Archives for May 2018

ARLINGTON, Va. — Convoke, a leader in SaaS solutions for the debt collection market, today announced the most recent software update to its debt collections compliance and management hub.  Each year, Convoke develops and releases several updates to its platform to support its clients’ evolving needs.  This latest major release includes the introduction of Convoke’s consumer complaints management feature, and the expansion of its auto repossession functionality.

Complaints Management 

Convoke’s complaints management system allows credit issuers to track and manage consumer complaints with their registered vendors.  Unique features of the complaints management system include:

• The ability for credit issuers and third party collectors to create, track, and report on complaints throughout the entire lifecycle of debt collection activities, allowing collaboration among all involved parties until final resolution. 
• The new concept of teams, allowing the complaints team to work with other departments within the issuer, such as legal, vendor managers, and risk, while resolving complaints.
• A complete audit trail and robust reporting to assist in tracking the details of the complaints.

Auto Repossession 

Enhancements have been made to Convoke’s auto repossession functionality, expanding the communications channel between an issuer and its Repossession Network, along with the addition of other value-added features developed in partnership with Convoke’s customers.  With this latest release, Convoke offers a state-of-the-art recovery management system in the auto repossession market.

About Convoke 

Convoke is a leader in SaaS solutions for the debt collection market. It enables credit issuers to comply with regulatory and internal requirements and manage and monitor debt collection activities for all third-parties. Convoke’s online platform is a central, validated and persistent hub that records, organizes and stores information and activities, facilitates, tracks and automates interaction with third parties, and provides powerful auditing, management and reporting tools. Convoke is headquartered in Arlington, VA. For more information on Convoke, please visit www.convokesystems.com.

This article first appeared (yesterday) on TCPAland and is republished here with permission. You will want to read it in conjunction with this other TCPA-related article by Eric Troutman, also fresh from the courts this week.

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As we reported yesterday, a court in the Southern District of Florida just held that the FCC’s 2003 and 2008 predictive dialer rulings survived their brush with the D.C. Circuit Court of Appeal and remain binding law, even if the 2015 TCPA Omnibus ruling was set aside as inconsistent with those earlier rulings. See Reyes v. Bca Fin. Servs., Case No. 16-24077-CIV-GOODMAN, 2018 U.S. Dist. LEXIS 80690 (May 14, 2018 S.D. Fl.)(“Bad Reyes“).

A couple thousand miles away in Arizona, however, another Court was issuing a diametrically opposing ruling at roughly the exact same time. In Herrick v. GoDaddy.com LLC, Case No. CV-16-00254-PHX-DJH, Doc. No. 107 (D. Az. May 14, 2018) Judge Humetewa found that ACA Int’l absolutely did away with the FCC’s earlier predictive dialer pronouncements. It went on to reject reliance on those Orders (characterizing them as “defunct”) or any subsequent district court rulings applying them:

“these courts were bound and guided by the now-defunct FCC interpretations regarding this function. As such, the Court is also not persuaded to follow these holdings, particularly because the FCC interpretations relied upon by these courts were driven by policy considerations and not the plain language of the statute”

To make matters even cleaner, the Court explained why any reading of the TCPA that included predictive dialers was just flat misguided:

Broadening the definition of an ATDS to include any equipment that merely stores or produces telephone numbers in a database would improperly render the limiting phrase “using a random or sequential number generator” superfluous.

How great is that?

In light of the well-reasoned analysis of Herrick, Bad Reyes seems to have staked out a losing position. Nonetheless, the fact that two district courts could reach completely contrary conclusions on the exact same issue within minutes of each other is, well, kind of embarrassing. Obviously the FCC needs to step in and clean this up–and just yesterday it began the process of doing so.

Hopefully the Courts will now stand down, issue primary jurisdiction stays and the let the Commission do its work. Otherwise we will be facing more conflicting district court rulings and uncertainty will continue to reign supreme in TCPAland.

This article first appeared (on Tuesday) on TCPAland and is republished here with permission. You will want to read it in conjunction with this other TCPA-related article by Eric Troutman, also fresh from the courts this week.

