Archives for July 2018

Despite Jay Edelson’s pronouncement last week that there is no new ground to till in TCPAland, a court issued yet another first-in-the-nation ruling and it could have a big impact on users of so-called “direct drop” voicemail providers.

Setting the stage here – the Telephone Consumer Protection Act (“TCPA”) prevents calls to cellular telephone numbers made without the express consent of the called party where such calls are made using automated technology. Although the act uses the word “call” it does not mention voicemails. Accordingly some industrious vendors have invented technology allowing companies to directly deposit a voicemail message intended for a customer or telemarketing target directly with a third-party voicemail provider so as to avoid the whole TCPA “consent” hurdle altogether.

This was always a dangerous prospect. The TCPA has been consistently interpreted broadly by courts to include, inter alia, text messages and e-mails sent to wireless carrier portals that are converted to SMS messages for delivery to a handset. That a court might also consider a voicemail left with a wireless carrier’s third-party voicemail provider–that results in a message alert being sent to a customer’s handset and the ensuing need for the customer to retrieve the voicemail–always seemed rather obvious. Nonetheless these “direct drop” providers have gained momentum (and customers) and claim to have left millions of voicemails without incident (i.e. lawsuits).

Well all of that changed on Monday. In Karen Saunders v. Dyck O’Neal, Inc. Case No. 1:17-cv-335, 2018 WL 3453967 (W.D. Mich. July 16, 2018) the Defendant–a user of VoApp’s popular DirectDrop voicemail product–moved for summary judgment arguing that the TCPA does not cover voicemails. It did not go well.

At the outset of its analysis the Court, correctly, notes that “this is a case of first impression.” But it very quickly embraced the warmth and comfort of settled law– “Courts have consistently held that voicemail messages are subject to the same TCPA restrictions as traditional calls.” Saunders at p. *3. The rest of the opinion writes itself.

Unfortunately for VoApp, the Saunders court includes itself in the “must-expand-TCPA-to-protect-consumers camp.” It writes:

“As a remedial statute, the Court construes the TCPA broadly in favor of Saunders. The statute itself casts a broad net—it regulates any call, and a “call” includes communication, or an attempt to communicate, via telephone. Both the FCC and the courts have recognized that the scope of the TCPA naturally evolves in parallel with telecommunications technology as it evolves, e.g., with the advent of text messages and email-to-text messages or, as we have here, new technology to get into a consumer’s voicemail box directly. The TCPA was enacted in 1991; the equivalent act at that time could be considered a party recording a message directly on an answering machine’s cassette tape without ever calling the number—an infeasible technological feat absent physical access to a consumer’s answering machine.”

Saunders at *3

So as technology advances, the TCPA must get bigger in the Saunders court’s view. While that viewpoint is debatable, Saunders is very much not alone in that camp and callers that leverage emerging technologies promising to provide customer contact outside of TCPA controls really should take notice. This is especially true where the result of the contact is the same as the receipt of a phone call. As Saunders explains it:

The effect on Saunders is the same whether her phone rang with a call before the voicemail is left, or whether the voicemail is left directly in her voicemail box, i.e., Saunders receives a notification on her phone that she has a new voicemail. The effect on Saunders is also the same in receiving a text message—which would fall under the TCPA—each time, she received a notification on her phone that she had a new message, and had to take steps to review or delete the message. In fact, voicemails are arguably more of a nuisance to consumers than text messages

Saunders at *4.

It should really come as no surprise, then, that courts are willing to look at the practical effect of such technology on a consumer. While some courts will–properly–read the statute according to its plain language, we’ve already seen an expansionist bend to TCPA-related case law. From that perspective, Saunders is just another brick in the wall. But for users and makers of direct-dropped voicemail services, Saunders is the TCPA reckoning they’d been hoping to avoid.

Notably, “direct drop” voicemail products of this kind were recently the subject of a petition submitted by a company called All About the Message, LLC to the FCC last year. The petition met with deafening silence from industry and intense opposition from consumer advocacy groups. It was unceremoniously withdrawn within a few months and the FCC never ruled upon it.

For now, at least, we all have an answer to the question left pending when the AATM petition was withdrawn. But this is TCPAland, so I’m sure we’ll have a contrary district court result in just a few short weeks.

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Editor’s note: This article is provided through a partnership between insideARM and Womble Bond Dickinson. WBD powers our TCPA case law chart and provides a steady stream of their timely, insightful and entertaining take on this ever-evolving, never-a-dull-moment topic. WBD – and all insideARM articles – are protected by copyright. All rights are reserved.

Kathy Kraninger, President Trump’s nominee to take over as Director of the Bureau of Consumer Financial Protection (BCFP), shared a confirmation hearing yesterday with Export Import Bank nominee Kimberly Reed – but Kraninger received a whole lot more airtime.

During the nearly three-hour hearing, Democrats were head-scratchingly frustrated by Kraninger’s refusal to answer direct questions. They were determined to link Kraninger to the Trump Administration’s extremely unpopular immigrant child-separation policy and the less than stellar response to the Puerto Rico hurricane disaster – proving that she does not have the character or empathy needed to run an agency charged with protecting consumers. Senator after senator tried to nail down answers on her personal positions but she just wouldn’t budge.

