Archives for October 2017

On Friday the Federal Trade Commission (FTC), along with 11 states and the District of Columbia, announced “Operation Game of Loans,” the first coordinated federal-state law enforcement initiative targeting deceptive student loan debt relief scams. This nationwide crackdown encompasses 36 actions by the FTC and state attorneys general against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.

According to the announcement by the FTC, Operation Game of Loans includes seven FTC actions: five new cases, one new judgment in favor of the FTC, and a preliminary injunction entered in a case filed earlier this year. The agency alleges that the defendants in these actions charged consumers illegal upfront fees, falsely promised to help reduce or forgive student loan debt burdens, and pretended to be affiliated with the government or loan servicers, in violation of the FTC’s Telemarketing Sales Rule and the FTC Act. Operation Game of Loans also includes law enforcement actions by Colorado, Florida, Illinois, Kansas, Maryland, North Carolina, North Dakota, Oregon, Pennsylvania, Texas, Washington, and the District of Columbia. 

The following are the actions described in the FTC’s announcement:

Five New FTC Actions Halt Scams

The FTC recently filed five new cases against 30 defendants as part of Operation Game of Loans. In each action, the FTC obtained temporary restraining orders (TROs) that halted the scams and froze defendants’ assets.

• A1 DocPrep, Inc.: In an action filed in the U.S. District Court for the Central District of California, the FTC charged that Los Angeles-based A1 DocPrep took at least $6 million from consumers through unlawful student loan debt relief and mortgage assistance relief schemes. According to the complaint, the defendants claimed to be from the Department of Education, and promised to reduce borrowers’ monthly payments or forgive their loans. The FTC also alleges the defendants targeted distressed homeowners, making false promises to consumers that they would provide mortgage relief and prevent foreclosure. Rather than helping consumers, A1 DocPrep’s CEO, defendant Homan Ardalan, spent hundreds of thousands of consumers’ dollars on cars, jewelry, nightclubs, and restaurants, according to the FTC. The Court entered a TRO on September 28, 2017. Additional defendants named in the complaint are Stream Lined Marketing, d/b/a Project Uplift Students and Project Uplift America, and Bloom Law Group PC, d/b/a/ Home Shield Network and Keep Your Home USA.
• American Student Loan Consolidators (ASLC): In an action filed in the U.S. District Court for the Southern District of Florida, the FTC charged that ASLC, d/b/a ASLC Processing, and BBND Marketing, LLC, d/b/a United Processing Center, United SL Processing, and United Student Loan Processing, and principals Daniel Upbin and Patrick O’Deady bilked student loan borrowers out of at least $11 million by falsely promising loan forgiveness, lowered monthly payments, and reduced interest rates. The FTC alleges that the Deerfield Beach, Florida operation pretended to be affiliated with the Department of Education and loan servicers. The defendants also tricked consumers into believing that illegal upfront fees, typically up to $799, were being used to pay off student loans. The court entered a TRO on September 26, 2017.
• Alliance Document Preparation: In an action filed in the U.S. District Court for the Central District of California, the FTC charged that Los Angeles-based Alliance Document Preparation, d/b/a EZ Doc Preps, Grads Aid, and First Document Aid, took more than $20 million from consumers by charging illegal upfront fees of up to $1,000. The defendants deceptively marketed their purported services primarily on social media platforms like Facebook. The court entered a TRO on September 28, 2017.
• Student Debt Doctor (SDD): In an action filed in the U.S. District Court for the Southern District of Florida, the FTC charged that Fort Lauderdale-based SDD and its owner, Gary Brent White, Jr., collected at least $7 million from consumers struggling to pay student loan debt. According to the complaint, the defendants charged illegal upfront fees of $750 or more. Using social media, e-mail, and telemarketing, SDD promoted its services across the United States, in English and Spanish. SDD falsely promised consumers loan forgiveness often in as little as five years or less, and told consumers not to communicate with their loan servicers. The defendants also fabricated income, unemployment status, and family size information on relief applications in order to qualify borrowers for eliminated or reduced monthly payments. The court entered a TRO on October 3, 2017.
• Student Debt Relief Group (SDRG): In an action filed in the U.S. District Court for the Central District of California, the FTC charged that Los Angeles-based M&T Financial Group and American Counseling Center Corp., d/b/a Student Debt Relief Group, SDRG, StuDebt, Student Loan Relief Counselors, SLRC, and Capital Advocates, and principal Salar Tahour bilked at least $7.3 million from consumers struggling to repay their student loans. According to the complaint, the defendants falsely claimed to be affiliated with the Department of Education, deceived consumers into paying up to $1,000 in illegal upfront fees to enter them into free government programs, and charged consumers monthly fees they claimed would be credited toward their student loans. In reality, the FTC alleged, defendants pocketed consumers’ money and responded to mounting consumer complaints by changing their name rather than their business practices. The FTC also asserts that the defendants deceived consumers into providing them with Social Security numbers and Federal Student Aid identification information, allowing the defendants to hijack consumers’ accounts while cutting them off from their loan servicers and the Department of Education. The court entered a TRO on September 19, 2017, and a stipulated preliminary injunction on October 10, 2017.

Two New FTC Law Enforcement Developments

Operation Game of Loans also includes two pending FTC actions against 11 additional student loan debt relief scammers, in which federal courts recently entered significant orders.

