Archives for March 2018

What’s been going on with the Department of Education (ED) private collection agency (PCA) contract since our last update? A lot of confidential filings. And… the prospect of yet another do-over. Or maybe something else entirely.

Background

insideARM has reported extensively on this matter; you can see all of our coverage here. Briefly:

There were seventeen collection agencies on the 2009 five-year unrestricted (large company) federal student loan contract (there were five firms on the small business contract). In 2014, eleven firms won new small business contract awards. The unrestricted awards were delayed until December 2016, when seven firms received contracts. During that delay, five firms received Award Term Extensions (ATEs) in order to continue to service accounts in repayment (meaning the borrower is actively making payments and has not re-defaulted). Those ATEs expire in April 2019.  

The awards were protested and lawsuits were filed. In May 2017 ED promised a do-over, or “corrective action.” Bidders re-submitted offers and everything was re-evaluated.

Thanks to an order from the judge, ED completed the corrective action on January 11, 2018 and awarded contracts to just two companies: Windham Professionals (Windham), which was one of the seven that had been selected in December 2016; and Performant Recovery, Inc. (Performant), which was not one of the seven. The other six contract awards were rescinded, and ED also issued a notice of recall for those in repayment accounts from four of the five companies that had received ATEs (the 5th is Windham, which did not have its accounts recalled).

This marked the end of round one of litigation under the consolidated case of Continental Service Group Inc. et al. v. The United States.

The second round of litigation officially began just about four weeks later, on February 9, 2018, when six firms filed suit; they would be followed by 11 more in the next week. This insideARM article published February 21, 2018 lists 17 the companies involved. Two additional firms — Williams & Fudge and Value Recovery Holdings — have since joined the case. The 19 cases are consolidated under FMS Investment Corp. (FMS) v. The United States and Performant Recovery, Inc. et al.

Now what…

In the first round of litigation over ED’s unrestricted PCA contract there was no administrative record. This means the court did not have access to the information the companies or ED had regarding the details of how contract award decisions had been made. This time, the judge required such a record. And it has been growing since round two of litigation began on February 9, 2018.

The parties requested that the details of the administrative record be protected, so while there has been a great deal of activity on the docket, little of it has been available for public review.

On March 6 we got our first glimpse into the record.

Judge Wheeler issued a preliminary injunction in favor of the plaintiffs and said,

“While a full administrative record has not yet been filed in this case, the Court has before it a set of core documents from ED that include, among other things, ED’s Past Performance, Technical Evaluation, and Small Business Evaluation Committees’ Consensus Reports, the Source Selection Decision Memorandum, and the Contracting Officer’s Responsibility Determination. After reviewing this documentation and considering Plaintiffs’ arguments both in their motions and in open court, the Court has serious questions over ED’s evaluation of proposals in this procurement. The evidence currently before the Court points to inconsistencies, omissions, unequal treatment of offerors, and cherry-picked data that the Court finds to be rather problematic. Based on these initial observations, the Court finds that Plaintiffs have demonstrated a likelihood of success on the merits in their bid protests.”

On March 19 ED submitted a notice to the court.

From that notice,

“It appears likely that a course of action other than continued litigation of the pending protests will be pursued. ED has not completed the analysis yet and has not made a final decision as to a course of action. All options remain on the table.”

The Government suggested a stay of proceedings to allow ED to finish its assessment.

On March 20 several plaintiffs responded to this notice.

From that response,

“…Now, on the eve of a hearing focused on the Government’s failure once again to produce documents explicitly referenced in the Source Selection Decision, the Government asks this Court to take some undefined action to delay the current proceedings for some undetermined period of time so the Agency can take some unspecified corrective action. While Plaintiffs have no desire to waste further time, resources, and money fighting over an issue that could become moot if the Agency intends to take prompt and meaningful corrective action, we have been down this road before.”

The plaintiffs requested the following commitments from ED in order to warrant a delay in proceedings:

• It will announce the specific terms of its proposed corrective action by a certain, specified date and those terms will be shared with the Court and the parties;
• A firm deadline will be agreed upon for the completion of the announced corrective action;
• The Agency will designate a responsible Department of Education official to be present at a near-term status hearing to ensure the corrective action stays on track and to ensure Agency accountability if it does not; and
• The current Preliminary Injunction will stay in place through the entirety of the corrective action and any subsequent protests.

On March 21 ED submitted a response to the court.

From that response,

“It is important to state that our intent with our March 19 notice was not to foster delay or to avoid anything in this litigation – indeed, as it stated, we are open to continuing with the litigation. However, once it became clear that this litigation was likely to end in the near future, the Court and the other parties deserved to know that fact. Plaintiffs complain that our confirmation that “[a]ll options remain on the table” is a sign that ED has not done any work on this issue. To the contrary, the fact that a full range of options is under consideration, which necessitates a review of the procurement, the solicitation, and the program, means that a great deal more work is required than if only a corrective action defined by elements of the complaints was under consideration.” (emphasis added)

Admitting to the frustration of an open-ended timeline, ED committed to updating the court again by April 11, at which time they would provide a firm date for when they would announce a final decision on how ED intends to proceed. ED offered to proceed with litigation in the interim, or to continue its voluntary stay of the current award decisions in the event the parties prefer a stay of litigation.

On March 23 the court held a status conference

As a result of this conference, the court ordered ED to file a notice by March 28 committing to a date when it will be able to produce the following to plaintiffs:

• Full evaluation records underlying the December 2016 award decision for all current protestors and awardees;
• All documents related to the 2015 Focused Review of all current protestors and the two awardees;
• All documents related to monthly call monitoring reviews for all ATE contractors since 2015;
• All documents (including non-privileged agency communications) related to the appearance of a conflict of interest between Secretary of Education Betsy Devos and Performant;
• All documents (including non-privileged agency communications) related to ED officials attempting to influence the award decision; and
• All documentation of communications between ED evaluators, “points of contact,” and “clients” identified in the past performance evaluation documents.

