Archives for March 2019

ROCKVILLE, Md. — insideARM and the iA Institute announced today that Katie Keich has joined its leadership team as Vice President of Commercial Services.

Katie is an experienced credit & collections leader with an extensive background in the logistics and supply chain industry. She worked her way up from being an accounts receivable specialist to Director of Credit & Collections as the organization grew from a franchise with under $5M in revenue to a global logistics organization with nearly $2B in revenue. It was Katie’s responsibility to establish credit policy, build a collections department, and train sales and credit associates across the country.

She is a five time winner of her firm’s Special Recognition for Outstanding Performance.

“As the architect of her firm’s credit and collection policy, Katie achieved credit losses of .3% on revenues of $650M, a record unheard of in the commercial space,” said Stephanie Eidelman, CEO of insideARM. “We are excited to bring the strategies she developed to the thousands of organizations that could reap a meaningful return by implementing her proven processes.”

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Through its new Commercial Division led by Katie, insideARM will deliver workshops, training, conferences and more. First up will be a one day workshop for commercial credit & collections leaders in Nashville on June 17 including topics like credit policy, collections process and how to effectively use first and third party partners. More information will be coming soon.  

“I’ve spent most of my career learning and developing a system that works. Now I can’t wait to share what I’ve learned and to make a broader impact,” said Keich. “I couldn’t be more excited for this new challenge, and to join this smart and creative team of men and women at the iA Institute and insideARM.”

You can contact Katie here.

About The iA Institute

The iA Institute is a media company that provides context, insight, and practical information to the complex debt industry. Professionals turn to us with the day-to-day challenges not covered in training. iA initiatives bring a range of stakeholders to the table in candid and intimate environments to inform, to build a culture of compliance, to address industry challenges, and to make profitable connections. The iA Institute publishes insideARM.com – including the flagship Daily Insider newsletter, and iA Research Service — hosts conferences including the First Party Summit and Women in Consumer Finance, and manages the Consumer Relations Consortium & Innovation Council. More at www.theiAinstitute.com.

The Cybersecurity Requirements for Financial Services, issued by the New York State Department of Financial Services (NYDFS), are now in full effect. The rules were first introduced in September 2016 and revised in January 2017, becoming effective on March 1, 2017. Section 500.22 of the rules (text can be found here) laid out a two-year long transition period, which ended on March 1, 2019.

The transition period contained three main checkpoints with certain requirements:

1. By March 1, 2018 (one year after effective date): Have systems in place for annual penetration testing, bi-annual vulnerability assessments, periodic risk assessments, and annual written reports by Chief Information Security Officer to the governing body of the covered entity (e.g., board of directors).
2. By September 1, 2018 (eighteen months after the effective date): Establish audit trails, in-house application development policies and procedures, limitations on data retention, and encryption of nonpublic information.
3. By March 1, 2019 (two years after the effective date): Establish third party service provider security policies that include risk assessments and setting minimum cybersecurity standards for third party vendors.

insideARM Perspective

Consumer data in financial services has been a hot button issue for several years now, with the focus centered on external threats to and internal use of the data.

Several years ago when the NYDFS cybersecurity rules came out, the focus was on protecting data from external threats, such as cybersecurity attacks and data breaches, to electronically-stored consumer data. The Equifax data breach of 2017 doubled-down on the importance of cybersecurity.

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Over the past year or so, an added area of focus has been data privacy. While cybersecurity focuses on protection from external threats, privacy focuses on internal policies and procedures related to sharing or selling consumer data. Laws such as the California Consumer Protection Act and Washington Consumer Protection Act give consumers power to control how companies use and share their data.

Cybersecurity and privacy in financial services are two distinct issues that require different approaches, but both share the common thread of consumer data. And, if the recent legislative and regulatory trends are any indication, consumer data is king in the modern world.

On Thursday, March 21, 2019, the Consumer Financial Protection Bureau (CFPB) announced that it is seeking applications for its advisory committees, including the Consumer Advisory Board (CAB). According to the announcement, the CFPB is looking for experts from both sides of the aisle, including consumer advocates, experts in consumer financial products or services (such as debt collection and credit reporting), as well as academics with economic and public policy backgrounds.