• Student Aid Center: On August 31, 2017, the U.S. District Court for the Southern District of Florida granted summary judgment against defendant Ramiro Fernandez-Moris in a joint action filed by the FTC and the State of Florida. The Court found that defendants’ unlawful student loan debt relief enterprise took more than $35 million from student loan borrowers by enticing consumers to sign up for services using misleading and false claims. In particular, Student Aid Center misled consumers to believe that they could receive loan forgiveness or modification if they paid unlawful upfront fees, and tricked consumers into thinking the operation was involved in the approval process. Motions for default judgment against two other defendants are pending before the Court, and the proposed final orders against all three defendants are subject to final Court approval.
• Strategic Student Solutions: On May 26, 2017, the U.S. District Court for the Southern District of Florida entered a stipulated preliminary injunction in the FTC’s case against Strategic Student Solutions, freezing defendants’ assets, halting the organization’s student loan debt relief operation, and appointing a receiver to control the business for the remainder of the litigation. The FTC alleged that the defendants took more than $11 million from consumers by falsely promising to reduce or eliminate their student loan debt and offering them non-existent credit repair services.

The FTC notes that it files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The cases will be decided by the court.

In an effort to help consumers avoid scams, the FTC offers this advice: 

Consumers should remember that only scammers promise fast loan forgiveness, and that scammers often pretend to be affiliated with the government. And consumers should never pay an upfront fee for help, and should not share their FSA ID—a username and password used to log in to U.S. Department of Education websites—with anyone. 

Consumers can apply for loan deferments, forbearance, repayment and forgiveness or discharge programs directly through the U.S. Department of Education or their loan servicer at no cost; these programs do not require the assistance of a third-party company or payment of application fees. For federal student loan repayment options, visit StudentAid.gov/repay. For private student loans, contact the loan servicer directly.

insideARM Perspective 

This announcement comes during the same week as a suit filed by the Consumer Financial Protection Bureau (CFPB) against another network of alleged debt relief scams. insideARM wrote about that action today as well, and offered our perspective.

It is worth adding in the context of this action (as it relates to student loans) a reference to the May 2017 court-ordered preliminary injunction that effectively prohibited the Department of Education from placing any accounts with any private collection agencies. In addition to the harm that this continuing injunction has caused to all stakeholders, it is undoubtedly causing a new layer of confusion for consumers, possibly making it even more likely that they would fall for a scam that promises assistance with their past due student loans. 

Finally, as a writer, I can’t help but note the grammatical faux pas in the screenshot provided by the FTC of a sample deceptive student aid relief ad that reads, “We Have Streamed Lined the Process!”

Last week The Consumer Financial Protection Bureau (CFPB) filed suit in federal court against two companies operating under the name “FDAA,” a service provider, and their owners for falsely presenting FDAA as being affiliated with the federal government. The CFPB also alleges that the FDAA’s so-called “debt validation” programs violated the law by falsely promising to eliminate consumers’ debts and improve their credit scores in exchange for thousands of dollars in advance fees. The CFPB’s lawsuit seeks to end these deceptive practices, obtain redress for harmed consumers, and impose civil money penalties. 

A copy of the complaint is available here.  

According to the complaint, Federal Debt Assistance Association, LLC and Financial Document Assistance Administration, Inc., both operating as FDAA, claims to provide advice and assistance to consumers to eliminate all or a portion of their debts and improve their credit scores. Clear Solutions, Inc., processed consumer payments for the FDAA companies and provided other services.  

The lawsuit alleges that the companies lied about having an affiliation with the federal government and made false promises regarding the services they could provide. Specifically, the CFPB alleges that the companies and their owners engaged in the following illegal practices: 

• Deceiving consumers about an affiliation with the federal government: The FDAA companies marketed themselves through direct mailers that were designed to look like an official government notice. The mailers stated that they were a “regulatory notification” with a case number and “entitlement amount.” The mailers and envelopes included a seal similar to the Great Seal of the United States. FDAA’s direct mailers and telemarketing scripts deceptively misrepresented an affiliation with the federal government. In letters sent to consumers, FDAA would falsely claim they can assist consumers in retrieving restitution from CFPB enforcement actions in the form of credit-card debt reduction.

• Deceiving consumers about the companies’ debt-relief and credit-repair services abilities: FDAA lied about the results that could be achieved. The companies falsely advertised that they would eliminate or reduce consumers’ principal balances by at least 60 percent, that creditors would be unable to collect the debts, and that the programs would increase consumers’ credit scores. 

• Failing to make proper disclosures about not paying debts: FDAA instructed consumers to stop making payments on the debts enrolled in their program. However, they failed to disclose that not making payments may result in the consumer being sued by creditors or debt collectors and may increase the amount of money the consumer owes due to the accrual of fees and interest. 

• Taking illegal advance fees for debt-relief and credit-repair services: Federal law prohibits the collection of fees before a credit-repair or debt-relief company achieves certain results. FDAA charged and received payment of fees for debt-relief services before altering the terms of consumers’ debts. The companies also charged and received fees for credit-repair services without achieving the promised results. 

insideARM Perspective

insideARM applauds the efforts of regulators to halt the actions of fraudulent credit repair organizations. They create clear harm to consumers, and they consume the resources of legitimate companies.

