Archives for September 2020

Yesterday, the New York Department of Financial Services (NYDFS) announced that it filed its first enforcement action against a debt collector under New York’s Debt Collection Regulations. NYDFS brought its statement of charges against Forster & Garbus for allegedly violating the state’s substantiation of debt requirements.

New York’s debt collection regulations require that, upon a consumer’s request, debt collectors provide certain documents to the consumer within 60 days in order to substantiate the debt. The statement of charges alleges that in certain instances, the debt collector failed to provide substantiation, or provided insufficient substantiation to comply with the regulation’s specific requirements.

Certain examples include:

• “CONSUMER-1 requested that Respondent provide her with information to substantiate whether she actually owed the student loan debt in question. In response to this valid request, Respondent immediately filed a lawsuit against CONSUMER-1. With regard to the outstanding substantiation request, Respondent blithely informed CONSUMER-1 in writing that she should “refer to the Summons and Complaint” in the newly-filed lawsuit.”
• “CONSUMER-2 disputed that CONSUMER-2 owed any student loan debt whatsoever, and requested proof of debts owed. Rather than providing CONSUMER-2 with substantiation of debt, Respondent delayed sending any response to CONSUMER-2, sending a response more than 120 days later. In the response, sent well beyond the 60-day time limit established by law, Respondent conceded it would no longer pursue the alleged debts owed.”
• “CONSUMER-4, an individual in financial distress, questioned whether a debt actually belonged to her. CONSUMER-4 also relayed to Respondent that her financial distress was such that she was on the brink of homelessness. In response, Respondent merely provided a single document: a judgment obtained four years prior. The judgment, moreover, reflected a debt of substantially lesser value than the amount sought by Respondent from CONSUMER-4.”

A hearing for this action is scheduled for January 21, 2021.

insideARM Perspective

NYDFS is showing its fangs here and makes a very loud statement to debt collectors: substantiate or else. The statement of charges specifically states:

If a debt collector cannot satisfy the obligation to provide substantiation of debt or forgive a debt, the debt collector will not avoid potential violations by returning the debt to the creditor. Debt collectors must have the proper documents before collecting on debt.

According to the regulator’s press release, the Superintendent of Financial Services states:

Consumer protection is the center of everything we do at DFS. It is especially important for New Yorkers to have access to appropriate and accurate financial information during this stressful time – so they can protect their rights and make financial decisions in their own best interest.

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GREENVILLE, S.C. — InvestiNet, LLC, is pleased to announce the hiring of Dennis Jefferson as Director of Performance Management. Mr. Jefferson joins InvestiNet with more than 20 years of industry experience.  

In his new position, he will be responsible for the oversight and performance of our firm and agency partners. Armed with a suite of tools from digital, legal, and post judgment remedies, he is excited to visit clients and network partners soon to discuss our rapidly changing landscape and best in class service for our client’s inventory.   

Mr. Jefferson has worked for mortgage issuers, debt buyers, and credit unions. His background and skills include oversight in transaction support, bankruptcy, audit, portfolio operations, performance management, analytics, and most recently creating a business intelligence platform for a member owned financial cooperative.    

In addition, InvestiNet is happy to announce the promotion of Bethany Cayton to Senior Manager of Client Services. Ms. Cayton has worked in Client Services at InvestiNet since 2016. Throughout her tenure, she has employed an organized and dedicated approach to every aspect of client performance, audit, onboarding, and reporting.  “We are thrilled to be announcing Bethany’s promotion.  This is not the first promotion she has earned over her years at InvestiNet. We’d like to publicly thank her for her commitment to our clients, our culture, and performance,” said Howard Barnard, EVP of Business Development.  

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About InvestiNet 

Established in 2011, InvestiNet is an award-winning accounts receivable management firm. Our unmatched investigation and legal enforcement network allow us to unlock the hidden value in our clients’ inventories. With a focus on compliance and attention to detail,  we strive to provide our client and partners with customized, industry-leading recovery solutions. For additional information, please contact Howard Barnard at howard@investi-net.com, visit www.investinet.com, or follow InvestiNet on LinkedIn at https://www.linkedin.com/company/investinet-llc.  

In this episode of the Debt Collection Drill podcast, Moss & Barnett attorneys discuss the recent, historic changes to the laws restricting debt collection and how agencies can comply.  

