Archives for March 2017

The U.S. House of Representatives Subcommittee on Oversight and Investigations has announced it will hold a hearing entitled “The Bureau of Consumer Financial Protection’s Unconstitutional Design” on Tuesday, March 21, 2017, at 10:00 a.m. in room 2128 of the Rayburn House Office Building.

The following witnesses will testify:

• The Hon. Ted Olson, Partner, Gibson, Dunn & Crutcher LLP
• Saikrishna Prakash, James Monroe Distinguished Professor, University of Virginia School of Law
• Adam White, Research Fellow, Hoover Institution
• Brianne Gorod, Chief Counsel, Constitution Accountability Center

This hearing will examine whether the structure of the CFPB (Bureau) violates the Constitution as well as structural changes to the Bureau to resolve any constitutional infirmities. As established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the Bureau is headed by a single Director who serves a term of five years and is removable by the President “for inefficiency, neglect of duty, or malfeasance in office.” Under DoddFrank, the Director sets the Bureau’s budget; the Bureau is funded outside of the congressional appropriations process through transfers from the Federal Reserve System’s operating expenses, subject to a statutory cap.

Former regulator Ronald Rubin has written another in a series of articles – this one published in The National Review – critical (an understatement) of the Consumer Financial Protection Bureau’s management. This latest post takes the position that the only way to save the CFPB and the mission it was intended to have is for Director Richard Cordray to resign.

Among his tell-all tidbits, this time he says it is little-known that “the bureau’s most powerful division is External Affairs, the media spin doctors who are rarely so influential outside of political entities.” He shares,

I observed this perverse hierarchy while working at the CFPB in 2011 and 2012, but I was still shocked recently when a senior bureau official told me that External Affairs often vetoes rulemaking initiatives because they lack sufficient publicity potential.

You can read Rubin’s full opinion here.

You can find Ronald Rubin here.

Some of his other recent tell-all articles include:

Former Regulator Accuses CFPB of Targeting the Biggest Companies and Imposing “The Maximum Fines They Can Afford to Pay”

Former Regulator Points to CFPB Failure behind Wells Fargo Scandal

Former Regulator Offers Extensive and Scathing Details of Life Inside the CFPB

COLLINGSWOOD, N.J. — MyGovWatch.com, a clearinghouse for intelligence about government collection contracts, is observing today, National Freedom of Information Day, by announcing a lawsuit brought by its operating company against the U.S. Internal Revenue Service (IRS) for withholding information about a government contract in violation of the Federal Freedom of Information Act (FOIA).

The lawsuit was filed by an attorney on behalf of Net Gain Marketing, Inc. (NGM), operator of the MyGovWatch website. The case relates to a procurement for tax collection that resulted in awards to four Private Collection Agencies (PCAs). The lawsuit seeks to compel the IRS to disclose contract pricing information in compliance with FOIA. The IRS has already released redacted versions of the contracts. Other Federal buyers of collection services typically release this information, often publicly within the procurement process. 

In 2012, MyGovWatch previously sued the Treasury Department, the Federal department under which the IRS operates, when it balked at providing contract pricing information and a list of companies that submitted an offer in response to a 2011 solicitation related to non-tax debts. A Federal judge awarded a summary judgment in favor of the website, and the information was later posted and made available to website users. 

“This is another example of a low-level Federal bureaucrat abusing their power and attempting to legislate from a cubicle,” said Nick Bernardo, owner of NGM, the publisher of the MyGovWatch website. “There’s no question the IRS hired four reputable, quality PCAs for this work, but the public has a legitimate interest in knowing the prices the government pays for various products and services, and should not have to hire lawyers to know them.  The law is clear that solicitations for Federal prime contracts and subcontracts and their results should be transparent, and anything short of that will not be tolerated.” 

Simultaneously, MyGovWatch.com has announced that any new users of the site that sign up for a free trial of the site will receive any information obtained about the IRS contracting initiative when it becomes available at no cost, even if the information becomes available after the trial period expires. 