Applications, which can be found here, are due by May 5, 2019.

Earlier this month, Director Kathy Kraninger received backlash from Congress regarding her predecessor’s decision to disband all of the CFPB’s advisory boards. This occurred during both the House Financial Services Committee and the Senate Banking Committee hearings where Director Kraninger testified as part of the CFPB’s annual report to Congress. Former Acting Director Mick Mulvaney disbanded the advisory boards in June 2018, citing that they were too large and too costly. However, Mulvaney re-established the advisory boards, including the CAB, in September 2018, which was not mentioned at all during the congressional hearings.

insideARM Perspective

To date, only two ARM industry representatives have been selected to the CAB: Joann Needleman, former NARCA (now known as National Creditors Bar Association, or NCBA) president and currently a partner with Clark Hill, served a three-year term which ended in August 2017; Ohad Samet, the CEO of debt collection firm True Accord, began a three-year term in September 2017 that was cut short by Mulvaney’s decision to disband the advisory boards. The CAB re-established in September 2018 as a much smaller group did not contain any ARM industry representatives.

With the current application’s specific reference to seeking industry experts in debt collection, the industry may see representation on the CAB yet again.

As ordered by Judge Thomas Wheeler of the Court of Federal Claims (COFC), the U.S. Government produced its Administrative Record (AR) last week in support of the cancellation of the Department of Education’s (ED or FSA) Solicitation No. ED-FSA-16-R-0009 for Large Business Debt Collection Services. The conclusion of the 12-page record — plus 26 exhibits, which were not made public as of the time of this writing — is that the existing small business Private Collection Agency (PCA) contractors have sufficient capacity to do the job; ED doesn’t need the large contractors that would be selected through the Solicitation in question.

The history of this saga had pit the “smalls” against the “bigs,” but that ended a few months ago when ED announced it likely wouldn’t need PCAs at all once it fully implements its Next Generation (NextGen) student loan servicing process. The reason, says ED, is because it planned to employ “enhanced servicing” techniques that would prevent the majority of defaults in the first place. Suddenly, all PCAs were on the same page.

It’s a very long story

The saga has unfolded over the course of years and dozens of articles. We are currently in Chapter 6.  If you need to catch up on the details, read this story, and then this story. The most important background for this article is that after several years of litigation, on May 13, 2018 ED cancelled the solicitiation in question, offering this justification:

“The solicitation will be cancelled due to a substantial change in the requirements to perform collection and administrative resolution activities on defaulted Federal student loan debts. In the future, ED plans to significantly enhance its engagement at the 90-day delinquency mark in an effort to help borrowers more effectively manage their Federal student loan debt. ED expects these enhanced outreach efforts to reduce the volume of borrowers that default, improve customer service to delinquent borrowers, and lower overall delinquency levels.”

ED said the 11 small business PCAs have sufficient capacity to handle the volume of defaulted loans while we ramp up this “Enhanced Servicing” program. Complaints were filed by many large PCAs, and everyone went to the COFC. The process pitted the “smalls” against the “bigs,” with smalls insisting they have the capacity and the bigs pointing to data they felt illustrated it wasn’t possible. This chapter (which was #4) ended on September 14, 2018, with the Judge permanently enjoining ED from cancelling the solicitation for large PCA services. ED was on the hook to come up with a better explanation, or come up with some new corrective action.

In the meantime, FSA moved ahead with its NextGen servicing platform project (which anticipates merging pre-and-post default collection activities to a large degree). Over time, these two solicitations — for PCAs and for NextGen servicers — converged. Then two things happened on March 6, just a few weeks ago. One: ED cancelled (again) that same procurement that the COFC permanently enjoined them from cancelleing. Two, multiple PCAs filed pre-award complaints related to NextGen, claiming in part that ED ignored the September 2018 COFC decision that invalidated ED’s May 2018 cancellation of the separate Default Collection Procurement, and the Court’s order to figure out how to revisit that Procurement in a way that is fair and reasonable.