Sen. Elizabeth Warren (D-MA) concluded her time by characterizing the policy of separation of children from their parents as “a moral stain that will follow you for the rest of your life.”

Sen. Catherine Cortez-Masto (D-NV) said “I’ve heard you say your intent is that the Bureau is transparent and accountable. But we can’t get you to be transparent and accountable about your work at the OMB.”

Sen. Chris Van Hollen (D-MD) said, “You’ll be heading up an independent agency; not a line position responsible just for implementing. So I think your personal positions are relevant.” He then asked, “What is your personal view on the family separation policy?” As she did many times during the hearing, Kraninger dodged the question.

Sen. Heidi Ketkamp (D-ND) posed a series of “yes” or “no” questions about Kraninger’s related experience: Do you have experience working at a bank? Regulating banks? Supervising payday lenders, debt collectors, or other similar business? Worked on financial literacy, or volunteered in this area? Have a PhD or masters in economics or finance? Taken consumer protection classes in law school?

The response to most of the questions was “no… like many other nominees…” (she was cut off each time). She did say she worked on some financial literacy-related curriculum through some volunteer work in college. And she did say that law school taught her about the Administrative Procedures Act, privacy law and cybersecurity law – all of which are relevant to the job as head of the BCFP.

Sen. Jack Reed (D-RI) asked whether she would support lowering the top rate for small dollar loans from 36%. Kraninger responded that she supports competition in the market and rates that justify the risks. It wasn’t exactly the response he was looking for.

One personal position Kraninger did articulate was her belief that discrimination is abhorrent, and that she would make fair lending a priority. She also offered that she would consider with an open mind whether to re-instate the Office of Student Lending, and what to do with the currently under review payday, vehicle title and high-cost installment loan rule.

Sen. Jon Tester (D-MT) as others, shaking his head at frustration over not getting straight answers said, “You’ve probably got the votes to get confirmed. You’re going to lead this agency. Your opinions will matter. You have the ability to answer the questions. Just answer them.” Concluding with, “I liked your statement that you submitted. All of the principles were good. Your answers did not reflect those principles.”

You can read her opening statement here, in which she outlined four priorities:

1. The Bureau should be fair and transparent, make robust use of cost benefit analysis, and make effective use of notice and comment rulemaking.
2. The Bureau should work closely with other financial regulators and the States on supervision and enforcement, and take aggressive action against bad actors.
3. The Bureau must protect sensitive information in its possession, and limit data collection to what is needed.
4. The Bureau must be accountable for its actions.

Republicans asked easier questions. But actually, they didn’t get a whole lot of specific insight either into what her philosophy would be as the leader of the BCFP.

Sen. Pat Toomey (R-PA) referred to the Bureau’s former practice of imposing policies that had effect of being a rule — using powers of enforcement and guidance — rather than the Administrative Procedures Act to establish rules (he offered the case of indirect auto lending, which was “so egregious” and was repealed by the Senate). He asked whether she would commit to using the APA. She said absolutely yes. That was probably the most direct response given by the nominee.

Sen. Thom Tillis (R-NC) opened by giving her an opportunity to provide a further response to Sen. Toomey. She said what would be helpful is continued competition in the small dollar lending space. “It’s a difficult position to be in because it’s on the regulatory docket and it’s important not to prejudge the issue.” He then said he hoped she would claw back new regulations that may have appeared on the surface to protect consumers but in reality are harmful in terms of cost or consumers’ access to capital.

Following the hearing I had a conversation with Daniel Press, policy analyst at the Competitive Enterprise Institute. In advance of the hearing, Press articulated these five questions he hoped the nominee would answer. We were in agreement on our takeaway: We didn’t know a whole lot about Kathy Kraninger before the hearing; we still don’t know a whole lot about Kathy Kraninger, except that she seems to favor the free market.

If approved by the Senate Banking Committee, Kraninger’s nomination will move to the full Senate for a vote.

The plaintiffs trying to get the Department of Education (ED) to reconsider its cancellation of the solicitation for unrestricted private collection agencies were dealt another blow today. As we reported on Monday, ED notified the Court of Federal Claims that it would commence the recall of accounts from five collection agencies that have been operating under 2015 award term extensions (ATEs). This recall had been announced previously, then put on hold without explanation — although the hold closely followed a letter from a Senate committee directing ED not to go through with the recall. 

Buoyed in part by the Senators’ statement, the five companies filed a Motion for an emergency temporary restraining order (TRO) to prevent the recall. Briefings were filed. A hearing took place today. The upshot? Judge Wheeler, ever efficient in moving this matter along, denied the Motion.

Why? Well, here’s the gist of the court’s argument: Unfortunately, you guys have a difficult client. They shouldn’t have put you through this. But that’s part of the business, and I’m not going to micromanage ED’s procurement process. Sorry.

So, what’s next?

Also in court today, Judge Wheeler granted several motions to supplement the administrative record in the case.

And, I suspect those five companies will be receiving a notice of recall again, if they haven’t already. ED has said it plans to redistribute those defaulted accounts to the two more recent ATE holders and small business contractors (several of whom are likely no longer technically small).