These documents will not be filed with the Court and will not be added to the Administrative Record (AR), but plaintiffs are free to utilize and attach any relevant documents to future briefs. All other requests to supplement the AR (which were not available to the public) were denied.

Finally, the court addressed a sub-plot to the case and granted a motion filed by Performant to disqualify Pillsbury Winthrop Shaw Pittman as counsel for Plaintiff ConServe.

insideARM Perspective

ED stated in its March 21 response that it is undergoing a review of the procurement, the solicitation, and the program. And the program? Like, the whole entire thing? It’s unclear. This word has caught many off guard.

If ED cancels the whole program, what would that mean?

One option is yet another “do-over.” There has been a lot of leadership change at Ed over the past year. A new team may decide to put its own stamp on the process, starting over rather than trying to fix the current mess.

Also, would the whole program include the small business contract? If not, how would these companies handle such significant volume? And, what would happen during the upcoming renewal of that contract — when it’s likely that most, if not all of the small contractors, will have become big contractors. Will they be ineligible? Will ED have created a system where their most experienced collectors can no longer service their accounts?

Another option is that federal student loan collections could move back under the purview of the Debt Collection Improvement Act of 1996, which requires any non-tax debt owed to the United States to be turned over to the Department of Treasury for appropriate action. The Department of Education had received an exemption to this Act; perhaps that would come to an end. We would then have a different conversation about how such a large portfolio would be transferred from ED to Treasury. Would Treasury have the capacity? Who would they outsource to? Likely it would be many of the same contractors that ED uses/has used, given that federal student loan collections requires specialized capabilities.

To be continued.

PHOENIX, Ariz. – Constar Financial Service’s Chief Compliance Officer, Joe Adams CCCO, CRCP, CIA, Executive Vice President, Hampton Pryor Group was recognized in the 2018 Who’s Who in Compliance by Collection Advisor magazine.

Commenting on this accolade, Travis Bowley, Empereon-Constar’s Chief Executive Officer, said, “We are excited that Joe’s industry leading compliance expertise has been recognized in this way. This honor is well deserved, and Empereon-Constar is extremely proud of Joe’s accomplishment.”

Nominated by industry leaders, Joe was one of over a dozen accounts receivable professionals who were honored for their efforts as compliance professionals to “not only strive to discern and adhere to regulation but educate professionals around them” as stated by Collection Advisor.

Joe Adams is a well-known and respected industry leader with over 30 years of experience in the credit and account receivables management industry. During this span, he has served as a “C” level or senior/executive operations leader for some of the leading banks, credit grantors, debt purchasers and collections agencies in the country, including CitiFinancial, CitiMortgage, Paymentech Merchant Services, First USA/Bank One, Collins Financial Services and Asset Management Outsourcing. Joe holds several professional designations and certifications and is an active ACA International Certified Instructor. He is also an active CFPB specialist with direct communication access, as needed.

“Being recognized for the work you do is a great feeling,” Joe said, and when asked by Collection Advisor to answer: “What is something first and third-party accounts receivable professionals should act on regarding compliance in 2018?” Joe responded: “Reviewing all aspects of their Compliance Management System to ensure that the proper controls are in place to guarantee its effectivity and success.”

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 / 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. For more information, please visit us online at www.empereon-constar.com or www.linkedin.com/company/22345663.

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

JACKSONVILLE, Fla. — Jack Brown III, the President of Gulf Coast Collection Bureau (GCCB) and ACA International, Inc.’s President-Elect has chosen Divinity Software Group as a partner to provide new cutting-edge technologies in automating daily processes and enhancing both the consumer and client experiences with every interaction. Brown states “While our core software is a great platform, there were elements lacking and Divinity Software Group provided excellent solutions. Our clients are providing positive feedback about the automation provided through the custom Client Portal. 

“In addition, our consumers are now able to choose the method of communication they prefer, whether by text, email or phone,” Brown adds “We now have fully automated communication channels. The  Consumer Portal designed by DSG has increased communications and traffic through the ease of use and the Payment Portal has increased online payments. We are extremely pleased with DSG’s solutions as they allow GCCB to utilize the very latest in technology to communicate with our clients and consumers. We at GCCB are well poised to move in any direction the future may demand.”

Long time industry executives Jim Eccleston and Ryan Mack launched Divinity Software Group with a focus on filling the voids and allowing users of any platform to take advantage of the latest technologies. Divinity Software Group has bridged the gaps and provides a multitude of application offerings. These include electronic document delivery and retrieval, a collaborative contract signing experience and texting and emailing to any smart device. It also includes automated pay portals with negotiator and client portals with automated tickler systems. Divinity Software Group will continue to provide what the industry needs and demands. We believe the control should be with the operators and owners, not the platform providers. Conversion is not the answer, control over your data is the solution!

Divinity Software Group is proud to partner with Jack Brown III and GCCB. Strategic partnerships moving our companies into the future utilizing technologies at every standpoint to automate, streamline, reduce costs and increase revenues is what it’s all about.

To learn more about Divinity Software Group and its offerings contact:

Ryder Thompson

Ryder.Thompson@DivinitySoftware.com

www.DivinitySoftware.com

Last week the Consumer Financial Protection Bureau (CFPB) issued a Request for Information (RFI) regarding Adopted Regulations and New Rulemaking Authorities. As it relates to the ARM industry, this is a fancy title for, “tell us what you think of the FDCPA.”

You can download the complete RFI here. The 90-day comment period is expected to close approximately June 19, 2018.

While the recent RFI regarding rulemaking processes specifically noted that the Bureau is not looking for suggestions regarding any specific rule, but instead is seeking input on the process itself, this RFI provides a different opportunity. In this case, the CFPB is looking for input on the substance of the regulations, including whether the Bureau should issue additional rules. (emphasis added)

According to the RFI, “Adopted Regulations include rulemakings adopted under Federal consumer financial law and issued by the Bureau since the designated transfer date in 2011, including rules that were adopted pursuant to specific instructions from Congress. The term also includes new rulemaking authorities given to the Bureau by the Dodd-Frank Act under the Federal consumer financial laws.”

