Archives for August 2018

Seth Frotman, the Bureau of Consumer Financial Protection’s (BCFP or Bureau) student loan ombudsman, resigned. In a resignation letter addressed to Acting Director Mick Mulvaney, Mr. Frotman states that under the current leadership, the Bureau is failing consumers, specifically student loan borrowers. The letter cites the following changes within the Bureau that sparked Mr. Frotman’s decision:

1. Undercutting Enforcement of the Law: Mr. Frotman claims that the Bureau folded to political pressure and undermined its own authority to oversee the student loan market. 
2. Undermining the Bureau’s Independence: Mr. Frotman discusses how the Bureau “protect[s] the misguided goals of the Trump Administration to the detriment of student loan borrowers.” Mr. Frotman’s criticism extends to the Department of Education, which he mentions “attempts to preempt state consumer laws and shield student loan companies from accountability.” AMr. Frotman also mentions that the Bureau’s senior leadership dismissed complaints by long-term Bureau employees who brought to light issues with the Department of Education.
3. Shielding Bad Actors from Scrutiny: Mr. Frotman discusses how the Bureau suppressed a publication prepared bythe Bureau itself regarding large banks “ripping off students on campuses across the country saddling them with legally dubious account fees.”

Mr. Frotman’s resignation is effective September 1, 2018.

insideARM Perspective

Mr. Frotman’s resignation comes practically nine months to the day after Richard Cordray, the Bureau’s former director, stepped down and Acting Director Mick Mulvaney came on board. Considering Mr. Frotman’s harsh words about the Trump administration and the direction of the BCFP under the leadership of a Trump-selected Acting Director, it is also notable that Mr. Frotman’s resignation letter comes the less than a week after the Committee on Banking, Housing, and Urban Affairs approved the nomination of Kathy Kraninger, another Trump pick, as the Bureau’s next director.

The law firm of Weltman, Weinberg & Reis Co., L.P.A. (WWR), following its success after a long court battle with the Bureau of Consumer Financial Protection (Bureau or BCFP), filed a request with the court last Friday asking for $1.5M in attorney fees from the Bureau.

The BCFP initially filed suit against WWR in April of 2017, alleging that the firm falsely represented in its letters to consumers the level of attorney involvement in collecting debts. However, according to the request, WWR began to incur attorney fees when the Bureau commenced its investigation of the firm two years prior to the filing of the suit.

According to the filing, WWR cooperated with the Bureau during their investigation, yet the Bureau was unable to find “any instance in which any consumer was harmed, any consumer was misled, or any consumer was confused by any of Weltman’s collection practices.” Despite this, the Bureau proceeded to file the complaint when WWR refused to enter into a consent decree.

A portion of the filing discusses a two-sided stance from Richard Cordray, the Bureau’s former director. According to the filing, Cordray authorized the filing of the complaint, yet he previously approved the substance of the allegedly violating letters back when he served as Ohio’s Attorney General. Following the filing of the complaint, the Bureau issued a press release that caused WWR to lose several large clients.

In arguing for attorneys’ fees, WWR states that the Bureau pursued these claims in bad faith because it knew or should have known that the claims were meritless. WWR pointed to the plethora of evidence presented both in the investigation prior to both the court proceeding and the discovery obtained during litigation, stating that nothing in this evidence pointed to wrongdoing by WWR. To support its claim, WWR brings attention to the fact that the Bureau dismissed half of its case on the first day of trial.

Weltman began and ended its request with reference to Acting BCFP Director Mick Mulvaney’s statement that the Bureau has long “pushed too hard” with rulemaking by enforcement, asking “where do those we charged go to get their time, their money and their good names back?” The request for attorneys’ fees is one avenue.

insideARM Perspective

As discussed in one of insideARM’s previous articles, the Bureau focused on collection law firms around the time it began its investigation of WWR. The Bureau filed an action againts the law firm of Frederick J. Hanna & Associates (Hanna) in June 2014, entering into a consent order around December 2015. The Bureau filed another consent order with the law firm Pressler & Pressler, LLP (Pressler) around April 2016. Excluding the costs to represent themselves in their dealings with the BCFP, the consent orders for Hanna and Pressler were $3.1M and $1M respectively. Instead of entering into a consent order, WWR chose to fight the claims, which cost them $1.2M in legal fees alone. This excludes lost revenue from the reputational impact of the suit and the hours spent by WWR employees to cooperate with the investigation and prepare for the lawsuit’s defense.