Meanwhile, in spite of the failed TRO argument, the larger case continues. Remember, in FMS v. The United States the plaintiffs are protesting ED’s cancellation of its Solicitation for unrestricted PCA services. ED’s justification for this was that they changed their strategy and no longer need the services of the large collectors. Read here for more background on that. 

Unfortunately it becomes tougher to make the case for readiness once you’ve lost the accounts, are no longer actively working the contract, and have possibly laid people off. You’d have to re-hire, re-train, re-certify, etc. This is a lengthy process.

In support of the emergency TRO, the plaintiffs argued, in part, that stripping the ATE PCAs of their non in-repayment accounts now will “mortally wound each and every PCA.”

I guess we will now see whether that proves to be accurate. I suspect that if any of them are able to hang on, either the small business contractors — or further down the road, the pre-default servicers, may come looking for sub-contractors.

Massachusetts attorneys should be aware of two new rules which impose new burdens on them and their creditor clients in seeking default judgments for credit card debt. The rules, which go into effect on January 19, 2019, apply only to consumer revolving credit agreements not secured by real property. They do not cover personal loans (unless they are revolving loans), auto loans and other retail installment loans, medical debt, overdrawn accounts or bad check cases.

For reference, see Mass. R. Civ. P. Rule 8.1, “Special Requirements For Certain Consumer Debts” and Mass. R. Civ. P. Rule 55.1 “Special Requirements For Defaults And Default Judgments For Certain Consumer Debts.” Per Rule 8.1(a).

Massachusetts has already enacted laws regulating debt collectors, and also has an unfair debt collection statute. The state’s debt collection regulations apply to both third-and first party collections. Rules 8.1 and 55.1 bring Massachusetts’ suite of debt collection regulations into line with many others by regulating the entry of default judgments on credit cards. (See, e.g. North Carolina Code 58-70-150 et seq.: California Civil Code 1788.50 et seq.; New York 23 NYCRR 1, and New York Civil Rules Section 208.14-a.)

The new requirements

Rules 8.1(c)-(e) require affidavits attesting to:

• the identity of the original creditor,
• the amount and date of the defendant’s last payment, the date of charge off,
• post-charge-off interest and fees (if any),
• a chronological listing of the names of all prior owners of the debt and the date of each transfer of ownership of the debt, beginning with the original creditor,
• and each bill of sale, assignment, or other document evidencing the transfer of ownership of the debt, beginning with the original creditor.

Documentation must include a specific reference to the defendant or the defendant’s account number. Rule 8.1(f) requires a ‘certification’ as to the choice of law provision (if any) applicable to the debt, the statute establishing the limitations period, and a statement that the applicable limitations period has not expired.

In order to obtain a default, Rule 55.1(b)(1) requires the creditor’s counsel (or the creditor, if pro se) to file an affidavit stating that counsel has personally reviewed the documentation served and filed under Rule 8.1, the documentation meets the requirements of Rule 8.1, and the Rule 8.1 documentation entitles the creditor to a default judgment.

Under Rule 55.1(c), no default judgment may enter unless the clerk finds the plaintiffs complied with Rule 8.1 and 55.1(b)(1). Rule 55.1(d) requires the plaintiff to serve the defendant with the request for entry of default along with a certificate of service, and the plaintiff must re-verify the defendant’s address pursuant to Rule 8.1(e) if need be.

Needless to say, the above requirements are a substantial expansion of Rule 8(a)’s “…short and plain statement of the claim…” for credit card cases and impose substantial new burdens on credit card plaintiffs and their counsel, especially those seeking payment for obligations they did not originate. Additional work may also be required of clerks and courts in default cases that previously required little effort, which could delay the entry of default judgments.

However, while the clerk will now be required to make a determination of compliance with Rule 8.1, the rule allows that  “… the clerk is not required to review the various items that must be filed with the complaint under Rule 8.1, but may rely upon the Rule 55(b)(1) affidavit.” Similarly, Rule 55.1(c), which deals with entry of default judgments, permits the clerk “…the option to rely on the plaintiff’s Rule 55.1(b)(1) affidavit in the determination whether there has been compliance with Rule 8.1….”and “…relieves the clerk or court from independently having to review the filings required by Rule 8.1(c)-(f).”

Presumably, allowing courts and clerks the option of reviewing the new affidavits in detail allows for a streamlined process of entry of default judgment in credit card cases. Nevertheless, variations among district courts and judges, some taking the option to review the various affidavits carefully, others relying on counsel’s Rule 55.1(b)(1) affidavit, may lead to inconsistent outcomes for plaintiffs.

If the plaintiff has not complied with the requirements, the clerk notifies the parties that the court will dismiss the complaint within 30 days unless the plaintiff shows cause why the complaint should not be dismissed. The defendant is entitled to notice of any hearing. The court or clerk is not required to specify the defect warranting dismissal.

Assuming counsel can wrest from the clerk the particular defect warranting dismissal, this mechanism for correcting defective affidavits may not, in practice, be more efficient than dismissing the complaint and refiling with corrected affidavits. Otherwise, upon receipt of a Rule 55.1(b)(2) notice of dismissal, counsel would have to weigh the time necessary to determine the defect, obtain from the client any corrective materials, prepare the appropriate papers for correcting the defect, and appear in court to argue in what is essentially an uncontested case. Dismissal and refiling might likely be more efficient.

