Archives for September 2017

Last week a federal judge in California issued an order in a Fair Debt Collection Practices Act (FDCPA) suit granting a defendant the right to recover fees and costs incurred in defending a case the court found “from the beginning, lacked a factual basis.” The case is Forto v. Capital One Bank National Association, et al. (Case No. 14-cv-05611, U.S.D.C. Northern District of California).

A copy of the court’s order on Motion for Attorney’s Fees can be found here. 

Background 

Plaintiff opened a credit card account with defendant Capital One Bank (U.S.A.), N.A. (Capital One). She stopped making payments on the account, and it became delinquent. Capital One retained defendant United Recovery Systems, LP, (now known as Alltran Financial) (URS), to collect the debt. 

In October 2013, plaintiff owed $2,940.83 on the debt; she negotiated an agreement with URS by which she would pay $1,911.54 in monthly installments over a period of 36 months. Plaintiff provided URS with her checking account and bank routing numbers so URS could automatically withdraw the monthly installments from her checking account. A URS representative informed plaintiff that URS would send a reminder or confirmation letter five to ten days prior to withdrawing the funds. 

URS was unsuccessful in withdrawing any of the agreed-upon monthly payments, as plaintiff’s credit union rejected URS’s payment requests with error codes such as “no account.” On January 3, 2014, the URS representative who negotiated the agreement called plaintiff to address the problem. Plaintiff cut the conversation short and said, “I’m not talking to you, don’t call me.” URS unsuccessfully attempted to reach plaintiff over 20 times between January 3, 2014 and March 13, 2014. 

On December 23, 2014, plaintiff sued defendants in United States District Court, asserting two claims under (1) the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., against URS; and (2) the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act), Cal. Civ. Code §§ 1788-1788.32, against both defendants. Plaintiff alleged she fulfilled her obligations on the debt by providing defendants with access to her checking account, yet defendants’ subsequent efforts to collect the funds violated the FDCPA and the Rosenthal Act. Plaintiff did not repay any portion of her debt. 

Both Defendants filed motions 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. 

On March 20, 2017, the honorable James Donato granted Summary Judgment in favor of defendants on both claims, finding “defendants did nothing that even comes close to an unscrupulous debt collection practice.” 

On the contrary, Judge Donato found “defendants’ conduct was reasonable, fair and consistent with legal collection practices.”  Judge Donato rejected plaintiff’s argument that she upheld her side of the agreement simply by providing URS with a checking account number, writing, “For Forto to say now that her side of the deal was merely to give URS an account number and then wish it well, flies in the face of the express terms she agreed to.” Judge Donato further found plaintiff “fail[ed] to show any genuine dispute of material fact [regarding the parties’ agreement], and her subjective (and self-serving) interpretations of the agreement d[id] not amount to a relevant consideration.” 

The defendants subsequently filed Motions for Attorney’s Fees and Costs, seeking a total of $80,168.20: $61,418.20 for URS and $18,750 for Capital One. Capital One withdrew its request for $18,750. The URS request remained pending. 

The Court’s Decision

The decision was written by the Honorable Maria-Elena James, United States Magistrate Judge. 

Judge James wrote: 

While nothing in the record indicates Plaintiff intended to harass URS, the same cannot be said about her counsel. There is evidence that Plaintiff’s counsel has unreasonably and vexatiously multiplied the proceedings. 

In sum, the record shows that for nearly three years, Plaintiff’s counsel’s conduct has forced URS to waste time and resources defending an action that, from the beginning, lacked a factual basis. That Plaintiff’s counsel nevertheless continued to prosecute Plaintiff’s claims, despite being presented with evidence that her claims were meritless, shows that counsel unreasonably and vexatiously multiplied these proceedings and did so in bad faith. Taken as a whole, the undersigned finds Plaintiff’s counsel’s conduct in this case amounts to harassment. 

Accordingly, URS is entitled to attorneys’ fees from Plaintiff’s counsel. 

The judge did not order a specific amount of attorney’s fees at this time. She ordered URS to “file in the public docket time keeping records that show the number of hours counsel worked on this litigation with sufficient descriptions to allow the undersigned to evaluate the reasonableness of the hours.” 

Plaintiff’s attorneys will have the right to respond to the materials filed.

insideARM Perspective 

The initial insideARM reaction to this story is a single word: Wow! This is one of the more strongly worded opinions we have seen chastising any law firm for pursing this type of case. 

It will be interesting to see how much of the requested $61,418.20 in attorney’s fees and costs will be ultimately awarded.

PHOENIX, Ariz. – Empereon-Constar, a leading provider of end-to-end customer engagement and customer management solutions, announced today that it is converting to a colocation data center at ViaWest Cornell to keep pace with growing client demand. Empereon-Constar’s IT Operations department has also moved and are now located in a new building within a mile of the ViaWest Cornell data center.

“Built in a high-performance environment, the ViaWest Cornell data center is designed with the scalability, resilience, and multi-layered security required for all strategic business applications and critical data,” said Travis Bowley, CEO. “Empereon-Constar’s significant investment in our new data operations center reaffirms our commitment to the highest standards necessary to deliver quality services to our clients.”

“The ViaWest Cornell data center provides Empereon-Constar and our clients a high-performance 24/7/365 data center with multiple redundant power distribution paths and 2(N+1) redundancy,” stated Bryan McRoberts, Chief Information Systems Officer. “These technological enhancements will allow Empereon-Constar to pass along significant improvements in service to our clients.” 

Additionally, the entire Empereon-Constar IT department relocated to a 10,000-square-foot IT Operations facility located at 3131 South Vaughn Way in Aurora, Colorado. The new office features an open workspace for greater collaboration among team members and provides a dedicated workroom where the IT team can perform the software/hardware work necessary to support the Empereon-Constar enterprise computer systems. There is also a structured staging area for setup and deployment along with a conference room specifically designed to accommodate strategy and development discussions. 

