Archives for August 2017

Last Friday a federal district court in the Northern District of Georgia took the extraordinary step of dismissing an enforcement action brought by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) against various payment processors due to the Bureau’s conduct during depositions despite orders from the Court to the contrary. The case is Consumer Financial Protection Bureau v. Universal Debt Solutions, LLC, et al (Case No 15-cv-859, U.S.D.C., Northern District of Georgia, Atlanta Division).  insideARM has written extensively about the case. Several articles are linked below. 

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

Background

In April 2015, the CFPB brought suit against various debt collectors as well as their payment processors (Pathfinder Payment Solutions, Inc., Frontline Processing Corp., Global Payments, Inc., and Electronic Merchant Systems, Inc., collectively the “Payment Processors” and “Defendants”) who it was alleged, both in the CFPB’s complaint and press release, had perpetrated a debt-collection scheme which resulted in consumers paying for debts that were not owed. See insideARM April 9, 2015 article here. 

The Bureau specifically alleged that the Payment Processors “ignored numerous red flags of the debt collectors’ illegal conduct” and by providing debt collectors the ability to utilize their payment processing systems in order to accept payments by credit and debit card “[they] helped legitimize the [debt] collectors’ business and facilitated millions of dollars in ill-gotten profits”.  By this conduct, the Bureau alleged that the Payment Processors violated the Consumer Financial Protection Act’s (“CFPA”) prohibition against unfair, deceptive or abusive acts or practices (“UDAAP”), 12 U.S.C. §§ 5531, 5536(a).  

The Payment Processors mounted a strong opposition from the outset. The District Court denied initial motions to dismiss, with the case then proceeding to the discovery phase. It was during discovery, specifically the depositions of Bureau designees, where the case began to unravel.

In August 2016, after written discovery was completed, the Payment Processors sought Rule 30(b)(6) depositions from the CFPB, seeking factual testimony which supported the claims alleged as well as identifying exculpatory facts. The CFPB objected and filed motions for protective order stating that their testimony was protected by (1) law enforcement and deliberative process privilege and (2) that the depositions sought improper mental impressions and analysis of CFPB counsel. The Court denied all the CFPB’s motions and ordered the CFPB to not only produce their witnesses but each was ordered to testify to the topics identified by the Defendants. See insideARM September 14, 2015 article.

On January 4, 2017 Pathfinder Payment Solutions, Inc., filed a Brief in Support of Motion for Rule 11 Sanctions Against Plaintiff. See insideARM January 17, 2017 article here.  

The first deposition of a CFPB witness took place in April 2017. Throughout the deposition and to the extent an objection was made based upon privilege, the witness read from a prepared script, which the CFPB defined as a “memory aid.” For the most part, the script was not responsive to the question asked. The day after the first deposition, the Court held a conference call with counsel for all parties with the Payment Processors making the Court aware of the CFPB’s conduct at the deposition. The court again reminded the CFPB that “factual support for contentions in the area of inquiry… is not protected by work product.”  

For the remaining depositions, the Court instructed the CFPB that they were required to produce a witness with knowledge — meaning that a witness should be prepared to answer the questions and not read from a script. However, the subsequent depositions fared no better, with the CFPB continuing to produce witnesses who would read only from their prepared script or otherwise objecting to the question on the basis of privilege. Upon conclusion of discovery, the Payment Processors each filed Rule 37 Motions for sanctions as the result of the Bureau’s failure to cooperate with discovery as well as a blatant disregard for the Court’s instructions. 

The Court’s justification for granting the motion was simple

First, the Court found that CFPB’s reliance on “memory aids” was not only improper but went far beyond refreshing the recollection of the witnesses. In addition, the Court took great exception with the fact that each witness failed to abide by the Court’s specific instructions that witnesses not only be produced but be knowledgeable and prepared to testify as to any facts that it could “reasonably identify as exculpatory.” Without any explanation or confirmation that they even undertook an inquiry, the CFPB took the position that its investigation has not yielded a single exculpatory fact. The Court found this response unreasonable, in bad faith, and an intentional failure to comply with the Court’s instructions. Finally, the Court recognized that its repeated rulings were clear on the issue of privilege, yet as the Court put it, “the CFPB has put up as much opposition as possible at every turn.” The Court found that reopening discovery would not otherwise correct the CFPB’s conduct.

Under the circumstances, striking all the claims against the Payment Processors was the only appropriate remedy. 

A lawsuit brought by the CFPB is usually not the beginning of the enforcement process. Enforcement often starts with a Civil Investigation Demand (CID), a powerful tool which requires the target of a CID to produce vast amounts of documents and information with very little opportunity for objection. The CID can also require witnesses to appear and provide oral testimony. Ironically, the rules relating to investigations and oral testimony do not even permit a witness to otherwise object or refuse to answer any question (12 CFR § 1080.9(b)(2) (Rights of Witnesses in Investigations)). If a target of an investigation did not cooperate with the Bureau at the investigation stage, they would be subject to contempt proceedings which could include significant sanctions and penalties.   

The Payment Processors in this matter may have spent several years under investigation prior to the filing of the CPFB’s lawsuit. Those same Defendants have certainly spent well over two years defending it. Many covered entities subject to CFPB jurisdiction simply do not have the resources to respond to an investigation and then defend a lawsuit; the cost-benefit analysis dictates the “early out.”  The CFPB has been successful in extracting millions of dollars in consent orders without ever stepping foot in a court room and certainly without ever engaging in formal discovery subject to the federal rules. This case may have pulled back the curtain and exposed the Bureau’s inexperience when it comes to actually litigating a case.  But at what cost for a defendant to determine that point?

It is clear that in this instance the Bureau disregarded the scope and intent of the federal rules surrounding discovery, which first and foremost is cooperation. As advocates for their client, which in this case was “millions of consumers”, the CPFB failed in their representation. Had this been a private class action, the Plaintiff’s attorney could have very well been subject to potential malpractice claims. Federal Rule 11, applicable to attorneys who come before the court, dictates that those who sign a pleading do so for a proper purpose and not to unnecessarily increase the cost of litigation. The CFPB’s conduct here was not in the best interest of consumer protection. 