The Bureau requests commenters provide specific suggestions regarding updates or modifications that should be made to Adopted Regulations – and also aspects of the Regulations that should not be modified.

The following specific questions are provided, but commenters are free to answer only some of them – or offer others.

1. Aspects of the Adopted Regulations that:

• Should be tailored to particular types of institutions or to institutions of a particular size;
• Create unintended consequences;
• Overlap or conflict with other laws or regulations in a way that makes it difficult or particularly burdensome for institutions to comply;
• Are incompatible or misaligned with new technologies, including by limiting providers’ ability to deliver, electronically, mandatory disclosures or other information that may be relevant to consumers; or
• Could be modified to provide consumers greater protection from the incidence and effects of identity theft.

2. Changes the Bureau could make to the Adopted Regulations, consistent with its statutory authority, to more effectively meet the statutory purposes and objectives set forth in the Federal consumer financial laws, as well as the Bureau’s specific goals for the particular Adopted Regulation.

3. Changes the Bureau could make to the Adopted Regulations, consistent with its statutory authority, that would advance the following statutory purposes and objectives as set forth in section 1021 of the Dodd-Frank Act:

• The statutory purposes set forth in section 1021(a) are: i. All consumers have access to markets for consumer financial products and services; and ii. Markets for consumer financial products and services are fair, transparent, and competitive.
• The statutory objectives set forth in section 1021(b) are: i. Consumers are provided with timely and understandable information to make responsible decisions about financial transactions; ii. Consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination; iii. Outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens; iv. Federal consumer financial law is enforced consistently in order to promote fair competition; and v. Markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

4. Pilots, field tests, demonstrations, or other activities that the Bureau could launch to better quantify benefits and costs of potential revisions to the Adopted Regulations, or to make compliance with the Adopted Regulations more efficient and effective.

5. Areas where the Bureau has not exercised the full extent of its rulemaking authority in connection with a specific Adopted Regulation or with regard to rulemaking authorities created by the Dodd-Frank Act under the Federal consumer financial laws, and where rulemaking would be beneficial and align with the purposes and objectives of the applicable Federal consumer financial laws.

Finally, the Bureau asks,

“From all of the suggestions, commenters are requested to offer their highest priorities, along with their explanation of how or why they have prioritized suggestions. Commenters are asked to single out their top priority. Suggestions should focus on revisions that the Bureau could implement consistent with its authorities and without Congressional action.”

On January 17, 2018 CFPB Acting Director Mick Mulvaney announced that he was issuing a “call for evidence” to ensure the Bureau is fulfilling its proper and appropriate functions to best protect consumers. Since then a series of requests has been released about activities including:

• Civil Investigative Demands (comment period closes April 26 — extended from March 27)
• Administrative Adjudication (comment period closes May 7 — extended from April 6)
• Enforcement (comment period closes May 14 — extended from April 13)
• Supervision (comment period closes May 21)
• External Engagements (comment period closes May 29)
• Consumer Complaint Portal (comment period closes June 4)
• Rulemaking Processes (comment period closes June 7)

Also expected soon are calls for evidence on these topics:

• Inherited Rules
• Guidance and Implementation Support
• Consumer Education
• Consumer Inquiries

insideARM Perspective

Unlike the Debt Collection rulemaking process to date, this is an opportunity for industry to be proactive in making its case for change. Previously, industry participants have been in reactive mode, responding to an extensive list of concepts, first in the Advance Notice of Proposed Rulemaking, and then in the Outline of Rule Proposals that was published in advance of the Small Business Regulatory Fairness Enforcement Act (SBREFA) hearing. In contexts like these, where commenters are responding to hundreds of questions, priorities can get lost in the shuffle.

Personally? I think one of the most problematic concepts for the industry is third party disclosure. Not that I believe collectors shouldn’t have to worry about third party disclosure, but the contortions required to comply with this very broad concept have left the industry back in the 20th century. Nearly every innovation or new technology that collectors seek to apply — in full use by other industries — gets knocked down because of what amounts to a threat of third party disclosure.  We need a fresh look at this concept, and at the responsibility of consumers to keep communications private.

As I’ve said before, there has to be a #BetterWay.

The Consumer Financial Protection Bureau (CFPB) announced yesterday that in September 2018 ten seats will become available on its Consumer Advisory Board (CAB), and it is now seeking applications for those positions. Here is what they are looking for:

Here’s what they are looking for:

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

How to apply:

• Review instructions on how to submit an application for membership
• Apply online (Applying online is highly encouraged)
• Learn more about the Advisory Groups
• Visit these Frequently Asked Questions for more information
• Only complete application packets received on or before April 23, 2018, will be given consideration for membership on the Board and Councils

insideARM Perspective

ARM industry professionals have been applying to get on this board since its inception. To date, only two individuals have been selected: Joann Needleman, former NARCA president and currently a partner with Clark Hill, served a three-year term which ended last August; Ohad Samet, the CEO of debt collection firm True Accord, began a three-year term last September.

While Needleman was a long-time ARM industry veteran and leader when appointed to the CAB, Samet was a relative newcomer to the industry. We wrote at the time,

For those who don’t recognize the name, Ohad Samet of One True Holding Company is the new member who was selected to represent the ARM industry on the Consumer Advisory Board. This is an interesting choice. Founded in 2013, his debt collection firm, TrueAccord, is based on a primarily digital collection model, which is currently considered to be unconventional for the industry. A newcomer to collections, TrueAccord is not hampered with legacy systems or processes, or evidently with clients who are too conservative to pursue the strategy. To get a sense of the firm’s philosophy, read this article by Ohad, which we also published today.