“In designing the new center, significant consideration was also given to facilitating collaboration and data center infrastructure management,” stated Gary Dickerson, VP, Information Security. “All of which will enable Empereon-Constar to better serve the growing demand for services from existing and new clients.” 

About Empereon-Constar

Empereon-Constar is a leading business process outsourcing company providing end-to-end customer engagement and customer management solutions for New Sales Account Generation, Customer Care, Risk and Fraud Operations, Collections Operations, QA Agent Call Monitoring, Back Office Administration Support, and Tech Support across the entire customer account lifecycle. Our customized solutions, real-time analytics, and global footprint help our clients achieve their business goals.

Empereon-Constar’s full range of consumer and commercial services includes: lead generation, inbound / outbound sales, account origination, customer care, customer service, technical support, first party collections, recovery collections, credit bureau dispute management, fraud risk management, anti-money laundering, loan servicing and loan processing. Our world-class services and unique global strategy allows us to meet the needs of our client partners across multichannel (email, chat, phone) communication platforms, provide exceptional customer experiences, and consistently deliver world-class performance results, while maintaining the highest level of data security and compliance. 

Empereon-Constar portfolio of companies: Empereon Marketing, LLC, Constar Financial Services, LLC, Empereon International, Constar International, and HQC International.

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

In a split decision, the U.S. Court of Appeals for the Fifth Circuit recently decided that attorneys representing a condominium association did not violate the federal Fair Debt Collection Practices Act by threatening non-judicial foreclosure on debt that was partially but not fully time barred.

A copy of the opinion in Mahmoud v. De Moss Owners Ass’n Inc. is available here.

The plaintiffs owned a condominium in Houston, Texas. They sued the condominium ownership, its management company and its collection lawyers concerning their efforts to collect assessments and other charges under the association’s declaration and related documents.

At the trial court level, the plaintiffs alleged common law claims of breach of contract, wrongful foreclosure, negligent misrepresentation, breach of fiduciary duty and violations of the FDCPA, the Texas Fair Debt Collection Practices Act and the Texas Deceptive Trade Practices Act. The district court granted the defendants’ motion for summary judgment and the plaintiffs appealed.  The Fifth Circuit affirmed the lower court ruling.

By way of background, the assessments stretched back several years. Arguably, some but not all of the debt was beyond the Texas four-year statute of limitations.

The Court was not swayed by the collection law firm’s argument that it was exempt from liability under section 1692f(6) of the FDCPA because it was merely enforcing security interests. The Court relied on its earlier decision in Kaltenbach v. Richards, which held that once a party satisfies the general definition of debt collector, it satisfies the definition for all purposes even when attempting to foreclose on security interests. Here, the Court concluded, there was “no serious contention” that the law firm was not a debt collector.

Turning to the 1692g claim, the collection law firm had sent a two-page letter referencing the debt. The plaintiffs claimed the validation letter “overshadowed” their FDCPA rights because it demanded that the defendants “needed to pay ‘on or before the expiration of thirty (30) days from and after” the date of the letter “or nonjudicial foreclosure would occur.”  However, section 1692g provides that a debtor has 30 days from receipt of a validation letter to make a written dispute which freezes collection activity until the debt collector provides verification. The plaintiffs alleged that the law firm’s demand for payment within 30 days of the date of the verification letter “overshadowed” the longer period provided by section 1692g, which is focused on the date the debtor receives the validation letter.

The Court disagreed, concluding that a “fair interpretation” of the letter demonstrates the plaintiffs were not deprived of their validation rights because the longer 30-day validation language was listed not once, but three times, and in bold type.

Next, the Court addressed the plaintiffs’ claim that the law firm threatened a lawsuit on time-barred debt.  Examining the Texas Property Code, the Court found that condominium assessments were “covenants running with the land” and that the unpaid assessments and other charges constituted a real property lien. The Court noted there was no Texas case law to answer what limitations period covered such real property liens, but assumed, to resolve this case, that the four-year general statute would bar a small portion of the overall debt.

Whether the letter violated the FDCPA for threatening a suit on a time-barred debt provided a more compelling argument. Just last year in Daugherty v. Convergent Outsourcing, Inc., the Fifth Circuit ruled the FDCPA was violated when a letter merely offered to “settle” a time-barred debt, but did not otherwise threaten a lawsuit.

The Court found the facts here contained important distinctions from Daugherty. First, unlike Daugherty, only a portion of the debt was alleged to be time-barred, less than 25 percent. Second, in Daugherty there was no dispute that the limitations period applicable to the entire debt had expired, but here it was uncertain whether the limitations period had run. Finally, because the letter in Daugherty did not disclose that a payment made after the debt was time barred could restart the limitations period, the letter arguably would mislead consumers in taking an action adverse to their interests.

Here, however, the plaintiffs were not misled because the condominium was ultimately foreclosed for the amount that was demanded.

In reaching its conclusion, the Court went to great lengths to stress the nature of the debt (i.e. real estate debt) and hinted that it might not rule favorably if the debt were of another type, like a credit card.

On Monday, September 18, 2017 the Consumer Financial Protection Bureau (CFPB) announced that it had reached a settlement in an enforcement proceeding against National Collegiate Student Loan Trusts (NCSLT) and Transworld Systems, Inc. (TSI) for alleged illegal student loan debt collection lawsuits.