Last week a federal judge in Illinois held that the LiveVox Human Call Initiator was not an Automated Telephone Dialing System (ATDS) under the Telephone Consumer Protection Act (TCPA). The case is Arora v. Transworld Systems Inc. (Case No 15-cv-4941, U.S.D.C., Northern District of Illinois, Eastern Division). 

In doing so, the Illinois district court followed the position of other recent federal court opinions in 1) Pozo v. Stellar Recovery Collection Agency, Inc. (Middle District of Florida), 2) Smith v. Stellar Recovery Collection Agency, Inc. (Eastern District of Michigan).  insideARM wrote about the Pozo case on September 6, 2016 and the Smith case on February 8, 2017.

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

Background 

Arora filed suit against Transworld Systems Inc. (TSI) alleging that TSI violated the TCPA (47 U.S.C. § 227 et seq.) by calling his cell phone with an ATDS and without prior express consent.  TSI filed a motion 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.

Specifically, Arora contended that between August 25, 2014 and November 17, 2014, he received seven calls on his cell phone from a telephone number ending in 6101. According to Arora, this number is owned or controlled by TSI. Furthermore, Arora alleged that between September 5, 2014 and November 29, 2014, he received five calls on his cell phone from a telephone number ending in 2831. Arora maintains that this number is also owned or controlled by TSI.

When calling Arora, TSI argues it used a web-based dialing program called Live Vox Human Call Initiator (HCI). 

The court noted the following facts:

“According to Jonathan Klein (Klein), Senior Compliance Manager for TSI, the Human Call Initiator is a human initiated and human controlled dialing system that requires a TSI agent to manually initiate every call. Each call initiated from a Human Call Initiator must be initiated by a human “clicker agent.” The clicker agent is responsible for confirming that the number to be called is the correct number, and after doing so, launching the call by physically clicking the number. When any TSI representative uses the Human Call Initiator system, he or she must click on a dialogue box to confirm the launching of a call to a particular telephone number. The call cannot be launched unless the clicker agent clicks on the dialogue box.

The TSI clicker agent is also able to monitor a real-time dashboard that contains information about “closer agent” availability, the number of calls in progress, and related metrics. The closer agent is the agent designated by TSI to speak with the call recipient. When a call made by the Human Call Initiator is answered, it is transferred to the closer agent to engage the consumer in a conversation. 

Arora disputes TSI’s assertion that it used a Human Call Initiator system to call his cell phone. Furthermore, Arora claims that, even if TSI used a Human Call Initiator, he has exposed “hidden autodialing potential” in violation of the TCPA.” 

The opinion was written by the Honorable Charles P. Kocoras, United States District Court Judge. The Kocoras wrote: 

“To succeed on his TCPA claim, Arora must show that TSI made the telephone calls with an ATDS. Arora fails to meet this requirement.

In its motion for summary judgment, TSI argues that the calls it placed were not made with an ATDS or any other equipment subject to the TCPA. Instead, TSI maintains that the calls to Arora were made through the Human Call Initiator – “a system specifically designed to comply with the requirements of the TCPA.” In response, Arora claims that TSI did not use a Human Call Initiator to call him.

However, Arora offers no evidence to support his allegation. For that reason, Arora’s unsubstantiated claim that TSI called him using a technology other than a Human Call Initiator is rejected. 

Arora, in an attempt to save his claim, also argues that the Human Call Initiator is an ATDS. According to Arora, his background as a software developer and his own research “shows that [a Human Call Initiator] has the potential capability to be an Automated Telephone Dialing System . . . as required by TCPA.”

But, TSI argued that Arora’s unsupported claim was contradicted by the recent federal court opinions noted above. Judge Kocoras reviewed those cases and agreed with TSI and the other district courts. He wrote:

“Therefore, this Court, like the previous Courts who have considered this technology, finds that that Human Call Initiator system does not constitute an autodialer. Because all calls from TSI were made with human intervention, and not with an ATDS, Arora’s TCPA claim fails as a matter of law. 

For the aforementioned reasons, the Court grants the motion and enters judgment in TSI’s favor and against Arora. It is so ordered.” 

insideARM Perspective 

This case is another positive statement for the LiveVox Human Call Initiator. insideARM contacted representatives from both LiveVox and TSI for comment on the case.

Mark Mallah, General Counsel at LiveVox said:

“LiveVox is very excited that our HCI system has now won 4 out of 4 cases, each one in a different circuit. We think that this provides very strong validation for our approach to TCPA risk mitigation and for point and click technology in general. We have always believed that the controls we have in place are more than sufficient to address the TCPA’s challenges, and we are gratified that four different courts agree with us.”

David Zwick, Chief Financial Officer at TSI, said:

“We are pleased with the court’s ruling in favor of TSI on summary judgment.  Compliance with the TCPA, as well as all rules and regulations, is something we take very seriously at TSI.  We have made significant investments in our Compliance Management System and we intend to continue to vigorously defend ourselves against meritless litigation.  This case further re-enforces the need for Washington to modernize the TCPA to reflect today’s mobile consumer.”

Many healthcare providers aren’t aware that entities servicing healthcare receivables may have to answer to the CFPB. Though not directly in the CFPB’s purview (yet), any providers that report delinquent debt to credit reporting agencies, partner with first and third party collection agencies, or collect on patient accounts can all be indirectly impacted. Reality is that angry patients can (and do) log complaints with the CFPB about the collection practices of providers, Extended Business Offices (EBOs) or a third party working on behalf of them. When this happens, the party against which the consumer complained must provide a satisfactory response to the CFPB. And just like that, the long arms of the CFPB stretch to include the healthcare provider community.

This will only play out more and more frequently because the medical community, pressed as it is by the self-pay crisis and the realities of high-deductible plans, is increasingly relying on vendors to handle its receivables and find ways to improve the efficiency and effectiveness of its revenue cycle, including practice management, billing and collections. This evolution will require a growing awareness and well-maintained understanding of evolving compliance pitfalls.