If counsel is unable to informally obtain from the clerk why the case must be dismissed, she must schedule a show cause hearing and attempt to “…persuade a judge that there is cause justifying non-compliance …provided that cause for non-compliance is consistent with the purposes of the rule.” There is no provision in the new rules for amended or corrective affidavits.

While default judgments are always subject to later attack under Rules 55(c) and 60(b), the volume of information required by the new Rule 8.1 affidavits would seem to present a much larger target for aggrieved judgment debtors seeking to vacate default judgments. The new requirements are extensive and detailed, and there is no provision allowing that affidavits may substantially, rather than strictly, comply. A defective affidavit might furnish a credit card debtor with a meritorious defense under Rule 55(c) and it is possible that any defect might satisfy the catchall Rule 60(6), “… any other reason justifying relief from the operation of the judgment.”

Massachusetts 940 CMR 7.00; the elephant in the room

The real elephant in the room for creditors’ counsel is the liability provisions in both the Massachusetts Attorney General’s Fair Debt Collection Regulations, 940 CMR 7.00, and the federal Fair Debt Collection practices Act (FDCPA). Under 940 CMR 7.07(2), “…any knowingly false or misleading representation in any communication as to the character, extent or amount of the debt, or as to its status in any legal proceeding…” is an unfair and deceptive act, and the Massachusetts regulations apply not just to debt collectors but to all counsel and creditors. And of course, debt collector counsel can be held strictly liable to the debtor under the FDCPA.  These regulations were always an issue for creditors’ counsel but since the new rules require a much greater volume of information, and specifically require counsel, under Rule 55.1(b)(1), to certify the accuracy of that information, the possibility for liability is much greater.

Clearly, all affirmations in all affidavits required by these rules should be carefully considered by the creditor and counsel.

Both Experian, a credit reporting agency, and ConServe, a collection agency with a focus on student loan debt, were granted summary judgments against a plaintiff, Christopher Abernathy. Abernathy attempted to sue both agencies for violations of the FDCPA and FCRA; both agencies were able to show that there were no violations.

The case made it to court as Christopher Abernathy v. Continental Service Group and Experian Information Solutions.

A timeline might be helpful to make sense of how this fell apart for Abernathy.

Some Point in the Past Abernathy enrolls in the College of Southern Nevada. He uses student loan(s?) to pay. He defaults on at least one of them.

Some Point in the Past But After He Enrolls in College and Defaults Abernathy’s student loan is turned over to ConServ for collections.

July 2016 Abernathy hires Credit Research of Nevada to get his credit back on track. CRN, as is generally the practice with credit repair organizations, flooded Experian with letters disputing, essentially, every debt on Abernathy’s credit report.

12 August 2016 CRN sends Experian a letter disputing all the negative accounts on Abernathy’s credit report. This would include the student loan debt.

26 August 2016 Abernathy pays the loan back to CSN, in full.

Some Time After 26 August Experian sends an ACDV to ConServ. ConServ sends a request to CSN (the college — there are a lot of C acronyms and I am sorry) to validate that Abernathy owes CSN the debt. They send proof back to ConServe, who uses that reply with Experian. Experian marks that item as “paid, closed” as of September 2016.

14 September 2016 CRN tries Round 2 of the Flood ‘Em With Letters trick, disputing all the items on Abernathy’s credit report, again. They also ask that the CSN debt that is now “paid, closed,” also be removed. Experian re-sent Abernathy’s credit report to him, showing that that item was listed as “paid, closed.” They do not remove the account.

[This cycle here at the end — CRN disputes everything / Experian says, “ConServe, fix this” / ConServe fixes, proving the debt was and always has been valid, just now it’s also “paid, closed” / Experian won’t remove the item — is lather-rinsed-repeated three times.]

 

Abernathy finally decides to sue.

Per the case file:

Abernathy brings two claims. The first is for negligently and willfully violating the FCRA. The second is for violating the DTPA. Experian moves for summary judgment on both claims.

Abernathy alleges Experian violated sections 1681e(b) and 1681i(a) of the FCRA by failing to maintain reasonable procedures to ensure accuracy in its credit reports and failing to conduct a sufficient reinvestigation of the ConServe account

Ultimately, however, the court found for both Experian and ConServe. Here’s why:

1) Abernathy did not suffer any material damage from having the item on his credit report. Abernathy was not purchasing a home, or applying for a job.

2) The information on the credit report that was incorrect was corrected.

3) Valid debts, even if paid in full, cannot be removed from a consumer’s credit report.

insideARM Perspective

Responding to credit reporting issues can easily be at least one employee’s full-time job. And the FCRA isn’t always as clear as it could be. What is heartening in a case like this is how the FCRA and both companies’ policies and procedures made this decision easy. False information was never purposefully put on a consumer’s credit report. Paid items were marked as paid. Each time the consumer disputed, it was investigated, with supporting documentation. The claim ends up looking like the disgruntled last grasp of someone frustrated that an item won’t be removed from his credit report.

I never thought I’d say “fake news.” But it is interesting the way flames get fanned these days.