Numerous creditors and collection agencies have shared with insideARM that the influx of mass disputes or debt validation requests from credit repair organizations has become a material problem over the last year. These can often take the form of dozens or hundreds of form letters, all exactly the same except for the consumer’s name and basic information. insideARM learned recently that the law firm of Ballard Spahr hosted a very informative webinar on strategies for dealing with debt settlement companies.

In May of this year insideARM wrote about a joint effort by the Federal Trade Commission and the State of Florida to shut down a network of 11 related companies that took upfront fees for the promise of settling consumers’ debts, but failing to deliver on their promises.

In July we covered the case of Taylor-Burns v. AR Resources, Inc. (ARR), in which ARR argued that it did not report a consumer’s account as disputed because the agreement she had with the credit repair agency that sent the dispute letter on her behalf did not meet the requirements of the Credit Repair Organizations Act (“CROA”). The judge in the case sided with ARR. But the facts of this case were specific, and unfortunately this positive result doesn’t provide much guidance to others in how to evaluate the validity of these requests.

While the complaint against FDAA is just that at this point — a complaint; not a finding or ruling that the companies or individuals have actually violated the law – one does wonder about the purpose of the tactic of sending letters with what appears to be an official government seal, or making reference to their “regulatory” office.

Steve Rhode, the self-proclaimed “Get out of Debt Guy,” wrote about the FDAA in June 2016. He posted copies of marketing letters from the company, and essentially predicted the trouble announced last week, and he reminds readers of past enforcement actions against allegedly fraudulent debt relief companies.

Unfortunately, these cases only seem to be the tip of the iceberg. As we’ve noted before,

It is difficult to turn on a radio or go online without hearing or seeing an ad promoting such “services.” With taglines like “you have the absolute right to settle your accounts” or “the Obama administration has recently passed laws making it your absolute right to settle your debts,” the slick marketing campaigns work. The cases above demonstrate that consumers believe (or want to believe) the advertising.

Creditors and collection agencies may be able to help regulators by sharing letters and data about debt settlement companies that appear to be fraudulent. Legitimate companies often tend to be alerted to scams before the consumers that are ultimately harmed.

Late yesterday afternoon, Chief Judge Susan Braden issued an order directing the Department of Education (ED) to file another report on the status of the RFP for Private Collection Agency (PCA) Services “Do Over.” insideARM last reported on this matter on September 18, 2017.  Judge Braden has set a new deadline of October 20, 2017 for ED to file another status report.

A copy of Judge Braden’s order can be found here. 

In our September 18, 2017 article, we reported on the status report filed by ED on September 14, 2017. In that report ED wrote:

Status of Corrective Action 

In a notice filed on August 24, 2017, we informed the Court that ED’s evaluation teams have completed their review of all proposals, and that evaluation reports were being prepared and should be finalized within the next few weeks. ECF No. 184 (Defendant’s Notice of the Status of Corrective Action dated August 24, 2017). Evaluation reports are now being finalized, with an expected completion date of September 18, 2017. Once the reports are finalized, ED’s Source Selection Authority will perform an integrated assessment to identify the proposal(s) deemed to be most advantageous to the Government, followed by a responsibility determination of each apparently successful offeror. Once a new source selection determination has been made, ED will announce any new award or awards, and/or the termination of previously-awarded contracts, as appropriate. 

As stated in our August 4, 2017 and August 24, 2017 status reports, this corrective action is a top priority of Federal Student Aid, and ED is working diligently to complete the corrective action. Defendant respectfully requests that it be allowed to file a status report on October 5, 2017, informing the Court of the status of the corrective action. (Emphasis added by insideARM) 

October 5, 2017 came and went without another filing by ED. No explanation was given for the missed deadline. The ARM industry waited for a new report. Judge Braden waited for a new report. A week passed – still no status report. Judge Braden’s order directs ED to act. We will now wait until the October 20, 2017 deadline unless ED acts sooner. 

While there has been no activity since the last status report in the lawsuit before Judge Braden, there has been some activity in the appeal to the United States Court of Appeals for the Federal Circuit involving Judge Braden’s preliminary injunction. In addition to the dispute regarding the preliminary injunction, the appeal pits PCAs against each other on certain specific issues. 

On September 25, 2017 Continental Service Group, Inc. (ConServe) filed a brief regarding a request by another ARM company to intervene in the appeal. A copy of that brief can be found here. It is mentioned here, if for no other reason, because the brief contains an excellent summary (Pages 4-9) of the student loan debt recovery program from 2009 to the present. 

insideARM Perspective 

The entire situation borders on the absurd. The preliminary injunction issued by Judge Braden on May 31, 2017 has completely halted ED’s ability to place defaulted student loans to ANY PCA. The injunction has caused harm to consumers and to companies and individuals in ARM space who have worked in this area. 

In our August 24, 2017 article about the Consumer Financial Protection Bureau (CFPB) filing an Amicus Curiae Brief in support of the Department of Education (ED), we discussed the harm to consumers. We quoted a passage from the CFPB brief that discussed the 2016 Annual Report of the CFPB Student Loan Ombudsman: 

“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.” 

We have not spent much time discussing the harm being caused to ARM companies and their employees. insideARM believes that the injunction and corresponding lack of placements has caused layoffs of hundreds of individuals who had previously worked for companies that had been working student loan accounts from ED. Without new placements companies cannot afford to retain staff.  Indeed, it is possible that one or more companies that previously handled this work may not be able to survive much longer. 

