Archives for August 2021

The U.S.
Court of Appeals for the Sixth Circuit recently reversed a trial court order
granting summary judgment in favor of the defendant on a consumer’s claim that
the defendant violated the federal Fair Debt Collection Practices Act.

In so ruling, the Sixth Circuit
held that, even though the defendant’s failure to properly identify itself in
the phone calls confused the plaintiff and led to him sending a cease and
desist request to the wrong entity, confusion by itself does not establish “a
concrete injury for Article III purposes.” 

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Therefore, the Court held, the
consumer did not suffer “more than a bare procedural violation of the FDCPA” as
required to establish the standing necessary to pursue his claims. 

A copy of
the opinion in Ward v. Nat’l Patient Account
Servs. is available at:  Link to Opinion.

The
consumer incurred medical expenses after treatment with a medical provider. The
provider hired a company to collect the debt. The collection company allegedly
left several voice messages while attempting to collect the debt.

The consumer filed suit alleging
claims against the collection company (“defendant”) under the FDCPA arising out
of the alleged voice mails where the defendant did not accurately identify
itself.  The consumer claimed that the defendant’s failure to accurately
provide its correct legal name confused him.  As a result of this
confusion, the consumer allegedly sent a cease and desist letter to the wrong
entity.

Specifically, the consumer
claimed that the defendant violated section 1692d(6) of the FDCPA, which
provides that a “debt collector may not engage in any conduct the natural
consequence of which is to harass, oppress, or abuse any person in connection
with the collection of a debt[,]” including the “placement of telephone calls
without meaningful disclosure of the caller’s identity.” 

The consumer also claimed that
the defendant violated section 1692e(14), which provides that a “debt collector
may not use any false, deceptive, or misleading representation or means in
connection with the collection of any debt[,]” including “us[ing] any
business, company, or organization name other than the true name of the debt
collector’s business, company, or organization.”

The defendant moved for summary
judgment arguing that it did not meet the definition of a debt collector under
the FDCPA, and the trial court granted the motion. This appeal followed.

On appeal, the defendant argued
that the consumer lacked Article III standing. Although the defendant did not
raise this issue with the trial court, the Sixth Circuit observed that it has
an independent obligation to determine its jurisdiction to hear an appeal.

As you may recall, standing
requires that the “plaintiff must have (1) suffered an injury in fact, (2) that
is fairly traceable to the challenged conduct of the defendant, and (3) that is
likely to be redressed by a favorable judicial decision.” The plaintiff bears
the burden of setting forth facts that demonstrate standing. 

The issue in this appeal was
whether the plaintiff suffered an injury in fact. This requires that “the
injury must be (1) particularized and (2) concrete.”  The dispute here
concerned whether the consumer suffered a concrete injury. 

The consumer claimed that he
suffered a concrete injury for two reasons. First, he argued that the violation
of his procedural rights under the FDCPA established a concrete injury. Second,
he claimed that the confusion caused by the phone calls and expense of the
counsel that he retained demonstrated that he suffered a concrete injury. 

The Sixth Circuit observed that
in TransUnion LLC v. Ramirez, the
Supreme Court of the United States recently clarified what is required to show
that a violation of a procedural right established a concrete injury and, as a
result, the plaintiff “must show either that the procedural harm itself is a
concrete injury of the sort traditionally recognized or that the procedural
violations caused an independent concrete injury.”  After conducting that
inquiry here, the Sixth Circuit concluded that the consumer lacked Article III
standing to pursue his alleged claims.

As a result of the alleged FDCPA
violations the consumer argued that the FDCPA created an enforceable right to
know who is calling about a debt because the defendant’s failure to correctly
provide its full legal name concretely harmed him. The consumer further argued
that this harm is closely related to the invasion of privacy harm that most
states recognize. 

The Sixth Circuit rejected the
consumer’s argument because the defendant’s alleged failure to disclose its
full legal name does not resemble a traditional harm “regarded as providing a
basis for a lawsuit,” as required to establish a concrete injury. 

The Sixth Circuit acknowledged
that most states recognize actions to enforce the right of privacy, including
“the tort of intrusion upon one’s right to seclusion.” However, the Court noted
that not receiving full and complete information about the name of a defendant does
not closely resemble the tort of intrusion upon seclusion because this common
law tort typically requires proof that the defendant “intentionally intrude[d],
physically or otherwise, upon the solitude or seclusion of another or his
privacy affairs or concerns.”

The consumer’s alleged harm did
not impact his privacy.  Instead, it merely confused him. The defendant
did not share his private information with a third party or publicize his
private information. Thus, the Sixth Circuit found that the consumer’s claimed
harm did “not bear a close relationship to traditional harms” and the consumer
could not establish standing based solely upon the alleged statutory
violations.

The consumer advanced several
additional reasons for why he suffered a concrete injury that stemmed from the
alleged statutory violation. First, the consumer claimed that the defendant’s
failure to properly identify itself in the phone calls confused him and led to
him sending a cease and desist request to the wrong entity. The Sixth Circuit
rejected this argument, because confusion by itself does not establish “a
concrete injury for Article III purposes.”

The consumer next argued that he
retained counsel to stop the calls and that this action constitutes a concrete
harm flowing from the statutory violation. The Sixth Circuit disagreed that the
expense of hiring counsel established a concrete harm because applying this
“logic to any plaintiff who hires counsel to affirmatively pursue a claim would
nullify the limits created under Article III.”