As I wrote a couple weeks back, the NCLC has submitted a comment to the FCC arguing that legitimate American businesses are behind the majority of robocalls plaguing this nation. I noted at the time that this narrative seemed inconsistent with the data and the experiences of ordinary Americans.

Nonetheless, NCLC has been discussing these matters with media outlets who are running stories adopting the position that legitimate American businesses account for the majority of robocalls. Indeed, in one recent article–published by the Washington Post and picked up by gizmodo over the weekend–NCLC’s preferred “robocall” aggregator YouMail was cited along with the following quote from the NCLC:

If the industry is permitted to send unlimited texts and make unlimited [robo-calls], without the ability of the consumer to say stop, who knows what horrible things will happen?

Seems a tad alarmist.

While the article correctly notes that the definition of robocalls is far from clear, it nonetheless notes that “robocalls” are at their highest ever and attributes the majority of those calls to legitimate American business:

About three-quarters of those calls were telemarketing calls, alerts from companies such as pharmacies with which consumers have a relationship and payment reminders from numbers associated with Capital One, Comcast, Wells Fargo and AT&T, the data shows.

How a call blocking app became the gatekeeper to defining and identifying robocalls is a story someone needs to run. We’re going to see if we can get the YouMail CEO on our podcast. More to come, I’m sure.

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UPDATE:

Yesterday we ran a brief piece explaining that the Washington Post had picked up YouMail’s robocall index data and cited to it as proof that American businesses are behind the majority of robocalls in this country. In that piece we questioned whether WaPo’s decision to rely on YouMail’s characterization of what constitutes a “robocall” might be  “fake news” in light of the context shed by NCLC’s TCPA comment to the FCC (most notably, that 29% of those “robocalls” are account alerts that don’t seem to bother anybody.)

Although we did not question the accuracy of YouMail’s data–merely the conclusions being drawn from it by the NCLC and the media– in a new development, YouMail’s CEO sought to comment on that story, agreeing to appear on the Womble Bond Dickinson Ramble podcast, and vigorously defending its data:

We at YouMail are happy to come on your podcast and discuss our data. That said, it’s very unfair to imply our data “fake news” when no one from your firm has bothered to understand our methodology, dig into our estimates (where we put a ton of data online where anyone can see it), or to really understand how the data shows that not every American sees same behavior when it comes to robocalls.   We’ve answered many billions of phone calls now, we’ve applied our voicemail/audio fingerprinting technology to identify the topic/source of calls, and we’ve leveraged significant consumer participation to help us make sure we’re classifying calls correctly. Is it perfect? Nope. But it’s good enough that we stand behind our conclusions, and would bet that our sample is really close to what’s actually happening out in the world – and are happy to back that up.

Again, we never said YouMail’s data was “fake news”– but we continue to wonder aloud whether its data is being misused by those seeking to pin the “robocall” problem in this country on legitimate American businesses sending, inter alia, account alerts to their consenting customers.

We look forward to booking Mr. Quilici as a guest on the Womble Bond Dickinson Ramble–should happen in early or mid-August assuming calendars align– to clarify these issues and in an honest effort to learn more about YouMail’s methodology, its estimates, and any available data it has compiled respecting the experience of Americans with robocalls. I can think of no better use for TCPAland.com than to provide a platform for fully exploring such issues in the hope of defining the terms of this important debate–what is a “robocall” anyway? (Someone’s got to do this, might as well be us.)

Most importantly, however, we will seek to understand how YouMail’s data aligns with the definitions contained within the TCPA, and the commentary made by the NCLC in its comment to the FCC in reliance on YouMail’s data. As always, we continue to extend an open invite to the NCLC to join us to discuss these issues as well.

More to come. Stay tuned.

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Editor’s note: This article is provided through a partnership between insideARM and Womble Bond Dickinson. WBD powers our TCPA case law chart and provides a steady stream of their timely, insightful and entertaining take on this ever-evolving, never-a-dull-moment topic. WBD – and all insideARM articles – are protected by copyright. All rights are reserved.

insideARM editor’s note: On May 7, 2018 a jury in the case of CFPB v. Weltman, Weinberg & Reis (WWR) reached a mixed verdict, but that the judge decided to issue his own decision. As insideARM reported, in April 2017 the CFPB filed suit against WWR, alleging that the firm deceived consumers with misleading calls and letters. A fundamental issue in the case is the fact that there is no formal definition of “meaningful review” of lawsuit documentation – 30 seconds? 5 minutes? 2 hours? The issue went to trial on April 30, 2018 and concluded a week later with the mixed jury verdict. U.S. District Court Judge Donald Nugent said he would take the verdict under advisement and write his own decision. He gave the CFPB until June 15 to submit arguments to the court, and then two additional weeks for WWR to have the last word. The article below is a summary of the WWR “last word.”

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

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In a follow up to an advisory jury’s verdict, finding that a law firm’s pre-suit collection letters contained “false, deceptive, or misleading representations or means in connection with the collection of a debt” while rejecting a claim that the firm’s attorneys were not meaningfully involved in the debt collection process in violation of the federal Fair Debt Collection Practices Act, the accused law firm filed its proposed findings of fact and conclusions of law on June 29. The firm argued that if their legal services were good enough for Richard Cordray when he held the office of Attorney General of the State of Ohio, then they should also be good enough for the Court in considering whether or not the firm’s attorneys were “meaningfully involved” in the collections process in order to avoid FDCPA liability.