Additionally, when and if placements resume, ARM companies will need to recruit, hire and train new employees to handle an influx of new placements. In light of the backlog of accounts since May 31, 2017, placements are likely be larger than normal. That will put an additional strain on PCA resources. Companies may be able to re-hire former employees. But many will have found new jobs and/or new careers. It will take time for new employees to be completely trained; there is a myriad of intricate rules regarding student loan collections. 

Editor’s Note: See here for a link to an insideARM page that provides a history of our ED-related articles. The page is automatically updated as new stories are written.

This article originally appeared as an Alert on ClarkHill.com, and is republished here with permission.

Since coming into office in January of this year, Pennsylvania Attorney General (“AG” or “General”) Josh Shapiro has wasted no time in rebuilding an office that had been riddled with scandal and inefficiencies. One top priority for General Shapiro will be to enhance the Public Protection Division by creating a Consumer Financial Protection Unit (the “Unit”), which is devoted solely to investigating commercial and trade practices in the distribution, financing and furnishing of goods and services for the use of [Pennsylvania] consumers. Nicholas Smyth, one of the first hires to the federal Consumer Financial Protection Bureau (“CFPB” or “Bureau”) will lead the Unit. Smyth is a seasoned consumer protection attorney and his experience and time at the Bureau will only complement the AG office’s pursuit against companies who allegedly violate the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL), 73 P.S. § 201-1 et seq. as well as the federal Consumer Financial Protection Act (CFPA), 12 U.S.C §5531. 

Prior to Smyth’s arrival, AG Shapiro has brought actions and investigated companies who have compromised consumers’ personal data and engaged in debt relief scams. AG Shapiro has also aligned himself with those Attorneys General who were supporters of the CFPB. Shapiro is now leading a national, multi-state investigation along with the Attorneys General of Connecticut and Illinois into the Equifax data breach. He has also joined 22 other Attorneys General in a multi-state letter opposing the U.S. Department of Education’s rollback of student loan servicing reforms. 

It is widely believed that the Trump Administration will attempt to pull back on federal regulations, especially as it relates to agencies like the CFPB, and therefore states will fill in this void. Two recent actions filed by the AG further support this belief.

On October 5, 2017, a lawsuit against the nation’s largest servicer of federal and private student loans, Navient Corporation, and its subsidiary Navient Solutions, LLC, was filed for alleged widespread abuses in student loan origination and servicing. The CFPB has already sued Navient in the United States District Court for the Middle District of Pennsylvania, and it is no accident that AG Shapiro’s action was brought in the same district. In fact, the same judge has been signed to both cases. In the press release announcing the lawsuit, General Shapiro stated, “The more businesses like Navient put their bottom line ahead of the interests of their customers and consumers, the more vigilant we will be to protect Pennsylvanians and hold businesses like Navient accountable for their misconduct.”

Over this past summer, the AG’s office filed an amended complaint against certain Native American tribes who were purportedly providing usurious loans to Pennsylvania consumers over the Internet. In addition to the named tribes, the amended complaint also asserts claims against a technology company, several servicers, and debt collectors — all whom, it is alleged, collectively engaged in unfair and deceptive acts.

For those Pennsylvania financial services entities that have been subject to CFPB jurisdiction, the actions by General Shapiro should be strikingly familiar. The flamboyant press releases and expansive theories of the applicability of UTPCPL are pages out of the CFPB handbook. Now is the time for companies that provide any consumer financial product or service to seek counsel and guidance when reviewing their policies and procedures to ensure compliance with all state and federal consumer financial protection laws, especially unfair, deceptive and abusive acts or practices (UDAAP) which are not easily recognizable or understood.

Much like the CFPB, the AG’s office and the Unit will be looking at the complaints they receive and taking their cues from Attorneys General elsewhere. Pennsylvania companies must also consider reporting bad actors within their respective industries. The CPFB has been quick to paint a broad brush against all participants of a particular industry as the result of the bad acts of a few. Like-minded companies must consider developing best practices and standards and articulate those to the Unit in order to easily identify the good from the bad players. Finally, industry participants must consider engagement and education. Many investigations and enforcement actions stem from a lack of understanding of certain aspects of a particular industry. Allowing consumer advocates to write the narrative for any industry makes defending industry conduct, even it is appropriate and in compliance with the law, very difficult.

CEDAR FALLS, Iowa – Employees from CBE Companies Inc. (CBE) are assisting hurricane victims in Puerto Rico, Texas and Florida through a donation to the American Red Cross. 

This month CBE donated $12,000 to the Red Cross as part of its Casual for a Cause initiative. The program allows employees to wear jeans to work when those employees volunteer for a regular paycheck deduction targeted for charity. 

A committee of CBE staff regularly evaluate potential recipients of the charity funds and saw an opportunity to make an impact in light of hurricanes Maria, Harvey and Irma that affected so many lives in Puerto Rico, Texas and Florida.

“Casual for a Cause has been such an excellent way for us to give back to our communities. One of the great things about the program is the ability to be flexible and respond to pressing needs,” said Mary Phillips, CBE Chief Human Resources Officer. 

Employees at each CBE location support local, non-profit organizations each month through CBE’s Casual for a Cause initiative.  