Finally, the consumer argued that
an additional call that he received after he sent his cease and desist letter
to the wrong entity concretely harmed him. The Sixth Circuit declined to
consider this argument because the consumer did not clearly allege in his
complaint that he received another phone call after sending the cease and
desist letter or that this additional call harmed him.

Thus, the Sixth Circuit held that
consumer did not demonstrate that he suffered “more than a bare procedural
violation of the FDCPA” and that he lacked Article III standing to pursue his
claims. Therefore, the Sixth Circuit vacated the trial court’s order granting
summary judgment and remanded the case to be dismissed without prejudice for
lack of subject matter jurisdiction.

SACRAMENTO, Calif. — On April 8, 2021, the Commissioner initiated a rulemaking to
adopt regulations related to the requirements for licensure under the Debt
Collection Licensing Act (“DCLA”). The Commissioner is now considering a second
rulemaking to adopt regulations related to other provisions of the
DCLA, including its scope, annual reports, and bond amounts.

The Commissioner invites interested parties to provide input in
developing regulations related to these topics and has formulated questions to
assist such parties in providing this input. The Commissioner also invites
interested parties to provide example language for regulations related to these
topics.

The invitation and questions may be found here: PRO 05-21 – Invitation for Comments on Proposed Second Rulemaking Under the Debt Collection licensing Act (PDF)

The deadline to submit comments under this invitation is Monday,
October 5, 2021.

NOTE: To ensure you receive future notices about the second DCLA
rulemaking,  visit www.dfpi.ca.gov and
select the “Subscribe” button at the bottom of the page. After logging in,
select the “Debt Collection Licensing Act Regulations” list under the
“Regulations” category.

The California Department of Financial Protection and Innovation
(DFPI) has issued an invitation for comments from interested parties on draft
rules to implement certain provisions of the California Consumer Financial
Protection Law (CCFPL) which became effective on January 1, 2021.  The
CCFPL provisions that the draft rules would implement deal with (1) procedures
for a covered person or service provider to respond to consumer complaints and inquiries, and (2) the definition of unfair, deceptive, or abusive acts and
practices in connection with the offering or providing of
commercial financing or other financial products and services to small business
recipients, nonprofits, and family farms.  Comments are due by September
17, 2021.

In February 2021, the DFPI issued an invitation for stakeholders to
provide input on rulemaking to implement the CCFPL.  In addition to
inviting input on any potential areas for rulemaking, the DFPI identified
certain areas where rulemaking may be “appropriate, desirable or necessary at
some point.”  The specific areas identified included complaint handling
and unfair, deceptive, or abusive acts and practices in connection with
commercial transactions.

Draft rules on complaint handling.  The draft rules would implement CCFPL
Section 90008(a), (b), and (d).   Section 90008 (a) requires the DFPI
to issue rules establishing reasonable procedures for the handling of consumer
complaints and inquiries by covered persons.  Section 90008(b) requires the
DFPI to issue rules requiring covered persons to provide responses to the DFPI
regarding consumer complaints or inquiries that include certain information
such as what steps were taken to respond to the complaint or inquiry and what
responses were received by the covered person from the consumer.  Section
90008(d) deals with consumer requests to covered persons for information
concerning the consumer financial product or service that the consumer obtained
from the covered person.  The draft rules address the following:

• A partial exemption for consumer reporting agencies as defined by the FCRA

• Definitions–A “complaint” is defined as “an expression of dissatisfaction” regarding a financial product or service and an “inquiry” is defined as “a question or request for information, interpretation, or clarification” about a financial product or service.

• Complaint processes and procedures

• Inquiry processes and procedures

• Processes and procedures for covered persons to provide a timely response to the DFPI

• Consumer requests for nonpublic or confidential information

Draft rule on UDAAP prohibition for commercial transactions.  The draft rule would implement CCFPL
Section 90009(e) which authorizes the DFPI to issue rules defining UDAAPs for
“commercial financing,” as that term is defined in Cal. Fin. Code 22800(d), or
financial products and services offered or provided to small business
recipients, nonprofits, and family farms.  It also authorizes the DFPI to
include in its UDAAP rulemaking requirements for data collection and reporting
on the provision of commercial financing or other financial products and
services.  The draft rule contains two provisions.  One provision
would establish standards for when an act or practice is unfair, deceptive, or
abusive.

The other provision would establish requirements for the
reporting of data on commercial financing to the DFPI.  The data to be reported
would consist of basic information about loan volume, loan size, and loan cost.

BURLINGTON, Mass. — Ontario Systems a leading provider of enterprise workflow automation software – which accelerates revenue recovery and removes friction from the payments process for clients in the accounts receivable management (ARM), healthcare, and government markets – today announced its acquisition of Katabat, a leading cloud-based collection platform providing cutting edge solutions to debt resolution for both lenders and borrowers.

Ontario is officially expanding its substantial collections workflow footprint into the $2.5B+ first-party collections market segment—making them one of the few technology companies to serve both first- and third-party collections.

Katabat’s debt collection platform leverages machine learning, a robust strategy engine, and leading compliance capabilities to help businesses ranging from globally recognized lenders to nimble debt collectors improve collection rates, enhance operational efficiencies, and reduce compliance risk. Katabat has grown its customer base to include entities ranging from international banks to leading digital consumer finance companies. Through the acquisition of Katabat, Ontario continues to expand upon the value it brings across the continuum of the accounts receivable market, where it has been the industry’s most dependable collection platform for over forty years.