Keeping in mind that the consent decrees are specific to the allegations in each action and are not indicative of what every consent order will demand, comparing these numbers shows that it is at least a $1M ordeal for debt collectors if the BCFP comes knocking. As the request for fees states, the Interim Director’s question was likely rhetorical when he asked where targeted companies can go to make themselves whole again. Whether the court will make the Bureau stand by these words and cover WWR’s attorneys’ fees remains to be seen.

ST. LOUIS, Mo. — Credit Control, LLC (Credit Control) announces the acquisition of Regional Adjustment Bureau, Inc. (RAB). Since 1971, RAB has been an industry leader in receivables management services and a trusted recovery resource for national clients. Credit Control closed the transaction on August 1, 2018. The aquisition brings Credit Control, a recognized ARM leader, its fifth location and additional blue-chip clients. Effective immediately, all proceeding communication, operations, and business dealings for RAB will be under the name of Credit Control.

Rick Saffer, President and CEO of Credit Control, commented, “RAB’s blue-chip clients in the auto, education, and banking sectors allow Credit Control to further its strategy of diversifying revenue cycle management services across multiple industries.” The purchase of RAB, based in Memphis, Tenn., also provides additional scalability for Credit Control. “In today’s regulatory environment, client requirements are ever increasing, and only those with the proper scale and technical savvy will survive,” said Saffer.

Credit Control, founded on strong company values, is committed to providing its clients with unmatched customer service, its employees with an excellent work environment, and the highest level of quality assurance. “RAB was an excellent match with Credit Control from a cultural perspective, which is critically important in any acquisition. Our goal is to enhance the strong performance that the former RAB clients received with the additional benefits of Credit Control’s database solutions, business intelligence platform, and voice analytics,” continued Saffer.

For more information about Credit Control, LLC, please visit http://www.credit-control.com. 

NORFOLK, Va. — PRA Group, Inc. (Nasdaq: PRAA), a global leader in acquiring and collecting nonperforming loans, today announced the appointment of Dennis Hunter as vice president of Canada.  

Hunter will be based in PRA’s London, Ontario office and will lead all Canadian operations for the company.

“Dennis brings with him almost two decades of experience in the financial services industry. His depth of knowledge will provide PRA with the expertise required to continue our focus on operational efficiency and investing capital effectively,” said Chris Graves, Executive Vice President, Americas.

Hunter is a seasoned global business leader with over 15 years of experience at GE in progressive leadership positions.  He has experience directing a wide range of functions to include business development, operations, trade receivables, financial analysis, and credit and collection services. Ultimately serving as Senior Vice President and Global Relationship Manager for GE Capital, he was responsible for the expansion and management of a $4 billion portfolio of businesses. Hunter further brings a depth of experience in trade receivable and real estate consulting services in his role as owner and Managing Director of Hunter Solutions.

About PRA Group

As a global leader in acquiring and collecting nonperforming loans, PRA Group returns capital to banks and other creditors to help expand financial services for consumers in the Americas and Europe. With more than 5,700 employees worldwide, PRA Group companies collaborate with customers to help them resolve their debt. For more information, please visit www.pragroup.com.

Last week Senator Chuck Grassley (R-IA) highlighted an IRS report that shows its current Private Debt Collection program is now cash positive, after one year of operation. The controversial program has come and gone over the years (decades, actually), as some have argued it costs more money than it brings in – though supporters would say the measurements used by the critics were flawed.

Mandated by the Fixing America’s Surface Transportation Act, or “FAST Act” signed in late 2015, this will be the third attempt at such a program by the IRS. Earlier programs occurred in 1996 and 2006.

In 2017, Senator Grassley said this about the problem of outstanding IRS debt:

“According to the Government Accountability Office (GAO), the IRS has more than $130 billion of debt on its books. This so-called inactive debt is sitting in limbo until a 10-year window of enforcement closes the collection window for good.”

At the time, he also explained that the design of the current program incorporated measures to differentiate it from the many scams that were (and continue to be) prevalent.