In a March 7, 2019 status conference, the Court ordered ED to produce the Administrative Record (AR) supporting the May 2018 cancellation of the Solicitation for large PCAs… and here we are.

The AR basically returns us to a contest between the “bigs” and the “smalls”

ED says,

“[the] decision to re-cancel Solicitation ED-FSA-16-R-0009 is based on maturation of the NextGen vision, the development and implementation of specific procurement activities to realize the vision… and a determination that existing PCAs under contract through 2024 have sufficient capacity to provide effective debt collection services during the transition period from now until full implementation of NextGen, which under current timelines is expected to be completed by the end of 2020.”

“Existing PCAs under contract through 2024” refers to the eleven small business contractors that received awards on September 30, 2014. These initial 5-year contracts end in September of this year, with an optional ordering period of five years, through September 30, 2024.

The AR highlights the following conclusions from its initial review process:

• Reaching and maintaining contact with delinquent and defaulted borrowers poses a particular challenge for FSA’s vendors.
• A 2015 pilot program to compare the performance of ED contractors and Department of Treasury collectors (Treasury) revealed that more phone calls to borrowers, and earlier use of tools such as administrative wage garnishment (AWG) and Treasury’s offset program (withholding tax refunds, for instance, in order to repay federal debt), produce better collection results.
• The Treasury effort, which employed the use of minimal phone calls — with the expectation that a lighter touch would be more effective — achieved less than a 2% call return rate, and resolved approximately 30% fewer accounts vs. the PCAs working for ED.

The “High-Touch Servicing Plan” will reduce defaults

In response to these findings, between March and May 2018 a team from FSA’s Business Operations group developed this “High-Touch Servicing Plan” (they say this occurred separately from the NextGen work):

• Upon reaching 90 days delinquent, student loan accounts would be moved to a vendor specializing in delinquency remediation and default prevention and collection efforts.
• Collection tools with proven success, such as Treasury offset and AWG, would be moved earlier in the loan lifecycle.

During summer 2018, FSA determined these activities were within the high-level scope of work established during the NextGen Phase 1 Solicitation, so the program was incorporated into Phase II.  Then…”To ensure all parties had a full understanding of the scope included in these procurements, the Department decided in January 2019 to take corrective action by cancelling the initial solicitations and issuing new solicitations.” [Editor’s note: What also coincided with the period between summer 2018 and January 2019 were multiple lawsuits crying foul at the change in scope.]

Additional FSA research led to these conclusions:

• Under current ED practices, servicers are engaging delinquent borrowers at a low intensity compared to commercial best practices (an exhibit provides detail, however the exhibits are all under seal as of this point).
• Standard commercial collections’ practice dictates placing up to three calls per day per customer. Current call volume per FSA guidelines is well below this rate, with some averaging only 1.5 calls per borrower per month.
• Calls per account currently peak during the 91-150 days past due time period, then decline significantly. FSA research found that this is contrary to commercial best practices. The AR mentions that some of the experts consulted on such processes include the Consumer Financial Protection Bureau (CFPB) and McKinsey and Company.
• Delinquencies will be reduced by deployment of state-of-the-art technology and market-tested outreach strategies, behind consistent FSA branding, to communicate continuously with students throughout the full lifecycle of the loan.

FSA expects to select one EPS vendor to quickly begin migrating existing loans, including those in default, to a new “life of the loan” servicing program. This vendor will provide transitional business process operations (BPO) until multiple BPO vendors can be awarded contracts and ramp up under the separate BPO solicitation.

The BPO vendors will:

• Deploy multi-channel customer engagement methods (phone, email, chat, SMS text, etc.) to stress the importance of avoiding default by finding a solution that best fits each customer’s unique situation.
• Use improved analytics to better understand customer needs, to increase tracking of customer interactions, and to improve skip tracing.
• Initiate administrative actions at 270 days vs. the current practice of waiting until 400 days.
• Work under a compensation program that provides incentives based on default reduction.