“As we grow and evolve as a company, we want to continue identifying smart ways to expand upon the value we bring to both our customers as well as our teams,” said Ontario Systems CEO Tim O’Brien. “We see the Katabat acquisition as reinforcing our ambitious strategic growth plan by allowing us to serve a more expansive portion of the accounts receivable market. We are delighted to welcome Katabat’s impressive customer base into the Ontario family and are committed to driving value for them by providing innovative solutions to address their business challenges.”

A CIOReview Top Customer Experience Management recognized company, Katabat’s platform provides customers with a flexible, secure collections solution built by a team of former collections executives with a deep understanding of the industry and its specific needs.

“We are incredibly excited to join Ontario,” said Katabat CEO Ray Peloso. “Their decades-long position as the collections industry leader coupled with their established history of helping customers attain bold business outcomes provides the perfect point from which to expand the reach of the innovative work we have been doing at Katabat.”

This news follows a series of strategic acquisitions by Ontario – most recently the acquisition of Pairity in February of 2021  – as part of the company’s relentless pursuit of increasing customers’ revenue recovery while decreasing the cost required to collect. Ontario’s ongoing growth and SaaS-transformation strategies are designed to deliver faster innovation and increasing business value to thousands of clients nationwide.

To learn more about Ontario Systems, visit www.ontariosystems.com.

About Ontario Systems

Ontario Systems is a premier provider of enterprise technologies that streamline and accelerate revenue recovery for clients in the healthcare, government, and accounts receivable management (ARM) markets. Through process automation and modern, compliance-minded communication and payment tools, Ontario Systems helps its client partners generate more revenue at reduced cost and fulfill their organizational mission by effectively engaging patients, constituents, and consumers.

With offices in the states of Indiana, Massachusetts, New Mexico, and Washington as well as employees across the country, Ontario Systems is building on 40 years of success using a distinctly client-centric approach to innovation and service. A recognized brand in the revenue cycle management (RCM) market, Ontario Systems helps 600+ hospital networks—including 5 of the 15 largest systems in the US—optimize cash collections and provide a single, satisfying patient financial experience. Ontario Systems also serves 8 of the 10 largest ARM companies in addition to a number of state and municipal governments across the United States.

About Katabat

With more than a decade of experience delivering debt collection solutions to global banks and debt collection agencies, Katabat combines collections and machine learning expertise to help clients engage with customers and increase collections. Katabat partners with lenders and collectors across multiple industries to stay at the cutting edge of debt management, machine learning, automation, regulatory compliance, and data security. To learn more about our full range of debt management products, contact Katabat at info@katabat.com

I know everyone is regularly checking
the Facebook Ruling Resource Page– which is, unsurprisingly, driving huge
traffic. But I also know that page is a bit sloppy right now as the cases are
not yet organized in any meaningful fashion. Once we hit about 20 or so
decisions I’ll start creating categories for ease of consumption.

But here’s what your beloved Czar has gleaned
over the last 4.5 months:

1. Many Courts Are Not
Applying Facebook at the Pleadings Stage and that’s Just Plain
Awful

Facebook was
supposed to be a huge win for TCPA Defendants–and it was–but that win has been
largely diminished by decisions that refuse to apply the Supreme Court’s
handiwork at the pleadings stage. See, for example:

•  Gross v. Gg Homes,
  Case No. 3:21-cv-00271-DMS-BGS, 2021 U.S. Dist. LEXIS 127596 (S.D. Cal. 
  July 8, 2021)(Court holds Facebook irrelevant at pleadings
  stage; holds allegations of automatic template texts sufficient to state a
  claim);

• Callier, EP-20-CV-00304-KC, 2021 U.S. Dist. LEXIS 126769 (W.D. Tex.  May 10, 2021)(allegations of a pause upon receipt of unsolicited calls sufficient to state ATDS claim post-Facebook);

• Miles v.
  Medicredit, Case No. 20-cv-01186, Doc. No. 53 (E.D. Mo. July 14,
  2021)(Following Gross and holding that Facebook not
  pertinent at pleadings stage);

• Jance v. Homerun
  Offer LLC, No. CV-20-00482-TUC-JGZ, 2021 U.S. Dist. LEXIS 143145
  (D. Ariz. July 29, 2021)(pause allegations coupled with lack of consent and
  general marketing content sufficient to allege ATDS usage at the pleadings
  stage).

For the non-lawyers, there are generally two
key places for a Defendant to “get off the bus” in TCPA class action
litigation. The first is via a pleadings stage challenge–generally a motion to
dismiss. The second is a motion for summary judgment or MSJ.

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Motions to dismiss can be brought easily and
relatively cheaply because they address only the allegations of the complaint.
MSJ motions are more expensive because they need to be supported by evidence.
But more importantly MSJs are only available later in a case–after some (or
perhaps all) discovery has been completed. So whereas a motion to dismiss can
end a case with minimal investment, defense fees in putative TCPA cases ending
in MSJ are usually north of $300k.

So the fact that so many courts are refusing
to apply Facebook at the pleadings stage means that defendants
are facing tons of (probably) needless cost to go through the formality of
discovery before they (probably) win the case. The practical effect is that
consumer lawyers are incentivized to continue bringing ATDS cases as the Courts
hold open the door for settlement opportunity by demanding expensive and time
consuming discovery out of Defendants.