You can listen to the episode here.

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Editor’s note: This podcast episode is provided through an exclusive industry partnership between insideARM and Clark Hill, PLC. Podcast host Joann Needleman, a leading financial services attorney and member of the iA Legal Advisory Board, provides bite-sized hot topics in the consumer finance space. ClarkHIll content—and all insideARM articles—are protected by copyright. All rights are reserved. 

Show Notes

The pandemic has forced financial services companies to think differently and move toward technology in order to be more consumer-focused. In the inaugural Credit Eco to Go podcast, Tim Collins, General Counsel and Chief Compliance Officer of True Accord, tells us that the trend of “work from home” and the increase in consumer demand for technology is not going away. Listen as Tim and I discuss some positive outcomes fueled by this crisis, which will ultimately enhance the credit ecosystem. 

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DISCLAIMER – No information contained in this Podcast or on this Website shall constitute financial, investment, legal and/or other professional advice and that no professional relationship of any kind is created between you and podcast host, the guests or Clark Hill PLC. You are urged to speak with your financial, investment, or legal advisors before making any investment or legal decisions.   

Funk Game Loop by Kevin MacLeod
Link: https://incompetech.filmmusic.io/song/3787-funk-game-loop
License: http://creativecommons.org/licenses/by/4.0/

Last year, in the Amerifactors Declaratory Ruling, the Federal Communications Commission’s (FCC) Bureau on Consumer and Governmental Affairs (Bureau) ruled that “an online fax service that effectively receives faxes ‘sent as email over the Internet’ and is not itself ‘equipment which has the capacity . . . to transcribe text or images (or both) from an electronic signal received over a regular telephone line onto paper’ is not a ‘telephone facsimile machine’ and thus falls outside the scope” of the Telephone Consumer Protection Act’s prohibition on unsolicited fax advertisements.

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At the time, there was also pending with the agency a Petition filed in 2015 by Joseph T. Ryerson & Son, Inc. (Ryerson) asking the FCC to clarify that, among other things, “messages that are initiated and received in digital form are not covered by the TCPA” because “such transmissions are most closely analogous to an email than a traditional fax.” On September 4, the Bureau, finding that “Ryerson’s technology is similar to the technology” it had addressed in Amerifactors, granted the Ryerson request “because the petitioner did not send an unsolicited advertisement to a telephone facsimile machine under the TCPA.”

Ryerson was the defendant in a lawsuit by one of its customers, Connector Castings, Inc., claiming a TCPA violation. The petitioner explained to the FCC the three-step transmission process as follows: “(1) Ryerson employee uploaded the digital file to [a Web Portal managed and owned by an unaffiliated third-party provider of communications tools]; (2) the third party transmitted the Ryerson digital file to Connector’s RingCentral Office@Hand account; and (3) the Ryerson file was received by Connector from its Office@Hand account as an email file.”

The Bureau reviewed its rationale in Amerifactors and concluded that “[a]s in Amerifactors, the document here, which was received by Connector’s Office@Hand online service, was ‘effectively an email’ sent over the Internet by the third-party service and not covered by the TCPA.” Further, “an online service cannot itself print a fax and thus is ‘plainly not ‘equipment which has the capacity . . . to transcribe text or images (or both) from electronic signal received over a regular telephone line onto paper and thus does not meet the statutory definition of a ‘telephone facsimile machine.’”

The Bureau also distinguished the Ryerson scenario from an “efax”, which it had addressed in its 2015 Westfax Declaratory Ruling. That ruling distinguished faxes that began as faxes from those that did not and the “TCPA applies only to documents that begin as faxes.”

The Bureau disagreed with commenters who argued that the TCPA should be applied to “protect consumers from transmissions converted to email.”  Unpersuaded, the Bureau again repeated, “the TCPA does not apply to documents that are sent as email over the internet and received as email.” Moreover, the fact that they might ultimately be sent to a computer that could print them out did not change the analysis. “Virtually all email could be accessed by computers with printing capabilities; yet emails do not implicate the consumer harms that are the TCPA’s target, such as automatic printing.”

The Declaratory Ruling became effective upon its September 4, 2020 release. It should be read as limited to the facts on which the Bureau based its action. As the Bureau noted – [w]e are basing our determination solely on the facts in the record….”

