Archives for February 2017

On February 1, 2017 a federal Judge in Illinois denied a motion to dismiss a TCPA lawsuit brought by a defendant who argued that the plaintiff lacked Article III standing under Spokeo v. Robbins __ (U.S. __, 136 S.Ct. 1540 (2016) (Spokeo).  The case is Cholly v. Uptain Group, (Case No. 15-5030, U.S. District Court, Northern District of Illinois, Eastern Division). 

Plaintiff Julie Cholly, on behalf of herself and all others similarly situated, brought a one count third amended putative class action complaint against defendants Uptain Group, Inc. (Uptain) and Alere Health, LLC (Alere), alleging that defendants violated the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227 et. seq. Defendants had moved to dismiss the complaint and to strike plaintiff’s proposed classes.

The Honorable Robert W. Gettleman issued a Memorandum and Order that denied defendant’s motion to dismiss, but granted defendant’s motion to strike the plaintiff’s proposed class action claims.

Background

Plaintiff incurred a debt to Alere, a medical services provider. Alere subsequently hired Uptain, a debt collection service, to collect the Debt from plaintiff. According to the complaint, on December 16, 2013, Uptain contacted plaintiff on her cellular telephone using an automatic telephone dialing system. Again, according to the complaint, during that telephone call, plaintiff allegedly told Uptain to stop calling her and informed Uptain that she would be filing for bankruptcy. The complaint further alleges that “[d]espite Plaintiff’s clear and unambiguous instruction to Uptain to stop calling her, Uptain told Plaintiff that she must provide the bankruptcy case number in order for Uptain to stop calling.” Following this December 16, 2013, call, Uptain allegedly “placed many more telephone calls to plaintiff’s cellular telephone using an automatic telephone dialing system.” 

On July 31, 2014, plaintiff filed a Voluntary Petition for Chapter 7 Bankruptcy, listing Alere as one of her Schedule F creditors. The Petition did not list her potential claims against Uptain or Alere on her schedule of assets.

The complaint alleges that on August 6, 2014, the bankruptcy court sent Alere, via first class mail, notice of plaintiff’s bankruptcy petition, stating that an automatic stay was in place for all collection actions against plaintiff.

Despite the automatic stay, Uptain allegedly contacted plaintiff for non-emergency reasons, “with a pre-recorded or artificial voice on plaintiff’s cellular telephone on behalf of Alere on numerous occasions between September 2014 and May 2015.” The complaint alleges that neither defendant had consent to contact plaintiff. 

The Court’s Opinion

The court first addressed the Spokeo argument. The court held:

“In the instant case, the court concludes that the allegations of receipt of the allegedly unlawful telephone calls are sufficient to allege a concrete injury. Although the Seventh Circuit has not yet addressed this issue, all of the district courts within this circuit that have reached the issue have held that a violation of the TCPA gives rise to a concrete injury under Article III.  The court concludes that plaintiff has alleged such concrete harms identified by Congress and that she has standing to bring her claims.”

Next the court addressed the defendant’s second argument; that “plaintiff is judicially estopped from alleging violations of the TCPA for calls made prior to her filing for bankruptcy because those claims are property of the bankrupt estate.”

The court disagreed with the defendant. Judge Gettleman wrote:

“In the instant case, there is nothing to suggest that plaintiff was attempting to manipulate or pervert the litigation process, or has impaired the integrity of the court by failing to initially list her potential claim against defendants. Indeed, when alerted, she moved to amend her schedule of assets, and the bankruptcy trustee has now abandoned any interest in the claims. Under these circumstances, the court declines to exercise its discretion to estop her from asserting her claims.” 

Finally, the court moved to defendant’s motion to strike plaintiff’s proposed class action. In her complaint, plaintiff proposed the following class definitions:

• All persons in the United States to whose cellular telephone number Uptain placed a non-emergency telephone call using an artificial or prerecorded voice and/or an automatic telephone dialing system on or after June 9, 2011 with respect to a debt allegedly owed to Alere where Uptain did not have express consent to call said cell phone numbers.

• Direct Revocation Sub-class – All persons in the United States to whose cellular telephone number Uptain placed a non-emergency telephone call using an artificial or prerecorded voice and/or an automatic telephone dialing system on or after June 9, 2011 (6) with respect to a debt allegedly owed to Alere where Uptain was directly informed to stop calling or cease communication. 

The court held:

“In the instant case, plaintiff’s complaint asserts claims based only on telephone calls made to her cellular phone after she had expressly revoked her consent. Because she had apparently originally given consent, she cannot represent a class of persons who received calls from Uptain where Uptain did not have express consent. Her claims would not be typical to those persons.

Plaintiff also attempts to represent a sub-class of persons who received calls from Uptain after “Uptain was directly informed to stop calling or cease communication.” In order to determine whether each potential class member did in fact revoke his or her prior consent at the pertinent time, the Court would have to conduct class members specific inquiries for each individual. This court concludes that the individual inquiries necessary to determine class membership will “inevitably predominate” over any common questions of fact. Consequently, the proposed revocation class fails to satisfy Rule 23(b)(3), and the class allegations are stricken. 

This case must proceed on an individual basis only.”

insideARM Perspective 

It is not surprising that the court did not dismiss this case under Spokeo. insideARM has written about other TCPA cases that reached the same result.  See our TCPA Resources Page, including our TCPA caselaw grid (updated on a monthly basis by Bedard Law Group). 

The success of defendant’s motion to strike the proposed classes is a victory for the defendant.  insideARM predicts there will be more and more cases where the issue of consent and revocation of consent will be a factor in the determination of whether a case proceeds as a class action.

Finally, lost in the discussion of the defendant’s motions is the fact that this case includes both the client and the agency as named defendants. insideARM has reviewed the Third Amended Complaint. It is not clear what the theory is for the alleged joint liability. It could be based on the failure of the client to notify the agency of the plaintiff’s bankruptcy filing. It could be some theory of vicarious liability for the act of the agency.  (Editor’s note: Also not found in the pleadings and memorandum is any discussion of the failure of the client to notify the agency of the bankruptcy filing.)

insideARM will continue to monitor this case for further developments.

