition, “in order to satisfy a judgment for a debt, a successful creditor ‘may proceed against either or both spouses to reach marital property available for satisfaction of the judgment.’ Id. § 803.045(3).”

The debtor contended that once the bank obtained a judgment against her husband, it created a liability on her part under the co-debtor stay.

Again, the Court disagreed. Noting that simply obtaining a judgment against a non-filing spouse who happens to have shared property interests with the filing spouse — without more — did not make the husband’s debts the debts of the filing spouse under Wisconsin law, the Seventh Circuit held that Wis. Stat. § 766.55(2) did not create a direct cause of action against the debtor. See St. Mary’s Hosp. Med. Ctr. v. Brody, 186 Wis. 2d 100, 519 N.W.2d 706, 711 (Wis. Ct. App. 1994).

Here, the bank had not attempted to sue the debtor directly, and had not sought to satisfy its judgment against the debtor’s husband from any of the debtor’s individual or marital property. Accordingly, the Court concluded the debtor had no liability for her husband’s credit card bills.

The debtor next argued that she was liable for a direct cause of action against her for her husband’s credit card debts under Wisconsin’s “doctrine of necessaries,” because Wis. Stat. § 765.001(2) provided a direct cause of action against one spouse for any marital “necessaries” incurred by the other spouse during the marriage.  Essentially, the debtor argued that “the possibility of a direct cause of action against her for her husband’s credit card debts brings those debts within the co-debtor stay.”

The Seventh Circuit again disagreed, holding that because she raised this theory for the first time on appeal, it was therefore waived.  Even if the argument had not been waived, the Court observed that the debtor provided no evidence that the credit card debt was for necessaries, as opposed to ordinary consumer goods, nor did she explain why this situation would trigger the co-debtor stay, as opposed to the automatic stay.

The Seventh Circuit held that since the bank in the collection proceeding was not a creditor of the debtor and the bank was not seeking payment of the credit card debts under the debtor’s bankruptcy plan, there was no risk of preferential treatment, the bank’s lawsuit against the debtor’s husband did not violate the co-debtor stay, and the debtor’s adversarial proceeding was properly dismissed.

Thus, the Seventh Circuit affirmed the judgment of the district court.

Yesterday, the Natioal Association of Federally-Insured Credit Unions (NAFCU) sent a letter to the newly appointed Chairman of the Federal Communications Commission (FCC) Ajit Pai, urging him to re-evaluate the 2015 Declaratory Ruling and Order related to the TCPA. The following is the full text of the letter.

Dear Chairman Pai:

On behalf of the National Association of Federally-Insured Credit Unions (NAFCU), the only national trade association focusing exclusively on federal issues affecting the nation’s federally-insured credit unions, I would like to take this opportunity to congratulate you on your designation as the new chairman of the Federal Communications Commission (FCC). NAFCU looks forward to continuing to work with you in your new position.

I am also writing to you in regard to a matter of great concern to all financial institutions – the ability to communicate freely and effectively with consumers regarding their sensitive financial information.  Although NAFCU and our member credit unions appreciate the FCC’s efforts to modernize the Telephone Consumer Protection Act (TCPA), the FCC has stopped short of ensuring that consumers have access to important notifications and updates about financial developments affecting their existing accounts, on both mobile and residential phone lines. The FCC’s July 10, 2015 Declaratory Ruling and Order (the Order) does more harm than good by making it extremely difficult for credit unions to contact their members about potentially fraudulent activity, identify theft, and data breaches. Based on discussions from our previous meetings with you, and your dissent in the Commission’s Order, NAFCU urges you, as Chairman, to continue to take steps to fix the injustices caused by this Order and safeguard the original purpose of the TCPA. The TCPA should protect, not harm, consumers.

NAFCU is concerned with several aspects of the Commission’s Order, including:

1. The restrictive “free end user calls” exemption;
2. The sprawling definition of “automatic telephone dialing system” (auto-dialers);
3. Antiquated distinctions between mobile and residential phones;
4. The extremely vague standard for revoking previous consent; and
5. A lack of flexibility with regard to the portability of wireless numbers from one consumer to another.

More specifically, the FCC’s exemption for “free end user calls” made by financial institutions is prohibitively restrictive and has bred technical questions that are oftentimes impossible for a credit union to answer, such as whether a member’s plan provider will charge for text messages or calls related to the issues covered by the exception. The FCC should increase flexibility related to the requirements of this exemption, especially given that this exemption is intended to apply in exigent circumstances to protect consumers.