Implementation is underway

The first NextGen deliverables included the “successful and on-time launch in October 2018 of the redesigned fafsa.gov website and a new mobile app, myStudentAid.” No doubt this is intended to lay the groundwork of evidence to counter future claims that FSA will be unable to deliver on time. Also, the contract for the comprehensive technology platform was awarded in February 2019 to Accenture Federal Services. This platform will consolidate all of FSA’s customer-facing websites and will streamline its systems and infrastructure. Major deliverables are due by August of this year, with full implementation expected by August 2020.

FSA anticipates selecting awardees for EPS (the interim servicing solution) and BPO (the permanent servicing solution) no later than September 30, 2019. All accounts are required to be migrated to the new process no later than 22 months after award (approx. December of 2020).

The “smalls” can handle the interim volume

• Based on historical data, 80 percent of defaulted borrower accounts are assigned to PCAs; the remaining 20% are not assigned for a variety of reasons.
• As of February 1, 2019 the total number of defaulted accounts assigned to any PCA is 7.6 million, with 4.8 million of them assigned to the 11 small PCAs (on average, 436,000 accounts per PCA). 1.1 million are assigned to the two large PCAs whose contracts expire in 2021. The five large PCAs with ATEs expiring next month have fewer than 15,000 accounts; these will be resolved or transferred to other PCAs.
• Small Business PCAs are now receiving 100% of all new assigned accounts. Later this year these PCAs will begin to receive the inactive accounts held by the two large PCAs whose contracts are not expiring until 2021.
• ED estimates that the number of borrowers in default will grow to 11.5 million by the end of 2024 (with 9.2 million – or 80% – being assigned out), but notes that this does not take into account the projected impact of the planned enhanced servicing strategy.
• In September 2018 ED requested that all PCAs provide month by month forecasts of the number of accounts they can accept. A summary of this data is included in the AR as an exhibit but it is currently not available to the public. ED reports that the Small Business PCAs have said they are able to quickly ramp up either through hiring or through subcontracting arrangements.
• As of October 2018, FSA staff meets monthly with each PCA to review and discuss a range of performance and quality data, as well as call monitoring reports produced by FSA. Minutes of several of these meetings are provided as one of those sealed exhibits to the AR.
• FSA estimates that the “smalls,” if necessary, could manage up to 17 million accounts by August 2019, which exceeds the actual estimate of what they will receive by over 10 million.
• Once the transition to the NextGen permanent BPO solution is complete, FSA expects to terminate the Small Business PCA contracts for convenience.

The “smalls” performance is as good as — or better than — the “bigs”

The AR includes the following table, which FSA says illustrates that the net collection rate (dollars collected through borrower payments, wage garnishments and treasury offsets minus fees paid to PCAs) has increased from 2.2 percent in 2016, when most accounts were assigned to Large Business PCAs (the bigs), to 2.3 percent in 2018, when most accounts were assigned to Small Business PCAs (the smalls).  

Finally, FSA includes performance data based on overall recovery rate — which includes both cash collected and collections through loan rehabilitation and consolidation — and highlights that the rate has declined from 15 percent in FY 2014 to 10 percent in FY 2018. They note that the decline began while accounts were still being placed with Large PCAs.

Based on the factors above, FSA concludes, cancellation of Solicitation No. ED-FSA-16-R-0009 is justified.

insideARM Perspective

This article is long enough already. Suffice it to say, the plaintiffs in the current case at the COFC see the facts in this AR differently. For now, I will just raise these questions:

• ED says they don’t need the bigs because they can renew the contracts of the smalls for five years. But, I understand that six of the eleven smalls are now actually big. So, are they still eligible for the five-year renewal on a small business contract?
• Evidently one of the 11 smalls hasn’t received any accounts yet in 2019 due to poor performance — and this firm’s estimated capacity was higher than the others. Does this change the math on how many accounts can be handled in the coming months?
• Is there any caselaw that supports the COFC taking action other than cajoling and encouraging? 

Also, evidently President Trump issued an Executive Order on Friday (I’ll write about that separately) regarding — I kid you not — free speech on college campuses. But, most of the Order is about paying for college. The President addresses the need to help borrowers avoid defaulting on their student loans “by educating them about risks, repayment obligations, and repayment options,” and gets into the weeds to list deliverables from the Department of Education, even specifically requesting recommendations for reforming the collections process for Federal student loans in default (emphasis added).