“Firewalls are in place to protect taxpayers. First, taxpayers would be notified by mail that their outstanding debt has been turned over to a private debt collection company. Second, all payments are required to be processed directly by the IRS, not through third parties. The private debt collection program is another tool for the IRS to collect taxes that are owed and not in dispute.”

And he suggested that (then nominee) Treasury Secretary Steve Mnuchin was in agreement about the plan.

The report issued last week by the IRS shows that the private debt collectors have brought in more than $56 million in tax revenue, with costs totaling approximately $55 million. Grassley said,

“Contrary to critics’ claims and despite its slow-roll out, the IRS private debt collection program is already demonstrating that it can more than pay for itself with revenues returned to the Treasury. The most recent data shows revenue returned to the Treasury exceeds all associated program expenses, including 2016 and 17 set-up expenses. A program that works as it should is a rarity in the federal government.”

Accounts have been distributed equally among the four contractors, with each receiving just about 32,000 (or approximately $230M in receivables) in 2017 and 93,000 (or approximately $793M in receivables) in 2018.

CBE Group has led the group in installment agreements entered and total dollars collected, though at $7,000, Performant has generated the highest dollar commitment per installment agreement (vs. CBE’s $6,500).

Debt collectors were given clarity regarding two thorny FDCPA issues recently by decisions issued from the Seventh Circuit Court of Appeals.  In the case of Portalatin v. Blatt, the Court held that a consumer was entitled to a single recovery of an FDCPA statutory penalty rather than multiple recoveries for the same alleged violation from each Defendant.  This issue of Plaintiffs seeking to “stack” recoveries for the same alleged violations from multiple Defendant is now finally resolved in favor of the debt industry.  The Seventh Circuit also held in Dunbar v. Kohn that that sentence “This settlement may have tax consequences.” did not violate the FDCPA, thus joining the numerous other Court that held this language complies with the law.  

In the latest episode of the Debt Collection Drill podcast, Moss & Barnett attorneys John Rossman and Mike Poncin discuss the Portalatin and Dunbar decisions in addition to strategies for debt collectors to avoid FDCPA on debt collection communications regarding interest and out-of-statute disclosures.  Links to the Seventh Circuit Court of Appeals rulings in Portalatin and Dunbar can be found below.

Portalatin

Dunbar

Listen to the episode (14 minutes) here.

Editor’s Note: insideARM published an article about the Portalatin case earlier this week.

In a narrow vote today, the Senate Banking, Housing, and Urban Affairs Committee approved the nomination of Kathy Kraninger as the next director of the Bureau of Consumer Financial Protection (BCFP). The final vote was 13 in favor of the nomination and 12 opposed. 

Prior to the vote, several senators elected to make statements about the nomination. For the most part, the senators who chose to make a statement were ones who voted against the nomination. Most of the statements focused on Ms. Kraninger’s lack of experience in consumer finance, her tight-lipped non-responses to the senators’ questions during her confirmation hearing, and how the current direction of the BCFP will harm consumers.

With the Committee’s approval of the nomination, Ms. Kraninger will face a full Senate vote to determine whether she will get the role.

insideARM Perspective

While this was a close vote, the outcome comes as no surprise. Ms. Kraninger’s nomiation has been a hot button issue since it was annouced, but the Committee voted squarely along party lines. The big question is whether Ms. Kraninger’s nomination will pass in the full Senate. Currently, Republicans hold the majority in the Senate by a very close margin. It is uncertain if the tide will change with the upcoming election in November, but Ms. Kraninger’s path toward directorship will likely be affected by it, as some have predicted that a vote will likely not be scheduled in the immediate future.

If the Senate does not vote on her nomination during the current Congressional Session, Trump would have to re-nominate her (or someone else), and a new confirmation hearing would have to be held. Acting Director Mulvaney is essentially allowed to continue to serve as long as a nomination is pending. 

Meanwhile, a Notice of Proposed Rulemaking for debt collection is currently scheduled to be released in March 2019. It had seemed likely that a new Director would be overseeing that release, but at this point it’s anyone’s guess whose leadership stamp will be on that NPR. Notably, at the time the rulemaking schedule was updated (mid-May 2018), it was widely expected that Trump would nominate J. Mark McWatters, the current chairman of the National Credit Union Administration, to be the permanent Bureau Director. That fell apart, and then it seemed Todd Zywicki, a law professor at George Mason University with deep experience in financial services regulation, was the front runner — until, apparently out of nowhere, Kathy Kraninger emerged.