In the months since Samet’s appointment, the landscape has changed considerably. Former CFPB Director Richard Cordray — who proclaimed to be a big supporter of technology (i.e. he dubbed the CFPB a “21st century agency”), stepped down. Acting Director Mick Mulvaney has stepped in and is in the process of drastically re-shaping the Bureau’s mission. Mulvaney may or may not still be on board when the ten new CAB members are selected. It will be interesting to see 1) whether this will be the first board session with more than one industry representative, and 2) how much influence the CAB will have under the new leadership.

What is clear is that the momentum supporting the use of artificial intelligence, machine learning, and electronic communications with consumers (the foundation of the model employed by True Accord) is only gaining speed. In today’s world of robocall blocking and labeling, and out-of-control scams, a new regulatory approach is needed. The industry’s voice should be heard. 

The U.S. Call Center Worker and Consumer Protection Act, if passed, could bring change to the way representatives start their calls with consumers. H.R. 1300 was introduced in March 2017 by Rep. David McKinley (R-WVa), and now has 32 co-sponsors; 7 Republicans and 25 Democrats. The Bill was originally introduced in 2015, then re-introduced in 2016. H.R. 1300 represents the third try.

The Act would establish a list of companies that move call center work out of the country, requiring that businesses with at least 50 call center employees notify the Department of Labor at least 120 days before relocating outside of the United States. Those in violation would be subject to a civil penalty of up to $10,000 per day.

Employers remain on the list for up to three years after each relocation, and are not eligible for federal grants or federal guaranteed loans for five years after being added to the list. Government contracts would favor companies not on the list.

Customer service agents would have to disclose their physical location at the beginning of each communication unless all involved employees or agents involved with the communication are located in the United States.

The bill exempts any communication: (1) initiated by a consumer if the consumer knows or reasonably should know that the employee or agent is located outside the United States, or (2) related to the provision of emergency services. Upon request, businesses must transfer a customer to a customer service agent who is physically located in the United States.

The Federal Trade Commission (FTC) would have enforcement authority over the Act.

insideARM Perspective

While this bill is a long way from becoming law (it remains in committee), we’re covering it now because it has consistently gained co-sponsors, and therefore should be on the radar of any creditor or ARM firm that offshores – or is considering offshoring — first or third party customer care or collection work.

The opening of a third party collection call is already awkward, requiring authentication and disclosures. The requirement to disclose the representative’s location would further complicate this process.

This article originally appeared on the Consumer Financial Services Legal Update.  It is republished with permission from the author (Eric Troutman).

Well the big ruling is out. Last Friday the D.C. Circuit Court of Appeal handed down its long awaited ruling in ACA Int’l v. FCC, No. 15-1211, Doc. No. 1722606 (D.C. Cir. Mar. 16, 2018). The truth is, however, for every TCPA question the D.C. Circuit answered its ruling raises many more. Indeed, Judge Srinivasan’s opinion poses at least a dozen specific questions back to the Commission to consider on remand. Unfortunately, therefore, we are all a long way from having final answers on most issues. I guess that’s not really much of a surprise, however, since nothing is ever simple in TCPAland. That said, with Chairman Ajit Pai at the helm of the FCC, industry has very good cause to think that real TCPA change is on the horizon.

Background

Before we get into that, some quick background is in order for any reader who isn’t completely conversant with the history here. The Federal Communications Commission (“FCC” or “Commission”) is the government agency responsible for implementing (i.e. interpreting) the Telephone Consumer Protection Act (“TCPA”). The TCPA generally prevents calls to cell phones made using an automated telephone dialing system (“ATDS”) without the express consent of the “called party.” The FCC’s rulings regarding the meaning of vague phrases within the TCPA (like what’s an ATDS?) are binding on courts and private litigants alike. While this sort of arrangement works fine for 99.9% of federal statutes, the TCPA is incomparably vague, regulates a common activity—phone calls—and contains a massive $500.00 per violation minimum statutory penalty that can be privately enforced. This gives the FCC tremendous power to determine the lawfulness of phone calls and, indirectly, the contours of free speech in this country.

More pertinently, whenever the FCC interprets the TCPA in a manner that expands its reach, private lawsuits go through the roof. Prior to President Trump appointing Chairman Pai to lead the FCC—more on him in a moment— the TCPA went through a lengthy expansionary phase under the watchful eye of then-Chairman Tom Wheeler. While Chairman Wheeler seems like a fine fellow, his policies vastly expanded the reach of the TCPA to the point—as the D.C. Circuit points out in the ACA Int’l ruling—that every smartphone in the country became a federally-regulated autodialer. While the FCC’s stated goal in enacting these changes was to give itself the means to aggressively enforce the statute against true bad actors—almost exclusively unscrupulous telemarketers—it turned a blind eye to the explosion of private TCPA lawsuits its policies were enabling against good industry actors, most of whom were just trying to chat with their customers at phone numbers they had been lawfully provided.

The crown jewel of the FCC’s former “expand the TCPA so we can go after bad telemarketing guys and we’ll just hope that private litigants don’t abuse it” policy was the Commission’s 2015 TCPA Omnibus ruling. That ruling expanded the reach of the TCPA to regulate virtually any software-enabled dialing device, made the essential express consent defense as fragile as a bubble, and saddled callers with the risk of calling wrong numbers even when a number changed hands without their knowledge. A predictable and instantaneous explosion of private TCPA suits followed—over a quarter of which were class actions seeking capless statutory damage recoveries often ranging into the billions of dollars—prompting some to muse whether TCPA actually stood for “Total Cash for Plaintiff’s Attorneys.”

The 2015 TCPA Omnibus ruling was challenged by a team of Petitioners—lead by the good folks over at ACA International and joined by my friends at CBA—on a duly-authorized appeal to the D.C. Circuit Court of Appeals. Oral argument was held back in October 2016, and ever since then TCPAland has waited, with baited breath, for the D.C. Circuit’s definitive ruling on the lawfulness of the Omnibus.

Now what?