National Freedom of Information Day is part of Sunshine Week, an initiative started by the American Society of News Editors.  Its goal is to teach the public about why excessive and unnecessary secrecy is dangerous to a free society.  The Federal government enacted the national Freedom of Information Act in 1966, and, since then, every state in the nation has adopted its own version.  With few exceptions, information about how government agencies make buying decisions is public by definition, to include signed contracts, evaluation scorecards, lists of bidders, winning proposals, and performance reports.  MyGovWatch.com aggregates those documents and makes key items, like company names and line-item pricing, searchable by users. The site also allows users to know what’s out for bid now and find out about future purchases in advance.

Researchers at MyGovWatch.com concluded in 2014 that an estimated 67% of government and higher education requests for proposals (RFPs) fall into one of three categories: new contracts, where the buyer did not previously have a vendor for the service; contracts in which a vendor or vendors replaced the incumbent(s); or, contracts in which the buyer added an additional vendor. 

About MyGovWatch.com

MyGovWatch.com is the only information repository of its kind, fully dedicated to providing valuable information to users specifically about higher education and government purchasing activity in specific lines of business.

BUFFALO, N.Y. – The employees of Mercantile Adjustment Bureau, LLC, an accounts receivable firm based in Buffalo, New York, collected over 1,800 cans of tuna and 75 jars of mayonnaise for local Mobile Food Kitchen, Hearts for the Homeless.

Hearts for the Homeless provides 50 to 100 people in the city of Buffalo with a hot meal each night and sends them home with a to-go bag which consists of a sandwich, as well as other food items. In 2016 they fed approximately 12,000 people.

“There is a feeling of satisfaction of knowing that when we feed people at night, they will not go to bed hungry,” said Ron Calandra, Executive Director and Founder of Hearts for the Homeless.

At the beginning of February there was an immediate need for tuna and mayonnaise as their shelves were just about empty. The employees of Mercantile felt they needed to help. “It’s because of people like the employees of Mercantile, who answer our plea, that make what we do possible,” said Donna Blarr, Office Manager at Hearts for the Homeless. “We are greatly appreciative for all they have done.”

Teams were created within the organization to see who could collect the most tuna cans and jars of mayonnaise in a two-week period. The prize was a pizza lunch.

“It was great to see the company come together to help the community,” said Jason Lehr, VP of Network Technology. “The excitement and camaraderie throughout the company showed the true kindness of our employees.”

Mercantile collected enough tuna to maintain a stocked tuna shelf at Hearts for the Homeless for the rest of the year. Mercantile plans on continuing the tuna competition each year as well as adding other competitions throughout the year to help Hearts for the Homeless.

About Mercantile Adjustment Bureau

Mercantile Adjustment Bureau, LLC is a Buffalo-based full service accounts receivable management company providing third and first-party collections, specialty services and customer care/service. For more information visit www.mercantilesolutions.com

insideARM maintains a free TCPA resources page to provide the ARM community a destination for timely and topical information on the Telephone Consumer Protection Act of 1991 (“TCPA”). This page is generously supported by Neustar.   

The cornerstone of the page is a chart of significant TCPA cases. Click on the link to the case name for the complete text of the decision. Where insideARM has already published a story on the case, we provide a link to that as well. Case information and analysis is provided by the Bedard Law Group. 

The February, 2017 update included four cases that were decided in January.  

The cases were: 

Stevens-Bratton v. Trugreen, Inc. 

This case, from the Sixth Circuit Court of Appeals, involved an arbitration provision in a contract between Stevens-Bratton and Trugreen for lawn care services.  The district court had determined that the agreement between the parties required arbitration even though the agreement expired before the relevant events that are the subject of Stevens-Bratton’s lawsuit.

The plaintiff terminated the agreement for lawn care services. Months later she received over ten telemarketing calls on her cell phone from TruGreen, who used an automatic telephone dialing system. Despite Stevens-Bratton’s requests that TruGreen stop calling her, the calls continued. 

The Court of Appeals determined that because the dispute between Stevens-Bratton and TruGreen does not “arise under” the expired agreement, they REVERSED the district court’s judgment compelling arbitration and REMANDED for further proceedings.

Golan v. Veritas Entertainment, LLC

This case involved telemarketing of a movie titled “Last Ounce of Courage.” Plaintiffs alleged that defendants engaged in an advertising campaign for the movie which included telephone calls to approximately four million residential telephone numbers throughout the United States. Plaintiffs also alleged the telephone calls were prerecorded, appeared as surveys to recipients about traditional American values, and told recipients if they believed in freedom and liberty, they would enjoy the movie. Michael Huckabee was the voice for the prerecorded messages.