About CBE Companies

Founded in 1933, CBE Companies is a global provider of outsourced call center solutions. The company specializes in first and third party debt collection, fraud and customer care services. Our ability to constantly adapt, evolve and stay ahead of the regulatory environment sets us apart from other providers. We’ve implemented the controls necessary to meet the most stringent requirements of federal contracts, as well as heavily regulated and complex Fortune 500 companies. This sustained focus on thought leadership and continual investment inevitably benefits all of our clients by mitigating present and future risk.

CBE accepts change as the rule, not the exception, and has created an environment in which individuals thrive and creativity is valued. Our guiding principle is happy employees equal happy clients. With over 1,000 people in five locations globally, CBE Companies can deliver the right solution in the right location(s) for your ever-changing business needs. CBE’s corporate headquarters is located in Cedar Falls, Iowa, with two facilities in Waterloo, Iowa, and additional facilities in New Braunfels, Texas and Manila, Philippines. The organization is consistently recognized as a local Employer of Choice. It has also been recognized by Workplace Dynamics as one of Iowa’s Top Workplaces.

For more information about CBE Companies, please visit www.cbecompanies.com or call 888-386-0273.

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On September 28, 2017, a federal judge in New York dismissed a putative class action against a debt collector accused of violating the Fair Debt Collection Practices Act (FDCPA). The sole basis for the action was the allegation that the debt collector misrepresented its rating with the Better Business Bureau (“BBB”) in a debt collection letter. The case is Bryan v. I.C. System, Inc. (Case No. 15-cv-6984, U.S.D.C., Eastern District of New York.)

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

Background

Plaintiff, an individual residing in the State of New York, is a consumer as that term is defined by the FDCPA since she is allegedly obligated to pay a credit card debt. Defendant, I.C. System, Inc., a corporation with its principal place of business in St. Paul, Minnesota, is a debt collector within the meaning of the FDCPA since it is a debt collection agency. 

At some point prior to the commencement of this action, plaintiff allegedly incurred a credit card debt that was for “personal, family or household purposes.” In an effort to collect the outstanding debt, defendant sent plaintiff a letter on January 11, 2015 which stated:

Dear Elizabeth Bryan: 

Your delinquent account has been turned over to this collection agency. 

Tear off the bottom portion of this letter and return it with your payment. 

If you will be receiving a tax refund and would like to use it to pay your account, please call us to make payment arrangements. 

Sincerely,

Beth Brown
Manager 

In addition to the statutorily required validation of debt notice, the letter dated January 11, 2015 contained a prominent BBB logo next to the author’s signature with the statement: “I.C. System has a Better Business Bureau Rating of A+.” 

Plaintiff alleged, however, I.C. System falsely published in its collection letter that it had a BBB rating of “A+,” when in fact it had a rating of “B” at the time defendant mailed the letter. 

According to plaintiff, the BBB rated I.C. System with a “B” after receiving approximately 700 complaints in three years. Plaintiff alleges that defendant was aware of the complaints, was in continual contact with the BBB, knew or should have known what its rating was at any given time, but failed to correct the misrepresentation. 

As a result, plaintiff alleged that defendant’s collection letter violated Section 1692e of the FDCPA by misrepresenting that I.C. Systems had a BBB rating of A+ when it in fact did not. In addition, the plaintiff asserted that she brought this action as a purported class action on behalf of persons with New York addresses who were sent a collection letter by I.C. System that falsely stated that it had an A+ rating from the BBB. 

On August 9, 2016, defendant served, but did not file, a motion for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c). In response, on August 19, 2016, plaintiff filed a letter motion for leave to file an amended complaint pursuant to Rule 15(a) to add factual allegations. Defendant opposed the motion. 

On September 19, 2016, defendant filed a motion for judgment on the pleadings pursuant to Rule 12(c), which plaintiff opposed. On February 14, 2017, the district court referred defendant’s motion for judgment on the pleadings to Magistrate Judge Gary R. Brown. Judge Brown reviewed the plaintiff’s motion to amend the complaint and defendant’s motion for judgment on the pleadings, and concluded that resolution to the motion to amend was inextricably intertwined with defendant’s motion, and consolidated the two motions. 

On August 28, 2017, Magistrate Judge Brown filed his Report and Recommendation (the Report). Magistrate Judge Brown recommended: (i) that defendant’s motion for judgment on the pleadings be granted; and (ii) that plaintiff’s motion seeking leave to file an amended complaint be denied. 

Plaintiff filed a timely objection to Magistrate Judge Brown’s Report, to which defendant replied. 

The Court’s Decision 

The decision was rendered by the Honorable Sandra J. Feuerstein, United States District Court Judge. 

Judge Feuerstein wrote (Citations omitted): 

“Pursuant to 15 U.S.C. § 1692e, “[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. Although 15 U.S.C. § 1692e identifies certain conduct that is considered “false, deceptive, or misleading,” the list is non-exhaustive. (“The sixteen subsections of § 1692e set forth a nonexhaustive list of practices that fall within this ban.”). Relevant here, one such example of false, deceptive, or misleading conduct proscribed by the FDCPA is “[t]he use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.” 