Okay, but….huh? Last Friday? While he was in Florida awaiting the Mueller report?  The timing is interesting.

On March 20, 2019, the Consumer Financial Protection Bureau (CFPB or Bureau) released its Fair Debt Collection Practices Act Annual Report. The report discusses trends in consumer complaints and in various debt collection markets. However, of greatest importance information to creditors and debt collectors alike is that the Bureau highlightscertain verification of debt practices where the creditor — rather than the debt collector — directly responds to a consumer’s debt validation request.

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Verification of Debt Practices

In the Supervisory Activities section of the report, the Bureau notes that one or more debt collectors continued collection activity despite not properly obtaining and mailing debt verification after a consumer exercised his or her 1692g rights. Specifically, the Bureau calls out the practice where “debt collectors forwarded consumer debt validation requests to the relevant clients, who mailed responses directly to the consumers.” In the immediately-preceding sentence, the report summarizes the FDCPA, which states that the debt collector is to cease collection activity until it obtains and mails verification of debt to the consumer. The report also notes that “one or more debt collectors accepted client determinations, as reflected by a code that the client entered into a shared system of record that the debt was owed by the relevant consumer for the amount claimed without taking any steps to verify the debt and without mailing the required verification to consumers.”

In response to the Bureau’s findings, the debt collectors in question revised their debt validation policies, procedures and practices to comply with the FDCPA.

Editors’ Note: It might be time to change policies and procedures, and also to inform creditor clients of this report, if the creditor client currently sends verficiation of debt directly to the consumer.

Debt Collection Market Trends

Consumer debt surpassed its 2008 peak in 2017 and was at a new high in Q4 2018, with a balance of $13.54 trillion. The Bureau notes that this number is not adjusted for population growth. 28% of consumers with a credit file have a debt collection tradeline.

Editor’s Note: This might not account for all accounts in debt collection. There was a drop in reported collections accounts after the implementation of the National Consumer Assistance Plan. Additionally, some debt collectors stopped reporting accounts to credit bureaus due to credit repair organizations’ scheme of mass-mailing largely identical dispute letters in hopes of strong-arming FCRA settlements from collectiohn agencies.

The growth in the outstanding consumer debt balance is largely attributed to the growth in debt related to credit cards, student loans, and auto loans.

The Bureau’s market research shows that banking or financial services debt is the largest source of revenue for the industry, accounting for 40% of debt collection revenue in 2018. It is followed by telecommunications debt, the “other” category, and healthcare.

The Bureau’s report notes that 90+ day delinquencies in auto loans have been steadily increasing since 2012 “after years of increased lending to subprime borrowers.”

Consumer Complaints

In 2018, the Bureau received 81,500 consumer complaints related to first and third party debt collection.

The report further breaks down each of the above-listed complaint types by specific allegation. The top three break down as follows:

For complaints regarding attempts to collect a debt not owed:

• 53% are related to debt that does not belong to the consumer.
• 23% are related to debt that was previously paid.
• 20% are related to debt that resulted from identity theft.
• 4% are related to debt that was discharged in bankruptcy.

For complaints regarding written notification about a debt:

• 72% are related to the consumer not receiving enough information to verify the debt.
• 25% are related to the consumer not receiving notification of dispute rights as required by section 1692g.
• 3% are related to not notifying the consumer that the communication is an attempt to collect a debt.

For complaints regarding communication tactics:

• 55% are related to repeated calls, either receiving several calls a day or receiving calls consistently over several months.
• 31% are related to continued contact despite requesting no more communication.
• 11% are related to the use of obscene, profane, or abusive language.
• 4% are related to calling outside of the FDCPA’s statutorily-mandated calling hours.

Debt Collection Rulemaking

The Bureau reaffirms that it expects to issue a Notice of Proposed Rulemaking in spring 2019, which will address communication practices and consumer disclosures.

insideARM Perspective

This report is chock-full of information for debt collectors and it is worth a read in its entirety. The Bureau calling out the verification of debt issue is most notable to debt collectors and creditors alike because it provides specific guidance on how to comply with the FDCPA. If an agency currently sends verification requests to the creditor and the creditor sends the debt validation directly to the consumer, it is time to revisit your policies and procedures. Since validation procedures are largely dictated by creditor clients, it would be a good idea for debt collectors to send this report to their creditor clients if they find themselves in this position.