What Changed?

It used to be that vendor compliance was managed contractually, compliance risk was assigned to vendors, and the whole business of whether a vendor did or did not follow federal or state regulations was kept at arm’s length. Those days are over.

Nowadays, CFPB examinations consider the full chain of custody. Blame shifting will not shield a party anywhere along that chain of custody. In effect, everyone sinks or swims together, so it’s in the best interest of vendors and their clients to participate fully in audit preparations.

The CFPB expects that anyone with a hand in collecting payments from consumers will oversee their business relationships with service providers in a manner that ensures compliance with Federal consumer financial law. Yes, that is a lot to carry on top of being a medical provider focused on clinical care. However, it is very clear that the CFPB believes there is an escalated consumer risk when medical debt is the subject of collection activity and/or credit reporting.

Creeping Jurisdiction

Way back in 2012, in defining governed debt collection participants subject to CFPB jurisdiction, the Bureau noted, “In some situations, a medical provider may grant the right to defer payment after the medical service is rendered. In those circumstances, the transaction might involve an extension of credit.” At that point, it was obvious that the CFPB intended to extend its purview to include health care providers’ billing and collection practices. Given the vast effect on, and risk to, consumers posed by delinquent medical bills, it stands to reason that the CFPB would increase its involvement with medical debt collections over time.

It won’t be a surprise if the CFPB eventually seeks to govern first-party medical debt collection, but for now, it certainly is watching the third-party medical collection space, and has heavily influenced the development of the new protocols (taking effect in September 2017) that govern the reporting of medical debt to credit reporting agencies, having long discouraged the practice as a means of passive debt collection.

This all amounts to a moment of opportunity for hospital systems and physician practices: If you thought the CFPB had no jurisdiction over your activities, there’s more to learn. If you haven’t sat with your vendors and learned what type of communications and consent to contact you need to secure from patients at the top of the patient encounter, now is the time. If you’ve never audited your vendors with your CFPB glasses on, there’s no time like the present.

5 Key Elements for Vendor Compliance Management

If you’re a provider or hospital, auditing collections or other vendors may not be a well-oiled machine in your organization. While it may seem overwhelming, it’s both critical and in everyone’s best interest. Consider starting here:

1. Thoroughly assess the risk of each vendor function. Consider:

• Vendors performing consumer-facing activities
• Vendors who receive and store confidential information
• Vendors who have unattended access to anything protected

2.  Assess Policies & Procedure

• Review the dependency of all functions (Who relies on who? For what?)
• Get a consult on all applicable state and federal laws that are associated with each function
• Benchmark vendor best practices in your field, but be aware that there’s always that first CFPB enforcement action that can make an example out of anyone. This is a time of great flux.

3. Properly document your assessment

• Estimate account volume and scale internal and vendor personnel accordingly
• Evaluate the data elements needed for all necessary functions
• Assess the quality of your information security
• Get advice on what kind of insurance you’ll need to cover the worst case vendor catastrophe scenarios
• Be proactive about subcontractors: in theory everyone one in the supply chain is your responsibility

4. Formalize vendor onboarding

• Require vendors to submit an RFP detailing their internal risk processes
• List your policies and actively seek comments and enhancements from anyone qualified to opine
• Detail all roles and responsibilities, including functional checklistsInvolve senior management in routine evaluations of risk and require signoff
• Develop compliant templates for all channels of communication, and be active in having them reviewed by your counsel and other subject matter experts
• Make sure good employee policies and training exists within each vendor organization, including background checks, primers on state and federal consumer financial laws, and information security awareness
• Clarify a vendor’s obligation to notify you when it suspects any data or policy breach
• Clarify what permissions need to be in place for vendors to share confidential data with any other entity or person
• Set forth how the contract can or will terminate with reasonable notice and without penalty, and how data will be either transferred or destroyed, as appropriate, how long non-disclosure agreements will last, etc.
• Require a formal process for consumer complaint escalation and resolution

5. Routinize audits

• Within your organization and in your vendor organizations, document the requirements for monitoring and the audit process, including who is responsible for delivering what
• Define what needs to be monitored (phone calls, employee training, consumer complaints)
• Ensure that your documented policies and procedures can be scaled to fit within any potential vendor retention period

There is no doubt that the CFPB is extending its reach within the medical community, and its reasons for doing so are fundamentally sound. The nature of medical debt does gravely impact millions of consumers, and the numbers are avalanching with the self-pay crisis in full bloom. Since no one knows what this will eventually mean for the operational realities of the provider community, it is not a bad idea to get ahead of the rules and do everything possible to prepare for a CFPB examination. Should you ever have to face one, having practiced for an audit and having kept audit documentation may demonstrate your proactivity and good faith in complying with all relevant laws in your jurisdiction.

On Monday, August 21, 2017, the Consumer Financial Protection Bureau (CFPB) filed an Amicus Curiae Brief in support of the Department of Education (ED) in the multiple consolidated appeals in the United States Court of Appeals for the Federal Circuit in the litigation surrounding the ED RFP awards and protests.

The CFPB brief focuses on the preliminary injunction issued by Chief Judge Susan G Braden on May 31, 2017 and the harm it is causing to consumers. Since it was issued, that injunction has effectively paralyzed ED’s ability to place new accounts with ANY Private Collection Agency (PCA).

A copy of the CFPB Amicus Brief can be found here.

Editor’s Note: “Amicus Curiae” literally means “friend of the court.”  A person or entity with a strong interest in the subject matter of any litigation may petition the court for permission to file a brief, ostensibly on behalf of one of the parties to the case, but also to suggest things to the court consistent with their own views and opinions.  

This is the key passage from the May 31, 2017 preliminary injunction:

“The preliminary injunction will remain in place to preserve the status quo until the viability of the debt collection contracts at issue is resolved. See Litton Sys., Inc. v. Sundstrand Corp., 750 F.2d 952, 961 (Fed. Cir. 1984) (“The function of preliminary injunctive relief is to preserve the status quo pending a determination of the action on the merits.)”