2. Courts that Do
Apply Facebook At the Pleadings Stage Are Almost Certain to
Reject Footnote 7 Arguments– But What About the Courts that Won’t?

Mercifully a handful of cases to date have applied Facebook at
the pleadings stage and the returns from these courts have been outstanding for
Defendants. The best-refined rule from these decisions is that if the complaint
does not plead truly random calls there is no TCPA exposure.
See:

• Borden v. Efinancial, LLC, No. C19-1430JLR, 2021 U.S. Dist. LEXIS 153086 (W.D. Wash. Aug. 13, 2021)(Motion to dismiss granted. FN7 only applies to lists of random numbers.)

• Barry v. Ally Fin., Case No. 20-12378, 2021 U.S. Dist. LEXIS 129573 (E.D. Mich.  July 13, 2021)(Motion to dismiss granted as to targeted collection calls. Facebook requires usage of Random and Sequential Number Generator (R&SNG), not just capacity. FN7 only applies to lists of random numbers);

• Hufnus v DoNotPay, Case No. 20-cv-08701, Doc. No. __ (N.D. Cal. June 24, 2021)(System that called from list of customers not an ATDS because list was not randomly dialed; FN7 only applies where random numbers are called).

Unsurprisingly, these cases reject Plaintiff’s Footnote 7 arguments–that using
an R&SNG to determine the sequence of dialing can trigger the TCPA in and
of itself. The Plaintiff’s bar is not giving up on this argument, however, and
I strongly suspect they will eventually win a case or two (or perhaps several)
leveraging this argument. The footnote is just too vague for comfort–even with a
number of cases now explaining that what the Supreme Court meant to
say is that using an R&SNG to determine the sequence of numbers drawn from
a RANDOM list of numbers triggers the TCPA. If only the Supremes had actually
said that!

Indeed at least one case has already held that
a fn7 challenge survives the pleadings stage. See

• Atkinson v. Pro Custom Solar Lcc, CIVIL NO. SA-21-CV-178-OLG, 2021 U.S. Dist. LEXIS 112396 (W.D. Tex.  June 16, 2021)(ATDS allegations survive the pleadings stage where present use of R&SNG to determine dial sequence alleged).

We’ll continue to monitor this critical
argument.

3. Triggered Text
Alerts Seem Safe After Facebook

The day after Facebook was
decided I did a webinar breaking it down for all of you–the
first of its kind by any law firm in the nation to my knowledge.

I highlighted that the biggest winners
from Facebook would be triggered text alert platforms and AI
text platforms. These systems operate on a one-to-one basis responding to real
life events and simply cannot be an ATDS post-Facebook: they neither
generate numbers nor store them as part of their dialing function, so no
R&SNG can be operating to snag them. Plus these systems are “on all fours”
with the system in Facebook–it too was using a triggered text alert
platform.

While there is only one case directly on point
so far, it was a pretty resounding win for the good guys:

• Watts v. Emergency Twenty Four, No. 20-cv-1820, 2021 U.S. Dist. LEXIS 115053 (N.D. Ill. June 21, 2021)(Motion to dismiss granted where allegations demonstrated calls at issue were triggered by alarms and not called as a result of an R&SNG).

4. “Click to Dial”
Systems Are Likely No Longer Relevant–But the Case Law Has Not Bourne That Out
Just Yet

One of the biggest changes brought about
by Facebook is the seeming death of the human intervention
test.

Long-time TCPAWorld readers will recall that
after the Omnibus TCPA ruling in 2015 courts began pushing back at the
tremendous breadth of the newly-expanded ATDS definition by holding that only
systems that dialed without human intervention triggered the TCPA.

Notably the TCPA’s ATDS definition never
required “automatic” dialing as a statutory element and does not exempt dialers
that call with human intervention. So this entire framework was dreamed up out
of whole cloth. Plus it was very difficult to apply. The same system would
appear “manual” to one court but “automatic” to another. This “eye of the
beholder” test was certain to go sway at some point–and footnote 6 of Facebook seems
to be its death knell.

Unfortunately, a huge amount of time and
resources were sunk into the development of “click to dial” systems pre-Facebook–those
that had a modicum of “human intervention” required to launch calls. These
systems were bulletproof pre-Facebook but now find themselves
firmly in the “yellow” category post-Facebook as callers move
toward “human selection” systems to avoid FN7 and Florida-style dialer definitions:

The TCPA and its ATDS definition will remain
forever enigmatic owing to the peculiar manner in which the statute seeks to
regulate technology.

As has been observed time and again, the statute
triggers upon the use of a system with the “capacity” to perform designated
functions–but those functions do not actually have to be used in connection
with any specific call to trigger the statute.

Or do they?

The Supreme Court’s loose/intentional
(depending on your point of view) language regarding the “use” of an R&SNG
in a system might be interpreted to require that only calls actually made as a
result of an R&SNG trigger the statute. At least one court has said so
directly, albeit in dicta:

• McEwen v. Nra of Am. & Infocision, No. 2:20-cv-00153-LEN, 2021 U.S. Dist. LEXISUnited (D. Me. April 14, 2021)(ruling ATDS must make “use” of R&SNG, not just have capacity to do so).

But other courts are sure to disagree and find
the TCPA is triggered anytime a system with the “capacity” to dial using an
R&SNG is deployed–even if no R&SNG is “used” to make the calls at
issue.