According to a press release last Friday from the U.S. Attorney for the Western District of Missouri, a Leawood, Kansas attorney pleaded guilty to his role in a fraud consipiracy and his former law partner was sentenced for stealing more than $1.2 million from St. Luke’s Health System, a client of their former firm.

Mark J. Schultz, 57, of Leawood, waived his right to a grand jury and pleaded guilty before U.S. District Judge Beth Phillips to a federal information that charges him with participating in a wire fraud and mail fraud conspiracy. 

Alan B. Gallas, 65, of Kansas City, Mo., was sentenced by U.S. District Judge Beth Phillips to one year and one day in federal prison without parole. The court also ordered Gallas to pay $1,224,264 in restitution to St. Luke’s. Gallas must report to the Bureau of Prisons by April 10, 2017, to begin serving his sentence.

Schultz and Gallas were attorneys and partners in the law firm of Gallas & Shultz in Kansas City, Mo., which specialized in collection work for corporations. Gallas surrendered his license to practice law in Missouri and Kansas in November 2015. 

On April 13, 2016, Gallas pleaded guilty to mail fraud. Gallas admitted that he engaged in a scheme from 2009 through July 2015 to defraud a client, St. Luke’s Health System, of monies collected by his law firm totaling $1,224,264. 

By pleading guilty today, in a separate but related case, Schultz admitted that he participated in the conspiracy from January 2014 through July 2015. Under the terms of his plea agreement, Schultz must forfeit to the government any property he derived from the proceeds of the wire fraud and wire fraud conspiracy. 

Gallas was the attorney responsible for the St. Luke’s account at the law firm. After attempting to collect on patient accounts for a period of time, St. Luke’s would transfer its larger outstanding patient accounts to Gallas & Shultz for collection. As payments on patient accounts were received, the payments were logged into the case management system for the appropriate patient account. The monies were then deposited into the law firm’s trust account. On a periodic basis, often monthly, the firm would remit the patient payments collected to St. Luke’s. 

Gallas admitted that he caused personnel at the law firm to withhold money from payments made to St. Luke’s by placing thousands of payments on “hold” status, then directing those funds be transferred from the trust account to the firm’s operating account. The pattern of not remitting some payments to St. Luke’s escalated significantly from 2012 to 2015. According to court documents, Gallas withheld 601 payments totaling $211,391 in 2012. Gallas withheld 699 payments totaling $266,696 in 2013. Gallas withheld 625 payments totaling $227,892 in 2014. Through the month of July 2015, Gallas withheld 625 payments totaling $216,845. 

Schultz admitted today that he agreed with Gallas and others to transfer funds from the trust account into the law firm’s operating account. The amount of funds diverted by Schultz, and the amount of restitution Schultz must pay to St. Luke’s for the total amount of its loss, will be determined by the court at Schultz’s sentencing hearing.

Under federal statutes, Schultz is subject to a sentence of up to five years in federal prison without parole. The maximum statutory sentence is prescribed by Congress and is provided here for informational purposes, as the sentencing of the defendant will be determined by the court based on the advisory sentencing guidelines and other statutory factors. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office. 

These cases are being prosecuted by Assistant U.S. Attorney Paul S. Becker. They were investigated by the FBI.

The CFPB has posted notice that its next meeting of the Consumer Advisory Board (CAB) will take place Thursday March 2, from 10:30am-4:30pm, in Washington, D.C.

The meeting is expected to cover the consumer credit information marketplace, recent enforcement actions, trends and themes in consumer financial markets, and enhancements to the CFPB Consumer Complaint Database. According to the notice in the Federal Register, the specific agenda was going to be made available on February 15, however insideARM could not locate it as of this morning.

Part of the session is open to the public, and a recording and transcript of the will be made available after the meeting.

Individuals who wish to attend the Consumer Advisory Board meeting must RSVP to cfpb_cabandcouncilsevents@ cfpb.gov by noon, March 1, 2017. Members of the public must RSVP by the due date and must include ‘‘CAB’’ in the subject line of the RSVP.

The CFPB recently announced it is accepting applications to fill seven upcoming vacancies on the CAB (as well as vacancies on its other advisory boards). They are looking for: 

• Experts in consumer protection, community development, consumer finance, fair lending, and civil rights
• Experts in consumer financial products or services
• Representatives of banks that primarily serve underserved communities
• Representatives of communities that have been significantly impacted by higher priced mortgage loans
• Current employees of credit unions and community banks
• Academics (Experts in consumer finance markets and underserved populations.)

You can find instructions to apply here.

insideARM Perspective

In 2014 Joann Needleman, attorney at Clark Hill and former president of NARCA – The National Creditors’ Bar Association, was appointed to a three-year term on the CAB. Since then, she has remained the only individual from the ARM industry to be selected.

After the new additions were announced in 2015, Joann offered these thoughts, suggesting the make up of the CAB tends to be indicative of the Bureau’s latest area of focus.

“When the CAB started, it was all housing. The fact that there are two banks represented [in this new group] is telling. The Bureau is looking at banks in unique ways, as opposed to the prudential regulators, who focused primarily on safety and soundness. The CFPB is the first regulator looking into how banks affect consumers on a different level. It’s also interesting that they’ve added NerdWallet and Affirm. It’s clear that the CFPB is struggling with technology and where it fits with consumer protection.”

In 2016, industry additions included (with the remaining new members coming from consumer groups):

• William Howle, Head of U.S. Retail Bank, Citibank 
• Raul Vazquez, Chief Executive Officer, Oportun (a financial technology company founded in 2005 with the mission of providing affordable loans to US Latinos and others with little or no credit history)
• Arjan Schutte, Founder and Managing Partner, Core Innovation Capital (an investment firm that seeks to harness technology to build transformative financial products and services — one of their portfolio companies is Oportun).
• James M. Wehmann, Executive Vice President, Scores for Fair Isaac Corporation (FICO)

Based on last year’s picks, it seems Joann was correct about advisory board members representing areas the CFPB plans to focus on. These areas have certainly included credit reporting and alternative lending. Today, in fact, the CFPB is in Charleston, WV, holding a field hearing about alternative data.