However, the Second Circuit has observed that, “[a]lthough it is clear that Congress painted with a broad brush in the FDCPA, not every technically false representation by a debt collector amounts to a violation of the FDCPA.” Therefore, “[m]any courts have read a materiality requirement into § 1692e.” In analyzing whether a misrepresentation is material, the Second Circuit has held that “communications and practices that could mislead a putative-debtor as to the nature and legal status of the underlying debt, or that could impede a consumer’s ability to respond to or dispute collection, violate the FDCPA.” 

Plaintiff’s allegations, accepted as true, are insufficient to state a claim arising under 15 U.S.C. § 1692e. According to Plaintiff, “Defendant falsely published an A+ rating to consumers, when its rating was not an A+, and defendant knew or should have known what it was.” 

Plaintiff’s allegations do not support an inference that the debt collection letter at issue in this action would be materially misleading to the least sophisticated consumer. 

For the reasons set forth herein, Magistrate Judge Brown’s August 28, 2017 Report and Recommendation in its entirety, and: (i) Defendant’s motion for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c) is granted, and (ii) Plaintiff’s motion seeking leave to file an amended complaint pursuant to Fed. R. Civ. P. 15 is denied.” 

insideARM Perspective 

This case represents a no-nonsense consideration of the facts by both the Magistrate Judge and Judge Feuerstein. However, while the result was ultimately positive for the defendant, the cost of defense had to be significant. 

insideARM cautions compliance professionals regarding the inclusion of any logos or trade association emblems in letters to consumers. What purpose do they serve? insideARM would suggest that they are meaningless to most consumers and likely to draw attention from consumer attorneys and litigation defense costs. 

Additionally, ratings like the BBB rating can change. If a company is determined to include something like a BBB rating in a letter, what are the policies and procedures in place to change letters when ratings change?

Dennis Shaul, CEO of the Community Financial Services Association of America (CFSA), today released the following statement regarding today’s release of the CFPB’s final rule on small-dollar lending:

“This federal small-dollar lending rule is a tremendous blow to the more than one million Americans who spoke out against it during last year’s comment period. Millions of American consumers use small-dollar loans to manage budget shortfalls or unexpected expenses. The CFPB’s misguided rule will only serve to cut off their access to vital credit when they need it the most. The rule is not only misguided, it’s hideously complex for loans of a few hundred dollars. The final rule is nearly 1,700 pages – more than 300 pages longer than the proposed rule.

There was an unprecedented outcry against this rule during the comment period – setting a record for a CFPB rulemaking and marking one of the largest of any federal agency. Yet, from the start, the CFPB’s small-dollar loan rule was crafted pursuant to a pre-determined ideological agenda that relied on biased data, anecdotes, and closed-door dealings with so-called consumer groups that have long sought to eliminate small-dollar lending.

The flawed rulemaking process raises serious questions that demand answers. Throughout the rulemaking process – even during the comment period itself – the Bureau ignored the input of small-dollar loan customers, industry, and numerous other experts as it rushed to finalize the rule. While it was clear that the Bureau was on an ideological campaign against payday from day one, the full scope of the rule has been less clear. At one point it covered all small dollar loans, at another point there were rumors that the rule would be bifurcated and what we have today appears to be some kind of hybrid. The shifting scope of the rule seems to be a function of expediency more than anything else.

The questions about Director Cordray’s intentions and ambitions have created a cloud of suspicion over this rule. In particular, the timing of the rule raises questions about whether it was hastily issued to fit an artificial timetable and all the Director’s recent actions at the Bureau raise questions.

The CFPB’s coziness with special interest groups during the rule’s crafting, its failure to address any kind of illegal lending in this final rule, and its disregard for the consumers who have spoken out against the rule only lend more credence to suspicions of a partisan political agenda guiding the Bureau’s actions.

The CFPB’s actions have also raised a fundamental issue of whether the agency has observed due process or simply chosen an arbitrary route in its rulemaking. On several occasions, CFSA raised serious concerns over the CFPB’s inaccurate categorization of the unique, individualized comment letters it received. Additionally, CFSA expressed concern about whether the Bureau was appropriately reviewing and considering all public comments as required by the Administrative Procedure Act (APA).  CFSA also cited concern about the inconsistent process in which the comment letters were posted to Regulations.gov for public viewing.  

Given the overwhelming volume of customer comments and the CFPB’s duty to read each of them, it seems suspect that the CFPB was able to review the comments as it is required by law. Ignoring the people who use small-dollar loans shows that the Bureau has chosen special interests and activist groups over the very consumers it claims to protect.”

The iA Perspective

As most in the ARM industry know, the CFPB has also been hard at work on a debt collection rule. Although the bureau carved off a chunk of the expected coverage for the rule and pushed its timeline out, one can only imagine the number of pages that will be required to address the complex market.

At this point, the timing of the debt collection rule is unknown. Over the summer, the latest timeline stated September 2017, though that seemed unlikely, given – among other factors – that the bureau had just kicked off a new consumer survey (titled, “Debt Collection Quantitative Disclosure Testing,” this time, to gather information regarding the effectiveness of disclosures).

Director Cordray has said on a number of occasions that he views rulemaking as an iterative process. Indeed, mortgage rules have now seen amendments to amendments. Perhaps he views rulemaking the way many software companies view new releases — get it out in beta and issue fixes along the way.