Per the CFPB press release:

 “Consumers were sued for private student loan debt that the companies couldn’t prove was owed or was too old to sue over. These lawsuits relied on the filing of false or misleading legal documents. The proposed judgment requires an independent audit of all 800,000 student loans in the National Collegiate Student Loan Trusts’ portfolio. It prohibits the National Collegiate Student Loan Trusts, and any company they hire, from attempting to collect, reporting negative credit information, or filing lawsuits on any loan the audit shows is unverified or invalid. In addition, it requires the National Collegiate Student Loan Trusts to pay at least $19.1 million, which includes initial redress to harmed consumers, relinquished funds to the Treasury, and a civil money penalty. Under a separate consent order, Transworld Systems, Inc. is ordered to pay a $2.5 million civil money penalty. “

CFPB Director Richard Cordray commented:

“The National Collegiate Student Loan Trusts and their debt collector sued consumers for student loans they couldn’t prove were owed and filed false and misleading affidavits in courts across the country. We’re ordering them to pay at least $21.6 million, stopping them from filing illegal lawsuits, and requiring the trusts to thoroughly audit their loan portfolios to identify any other consumers who were harmed.”

Background

The NCSLT are 15 Delaware statutory trusts that own more than 800,000 private student loans. Between 2001 and 2007, the trusts purchased and securitized the loans, and then sold notes secured by the loans to investors. The trusts have no employees but instead use service providers to interact with consumers about their loans. TSI is a nationwide debt collector incorporated in California, with a principal place of business in Ft. Washington, Pennsylvania. TSI assumed control of this business on November 1, 2014. The CFPB inquiry for the trusts predates TSI’s assumption of control. TSI employees complete, sign, and notarize sworn legal documents for collections lawsuits brought on behalf of the trusts. TSI then utilizes a national network of law firms to file and prosecute collections lawsuits on behalf of the trusts in courts across the country.

The complaint and consent order against the NCSLT and the consent order with TSI include allegations and findings that the NCSLT and TSI violated the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act by filing false affidavits and for pursuing collections lawsuits they could not have won, if contested.

Specifically, the CFPB alleged:

• NCSLT and TSI sued consumers for debts the trusts could not prove were owed;
• NCSLT and TSI filed false and misleading affidavits;
• NCSLT caused to have at least 486 collections lawsuits filed after the applicable statute of limitations on the debt collection had expired; and
• In numerous instances, many of the affidavits filed were improperly notarized because they were not sworn or signed in the presence of the notary.

Under the terms of the proposed final judgment and consent order, the CFPB is requiring:

• NCSLT must conduct a thorough audit of the 800,000 student loans in its portfolio
• NCSLT pay at least $3.5 million in restitution
• Stop filing collections lawsuits on debt that can no longer legally be sued over
• Stop attempting to collect, reporting negative credit information, and suing consumers for debt without proper documentation
• NCSLT must stop filing false or improperly notarized legal documents
• NCSLT must pay $7.8 million in disgorgement
• NCSLT must pay a $7.8 million civil money penalty
• TSI must pay a $2.5 million civil money penalty

TSI issued a press release in connection with this matter. Per the release:

“TSI is disappointed that the CFPB decided to bring an enforcement action related to one portfolio for a single client of the Attorney Network business unit, which utilizes outside law firms to collect on defaulted private student loans.  At times, this business unit executes affidavits at the request of law firms in connection with collections lawsuits. 

TSI disagrees with the CFPB’s characterizations, and with many of the alleged facts in the Consent Order. Since assuming control of the Attorney Network in November 2014, Company management has worked diligently to enhance the compliance management system for the Attorney Network business unit to reflect TSI’s company-wide culture of compliance. TSI’s current practices in the Attorney Network business unit adhere to all federal and state consumer protection laws, and embody best practices in the industry, including having well-trained affiants, proper documentation for any legal claims, and diligent local law firms that review these cases in their entirety prior to taking any action in court.

TSI decided to settle with the CFPB in order to avoid costly and potentially protracted litigation with our primary regulator, and so that we may continue to focus all of our efforts on serving the needs of our customers.”

insideARM Perspective

A common complaint about the CFPB is that they “regulate through enforcement proceedings” rather than through a formal rulemaking process. Director Cordray has suggested that the industries governed by the CFPB should study enforcement proceedings for guidance on policies and procedures. In this instance, insideARM suggests that this case be given close attention.

The press release provides a general overview of the CFPB agreement with the parties. insideARM suggests that compliance professionals go beyond the press release and study the specific terms of the consent orders in this case. A review will show that two themes emerge: 

1) Documentation of the debt and, 2) policies/procedures regarding legal action on accounts.

In the consent order, there are very specific directives for both NCSLT and TSI. For instance, in the NCSLT order in the section requiring NCSLT to “conduct a thorough Compliance Audit of over 800,000 accounts” there are the following requirements:

“The purposes of the Compliance Audit must be to determine, at a minimum:

a. For each and every student loan, whether Defendants, or their agents (including Defendants’ Servicers), have or ever had in their possession sufficient loan documentation, including signed promissory notes and documentation reflecting the complete chain of assignment since the loan’s origination, to support the claim that a Debt is currently owed to a Trust, including but not limited to, assignments from the Debt’s originator to the Trust claiming ownership and any subsequent assignments by the Trust to a student loan guarantor.

Within thirty (30) days of receiving the final Compliance Audit Report………Defendants must submit to the Enforcement Director for review and non-objection an amendment to the Compliance Plan…….to:

 a. ensure the withdrawal and dismissal without prejudice of any pending Collections Lawsuits identified in Paragraph 19(c);

b. ensure that Defendants and their agents, including but not limited to any of Defendants’ Servicers, will not take any steps to initiate collections or furnish negative reports to consumer reporting agencies, on loans identified in Paragraph 19(a), or accept payments on any defaulted Debts, unless and until Defendants first verify the existence of the documentation referenced in that subparagraph in order to prove the existence of the Debt and the identity of the current owner.”