Given that debt collection has risen to the top (or at least near the top) of the rulemaking agenda, one might anticipate an ARM industry addition to the group in 2017.

This article previously appeared in FinRegRag, a discussion of financial regulation by the scholars of the Mercatus Center Financial Markets Working Group, and is republished here with permission.

What should the CFPB do, and how should it be structured? A debate is emerging among reformers as to whether a market regulator headed by a commission or a law enforcer headed by a sole director makes the most sense.* With details of CHOICE Act 2.0 (possibly) surfacing the question may be coming to a head.

The Bureau of Consumer Financial Protection (CFPB) is (currently) an independent market regulator for consumer financial products and services. The CFPB enjoys sweeping jurisdiction and broad power to both prospectively regulate conduct via rules and bring enforcement actions. It is headed up by a sole director who is (currently) only removable by the President for cause. There is a technical term for this combination of sweeping power and limited accountability: The Worst.

Ok, that isn’t the real term, the real term is unconstitutional, at least according to a panel decision from the United States Court of Appeals for the D.C. Circuit Court. The court found that to meet constitutional muster either the CFPB’s director would need to be removable at the President’s will or the CFPB would need to become like other independent agencies (e.g. the Securities and Exchange Commission) and be controlled by a multi-member commission.

The CFPB has asked the full D.C. Circuit to review the case, so the constitutionality discussion may not be over. But even if the structure is constitutional, that doesn’t necessarily make it a good idea.

So how should the CFPB be structured? Many people, myself included, have suggested a commission, on the grounds that it would provide greater continuity, moderation, and diversity of thought and experience to the CFPB, which would help it encourage market stability and innovation. Implicit in this argument is that the CFPB’s role and authority will be similar (though hopefully better constrained) than it is now.

Others, including the chairman of the House Financial Services Committee Congressman Jeb Hensarling, believe that the CFPB is better structured as a sole directorship removable at the President’s will. However, Hensarling’s vision of the CFPB’s mission is much different than the current agency.

A publicly circulating memo purporting to detail the contents of the new CHOICE Act includes significant changes to the CFPB. While it keeps the sole director (removable at-will), it changes the CFPB from a market regulator to a law enforcement agency with limited jurisdiction and autonomy. The CFPB’s rulemaking and enforcement powers will be limited to certain enumerated statutes, without the broad power to prohibit “Unfair, deceptive, or abusive acts or practices” it currently enjoys. The CFPB enforcement capabilities would be limited to cease and desist and Civil Investigative Demand/Subpoena powers, which presumably means it would also lose its in-house judges.

In effect, the CFPB would become less like the SEC (which can proactively regulate markets under broad grants of authority from Congress) and more like a civil FBI. The FBI does not create crimes, it only enforces the specific requirements of the criminal laws created by Congress. The lack of autonomy means that the risks posed by a sole director are less acute then a regulator who is able to write its own rules.

This doesn’t mean there are no risks. A sole director will, inherently, have a more limited base of experience to draw from than a commission. A sole director will also have a more direct control than in a commission setting. This lack of checks and balances may result in an agency that is too passive or one that is too aggressive (as the CFPB’s tactics in the PHH case show). While this coupled with broad autonomy can create serious problems, under Hensarling’s proposal the risks would be cabined somewhat by how limited the CFPB’s discretion and authority is.

So which option is better? It depends on what you want the agency to do, and how much autonomy you want it to have. If you want an agency to operate on a short leash and simply enforce existing laws a sole director is ok. A law enforcement agency can use a sole director model because it is and should be subject to close control by the elected branches. The Congress gives the agency strictly limited and defined power, and the President chooses (and can change) the leadership.

Conversely, if you want the agency to exercise independent judgment and autonomy in setting the rules then a commission is the better bet. If the political branches want to delegate structuring the regulatory and enforcement environment (within broad parameters), it is important to have diversity of views and experiences, moderation in action, and continuity over time, all of which are better provided by a commission.

Of course, this just prompts the question, “What do we want the CFPB to do?” That is a policy and political question that will need to be hashed out by Congress and the President with input from the public. However that question ends up being resolved, I hope the structure matches, or else we may end up right back where we started.

* Yes, there are others who want to get rid of the CFPB entirely and return its functions to other regulators, but the post can only be so long.

Yesterday the Federal Trade Commission (FTC) announced that it had agreed to a $700,000 settlement with GC Services Limited Partnership (GC) to resolve allegations that GC had used unlawful tactics to collect on federal student loans and other debts. A copy of the complaint filed with the settlement can be found here. A copy of the Settlement/Stipulation can be found here. 

A summary of the allegations were outlined in the FTC press release.  The FTC alleged:

• That GC’s collectors left phone messages that illegally disclosed purported debts to others without their permission.
• GC’s collectors called consumers multiple times after being told that the person who answered did not owe the debt, that they had called the wrong person, or that the person they wanted could not be reached there.
• GC’s collectors falsely claimed that it would take steps to prevent its employees from making unlawful calls to third parties to find a debtor. 

Per the settlement and stipulated order, GC is paying the sum of $700,000 and prohibited from violating the Fair Debt Collection Practices Act (FDCPA) and from future conduct consistent with the alleged claims at issue in the complaint. 

insideARM Perspective 

As in any settlement with a regulatory body, whether it be the FTC, the CFPB, or a state agency, the devil is in the details. insideARM suggests industry compliance staff and legal departments carefully review the GC agreement. It provides guidance on voice messages, call attempts, and account documentation. 

Many of the allegations in the complaint and the provisions of the settlement agreement appear to deal with the thorny issue of voice mail messages. insideARM has published extensively on this subject, most recently on February 2, 2016 when reporting about a rejection of a class action settlement regarding a voice mail message that was compliant with  the CFPB proposed voicemail message.