The billing practices of emergency rooms (ERs) run by EmCare (Envision Healthcare and its subsidiary EmCare Holdings, Inc.) are under the microscope. Following a rash of consumer complaints and public reports supporting allegations that they gouged consumers and pressured doctors to order expensive, unneeded tests, ranking Senator Claire McCaskill has sent a strongly-worded letter to Christopher Holden, President and CEO of Envision, looking for answers. From her letter:

“Public reports indicate that as EmCare has expanded its work, costs to consumers have increased significantly without corresponding increases in the quality of care.” It continues, “…under the hospital’s previous physicians, patients that received ER care with the highest-level billing code were charged $467. The rate more than tripled to $1,649 for similarly complex services under EmCare management.”

EmCare is also said to have negotiated rates with several major insurers, but stopped short of signing contracts, and so was able to charge higher prices directly to patients. Senator McCaskill has asked EmCare to respond by October 11, 2017 (tomorrow) with information detailing five years of accounting for:

1. The number of hospitals with which EmCare has contracts to manage emergency department services
2. Data to substantiate what percentage of ED visits delivered by EmCare doctors to privately insured patients were billed as out-of-network charges
3. The number of complaints received by Envision or EmCare regarding cost or care concerns for ED services
4. The percentage of cases delivered to privately insured patients that were charged above and beyond their standard deductible or co-payment
5. The bonus and incentives given to docs related to lab testing and imaging, patient admission and other relative value units (RVUs)

iA Perspective

Missouri is already hurting from a balance billing and uncompensated care perspective. It’s one of the states with virtually no balance billing protection for consumers, even for ER care. While a federal rule to help consumers navigate balance billing issues would be useful, at the moment, balance billing legislation is left to the states. Most still don’t protect consumers comprehensively from balance billing.

To top it off, two of Missouri’s largest insurers have changed the way they handle ER charges. UnitedHealthCare, for example, which covers a good quarter of the state’s insured residents, changed the way it handles balance bills in Missouri in 2015. That year, the insurer declined to pay for services rendered by some ER doctors even though they work for in-network hospitals. Other insurers followed suit.

Prior, UnitedHealthCare had paid on almost the entire bill for ER services provided at in-network hospitals. It now pays only the prevailing out-of-network rate, leaving the balance bill to patients. Physicians (in their own struggle to get paid) are avoiding insurance networks because they know they can charge high reimbursement levels. Not wanting to be left with the expense, UnitedHealthCare changed its policy around paying out-of-network ER bills. The problem became a consumer problem, and a hospital revenue cycle problem, because the risk of aging and unpaid A/R is crushing hospital systems and eating margins. While this policy change didn’t affect those with individual plans or self-insured employer plans, it did leave many Missourians exposed to potentially devastating balance bills.

This is at least mitigated by the new credit reporting rule for medical accounts. Starting September 15, 2017, the Credit Reporting Agencies (CRAs) now require that a furnisher not report a medical account on a consumer’s Credit Bureau Report (CBR) that is less than 180 days old. This will allow time for disputes and delayed payments to shake out. Still, massive ER bills with no viable payer are a profound problem with far-reaching implications for the hospital revenue cycle.

Senator McCaskill, aware of EmCare’s growing footprint and the impact of high ER balance bills on consumers, wants Congress to understand how pricing practices are changing, and find ways to address the problem. Read the press release from McCaskill’s office on the situation here. insideARM will report on any response from Envision’s CEO.

CHICAGO, Ill. — Commercial Collection Agencies of America participated in the annual conference of NACARA – North American Collection Agency Regulatory Association last week in Seattle, Washington. The association was honored to present “Collections: Commercial versus Consumer” for state regulators from across the United States.  Annette M. Waggoner, the Association’s Executive Director collaborated with Sheryl Sailer, Investigator and Examiner with the North Dakota Department of Financial Institutions and past president of NACARA, to deliver a successful session for regulators and accounts receivable management industry representatives in attendance.  

In addition to Waggoner and Sailer’s presentation, other sessions were presented by the FTC, insideARM, the Consumer Relations Consortium, the Consumer Financial Protection Bureau, the Washington FBI and Manuel F. Newburger of Barron & Newburger and the Chairman of the Independent Standards Board of Commercial Collection Agencies of America.

NACARA ensures the fair and equitable administration of collection agency regulation throughout North America. NACARA member agencies regulate debt collectors through such methods as licensing or registration, compliance and consumer protection examinations, responses to complaints and administrative or civil enforcement actions.

NACARA regulators from various states routinely participate in each Commercial Collection Agencies of America meeting.  Their valued participation, often times in roundtable sessions, serves as excellent continuing education for the association’s agency members.  Regulators address continued problems seen during examinations, recommendations for changes for seasoned collection agencies and unique actions by states. 

About Commercial Collection Agencies of America

Commercial Collection Agencies of America is an organization of commercial collection agencies, creditors’ rights attorneys and law list publishers with members nationwide.  Agency members of the organization work to elevate the standards of the commercial collection industry in an effort to better serve and protect credit grantors.  Many members have been certified for over four decades.  Certified membership in Commercial Collection Agencies of America identifies the elite in the collections industry.  Each agency member qualifies for membership and earns the acclaimed Certificate of Accreditation and Certification by fulfilling a rigorous set of requirements annually.  In an effort to ensure that collection and customer service practices comply with the strict code of ethics of the organization, members are also subject to on-going evaluation. 

More information on NACARA can be found at www.nacaraweb.org and more information, including a listing of certified commercial collection agencies can be found at www.commercialcollectionagenciesofamerica.com. 