So now that the ACA Int’l ruling has been handed down, it falls to me to speak definitively as to its impact on the litigation landscape. Accordingly, here are the 10 things you need to know right now:

1. Chairman Pai is Going to Get His Chance to Make a Mark on the TCPA and I Can’t Wait to See What He Does With It. 
   Since Ajit Pai was elevated by the Trump administration from mere Commissioner to Intergalactic Overlord and Chairman of the FCC, he has set about unwinding most of the work performed by his predecessor, Chairman Wheeler, especially in the net neutrality space. There has been a deafening silence on TCPA-related issues from the Commission, however. Indeed, despite a current glut of petitions that now nearly rivals the count of petitions that had piled up ahead of the Omnibus ruling, the Commission has seemed steadfastly uninterested in unwinding the expansionist policies of the prior administration. Presumably, this was out of due respect for the pending petition before the D.C. Circuit, and a desire not to create havoc in the appellate court system by issuing serial rulings that would wind their way through independent appellate reviews before the same circuit court of appeals that had yet to speak on the Omnibus. Now that the D.C. Circuit has given its nod to the FCC to start over again on a number of key TCPA issues, however, you can bet that Chairman Pai—who once famously called the TCPA a “statutory-rifle shot” when remarking on how limited Congress had intended the statute to be—will take the ball and run with it. Indeed, as shown below, the ACA Int’l ruling is something of a lob pass to the Commission on several key TCPA issues, and we can expect Chairman Pai to finish that alley-oop with a two-handed slam dunk that will get industry onlookers up out of their seats and roaring their applause.

2. The D.C. Circuit Panel Thinks the Petitioners Missed a Major Issue Regarding the Scope of the TCPA—the Statute Might Only Apply to Calls Made Using a Dialer’s Automatic Capacity! 
   At oral argument back in October 2016, Chief Judge Edwards was heard to forcefully chastise Petitioners’ counsel for conceding that any call made using an ATDS was subject to the statute, even if the call itself was made manually. “Good heavens, that’s your strongest argument and you just conceded it away,” he remarked at the time. The statement was one of a number of remarkable exchanges between bench and bar that played out at the oral argument, and you can read more about the hearing here. It appears that Chief Judge Edwards swayed the panel into his way of thinking, as the ACA Int’l ruling repeatedly makes mention of the Petitioners’ failure to challenge whether calls made without leveraging a device’s “capacity” to operate as an autodialer—more on “capacity” next—are even subject to the TCPA to begin with. As the opinion notes, if not, then “[e]ven if the definition encompasses any device capable of gaining autodialer functionality through the downloading of software, the mere possibility of adding those features would not matter unless they were downloaded and used to make calls.” ACA Int’l at 30-31. The opinion directs the Commission to take this issue into account when reconsidering the petitions. (Notably, however, the Petitioners might have been conceding like a fox—it is precisely because the Court was made to assume that all calls made from an ATDS were subject to the TCPA that it was forced to strike down the TCPA’s interpretation as overly broad, as explained in the next section. Pretty clever, if that was Petitioners’ plan all along.)

3. The Quibble over “Present” Versus “Future” Capacity was a Complete Red Herring—What Mattered to the Court was the FCC’s Focus on Software-Enabled Dialing Devices. 
   For years now (literally), I’ve had to endure, and sometimes even unwillingly engage in, a more-than-academic debate over whether equipment has current or potential capacity to operate as an ATDS. As the D.C. Circuit points out, however, that entire semantic debate is hogwash: “[v]irtually any understanding of ‘capacity’ [] contemplates some future functioning state, along with some modifying act to bring that state about.” ACA Int’l at 13. But so what? The real issue is whether the FCC’s ruling faithfully tracks Congressional intent with respect to the reach of the statute. And while the D.C. Circuit Court was respectful of the FCC’s authority to delineate those limits, it could not abide by the Commission’s expansion of the statute “several fold” over what Congress intended. As the D.C. Circuit views matters, smartphones are absolutely within the reach of the Omnibus ruling. This is no surprise, as I wrote back in August 2016: “Now, any piece of dialer equipment is governed by the TCPA so long as it can be converted into an autodialer ‘through [future] software changes or updates.’ As demonstrated in the second paragraph of this article, this definition now plainly includes that piece of sophisticated dialing equipment sitting right in your pocket—your smartphone.” Although the D.C. Circuit did not credit me for the analysis, it reached the exact same conclusion and for the exact same reason. The ACA Int’l opinion explains: “[t]he [Omnibus] ruling states that equipment’s ‘functional capacity’ includes ‘features that can be added…through software changes or updates’…[so] ‘a piece of equipment can possess the requisite “capacity” to satisfy the statutory definition of an “autodialer” even if, for example, it requires the addition of software to actually perform the functions described in the definition.’” ACA In’tl at 14-15. It concludes that such a definition necessarily encompasses smartphone technology. And since smartphones are used by hundreds of millions of Americans, but the TCPA—based on the legislative history—was only designed to regulate “hundreds of thousands” of unlawful callers, the FCC’s expansion of the TCPA went far beyond what Congress intended in enacting the statute. On that basis, the FCC’s interpretation of “capacity” was struck down as unreasonable.

4. The FCC Ran But It Couldn’t Hide on Whether Smartphones Were Within the Scope of the Omnibus Ruling. 
   In its opinion, the D.C. Circuit noted that the FCC refused to concede that smartphones were within the reach of the Omnibus. Its lawyers repeatedly argued that the Omnibus never reached that specific issue, which was reserved for a future petition. The D.C. Circuit was unmoved, and determined that the Omnibus ruling’s failure to address the issue was in and of itself an arbitrary and capricious act. Specifically, in the D.C. Circuit’s view, if the Omnibus does not include smartphones, then the ruling fails to “articulate a comprehensible standard.” See ACA Int’l at 21-23.