The stipulated order has a unique provision regarding voice messages.  Per the order GC is permanently restrained and enjoined from:

1. Leaving recorded messages, such as on the voicemail, answering machine, or messaging service of any person, in which Defendant both: (1) states the first or last name of the debtor, and (2) discloses that it is a debt collector, is attempting to collect a debt, or that the debtor owes a debt. Provided that, Defendant may leave such a message if: (1) the recorded greeting on the messaging system discloses the person’s first and last name, and only that person’s first and last name, and that first and last name is the same as the person who allegedly owes the debt; (2) Defendant has already spoken with the person on at least one prior occasion using the telephone number associated with the messaging system and confirmed that only that person can access any message left at that number; or (3) Defendant has the prior consent of that person to leave such message at that number. Provided further that, Defendant may not leave such a message under any circumstances if the person has explicitly prohibited Defendant from leaving recorded messages on that phone number.
2. Communicating with a person about a debt in an in-bound call in response to a message left in compliance with {section} A for the purpose of acquiring location information for the debtor. 

The stipulated order also has a unique provision regarding repeated call attempts.  Per the order GC is permanently restrained and enjoined from:

1. Contacting any person about a particular account at a telephone number after that person or anyone at that telephone number has informed Defendant, either orally or in writing, that either (a) the debtor that Defendant is trying to contact cannot be reached at that telephone number or (b) the person does not have location information about the debtor Defendant is trying to reach, unless Defendant has a reasonable belief that the person’s earlier statements were erroneous or incomplete, and that such person now has correct or complete location information. 
2. Failing to create and maintain (for at least three years from the date of last contact with the person) records documenting that a person has informed Defendant, either orally or in writing, that the debtor that Defendant is trying to contact cannot be reached at that telephone number or the person does not have location information about the debtor that Defendant is trying to reach.
3. Failing to create and maintain (for at least three years from the date of last contact with the person) records documenting that Defendant has a reasonable belief that a person’s statement that the debtor Defendant is trying to contact cannot be reached at that telephone number, or that the person does not have location information about the debtor, were erroneous, incomplete, or out of date, before calling that telephone number again.
4. Failing to create and maintain audio recordings of at least 75 percent of all telephone calls between Defendants and anyone they contact in collecting on debt, provided that Defendants must commence making such recordings no later than 3 months after the date of this Order and must maintain these recording for 6 months after they are made.
5. Provided that, for purposes of this subsection, to have a reasonable belief that a person’s earlier statements were erroneous or incomplete and that such person now has correct or complete location information, Defendant must have: (1) conducted a thorough review of all applicable records, documents, and database entries for the debtor Defendant is trying to reach to search for any notations that indicate that the debtor cannot be reached at that telephone number or that the person does not have location information about the debtor Defendant is trying to reach; and (2) obtained and considered information or evidence from a new or different source other than the information or evidence previously relied upon by Defendant in attempting to contact the debtor Defendant is trying to reach, and such information or evidence substantiates Defendant’s belief that the person’s earlier statements were erroneous or incomplete and that such person now has correct or complete location information.

This settlement should be reviewed in conjunction with the CFPB Outline of proposed rules and the CFPB suggestion on voice mail messages and their suggested limits on call attempts.

Finally, insideARM spoke with a representative of GC and asked for comment on the case.  The following is their response to the settlement:

GC Services’ Statement on FTC Settlement 

On February 14, 2017, GC Services Limited Partnership released the following statement from Chief Executive Officer and President Frank A. Taylor in response to the recent settlement with the Federal Trade Commission (FTC).  

“We are pleased to have resolved this matter with the Federal Trade Commission, which concerns phone calls made some years ago. We cooperated fully with the FTC’s investigation. We are also pleased the FTC alleged no conduct that was abusive, deceptive, or harassing towards our clients’ customers. This settlement will shed light on how to leave voice messages that comply with the FDCPA, an issue on which courts have disagreed.

“We pride ourselves on being a compliance-driven company—one entrusted for almost six decades with providing exceptional customer service to all of our clients’ customers. We hold ourselves to the utmost standards and strive to comply with all applicable laws and regulations. We will continue to provide our clients with quality service while interacting with their customers in an ethical, compliant manner.”

On January 30, The White House issued an Executive Order stating that for every new regulation proposed, two old ones must be proposed for elimination. That Order was thin on details and left many questions, including: how is a regulation defined, and does the Order apply to independent agencies such as the Consumer Financial Protection Bureau (CFPB)?

A few days later, on February 2, a new White House Memorandum was released, titled “Interim Guidance Implementing Section 2 of the Executive Order of January 30, 2017, Titled “Reducing Regulation and Controlling Regulatory Costs.”

Written in the form of a “Q&A,” this memo offers some clarification. Regarding which new regulations are covered, it says,

The EO’s requirements for Fiscal Year 2017 apply only to those significant regulatory actions, as defined in Section 3(f) of Executive Order 12866, an agency issues between noon on January 20 and September 30, 2017. This includes significant final regulations for which agencies issued a Notice of Proposed Rulemaking before noon on January 20, 2017. [Emphasis added]

As it relates to debt collection rulemaking, a Notice of Proposed Rulemaking (NPR) has not yet been issued, and given that the next anticipated step is a SBREFA hearing for first party rules, it seems unlikely we would see a NPR prior to September 30.

In any event, the next question addressed in the memo is “Do Section 2’s requirements apply to significant regulatory actions of independent agencies?” The answer, in short, is no. Here is the guidance:

No, the requirements of Section 2 apply only to those agencies required to submit significant regulatory actions to OIRA for review under EO 12866. Nevertheless, we encourage independent regulatory agencies to identify existing regulations that, if repealed or revised, would achieve cost savings that would fully offset the costs of new significant regulatory actions.

It seems unlikely that, under current leadership, the CFPB would follow this encouragement. After all, the CFPB has only been around for a few years – based on the numbers, making any more new rules would essentially require wiping out everything they’ve already done.