The Order’s expansive definition of auto-dialers is also troubling because it leaves credit unions in the dark as far as what type of technology is actually covered. This vague definition will likely stop credit unions from making important communications to their members for fear of violating the TCPA. Such a result is hardly consistent with the original purpose of the regulation. NAFCU asks the FCC to put consumers first and make sure the TCPA is not preventing consumers from receiving important notifications and updates from their financial institutions in favor of a blanket definition of the type of technology used for potentially abusive telemarketing communications.

The TCPA’s outdated distinctions between a mobile and residential phone providesanother reason why consumers may not be receiving vital information from their financial institutions. Cell phones have largely replaced landlines and consumers expect to receive the same service from their credit union regardless of the type of phone line they have listed. The FCC should, therefore, remove any such distinction relative to automated informational calls to consumers about their existing accounts.

The FCC’s Order establishes an absurdly vague standard for revoking previous consent to receive autodialed and prerecorded calls. The “any reasonable means” standard leaves no room for credit unions to monitor and control how a consumer may revoke consent. If credit unions cannot provide their members with a limited list of options through which they may revoke consent, then credit unions may be exposed to limitless liability. Credit unions may also be unreasonably exposed to substantial liability because of the Order’s restrictions on reassigned numbers. The Order’s “constructive knowledge” standard punishes credit unions acting in good faith because there is no clear process for verifying that a phone number has been reassigned and a consumer’s consent to be contacted is no longer valid. The FCC should clarify and rein in the standards for revoking previous consent and reassigned numbers so that credit unions are not left guessing whether their members would like to be contacted telephonically about important financial information.

Despite ongoing litigation relative to the TCPA, now is the time for the FCC to repair the above-mentioned problems caused by its Order. NAFCU hopes that you, as a proponent of heightened transparency, will lead the FCC into an era of transparent modernization of the TCPA. The decisions made by the FCC affect millions of consumers and credit unions all across the country. Therefore, NAFCU believes it is imperative that credit unions and other financial institutions affected by the TCPA be kept abreast of any developments regarding the modernization of this regulation.

NAFCU is eager to continue this dialogue with you and would greatly appreciate the opportunity to set up a meeting to discuss the modernization of the TCPA. If you have any questions or concerns, please do not hesitate to contact me at (703) 842-2215, or Ann Kossachev, Regulatory Affairs Counsel, at (703) 842-2212 or akossachev@nafcu.org.

Sincerely,

B. Dan Berger
President & Chief Executive Officer

insideARM Perspective

We highlight this action in the context of another story today, about three of the largest student loan servicers Petitioning the FCC to review the same Order on their behalf. The appointment of Commissioner Pai as Chairman has certainly provided hope to industry groups that have been seeking a more frienly ear as it relates to their ability to communicate with consumers using modern technology.

According to Commissioner Pai’s bio page, his regulatory philosophy is informed by the following principles:

• Consumers benefit most from competition, not preemptive regulation. Free markets have delivered more value to American consumers than highly regulated ones.
• No regulatory system should indulge arbitrage; regulators should be skeptical of pleas to regulate rivals, dispense favors, or otherwise afford special treatment.
• Particularly given how rapidly the communications sector is changing, the FCC should do everything it can to ensure that its rules reflect the realities of the current marketplace and basic principles of economics.
• As a creature of Congress, the FCC must respect the law as set forth by the legislature.
• The FCC is at its best when it proceeds on the basis of consensus; good communications policy knows no partisan affiliation.

On January 17, 2017 a notice was published in the Federal Register regarding a Petition asking the Federal Communications Commission (FCC) to reconsider Final Rules adopted in August 2016. The rules in question were adopted to implement an amendment in the Bipartisan Budget Act of 2015 that exempts autodialed calls “made solely to collect a debt owed to or guaranteed by the United States” from the TCPA’s prior express consent requirement. 

A copy of the Federal Register notice can be found here.

The Petition, dated December 16, 2016, was filed on behalf of Nelnet Servicing LLC, Great Lakes Higher Education Corporation, Pennsylvania Higher Education Assistance Agency, and Student Loan Servicing Alliance.

insideARM has written extensively about these rules, most recently on August 12, 2016 when we reported on the final rules. But see also our articles on  July 25, 2016, November 5, 2015 and June 21, 2016.

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. In summary:

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 the July, 10, 2015 TCPA Omnibus Declaratory Ruling and Order.
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.

The Petition for Reconsideration generally argues:

1. That the Rules are not supported by the text of the statute or the record and are contrary to the Congress’s intent; and,
2. The FCC’s interpretation of its Rulemaking Authority is impermissibly broad.