5. The Court Directs the FCC to Clarify Whether the Use of a Random or Sequential Number Generator is a Necessary Feature of an ATDS—and the Fate of Predictive Dialers Hangs in the Balance. 
   And this is where things getvery interesting. In the D.C. Circuit’s view, the Omnibus does not answer the crucial question of what capacity is required to make a device an ATDS. Although the Omnibus affirms previous orders suggesting that predictive dialers are within the scope of the ATDS definition, the Omnibus also suggests that a dialer is only an ATDS if it has the capacity to generate random or sequential numbers. These two positions, the Court finds, are irreconcilable because the record plainly demonstrates that not all predictive dialers have the capacity to dial randomly or sequentially. Thus, the D.C. Circuit tees up a crucial issue: “A basic question raised by the statutory definition is whether a device must itself have the ability to generate random or sequential telephone numbers to be dialed. Or is it enough if the device can call from a database of telephone numbers generated elsewhere?” ACA Int’l at 25. But the D.C. Circuit refuses to answer the question for the Commission and instead does exactly the opposite, finding, “It might be permissible for the Commission to adopt either interpretation.” ACA Int’l at 27. Wow! So the D.C. Circuit just handed the keys to defining an ATDS—which sits at the very heart of the application of the TCPA—to Chairman Pai, who is already on record as stating, “In short, we should read the TCPA to mean what it says: Equipment that cannot store, produce, or dial a random or sequential telephone number does not qualify as an automatic telephone dialing system because it does not have the capacity to store, produce, or dial a random or sequential telephone number.” So maybe, just maybe, the final reversal of the TCPA’s application to predictive dialers—and other dialers that call based upon lists of numbers—is in the cards. Then again, the D.C. Circuit made quite clear that if the FCC wishes to depart from the statutory requirement that an ATDS must make use of a random or sequential number generator, then the D.C. Circuit is likely to bless that too! So an epic showdown is set up before the Commission.

6. What About Human Intervention? The Court Suggests that It Only Matters if the Commission Chooses to Depart from the Requirement of a Random or Sequential Number Generator. 
   In the D.C. Circuit’s view, the FCC’s after-the-fact pronouncement that an ATDS is something that dials without human intervention and can dial thousands of numbers at a time is just not very useful. As the opinion notes, the Commission has never clarified what human intervention is required, and what dialing thousands of numbers at a time really means. The Court also cannot square the Commission’s observation that a lack of human intervention is the hallmark of an ATDS with the Commission’s subsequent denial of a petition seeking clarification that an ATDS must operate without human intervention. The D.C. Circuit also does not understand what weight is to be given to these seemingly invented attributes of an ATDS, and how they correspond to the statutory requirements. On reconsideration of the issue, therefore, the FCC must—if it chooses to depart from the statutory requirement of using a random or sequential number generator—explain how and when a dialer operates without human intervention, and within just how much time must a dialer be able to dial all those thousands of numbers the Commission keeps mentioning. Again, however, these only seem to be questions that the Commission must answer if it wishes to depart from the statutory requirement of random or sequential number generator.

7. Reasonable Reliance Is Now the Touchstone of Express Consent—and This is a Very Big Deal. 
   Although the ATDS portions of the ruling are going to get top billing, the most important piece of the ruling, from my perspective, is the D.C. Circuit’s adoption of the FCC’s “reasonable reliance” approach to express consent. The ACA Int’l ruling repeatedly—nearly obsessively—references the FCC’s determination that callers must be able to reasonably rely on consent provided by former subscribers. Indeed, it was this loophole—intended by the FCC to justify nothing more than a one-attempt safe harbor—that the D.C. Circuit ultimately used to reverse that portion of the ruling as arbitrary and capricious. Specifically, the ACA Int’l ruling finds that it was arbitrary and capricious for the FCC—at least on the record before it—to conclude that one attempt was likely to afford a caller reasonable notice that a number had changed hands. As a result, the D.C. Circuit sets aside the one-call safe harbor and instructs the FCC to try again. More importantly to companies being sued in reassigned number suits, the D.C. Circuit has blessed the idea that a caller can reasonably rely on consent afforded by a previous subscriber, which leads to the next point…

8. The FCC’s Definition of “Called Party” Was Set Aside—and “Intended Recipient” is Still in Play! 
   It’s easy to get confused by the opinion with respect to whether the D.C. Circuit approves of the FCC’s definition of “called party.” Some may say that the D.C. Circuit affirmed the FCC’s determination that “called party” does not mean “intended recipient.” But that is just flat not true. What the ruling did was first determine that the FCC was not required to rule that the “called party” was the “intended recipient” on the record before it. But then, after determining that the FCC’s one-call safe harbor could not be squared with its determination that a caller is permitted to reasonably rely on consent provided by a former subscriber, it set aside the FCC’s “called party” determination because that would impose strict liability for reassigned calls, which is a result that the Commission specifically stated it did not want to embrace. The key language appears at pages 39-40 of the opinion: “If we were to excise the Commission’s one-call safe harbor alone, that would leave in place the Commission’s interpretation that ‘called party’ refers to the new subscriber…We cannot be certain that the agency would have adopted that rule in the first instance…[and] as a result, we must set aside the Commission’s treatment of reassigned numbers [including its definition of called party] as a whole.” So, on remand, the issues to be addressed are: (1) who is the called party?; and (2) if it is still the subscriber, then to what extent may a caller reasonably rely on the consent of the former “called party”? 

9. Consumers Can Revoke Their Consent by Any Reasonable Means—but Not “Creatively” and Not if Their Contract Says Otherwise! 
   While the revocation piece of the ACA Int’l ruling is big news, it is hardly surprising. Readers of this blog know that I have been saying for over a year now that contractual revocation clauses are enforceable. Sure enough, the D.C. Circuit affirms that “[n]othing in the Commission’s order [] should be understood to speak to parties’ ability to agree upon revocation procedures.” ACA Int’l at 43. More generally, the Court upholds the FCC’s determination that consumers can revoke consent using “reasonable” means. The D.C. Circuit articulates a totality-of-the-circumstances test. One factor to consider is “whether the caller could have implemented mechanisms to effectuate a requested revocation without incurring undue burdens.”Another is “whether the consumer had a reasonable expectation that he or she could effectively communicate his or her request…in that circumstance.” ACA Int’l at 41. One piece of the ruling that is sure to have industry buzzing is the suggestion that a call recipient’s decision not to take advantage of a reasonable revocation paradigm that is offered by the caller might be evidence that the revocation effort was not reasonable. In particular, the Court suggests that “creative” revocation efforts might not be permissible—a clear shot at the unfortunate tactic of some litigants who manufacture TCPA lawsuits by evading known opt-out mechanisms.