Of additional interest in the Memo is the answer to the question, “How should costs be measured?” The answer, “Costs should be measured as the opportunity cost to society. OMB Circlular A-4 defines this concept.”

The 48-page OMB Circular A-4 was released by the George W. Bush White House on September 17, 2003. According to that document,

To evaluate properly the benefits and costs of regulations and their alternatives, you will need to do the following:

• Explain how the actions required by the rule are linked to the expected benefits. For example, indicate how additional safety equipment will reduce safety risks. A similar analysis should be done for each of the alternatives.
• Identify a baseline. Benefits and costs are defined in comparison with a clearly stated alternative. This normally will be a no-action baseline: what the world will be like if the proposed rule is not adopted. Comparisons to a next best alternative are also especially useful.
• Identify the expected undesirable side-effects and ancillary benefits of the proposed regulatory action and the alternatives. These should be added to the direct benefits and costs as appropriate.

With this information, you should be able to assess quantitatively the benefits and costs of the proposed rule and its alternatives. A complete regulatory analysis includes a discussion of non-quantified as well as quantified benefits and costs. A non-quantified outcome is a benefit or cost that has not been quantified or monetized in the analysis. When there are important nonmonetary values at stake, you should also identify them in your analysis so policymakers can compare them with the monetary benefits and costs. When your analysis is complete, you should present a summary of the benefit and cost estimates for each alternative, including the qualitative and non-monetized factors affected by the rule, so that readers can evaluate them.

As you design, execute, and write your regulatory analysis, you should seek out the opinions of those who will be affected by the regulation as well as the views of those individuals and organizations who may not be affected but have special knowledge or insight into the regulatory issues. Consultation can be useful in ensuring that your analysis addresses all of the relevant issues and that you have access to all pertinent data. Early consultation can be especially helpful. You should not limit consultation to the final stages of your analytical efforts.

You will find that you cannot conduct a good regulatory analysis according to a formula. Conducting high-quality analysis requires competent professional judgment. Different regulations may call for different emphases in the analysis, depending on the nature and complexity of the regulatory issues and the sensitivity of the benefit and cost estimates to the key assumptions.

A good analysis is transparent. It should be possible for a qualified third party reading the report to see clearly how you arrived at your estimates and conclusions. For transparency=s sake, you should state in your report what assumptions were used, such as the time horizon for the analysis and the discount rates applied to future benefits and costs. It is usually necessary to provide a sensitivity analysis to reveal whether, and to what extent, the results of the analysis are sensitive to plausible changes in the main assumptions and numeric inputs.

A good analysis provides specific references to all sources of data, appendices with documentation of models (where necessary), and the results of formal sensitivity and other uncertainty analyses. Your analysis should also have an executive summary, including a standardized accounting statement.

The document suggests considering whether alternatives to Federal regulation would be preferable, such as antitrust enforcement, consumer-initiated litigation in the product liability system, administrative compensation systems, or regulation at the state or local level. Nonetheless, a nearly 30-page description of “Developing Benefit and Cost Estimates” is provided.

Sound like reasonable guidelines for rulemaking? Well, according to a 2014 report by the Congressional Research Service, nevermind, the CFPB isn’t subject to OMB Circular A-4 either. This, too, is a lengthy document. Here is the paragraph related to the CFPB:

Section 1022(b)(2)(A) of the Dodd-Frank Act (12 U.S.C. §5512) establishes certain “standards of rulemaking” for CFPB. Specifically, it states that the Bureau shall consider—(i) the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services resulting from such rule; and (ii) the impact of proposed rules on covered persons, as described in section 1026, and the impact on consumers in rural areas.

Therefore, CFPB, like the other banking agencies, appears to be required to “consider” costs and benefits before issuing its rules, but is not specifically required to prepare detailed cost-benefit analyses to accomplish that goal. [Emphasis added]

By the way, the February 2, 2017 memo stated, “Comments on this interim guidance should be provided to reducingregulation@omb.eop.gov by February 10, 2017.” That was a quick turnaround.

A United States federal judge in Pennsylvania has ruled in favor Enhanced Recovery Company LLC (ERC) and granted their motion for summary judgment in a Fair Debt Collection Practices Act (FDCPA) case where the plaintiff had previously sued ERC regarding the same debt, settled the case, and signed a settlement agreement. The case is Palmer v. Enhanced Recovery Company LLC (Case No. 16-3559, U.S. District Court, Eastern District of Pennsylvania). 

A copy of the court’s Memorandum can be found here.

Background

ERC was referred Plaintiff’s delinquent Sprint account for collection. On October 28, 2015, Defendant sent correspondence to Plaintiff in an attempt to collect the amount that was owed on Plaintiff’s delinquent account. On October 30, 2015, an ERC employee spoke with Plaintiff via telephone, and a recording of the telephone call is part of the record. 

Plaintiff Yvette Palmer first filed a FDCPA lawsuit against ERC in February 2016, in a case captioned Palmer v. Enhanced Recovery Company LLC, Civil Action No. 16-757-BMS (February 2016 Lawsuit). In the that Complaint, Plaintiff alleged, among other things, that Defendant was liable for “unjustified contacts” in violation of the FDCPA. The only contacts that Plaintiff specifically referred to in the February 2016 Complaint were written contacts.

During settlement discussions regarding the February 2016 Lawsuit, Plaintiff’s attorney, Predrag Filipovic, from the I Fight 4 Justice Law Office of Predrag Filipovic, received the recording of the October 30, 2015 phone call which is part of the record in this case. Upon receiving the recording, Mr. Filipovic used it as leverage in the settlement discussions with ERC representative Rocky Landoll, and indicated that, in absence of settlement, he would amend the February 2016 Complaint to include allegations regarding the October 20, 2015 phone call. Shortly thereafter, Plaintiff and Defendant entered into the Settlement Agreement that resulted in the voluntary dismissal of the February 2016 lawsuit.

Pursuant to the settlement agreement between the parties, the February 2016 Lawsuit was voluntarily dismissed on May 9, 2016.