Equally problematic–what “system” are we
looking at? While dialer technology can be carefully configured to strip
R&SNG processes from the code, integrated systems will almost certainly
have random number generators available, if not actively in use. Where the
courts eventually draw the line between what is part of the dialing “system”
and what is a separate operating or record-keeping “system” is amongst the
biggest battles yet to be waged.

We’ll keep an eye on all of this for you.

Regulation F contemplates debt collectors
communicating with consumers using a scripted “limited content” voicemail message
which contains the business name of the debt collector, but “does not indicate
that the debt collector is in the debt collection business.”  While consumer advocates agree that this
limited content message will be extremely beneficial to consumers, debt
collectors must proceed cautiously with implementation to ensure full
compliance with all requirements of the limited content message contained within
Regulation F.

In this episode of the Debt Collection Drill
podcast, Moss & Barnett attorneys John Rossman, Sarah Doerr and Brad
Armstrong provide practical guidance for implementation of the Regulation F
limited content message and the attorneys also examine the legal restrictions
regarding the use of certain words in a collection agency name.  

Listen here or read the transcript below.

Attendant:

Moss and Barnett is pleased to present the debt collection
drill. The podcast featuring Moss and Barnett shareholders, John Rossman, and
Mike Ponson, providing sage tips for improving collections and compliance.

John Rossman:

Welcome to another edition of the debt collection drill
podcast. I am John Rossman, your host. And with me today, I have two special
guests from here at Mass and Barnett. We have Sarah Doerr, who’s a shareholder
here at Moss and Barnett, and we also have Brad Armstrong, who is an attorney
here at the firm as well. And today we’re going to be talking about a really
exciting topic that I’m really looking forward to, and it’s this concept of a
limited content message. I know that for several years, it seems maybe going
back to the Foti case or even earlier, there’s always been these questions
about what kind of voicemail message can we leave? What kind of voicemail
message should we leave? And a ton of lawsuits, a ton of litigation, a lot of
talk. Finally, it appears through regulation F that the CFPB has put an end to
those discussions and those conversations in those concerns and given guidance
as to what type of message can be left by a debt collector for a consumer that
would not constitute a communication and what they’re calling it is this
limited content message.

And I’ll read real briefly from regulation F how it
defines a limited content message. And it means a voicemail message for a
consumer. That includes all of the content described in paragraph J one of the
section, which we’ll go through that may include any of the content described
in paragraph J two of this section. And so what does it have to require the
required content includes the business name for the debt collector that does
not indicate that the debt collector is in the debt collection business, number
two, a request that the consumer reply to the message, number three, the name
or names of one or more natural persons whom the consumer can contact reply to
the debt collector and number four, a telephone number numbers that the
consumer can use to reply to the debt collector. There’s additional optional
content under reg F including a salutation date and time of the message
suggested dates and times for the consumer to reply, the statement that the
consumer may respond to any of the representatives at the debt collector. So
this is just a sample of the things that may be included in the things that
must be included. Sarah, I’ll start out with you. What were your thoughts as
far as the ability of a debt collector to use this limited content message in
the context of debt collection today?

Sarah Doerr:

I thought that in some ways it was a missed opportunity
for the CFPB to go further in terms of defining what can and cannot be said.
There’s some question, for example, as to whether, and what happens when, for
example, a company named does indicate that they are a debt collector and how
do they get around that? Do they register a DBA if they do that kind of what
implications does that have for the whole consumer facing side of their
business?

John Rossman:

Yeah, it’s a great question. And we’ve been getting a lot
of questions lately about, does our company indicate that we’re in the business
of debt collection, Brad, I know you’ve looked at this issue. What are you
seeing as far as there’s, there’s not a ton of guidance here in regulation, F
as far as what debt collector names might indicate that you’re in debt
collection and what might not, Brad, what does the case law, and what does your
research show as far as that question is concerned?

Brad Armstrong:

Yeah, this question, isn’t an entirely new topic. The FDCPA
actually has a similar provision, F(8), which prohibits debt collectors from
using names that indicate that they are in the collection agency business on
envelopes sent to consumers. So we do have a little bit of insight as to what
courts might construe to be a name that indicates you’re in the business. So
going back over the last 10 years, the most obvious thing is that courts are a
little bit less tolerable now than they were 10 years ago. As far as what’s
going to be construed to be something that suggests you’re in the collection
agency business, 10 years ago, something like estate recoveries was held not to
indicate that that the debt collector was in the recovery business. Nowadays
creditor specialty service is a name that the courts have said or something
that suggested to consumers that they were in the collection agency, business

John Rossman:

And Brad, that’s only over like a ten-year period of time
was from like 2006, like 2016, where it seems like the court cases went from
being a bit more permissive about what names can be used to being more
restrictive. Do you think that that’s a trend that we expect to continue,
especially with this limited content message?

Brad Armstrong:

Yeah, certainly there’s really no reason to think that
courts are gonna change course at this point. So we’ve provided guidance to
clients that there are some relatively mundane names that might be construed to
not allow the agency to use limited content message from reg F.

John Rossman:

So the question that we’re looking at right now for some
clients is we already have a certain name that we’re using for our company.
It’s a recognized name, perhaps the name infers that we’re in the collection
business, or maybe we’ve been using an acronym. So I guess the question is kind
of what steps should a collection agency take to change its name, if it’s
concerned that there’s an issue. And if it’s concerned that it wants to use a
limited content message, Sarah, I’ll start with you. When, when you’re talking
to a client who’s looking at using the limited content message. What are you
thinking about when you’re talking to them about a name change.