In pages 20 and 21 of the TSI consent order the CFPB lays down specific guidelines for TSI’s use and management of their attorney network. These requirements are an extension of elements in the prior CFPB consent orders against Frederick J. Hanna and Associates P.C. and Pressler & Pressler LLP.

The TSI order also discusses the role of TSI’s Board in this matter. They specifically require the TSI Board to “review all submissions, (including plans, reports, programs, policies, and procedures) required by the order prior to submission to the CFPB. insideARM suggests that compliance managers everywhere should review and share that section of the TSI order (page 22) with senior management, owners and member of any Board of Directors.

Last week a federal court in Michigan ruled that “verification documents” provided to a consumer by Portfolio Recovery Associates, LLC (PRA) met the Fair Debt Collection Practices Act (FDCPA) verification of debt requirements. The case is Cooper v. Portfolio Recovery Associates, LLC (Case No. 16-12969, U.S.D.C. Eastern District of Michigan, Southern Division). 

A copy of the court’s Memorandum and Order Granting Summary Judgment to PRA can be found here. 

Background 

The court’s order is 20 pages. The background facts are quite convoluted. In the interest of brevity, insideARM will summarize. For a more thorough review of the facts, interested parties should read the complete opinion.

On July 13, 2015, Cooper received a debt collection letter from PRA indicating that Cooper owed $3,177.19 to PRA. The letter named U.S. Bank National Association (“U.S. Bank”) as the original creditor. 

In response to that letter Cooper wrote to PRA requesting that PRA verify the debt through various means, including by providing a copy of the written agreement that created the obligation between Cooper and U.S. Bank. 

On August 10, 2015, PRA responded to Cooper by letter with verification information including: 

• Cooper’s first and last name, middle initial, and suffix “2”;
• The last four digits of Cooper’s social security number;
• Account number ending in 0104;
• Name of the original creditor as U.S. Bank;
• Date the account was opened with U.S. Bank as January 1, 2008;
• Date of sale of the account from U.S. Bank to PRA as June 17, 2015;
• Balance at time of sale as $3,177.19; and
• A statement that no interest or fees had been charged since the date of sale. 

The letter stated that Cooper should contact PRA if he wanted to receive a history of payments that had been made since PRA acquired the account. The letter did not include a copy of the original agreement between Cooper and U.S. Bank as Cooper requested in his first response letter. It did, however, include an identity theft affidavit that Cooper could have completed and returned in order to dispute that the debt belonged to him. Cooper says he did not return this affidavit because he did not want to provide personal information to PRA without further assurance of PRA’s trustworthiness and the validity of the debt. 

Cooper then sent a second letter to PRA requesting verification of the debt. In that second request Cooper listed the methods by which PRA should verify the debt, many of which were the same as in Cooper’s first response letter except that he bolded and underlined requests for a copy of the original U.S. Bank agreement and a copy of the last billing statement that U.S. Bank sent to him.

PRA sent a letter to Cooper three days later, stating that the investigation of the dispute was complete and enclosing three Comerica Bank credit card statements as additional verification of the debt. The first statement, dated April 2013, displayed a payment of $52.00. The second statement, dated January 2014, displayed a total balance of $3,177.19. The third statement, dated February 2014, displayed that the account was being charged off. PRA’s letter did not explain the connection between Comerica Bank and U.S. Bank. 

On August 20, 2015, PRA sent Cooper two letters. The first was a verification letter identical to the verification letter PRA sent on August 10, 2015. The second was a letter stating that because PRA had already responded to “a previous dispute substantially the same as your present dispute,” it would conduct no further investigation into Cooper’s dispute. 

Cooper then sent PRA a third verification request. In that letter, he stated that the information PRA had previously provided was insufficient to prove the validity of the debt and emphasized that, for him, the only sufficient proof would be a copy of the original contract between him and U.S. Bank. 

In response to this third verification request, PRA sent a letter identical to their August 20, 2015 letter stating that PRA would not respond to a dispute that it had already resolved.  

Cooper filed his complaint on August 15, 2016 suing PRA for attempting to collect a debt from him in a manner that violated the FDCPA. The complaint contained additional allegations of violation of the Michigan Collection Practices Act and fraud under Michigan tort law. 

PRA moved for summary judgment or dismissal, to which Cooper responded and cross-motioned for summary judgment on liability.

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 

First, the court discussed 15 U.S.C. § 1692g(b), the relevant FDCPA provision. That provision provides: 

If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains [and mails to the consumer] verification of the debt or a copy of a judgment, or the name and address of the original creditor. 

PRA argued that its response fulfilled the statutory requirements. Cooper argued that PRA did not fulfill the statutory requirements which means that the collection activities PRA undertook after sending it response violated the FDCPA verification provisions. 

The court’s order was written by the Honorable Avern Cohn, United States District Court Judge. Judge Cohn wrote:

“Under the plainest reading of Haddad v. Alexander, Zelmanski, Danner & Fioritto, PLLC, 758 F.3d 777, 783 (6th Cir. 2014)), a debt collector must only provide information regarding “how and when the debt was originally incurred or other sufficient notice from which the consumer could sufficiently dispute the payment obligation.” Haddad, 758 F.3d at 786. Exactly what is “sufficient” will depend on the facts of each case. 

PRA says that it met this standard by providing Cooper with the amount of the debt owed, the name of the original creditor, and the name, address, and telephone number of the current creditor.