The TCPA is so much fun. I mean, apart from all of its horrors and heartache.

Today we close another chapter of what-never-should-have-been in that great Book of TCPA lore I call life.

Back in 2006 the FCC decided to require opt-out notifications to prominently appear on the front of solicited faxes. If a solicited fax was sent without the notification the faxer faced liability for $500.00 per fax, minimum. This was quite the change from the existing rule of… nothing being required on such faxes. As you might imagine, with the trap set people began suing for receipt of faxes–even faxes that were specifically requested–that lacked the newly-required opt-out notifications.

So very many lawsuits followed. Many of those lawsuits were class actions. Many were certified. Millions of dollars were spent litigating and settling these suits. Faxers who had been caught unaware by the ruling lined up to submit petitions for retroactive waivers for exemptions from the retroactive application of the FCC’s new take on the content of invited faxes. What a mess.

Then we found out that the solicited fax rule was entirely illegal because the FCC never had the authority to regulate solicited faxes to begin with. See Bais Yaakov of Spring Valley, et al. v. FCC, 852 F.3d 1078, 1083 (D.C. Cir. 2017).

Lovely.

So all of the time, money, and consternation wasted battling the hundreds of TCPA cases the solicited fax rules spawned was entirely for naught. A byproduct of an FCC ruling it never had authority to make.  (BTW– this headache continues to this very week. On Monday a court issued a ruling addressing the solicited fax rule in the aptly-named follow-on case of Bais Yaakov of Spring Valley v. Educ. Testing Serv., No. 13-CV-4577 (KMK), 2019 U.S. Dist. LEXIS 43985 (S.D.N.Y. March 18, 2019). So the beat goes on.)

But somehow things get even more interesting.

The Supreme Court has very notably granted cert. to determine whether or not the FCC’s rulings under the TCPA have binding effect under the Hobbs Act. See  PDR Network, LLC v. Carlton & Harris Chiropractic, Inc., No. 17-1705, 2018 WL 3127423 (U.S. Nov. 13, 2018). The outcome of that determination will have a huge impact on TCPAworld– the Court may find that the FCC rulings are not, and never were, binding on district courts. It may also alter the court/agency power paradigm forever if the Court also takes up the related question of  Chevron deference.

And here’s the rub– do you know what the vehicle used for the Supreme Court’s Hobbs Act review is? You guessed it–the very same 2006 Junk Fax rule that contained the solicited fax rule.

Interesting, no?

Well even more interestingly, in what may have been an an act of expert trolling–or just a coincidence–the FCC issued a rule withdrawing that portion of the Junk Fax ruling containing the solicited fax rule the day after the Supreme Court granted cert to review different portions of the same order. That Order can be found here: FCC Order on Junk Faxes

All of which leads us to today– Solicited Fax Freedom Day in TCPAWorld. (Its sort of like Bastille day, but with fewer beheadings.)  For today is the day that the FCC’s post Bais Yaakov ruling finally takes effect and the solicited fax rule is officially withdrawn ending 13 years of (figurative) bloodshed in federal courthouses over the content of solicited faxes.

We made it to the promised land folks. Sort of.

—

Editor’s note: This article is provided through a partnership between insideARM and Squire Patton Boggs LLP, which provides a steady stream of timely, insightful and entertaining takes on TCPAWorld.com of the ever-evolving, never-a-dull-moment Telephone Consumer Protection Act. Squire Patton Boggs LLP — and all insideARM articles – are protected by copyright. All rights are reserved.  

Today, in a unanimous decision, the U.S. Supreme Court found that law firms performing nonjudicial foreclosures are not debt collectors under the Fair Debt Collection Practices Act (FDCPA). The Supreme Court’s decision in Obduskey v. McCarthy & Holthus LLP, No. 17-1307 (Mar. 20 2019) can be found here.