—

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. 

Court decisions have long ago established that the bona fide error defense generally applies only to mistakes of fact, not mistakes of law. What does that mean? In the context of listing the amount of debt owed in a collection letter, the bona fide error would typically apply—assuming all other elements are met—in situations where there is a typographical error or a faulty math calculation. However, it would not apply where the debt collector misinterpreted how to comply with the Fair Debt Collection Practices Act (FDCPA). A recent case out of the District of Arizona shows an example of the latter.

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So, what happened?

In Bazan v. Hammerman & Hultgren PC, the defendant—a collection law firm—sent a letter to the consumer that stated the amount of debt owed as “the sum of $6,162.30, plus accrued interest in the sum of $691.90, plus accruing interest at the contract rate of 24.99% per annum from after April 16, 2019.” The consumer sued, alleging that the letter violated the FDCPA because it was unclear what amount of debt was actually due and it was deceptive. 

The consumer filed a partial motion for judgment on the pleadings—which is, in essence, a request for judgment on the merits of the case, but made at the early stage of litigation. The consumer argued that the problematic statement could be read in three different ways, at least one of which would be false:

1. That $691.90 represents the interest accrued between April 16, 2019, and the letter date.
2. That the balance is $7,980.60 (including the identified interest plus the additional interest assessed on the original $6,162.30 amount).
3. That the balance is $8,107.17 ( including the identified interest plus the additional interest assessed on the sum of the original amount AND the identified interest).

The court notes:

Although a generally astute or savvy individual might push back against one or more of these interpretations as less likely though not wholly impossible, the least sophisticated debtor standard “ensure[s] that the FDCP protects all consumers, the gullible as well as the shrewd . . . the ignorant, the unthinking and the credulous.”

With this in mind, the court concluded that an FDCPA violation occurred. Among several other arguments made, the defendant argued that it should be relieved of liability because the bona fide error defense applies. The court, however, rejected this line of thinking, stating:

The bona fide error defense is inapplicable here because the violations alleged—making a deceptive representation and failing to effectively convey a debt—arise from legal judgments as to FDCPA obligations; they are not typos, faulty math calculations, or misprints.

With that, the court granted the partial motion for judgment on the pleadings in favor of the consumer.

insideARM Perspective

Effectively, the court found that issues related to the phrasing used by debt collectors in their collection letters don’t qualify for the bona fide error defense. Some examples of cases where the bona fide error did apply to the situation can be found in this article.

For an in-depth review of the bona fide error defense, iA Case Law Tracker subscribers can click here to see a full list of court decisions that discuss the bona fide error defense (there have been 53 since 2018), including short summaries of each case and a quick overview of where things worked and where they didn’t.

Not an iA Case Law Tracker subscriber? You can be! Subscribe here.

Court decisions have long ago established that the bona fide error defense generally applies only to mistakes of fact, not mistakes of law. What does that mean? In the context of listing the amount of debt owed in a collection letter, the bona fide error would typically apply—assuming all other elements are met—in situations where there is a typographical error or a faulty math calculation. However, it would not apply where the debt collector misinterpreted how to comply with the Fair Debt Collection Practices Act (FDCPA). A recent case out of the District of Arizona shows an example of the latter.

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So, what happened?

In Bazan v. Hammerman & Hultgren PC, the defendant—a collection law firm—sent a letter to the consumer that stated the amount of debt owed as “the sum of $6,162.30, plus accrued interest in the sum of $691.90, plus accruing interest at the contract rate of 24.99% per annum from after April 16, 2019.” The consumer sued, alleging that the letter violated the FDCPA because it was unclear what amount of debt was actually due and it was deceptive. 

The consumer filed a partial motion for judgment on the pleadings—which is, in essence, a request for judgment on the merits of the case, but made at the early stage of litigation. The consumer argued that the problematic statement could be read in three different ways, at least one of which would be false:

1. That $691.90 represents the interest accrued between April 16, 2019, and the letter date.
2. That the balance is $7,980.60 (including the identified interest plus the additional interest assessed on the original $6,162.30 amount).
3. That the balance is $8,107.17 ( including the identified interest plus the additional interest assessed on the sum of the original amount AND the identified interest).