As soon as ACA Int’l was handed down, the debate began. Are predictive dialers still covered by the TCPA following ACA Int’l’s reversal of the FCC’s ATDS formulation or is the statute’s narrow definition now the law of the land?

The debate was sparked by the D.C. Circuit Court of Appeal’s express refusal to limit its review of the FCC’s ATDS craftsmanship to the 2015 TCPA Omnibus Ruling. Although the FCC had urged that Judge Srinivasan and co. lacked jurisdiction to evaluate the Commission’s earlier rulings regarding predictive dialers the D.C. Circuit disagreed, holding that “[w]hile the Commission’s latest ruling purports to reaffirm the prior orders, that does not shield the agency’s pertinent pronouncements from review.”  While that sounds pretty clear, after teeing up the issue the Court stopped short of expressly invalidating the earlier FCC orders while simultaneously stressing the inconsistency between the prior predictive dialer rulings and the FCC’s 2015 TCPA Omnibus ruling with respect to the functionalities of an ATDS. As you can tell, this ruling was more fun to unpackage than a new iPhone.

That inconsistency exists between the predictive dialer rulings and the Omnibus suggests that the FCC itself may have invalidated the 2003 and 2008 predictive dialer rulings long before ACA Int’l came along. But the Omnibus also expressly affirmed the FCC’s earlier predictive dialer rulings, creating an impossible universe-ending paradox that the D.C. Circuit Court of Appeal saved us from by invalidating the Omnibus just in time, while leaving just enough confusion regarding the 2003 and 2008 predictive dialer rulings in order to assure a sequel.

As if there weren’t already enough angels dancing on the head of that pin, we now have two district court rulings addressing the issue and coming out in opposing directions. First came Marshall v. CBE Grp., Inc., No. 216CV02406GMNNJK, 2018 WL 1567852, at *4-8 (D. Nev. Mar. 30, 2018), a neatly worded opinion that found ACA Int’l set aside the FCC’s earlier predictive dialer rulings. Marshall’s reasoning seemed straight forward and dead on. You can’t apply FCC rulings that are contradicted by other FCC rulings leading to the reversal of those FCC rulings by the D.C. Circuit Court of Appeal.

But in TCPAland, the Empire always strikes back. Within weeks of the Marshall decision House Democrats quickly brought a discussion draft bill to expressly change the definition of ATDS to include dialers that call from a list of numbers. Long before that bill could work its way through Congress, however, the other shoe had to drop in the judiciary–and now it has.

Just today – a day that will already live in TCPA infamy — a court in the Southern District of Florida has held that the FCC’s 2003 and 2008 predictive dialer rulings do, in fact, survive ACA Int’l, and remain good law. See Reyes v. Bca Fin. Servs., Case No. 16-24077-CIV-GOODMAN, 2018 U.S. Dist. LEXIS 80690 (May 14, 2018 S.D. Fl.)(“Bad Reyes“). Bad Reyes –for verily we already have a “good Reyes” in TCPAland – holds that the 2003 and 2008 FCC rulings survive ACA Int’l because the D.C. Circuit Court of Appeal never expressly said that they didn’t. But while that point is “fair enough,” one wonders whether the D.C. Circuit Court of Appeals was really to be excepted to spell out something so seemingly obvious as earlier FCC orders contradicted by later FCC orders are not to be applied as binding authority.

Who’s to say? In TCPAland there is never an easy answer. For every Marshall there must be a Bad Reyes to oppose it. And so now there is.

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

A decision out of a district court in California continues the trend of holding appropriate interest rate disclosures to be within the bounds of the FDCPA and other consumer protection acts.  In Pavlovich vs. Account Discovery Systems, LLC, the U.S. District Court for the Southern District of California found no violation of the FDCPA, the California Rosenthal Act or the California FDBPA for an interest charge disclosure attached within the agency’s initial correspondence.

A copy of the opinion is available at:  Link to Opinion.