Plaintiff filed her complaint in this current case less than two months later, on June 30, 2016.

In this second lawsuit Plaintiff asserts claims for damages for violation of the FDCPA, alleging that, during the October 30, 2015 phone call, ERC concealed its identity as a debt collector while attempting to collect debt and to obtain information to collect debt. 

In answering Plaintiff’s Complaint, ERC asserted an affirmative defense based on the settlement agreement reached in the February 2016 Lawsuit (the Settlement Agreement).

In the Settlement Agreement, the Parties agreed as follows: 

“Plaintiff Yvette Palmer hereby releases and forever discharges Enhanced Recovery Company LLC d/b/a “ERC”, their predecessors, successors, insurers, assigns, attorneys, employees, agents and representatives, and each of them from any and all claims, demands, obligations, losses, causes of action, damages, penalties, costs, expenses, attorneys’ fees, liabilities, and indemnities of any nature whatsoever, arising out of facts set forth in Plaintiff’s complaint filed against the Defendant in the Action No. 2:16-cv-00757-BMS. (Emphasis added by the court in its memorandum.)

“[The Settlement Agreement] may be pleaded as a full and complete defense to, and may be used as the basis for an injunction against, any suit, action or other proceeding which may be instituted, prosecuted or attempted in breach of this Agreement.”

The Court’s Decision 

The court agreed with ERC and granted their motion for summary judgment. Per the Memorandum by the Honorable Michael M. Baylson:

“Defendant ERC is entitled to Summary Judgment because under a plain language reading of the Settlement Agreement, the instant lawsuit is precluded, and even if the Settlement Agreement were ambiguous, extraneous evidence shows that the intent of the parties was to preclude Plaintiff’s current claims. 

Looking first at the plain language of the agreement, as is required, the key question is whether the current case “aris[es] out of facts set forth in Plaintiff’s complaint filed against the Defendant in the Action No. 2:16-cv-00757-BMS.”

The language used in Plaintiff’s February 2016 Complaint is broad. The specific instances of “contact” laid out in the complaint reference only the letter sent to Plaintiff’s address, but the language of the complaint is much broader than that, and discusses generally Defendant’s attempt to collect the Sprint PCS debt. Plaintiff now again attempts to bring a claim based on an attempt (by the same defendant) to collect the same debt, anchored by a phone call that took place within two days of the letter described in the February Complaint.

In short, Plaintiff’s February Complaint was based on an attempt by ERC to collect a Sprint PCS debt. Though the June Complaint alleges different specific facts than Plaintiff’s February Complaint, the June Complaint is also based on an attempt by ERC to collect that same Sprint PCS debt. That is, the June Complaint arises out of the same set of facts as her February Complaint. Through operation of the plain language of the Settlement Agreement, Defendant is entitled to summary judgment.

Congress did not intend to allow for seriatim claims or double recovery against the same debt collector for actions taken prior to the first lawsuit regarding the same debt. To allow a plaintiff to seek damages by successive lawsuits would eviscerate the statutory damages limit in the FDCPA and would run contrary to the goals of judicial efficiency. Id. In short, Plaintiff had a reasonable opportunity to litigate her claims, and in fact, has already recovered on her claims.

At best, Plaintiff could argue that the Settlement Agreement is ambiguous as to whether it is intended to include her current lawsuit. However, even if this were the case, Defendant would nevertheless be entitled to Summary Judgment, given the e-mail exchange between Mr. Filipovic on behalf of Plaintiff and Mr. Landoll on behalf of ERC during settlement negotiations. 

The e-mail exchange makes clear that the parties intended the October phone call to be part of the settlement. Even more than that, Plaintiff’s attorney specifically and effectively used the content of the October 30 phone call as a bargaining chip to secure a favorable settlement for his client. Indeed, the e-mails suggest that the Defendant’s willingness to pay more than doubled as a result of those discussions. Now, after benefitting from the October phone call during settlement negotiations and procuring a larger settlement amount than she might have otherwise, Plaintiff attempts to bring another lawsuit based on that same phone call. To allow this lawsuit to go forward would be contrary to the negotiated agreement of the Parties.”

insideARM Perspective 

This is a positive case for the industry. It was a logical, thoughtful decision by a strong judge. To suggest that this plaintiff and her attorney be allowed to benefit from a second lawsuit on the exact same debt and exact same facts as the first lawsuit would be wrong. 

insideARM contacted ERC for a comment on the case. Per Shelly Gensmer, Senior Director at ERC:

“While a settlement agreement is the closing of a matter it should be viewed as a first line of defense for any secondary claims.  This case was cause for review to ensure that ERC has all the necessary protections in place to ensure it brings closure to all claims for any consumer, in any settlement. ERC diligently seeks to follow the laws and regulations that govern its practices. In that effort, ERC must also seek to uphold the laws as they are written, to continue protect the consumer and the industry alike.  Where the lines of the law are stretched to create room for abstruse translation, no one really benefits and there are no real successes. ERC is very pleased that the judge agreed with its position.” 

One other takeaway from this case is an insideARM suggestion that firms conduct a review of the language of their settlement agreements to strengthen their position to defend similar lawsuits aimed a second bit of the apple on the same debt and same activity.

This article previously appeared on Ballard Spahr’s CFPB Monitor and is re-published here with permission.

After the D.C. Circuit panel issued a per curiam order on February 2 denying the three motions to intervene that were filed in the PHH case, we expected the next development in the case to be a decision by the D.C. Circuit on the CFPB’s petition for rehearing en banc.  Instead, the next development has been the filing of requests for the full court to reconsider the panel’s denial of the motions to intervene.

This past Friday, a petition for rehearing en banc was filed by Democratic AGs from 16 states and the District of Columbia and motions for reconsideration en banc were filed by Senator Sherrod Brown and Representative Maxine Waters and by Americans for Financial Reform, Center for Responsible Lending, Leadership Conference on Civil and Human Rights, United States Public Interest Research Group, Maeve Brown (who chairs the CFPB’s Consumer Advisory Board), and Self-Help Credit Union.