The U.S. District Court for the Eastern District of Missouri issued a Memorandum and Order certifying the class.

Van Patten v. Vertical Fitness Group, LLC

insideARM wrote about this decision on February 23, 2017.  It is an important case about revocation of consent.  The court determined that revoking a gym membership did not revoke consent to be contacted on the plaintiff’s cell phone.  This case should be reviewed and considered/contrasted with the above referenced TruGreen case. The two have somewhat similar facts, but completely different results.

Stein v. Monterey Financial Services, Inc. 

The plaintiff in this case had received over thirty auto-dialed calls and numerous prerecorded voicemails from Monterey debt collectors. Plaintiff had brought a motion for class certification. The proposed class was: “[a]ll persons within the United States to whom Monterey placed an ATDS-to-cellular debt-collection call between February 13, 2013 and July 17, 2013, and who did not provide their cellular numbers to their creditors during the transaction that resulted in the debt owed.” 

In this case the court determined that the plaintiff’s proposed class did not meet the “ascertainability” requirements and refused to certify the proposed class. The court also noted that individualized consent issues rendered the proposed class unsuitable for certification.

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

On Friday, PHH filed its opening en banc brief with the D.C. Circuit in the rehearing of its appeal of Director Cordray’s June 2015 decision that affirmed an administrative law judge’s (ALJ) recommended decision concluding PHH had violated RESPA and increased the ALJ’s disgorgement award from over $6.4 million to over $109 million.  The rehearing was sought by the CFPB after a divided D.C. Circuit panel ruled that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional and severed the unconstitutional provision to make the CFPB Director removable without cause by the President; rejected Director Cordray’s new RESPA interpretation and held that even assuming that his interpretation was consistent with RESPA, the CFPB’s attempt to apply that new interpretation retroactively violated due process; held that statutes of limitations apply to CFPB administrative enforcement actions; and remanded to the CFPB for further proceedings consistent with the panel’s decision.

In its opening brief, PHH argues that the CFPB’s “unprecedented independence from the elected branches of government violates the separation of powers” and that because the CFPB’s “constitutional infirmities extend far beyond limiting the President’s removal power…the proper remedy is to strike down the agency in its entirety.”  According to PHH, the Dodd-Frank “for-cause removal provision is not severable from the rest of the provisions establishing the CFPB because severance would create a new agency unrecognizable to the Congress that passed Dodd-Frank.”  PHH contends that the court cannot avoid the separation-of-powers issues “simply by adopting the panel’s statutory holdings and remanding to the CFPB, because this Court cannot remand a case to an unconstitutional agency.”  PHH asserts that such issues can only be avoided “by vacating the CFPB’s order without remand, so that the CFPB would not be free to resume proceedings against PHH.” (emphasis provided).

In its order granting the CFPB’s petition for rehearing en banc, one of the issues the court ordered the parties to address was what the appropriate disposition would be in PHH if the court were to hold that the ALJ in Lucia v. SEC was an inferior officer.  In Lucia, a panel of the D.C. Circuit held that because the SEC’s ALJ was an “employee” rather than “inferior officer” who must be appointed in accordance with the Appointments Clause of the U.S. Constitution, the ALJ’s appointment by the SEC’s Office of Administrative Law Judges rather than an SEC Commissioner was constitutional.  The D.C. Circuit granted a petition for rehearing en banc in Lucia and, as noted below, has scheduled oral argument in that case and in PHH for the same day.

Responding to the issue posed by the D.C. Circuit, PHH argues in its brief that if the court holds the ALJ in Lucia was improperly appointed, then the ALJ in its case was also an “inferior officer” who was not appointed in accordance with the Appointments Clause.  As a result, the entire hearing before the ALJ was invalid, Director Cordray’s order would need to be vacated, and “any future proceeding must begin afresh before a constitutionally structured agency but also before a valid adjudicator.”  PHH further argues that merely restarting the current proceeding still would not provide PHH with full relief because “the unconstitutional taint stemming from the initial authorization of the Notice of Charges would continue to infect this matter.”  PHH asserts that for this reason, the court “must decide PHH’s separation-of-powers challenge even if the ALJ was improperly appointed.”