The court notes:

Although a generally astute or savvy individual might push back against one or more of these interpretations as less likely though not wholly impossible, the least sophisticated debtor standard “ensure[s] that the FDCP protects all consumers, the gullible as well as the shrewd . . . the ignorant, the unthinking and the credulous.”

With this in mind, the court concluded that an FDCPA violation occurred. Among several other arguments made, the defendant argued that it should be relieved of liability because the bona fide error defense applies. The court, however, rejected this line of thinking, stating:

The bona fide error defense is inapplicable here because the violations alleged—making a deceptive representation and failing to effectively convey a debt—arise from legal judgments as to FDCPA obligations; they are not typos, faulty math calculations, or misprints.

With that, the court granted the partial motion for judgment on the pleadings in favor of the consumer.

insideARM Perspective

Effectively, the court found that issues related to the phrasing used by debt collectors in their collection letters don’t qualify for the bona fide error defense. Some examples of cases where the bona fide error did apply to the situation can be found in this article.

For an in-depth review of the bona fide error defense, iA Case Law Tracker subscribers can click here to see a full list of court decisions that discuss the bona fide error defense (there have been 53 since 2018), including short summaries of each case and a quick overview of where things worked and where they didn’t.

Not an iA Case Law Tracker subscriber? You can be! Subscribe here.

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. 

The Federal Communications Commission (FCC) has released its next initiative “to continue the FCC’s work to implement the TRACED Act and promote the deployment of caller ID authentication technology” (i.e., STIR/SHAKEN). This next step would “adopt rules implementing many of the proposals [the agency] made in the First Caller ID Authentication Report and Order and Further Notice. Among other things, [the proposal would] adopt rules governing intermediate providers and caller ID authentication in non-IP networks, we implement the exceptions and extensions established by the TRACED Act, and we prohibit line-item charges for caller ID authentication.”

In a proposed Second Report and Order circulated on September 9, 2020, Chairman Ajit Pai is asking his fellow Commissioners to approve the following additional requirements to combat illegal robocalls:

• Require voice service providers to either upgrade their non-Internet Protocol (IP) networks to IP and implement STIR/SHAKEN, or work to develop a non-IP caller ID authentication solution.
• Establish extensions of the June 30, 2021 caller ID authentication implementation deadline for small voice service providers, voice service providers that are currently incapable of obtaining a “certificate” necessary to implement STIR/SHAKEN, services scheduled for discontinuance, and non-IP networks.
• Require voice service providers subject to an extension to implement a robocall mitigation program on the non-STIR/SHAKEN-enabled portions of their networks.
• Require all voice service providers to file a certification in a Commission database showing how they are acting to stem the origination of illegal robocalls.
• Establish a process by which providers that make early progress on caller ID authentication implementation can obtain an exemption from the June 30, 2021 deadline, as required by the TRACED Act.

• Prohibit voice service providers from adding any line item charges to the bills of consumer or small business customer subscribers for caller ID authentication technology, as required by the TRACED Act.

• Require intermediate providers to implement the STIR/SHAKEN caller ID authentication framework in the IP portions of their networks by June 30, 2021.

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The full FCC is expected to vote on the proposal at its meeting on September 30, 2020. In the meantime, for the next two weeks, interested parties can engage the Commission staff and Commissioners to seek changes.

Last week, the Consumer Financial Protection Bureau (CFPB) released the summer edition of its Supervisory Highlights, and it sounds like one debt collector got hit particularly hard for practices related to credit reporting. Overall, the Highlights discussed the CFPB’s observations from September 2019 through December 2019 and also made mention of the CFPB’s activity related to COVID-19 and its fallout. Read on for a summary.

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Several FCRA-related violations for a now-shuttered third-party debt collector

The Highlights start off with a bang by discussing several credit reporting-related violations by a third-party debt collector that has since ceased operations. The issues deal with the date of delinquency reported and the requirement to conduct reasonable investigations of disputes. 

Regarding the date of delinquency, the CFPB notes that at least this particular debt collector guessed as to the date of delinquency. For example, they’d use the date that a telecommunications company cut off service or the charge off date when, in fact, those two steps usually occur several months after the first delinquency. What can our readers do about this? Get the date of delinquency from your creditor clients, and this advice is straight from the Highlights:

In one or more examinations of third-party debt collection furnishers, examiners found that the furnishers failed to establish and follow reasonable procedures to obtain the actual date of first delinquency from their clients.