The court found that while McCarthy & Holthus LLP is subject to the FDCPA’s provisions specifically related to enforcing a security interest, it is not subject to the remaining provisions of the statute since it does not fall within the scope of the primary definition of “debt collector.”

Most persuasive to the court was the text of the FDCPA itself, which provides a limited purpose definition as it relates to enforcing security interests. The statute states that “for the purpose of section 1692f(6),” the term debt collector “also includes” [emphasis added] those enforcing security interests. The court was satisfied that using the term “also” means that entities that enforce security interests do not fall into the primary definition of debt collector.

A look at the FDCPA’s legislative history, according to the Supreme Court, further supports this. The language of the statute was the result of a compromise between competing versions of the bill, one of which completely excluded security interest enforcement from the statute.

The court was unconvinced by Obduskey’s argument that the limited-purpose definition was meant to apply to those who enforce security interests but have no direct communication with consumers, such as “repo men” who repossess vehicles in the dark of night. This was a topic hotly debated at the oral arguments for this case back in January. In its final decision, the Supreme Court noted that many state laws require communication with the debtor during the repossession process.

In a concurring opinion, Justice Sotomayor invites Congress to clarify the statute if the Supreme Court read the opinion wrong and stresses that the Court’s opinion does not give “blanket immunity” to those enforcing security interests.

U.S. Supreme Court cases are binding in all jurisdictions, both federal and state, in the United States.

Balance billing in healthcare is back in the limelight. An article published by NBC News highlights the experience of a Colorado patient who received a surgery at an in-network hospital, but the surgeon who operated on her was out-of-network. The result was a “surprise” bill, which ended up with a collection agency after it was not paid. The collection agency filed a lien on the patient’s home and began garnishing the patient’s wages.

Balance — or “surprise” — billing refers to the practice where healthcare providers request payment from patients for the difference between the cost of the medical services provided and the amount covered by the patient’s insurance company.

Several states have taken the initiative to protect their residents from receiving these surprise invoices. States that have already enacted balance billing laws include:

• Arizona — law went into effect at the end of December 2018.
• New Jersey — law went into effect in September 2018.
• Texas — law went into effect in September 2017.
• Oregon — law went into effect June 2017.

A few similar bills have been introduced on the federal level, such as the End Surprise Billing Act of 2019 (H.R. 861) and No More Surprise Medical Bills Act of 2018 (S.3592).

insideARM Perspective

This problem is bigger than all of us, especially as it relates to emergency procedures. Patients deserve to know how much they will have to pay out-of-pocket for medical services. Doctors and hospitals deserve to get paid. Collection agencies should be able to pursue legitimate unpaid bills through respectful and legal means. Insurance companies should be able to comprehend their true risk as they calculate premium rates. The complexity associated with the need for all points of contact to understand who will pay what for whom and when — often at a moment’s notice — is mindboggling.

I’d be very interested to learn the impact of the balance billing legislation enacted in recent years. Will the fact that it’s illegal to send a balance bill force more doctors to take more insurance plans? Will there be unintended consequences? 

Let this be a lesson that all is not lost if the judge rules against a debt collector at the summary judgment phase. The case at issue is Al v. Van Ru Credit Corp., No. 17-cv-1738 (E.D. Wisc.). Back in January, insideARM published an article about the judge denying defendant’s summary judgment motion, finding that the question of whether defendant’s letter was deceptive or misleading was best left to a jury. Well, the jury spoke and it found in Van Ru’s favor.

At issue in this case was whether instructing a consumer to act “promptly” confuses the consumer as to the time frame of the offer. The full sentence in the letter states:

The balance you owe as of the date of this letter is $462.31. Presently, we are willing to accept $277.39 to settle your account provided that you act promptly. We are not obligated to renew this offer.

The plaintiff also alleged that the phrase “we are not obligated to renew this offer” gives the impression that defendant could rescind the offer at any time without notice despite not being allowed to do so.