The motions to intervene were based in substantial part on the argument that because the movants can no longer rely on the CFPB and/or the DOJ under the Trump Administration to adequately defend the CFPB’s constitutionality and have a legal interest in the CFPB remaining an independent agency, intervention is necessary to protect the movants’ legal interests, including by filing a petition for a writ of certiorari.

The public interest groups state in their motion for reconsideration en banc that they had assumed their motion to intervene “would be circulated to the entire Court alongside the [CFPB’s] petition for rehearing” because they had been instructed by the clerk’s office to file an original and 19 copies of their motion.”  They attach their original motion to intervene and incorporate the arguments for intervention by reference in the new motion but add “one request.”  Their request is that if the court deems their motion for reconsideration premature “because today the CFPB continues to defend itself…the motion be held in abeyance and ruled upon either at the conclusion of the appeal, or when it becomes apparent that the CFPB is changing its position (whichever comes first).”  They also state that because the CFPB may depend on the DOJ to either file or respond to a petition for a writ of certiorari and the DOJ may have a different position on constitutionality than the CFPB, the court should grant their motion “at the conclusion of the case in any event to ensure that a party remains able to defend the constitutionality of the statute Congress enacted in the Supreme Court.”

The Democratic state AGs and lawmakers, instead of attaching their original motions to intervene, repeat their arguments for intervention in, respectively, their petition and motion for rehearing or reconsideration en banc. The lawmakers, like the consumer advocacy groups, ask the court, in the alternative to granting their motion, to “hold it in abeyance pending further developments in this case.” 

Given the weakness of their arguments for intervention, we were not surprised that the movants’ original motions to intervene were quickly denied by the panel.  We do find it surprising however that the movants are continuing to press these arguments in their new filings.  Under the Federal Rules of Appellate procedure, no response can be filed to a petition for an en banc consideration unless the court orders a response.

Last week the New York Times reported that a leaked memo drafted by House Financial Services Committee Chairman Jeb Hensarling (R-TX) detailed plans to weaken the CFPB.

According to the report, plans include allowing the president to replace the CFPB director at any time, limit enforcement authority, reduce the ability to make rules, and repeal the consumer complaint system. Also, perhaps most significantly, he proposes to block the CFPB from being able to use unfair or deceptive acts and practices (UDAAP) as a means of enforcement. This is perhaps the most powerful tool the bureau has because it allows the agency to go after just about any business of any size, whether or not it is specifically defined in its charter.

On Janaury 18 another member of the House Financial Services Committee and cosponsor of The CHOICE Act, Rep. Robert Pittenger (R-N.C.), wrote an article that was published in the Charlotte Observer in which he called Dodd-Frank an “albatross… which has impeded access to capital and credit for small businesses and entrepreneurs.” He offered facts including a decline in the number of community banks from 7,093 in 2010 to 5,521 today. This decline, he says, can be directly attributed to new compliance costs.

UPDATE: 1:30PM 2/13/17 insideARM has acquired a copy of the memo. You can see it here. The following are the reccommendations especially relevant to the ARM industry:

CFPB is to be retained and re-structured as a civil law enforcement agency similar to the Federal Trade Commission, with additional restrictions on its authority:

1. Sole diretor, removable by the President at-will
2. Elimination of consumer education functions
3. Rule-making authority limited to enumerated statutes
4. UDAP authority repealed in full
5. Supervision repealed
6. Consumer complaint database repealed
7. Market monitoring authority repealed
8. Enforcement powers limited to cease and desist and CID/Subpoena powers
9. Mandatory advisory boards repealed
10. Research function eliminated
11. Strengthen the existing Dodd-Frank language that the CFPB’s jurisdiction does not include entities regulated by either the SEC or CFTC

insideARM Perspective

It will no doubt remain unclear for some time how all of this may affect the ARM industry, which has also been burdened by a massive increase in compliance costs. If the CFPB doesn’t get eliminated in its entirety, larger collection agencies, which are not supervised by another agency, would likely remain under its purview.

[Note: Based on the update above, after reviewing details of the memo — which, it should be noted, is all it is, a memo — if #5, “supervision repealed” were to happen, this indeed would also affect “larger market participants,” which the bureau identified in 2012 as being those businesses with more than $10 million in revenue from collection activities.]

Dismantling Consumer Response would certainly represent a change for all collection agencies and creditors. However, the ability to file complaints and actually get a response from large companies has been popular among consumers, so it’s possible this would simply be used as a bargaining chip as other trade-offs are made.

A United States District Court judge granted a collection agency’s motion for summary judgment in a Fair Debt Collection Practices Act (FDCPA) case alleging that the defendant violated 15 U.S.C. §§ 1692d and 1692d(5) by repeatedly contacting Plaintiff on her cellular telephone, as well as calling multiple times a day. The case is Reed v. IC System, Inc. (United States District Court, Western District of Pennsylvania, Case No. 3:15-279). 

A copy of the opinion can be found here.

Background

In her complaint, Plaintiff, Laura Reed, alleged “that between December 2014 and March 2015, Defendant, a ‘debt collector’ under the Act, violated [15 U.S.C.] §§ 1692d and 1692d(5). . . by repeatedly contacting Plaintiff on her cellular telephone, more than eighty-four (84) times over a four (4) month period [beginning in December 2014 and lasting through March 2015], as well as calling multiple times a day.”

Plaintiff also alleges that Defendant “failed to send her written notification of her rights, along with information about the debt, within five days of its initial communication with her, as required by 15 U.S.C. § 1692g(a).” 