Unfortunately, nobody other than Judge Braden has any clue what she means by “until the viability of the debt collection contracts at issue is resolved.”

On June 1, 2017 insideARM wrote about the issuance of the preliminary injunction. In that article, we noted that Judge Braden had referenced “three recent news articles” as part of the rationale for her order. We also two mentioned how unusual the order was; one, because it was issued sua sponte, which means the court took the action on its own motion, rather than at the request of one of the parties. Second, because Judge Braden was effectively taking judicial notice of news items, including an Op/Ed article. Finally, we noted that the order effectively precluded ED from placing any new accounts to PCA’s.

In the “Background” section of the brief, the CFPB brief begins with a short history of the Bureau, its consumer education mission, and its experience with student loan borrowers. To highlight, the Bureau hits two key points:

1. To the extent the trial court’s preliminary injunction precludes the Department of Education from assigning or reassigning a debt collector to a borrower’s student-loan account, that injunction implicates the Bureau’s consumer-education mission.
2. To the extent the trial court’s preliminary injunction in this case prevents the Department of Education from assigning debt collectors to federal student loans in default, the Bureau is concerned that borrowers will face greater obstacles when seeking to exercise their right under federal law to cure their default and enroll in an income-driven repayment plan.

The brief sites the 2016 Annual Report of the CFPB Student Loan Ombudsman (Oct.2016). The Bureau then notes:

“To be sure, as the trial court observed, the 2016 Ombudsman Report recommended reforms to the process for collecting and restructuring federal student loan debt. But as that process is currently structured, debt collectors are the primary contact for borrowers seeking information about how to rehabilitate, consolidate, or otherwise manage their federal student-loan debt. Debt collectors are also the primary contact for borrowers seeking to make any payment toward defaulted federal student loan debt — debt which continues to accrue interest daily when in default. By preventing Education from assigning debt collectors to loans in default, and thus impeding or preventing borrowers from managing their federal student loan debt, the preliminary injunction leaves some borrowers worse off — potentially interfering with access to important consumer protections and preventing some borrowers from making payments toward accruing interest charges — while doing nothing to advance the reforms proposed by the Ombudsman.”

The CFPB brief then took the time to explain the difference between loan servicing and collection of a defaulted loan. This was a distinction that had previously baffled Judge Braden. (See our August 8, 2017 article regarding ED’s filing of a status report for Judge Braden.) So, it appears the Bureau was being proactive in explaining the distinction to the Court of Appeals. 

The CFPB brief then discusses the various options available to a borrower in default and the key role PCAs fill in educating borrowers on those options, and often facilitating the execution of documentation to take advantage of them. Finally, the CFPB discusses how a PCA may assist a borrower in default to terminate an administrative wage garnishment.

In the “Argument” section of the brief the CFPB quickly notes:

“To the extent the preliminary injunction precludes Education from assigning debt collectors to federal student loans in default, the trial court was mistaken in suggesting that the 2016 Ombudsman Report supported that outcome. Consistent with his statutory responsibilities, the Ombudsman has evaluated and made various recommendations for improving the process for collecting federal student loan debt. Principally, the Ombudsman recommended that lawmakers “consider ways to improve repayment success for previously defaulted borrowers that include immediate access to a stable and long-term [income-driven repayment] plan.” As an interim step, the Ombudsman recommended strengthened communications with borrowers to facilitate their ability to bring their loans current. But the preliminary injunction does exactly the opposite: it eliminates a point of contact for borrowers in default seeking information for bringing their student loans out of default. Contrary to the conclusion of the trial court, the harm to borrowers is real and does not support the preliminary injunction in this case.

Preventing Education from assigning debt collectors to borrowers in default can lead to real world harm for some borrowers — potentially interfering with access to important consumer protections and preventing some borrowers from making payments toward accruing interest charges. “A borrower in default on a federal student loan has a right under federal law to work with a collector to rehabilitate their debt,” and a “debt collector facilitates this process by collecting information from the borrower necessary to set up a monthly rehabilitation payment amount.”

The Bureau also discusses the potentially negative alternatives for consumers:

“Indeed, the Bureau is concerned that many borrowers seeking to navigate their options under the current system may be enticed by private “debt relief” scams that promise to assist borrowers with managing their debts but in fact offer little benefit. These scams “prey on distressed borrowers who run into trouble and struggle to figure out what comes next” because “[i]n some cases, [they] do not think their student loan servicers can help them.” Borrowers in default who do not, in fact, receive basic information about key consumer protections and the opportunity to arrange repayment are more likely to turn to one of these outfits for assistance, and may potentially end up paying “hundreds of dollars or more” in unnecessary fees.”

The CFPB concludes with:

“In sum, the Bureau respectfully submits that borrowers in default will be better off if they have access to Education’s debt-collection contractors during the pendency of this litigation than if they do not. To the extent the trial court’s preliminary injunction forecloses Education from assigning such borrowers to debt collectors, the preliminary injunction is contrary to the public interest and, therefore, cannot be supported on that basis.

For the foregoing reasons, the Bureau urges this Court, in reviewing the trial court’s preliminary injunction, to conclude that precluding Education from assigning debt collectors to loans in default is inconsistent with the public interest.”

insideARM Perspective

Kudos to the CFPB for jumping into the fray in this matter. As we have written in past, the ED PCA RFP process was, and is, a mess. However, Judge Braden exacerbated the mess to the detriment of consumer borrowers by issuing a preliminary injunction that forbade ED from placing business to any PCA contractor – including the 11 small businesses that have valid contracts and the contractors that have valid Award Term Extensions (ATE).

The numbers are staggering. In a Declaration of James Manning, Acting Under Secretary for the Department of Education, (filed in connection with the litigation) Mr. Manning discussed the accounts that are sitting and not being placed. He stated, in part:

“This means that by the end of May, 2017, a total of 234,000 borrowers holding accounts collectively valued at $4.6 billion have been denied PCA service due to the Court’s orders. Based on fiscal year 2016 figures, a conservative estimate of newly defaulted accounts added to the Department’s inventory every month would be 118,000 borrowers with the value of those loans totaling $2.285 billion.”