The plaintiff brought a putative class action suit alleging violations of the FDCPA and the Rosenthal Act against both a debt purchaser and the agency hired to attempt debt collection and asserted a third claim against the debt purchaser only for the alleged violation of the California FDBPA.  The alleged offending language included the following disclosure:

“If applicable” INTEREST CHARGES & SETTLEMENTS — At our discretion, a statement or correspondence may include post charge off interest and/or offer a settlement amount less than the legal now due balance.

The plaintiff alleged the interest/settlement disclosure violated the law because it was unclear and false, misleading, deceptive and confusing, could be reasonably read to have two or more different meanings, and thus violated 15 U.S.C. Sections g(a), e, e(2)(A) and 1692 e(10).

The debt collector moved for summary judgment arguing that the validation notice clearly provided the plaintiff with the amount of the debt as of the date of the validation notice and did not contain any language to lead the least sophisticated consumer otherwise.

The Court agreed with the plaintiff that the amount contained in the validation notice must not confuse the least sophisticated consumer. Clark vs. Capital Credit & Collection Serv., Inc, 460 F.3d 1162, 1171 (9^th Cir. 2006).  In focusing on the phrase “may include post charge off interest,” the Court considered the plain meaning of the words but also looked at the context surrounding those words.  In overruling the plaintiff’s interpretation of the alleged offending disclosure, the Court found that to accept the plaintiff’s interpretation would mean reading other parts of the disclosure as unintelligible.

In reaching its decision, the Court reasoned that the plaintiff who owes a consumer debt and receives a validation notice with an exact amount owed is faced with three options: (1) this could be the exact amount owed since the notice so states; (2) the actual balance could be higher due to post charge off interest; (3) the balance could be lower due to a potential settlement.

In any event, the Court found the disclosure language appropriate as the debt collector never alluded to the potential of additional interest being charged.  The Court also found persuasive the fact that the letter never stated that the balance might change in the future or that the consumer should call to get the actual balance due.  Finally, in finding no ambiguity in the letter, the Court focused on the phrase “if applicable” and stated that the obvious intent was to make the disclosure note qualified.

There have been a few developments worth noting in the robocall regulatory and enforcement arena recently. First, the Federal Communications Commission (FCC) announced last week a massive $120M fine against Adrian Abramovich, a so-called “kingpin” of illegal calls. Second, two states have advanced or proposed their own robocall bills, which affect legal as well as illegal calls.

FCC Fines Kingpin $120M

In March the FCC and the Federal Trade Commission (FTC) held a joint Policy Forum, which is where the FTC said they’ve learned there are kingpins who seem to lord over the bulk of the illegal robocall schemes, and they tend to be located in the United States. Denise Beamer, Senior Assistant Attorney General for the Florida Office of the Attorney General, said “[The kingpins] are known, they are sophisticated, and they are connectors…Going after them really is a deterrent.” She was evidently referring to the building action against Abramovich.

FCC Chairman Ajit Pai released a scathing statement about Abramovich. He said Abramovich did not dispute any of the key facts in the case, but asserted that he had no intent to defraud or cause harm to consumers. Pai commented,

“[I]f [he had no intent to defraud], why did he include fraudulent caller ID information with each and every one of his 96 million robocalls? Friendly visitors don’t wear disguises to mask who they are. And why did the recorded messages indicate that the calls came from well-known travel or hospitality companies such as Marriott, Expedia, Hilton, and TripAdvisor, even though they were attempting to sell vacation packages at destinations unrelated to those named companies?

…Mr. Abramovich also claims that the consumers who received these robocalls were only harmed if the calls lasted for at least five minutes. So he says he should only be penalized for calls that long or longer. With all due respect, this is a ridiculous argument. I haven’t met a single American who likes getting these kinds of robocalls, regardless of length. And in any case, our rules against caller-ID spoofing certainly don’t permit spoofed robocalls so long as they string you along for 4:59 or less.”