Despite the summary judgment denial (which included a denial of summary judgment on the bona fide error defense) and a class being certified, Van Ru continued the fight through trial. According to Van Ru’s counsel at Messer Strickler, Ltd., the jury deliberated for 24 minutes before deciding that Van Ru’s letter did not violate the Fair Debt Collection Practices Act.

When insideARM spoke to Nicole Strickler of Messer Strickler, Ltd., about the case, she commented:

Taking a case to trial is a tough decision for any company. But, when you have good facts, taking a case to trial can serve as a persuasive deterrent to mill consumer shops. We are proud to have represented Van Ru to a successful outcome in this case.

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A recent decision in the Northern District of Illinois (N.D. Ill.) suggests that even if the consumer and his or her attorney knowingly contrived a Fair Debt Collection Practices Act (FDCPA) violation, the debt collector is not entitled to a defense under the “unclean hands” doctrine. The legal theory of “unclean hands” suggests that a plaintiff who acted unethically or in bad faith in regards to the facts in the complaint should not be entitled to damages based on their own bad acts.

The case is Francisco v. Midland Funding LLC et al., No. 17-cv-6872 (N.D. Ill. Mar. 15, 2019). Plaintiff defaulted on a debt that was placed with Midland Credit Management (MCM) for collection. MCM follows a certain schedule regarding credit report files where it compiles reports on the first and third Monday of each month and sends the reports to the credit bureaus on the following Friday. According to the factual background in the decision:

Likely knowing this schedule, Francisco’s counsel sent a letter to MCM disputing Francisco’s debt on Sunday evening, August 20, 2017, hours before MCM compiled a batch of reports. Though MCM quickly processed Francisco’s dispute, because by that point MCM had already compiled its batch of disputes, MCM reported Francisco’s debt to Equifax on Friday, August 25, 2017, without reporting that it was disputed, in violation of 15 U.S.C. § 1692e(8).

MCM argued that plaintiff should not be entitled to relief in this case because her counsel intentionally timed the letter to cause a violation. In other words, MCM argued that the unclean hands doctrine applied.

While acknowledging that the court is not foreclosing the possibility that debt collectors can rely on defenses other than those specifically listed in the statute, the court refused to extend this to the unclean hands doctrine, arguing that it goes against the text and spirit of the FDCPA.

According to the court, unclean hands shifts the focus of attention to the consumer’s actions, rather than those of the debt collector. The court states:

Permitting a debt collector to commit FDCPA violations when the consumer’s counsel might have contrived the violation (or the consumer is otherwise unworthy in equity) would impermissibly shift the focus back toward the consumer’s wrongdoing, which the text, structure, and history of the FDCPA do not allow. Allowing an unclean hands defense would transform the rule from “Debt collectors may not make false claims, period,” to “Debt collectors may not make false claims, comma.”

[internal citations omitted.]

The court continues:

If the debt collector could probe the consumer’s or counsel’s actions for unclean hands, FDCPA litigation would devolve into disputes over the plaintiff’s and counsel’s actions and motivations, even where, as here, the FDCPA violation is clear. Debt collectors could mire the consumer in discovery irrelevant to the violation, making litigation costlier. And allowing counsel’s actions and motivations to prevent recovery for FDCPA violations could also chill counsel from taking steps to root out violations, hindering one of the FDCPA’s key enforcement mechanisms.

insideARM Perspective

The decision misses two major points. First, the FDCPA, when enacted, likely did not contemplate the cottage industry of plaintiffs’ counsel filing mass claims on hyper-technical issues. These suits take advantage of the gaps within the FDCPA that cause compliance confusion for well-meaning businesses who genuinely try to comply with the laws. Second, the court references the FDCPA’s key enforcement mechanisms, turning a blind eye to the creation of the Consumer Financial Protection Bureau since the statute’s enactment.

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The litigation dilemma issue has been thoroughly discussed on insideARM. Even courts are noticing a clog in their dockets with FDCPA claims, one judge going as far as finding that FDCPA litigation has become a debt evasion statute and one “to prop profits among the plaintiffs’ bar.” This decision is not helpful considering the current trend in credit repair organizations filing mass credit disputes, which overtake a debt collector’s resources to process and ultimately harms consumers with genuine disputes.