SARASOTA, Fla. — TEC Services Group, Inc. announced today the recipient of the 2018 Scholarship Program. TEC offers the Scholarship Program each year to employees of the ARM industry and their dependents attending a four-year accredited college or university. Each applicant was required to meet academic, attendance and citizenship standard requirements for their State. In addition, applicants were required to submit an essay describing what leadership means to them and provide a real-world example of leadership. TEC would like to thank all who participated in the program this year. “TEC is proud to provide these outstanding students with financial support for continuing their education. We are excited to see increased participation and interest year over year, and are looking forward to continuing the program in 2019,” said Tom Sweat, President of TEC Services Group, Inc.

After careful review and consideration, the TEC Scholarship Review Committee determined the 2018 Scholarship will be awarded to Alexis Morgan. Congratulations Alexis!

Alexis Morgan, a 2018 graduate of Crater High School in Central Point, OR. Alexis will be attending Southern Oregon University where she will major in Nursing. During high school, Alexis served on the Student Government and was a member of the National Honor Society. She has also been a volunteer in numerous programs to help children improve their athletic skills, reading abilities and M.A.P.S., a program for children with physical and/or learning disabilities. Alexis received a Citizenship Award and Leadership Award in 2015 and 2017, and a Community Service Award in 2017. (Father Robert Morgan of Action Financial Services)

In response to the high level of participation, TEC awarded smaller scholarships to the following recipients:

Kelsey Baich, currently attending the University of Mississippi with a major in Secondary Education. Kelsey received scholarship awards from TEC in 2016 and 2017. Now in her third year at Ole Miss, Kelsey is a member of Pi Beta Phi Fraternity for Women and is an active member of RebelTHON and Student Housing. She also volunteers her time in Leap Frog, Champions are Readers and Read & Lead & Achieve programs. (Father Kevin Baich of Day Knight & Associates)

Nathan Brelage, currently attending the University of Dayton with a major in Mechanical Engineering. Nathan was the recipient of TEC’s scholarship award in 2017. Now in his second year of college, Nathan is an active member of many organizations including the American Society of Mechanical Engineers, Biomedical Engineering Society, Pi Tau Sigma and Tau Beta Pi. He also volunteers in several community and civic service programs including Sustainability Club Trash Pick-Up, Admitted Student Days, Penny Wars (Tau Beta Pi) and Camp Blue. (Father Andrew Brelage of Ontario Systems)

Kayla Jakubczak, currently attending University at Buffalo with a major in Biomedical Science (Pre-Med). Kayla is entering her third year in college and will attend medical school following her graduation from UB. She has been a volunteer firefighter/EMT since 2015 and also volunteers her time at West Falls Conservation. Kayla has been named to the Dean’s List each year at UB and was the recipient of a Leadership Award. Kayla was also awarded a Chief’s Award for her volunteer work as a firefighter/EMT. (Mother Ann Granville of Northstar Location Services)

Dylan Morgan, currently attending Pacific University with a major in Business. Dylan is in his fourth year of college and has obtained three degrees thus far. Dylan received a Football Scholarship to play at Western Oregon his first year of college and received a partial Baseball Scholarship to play at Chemeketa Community College the following two years. He was named to the Dean’s List, awarded the Elmer C. Biegel Family Scholarship and made All League Honors in Baseball at Chemeketa Community College. (Father Robert Morgan of Action Financial Services)

Chris Tatavitto, currently attending State University of New York at New Paltz with a major in Biochemistry. Chris is in his third year at college and formerly attended Dutchess Community College. He was listed in the National Honor Society during high school and received Academic Excellence Awards throughout his high school career. Chris has also received numerous Leadership Awards for sports and actively participates in football, wrestling and track. (Mother Mandy Tatavitto of Immediate Credit Recovery)

TEC encourages employees of the ARM industry and their dependents to apply next year. Please look for an announcement on the 2019 Scholarship Program by the end of the year. For additional questions or comments, contact TEC Services Group at  cholarship@TECsg.com or call 941-375-0300 for more information.