The CFPB also noted that one or more third-party debt collectors—including the now-defunct one—failed to conduct reasonable investigations of both direct and indirect disputes. A statement from the Highlights shows what the CFPB expects regarding such investigations:

In one or more examinations, examiners found that, for both direct and indirect disputes, the furnishers failed to review underlying account information and documentation, account history notes, or dispute-related correspondence provided by the consumer to assess what reasonable investigative steps would be necessary.

The CFPB notes that staffing and high daily dispute resolution requirements prevented the debt collector from fulfilling this requirement. While later in the Highlights the CFPB discusses the flexibility it is providing to companies during the COVID-19 pandemic—including flexibility with credit reporting dispute resolution timeframes so long as the entity is making a good faith effort—the violations referenced above occurred in Q4 of 2019, which is prior to COVID-19’s impact.

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Debt collection highlight—threats everywhere

There were three specific findings in the Highlights related to the debt collection/FDCPA topic, and they all revolved around different types of threats and credit reporting. There were false threats of litigation when the entity could not legally file a lawsuit, and also misrepresentations made about the litigation process. There were also false threats to credit report if the debt was not paid by a certain date when the debt collector did not credit report for the specific creditor client in question. 

The US Department of Education (ED) in implementing the President’s executive order of August 21, 2020, has clarified the rehabilitation benefits for former student borrowers who have defaulted on a federal student loan.  Essentially, ED has extended the CARES Act benefits through December 31^st.

For more information, see https://studentaid.gov/announcements-events/coronavirus

Student Loan Rehabilitation is by far the most popular program allowing borrowers with eligible defaulted loans to complete the required documents, make nine payments in ten months and their loans move back to a current status once all these requirements are complete.  However, now borrowers do not have to make payments until January 2021 and still receive credit as if they made a payment each month through December 2020.  For example, a borrower completing the required documentation would receive credit for making their first payment in September of 2020 can rehabilitate in May 2021.  They would receive payment credit for four months (September – December) and then make payments from January through May. Borrowers starting in September would only have to make five payments having received the CARES Act payment benefit for four months.   

A little-known part of this benefit is that borrowers with defaulted loans who initiate a call can request participation in the program, submit all documentation and receive the payment waiver benefit for the monthly payments through December 2020.

Borrowers who were already in the rehabilitation program and the few who have taken the initiative to call and submitted their documentation have been receiving credit for payments as if they were made as early as March 13, 2020.  Millions of these loans currently not in the program. These loans are being serviced by collection agencies who are prohibited from outbound calling to offer this voluntary program. 

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Rehabilitating a defaulted loan may have several benefits including a possible increase in an individual’s credit score, eligibility for additional student aid, no longer having income tax refunds offset to pay a defaulted loan and removing the remaining collection costs of 17.92% at the time of rehabilitation. When a loan defaults, ED adds 17.92% collection costs to the balance and initiates the process to certify the loan for the Treasury Offset Program. Income tax refunds can then be offset and applied to the balance of their account. Any tax return submitted after the rehabilitation is successfully completed and the loan is moved back to a current status would not be eligible for offset on the rehabilitated debt.

Forbes reports the average student loan debt for the 2018 graduating class is $29,200. Adding collection costs on this amount of 17.92% is $5,232.64.(1)  Depending upon the current balance at the time of rehabilitation, the waiver of collection costs may be significant and is reason alone to complete the rehabilitation program.

While much has been published about the CARES Act benefits, to our knowledge there has been no specific article addressing how these millions of borrowers can simply call and request participation in the rehabilitation program.  It should be noted that calling a collection agency will not result in any demands for money, they are restricted to addressing questions and facilitating the process to rehabilitate defaulted loans.  Additionally, not all loans are rehabilitation eligible as this program can only be used one time. If a borrower rehabilitated a loan previously, that loan may not be rehabilitated a second time.  Any questions about eligibility can be answered if a borrower simply inquires.

Time is of the essence to take advantage of these benefits. This web page https://studentaid.gov/manage-loans/default/collections lists all the contact information for the collection agencies or you may telephone ED’s Default Resolution Group at 1-800-621-3115.

1 https://www.forbes.com/sites/zackfriedman/2020/02/03/student-loan-debt-statistics/#17dcd04c281f