Since Cooper claims that the debt never existed, PRA could meet the Haddad standard by giving Cooper information about how and when the debt came into existence. PRA’s first verification letter from August 10, 2015 did just that by notifying Cooper that an account in his name had been opened with U.S. Bank on January 1, 2008. The letter also listed the account number and the last four digits of Cooper’s social security number, and later provided billing statements from the account. This information was sufficient to allow Cooper to dispute the debt. Not only that, but PRA also expressly gave Cooper an opportunity to dispute the debt by enclosing an identity theft affidavit in two of its verification letters. There is no question that Cooper had the information necessary to complete these affidavits. PRA was therefore not required to provide a copy of an original contract because Cooper would not have needed an original contract in order to sufficiently dispute the debt. 

Because PRA’s letters and identity theft affidavits clearly communicated to Cooper that he could dispute the validity of the debt, they were sufficient under the FDCPA.”

The court also granted PRA’s summary judgment motion as to the fraud claims. 

insideARM Perspective 

This is an interesting case on the issue of what is a valid response to a request for verification. However, its review should be limited to that issue AND the specific facts in this case. It is interesting the court did not require that PRA respond to the consumer’s request for copies of original documents. Instead, the court held that PRA was simply required to meet the minimum obligation under the FDCPA. 

The court never really discussed the issue regarding how U.S. Bank became owner of an account opened with Comerica Bank and what, if any impact that might have on PRA’s ability to collect the amount allegedly owed. All that happened is a summary judgment in favor of PRA on the plaintiff’s claims. Had the case been a counterclaim on a collection action the court might have gone into greater discussion on the U.S. Bank/Comerica Bank question and Cooper’s obligations on the account. 

Finally, there was an interesting footnote to the opinion. It raised an issue that was readily apparent after reading Judge Cohn’s description of the facts in the case. Judge Cohn noted: “That PRA called Cooper before sending the first verification letter might well be a violation of the FDCPA. However, Cooper does not raise that claim in his complaint or motion for summary judgment.”

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

Creditors like the first-party model because it maximizes control over the collection agency. Debt collectors like the first-party model because it insulates them from liability under the Fair Debt Collection Practices Act (FDCPA). Arguably, consumers like the first-party model because they effectively communicate directly with the party to which they owe money. But if this seems too good to be true, it probably is.

Three cases recently shined a spotlight on the first- and third-party collection models that should give the first-party servicer pause. Any agency offering first- and third-party collection services is well advised to review the terms of their contractual relationship with their creditor clients, consider each client’s definition of default, examine the chain of collection treatment, and then document the representations made to the consumer about the default status of the account before initiating any type of collection activity. 

Referring an account to a third-party debt collection agency means the patient account is in default.

In Fausz v. NPAS, Inc., Civil Action No. 3:15-cv-00145-CRS-DW, United States District Court, W.D. Kentucky, Louisville, February 22, 2017 the Court decided that if the original creditor declares a debt to be in default and retains a third-party collection agency to collect the debt, then the collection agency is subject to the FDCPA. On the contrary, if the debt has not been declared in default prior to assignment to a collection agency, the agency is not restricted to collecting the debt subject to the FDCPA and may entertain collection using a first-party model.

At issue in this case was the definition of default and whether the account collected by NPAS, a first-party debt collector, was in default at the time of assignment. Basically, if the Court found the debt to be in default at the time it was assigned to the defendant for collection, the defendant collection agency would be subject to the Fair Debt Collection Practices Act (FDCPA) and prohibited from collecting the debt using a first-party collection model.

Statutory liability under the FDCPA is limited only to debt collectors. Wadlington v. Credit Acceptance Corp., 76 F.3d 103, 104 (6th Cir. 1996). The statute defines “debt collector” as: any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

15 U.S.C. § 1692a (6). A debt collector does not, however, regulate the conduct of a person who attempts to collect a debt that is not in default. Id. § 1692a(6)(F)(iii). Congress did not specify the meaning of when an account is “in default” when it enacted the FDCPA.

In this class action, plaintiff’s account was assigned to a series of third-party collection agencies for collection before finally being assigned to NPAS for collection using a first-party model. The hospital argued it never declared the debt to be in default and had a policy of not doing so and the defendant should not be obligated to service the debt subject to the FDCPA. Notwithstanding this argument, the Court considered the hospital’s practice of sending the account to a series of third-party debt collectors before sending it to the first-party servicer – the legal equivalent of declaring the account to be in default.

Third-party collection activity followed by first-party collection activity may be problematic. 

In Pollak v. Firstsource Advantage, LLC (Case No. 15-6046, U.S. District Court for the District of New Jersey, March 16, 2017), the Court denied the defendant’s motion to dismiss the amended complaint.  In this class action, plaintiff argued notwithstanding the defendant’s assertion it was, at all times, acting as a third-party debt collection agency, sending a collection letter on the creditor’s letterhead was meant to deceive the consumer and evade compliance with the law.

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

insideARM previously wrote about this case on April 4, 2017.

Plaintiff was a New Jersey resident who opened an American Express credit card account and later defaulted on the payments. American Express hired Firstsource to collect the debt. Initially Firstsource sent the consumer the validation notice on Firstsource’s letterhead and requested payment be made to Firstsource directly just like any other third-party collection agency. But later, on two occasions, Firstsource sent the consumer settlement offers on American Express letterhead, requesting payment in settlement be made directly to American Express by way of Firstsource’s address. The phone number on those settlement letters was answered as “American Express.”