With regard to the RESPA issues, PHH contends they “should not properly be disputed” before the en banc court “and any en banc opinion should simply reinstate the panel’s statutory rulings.”  It also observes that the RESPA issues “plainly were not en banc-worthy” and Director Cordray’s RESPA interpretation, if adopted by the en banc court, “would create a circuit split with every other court to have considered RESPA’s proper scope.”  Nevertheless,  PHH states that “[i]n an abundance of caution and in light of the critical importance of the RESPA issues to PHH and to the entire settlement-services industry…PHH addresses those issues directly [in its brief] to demonstrate that there is no legitimate basis to revisit the panel’s statutory rulings.”

Amicus briefs in support of PHH were filed on Friday by:

• The Chamber of Commerce of the United States of America
• American Bankers Association, American Financial Services Association, Consumer Bankers Association, Mortgage Bankers Association, Housing Policy Council of the Financial Services Roundtable, Real Estate Services Providers Council and seven other trade groups
• ACA International
• The Cato Institute
• RD Legal Partners, LP, RD Legal Funding, LLC, RD Legal Finance, LLC and a related individual
• The Attorneys General of Missouri, Alabama, Arizona, Arkansas, Georgia, Idaho, Indiana, Kansas, Louisiana, Nevada, Oklahoma, South Dakota, Texas, West Virginia, and Wisconsin
• State National Bank of Big Spring, 60 Plus Association, Inc., and Competitive Enterprise Institute

The RD Legal amici are defendants in an enforcement action filed by the CFPB and the New York Attorney General last month alleging that a litigation settlement advance product offered by RD Legal is a disguised usurious loan that is deceptively marketed and abusive.  (In their brief, the RD Legal amici claim that the action was filed in retaliation for a preemptive challenge to the CFPB’s jurisdiction filed by RD Legal.)  State National Bank of Big Spring and the other amici on its brief are the plaintiffs in a separate lawsuit pending in D.C. federal district court challenging the CFPB’s constitutionality.  The State National Bank of Big Spring plaintiffs previously filed an unsuccessful motion with the D.C. Circuit seeking to intervene in the PHH en banc rehearing.

In their amicus brief, the Republican state AGs argue that separation of powers creates a structural check against the aggregation of power on the federal level and protects the role of the states in the federal system by limiting the range of permissible federal action and ensuring federal power can only be wielded by officials who are politically accountable.  A group of Democratic AGs from 16 states and the District of Columbia filed an unsuccessful motion with the D.C. Circuit seeking to intervene in the PHH appeal.  Among the arguments made by the Democratic AGs in support of their motion was that their intervention was necessary because the Trump Administration might not defend the CFPB’s constitutionality.

Except for the brief filed by the ABA and twelve other trade groups which addresses only the merits of PHH’s RESPA arguments, the amicus briefs only address the CFPB’s constitutionality and argue that the CFPB is unconstitutionally structured because of the CFPB Director’s expansive powers and insulation from Presidential and Congressional oversight.  (ACA International’s brief includes the argument that, in addition to being insulated from accountability, the CFPB’s funding mechanism also raises a conflict of interest.  According to ACA, the civil penalty fund “creates a perverse incentive for the Bureau to use its enforcement actions as a funding mechanism, where the Bureau is both prosecutor and beneficiary.”)

The ABA’s brief states that even though amici “do not understand the Court to have granted en banc review to reconsider the panel’s straightforward resolution of the RESPA and fair notice questions,” they are nonetheless “filing this brief out of an abundance of caution because [such] questions addressed by the panel are of critical importance to them and their members.”  The ABA amici argue that the CFPB “misread RESPA, overturned decades of settled interpretations without any notice, and disrupted a large sector of the economy.”  They assert that the panel’s decision “correctly restored the status quo” and urge the en banc court “to let that decision stand.”

Also on Friday, the D.C. Circuit entered an order allowing each side 30 minutes at the en banc oral argument scheduled for May 24, 2017.  The order also indicates that the oral argument in Lucia v. SEC, also scheduled for May 24, will be heard first to be followed by a “short recess” before the argument in PHH.  Finally, the order confirms that the en banc panel will consist of eleven judges, including Senior Judge Randolph.  In addition to Senior Judge Randolph, four of the other panel members were appointed by a Republican president.