Sarah Doerr:

What I’m thinking about, first of all, and, and Brad
alluded to this a moment ago is making sure that if they’re going to change
their name, they change it enough. And in the right ways, as Brad explained,
there are names that are arguably not related to debt collection or implying
that they are recovery companies. But I think if, you know, if you’re going to
go to the trouble of changing your name, you want to make sure you’re as far
away from anything that might even raise that question as you can.

John Rossman:

Sarah, I think what’s going to happen, me predicting, I
think there is going to be litigation on this. And I think ultimately some
court is going to say, here’s the 10 words you can’t use in your name if you’re
going to be in the debt collection business. I don’t know what those 10 words
would be. We could hypothesize about them, but I do think ultimately it’s going
to be either a court or a regulator is going to say you can’t use collection
agency in your name. If you’re a collection agency for instance.

Sarah Doerr:

I think that’s right. I think it’ll get there. I think
it’s going to be what happens between now and when we get there and we will see
a lot of litigation parsing those issues.

John Rossman:

Sure. And Brad, I know you work substantially with clients
as far as renewing collection agency licenses. I know we do that for a number
of clients. When you’re thinking generally about collection agency licensing
and a name change. What kinds of things come into your mind as, as you’re
meeting with a client, and you’re thinking about a name change of a licensed
collection agency

Brad Armstrong:

For licensed collection agencies. The first question is
going to be whether the changing names going to necessitate new license
applications. And this is this all goes back to state laws. Some states will
say, anytime you change the name, if it’s a new entity, you’re going to have to
submit a new license application. Some will just require notice filing of a DBA
might get you in more notice, require use notice in more states than if you’re
actually changing the name of the company. But in any event, there’s going to
be dozens of states where an agency is going to need to take proactive steps
before making any changes to ensure that it’s going to be permitted, that they
continue to conduct business. And they’re not going to have any, any sort of
gap as a result of licensing.

John Rossman:

Couple of things that I think about when I think about
these number one would be Colorado and states like Colorado, that require a
very short period of time for a licensed collection agency to give notice of
certain changes, whether a name change would fall within that parameter or not
remains to be determined. But I think the point is you can’t just change your
name and then say, oh, let’s go tell the regulators. Now there needs to be some
pre-planning with this part of that pre-planning too is perhaps the name that
you’re choosing has already been used.

There’s so many examples in our industry of companies that
have very similar sounding names. And we’ve seen it many times before in
litigation where a company will get sued, we’ll get started and, you know, down
the path of defending, and we’ll find out that the plaintiff sued the wrong
party just because of a naming convention. So I do think there are a lot of similar
names here in the industry. Sarah, that leads me to a question for you when
thinking about the options. And like Brad said, you could do a name change. You
might be able to do a DBA kind of depends on your circumstances, Sarah, when
you’re thinking about a DBA. And so what that would mean is that you’d keep the
name of your company, ABC collection agency, but then you would register like
an assumed name. You’d be doing business as XYZ servicing or something. Sarah,
you’ve done some research on this issue of assumed names and you found that
that might not be such an easy solution in certain jurisdictions. What’d you
find out

Sarah Doerr:

That that is true. In addition to the licensing concerns
that Brad talked about, there are a number of jurisdictions where, for example,
you cannot register a DBA at the state level with the secretary of state or
similar agency, for example, in Connecticut, in order to use a trade name, you
have to register that trade with the town clerk in each town where you’re doing
business. So arguably in Connecticut, where there are 269 town clerks, and you
don’t know where you might have occasion to do business in Connecticut or
where, you know, the next consumer is going to be, that presents a real hurdle
in certain jurisdictions. Connecticut is probably the, the highest hurdle, but
there’s certainly a handful of others that have similar county by county or
jurisdiction city by city type restrictions on doing business under a DBA or
trade name.

John Rossman:

Sure. And I think here again, this goes to Brad’s point,
which is, you really need to plan this out ahead of time. You can’t just say,
okay, tomorrow we’re going to change our name. You need to look at, is this
going to be a DBA? Is it going to be a name change? If we choose DBA, we have
to understand, I think you identified there’s eight jurisdictions in total
where there’s some requirement or some difference regarding filing a DBA on a
state level, as opposed to a city level or a county like Connecticut. So I
think there’s a lot that has to be considered here when looking at this limited
content message. The other thing I think with this limited content message more
generally as I read the definition here, limited content message means a
voicemail message. Wait a minute. I mean, voicemail message. That sounds like
2003, you know, it’s 2021, we’re using texts. We’re using email. Brad, let me start
with you. What is your opinion on the likelihood of a debt collector, being
able to take this limited content message, which by definition is a voicemail
and applying it to other communication mediums.

Brad Armstrong:

Based on the plain language of regulation F I don’t think
there’s a good likelihood at all that the court would buy into that. Now,
conceptually, whether a message is the communication, the ability to
communicate this limited amount of information to a consumer without kind of
opening the door to disclosing sensitive facts to third parties, we could kind
of use that. And maybe a bonafide air defense is kind of logic in the event
that say a third party opens an email sent to a consumer using a limited
content, tight message. And other methods of communication is certainly
something to consider. But at the end of the day, you know, something like
email, we’re certainly recommending that, that, you know, you’re emailing the
right consumer to begin with. So the hope is that that third party disclosure
is somewhat of an afterthought.