A copy of the firm’s Proposed Findings of Fact and Conclusions of Law is available here.

Background

In April 2017, the CFPB commenced an enforcement action against the firm in the U.S. District Court for the Northern District of Ohio (Consumer Financial Protection Bureau v. Weltman, Weinberg & Reis Co., L.P.A.) alleging that collection letters being sent out by the firm misled consumer recipients of the letters by suggesting that they were from an attorney although no attorney with the firm had been “meaningfully involved” in sending the letters.  

To recap, while the verdict returned by the advisory jury found that the initial demand letter at issue being sent by the firm was reflective of “false, deceptive, or misleading representations,” the verdict stopped short of finding that the firm’s attorneys were not “meaningfully involved” in the debt collection process being challenged. The jury’s verdict is only advisory and may be accepted or rejected by the Presiding Judge, (see Rule 39(c)(1)), who could now issue a ruling at any time.

WWR’s Position

The firm concurred with the CFPB’s outline of its collections process and the role the firm’s attorneys play. Specifically, the firm wrote that its attorneys created and implemented its compliance policies and procedures and training program for the firm’s non-attorney employees. The firm also stressed that its attorneys interact heavily with its non-attorney employees on consumer law compliance, its implemented procedures and its attorney-developed and client-specific collections processes. The firm also highlighted the role its attorneys play in accepting new clients, which involves in-depth conversations with potential clients to “evaluate the characteristics of the accounts for which collection services are sought to make recommendations to the client the appropriate collection activity.”

The firm pointed out that its attorneys, who are “recognized experts in debt collection” review certain samples of documents related to the type of debt the client is seeking to have collected “based upon their professional judgment and the specific issues that relate to the types of files being handled.” The firm identifies as an example that in the context of credit card debt, its attorneys would review and analyze “terms and conditions that govern the credit card, the application that was provided to obtain the card, the last payment date on the account, and the availability of monthly account statements.”

Once the firm completes its due diligence investigation of the potential client and the accuracy of its account level data and availability of supporting documentation, the client is signed pursuant to certain contractual terms, which include warranties that the accounts they are submitting to the firm are “valid claims that are due and owing for collection.”

The firm also pointed to its automated scrub process which is “designed by attorneys in accordance with governing law” and serves to “identify bankruptcies, deaths, military service, and potential statute of limitations issues, because a ‘hit’ on an account immediately affects the handling of that account based on the information that is received.”

As for the letter in issue

As for the letter in issue, the firm stated a collection letter is “sent on [firm] letterhead to accurately convey the facts that [it] is a law firm that has been retained to collect the putative debt; no more, no less” and that “[t]he letter does not state that an attorney has reviewed the particular circumstances of the account, it does not mention any potential legal action, and it is not signed by an attorney.” The firm added that the letter is calculated to serve two purposes, “advise the putative debtor (1) that the debt has been placed with [the firm] for collection and (2) that the consumer has specific rights under the FDCPA.”  The firm concluded that these activities display that its “attorneys are meaningfully involved in the debt collection process, including the process by which letters are sent on [the firm’s] letterhead to consumers.”

The firm emphasized the uncontested fact that during 2009 and 2010, Alan Weinberg, a member of the firm, was named by Cordray as “Special Counsel to the Ohio Attorney General to collect debts for the State of Ohio.” During this time period, the firm noted, it was subject to a rigorous yearly approval process by the Ohio Attorney General’s office during which it explained and discussed its collections model, including the role attorneys and non-attorneys play, as well as quarterly performance reviews to ensure “nothing less than complete respect for the rights and reasonable expectations of the public” as well as “compliance with state and federal debt collection laws, including the FDCPA.”

The firm maintains that its current level of attorney involvement, including its collections processes, now under fire from the CFPB, was the same in 2009 and 2010 when it was engaging in collections for the State of Ohio and at the direction of Cordray.

Addressing the CFPB’s survey evidence and expert testimony

In addressing the CFPB’s survey evidence and expert testimony, the firm discounted the import of same, suggesting that despite such evidence and despite the CFPB’s extensive investigation of the firm’s practices beginning in 2014 and encompassing four Civil Investigative Demands “and with 4.2 million form demand letters sent to consumers between July 1, 2011, and October 31, 2017—the CFPB never identified a single consumer who was harmed by [the firm’s] conduct.”

Significantly, the firm points out that the CFPB did not call any consumer to testify at trial and suggested that in short “the CFPB offered no evidence that any consumer has been harmed by [the firm’s] collection practices—no evidence that any consumer has paid a debt that was not owed, no evidence that any consumer has been misled, and no evidence that any consumer has been confused.”

While impactful, it is important to remember that historically FDCPA litigation does not necessarily require that a consumer be actually misled as the “least sophisticated consumer” standard is an objective one, although with 4.2 million consumers sent an allegedly offending letter, one would certainly have expected the CFPB to have identified at least some individuals personally affected by the allegedly false and misleading collection practices being attacked.