Plaintiff claimed Firstsource violated the FDCPA under the following:

• Section 1692e (making any “false, deceptive, or misleading representation”); Section 1692e (9) (“use or distribution of any written communication . . . which creates a false impression as to its source, authorization, or approval”);
• Section 1692e (10) (“use of any false representation or deceptive means to collect or attempt to collect any debt”); and
• Section 1692e (14) (“use of any business, company, or organization name other than the true name of the debt collector’s business, company, or organization”)

Additionally, Plaintiff alleged the Settlement Offer Letters sent by Firstsource on American Express letterhead violated 15 U.S.C. § 1692e (11) by failing to disclose that each communication was an attempt to collect a debt by a debt collector and that any information would be used for that purpose. 

Just to be clear, this case did not provide a definitive decision on the allegations; the court merely denied the Defendant’s motion to dismiss the case. The issues presented are still being litigated.  The rules for deciding whether to dismiss a case are not the same rules for any ultimate decision. In a motion to dismiss, the court accepts all of plaintiff’s allegations are true. That will not be the case when the court or jury ultimately decides the case.

If it looks like a duck, swims like a duck, and quacks like a duck…

In Andrews v. Simm Associates, Inc., Case No. C16-5770 BHS United States District Court, W.D. Washington at Tacoma, August 9, 2017, the Court granted in part and denied in part the defendant’s motion for summary judgment and granted plaintiff’s motion for leave to amend. In this case the question of whether the defendant was a debt collector under the FDCPA turned on whether defendant could provide the court with substantive evidence it was an employee of the creditor.

The most the Court could decipher regarding the defendant’s relationship with the creditor, Applied Bank, was that the defendant was contracted to perform collection services on Plaintiff’s delinquent account. The proof offered by the defendant that it was not a third-party debt collector was its statement that it “was acting as a first party collection service and collecting in the name of the creditor.”  The Court found this evidence to be insufficient to establish that the defendant was a defacto employee of the creditor and refused to find that defendant was not a debt collector subject to the FDCPA.”

Consumer attorneys see smoke in the first-party model. Make sure you fireproof your collection model with a solid understanding of the requirements for both first- and third-party debt collection service model.

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insideARM editor’s note: insideARM will host its fourth annual First Party Summit June 4-6, 2018, in Dallas, Texas. This is a true educational and collaborative event. We strongly encourage that sales pitches are left at the door. If you need to dive deeply into the compliance and operational issues related to first party work, you will want to include this event on your calendar and in your budget for 2018.

Last week a federal court in Missouri ruled that a letter which contained a “reply-by” date that was outside the 30-day validation notice window was not a Fair Debt Collection Practices Act (FDCPA) violation. The case is Koller v. Midland Credit Management, Inc. (Case No. 4:17-cv-00430, U.S.D.C., Western District of Missouri, Western Division). 

A copy of the court’s Order granting Defendant’s motion to dismiss can be found here.

Background 

On December 21, 2016, defendant, Midland Credit Management, Inc. (MCM) sent Plaintiff a collection letter (the Letter). The letter is titled “NOTICE OF NEW OWNERSHIP AND PRE-LEGAL REVIEW.” The body of the Letter’s first page states: 

[MCM] is considering forwarding this account to an attorney in your state for possible litigation. However, such forwarding will not occur until after the expiration of the validation period described on the back of this letter. Upon receipt of this notice, please call to discuss your options.

If we don’t hear from you or receive payment by 02-04-2017, we may proceed with forwarding this account to an attorney. 

In addition to the validation rights described on the back of this letter, here are some possible options: 

— Pay your full balance . . .

— Call us to see how to qualify for discounts and payment plans. 

At the top of the Letter, in large font, is a direction to call MCM “by 02-04-2017 to Discuss Options.” And, in the left margin, the Letter states in bold, “Once your account is paid: collection calls will stop on this account [and] collection letters will stop on this account,” followed by, “Reply by 02-04-2017.” The Court refers to this February 4, 2017, deadline as the “reply-by” deadline. 

At the bottom of the first page, the Letter directs the reader to “PLEASE SEE REVERSE SIDE FOR IMPORTANT DISCLOSURE INFORMATION.”  On the reverse, below a shaded table providing account and contact information, the Letter provides the 30-day validation notice. The letter states: 

Unless you notify MCM within thirty (30) days after receiving this notice that you dispute the validity of the debt, or any portion thereof, MCM will assume this debt to be valid. If you notify MCM, in writing, within thirty (30) days after receiving this notice that the debt, or any portion thereof, is disputed, MCM will obtain verification of the debt or a copy of a judgment (if there is a judgment) and MCM will mail you a copy of such verification or judgment. If you request, in writing, within thirty (30) days after receiving this notice, MCM will provide you with the name and address of the original creditor.

. . .

Please remember, even if you make a payment within thirty (30) days after receiving this notice, you still have the remainder of the thirty (30) days to exercise the rights described above. 

On May 1, 2017, plaintiff filed suit in state court alleging violations of the FDCPA. Plaintiff complaint made two claims:

1. The Letter was misleading, in violation of 15 U.S.C. §1692e; and
2. MCM’s representations regarding the February 4, 2017, deadline for a reply overshadowed or were inconsistent with her 30-day window to dispute the debt, in violation of 15 U.S.C. § 1692g(b).

Plaintiff essentially made the same argument under both claims; that because the “reply-by” deadline overshadowed and was inconsistent with her validation rights and the notice deadline, it constituted a false and misleading representation. 

MCM removed to this Court and filed a Motion to Dismiss for Failure to State a Claim. The court’s order is in response to that motion. The order was written by the Honorable Greg Kays, Chief Judge, United States District Court. 