John Rossman:

No, I agree. And as I was thinking through this and
preparing for this podcast, I started thinking, well, if you sent out the
limited content message specifically is designed so that you don’t include the
name of the consumer, so who you are leaving that message for you, don’t say
according to the plain language of regulation F whereas with like an email
address, most people, their email addresses, like for me, it’s my first and
last name at law-moss dot com. So I think the argument can be made that to the
extent that the limited content message must be a voicemail, because if you
send an email, you are identifying to whom you’re sending it. However, if we’re
going to use that argument, I think an argument could be made that a limited
content message could be used for a text where a text is being sent out to a
number rather than to an address with the name, Sarah, what do you think about
my potential theory there?

Sarah Doerr:

I think it raises some interesting points and some
interesting questions, and I can certainly see it being an increasing area
that’s ripe for litigation and discussion, and probably ultimately for the
regulation. I think there’s some obvious differences between voicemails and
emails and texts just in terms of what the scope is of who might be reading or
listening on the other end just by their nature.

John Rossman:

You know, and I, I think you’re right. I think the flip
side to it is I think the risk of a third-party disclosure with an email is
near zero, whereas the risk of a third-party disclosure with a text, there
might be some risk there. And with the letter, there might be. But with an
email, I have to believe the risk of third-party disclosure is near zero. What
are the odds that someone’s going to send an email to John dot
rossman@lamoss.com and intend that it was to go to someone else? It seems very
less likely that we would have that type of third-party disclosure. So I think
this is an area that could be right for like an advisory opinion from the CFPB
to reach out and to see what type of opinion there might be.

Brad, you had mentioned that the plain language of the FDCPA
does include this prohibition on including the name of your company on an
envelope when you’re sending it out. So this isn’t a new concept as far as
whether the name of your agency infers that you’re in debt collection. How do
you read regulation F and kind of this expansion of this concept of your name,
reflecting that you’re in debt collection. Do you see any parallel between what
I’ll call the old FDCPA, which prohibited the use of your name, if on an
envelope, if it infers that you’re in debt collection to much more broadly
being prohibited to use the name here with the limited content message that
you’re leaving by voicemail?

Brad Armstrong:

I don’t think so. I mean, they’re at least on their face.
There’s no reason to suggest that courts are going to construe 1692f(8) and reg
F’s limited content message differently. Like I said before, I think that
looking back at some of the case law on f(8) is going to be quite instructive,
especially kind of that trend that you discussed, where courts have not been
quite as flexible construing names. As of late, I find it hard to believe that
that there’s going to be a big difference between the two. It’s certainly
interesting that f(8) hasn’t seen a great deal of litigation in an ideal world.
That’s gonna, that would remain true with the limited content message. It could
be a situation where consumer attorneys are easily able to get ahold of
voicemails that consumer save, as opposed to envelopes that a consumer might chuck
in the trash and while they keep the letter. So-

John Rossman:

I’ve been amazed too, in looking at what we’ll refer to as
the old FDCPA and how it’s been modified by regulation, but how this concept of
the name of the debt collectors carried through. But yet there’s all this
discussion today about the name of a debt collector, and what’s the right name
and wrong name and, and infers debt collection. But this provision has been in
the FDCPA in some form or another, since 1978, it’s just getting a lot of
interest nowadays. So it’s an interesting phenomenon that we’ll continue to
track. And we do definitely expect some, at least some regulatory guidance from
the CFPB on it. We are out of time for today. I’d like to thank Sarah Doerr.
I’d like to thank Brad Armstrong. I’d like to thank our executive producer,
Jodi Newsome, and we look forward to speaking with you next time. Thank you.

Attendant:

Visit the website for this podcast at the debt collection,
drill.com and follow us on Twitter at collect drill. This program does not
create an attorney client relationship between Moss and Barnett, a professional
association, or any attorney appearing on this program and any listener, please
remember that we can only give general information and every case is unique.
Always check with your individual attorney for any specific legal concerns.

Over the last several years, debt buyers have been subject
to a steady stream of lawsuits (often filed as a class) in Utah wherein consumer attorneys have taken advantage of Utah’s
vague licensing statute and pursued debt buyers with a vengeance. Despite the financial success consumer attorneys have found pursuing these matters, the party may be coming to an end as the result of an Order issued by Judge Howard Neilson in the case of Holmes v. Crown Asset Management, LLC case No 2:19-cv-00758 (Dist. Ct. Utah August 6, 2021)

Background: The basis for the lack-of-license lawsuits:

Utah Code Section §12-1-1 states that “[n]o person shall
conduct a collection agency, collection bureau, or collection office in [Utah]
or … collect or receive payment for another…” without a license. The statute
does not address debt buyers which do not have an office in Utah and only collect debt they own. 

Seizing on this area of gray, in a series of near cookie-cutter
complaints, consumer attorneys have alleged that debt buyers filing lawsuits against
consumers without holding a debt collection license have violated the Fair Debt
Collection Practices Act (FDCPA) and Utah state law. Notably, these lawsuits
typically involve cases where the debt buyer successfully obtained a judgment
against the consumer in state court.

The FDCPA claims typically allege that by filing collection lawsuits
without a license, the debt buyer violated the FDCPA by (a) taking an action that
could not legally be taken; and (b) using unfair and unconscionable means to
collect a debt.  The Utah state law
claims consumers file against debt buyers are typically based solely on the alleged
failure to obtain a debt collection license before attempting to collect the debt.
 