Extrapolating those figures, it would appear that by the end of August there would be approximately 588,000 accounts, with the value of those loans totaling $11.455 billion, sitting in some holding queue at ED.

insideARM also believes that figure is low. The number might increase if accounts being currently held at PCAs with expired ATE’s are added into the mix.

These accounts must be placed with PCAs. The continuing harm to consumers is real. The preliminary injunction must be lifted or modified to allow placement of these accounts to PCAs.

BUT, there will still be a problem. Immediate placement of that many accounts to the 11 small business contractors and the 2 PCAs with current ATEs is not a great solution either. insideARM believes that is too many accounts to be handled efficiently by those firms in the short term and so, for those consumers who can’t be reached in a timely manner, the consumer harm the CFPB seeks to address will only continue.  

The fact of the matter is the RFP selection process must be brought to a conclusion and the protests and litigation must be brought under control.  Additional agencies need to be brought into the placement strategy. Preferably, those agencies will have significant ED experience and can be up speed quickly.

In the RFP “Do Over” ED is currently scheduled to provide Notice of Awards on Friday, August 25, 2017. Even if that deadline is met, history tells us that there will be more protests and more litigation. If that happens, will the “preliminary injunction” be extended indefinitely?

The madness needs to end sometime.

Editor’s Note: insideARM has written extensively about the ED RFP and the litigation surrounding the RFP. We have often been asked for a summary of all our articles on the subject. See here for a link to an insideARM.com page that provides a history of our ED related articles. The page is automatically updated as new stories are written.

 

 

METAIRIE, La. – Sessions, Fishman, Nathan & Israel today announced that Andrew Blady has joined their firm as Senior Counsel in their compliance and consumer defense practice groups.

Blady comes to the firm with extensive experience in both the consumer law compliance and consumer litigation areas and will be based in the Philadelphia area. Prior to joining the firm, Blady served several years as General Counsel/Chief Compliance Officer and as a senior executive for NCB Management Services, Inc., a large market participant in the receivables management industry. Blady also practiced for several years as a shareholder for Eastburn and Gray, P.C. performing both litigation and business transactional services for his clients.

Blady has broad experience in the ARM industry, which includes developing effective compliance systems from the ground up, providing consumer litigation defense, reviewing complex commercial contracts, and supplying practical and effective legal advice to senior management.

“We are extremely pleased and excited that an attorney with Andrew’s experience providing legal advice from both the ‘inside’ and outside of the debt collection industry has decided to join our firm,” said David Israel, Co- Managing Partner for Sessions. “There are few practitioners who bring Andrew’s insights to representing clients.”

Andrew currently serves on the Executive Steering Committee for the Consumer Relations Consortium (CRC). The CRC is a group of 30+ Larger Market Participants in the debt collection industry who proactively engage with regulators and consumer advocacy groups to bridge the gap of understanding and expectations often present between consumers and collectors. Andrew is often a speaker at various industry conferences lending his knowledge in both the legal and compliance aspects of debt collection and debt buying.

Blady stated, “Sessions is a great firm and I look forward to assisting their clients. The attorneys at Sessions are extremely knowledgeable and well known in the ARM industry. I couldn’t be happier than to continue my legal practice with them.”

About The Sessions Firm

With 41 attorneys in 12 offices, The Sessions Firm includes the largest practice group in the country representing debt collectors, debt buyers, and financial services clients. The practice covers all aspects of the industry’s needed representation: licensing, compliance, regulatory defense, lawsuits, employment, contract management, and M&A due diligence and special licensing projects. The Firm is approved by every major insurance carrier that provides E&O coverage to the industry.

On August 11, 2017, a federal judge in California dismissed a lawsuit brought under the Fair Debt Collection Practices Act (FDCPA) by determining that the plaintiff in the case lacked standing under Article III to bring the claim.

The case is Blue v. Diversified Adjustment Service (Case No. 5:17-cv-366, U.S.D.C., Central District of California.  A copy of the court’s Order can be found here.

Background

 In November 2016, defendant Diversified Adjustment Services (DAS), a collection agency, sent plaintiff Shon Blue a collection letter containing a number of payment options. The options included payment by mail, online, phone call, or even in-person.  DAS requires consumers to pay a convenience fee for online payments. This option required Blue to affirmatively opt-in to pay online.

 When Blue logged onto the DAS website to pay his debt, he did not agree to pay the convenience fee. In fact, he paid neither the convenience fee nor the outstanding debt.

Instead, four months later he filed this lawsuit against DAS, alleging violations of both the FDCPA and the California equivalent, the Rosenthal Fair Debt Collection Practices Act (RFDCPA). Blue claimed that because DAS directed consumers to its website for payment and then charged a convenience fee that was not part of the original debt, DAS violated both acts.

In response to the lawsuit, DAS filed a motion for summary judgment on two grounds: first that Blue’s claims are barred because Blue does not have Article III standing (for lacking a concrete injury) and second, that Blue cannot make a showing sufficient to establish the existence of a violation under the FDCPA or the RFDCPA.

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 Decision

The court dimissed the case for lack of subject-matter jurisdiction under Spokeo v. Robins, 136 S.Ct. 1540 (2016).

The Order was written by the Honorable Stephen V. Wilson, U.S. District Court Judge. Judge Wilson wrote (citations eliminated):

“Here, Blue has filed claims against DAS alleging statutory violations of the FDCPA and the RFDCPA. Blue’s complaint does not clarify what actual or particularized injury Blue suffered as a result of DAS’s allegedly abusive debt collection practices. To the contrary, Blue admits that he did not even pay DAS’s online collection fee, the exact charge he claims constitutes the entirety of DAS’s allegedly abusive debt collection practice.