CARROLLTON, Texas – SWC Group chose Hope’s Door as our 2016 Fourth Quarter Charity of Choice. Employees from our Carrollton, TX office assembled 500 personal care packages and contributed $645 in cash donations. 

“It is our culture to give back to our community. Each employee is offered a paid day to serve at any charity of choice and as a company, we select at least one charity to sponsor each quarter,” says Jeff Hurt, CEO. “We chose Hope’s Door because of their dedication to providing safety and shelter to community members affected by intimate partner and family violence. They focus on helping everyone affected – from the victim to the abuser”  

Employees contributed to the charity in two ways. First, employees worked together to assemble personal care packages using items purchased by SWC Group. Items included shampoo, lotion, mouthwash, soap, toothbrushes, toothpaste, etc. These care packages are typically given to people staying at an emergency shelter. Second, employees contributed by making cash donations. 

“We are continually impressed by our employees’ desire to give – time and time again,” says Hurt. “And our hope is that our small contributions will continue to better our community for years to come.” 

In photo: SWC Group employee Melody Sasser presenting check for $645 to Hope’s Door

About SWC Group

SWC Group is one of the nation’s leading provider of accounts receivable management and consumer service solutions.  They bring 40 years of proven experience in the government, tolling, utility, telecommunications, cable, property management, and education industries. SWC Group annually manages billions of dollars in receivable accounts, proudly serving organization of all sizes from Fortune 500 private firms to small public agencies.

On February 28, 2017, a federal judge in California dismissed a putative Telephone Consumer Protection Act (TCPA) class action against United Student Aid Funds (USAF) by determining that USAF was not vicariously liable for the acts of collectors that were hired by an independent contractor/servicer. The case is Henderson v. United Student Aid Funds, (Case No. 13-cv-1845, U.S. District Court, ND CA).

A copy of the Order granting Defendant’s Motion for Summary Judgment can be found here.

Background 

Plaintiff first took out a student loan in January of 1993. The loan became delinquent in 2002, went into default in 2003, and was rehabilitated in 2004. Plaintiff took out a second student loan in 2007 on which she later defaulted. Plaintiff owed $6,100 across both loans. 

Defendant USAF is a non-profit guaranty agency working in the Federal Family Education Loan Program (FFELP). Defendant was the guaranty agency for Plaintiff’s loans and purchased the claims to the defaulted loans in 2010. Defendant then hired Navient Solutions, Inc. (NSI) to service and collect on the defaulted loans. 

The agreement between Defendant and NSI states that the parties will act “in independent capacities and not as agents and permitted NSI to hire subcontractors (Collectors) independent of any objections or recommendations Defendant might have. This includes NSI’s ability to terminate Collectors, an ability the Service Agreement does not explicitly provide to Defendant, and an action Defendant had never taken.

Separate agreements between NSI and various Collectors govern the relationships between the organizations. As the NSI-Collector relationships relate to USAF, “once the Collectors collect on a defaulted loan, they transfer the collected monies to NSI, which then remits the payment to USAF. USAF, in return, pays NSI a monthly portfolio management fee for its role in servicing the loans and managing the Collectors.”

Plaintiff received “a number of unsolicited phone calls, featuring artificial or prerecorded voices, to her wireless phone” attempting to collect on the defaulted loans. Plaintiff never gave Defendant nor any relevant entity prior express consent to call her cellular telephone with the use of an automatic telephone dialing system (ATDS) or prerecorded message.

Plaintiff filed suit against Defendant on August 8, 2013 in the form of a putative class action for damages and injunctive relief under the TCPA, 47 U.S.C. §§ 227 et seq. Plaintiff subsequently amended her complaint, adding as Defendants NSI and several other collectors who contracted with NSI. Several months later, the newly added Defendants were dismissed for lack of jurisdiction.

Discovery proceeded for over a year, at which point Plaintiff filed a Motion for Class Certification, and Defendant filed a Motion for Summary Judgment. The parties jointly moved for one consolidated hearing date for both motions, which the Court granted. It is these motions that the court considered.

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. 

The Court’s Opinion 

Defendant moved for summary judgment on two grounds:

1. The Bipartisan Budget Amendment Act of 2015 created an exception to the TCPA which applies to Defendant in the present case, and
2. There is no basis here to impose vicarious liability on Defendant. 