In reliance upon the Court’s charge to the jury, the firm argued that to find a violation of the FDCPA, the Court must be satisfied beyond a preponderance of the evidence that “(a) [the firm’s] letters imply to the least sophisticated consumer, under the FDCPA, or the reasonable consumer, under the CFPA, that they are sent by an attorney, and (b) [the firm’s] attorneys were not meaningfully involved in the debt collection process, and (c) the implication that [the firm’s] letters were sent by an attorney was material.” (emphasis in original).

Because the jury stopped short of finding a lack of meaningful involvement, the firm argued that it did not violate the FDCPA’s prohibition on false and misleading conduct but that even if it did, the CFPB failed to prove that any representation was material as it “presented no evidence of any kind that any representation that [the firm’s] demand letters are from an attorney is likely to influence the decision of any consumer” regarding “whether and when to pay a debt.”

The question for the Court

The question for the Court to decide is whether the letters in issue, which the jury concluded contained “false, deceptive, or misleading representations,” suggested a level of attorney involvement in the collections of the account which did not occur. What is clear is that while the firm’s attorneys are quite involved in the overall collections process, some could argue that no individual attorney actually spends any time with a consumer’s individual file prior to a letter being generated and sent by the firm.

While the firm acknowledged that its letters do “not state that an attorney has reviewed the particular circumstances of the account”, the letters also do not specifically dissuade from the notion that an attorney has, in fact, been personally involved and reviewed the account via a disclaimer regarding what role if any an attorney had. See, e.g. Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360 (2d Cir. 2005). It is now up to the Court to determine whether the firm’s process and level of attorney involvement are sufficient in light of the messages conveyed to consumers by the letters in issue.

Call it a silver lining, but the Ninth Circuit might have just telegraphed a little something about what to expect in the big Marks v. Crunch appeal – in an otherwise not-so-great opinion reversing the denial of class certification in a putative junk-fax class action.

Orienting ourselves quickly, Marks is an appeal from a 2014 ruling by Judge Bashant of the Southern District of California granting summary judgment in favor of the Defendant because its equipment “lack[ed] a random or sequential number generator.”  See Marks v. Crunch San Diego, LLC, 55 F. Supp. 3d 1288, 1292 (S.D. Cal. 2014).  The D.C. Circuit’s opinion in ACA Int’l v. FCC, 885 F.3d 687 (D.C. Cir. 2018) (“ACA Int’l”) was handed down in the midst of the Marks appeal, and the Ninth Circuit sought additional briefing, and held oral argument on the validity of the FCC’s 2003 and 2008 predictive dialer rulings following ACA Int’l.  The opinion in Marks is now pending, and stands to decide the fate of the FCC’s prior predictive dialer rulings (at least within the Ninth Circuit).

Just today, the Ninth Circuit issued an opinion in True Health Chiropractic v. McKesson Corp., No. 17-17123, 2018 U.S. App. LEXIS 19641 (9th Cir. July 17, 2018) which – on its face – has nothing to do with ACA Int’l, the viability of the FCC’s predictive dialer rulings, or the definition of an ATDS.  It’s an opinion reviewing the District Court’s denial of class certification in a junk-fax case based on the predominance of individualized issues of consent.  The Ninth Circuit reversed key parts of the court’s ruling on the basis that the evidence presented by Defendant – that it had submitted intending to establish individualized issues of consent – was actually uniform enough to satisfy the predominance requirement under Fed. R. Civ. P. 23(b)(3) as to Defendant’s consent defense.  Oh, the irony.

While these aspects of the court’s ruling are worthy of their own blog post, there’s something far more interesting here when reading in between the lines.  In addition to these predominance issues, the Ninth Circuit also reviewed a ruling by the lower court that the FCC’s “Solicited Fax Rule” had been overturned by D.C. Circuit in Bais Yaakov of Spring Valley v. FCC, 852 F.3d 1078, 1082 (D.C. Cir. 2017) (“Bais Yaakov”).  The “Solicited Fax Rule” was a prior rule by the FCC – first promulgated in 2006, then reaffirmed in a 2014 order – that required certain “opt out” language to appear in faxes regardless of whether the recipient had consented to receiving them.  The later 2014 order was appealed and ultimately consolidated before the D.C. Circuit, which held that the rule – originally promulgated in 2006 (though not “directly” under review) – was invalid.

Sound familiar?  That’s because the FCC’s predictive dialer rulings follow a similar arc.  The FCC first expanded the definition of an ATDS to cover predictive dialers in 2003, reaffirmed that ruling in 2008, then reaffirmed it again in 2015.  The later 2015 ruling was then appealed to the D.C. Circuit.  And although the appeal was of the later 2015 ruling, the D.C. Circuit still examined the validity of the underlying predictive dialer rulings that had been reaffirmed, and “set aside” the FCC’s overall “treatment” of “the functions a device must perform the qualify as an autodialer.”  ACA Int’l, at 701.