The defense in the Holmes case:

In response to the suit filed against it by multiple
consumers, Crown Asset Management (Crown) argued that the Petitions Clause of
the U.S. Constitution barred the suit. For those of us not generally familiar
with the Petitions Clause (admittedly, whatever I learned about this in law school
was long gone from my head, probably replaced by some meaningless baseball
statistic), the “Petition Clause” is found in Article I of the U.S. Constitution
which provides that “Congress shall make no law . . . abridging . . . the right
of the people . . . to petition the Government for a redress of grievances.”  Per Judge Neilson, the case law on the matter provides
that the Petition Clause thus immunizes litigants from liability for their
petitioning activities (i.e., filing a lawsuit) unless the petitioning is a
sham.

To determine whether a lawsuit is a sham, the Court
implemented a two-step approach which asks (1) is the petitioning objectively
reasonable? (2) if not objectively reasonable, what is the subjective intent
behind the petitioning?” Under this approach, Judge Nielson concluded that the Crown lawsuits were not a
sham, as Crown actually prevailed in each suit. Further, the lawsuits could not be considered a sham since the vague nature of the Utah
statute could have led Crown to reasonably believe that it was permitted to
file the lawsuits without a license. Since the Utah statute does not define what a “collection
agency,” “collection bureau,” or “collection office” is, Crown, which only
collected debts it owns, could have reasonably believed it did not fit into any
of those categories.

What about all the cases holding collection suits are
subject to the FDCPA?

While the Order in the Holmes case makes clear that immunity
provided by the Petition Clause is a constitutional right, it provides
additional clarity by distinguishing two Supreme Court cases that have allowed FDCPA
suits based on collections litigation to proceed. Specifically, the Order distinguishes
Heintz v. Jenkins, 514 U.S. 291 (1995), on the basis that Heintz rejected only the categorical
proposition that the act never applies to lawyers in litigation; and Jerman
v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573 (2010)
on the basis that Jerman, held only that the FDCPA’s bona fide error
defense does not apply to legal errors.

Unlike Heintz
and Jerman, the entirety of the consumers’ claims in the Holmes
matter were based solely upon
the filing of the state court lawsuits and did not allege any other act or
omission by the debt buyer. As such, Judge Nielson concluded that since a
lawsuit to recover a debt is covered by Petition Clause Immunity, Crown could
not be held liable under the FDCPA for seeking to recover debts through the
state court, absent a showing that Crown filed sham petitions. This is so even though
the consumers alleged the debt buyer used “false, deceptive, and misleading
representations” to attempt to collect the debt in violation of the FDCPA.  

insideARM
Perspective:

First, Kudos to Crown Asset Management and its counsel Mark Nickel and David Garner of Gordon  & Rees, for presenting this argument to the court. These lack-of-license cases against debt buyers in Utah began to surface
around 2018.  The results have been
mixed, and many have ended in settlements. Until the August 6, 2021 Order in the Holmes matter,
there had not been a decision that clearly put an end to the litigation.  As an added bonus, in addition to dismissing the suit,
Judge Neilson provided a highly detailed analysis of the Petitions Clause and
its application to the facts, which is clear enough that it may give other debt
buyers a means to dispose of similar lawsuits. 

That said, consumer
attorneys in Utah have undoubtedly lined their pockets in abundance by filing
these suits; whether they appeal or not remains to be seen. Like everything
else in the accounts receivable management industry, it will take time to see
the true impact of this case

To further
its ongoing diversity, equity, and inclusion (DEI) efforts, the New York State
Department of Financial Services (DFS) announced an
initiative to collect and publish diversity data on the demographic makeup of
NY-regulated financial institution’s boards and senior management teams.
 In its July 29^th business industry
letter, DFS emphasized that transparency around this data will help
measure progress toward DEI goals, allow firms to assess where they stand
relative to their peers, and increase transparency and accountability.

Relying on its
authority under New York Banking Law §37(3) to require banking organizations to
make special reports, DFS will collect data on the gender, racial, and ethnic
composition of boards of all New York-regulated (i) banking institutions with
over $100 million in assets, (ii) non-depository financial institutions with
over $100 million in assets, (iii) and entities authorized to engage in virtual
currency business activity.  DFS will collect demographic data from 2019
and 2020 starting in late summer 2021, and will publish aggregate data in the
first quarter of 2022.

In the industry
letter, DFS made plain that it expects financial institutions to make DEI at
the leadership level strategic business and corporate governance priorities,
emphasizing the importance of developing a pipeline of diverse leaders. 
DFS underscored data reflecting existing gaps in gender and racial diversity
across industry leadership, based in part on the U.S. House Financial Services
Committee’s 2019 analysis of bank
diversity data.

DFS laid out
both business and social rationales for its data reporting initiative. From a
business standpoint, DFS highlighted increasing industry-wide investor and
government actions to advance diversity in senior management because doing so
improves profitability, enhances risk management, and increases employee
satisfaction.  DFS further asserted that with the challenges posed by the
COVID-19 pandemic, racial injustice, and climate change, it is now “paramount
that the banking and financial industries have strong boards and executive
teams comprised of people with diverse experiences, skills and perspectives in
order to better confront evolving risks and find new opportunities.”

Ballard’s DEI Counseling team advises
clients across industries on the development, implementation, and enhancement
of DEI programs.  Our attorneys performs assessments, develops strategic
plans, advise on existing programs, develop policies and communication
materials, conduct training, and facilitate the implementation of DEI programs.