The Court addressed each argument. 

The TCPA, the Bipartisan Budget Amendment Act of 2015, and the Subsequent FCC Rulemaking 

Defendant argued that the loans which are the subject of Plaintiff’s TCPA complaint constitute debt “owed to or guaranteed by the United States” such that they fall into a newly added exception to the general TCPA ATDS and artificial or prerecorded voice prohibitions. Plaintiff did not dispute that the new exception may be retroactively applied to the loans here at issue, but instead argued that the loans are merely insured by the United States and therefore do not fall within the newly added exception.

The court agreed with the Plaintiff on this first issue. The Court concluded that “the new exception to the TCPA created by the Budget Act Amendment applies solely when the calls are made during a period in which the United States’ obligations as the ultimate guarantor or debtee have been triggered and are active.” 

Vicarious Liability  

Defendant argued that it may not be held liable under any theory of vicarious liability. Plaintiff argued that Defendant may be held liable under three theories of vicarious liability: (a) “classical” agency via subagency; (b) implied actual authority; and (c) ratification. 

Generally, under the classical agency theory of liability an entity may be liable for actions it did not itself take when the unlawful acts were performed by an agent of the entity. Plaintiff asserted that NSI was Defendant’s agent for purposes of hiring contractors, and that pursuant to that agency relationship “NSI had actual authority from USAF to hire the Collectors as subagents.” Defendant argued that NSI is merely an independent contractor: “USAF contracts with NSI to handle its collection efforts, and NSI is permitted to retain subcontrators . . . to assist. The Court agreed with the Defendant. 

In discussing the “classical agency” relationship, the court wrote:

“To succeed in proving an agency relationship a party must show an alleged principal’s right to control more than just the result of an alleged agent’s work, “specifically, the manner and means of the [activities] they conducted. 

In the present case, the evidence indicates that Defendant controlled only the outcome of NSI’s work, rather than the manner and means by which it was accomplished. Defendant and NSI structured their relationship “as independent contractors” without “any right to make commitments of any kind or to create any obligation for or on behalf of the other without the prior written consent of the other party,” except in limited circumstances.

This evidence strongly suggests that Defendant did not maintain sufficient control over NSI’s activities to constitute an agency relationship.”

The court then addressed Plaintiff’s “implied actual authority” argument: 

“Plaintiff has not produced sufficient evidence to create a triable issue of fact as to an implied actual authority theory of vicarious liability. 

The unremarkable fact that the NSI-hired Collectors were permitted to perform their jobs pursuant to their exclusive contracts with NSI—i.e., accept payments satisfying the debtors’ underlying debts as instructed by NSI—does not confer implied actual authority for the Collectors to act as agents for Defendant, nor to breach the TCPA in so doing.

Plaintiff’s argument that when Defendant’s yearly audit indicated no problems with a NSI-hired Collector Defendant therefore “approve[d]” of the Collector’s processes, procedures, and collection efforts is similarly unavailing. 

There is no indication that Defendant’s audits even encompassed TCPA compliance. And even if they did, the fact that Defendant’s audits of particular collectors did not reveal any violations even though they allegedly were, in fact, occurring, is insufficient to establish a reasonable belief on the part of those NSI-hired Collectors that Defendant impliedly granted them actual authority to breach the TCPA.” 

Finally, the court addressed Plaintiff’s “ratification” argument. Again, the court agreed with Defendant. 

“Plaintiff’s final argument is that “even if the Collectors were not in an agency relationship with USAF (or were acting outside its scope), a jury could easily find that USAF ratified their conduct nonetheless. 

However, Plaintiff’s argument directly ignores controlling Ninth Circuit authority: “Although a principal is liable when it ratifies an originally unauthorized tort, the principal-agent relationship is still a requisite, and ratification can have no meaning without it.

Defendant did not exercise sufficient control over the NSI-hired collectors to establish an agency relationship and a corresponding grant of either express or implied actual authority. And because there is no principal-agent relationship established between Defendant and NSI, there can be no corresponding principal-agent relationship established between Defendant and the NSI- hired contractors via subagency. Accordingly, on these facts there can be no ratification.

insideARM Perspective 

This decision is interesting to the ARM community for a couple of reasons. 