Also of note is the statement of FCC Commissioner Michael O’Rielly, who approved in part and dissented in part to the Abramovich Order. He agreed that there was intent to defraud, but said:

“Where I part ways is the claim that he also intended to cause harm to various individuals or businesses. From what I can tell, his intent was to make a buck. More succinctly, he wanted to make as many bucks as possible. I don’t see in the item or have any evidence that he spent time thinking about what might happen to consumers or companies so long as enough calls went through to make his fraudulent venture profitable. I’m even more skeptical that he intended to harm consumers whose numbers were spoofed. He used local numbers to increase answer rates, not to damage the reputation of people associated with those numbers or the underlying businesses subject to fraud. And, I do not subscribe to the notion that “[h]arm has been done whether or not the consumer listens to the robocall message.”

This whole theory is off the mark and completely unnecessary for our purposes, as the Commission can and should proceed on the intent to defraud basis alone to impose the full monetary penalty on Mr. Abramovich. In short, I believe the Commission should impose the penalty on Mr. Abramovich, but we do not need to rely on a circumstantial intent to harm theory to get to that result.” (emphasis added)

States take action

In Massachusetts, the House has given initial approval to a bill filed by a state representative that would ban all robocalls to mobile phones or other electronic devices. The bill defines a robocall as any “automated phone call that uses both a computerized auto-dialer and a computer-delivered pre-recorded message.” Exceptions are made for school and government alerts, and certain calls from healthcare providers. Proposed penalties are steep, at a minimum of $10,000 for each knowing violation and $1,500 for violations involving consumers who are 65 or older. (emphasis added)

In New York, a state senator says he has drafted a bill that would require all callers to get consumer consent before making any non-emergency autodialed call, whether to a cell phone or a landline. The bill would also require that consumers have the right to revoke their consent by “any reasonable means.“ (emphasis added)

insideARM Perspective

If you’ve been following the discussion about efforts to curb illegal and unwanted automated calls to mobile phones, you will not be surprised to read the many unfolding initiatives in this arena. The problem is exasperatingly difficult. Illegal callers – by definition – will not follow any laws, existing or new. This has led to technology-based attempts to fix the problem, which ultimately will require cooperation among hundreds of companies and stakeholders.

Managing other calls, which are legal but may be unwanted, is also a challenge, because stopping these calls can bring unintended consequences. When referring to these unwanted consequences, most point to school or healthcare examples, because, well, who wouldn’t agree with those? But there are other valid examples, such as legitimate debt collection calls. If consumers don’t receive a telemarketing call, the consequence is that they don’t buy whatever was being sold. In the case of debt collection, if they don’t receive or answer a call, the consumer may end up with a negative mark on their credit report, a lawsuit from a creditor, garnished wages, or other negative result. Debts can’t be resolved without communication.

The Massachusetts and New York bills don’t say a debt collector can’t call a consumer; they do propose that companies wouldn’t be able to use an automated dialer to do so. In addition to providing speed and efficiency, autodialers automate compliance. With so many differing (and some conflicting) state and federal regulations surrounding debt collection, it would be impossible for thousands of debt collectors to reliably adhere to all rules on a manual basis.

These are definitely activities to watch.

Yesterday the U.S. Court of Appeals for the Second Circuit denied a petition by plaintiffs Christine Taylor and Christina Klein for a rehearing, or a rehearing en banc (by the full court), in their case against Financial Recovery Services, Inc. (FRS).

In a decision released March 29, 2018, the 2^nd Circuit upheld the district court’s opinion in Taylor v. FRS. In Taylor, the district court found that not including an interest disclosure was not a violation of the FDCPA. The 2^nd Circuit agreed with the district court, finding that the concerns addressed in Avila were not present in the Taylor case.