 Even giving Shon Blue’s complaint full weight, Blue alleges no concrete harm from DAS’s collection activity, so his claim would merely be statutory. Under Spokeo, Blue has no standing to assert his claims because he cannot show “an invasion of a legally protected interest” that is concrete instead of “conjectural or hypothetical.”

For the foregoing reasons, Blue lacks standing under Article III for his FDCPA and RFDCPA claims. Accordingly, this Court DISMISSES Plaintiff’s claims.”

insideARM Perspective

This is one of the very few FDCPA cases where a defendant has been successful in getting a case dismissed under Spokeo. insideARM has covered several cases that have attempted the Spokeo argument. A simple search on insideARM.com for the word SPOKEO will show our prior coverage.

On June 19, 2017 insideARM published an article by attorney Franciz X. Riley of the Saul Ewing LLP law firm that discussed standing under Spokeo in several areas. In his discussion of FDCPA cases, Riley wrote:

“Courts consistently find standing exists in FDCPA cases when applying the Spokeo standard of review.  Several patterns have emerged since Spokeo: (1) courts are more likely to find a “concrete injury” when “the amount or validity of the debt has been misstated”; (2) standing likely exists when a communication contains any false or misleading information (for example, when it purports to be from an attorney or asserts entitlement to a credit card “convenience” fee or collection fee); and (3) standing will be found when the defendant fails to disclose that the defendant is a debt collector or fails to disclose other required information. On the other hand, a plaintiff who does not actually owe and does not intend to pay debt does not have standing, even he received misleading information from a debt collector.”

The result in the case is fact specific.  The decision should not be taken too literally. It does not mean that even this court believes all FDCPA claims do not meet an Article III standing test.

 

 

 

 

On August 11, 2017, a federal court judge dismissed a Telephone Consumer Protection Act (TCPA) case filed against Navient Solutions, Inc. by determining: 1) that the plaintiff had consented to receive calls on her cell phone; and 2) that 2016 Federal Communications Commission (FCC) regulations (In the Matter of Rules & Regulations Implementing the Telephone Consumer Protection Act, 31 FCC Rcd. 9074, 9104 (2016) limiting  the number of calls allowed in connection with a federal student loan did not apply, since the regulation was issued after the lawsuit was filed.

The case is Weaver v. Navient Solutions, Inc., (Case No 5:16-cv-1304, U.S.D.C., Northern District of Ohio, Eastern Division). A copy of the court’s Memorandum Opinion can be found here.

Plaintiff had filed a single count complaint alleging that Navient Solutions, Inc. (NSI) violated the TCPA by repeatedly making calls to her cell phone using an automatic telephone dialing system (ATDS). DefendantNSI had filed a motion 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.

Background

Plaintiff, Lacey Weaver took out two student loans under the Federal Family Education Loan (“FFEL”) Program (one on June 2, 2004 and the other on March 24, 2008) to finance her education at Brown Mackie College (2004-2007) and Stark State College (2009-2010). Both loans were serviced by NSI.

Weaver made no payments on the loans. As a result of her default, NSI telephoned plaintiff at the phone number she had provided – a cell phone number ending in -9221 (the “9221 number”).

NSI’s first call to the 9221 number was on July 25, 2014. Per the court’s order, in relevant part, the conversation went as follows:

NSI: Is this the number we can call you – 9221?

Weaver: Yes.

NSI: Is it a landline or a cell phone for the 9221?

Weaver: Cell.

NSI: So let me just read to you the disclosure for a cell phone. I just need permission. Ok, so to help contact you more efficiently, may Sallie Mae Bank and Navient and their respective subsidiaries, affiliates, and agents . . . contact you at this number using an autodialer or prerecorded messages regarding your current or future accounts?

Weaver: Yes.

On or about December 29, 2014, NSI called Weaver again at the 9221 number. Weaver again confirmed the 9221 number and consented to autodialer calls:

NSI: You do have this phone number, um, (xxx) xxx-9221. Since it is a cell phone, I’m going to read a disclosure. I’ll need your approval. To help us contact you more efficiently, may Sallie Mae Bank and Navient and their respective subsidiaries, affiliates, and agents contact you at this number using an autodialer or prerecorded messages regarding your current or future accounts? Are we allowed?

Weaver: Yes.

Finally, on or about April 24, 2015, NSI called Weaver a third time at the 9221 number, once again confirming the number:

NSI: Aside from this phone number that ends in 9221, do you have any other phone number you’d want to add to your file?

Weaver: No.

Weaver also gave her consent in writing, on or about October 20, 2015, when she signed an Unemployment Deferment Request in connection with her student loans. After identifying her primary phone number as the 9221 number, she signed the document, which included the following statement:

“I authorize the entity to which I submit this request (i.e., the school, the lender, the guaranty agency, the U.S. Department of Education, and their respective agents and contractors) to contact me regarding my request or my loan(s), including repayment of my loan(s), at the number that I provide on this form or any future number that I provide for my cellular telephone or other wireless device using automated telephone dialing equipment or artificial or prerecorded voice or text messages.”

The Court’s Decision

The Memorandum Opinion was written by the Honorable Sara Lioi, United States District Court Judge.

Judge Lioi began her analysis with a review of the relevant TCPA provisions:

“The TCPA makes it “unlawful for any person . . . (A) to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice – . . . (iii) to any telephone number assigned to a . . . cellular telephone service, . . . unless such call is made solely to collect a debt owed to or guaranteed by the United. States[.]” 47 U.S.C. § 227(b)(1)(A)(iii).”

NSI argued in its motion that Weaver’s claim that NSI violated the TCPA fails as a matter of law because it falls within the exception in the statute, quoted above. Plaintiff expressly concedes that she took out loans to finance her education, and the promissory notes themselves are identified as loans under the Federal Family Education Loan (“FFEL”) Program. Therefore, the loans are “debt[s] owed to or guaranteed by the United States.”

Plaintiff argued that the FCC limited the number of calls that could be made on these loans to a maximum of three calls within a thirty-day period, and zero calls following a request by the debtor for no further calls.