First of all, the court clearly and succinctly determined that the new exception to the TCPA created by the Budget Act Amendment did not apply to Guarantor Agencies such as USAF.

Second, the vicarious liability argument raised by Plaintiff was clever, but the documentation between USAF and NSI and the facts surrounding the relationship between the parties defeated that argument.  The decision should be reviewed by any credit grantor or third party servicer.  Agreements need to be clear about the relationship between parties. Then the actions of the parties must be consistent with the contractual provisions.

A recent blog post from the Federal Trade Commission warns consumers of the latest government imposter scam. The bottom line? They say, if the caller asks for personal information, hang up. This is really good advice if indeed the caller is a scammer. However it also puts another barrier in front of an already difficult-to-bridge conversation between a consumer and a legitimate debt collector. 

I think at least two shifts could help to untangle this situation. One is a streamlined regulatory approach. The other is based in technology.

An excerpt from the FTC blog (emphasis added):

The Office of the Inspector General (OIG) for the Department of Health and Human Services (HHS) and the FTC want you to know about a scam in which callers posing as federal employees are trying to get or verify personal information. This is a government imposter scam.

Sometimes, the caller asks you to verify your name, and then just hangs up. Other times, he or she might ask for detailed information — like the last digits of your Social Security or bank account number. Imposters might say they need this information to help you or a family member. But their real reason is to steal from you or sell your information to other crooks.

…and what should you do?

Hang up. Do not give out any personal or financial information…

These scams are real, and people should definitely be warned about them. At the same time, however, one practice in particular the FTC calls out as a “red flag” (and has done so in prior blog posts as well) is actually required by law for legitimate debt collectors. Specifically, collectors must confirm they have the right person on the phone before they share any information regarding the reason for the call, lest they risk embarrassing the consumer by disclosing the existence of a debt to a third party, like a child, a roommate, or a guest. That verification often includes a request for the last four digits of a Social Security number. This situation already leads to an extremely awkward opening conversation for all involved.

Interestingly, on the same exact day the FTC posted the blog described above, the agency also held its third FinTech forum (it was quite interesting, by the way) – this one focusing on artificial intelligence and blockchain. These technologies may just hold the future keys to that awkward introductory debt collection dance. From the FTC’s announcement on the forum: 

Artificial intelligence focuses on the capability for machines to mimic human thinking or actions, including learning and problem solving. The technology may be used, for example, to provide personalized financial services for consumers, including providing money management tools.

Blockchain technology involves a distributed digital ledger for recording transactions that can be shared widely. It first emerged as the foundation for digital currency, and it is now being explored for other consumer-focused uses including payment systems and “smart contracts.”

The half-day event is designed to bring together industry participants, consumer groups, researchers, and government representatives, to examine the ways in which these technologies are being used to offer consumers services, the potential benefits, and consumer protection implications as these technologies continue to develop.

What if the future of the ARM process existed in a combination of these technologies? 

Imagine a scenario where a consumer’s identity could be automatically confirmed when she answers the phone (how about a voice match?). And then what if we could re-imagine the FDCPA-required Mini Miranda disclosure so that it didn’t sound like you were getting arrested? 

Then imagine a process where account information would be delivered through blockchain technology. A consumer could access all of her financial records, and those records could be trusted because 1) control and maintenance responsibility by a single centralized source would be eliminated, and 2) hacking would be far less likely because a perpetrator would have to alter each and every “block” in the “chain” of information. 

With these conditions in place, wouldn’t a conversation between two human beings be more productive in getting to the bottom of 1) whether a debt is owed and 2) whether a consumer has the ability – or willingness – to pay?

I may or may not have gotten the vision quite right, but no doubt the impact of these technologies will be far reaching, likely in ways we can’t yet predict.

insideARM has written extensively about the ongoing saga of the Department of Education (ED) RFP for private collection agencies. It has been a story full of dramatic announcements, legal maneuvering, and political intrigue.  The latest chapter involves recent activity in a lawsuit filed in March, 2015. To understand its importance, it is necessary to review how that lawsuit came about.

Background 

On February 21, 2015, ED notified five contractors — Windham Professionals, GC Services, ConServe, Account Control Technology, and Financial Management Systems — that it intended to issue award-term Task Order Extensions to them for a period not to exceed a specified number of months. These letters, titled Notification of Award Term Extension and each signed by the Contracting Officer, expressly stated, “If the contract is extended pursuant to H.4, it will be accomplished via a contracting action, which will specifically identify all of the terms and conditions.”