10. No Mention of the First Amendment or the Constitution Is Made in the Ruling.
    While others may not find this surprising, I am actually shocked by the panel’s silence on constitutional issues. The TCPA has been subjected to strict scrutiny on five separate occasions now—this means that the statute is unconstitutional unless it is narrowly tailored to further a compelling governmental interest. But given the panel’s finding that the FCC Order literally expanded the TCPA to apply to every smartphone in the country and, alternatively, that any other reading of the Omnibus would fail to “articulate a comprehensible standard,” I don’t see how the statute passes strict scrutiny muster. The TCPA—as applied by the FCC—is necessarily either unconstitutionally overbroad, or unconstitutionally vague for want of any discernable scope.

——————

Editor’s note: What do the powers that be think of the Circuit Court’s ruling? Read this other article published today on insideARM.

Now that the D.C. Circuit Court has issued its long-awaited decision in the case of ACA International, et al., v. Federal Communications Commission (FCC), all parties are looking to what’s next. The main point of the Telephone Consumer Protection Act (TCPA) was to curb unwanted and illegal robocalls. ACA and others argued that the FCC’s 2015 Declaratory Ruling and Order went too far, setting unrealistic hurdles, and likely preventing legal and wanted calls. 

It is clear that today’s FCC leadership holds a vastly different opinion about the TCPA and the 2015 Order than did the leadership under former Chairman Wheeler. FCC Commissioners released the following statements following last Friday’s decision. 

Chairman Ajit Pai

“Today’s unanimous D.C. Circuit decision addresses yet another example of the prior FCC’s disregard for the law and regulatory overreach.  As the court explains, the agency’s 2015 ruling placed every American consumer with a smartphone at substantial risk of violating federal law.  That’s why I dissented from the FCC’s misguided decision and am pleased that the D.C. Circuit too has rejected it. 

“Instead of sweeping into a regulatory dragnet the hundreds of millions of American consumers who place calls or send text messages from smartphones, the FCC should be targeting bad actors who bombard Americans with unlawful robocalls.  That’s why I’m pleased today’s ruling does not impact (and, in fact, acknowledges) the current FCC’s efforts to combat illegal robocalls and spoofing.  We will continue to pursue consumer-friendly policies on this issue, from reducing robocalls to reassigned numbers to call authentication to blocking illegal robocalls.  And we’ll maintain our strong approach to enforcement against spoofers and scammers, including the over $200 million in fines that we proposed last year.”

Commissioner Michael O’Rielly

“I am heartened by the court’s unanimous decision, which seems to reaffirm the wording of the statute and rule of law. This will not lead to more illegal robocalls but instead remove unnecessary and inappropriate liability concerns for legitimate companies trying to reach their customers who want to be called. In effect, it rejects the former Commission’s misguided interpretation of the law, inappropriate expansion of scope, and irrational view of reassigned numbers. While I disagree with the court’s decision on the revocation issue, I believe there is an opportunity here for further review in order to square it with the Second Circuit’s more appropriate approach.”

Commissioner Brendan Carr

“In the Telephone Consumer Protection Act (TCPA), Congress enacted provisions to help combat the unwanted robocalls that have become a far too common nuisance for far too many Americans. Unfortunately, the prior FCC exceeded the scope of the TCPA and reached a decision of “eye-popping sweep,” as today’s D.C. Circuit decision states. Rather than focusing our efforts on combatting illegal robocalls, the 2015 FCC decision opted to subject consumers and legitimate businesses to liability. Thankfully, the D.C. Circuit, in a unanimous decision, has now corrected that error. In the meantime, this FCC has elevated robocalls to our top enforcement priority, and we have already taken a number of important steps to combat those unlawful calls. Going forward, I welcome the chance to continue working with my colleagues and all stakeholders to ensure that our rules protect consumers and legitimate businesses while targeting unlawful scammers and robocallers.”

Commissioner Jessica Rosenworcel

“Robocalls are already out of control. One thing is clear in the wake of today’s court decision: robocalls will continue to increase unless the FCC does something about it. That means that the same agency that had the audacity to take away your net neutrality rights is now on the hook for protecting you from the invasion of annoying robocalls. It’s past time for the American public to get a serious response from the FCC—and a reprieve from the unrelenting nuisance these calls have become for so many of us.”

Commissioner Mignon Clyburn did not release an official statement.

Where do we go from here?

In this other article published on insideARM today, Eric Troutman notes,

“…for every TCPA question the D.C. Circuit answered its ruling raises many more. Indeed, Judge Srinivasan’s opinion poses at least a dozen specific questions back to the Commission to consider on remand. Unfortunately, therefore, we are all a long way from having final answers on most issues. [The good news is that with] Chairman Ajit Pai at the helm of the FCC, industry has very good cause to think that real TCPA change is on the horizon.”

Meanwhile, on a related/parallel path, on Friday the FCC and FTC will jointly host a Policy Forum on Fighting the Scourge of Illegal Robocalls. They released the agenda yesterday.

The Joint Policy Forum is open to the public and registration is not required, but seating is limited.  Attendees are advised to arrive at least 30 minutes prior to the event to allow time to go through security. 

The Joint Policy Forum will be webcast on the FCC webpage at www.fcc.gov/live.