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The Fair Debt Collection Practices Act (FDCPA) places a cap on class action damages. Specifically, class action damages cannot exceed the lesser of 1% of the defendant’s net worth or $500,000. On August 20, 2018, the Ninth Circuit reviewed a yet unaddressed question: which side bears the burden of proof to show a defendant’s net worth? According to Tourgeman v. Nelson & Kennard et al., Case No. 16-56190 (9th Cir. Aug. 20, 2018), this burden lies with the plaintiff.

Factual and Procedural Background

Appellant David Tourgeman incurred a debt with Dell Financial Services, who later sold the debt to Collins Financial Services. Collins then retained Nelson & Kennard to file a collection suit against appellant. Nelson & Kennard attempted to reach appellant by mail, but never received a response to their letter. The firm then filed a complaint with the court to collect on the account.

Appellant filed a putative class action complaint against Nelson & Kennard alleging that both the letter and the complaint violated the FDCPA. This matter bounced back and forth between the district court and the Ninth Circuit on questions of liability. Ultimately, the matter went to trial on two issues: class action damages and the bona fide error defense. Appellant, who was then the plaintiff, did not present any evidence regarding Nelson & Kennard’s net worth during the trial.

Appellant attempted to argue that Neslon & Kennard bore the burden of proof to show its net worth. Disagreeing with appellant, the district court found that the plaintiff in a FDCPA action bears this burden, a decision that appellant appealed.

The Decision

The Ninth Circuit agreed with the district court and concluded that the burden of proof to show a defendant’s net worth in the context of FDCPA class action damages rests with the plaintiff. In reaching this conclusion, the court looked at general principles of law and the language of the statute itself.

Generally, the judicial system imposes the burden of proof on the party seeking relief, which is the plaintiff. There are certain instances where the burden of proof shifts to the defendant, but that is generally limited to when the defendant wants to plead that an affirmative defense or exception applies to the case. The instant case does not fall within any of the latter categories , so the Ninth Circuit concluded that the burden rests with the plaintiff.

One other way that the burden of proof may shift is if the statute calls for it. Since the FDCPA caps class action damages at the lesser of 1% of net worth or $500,000, the court found that the statute “requires the factfinder to determine the defendant’s net worth in calculating statutory damages. In other words, Congress made evidence of the defendant’s net worth a prerequisite to establishing statutory damages.” The court went on to say that Congress would have written the statute differently if it intended the burden of proof to shift. For example, the statute wording would have been “$500,000 unless the defendant establishes…”

The court was unconvinced by appellant’s argument that Nelson & Kennard should have produced evidence regarding its net worth at trial because it has better access to that information. The court noted that plaintiffs’ attorneys have a fairly easy route to acquiring a debt collector’s financial information through different litigation discovery tools such as interrogatories and requests for production of documents. In this case, appellant received Nelson & Kennard’s financial information through discovery, so at the time trial went forward the information was already in appellant’s hand.

Based on the above, the Ninth Circuit concluded that the plaintiff bears the burden of proof to show a defendant’s net worth.

insideARM Perspective

The court’s decision here is well reasoned. If a plaintiff wants damages from a defendant, then it is the plaintiff’s job to prove both that defendant is liable and what amount of damages is appropriate. To require a defendant to prove how much the damages against him should be is like forcing him to walk himself down the plank.

One small portion of the court’s decision discusses how appellant attempted to argue that litigation costs would increase and discovery battles would be inevitable if the plaintiff bore the burden of proof to show a debt collector’s net worth, an argument the court denied. This observation stands out specifically because discovery was conducted in this case and the financial information was produced after the court entered a protective order. This allegedly burdensome work was already done and yet appellant still presented none of it at trial despite it being available.

On a procedural note, if defendant has a claim against plaintiff that arises from the same transaction or occurrence, then the courts require defendant to file what is called a counterclaim within the same action for the sake of judicial economy. In other words, the courts would prefer to address all issues in one court case than in multiple cases across their docket. If the defendant files a counterclaim, then he steps into the role of a plaintiff for those particular claims. An example in the debt collection context would be if a debt collector files a collection suit against a consumer and, within that suit, the consumer files a FDCPA counterclaim against the debt collector. In that situation, even though the consumer is a defendant within the suit, he steps into the role of a plaintiff for the FDCPA counterclaim and thus bear the burden of proof.