Last week insideARM wrote about a court decision that addressed the issue of sending a validation notice via email. (Lavallee v. Med-1 Solutions, LLC (Case No. 1-15-cv-1922, U.S.D.C., Southern District of Indiana). In that article, we suggested that this case was a very important and timely decision as the potential for ARM industry use of email to communicate with consumers is gaining momentum. 

We also suggested that the Consumer Financial Protection Bureau (CFPB) take notice of this case. The defendant in the case was attempting to balance privacy and security concerns with Fair Debt Collection Practices Act (FDCPA) compliance. Unfortunately for the defendant, the judge in this case determined that the process employed by the defendant put them in violation of Section 1692g(a) of the FDCPA. 

insideARM believes we need strong and definitive regulatory direction on this issue. As we have seen in the past with other critical FDCPA issues, we cannot leave it to the courts to write rules governing the industry. That result will lead to conflicting and confusing interpretations. Conflicting and confusing interpretations will lead to never ending litigation. The CFPB needs to step up to the plate in their upcoming rulemaking and not simply punt on the issue as they did in their Outline of Proposed Rules. 

insideARM asked several industry experts for their thoughts on the case and the court’s decision. Here are some of the responses: 

Tim Collins, Chief Compliance Officer, TrueAccord 

“It shouldn’t come as a surprise that we are starting to see FDCPA cases involving email used in consumer communication. Due to perceived regulatory uncertainty, it is ripe for the plaintiff’s bar. The industry is trying to do the right thing by taking the most conservative approach, which usually results in a less than optimum consumer experience.  As was seen in this case, in order to try and protect the consumer against inadvertently sharing their information with a third party the agency required multiple levels of authentication to get access to information about the debt and the consumer’s rights. 

Today, consumers want to be contacted at the right time, with the right content, using the right communication channel, and not by a phone call. That is why we have made consumer centric communication the focus at TrueAccord. It is way too early to know how the courts and regulatory agencies will eventually come out on email but when the dust settles let’s hope it is on the side of consumer preference.” 

John Rossman, Attorney at Law, Moss & Barnett. P.A. 

“The Court in this case focused on the fact that there were several steps involved for the consumer to access the validation notice sent via email — if anything, the Court found that the debt collector’s security precautions were too robust and perhaps unnecessary. According to the Court, the prevalence of email scams make it unlikely for a consumer to ‘click’ on a link from a previously unknown sender. Common sense and consumer expectations dictate that if a consumer provides an email address to a creditor, that alone should be sufficient for a debt collector to email a validation notice to the consumer, with the subject line of the email referencing the creditor and information required by 1692g contained in the body of the email.”  

Stefanie Jackman, Attorney at Law, Ballard Spahr 

“This decision further underscores the need for clear regulatory guidance on how first- and third-party collectors can use newer communication technologies in a compliant way under the FDCPA. Consumer studies and anecdotes continue to demonstrate that many consumers prefer to be contacted through email and texts, as opposed to more the traditional communication formats that existed when the FDCPA was enacted.  Regulators and companies share a common interest in wanting to honor consumers’ communication preferences. However, absent guidance, creditors and their third-party agents are left in the dark on how to develop compliant communication strategies that will satisfy their consumers’ preferences without running afoul of the law.  Clear guidance on this issue is necessary to develop a consistent approach that all companies can implement and comply with going forward.” 

Michael Kraft, General Counsel, The CCS Companies 

“This decision does two things: 

1) It emphasizes the need for some common-sense industry standards under the leadership of the CFPB rulemaking authority that acknowledges consumers’ preferences to avoid mail and phone calls while preserving privacy and insuring that all required disclosures are made to the consumers.

2) It opens the door to further litigation against agencies that are trying to reach consumers using alternative channels that consumers have expressed as their preferences, knowing that they hate to be called and don’t open mail.” 

Manny Newburger, Attorney at Law, Barron & Newburger, P.C. 

“The case is simply a reminder that the use of technology does not change the compliance landscape. The court demonstrates an understanding of the principle that “the computer ate my homework” works no better than blaming it on the dog. For tech-based collection companies with strong compliance programs this case should not present challenges.” 

Rozanne Anderson, Vice President, Chief Compliance Officer, Ontario Systems

“While I applaud the defendant’s ingenuity, I hardly think industry attorneys were surprised by this decision. The FDCPA should always be taken literally and interpreted through the eyes of the consumer. If a client asked me if they could send a validation notice to a consumer by way of a US first class mail scavenger hunt that required the consumer to take seven to eight steps to see their 1692g(a) notice, I would say, “don’t do it”. I think the court would have reached an entirely different conclusion had the defendant obtained the consumer’s consent in accordance with the Electronic Signature in Global Commerce Act (E -sign) and then simply sent the consumer an email which contained the 1692g(a) notice either in the body or attached. [Note: the reason they needed to comply with E – sign is because the validation notice is a disclosure required by Federal law. This means the higher standard of consent must be reached. This would not be necessary had the defendant sent, for example, a payment reminder notice or a receipt for payment]. 

The worse thing about this decision is the negative effect it will have on the industry’s appetite to use email to communicate with consumers. The question is not can we email consumers. The question is how do we do so in compliance with E -sign and the Fair Debt Collection Practices Act.”