The court referenced that in Avila, the consumer could be misled into thinking that he paid the account in full by paying the balance listed on the letter when this was not in fact so because interest would have accrued on the balance between the date of the letter and the date the payment is processed. The 2^nd Circuit found that this was not a concern in Taylor because had the consumer paid the balance on FRS’s letter, then the account would have indeed been paid in full. In its decision, the court said,

“It is hard to see how or where the FDCPA imposes a duty on debt collectors to encourage consumers to delay repayment of their debts. And requiring debt collectors to draw attention to the fact that a previously dynamic debt is now static might even create a perverse incentive for them to continue accruing interest or fees on debts when they might not otherwise do so. Construing the FDCPA in light of its consumer protection purpose, we hold that a collection notice that fails to disclose that interest and fees are not currently accruing on a debt is not misleading within the meaning of Section 1692e.”

insideARM Perspective

John Rossman, Attorney with Moss & Barnett (the law firm that prevailed in the Taylor case), commented on this recent development:

“Too often debt collectors are sued for making clear statements in communications that comply with existing law.  This case, coupled with other recent cases focusing on the materiality of purported FDCPA violations, evidence that courts can and will reject theoretical and hypothetical claimed violations of the FDCPA.  Any debt collector named as a Defendant in an FDCPA lawsuit should carefully examine the facts and law of the claims to determine if a common sense defense such as this can be maintained.”

insideARM has previously written about other cases involving the FRS and the statement regarding tax consequences. See the article on the Remington case here and the Everett case here. Click here to listen to a podcast on the topic from Moss & Barnett. 

 

Yesterday the Federal Communications Commission (FCC) published a Notice seeking comment on how it might re-interpret the Telephone Consumer Protection Act (TCPA) in light of the recent D.C. Circuit Court Decision in ACA International v. FCC.

In March, the court reversed several key provisions in the FCC’s 2015 TCPA expansion, including the FCC’s autodialer definition as well as the regulator’s approach to the treatment of consent and reassigned phone numbers. The industry had been waiting for the outcome of the case since it was filed by ACA International within days of the 2015 Declaratory Ruling and Order.  

The March 2018 decision leaves the FCC back at square one, with industry once again calling for clarification of the law, but hoping that this time the definition will be different.

The Public Notice issued yesterday asks the following questions:

1. What constitutes an “automatic telephone dialing system” (ATDS)?
2. How should calls to reassigned wireless numbers be treated?
3. How may a called party revoke prior express consent to receive robocalls?

The Notice also requests input on the following related open matters:

1. Two pending petitions take opposite positions regarding the FCC’s interpretation of “person” in the Broadnet Declaratory Ruling. One asks the FCC to clarify that federal government contractors are “persons” under the TCPA. The other asks the FCC to clarify that contractors acting on behalf of the federal government are not “persons” under the TCPA.
2. A pending petition for reconsideration of the 2016 Federal Debt Collection Rules which asks: If a federal contractor is not a “person” for purposes of the TCPA (as per the Broadnet decision), would the 2016 Federal Debt Collection Rules apply to a federal contractor collecting a federal debt? The petition argues that the Rules are not supported by the text of the statute and are contrary to Congress’s intent, and that the FCC’s 2016 interpretation of its rulemaking authority is impermissibly broad.

Read the full Public Notice here.

Interested parties may file comments by June 13, 2018, and replies to comments by June 28, 2018.

insideARM Perspective

2018 will certainly go down as the year the ARM industry gets its chance to have a say – in front of a friendly ear. Former FCC Chairman Thomas Wheeler was the primary architect of the rules. He has since been replaced as Chairman by former Commissioner Ajit Pai, who had been an outspoken critic of policies enacted under Wheeler.

Pai’s dissent in the July 10, 2015 TCPA Omnibus Declaratory Ruling and Order provides some insight into his thinking regarding the TCPA and its application to legitimate business communications with consumers:

“The TCPA’s private right of action and $500 statutory penalty could incentivize plaintiffs to go after the illegal telemarketers, the over-the-phone scam artists, and the foreign fraudsters. But trial lawyers have found legitimate, domestic businesses a much more profitable target. As Adonis Hoffman, former Chief of Staff to Commissioner Clyburn, recently wrote in The Wall Street Journal, a trial lawyer can collect about $2.4 million per suit by targeting American companies.