Late Friday afternoon on February 27, 2015 ED publicly announced that it would also “wind down” its relationship with five private collection agencies on its student loan debt collection contract that ED says were providing inaccurate information to borrowers regarding rehabilitations. In a press release, ED said that a review of all 22 of its private debt collection contractors had revealed “unacceptably high rates” of misinformation regarding rehabilitations among five collection vendors: Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery, and West Asset Management.

A lawsuit was immediately filed in the Federal Court of Claims based on, inter alia, ED’s proposed issuance of award-term extensions under H.4 to the competitors. The four named plaintiffs in the lawsuit were Coast Professional (Coast), Enterprise Recovery Systems (ERS), National Recoveries (NRI), and Pioneer Credit Recovery (Pioneer). Intervening in the lawsuit as interested parties were the five aforementioned companies that received extensions: Financial Management Systems, Account Control Technology, Continental Service Group (ConServe), Windham Professionals, and GC Services.

The Court of Federal Claims dismissed the complaints. Pioneer and ERS separately appealed the decision for lack of jurisdiction.

(Editor’s note: In October 2014 ED had awarded contracts to Coast Professional and National Recoveries under the small business set-aside on its Default Collection Services contract and private collection agency (PCA) program, and both have been receiving placements under that new contract award.)

The Court of Federal Claims had concluded that these proposed new Task Orders (for the award-term extensions) should not be considered “the award of a contract” and thus were not eligible for a protest.

On July 14, 2016 we reported that Pioneer and ERS had won their appeal of a denied protest over their contracts not being extended in March, 2015. The appellate court saw things differently from the Court of Federal Claims and ruled that extension task orders awarded to five other companies counted as “new contracts” that could be challenged in bid protests. The appellate court sent the case back to the Court of Federal claims.

Meanwhile, on December 20, 2016 insideARM wrote that ED had awarded new unrestricted contracts under ED Solicitation Number: ED-FSA-16-R-0009 to:

• Financial Management Systems
• GC Services
• Premiere Credit of North America
• The CBE Group
• Transworld Systems
• Value Recovery Holding
• Windham Professionals

In response to the December 20 awards there were 26 separate protests filed with the Government Accounting Office (GAO). Those protests are all still pending.

Current Activity 

Now, back to that 2015 lawsuit. On February 24, 2017 ED filed a Motion to Dismiss the 2015 lawsuit. But the motion is unusual. ED is asking the court to dismiss the lawsuit as moot because they have agreed to take “corrective” or “remedial action” with regard to the earlier decision not to issue contract extensions to the four named plaintiffs. ED has agreed that the contracting officer will reevaluate the four plaintiffs for an award term extension.  Specifically, ED will reevaluate the companies in accordance with the terms of the 2009 task orders, including clause H.4, as if EE had not previously declined to issue the plaintiffs award term extensions. 

Per ED’s motion: 

“In sum, plaintiffs will be reevaluated for the award term extensions in accordance with the terms of the 2009 task orders, the 2015 focused review will not be considered as part of the reevaluation, and any award term extensions received by the plaintiffs will be governed by the same material terms as the award term extensions that were issued to the intervenors in 2015.” 

insideARM Perspective 

What does all of this mean? It is another mystery to solve. 

As noted above, NRI and Coast were awarded small business contracts in 2014. However, both companies were looking to be awarded contracts in the unrestricted category.  Still, both companies have been receiving placements.  What could a reevaluation of those two firms mean? What remedy is appropriate for them?

On the other hand, ERS and Pioneer not only did not receive contract extensions back in March of 2015, they were also not selected in the December, 2016 award. Neither has received a placement since March of 2015. 

What happens if ED, after reevaluating ERS and Pioneer, decides to issue award term extensions to one or both? Would they then join the seven unrestricted firms awarded contracts in December 2016 and begin to receive placements?

Also, what does this mean for the 26 protests that were filed in response to the December 2016 awards? ERS and Pioneer both also protested those awards. Would this potentially put ERS and Pioneer into some type of special status for their protests?

Only the Department of Education can create this type of puzzle. insideARM will continue to monitor and report.