Among more specific arguments, the Petitioners suggest that the three-call attempt-per-thirty-day limit lacks any rational basis and will stymie borrower contact. Petitioners further claim that the limit does not and did not flow from the congressional record.  They highlight that commenters, including federal agencies and federal loan servicers, demonstrated with extensive filings why more calls are needed to effectuate Congress’s intent.

The Petition also argues that any limits on the number of exempt calls should be based on the number of live conversations rather than call attempts. Additionally, the Petitioners argue that the Commission erred in limiting the exemption to “calls to the debtor, as calls to reassigned and wrong numbers must be allowed to give meaning to Congress’s exemption.” 

Finally, the Petitioners suggest another alternative – that the FCC modify the rules specifically for Federal Student Loan Servicers. They argue that the loan servicers have special needs for contacting student loan holders.

Oppositions to the Petition must be filed on or before February 1, 2017. Replies to an opposition must be filed on or before February 13, 2017.

insideARM Perspective

Recent developments at the FCC might increase the likelihood for a positive response to this Petition. On December 15, 2016 former FCC Chairman Thomas Wheeler, the primary architect of these rules, announced his retirement. Additionally, just yesterday, President Trump named current FCC Commissioner Ajit Pai as the new Chairman of the FCC.

We suggested in our article yesterday that Mr. Pai, as Chairman, may lead the FCC to reverse course on rules generally governing the TCPA. A positive response to this petition on these particular rules regarding calls on government debt would certainly be a step in that direction.

In another article today on insideARM, we highlight a letter sent yesterday to Commissioner Pai from the Natioal Association of Federally-Insured Credit Unions (NAFCU), also urging him to re-evaluate TCPA rules.

Yesterday, Politico published a letter sent by Donald Trump’s Assistant and Chief of Staff Reince Preibus to the heads of executive departments and agencies putting a hold on new regulations. The following are the primary directives in the memo, intended to ensure that appointees of the new President have the chance to put their stamp on anything new:

1. With the exception of emergency situations or other urgent circumstances relating to health, safety, financial, or national security matters, send no regulation to the Office of the Federal Register (the “OFR”) until a department or agency head appointed or designated by the President after noon on January 20, 2017, reviews and approves the regulation. The department or agency head may delegate this power of review and approval to any other person so appointed or designated by the President, consistent with applicable law.
2. With respect to regulations that have been sent to the OFR but not published in the Federal Register, immediately withdraw them from the OFR for review and approval as described in paragraph 1, subject to the exceptions described in paragraph 1.
3. With respect to regulations that have been published in the OFR but have not taken effect, as permitted by applicable law, temporarily postpone their effective date for 60 days from the date of this memorandum, subject to the exceptions described in paragraph 1, for the purpose of reviewing questions of fact, law, and policy they raise.

The memo goes on to clarify that this request extends to “any substantive action by an agency (normally published in the Federal Register) that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of proposed rulemaking, and notices of proposed rulemaking,” and also covers any agency statement of general applicability and future effect “that sets forth a policy on a statutory, regulatory, or technical issue or an interpretation of a statutory or regulatory issue.”

There has been speculation about whether this memo was sent to the CFPB, and whether it applies to independent agencies. An article yesterday in the Credit Union Times suggested that NCUA is not legally subject to the directives in the memo, however it would be politically risky to not comply. While the CFPB technically falls into that same independent category, the currently ongoing case of PHH v. CFPB in the D.C. Circuit Court muddies these waters. (Of note is that in a similar case, State National Bank of Big Spring, Texas, et al. v. Lew, et al., the D.C. federal district court has denied the request of the plaintiffs to consolidate their case with PHH.)

Immediately in question are the CFPB’s proposed rules prohibiting forced arbitration clauses in consumer contracts (Proposed Rule was published in the Federal Register May 24, 2016; comment period closed August 22, 2016). Some had speculated that the bureau would try to push through a final rule prior to the change in administration, but this did not happen.

Even if the CFPB had rushed to issue a final rule prior to January 20, the Priebus memo covers regulations that have been published in the OFR but have not yet taken effect.

Also in question is the CFPB’s proposed rulemaking on Payday, Vehicle Title, and Certain High-Cost Installment Loans (Proposed Rule was issued June 2, 2016, comments closed October 7, 2016. A final rule has not yet been issued).

insideARM Perspective

It is unclear exactly what effect this may have on debt collection rulemaking, however one can’t help imagining it will slow the process further, as the matter of CFPB leadership shakes out.