So it’s no surprise the TCPA has become the poster child for lawsuit abuse, with the number of TCPA cases filed each year skyrocketing from 14 in 2008 to 1,908 in the first nine months of 2014.

Some lawyers go to ridiculous lengths to generate new TCPA business. They have asked family members, friends, and significant others to download calling, voicemail, and texting apps in order to sue the companies behind each app. Others have bought cheap, prepaid wireless phones so they can sue any business that calls them by accident. One man in California even hired staff to log every wrong-number call he received, issue demand letters to purported violators, and negotiate settlements. Only after he was the lead plaintiff in over 600 lawsuits did the courts finally agree that he was a ‘vexatious litigant.’ 

The common thread here is that in practice the TCPA has strayed far from its original purpose. And the FCC has the power to fix that. We could be taking aggressive enforcement action against those who violate the federal Do-Not-Call rules. We could be establishing a safe harbor so that carriers could block spoofed calls from overseas without fear of liability. And we could be shutting down the abusive lawsuits by closing the legal loopholes that trial lawyers have exploited to target legitimate communications between businesses and consumers.

Instead, the Order takes the opposite tack. Rather than focus on the illegal telemarketing calls that consumers really care about, the Order twists the law’s words even further to target useful communications between legitimate businesses and their customers.561 This Order will make abuse of the TCPA much, much easier. And the primary beneficiaries will be trial lawyers, not the American public.” 

Now that the court has opened the door to reconsideration of the Ruling, we may get to see Pai’s influence on the re-interpretation.

The Bureau of Consumer Financial Protection (BCFP, or CFPB) has issued its spring rulemaking update. Once again, debt collection remains on the docket, but is pushed down the road. A process that began with an Advanced Notice of Proposed Rulemaking (ANPR) in 2013, is now scheduled to produce a Notice of Proposed Rulemaking (NPR) in March 2019. And that’s still not the end of it.

As the latest notice reads,

“The Bureau has been engaged in research and pre-rulemaking activities regarding debt-collection practices. Debt collection continues to be a top source of complaints to the Bureau. The Bureau has also received encouragement from industry to engage in rulemaking to resolve conflicts in case law and address issues of concern under the Fair Debt Collection Practices Act (FDCPA), such as the application of the FDCPA to modern communication technologies under the 40-year-old statute. The Bureau released an outline of proposals under consideration in July 2016, concerning practices by companies that are debt collectors under the FDCPA, in advance of convening a panel in August 2016, under the Small Business Regulatory Enforcement Fairness Act in conjunction with the Office of Management and Budget and the Small Business Administration’s Chief Counsel for Advocacy to consult with representatives of small businesses that might be affected by the rulemaking. The Bureau is preparing a proposed rule focused on FDCPA collectors that may address such issues as communication practices and consumer disclosures.”

insideARM Perspective

This lengthy timeline is a reflection of many factors. One, under former CFPB Director Cordray, all rules passed through his office. This created the true definition of a bottleneck, and — although he never missed an opportunity to say how many debt collection complaints his agency received — other matters were higher priorities. Two, I got the impression that debt collection issues turned out to be a lot more complex than the team originally expected. This required a lot of learning, and ultimately, a disentangling of creditor rules from third party rules. Three, the departure of former Director Cordray and the arrival of the current Acting Director Mick Mulvaney have changed the Bureau’s approach to… well, everything. 

The fact that a NPR has now been officially pushed from 2018 to 2019 may reflect the fact that things are again being revisited. This could be a positive development for the ARM industry, which has been pushing hard for guidelines around the use of modern communication channels, and clarity related to disclosures. Sources had told insideARM last fall that the Bureau was very close to releasing an NPR when Director Cordray suddenly resigned in November. That NPR was likely not going to fully address industry concerns. When Acting Director Mulvaney took over, everything was on the table for review, and debt collection rulemaking again hit at least a side burner, if not one in the back.

One way or the other, it now seems likely that debt collection rulemaking will see a third Director before moving to its next official stage — release of a Notice of Proposed Rulemaking. Reports have indicated that President Trump is likely to wait as long as possible to nominate a permanent Director in order to allow Mulvaney to remain in place. This means a nomination on or just before June 22, the last day the law would allow Mulvaney to stay in his temporary job. This date can be extended if Congress is considering a nomination. 