But, Judge Lioi noted:

“The problem with plaintiff’s argument is that this regulation was not adopted until August 2, 2016, almost three months after this lawsuit was filed, more than a year after the final telephone call allegedly made by NSI on April 24, 2015, and long after plaintiff claims she first told NSI to stop calling. Plaintiff admits that this regulation was enacted in 2016, but she nonetheless argues that it applies, without reference to any case law that would make the regulation retroactive to her situation.”

In conclusion, Judg Lioi wrote:

“Plaintiff’s claim fails as a matter of law, based on the material facts that plaintiff admits are undisputed, because it is encompassed by the express exception in the TCPA and because the later-enacted regulation cited by plaintiff cannot be applied retroactively to the facts herein. Therefore, defendant is entitled to summary judgment and dismissal.”

In a footnote on page 5 of the opinion Judge Lioi also noted the following:

“Defendant makes two additional arguments (that plaintiff consented to calls and did not revoke the consent, and that there is no evidence that any violation of the TCPA was “knowing or willful” within the meaning of 47 U.S.C. § 227(b)(3)(C)). Plaintiff asserts that she revoked her consent several times, and she has submitted a new affidavit with her opposition brief attempting to establish that fact. Defendant challenges the affidavit as inadmissible evidence that contradicts plaintiff’s deposition testimony. Given the Court’s holding on the applicability of the TCPA, these issues need not be addressed. “

insideARM Perspective

The court’s opinion was a short, concise and no nonsense resolution to this matter.  Judge Lioi determined that the calls fit directly into the exception included in the TCPA. Judge Lioi also noted in her footnote that she did not need to decide the issue of consent and revocation of consent. But, based on the facts outlined by the judge, the consent was clear and unambiguous. It came orally and it came in writing.  Finally, per the footnote referenced above, plaintiff’s argument that she revoked consent was contrary to her deposition testimony.

This article previously appeared on Ontario System’s blog and is republished here with permission.

When it comes to the FDCPA’s 30-day validation period, many third-party ARM agencies struggle with the concept of “overshadowing.” It’s a term found in  Section 809 of the Fair Debt Collection Practices Act (FDCPA), which provides:

“…any collection activities and communication during the 30-day period may not overshadow or be inconsistent with the disclosure of the consumer’s right to dispute the debt or request the name and address of the original creditor.”

Let’s take a minute to review this important clause and shine some light on the most difficult compliance issues.

It’s true: Third-party ARM agencies may communicate with consumers during the validation notice period, as long as the communication does not overshadow or confuse the consumer about their right to dispute the debt and request verification of the debt. However, most know if the consumer exercises those rights and disputes the debt, or requests verification of the debt in writing during the 30 days after they are first notified, the agent must cease collection efforts until they obtain verification of the debt or a copy of the judgment, and mail it to the consumer. Once this is accomplished, the agent may resume collection activities during the validation notice period and beyond.

This feels cut-and-dry – So what makes this such a challenging compliance issue for even the e average ARM agency? It’s the fact the validation notice is contradicted when other language in a letter or other communications made during the validation notice period is logically inconsistent with the validation notice. Many are so skittish they may confuse the consumer about their rights during this period that they refuse to place calls to the consumer until it has expired. But that is an overreaction.

Mitigating the risk is really just a matter of following a few additional guidelines:

1. Communicate Intentionally: Recognize all communications, both direct and indirect, can potentially overshadow the validation notice. Calls, letters, your website, calls to an employer and email can all obscure or contradict the consumer’s right to dispute the debt or request verification.
2. Take Your Time: Avoid words that create a sense of urgency and make sure any demands for payment during this period do not require the debt to be paid prior to the period’s expiration. You may ask the consumer to pay the debt or set up a payment arrangement, but you cannot demand it in a time frame shorter than the 30-day period. Avoid telling a consumer to pay “today,” “immediately,” or “at once.” These terms may be problematic if given to a consumer within the 30-day validation time frame.
3. Discounts can be Dangerous: Settlement offers are great, but avoid discounts that require the consumer to act during the validation period to obtain the discount, or “today only” offers of settlement.
4. Watch Your Ties: If you tie accounts, make sure the validation notice has expired on all the accounts in the route before offering a settlement discount.
5. Watch Your Reports: Nothing prohibits a debt collector from reporting a debt to a consumer reporting agency within the 30-day validation period, provided the debt collector has not received a request for verification or a dispute notice from the consumer. The FTC Staff’s opinion holds that under § 809(b), a collector may not report or continue to report a debt after a written dispute is received within the validation period until verification of the debt is sent to the consumer. Once verification has been sent to the consumer, the item may again be reported to a consumer reporting agency. As a practical matter, it’s best to not credit report on an account for at least 65 days after placement, and of course longer if it is a medical debt.
6. Wait on the Lawsuit: Courts have held a collection letter that included the validation notice, and also threatened legal action within ten days unless the consumer paid the debt within the same time frame constituted overshadowing in violation of the FDCPA. Do not threaten legal action during the 30-day validation period in a way that contradicts the consumer’s right to request verification or dispute the debt.
7. Count to 30+: Calculate the validation notice period accurately. The FDCPA makes clear the validation notice expires 30 days after the consumer receives the notice. It does not say 30 days after mailing, or 30 days after postmark. Keep track of the details: Make sure you accurately calculate the time it takes for your letters to reach your consumers, then add this number of days to 30 and start the clock when your letter service confirms it mailed the notice. In general, most debt collectors assume the validation notice is received 35 days after their letter service mails the notice using first class mail delivery.
8. Seed Your Letters: Remember to include a member of your senior staff on the list of recipients for your letter campaigns. You need not inundate the poor soul with a copy of every collection notice you send but you should include the person as a recipient on each new letter and periodically throughout the year to ensure your calculation of the validation notice is accurate.

Nothing is failsafe when it comes to FDCPA compliance, but these eight tips should help you establish a bona fide error defense if you are sued, and help you prevent law suits challenging your validation notice practices altogether.