On a related note, one thing we do know is that the bureau has been in the process of filling the open position of Debt Collection Program Manager. The position was created upon the recent promotion of John McNamara to Assistant Director of Consumer Lending, Reporting, and Collections Markets. Interviews have taken place but an appointment has not yet been announced.

Now that the Trump Administration has also issued a hiring freeze, a visit to the CFPB career openings page reflects no open jobs. insideARM is not aware of whether the hiring freeze has specifically affected the Debt Collection Program Manager position.

A recent opinion issued by the U.S. District Court for the Southern District of Florida in Michael v. HOVG, LLC (United States District Court, S.D. Florida, Case No. 16-62651) ruled that a plaintiff had standing to allege that collection agency HOVG, LLC violated the Fair Debt Collection Practices Act (FDCPA) and Florida Consumer Collection Practices Act (FCCPA) by displaying “certain language” and a Quick Response (QR) code through the transparent window of an envelope sent to the plaintiff.

A copy of the opinion can be found here.

Background

On August 11, 2016, HOVG sent a collection letter to plaintiff Aviyawna Michael, who filed suit alleging the following:

“Plaintiff claims that due to certain language contained in the Letter and ‘a Quick Response (“QR”) code [displayed] through the transparent window of the envelope,’ Defendant violated the FDCPA and FCCPA.”

HOVG responded to Michael’s suit by filing an instant Motion on December 12, 2016, arguing that the Court “must dismiss the Complaint because Plaintiff lacks standing pursuant to Spokeo, Inc. v. Robins” and/or because “Plaintiff fails to state a claim under the FDCPA and FCCPA.”

Opinion

Judge Beth Bloom began discussion of the case by first addressing the issue of the plaintiff’s standing to bring the suit pursuant to Spokeo:

“Standing requires that a plaintiff have ‘(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.’ Spokeo, 136 S. Ct. at 1547. ‘To establish injury in fact, a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’’ Id. at 1548 (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 (1992)). ‘For an injury to be particularized, it must affect the plaintiff in a personal and individual way.’ For the injury to be ‘concrete,’ it must be ‘real,’ and not ‘abstract’; however it need not be ‘tangible.’”

Further, Judge Bloom noted that “in Spokeo the Supreme Court recognized that ‘Congress may ‘elevate to the status of legally cognizable injuries, concrete, de facto injuries that were previously inadequate in law.’”

Citing case law since Spokeo, with particular emphasis on Church v. Accretive Health, Inc, the Court ruled that the plaintiff did have standing in this case.

With respect to the defendant’s argument that Plaintiff failed to state a claim under the FDCPA and FCCPA , Judge Bloom held the following:

• Plaintiff claimed that the QR barcode’s visibility through the transparent window of the envelope was an FDCPA violation. The Court ruled that “it is irrelevant whether the bar code, when scanned, reveals a scrambled or unscrambled number” and that the plaintiff’s claims survive.
• Plaintiff also claimed that the defendant violated the FDCPA by “improperly advising Plaintiff that ‘you may incur processing charges when utilizing the online and phone methods of payment’” and for “wrongfully portraying the current creditor’s willingness to settle the Consumer Debt for less than the full amount as having the same net result as paying the full amount of the Consumer Debt,” saying such statements would mislead the least sophisticated consumer. The Court ruled that “the Court finds Plaintiff’s allegations sufficiently non-idiosyncratic to survive dismissal.”
• Finally, plaintiff claimed that the defendant violated the FCCPA “by attempting to collect an amount from Plaintiff, to wit, a $5.00 convenience fee for payments made over the telephone or via Defendant’s online payment portal, which Defendant was not expressly authorized by contract or statute to collect.” On that point Judge Bloom ruled on that “the Letter does not attempt to collect a $5.00 convenience fee debt” and that claim “fails, and is dismissed with prejudice.”

insideARM Perspective

This result is a negative one for the ARM industry. First, the Spokeo argument failed. Second, this court’s discussion of the issue of the visibility of a QR barcode can be added to the many other “envelope cases” in the past couple of years. insideARM has written about other similar cases on this issue. See the insideARM FDCPA Resources page and the FDCPA Case law grid (updated on a monthly basis thanks to Joann Needleman of the Clark Hill law firm) for links to other cases and insideARM articles about this issue. Finally, the court refused to dismiss claims regarding a potentially misleading letter.

This case illustrates the risk of a having to defend a FDCPA suit if letters contain ANY language beyond what is absolutely required under the FDCPA. Risk/reward analysis should be conducted before adding any new letters to your strategy and system.