According to numerous reports, President Trump is expected to name J. Mark McWatters, the current chairman of the National Credit Union Administration. The Washington Post reported on Friday that McWatters runs NCUA, which is based in Washington, D.C., from his home in Dallas, Texas, and that he is only present in the office a few days per month.  

Many already complain that Acting Director Mulvaney is only on the job at the Bureau three days per week, because he has another full time job — as Director of the White House Office of Management and Budget. It’s unclear whether a full-time-but-remote tradeoff would be better. What’s also unclear is whether McWatters — or whoever ultimately becomes the permanent director — will keep Mulvaney’s new operating philosophy and infrastructure in place. If not, I suspect that could push off a debt collection NPR even further.

 

 

The judge in the case of FMS v. USA (Department of Education or ED) set a deadline of last Friday for all parties to notify the court whether they intended to oppose ED’s motion to dismiss the case. ED is seeking to end the litigation in light of its cancellation of the contested solicitation for unrestricted private debt collection contractors. Unfortunately for ED, the matter isn’t going away just yet.

Here is the scorecard as of the Friday deadline:

• Thirteen parties said they intend to oppose the motion to dismiss the case: Account Control Technology, CBE Group, Continental Service Group, FMS, GC Services, Transworld Systems, Performant Corp., Progressive Financial Services, Windham Professionals, Texas Guaranteed Student Loan Corp., Value Recovery Holding, Williams & Fudge, and Central Credit Services.
• Two parties notified the court that they will not oppose the motion: EOS USA and Automated Collection Services.
• Five parties said they would not oppose the motion but want to remain involved as an interested party as long as there are proceedings in the case: Alltran, Pioneer Credit Recovery, Coast Professional, Immediate Credit Recovery, and Allied Interstate.

To encourage a quick resolution to the motion to dismiss, the court ordered all parties to file their responses to ED’s motion on or before this Friday, May 18; the Government is then ordered to file its reply by Wednesday May 23. Based on this Judge Wheelers past actions, we can expect a fast turnaround.

Background

For those who need the incredibly short recap…This all started in 2014 when the five-year 2009 contract ended, and new large-firm awards were delayed. Eventually, contracts were awarded in 2016 to seven large companies, down from 17 on the previous contract. This led to dozens of protests by firms that believed the process was flawed and unfair. So began Chapter Two of the matter, with a “re-do” of the solicitation, which resulted in awards to just two large companies. This led to more protests, and finally… nothing. No large company awards at all, as ED cancelled the whole solicitation on May 3, 2018, rescinded the contract awards from the two companies, and filed a motion to dismiss the litigation. And so began Chapter Three, with 13 parties opposing that motion.

For those who want to review all of the details, click here for the full coverage of the Department of Education collection contract on insideARM.

Another internal memo from Acting CFPB (or BCFP) Director Mick Mulvaney has leaked to… well, it seems, everyone… announced more changes coming to the Bureau. Here are the highlights he announced yesterday:

The Office of Students and Young Consumers will be “folded” into Office of Consumer Education and Engagement (also known as the Office of Financial Education)

Consumer advocates and Democrats are livid. A statement in American Banker says the office will “Essentially [be] working on pamphlets and web content about student loans.”

Sen. Sherod Brown commented,

“Mick Mulvaney has defaulted on his obligation to help the thousands of Americans who are struggling with unfair student loans. The President should quickly nominate a Director with bipartisan support and a track record of strong consumer advocacy.”

Christopher Peterson, financial services director at Consumer Federation of America, said:

“Shuttering the CFPB’s student lending office is an appalling step in a longer march toward the elimination of meaningful American consumer protection law. This actively promotes greater profits for a handful of debt collection businesses at the expense of mistakes, neglect and confusion for millions of student loan borrowers.”