The Court’s Decision 

First, the Court addressed Plaintiff’s argument that the “reply-by” deadline overshadowed and was inconsistent with the 30-day validation period, in violation of 15 U.S.C. § 1692g. The court determined that the “reply-by” date was not inconsistent with Plaintiff’s rights. Judge Kays wrote: 

“The parties agree the “reply-by” deadline falls outside of the 30-day validation notice window. Because the “reply-by” date was after the expiration of Plaintiff’s validation notice period, it was not inconsistent with Plaintiff’s right to dispute her debt within 30 days. The Letter did not suggest Plaintiff was required to pay the debt prior to the 30-day window’s expiration. It clarified that action by MCM would not occur until after the expiration of the validation period described on the back page, and any payment received by MCM within the 30-day window would not bar Plaintiff from exercising her validation rights.” 

Next, the court addressed Plaintiff’s second argument: that the Letter was false or misleading in violation of 15 U.S.C. §1692e. In support, Plaintiff essentially argued the “reply-by” deadline overshadowed her 30-day validation notice window, misleading her to believe she had until February 4, 2017, to dispute the debt’s validity. 

However, the court also agreed with MCM on this issue: 

“ …….the Court finds even an unsophisticated consumer, if reasonable, would not assign the “reply-by” deadline to her validation rights. Thus, Plaintiff’s claim the Letter violated 15 U.S.C. § 1692e fails as a matter of law. 

Because Plaintiff has not stated a plausible claim upon which relief can be granted, Defendant’s Motion to Dismiss for Failure to State a Claim is GRANTED.” 

insideARM Perspective 

The is nothing better than a strong judge willing to put a quick end to a FDCPA lawsuit that doesn’t meet minimal thresholds. The lawsuit was filed in May of this year and dismissed by this judge less than six months later. Still, MCM was forced to engage counsel and incur attorney’s fees to gain the victory. insideARM would be curious to know what “demand” was made by plaintiff’s attorney to settle the case. 

insideARM has discussed this dilemma before. What is the right answer? Pay a settlement or fight on principle. Every case is different, every plaintiff’s attorney is different. There is no “one size fits all” answer. MCM should savor the victory, BUT, a different judge could have denied their motion and sent the case down the road for greater defense costs. 

The following is a profile of just one of the thousands of revenue cycle leaders at healthcare providers across the U.S. I’d like to thank Kim Roberts for generously offering her time to provide her insights. If you are a revenue cycle professional at a healthcare organization and would like to participate in a profile like this, please contact me. I would love to hear from you.

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What’s your name, organization & position?  

Kim Roberts, Vice President of Revenue Cycle, Abington-Jefferson Health and Aria-Jefferson Health

How long have you worked there?

12 years

How long have you worked in the revenue cycle field?

42 years

How did you land in the world of revenue cycle?

I initially started out as a coder, doing concurrent coding on the nursing stations while going to school in the mid-70s. My first full-time job was as a Medical Records Supervisor in a community hospital and then I was promoted to Medical Records Director within the year.  In 1984, as DRGs became effective as a method of reimbursement and coding took on a financial aspect, I moved into the world of finance.  I ultimately became responsible for Patient Registration and hospital billing and receivables, along with medical records. Through the years, as the names have changed to Patient Access, Health Information Management and Patient Accounting, I have worked for both non-profit and for-profit organizations, as well as single entities and national corporate organizations.  Over time, I have also taken on responsibility for physician network, home care and hospice billing and receivables.

What does your typical day at work look like?

I’m in many meetings, part of many discussions and part of planning around ways to optimize revenue, further integrate operations and staff, and gain more efficiencies while trying to minimize expense and salary costs. All of this is in light of decreasing reimbursements and changing payer rules, and while also aiming towards best practices and best-in-class KPIs.  The days can often be challenging, but at the same time, very invigorating.

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Can you think of something great you’ve learned about this business you’d really like to pass along?

It’s all about the supporting team and helping and sharing knowledge and experience and giving credit where it is due.  I’ve always operated under the philosophy that if I am on vacation or out of the office, all functions should operate as normal.  Be proactive, not reactive.  I also have a sign right by my office door, as I exit, that says “Unless It’s Fatal, It’s No Big Deal.” I try to keep focused and look at the bigger picture.

If you weren’t in your current career, what else would you most love to do for work?

I love to garden and grow flowers that I then arrange into bouquets that I give to others.  So, I guess I might love to be a florist!

What do you think needs to change most urgently in the revenue cycle field?

There needs to be recognition that the clinical staff are a critical aspect of revenue cycle and it is just as important that the doctors, nurses, service line administrators and ancillary staff all understand their role and impact on the organization’s revenue and financial viability.

At the same time, if I had my wish, it would be that the payers/insurers all follow the same rules, adopt the same electronic transaction processes and values, and allow the clinicians to drive patient care based upon clinical presentation and not hindsight or retro determinations.

Yesterday the Consumer Advisory Committee of the Federal Communications Commission (FCC) met to discuss, among other things, “Unwanted Call Blocking.”

First, a little background

In March of this year the Robocalls Working Group developed a set of recommendations that were made available in a Notice of Proposed Rulemaking (NPRM) and Notice of Inquiry (NOI). The goal of the rulemaking activity was to facilitate voice service providers’ blocking of illegal robocalls.

You can download the complete text of the NPRM and NOI here.

From the NPRM:

We believe that it is in the best interest of achieving the goal of eliminating illegal robocalls to collaborate with industry – government can remove regulatory roadblocks and ensure that industry has the flexibility to use robust tools to address illegal traffic. It is also important for the Commission to protect the reliability of the nation’s communications network and to protect consumers from provider-initiated blocking that harms, rather than helps, consumers. The Commission therefore must balance competing policy considerations – some favoring blocking and others disfavoring blocking – to arrive at an effective solution that maximizes consumer protection and network reliability.