Editor’s Note: Quick access to the podcast here.

Well here it is, the podcast you’ve been waiting for.

YouMail’s “Robocall Index” is cited by everyone–and I mean everyone–as the source of data related to the purported uptick in “robocalls” since 2015. Here’s a short list of what “everyone” looks like (in no particular order):

• Business Insider
• USA Today
• The New York Times
• The Washington Post
• Forbes
• CNBC
• Gizmodo
• NBCNews.com
• Slate Magazine
• WIRED
• MarketWatch.com
• Money Magazine
• Arizona Daily Sun
• Casper Star Tribune
• Idaho Statesman
• Huffington Post
• Komando.com
• Bakersfieldnow.com
• WWBT NBC 12
• Fox 61 (CT)
• New Hampshire Business Review 
• RadioIowa
• 24/7 Wall Street

Each of these stories declares, in some form or fashion, that robocalls are on the rise. I cautioned a few weeks back that without knowing what the “robocall index” is actually tracking, however, these media outlets might be spreading “fake news.”  

More problematically, the NCLC and other “pro-consumer” groups have begun “unmasking” the numbers listed on YouMail’s “robocall index” and declaring that legitimate American businesses are to blame for the majority of robocalls plaguing the country. The NCLC even provided a chart to the FCC purporting to list the “Top 20” robocallers in the country–virtually all of them legitimate American businesses presumably making calls to reach their customers about existing accounts. Once again, however, without understanding what the “Robocall Index” is actually tracking, jumping to the conclusion that these calls are actually unwanted “robocalls” seems problematic–especially since the NCLC’s own FCC comment noted that a large percentage of the so-called “robocalls” were account reminders and other desired forms of contact. And ironically, as Numeracle’s CEO Rebekah Johnson told the Ramble podcast two weeks ago, mislabeling legitimate calls as robocalls or scam calls actually works profound anti-consumer effects. 

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All of this has led here. YouMail’s CEO Alex Quilici–who is nothing short of brilliant–agreed to sit down with the Czar and the team IN STUDIO in the Womble Bond Dickinson West Coast Podcast Studio and get to the bottom of this. He deftly and honestly discussed the methodology behind the “Robocall Index” including the various assumptions that go into compiling the index. As Mr Quilici explains, the index is actually an extrapolation of robocall volume based upon a set of data collected by the call-blocking app maker based upon its own customer’ experiences. In his revealing interview, Mr. Quilici confirms that the “robocall” index includes desired calls–including payment alerts and reminder messages–that are not commonly blocked by consumers. He also distanced himself and YouMail from third parties that rely on the “robocall index” to advance their own agendas.

Listen to the interview (found here) to learn:

• What does the robocall index really track?
• How can YouMail identify robocalls anyway?
• What assumptions are built in to the extrapolation?
• Are there any industry standards for what a robocall is and isn’t?
• Are there any industry standards for call blocking at all?
• What assumptions does YouMail make regarding the types of calls that consumers do and do not want?
• Does the robocall index include wanted calls, account alerts and other desired communications?
• What steps is YouMail taking to refine the robocall index to make it more accurate?
• Does YouMail stand behind the representations made by third parties respecting the identity of robocallers?
• Given the power that YouMail and other app manufacturers wield in determining whether or not consumers answer calls what steps does YouMail take to make sure it doesn’t inaccurately identify and block calls?

The interview is absolutely required listening for anyone relying on the robocall index and we’ll probably submit a transcript to the FCC for consideration.

Before we get to the interview, however, you’ll also enjoy the team breaking down the big TCPA news of the week, including the new Few case, a case about a cute little kitten, and the “big bust” FCC oversight hearing. (Sorry for the head fake on that one.) We also give Ocwen a round of applause for its big win in Keyes v. Ocwen Loan Servicing, No. 17-cv-11492, 2018 U.S. Dist. LEXIS 138445, at *15 (E.D. Mich. Aug. 16, 2018). The case finds that an Aspect predictive dialer system is not an ATDS as a matter of law. Now that’s big news!

Please enjoy.

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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.