Allied Progress said,

“To date, the CFPB has received at least 53,000 complaints about student loans from consumers around the country. Student loan borrowers deserve a champion at the CFPB – Mick Mulvaney is nothing but an industry stooge who will do whatever it takes to support Education Secretary Betsy DeVos…”

About this change, CFPB spokesman John Czwartacki said,

“This is a very modest organizational chart change to keep the Bureau in line with the statute but the office is still operating within the same division. The work of the office continues, personnel are all on the job and working on the same material as they were before. The bottom line is there is no functional or even practical change.”

But NPR reports that some staffers, who spoke on condition of anonymity, don’t think this is true.

A new Office on Costs and Benefits Analysis will be established, reporting to the Director.

This may not come as a surprise, given Mulvaney’s extensive set of Requests for Information (RFI). Many view this initiative as evidence-gathering to support changes in the bureau’s operations.

Lisa Donner, executive director of Americans for Financial Reform said about the development,

“Why is Mick Mulvaney creating a new office on ‘costs and benefits’ directly under his control, when the CFPB already has a robust research department?” 

The Office of Fair-Lending and Equal Opportunity will merge with Office of Equal Opportunity and Fairness, which handles internal employee issues, and report to the Director.

This move was announced earlier in the year but has not yet taken place. A report by the Brookings Institute said,

“It may not be immediately apparent, but the Acting Director of the Consumer Financial Protection Bureau Mick Mulvaney’s decision to re-brand the Office of Fair Lending and Equal Opportunity (OFLEO) will significantly reduce the Bureau’s ability to police discriminatory lending. Converting the Office of Fair Lending to one of internal policy advocacy will in effect dismantle it, creating a significant step backward for those whose goal is eliminating racial discrimination in lending.”

Ben Olson, a partner at Buckley Sandler and former CFPB official, told American Banker,

“[Yesterday’s memo] suggests that it hasn’t happened yet; the union has objected. The practical reality is that, regardless of where the office sits, it cannot take any significant action without the acting director’s approval.”

A management layer of political appointees is in the process of being established.

insideARM has reported on a number of new appointments, but to date these are not reflected on the CFPB organization chart. Mulvaney’s memo suggests that will soon be updated, and “…will also highlight that the [policy associate directors] are my representatives in each division.” 

An Office of Innovation has been created (this was previously Project Catalyst).

Project Catalyst has received criticism for not actually accomplishing anything. In its 5~ish years of existence, the office issued just one no-action letter. Ben Olson also told American Banker he thinks there will be more action from this Office now, including “providing more advisory guidance on e-commerce or new types of financial services products that don’t fit within the lines drawn by regulations that were written before those products exist.”

insideARM Perspective

The last major leaked Mulvaney memo was from January 2018. In that one, he suggested that debt collection rules may be coming. So far that has not materialized, but he has hired Tom Pahl, who spent three years on debt collection rulemaking, then left to return to the Federal Trade Commission. Pahl returned to the Bureau last month as a political appointee, with a lot more authority than he had previously. Bureau staff has also considerably ramped up its engagement with debt collection stakeholders.

Mulvaney also said in January that the Bureau would be reviewing everything they do, which has come to pass in the form of 12 formal Requests for Information.

The Office of Innovation could be interesting for the ARM industry, which has been especially affected by regulations that were written before much of today’s communications technology existed. I’m going to watch this.

Finally, the confluence of developments at the CFPB and the Department of Education are indeed interesting, especially if they have been coordinated. ED has annouced plans to launch an incredibly ambitious systems project to build a centralized database for student loan servicing and collections. which is really only just getting underway. A lot of their strategy is riding on this — which is fine, but it seems so likely that a project of this scope can’t possibly launch, successfully, on the aggressive timeline expected. Meanwhile, this system is already part of a plan to better manage loans prior to default. And, meanwhile, ED has cancelled a solicitation for large contractors to handle collection work for defaulted accounts. Instead, they will rely on small contractors — who will now be in the position of outsourcing to, and managing the work of, large businesses, which requires a significant number of staff and experience. 

But I digress.