The Commission proposed to allow providers to block calls when the subscriber to a particular number requests that calls originating from that number be blocked. The proposal also contemplates blocking of three additional categories:

1. calls from invalid numbers
2. calls from valid numbers that are not allocated to a voice service provider
3. calls from valid numbers that are allocated but not assigned to a subscriber

The NPRM requested input (comment period closed earlier this year) on specifics of the blocking activities above.

The NOI sought to gather input on development of objective criteria to help differentiate an illegal robocall from a legitimate one. In an accompanying statement, Chairmain Ajit Pai said this:

We seek input on other objective criteria to identify illegal robocalls – criteria that could help us distinguish, for example, between a woman at a domestic violence shelter legitimately using Caller ID spoofing to check on her kids at home and a foreign huckster pretending to call from the Internal Revenue Service. That’s because we know the problem of illegal robocalls is complicated and the solutions are many – and today’s proposals are only the Commission’s first step toward defeating this scourge.

A section of the NOI was dedicated to contemplating protections for legitimate callers. For instance, whether a “white list” ought to be created and how it might work, as well as a mechanism(s) for legitimate callers to get un-blocked.

Now, to the Consumer Advisory Committee and yesterday’s meeting

Similar to the Consumer Advisory Board (CAB) at the CFPB, the FCC has a Consumer Advisory Committee (CAC), which meets periodically to provide input to the Commissioners. In May, the group met and adopted these 11 formal recommendations related to unwanted calls. Five of the recommendations relate to education; two relate to enforcement; and the remaining four relate to easier ways for consumers to file complaints.

You can see the agenda for the September 18, 2017 meeting here.

The session included brief updates about the implementation of the “May Robocall Recommendations,” and the July 2017 Call Authentication Trust Anchor NOI (a relatively technical initiative to figure out how to “authenticate” callers automatically, before routing to their destination). None of the panelists that provided updates, nor any of the CAC members, represented industries affected by the blocking activities.

D’wana Terry, Acting Deputy Bureau Chief of the Consumer and Governmental Affairs Bureau (CGB) at the FCC gave the update on the Robocall Recommendations. He began by saying this is a problem that will not be solved overnight. He mentioned:

• One strategy is to figure out how to stop caller I.D. spoofing.
• The Industry Strikeforce created in 2016 has made a lot of good recommendations and they are being implemented.
• It would be great if industry engaged more deeply in an effort to come up with a call authentication framework.
• They are also looking at addressing the problems associated with reassigned numbers.
• Tough enforcement is very important when it comes to unlawful robocalls.

The following recommendations were made by the committee yesterday:

• For those service providers that have implemented any of the recommenations in the NPRM, they should inform consumers of those implementations.
• The FCC should encourage stakeholders from consumer and industry sectors to collaborate to address unintended consequences.
• The FCC should encourage voice providers to offer consumers other, optional, categories that can be blocked.
• The FCC should study the effectiveness of these methods after two years in place.

insideARM Perspective

It’s interesting to me that while this NPRM/NOI seems to contemplate some of the right questions and the wheels of the rulemaking process are turning, blocking by voice carriers has already begun — absent any of the contemplated protections for legitimate callers. 

As we wrote previously, this avalanche is already gathering. A coalition is forming to address it, but momentum does not seem to be in their favor.

SAN FRANCISCO, Calif. – LiveVox Inc., a leading provider of cloud channel of choice communications solutions, announced that LiveVox Director of Product Management, Boris Grinshpun, will join John Bedard of Bedard Law Group, and Chris Shuler, COO of American First Finance, on a panel discussing how cloud is providing a simplified, compliance-focused approach to managing multichannel consent by integrating consent capture into existing workflows at TRMA Fall 2017.                                   

Despite the opportunity to increase contact rates that multichannel presents, businesses continue to struggle to evolve their consumer contact strategies to optimize non-voice channels. This is especially true for consumer recovery efforts where regulatory oversight is particularly high. One of the greatest challenges preventing effective email engagement and other multichannel efforts is concern surrounding consumer consent. 

Hear insights from technology, legal and operational industry leaders as they discuss how to collect, manage, and leverage real-time consent to drive multichannel engagement and ROI. 

On the event, Boris Grinshpun, Director of Product Management, LiveVox states, “As consumer contact preferences continue to show a growing demand for non-voice channels, there is no question that multichannel engagement is a strategic competitive advantage for businesses competing in today’s digital environment. However, managing multichannel consent remains a significant hurdle for contact centers looking to expand beyond voice without interrupting their existing workflows. I look forward to joining industry legal and operations experts to share how cloud is providing a cost-effective, streamlined path to multichannel consent management at this week’s TRMA Fall Conference.” 

To learn more about LiveVox’s email and other multichannel offerings, click here. 

About the event:  

• EVENT:  Leveraging Consent to Enable Effective Email Engagement for Today’s Digital Consumer
• DATE/TIME: Wednesday, September 20^th, 2017 at 9:55am PT
• LOCATION: 2017 TRMA Fall Conference, Phoenix, AZ
• PANELISTS:
• John Bedard, Attorney, Bedard Law Group
• Chris Shuler, COO, American First Finance
• Boris Grinshpun, Director of Product Management, LiveVox, Inc. 

About LiveVox, Inc.

LiveVox is a leading provider of enterprise cloud contact center solutions, managing more than 9 billion interactions a year across a multichannel environment. With over 15 years of pure cloud expertise, we empower contact center leaders to drive effective engagement strategies on the consumer’s channel of choice. Our leading-edge risk mitigation and security capabilities help clients quickly adapt to a changing business environment. With new features released quarterly, LiveVox remains at the forefront of cloud contact center innovation. Supported by over 450 employees and rapidly growing, we are headquartered in San Francisco with offices in Atlanta, Bangalore, and Colombia. To learn more, visit LiveVox.com or email us at Info@LiveVox.com