TAMPA, Fla. — When people think of a collection agency, they don’t usually see a connection with ending child poverty. But by sponsoring a child through a Christ-centered, child-focused and church-based charity like Compassion International (https://www.compassion.com/), Preferred CMS’s owners believe they are just stewards of the resources God has entrusted them with, so they have a strong desire to make a difference in the lives of others.

Since October of 2015, The Preferred Group of Tampa, through its President and CEO, David Kelley, has partnered with Compassion International in sponsoring Abenzer, who is now 7 years old.

Abenzer lives in Ethiopia and his primary caregiver is his mother. He is in “Kinder 2” which is the US equivalent of Kindergarten and he loves learning about God, singing songs, playing games and soccer. He writes letters back to his friends at Preferred with the assistance of the church that looks after him and which provides support to him through Preferred’s monthly monetary commitment.

Preferred’s monthly gift allows the Compassion staff to provide Abenzer with educational assistance, nutritional supplements to protect against malnutrition, health care, recreational activities, and it allows them the opportunity to regularly share the love of Christ with Abenzer. But the program also has the ability for sponsors to give extra money for Christmas, birthday, and family gifts for their child, above and beyond their monthly commitment. Preferred’s employees wanted to provide for these extra giving opportunities for Abenzer and they also wanted to give extra money to support the administrative work of Compassion, so they created a “Casual Thursday for Abenzer” program where, for $3 a week, an employee can donate to the program and come to work dressed casually on that day. The program is working well with close to 100% participation most weeks. Due to the program’s success, the Preferred Group is now looking at sponsoring a second child through the program. The employees at Preferred hope other agencies, vendors, and businesses will be encouraged to sponsor a child through Compassion International and make a difference for a boy or girl in need.

About Compassion International

“Compassion International is the world’s leading authority on holistic child development through sponsorship. Compassion’s history began in 1952 out of one man’s determination to help 35 children orphaned by the Korean War. Reverend Everett Swanson flew to South Korea to minister to American troops fighting in the war but grew increasingly troubled by the sight of hundreds of war orphans trying to survive alone on the frigid sidewalks of Seoul, where many died of starvation, exposure and disease. Swanson vowed to find a way to help the children. He raised enough money to support a Korean orphanage and established an organization that gave American sponsors the opportunity to help by paying a small monthly fee to cover the orphans food, shelter, health care and Bible-based education. Today, Compassion is a global ministry that serves more than 1.8 million babies, children and young adults by partnering with more than 6,700 churches in 25 countries to help break the cycle of poverty.

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Compassion’s three Cs distinguish it from other child sponsorship organizations. Christ Centered. Child Focused. Church Based.

Christ Centered: Children and families served through Compassion do not have to be Christians, but they are offered a clear presentation of the gospel. As they experience God’s love in the physical world, many receive Christ and grow into healthy, educated, confident believers, ready to serve God and others in need.

Child Focused: Compassion believes extreme global poverty can be eradicated in our lifetime and is committed to helping whittle it away by serving the most vulnerable citizens — impoverished children. When children living in poverty are nurtured and equipped to overcome their circumstances, they are empowered to pursue their dreams, driving change into their families, communities and nations.

Church Based: Compassion builds a direct route to the children who need help most by partnering with indigenous evangelical churches located on the front lines of poverty. All Compassion programs are delivered through these community churches because they are uniquely qualified to understand the real needs of their areas and serve as a safe haven to children and their families. Everything from food and medical care to curriculum and counseling is orchestrated by volunteer church workers.

The Practice of Law Technical Clarification Act of 2018 (formerly of 2017) is back on the agenda of the House Committee on Financial Services. This had been on the list to be addressed in January, but had been postponed. It appeared again today on the schedule for this week.

The law is proposed as an amendment to the Fair Debt Collection Practices Act (FDCPA) to exclude law firms and licensed attorneys who are engaged in activities related to legal proceedings from the definition of a debt collector, to amend the Consumer Financial Protection Act of 2010 to prevent the Bureau of Consumer Financial Protection (CFPB) from exercising supervisory or enforcement authority with respect to attorneys when undertaking certain actions related to legal proceedings, and for other purposes. 

Late last year insideARM published an article addressing this topic, titled Why states should have primary oversight of attorneys’ activities in debt-collection litigation, by Thomas Pahl and Matthew Wilshire. Pahl is the Acting Director of the Bureau of Consumer Protection at the Federal Trade Commission, and Mathew J. Wilshire is a Senior Attorney in the Division of Financial Practices at the FTC.

This Act was originally proposed on April 20, 2017 as H.R. 1849 by Rep. Dave Trott (R-MI). Later it became known as H.R. 4550. It is now H.R. 5082 and was introduced on February 23, 2018 by Rep. Alex Mooney (R-WVa) and Rep. Vicente Gonzalez (D-TX). The name of the Act has not changed, but two additional definitions have been added that were not in the 4550 version:

“(F) any law firm or licensed attorney, to the extent that –

“(III) any other activities engaged in as part of the practice of law, under the laws of a State in which the attorney is licensed, that relate to the legal action; and

“(ii) such legal action is served on the defendant debtor, or service is attempted, in accordance with the applicable statute or rules of civil procedure;”

insideARM will report on any developments, should the Bill actually be discussed (it is listed near the end of a fairly long list). 

insideARM Perspective

This legislation would have real impact.

In September 2017 we noted that the CFPB (under then Director Richard Cordray) had been especially aggressive in taking action against collection law firms. This started with their 18-month investigation of Frederick J. Hanna & Associates P.C., which began in 2014 and ended with a consent order. The Bureau subsequently filed a consent order against Pressler & Pressler LLP (2016), and filed suit against Weltman, Weinberg & Reis Co, L.P.A. (WWR) in April 2017. 

A mediation conference was conducted in the WWR matter on March 8, 2018 by United States Magistrate Judge William H. Baughman, Jr. The Order outlining the expectations for that conference can be downloaded here.

insideARM just learned that the case is going to trial next month. We will follow it and keep you posted.