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Disclaimer: Ontario Systems is a technology company and provides this blog article solely for general informational and marketing purposes. You should not rely on the content of this material for any other purpose or as specific guidance for your company. Ontario Systems’ advice, services, tools and products described herein do not guarantee compliance with any law or industry standard. You are ultimately responsible for your own company’s actions and compliance efforts. Because everyone’s situation is different, you must consult your own attorneys, accountants, and/or other advisors to obtain specific advice on your company’s compliance, legal, tax, regulatory and/or other business needs. Despite Ontario Systems’ efforts to provide current and up-to-date information, you need to recognize that the information contained herein may become outdated quickly and may contain errors and/or other inaccuracies.

© 2017 Ontario Systems, LLC. All rights reserved. Information contained in this document is subject to change. Reproduction of this publication is not permitted without the express permission of Ontario Systems, LLC.

MUNCIE, Ind.  -– Ontario Systems, a leading software provider to the healthcare revenue cycle management (RCM), accounts receivable management (ARM) and government (GOV) markets, has released the seventh version of its Ontario Reports™ technology, focusing on improved ease of use for more efficient and detailed reporting, and more accurate trending dashboards.

“Financial leaders working to achieve improvements in productivity, cost savings and increased cash recoveries rely on our tech to understand business issues, make effective decisions and remain profitable amid major compliance challenges,” said Casey Stanley, Ontario Systems Vice President of Product Management & Marketing. “Accomplishing each of these goals relies on practical efficiency, and users’ and executives’ abilities alike to manage the data driving these efforts. That’s why, in partnership with our clients, we have chosen to focus on ease of use with this release, to make the reporting process faster and more accurate.”

Specifically, Ontario Reports version 7 will include:

• An improved user interface with more features on one screen
• Visual indicators for identifying Indexes and Keys and report field data types
• An easier-to-read point-and-click Filter Interface, with SQL Syntax always visible
• Less reliance on advanced queries
• Drag-and-drop hierarchal structure for defining Filter order of operations
• Updated interface for Group, Sum and Sort
• New Expression editor for Data Grids, Finished Reports and Visualize
• Data Grid cell merge grouping and several additional functions

The Ontario Reports product was originally launched in early 2016. Receivables operations use the technology to review business office statistics including account rep call metrics and worked contacts, dialer reports and listings, and inbound call statistics, while tracking status and balances on accounts, claim denial and revenue recovery. The tool can also be used to create interactive maps, dashboards, and advanced charts and graphs.

“Using this solution, our customers have spent fewer dollars and hours on robust reporting, while improving agent productivity, and information relayed to executives and board members,” Stanley concludes. “That means better performance and reduced cost overall.”

About Ontario Systems

Ontario Systems, LLC is a leading provider of software and solutions to the revenue cycle management (RCM), accounts receivable management (ARM), and government markets. Ontario Systems’ robust software portfolio includes product brands such as Artiva HCx™, Artiva RM™, Contact Savvy® and RevQ®. The company’s customers include five of the nation’s 15 largest hospital networks, eight of the 10 largest ARM companies and more than one hundred federal, state and municipal government agencies in the U.S. Established in 1980, Ontario Systems is headquartered in Muncie, Indiana.

The Northern District of Illinois recently granted summary judgment in favor of the defendant, a debt collector, in a case challenging the following Form 1099-C language contained in a debt settlement letter:

IRS requires certain amounts that are discharged as a result of the cancellation of debt to be reported on a Form 1099-C.  You will receive a copy of the Form 1099-C if one is required to be filed with the IRS.

See Moses v. LTD Financial Services I, Inc. et al., N.D. Illinois Case No. 16-cv-5190 (August 9, 2017).  (The court’s Memorandum and Order can be found here.)

In Moses, the plaintiff argued the failure to include the exceptions to the 1099-C reporting requirement rendered the aforementioned language false, deceptive and misleading on its face in violation of the Fair Debt Collection Practices Act (“FDCPA”) and Illinois Collection Agency Act (“ICAA”).  Plaintiff further claimed that the aforementioned language threatened an action not intended to be taken in violation of the FDCPA and ICAA because the defendants were neither tasked with determining whether a Form 1099-C was required nor the filing of such form.   

The district court rejected the plaintiff’s arguments.  The court focused on the fact that the defendant, LTD Financial Services, LP (“LTD”) “was indisputably [  ] not made aware of the principal/interest/fee composition of Moses’ debt.  Accordingly, because [the creditor] would have forgiven $713.47 in debt had Moses accepted LTD’s settlement offer, LTD was aware that [Moses] acceptance could have triggered the Form 1099-C requirement.”  The court went further to state that, “[g]iven this, it was entirely prudent for LTD to alert Moses to the possibility that the discharged debt would reported to the IRS.”

The court reasoned that the challenged language did not state that a discharge would be reported to the IRS, only that it might, which was true.  The court emphasized that the “language does not say that the discharge will be reported to the IRS.  Rather, it does nothing more, and nothing less, than accurately state the possibility that a Form 1099-C would be filed.”  And “by stating that the reporting was only required for “certain amounts” and that a Form 1099-C would be issued “if” one was required, LTD clearly conveyed that there are situations in which reporting is not required – in other words, that there are exceptions to the reporting requirement.”  Accordingly, no reasonable consumer could read the letter as a threat to file a Form 1099-C where no such reporting was required.  Having found that the letter was not deceptive or threatening on its face, meant that the language was either not deceptive as a matter of law or that plaintiff was required to present extrinsic evidence proving the majority of unsophisticated consumers would find the language deceptive or threatening.  With no extrinsic evidence presented by plaintiff, defendants were entitled to summary judgment.  

David John, CEO of LTD Financial Services, L.P. said “We are very encouraged by this decision and appreciate that the court applied logic and reason to this issue.  It is LTD’s hope that decisions such as this one will discourage the spate of litigation that the collection industry faces.”

The attorneys of Messer Strickler, Ltd. of Chicago, IL defended the case on behalf of LTD Financial Services, LP.