After Discovery was completed the following facts were deemed to not be in dispute:

• Defendant attempted to reach Plaintiff by calling her and sending her a notice dated December 9, 2014, to the address where she was living at the time.
• Although Plaintiff claims that she never received the notice, there is no evidence that it was ever returned to Defendant as undeliverable.
• Defendant’s account notes reflect that Defendant attempted to call Plaintiff’s cell phone 125 times over a span of 135 days, beginning on December 8, 2014, and ending on April 22, 2015.
• There were 35 days on which Defendant called at least two times, and three days on which Defendant called three times.
• All of the calls went to Plaintiff’s voicemail, and on one occasion, Defendant left a message.
• According to the account notes, the calls ceased after Plaintiff’s attorney wrote a letter to Defendant, requesting that it stop all communication with Plaintiff.
• Once she started receiving the calls, she downloaded a cell phone app called “Blocked Calls Get Cash.”
• From that point on, when Plaintiff received a call on her cell phone, the app “would ask whether it was a personal call or whether it was a debt collector or a telemarketer.”
• Plaintiff explained that her phone would “ring for, like, a second or two” before blocking the call, and then the app “would give [her] a notification of a blocked call.”
• Plaintiff testified that she had the option of answering the call before it was blocked, “but most of the time, when [she] got the phone calls, [she was] at work, and [she could not] answer [the phone].”
• Plaintiff never requested the name of the creditor in writing, nor did she request that Defendant stop making the calls.

The court noted two additional items in footnotes:

• Plaintiff has filed six similar law suits alleging FDCPA violations against other debt collectors during the same time period.
• According to its Web site, “[t]he Block Calls Get Cash app was developed to help [users] effortlessly exercise [their] rights under the Telephone Consumer Protection Act (TCPA). If [a consumer] receives a robocall, BCGC prompts [the consumer] to answer a few simple questions” and the call is logged. Then that “information is reviewed by Lemberg Law, the most active consumer law firm in the country[,]” for violations of the TCPA.

IC System moved for summary judgment.

Editor’s Note: A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. The summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial.

Defendant made two arguments in support of its motion. First, that Plaintiff lacks Article III standing. Second, Defendant contended that, assuming Plaintiff had standing, she had nonetheless failed to adduce sufficient evidence to support either of her claims under the FDCPA.

The Court first addressed the Article III standing issue. The court discussed the Supreme Court decision in Spokeo Inc. v. Robbins, (136 S. Ct. 1540 (2016) and the need for plaintiff’s alleged injury to be “concrete and particularized” rather than a “bare procedural violation.”

The court determined that Plaintiff had alleged injury in precisely the form the FDCPA was intended to guard against and thus had Article II standing to bring the action.

The court then turned to the merits of Plaintiff’s claim. As to Count 1 the opinion notes:

“15 U.S.C. §§ 1692d prohibits debt collectors from engaging ‘in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.’ In addition to that general prohibition, § 1692d(5) specifically prohibits a debt collector from ‘causing a telephone to ring . . . repeatedly or continuously wit.’

Generally, the question of whether a debt collector acted with the necessary intent is left for the jury. A court, however, may grant summary judgment if a Plaintiff fails to ‘provide evidence such that a reasonable juror could conclude that such calls were caused by Defendants with an intent to harass.’ Although ‘[t]here is no consensus as to the amount and pattern of calls necessary’ to survive summary judgment, it is clear that ‘the number of calls alone cannot violate the FDCPA; a plaintiff must also show some other egregious or outrageous conduct in order for a high number of calls to have the ‘natural consequence’ of harassing a debtor.’

In this case, the Court finds that no reasonable jury could infer that Defendant acted with the intent to ‘annoy, abuse, or harass’ Plaintiff. To be sure, the number of calls does seem relatively high: Defendant called 125 times over the span of 135 days – more than once per day on 35 days, and three times per day on three days. Nevertheless, Plaintiff has not adduced evidence of egregious conduct on the part of Defendant.

First, the calls were never back-to-back; there was always at least two hours between them, and often times, more than that. Second, the calls took place between the hours of approximately 8 a.m. and 7:45 p.m., with the vast majority taking place within ordinary business hours. Third, Defendant only left one message during the entire four month span, and did not call Plaintiff again for three days after leaving that message. Fourth, Defendant never communicated directly to Plaintiff. Indeed, Plaintiff was able to block the calls following just a few rings via the “Block Calls Get Cash” app on her cell phone, so Defendant was put in a position where it effectively had to place repeated calls in order to try to reach her. Finally, the calls ceased as soon as Plaintiff’s attorney contacted Defendant on April 22, 2015.”

As to Count 2, the court held:

“The evidence submitted by Defendant in support of its motion shows that the statutorily required notice was sent to Plaintiff at her correct address on December 9, 2014, which was just one day after the initial communication with Plaintiff. The notice was not returned as undeliverable. Plaintiff, by contrast, has not adduced any evidence of her own that suggests the requisite notice was not sent to her correct address or that it was returned to Defendant as undeliverable. Her testimony that she never received the notice is simply not enough to create a genuine issue of material fact since the statute does not require that the notice be received.”

insideARM Perspective

This is a positive case for the industry. The court recognized and understood that the relevant provision of the FDCPA requires “intent to annoy, abuse, or harass.” 

The case is also an endorsement for policies, procedures and technology that control call attempts and voicemail messages.

Kudos to IC System. The company clearly had controls in place. As noted in the opinion, the calls were never back-to-back; there was always at least two hours between them, and often, more than that. The call attempts took place between the hours of approximately 8 a.m. and 7:45 p.m., with the vast majority taking place within ordinary business hours. The company only left one message during the entire four-month span, and did not call Plaintiff again for three days after leaving that message and, finally, the calls ceased as soon as Plaintiff’s attorney contacted the company on April 22, 2015. 

In the CFPB’s Outline of Proposed Rules, the bureau attempts to define “intent” by creating specific call limitations.  It could be argued that “intent to annoy, abuse, or harass” is better determined on a case by case basis.  It could also be argued that the number of call attempts made by all agencies might be reduced if the specific content of voice messages was defined as suggested by the CFPB in that same Outline.

Finally, insideARM did not research the other six FDCPA lawsuits filed by the plaintiff. Thus, it is unclear whether plaintiff received paydays in those other cases or whether defendants in those cases will use this decision to defend the actions.