Not surprisingly, the Plaintiff in True Health argued that the Solicited Fax Rule remained valid because the FCC was only reviewing the later 2014 order in Bias Yaakov, and “the FCC’s 2006 Solicited Fax Rule was not directly under review.”  True Health, at *14.  Sound familiar again?  That’s because this argument is in line with the reasoning of the courts that have held the FCC’s prior predictive dialer rulings survived ACA Int’l (i.e. the prior rulings were not “expressly” or “directly” reversed by the D.C. Circuit).  See e.g. Reyes v. BCA Fin. Servs., Inc., No.: 1:16-cv-24077-JG, 2018 U.S. Dist. LEXIS 80690 (S.D. Fla. May 14, 2018); Case That Will Not Be Named, No. 3:17–cv–00505, 2018 WL 3134619 (M.D. Tenn. June 27, 2018).

But the Ninth Circuit in True Health rejected this line of reasoning in the context of the Solicited Fax Rule.  It held that “the validity of the 2014 order depended on the validity of the 2006 Solicited Fax Rule, and the court in Bais Yaakov squarely held that the underlying Solicited Fax Rule was invalid.”  True Health, at *15.  So even though the D.C. Circuit was reviewing a later affirmation of an earlier rule, it does not follow that the earlier rule was somehow shielded from reversal just because it wasn’t “directly” under review.  Bingo!

There are vivid parallels between ACA Int’l and Bais Yaakov that suggest the Ninth Circuit might reach the same conclusion with respect to the FCC’s predictive dialer rulings.

Just like Bais Yaakov, the appeal in ACA Int’l was from a later 2015 ruling that reaffirmed the FCC’s prior predictive dialer rulings.  And just like Bais Yaakov, the validity of the FCC’s 2015 order depended on the validity of the original, underlying rule from 2003.  Indeed, the D.C. Circuit expressly held that “[w]hile the Commission’s latest [2015] ruling purports to reaffirm the prior orders, that does not shield the agency’s pertinent pronouncements from review.”  The D.C. Circuit went on to examine the validity of the FCC’s underlying predictive dialer rulings, finding that those “prior rulings left significant uncertainty about the precise functions an autodialer must have the capacity to perform,” and therefore “set aside,” the FCC’s underlying “treatment” of “the functions a device must perform to qualify as an autodialer.”  ACA Int’l, at 701 (underlining added).

The issue before the Ninth Circuit in Marks has strikingly similar contours to the issue it just decided in True Health.  The same logic should therefore lead to a similar conclusion: that the FCC’s prior predictive dialer rulings are defunct because the D.C. Circuit’s opinion in ACA Int’l encompassed not just a review of the FCC’s 2015 reaffirmation of the prior predictive dialer rulings, but the validity the underlying rulings themselves.  And given the parallels between Bais Yaakov and ACA Int’l, it is difficult to envision the Ninth Circuit reaching a different conclusion in the context of the FCC’s prior predictive dialer rulings.

But this is TCPAland after all, where consistency and uniformity in the law remain elusive concepts.  Having said that, True Health provides us with a little glimmer of insight into what we might expect to see from the Ninth Circuit in the upcoming Marksopinion.  As the Grand Duchess says on the Ramble, I’m on the edge of my seat.

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Editor’s note: This article is provided through a partnership between insideARM and Womble Bond Dickinson. WBD powers our TCPA case law chart and provides a steady stream of their timely, insightful and entertaining take on this ever-evolving, never-a-dull-moment topic. WBD – and all insideARM articles – are protected by copyright. All rights are reserved.

Payment Savvy Has Been Hard at Work Leading a Movement in the Collections Industry to Offer the Program Under Card Brands by Carefully Following the Many Guidelines

PLANO, Texas — Since the day they opened for business, Payment Savvy, has strived to be a real leader in payment processing for account receivables businesses. Once again, Payment Savvy has achieved this goal by recently taking the Convenience Fee Model, or free payment processing, to the next level.

As Eli Smith, Chief Operations Officer of Payment Savvy noted, the company has entirely spearheaded the legalities in the collections industry with some of the best attorney networks, which allows them to offer the No Cost to Biller program under card brands by following the many guidelines in place.

For more information about Payment Savvy and their web payment services, please visit https://www.mypaymentsavvy.com/.

With the most advanced state of the art software and multiple redundant networks tied into the banks, Smith noted, Payment Savvy is the real leader in payment processing for account receivables businesses.  

“We have done the due diligence over the past five-plus years with some of the largest law firms in the U.S. to make sure our agencies stay compliant statewide with the fees. We truly have a well-written platform that pleases our collections agencies as well as their consumers,” Smith said.

“We feel we are so ahead of the game that there are no competitors in the space matching our products and services within the collections industry.”

By improving the Convenience Fee Model, Smith said Payment Savvy enhanced the offer tremendously to include many new functionalities for their B2B merchants. As Smith noted, this is all part of the company’s devotion to pumping both money and time into their software platform to make it the best possible product for the industries they serve.

The fact that Payment Savvy has worked so hard to make sure the Free Payment Processing Model was as advanced and innovative as possible will not surprise their satisfied clients. The company has earned a well-deserved reputation for their outstanding and fully integrated web payment solutions as well as commitment to customer service.

 

About Payment Savvy

Payment Savvy is a fully integrated payment processor to the following industries: Collections Agencies, Consumer Finance, Billing Companies, Credit Unions, Healthcare, Utilities, Government, and Schools. To learn more about Payment Savvy, visit https://www.mypaymentsavvy.com or call (866) 303-2558.