Archives for November 2022

On November 15, 2022, the FTC announced that it was extending by six months the deadline for companies to comply with some portions of the updated Safeguards Rule. The extension comes as a welcome relief to companies racing to meet the rapidly nearing effective date.

The FTC approved changes to the longstanding Safeguards Rule in October 2021.  The updated rule includes several components that could require significant operational modifications, such as encryption at rest and multifactor authentication whenever nonpublic personal information is accessed.  While some components went into effect 30 days after publication, the most substantive changes were set to go into effect on December 9, 2022. 

The FTC voted unanimously to extend that December 9 date to June 9, 2023.  Accordingly, subject companies will have an additional six months to:

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• Designate a qualified individual to oversee their information security program;
• Develop a written risk assessment;
• Limit and monitor who can access customer information;
• Encrypt information in transit and at rest;
• Train security personnel;
• Develop a written incident response plan; and
• Implement multifactor authentication whenever anyone accesses customer information.

While the new deadline certainly provides breathing rom, companies should not take it as an opportunity to delay.  Indeed, between the holidays and state law compliance initiatives, the new deadline will also soon be rapidly approaching. 

As discussed here, on October 19, a three-judge panel of the Fifth Circuit Court of Appeals held that the Consumer Financial Protection Bureau’s (CFPB) funding mechanism violates the appropriations clause because the CFPB does not receive its funding from annual congressional appropriations like most executive agencies, but instead receives funding directly from the Federal Reserve based on a request by the CFPB’s director. Yesterday, the CFPB filed a petition for a writ of certiorari to the U.S. Supreme Court, requesting not only that the Court hear the case, but also that it be decided on an expedited basis during the Court’s current term. Given the importance of the decision and the gravity of the potential implications, the Court may well take the unusual step of granting the petition and agreeing to the requested expedited schedule.

Highlights From the Petition

In its petition, the CFPB argues that the Fifth Circuit erred in holding that the CFPB’s funding through the Federal Reserve unconstitutionally insulates it from congressional oversight and appropriations. In support of its position, the CFPB points to the fact that the Dodd-Frank Act requires the CFPB director to regularly submit reports to and make appearances before Congress to justify the CFPB’s budget requests. The comptroller general also must conduct annual financial audits of the CFPB and submit annual reports to Congress.

The CFPB further argues that its funding mechanism is not meaningfully different from numerous other agencies, such as the Federal Reserve Board, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC), all of which the CFPB argues are funded outside the congressional appropriations process. Relying on existing Supreme Court precedent, the CFPB argues that the appropriations clause leaves it to Congress to determine the duration, form, source, and specificity of such appropriations to government agencies. By prescribing the source, amount, duration, and purpose of the CFPB’s funding in the Dodd-Frank Act, Congress satisfied these requirements.

The CFPB also took on the Fifth Circuit directly in several places. First, with respect to the Fifth Circuit’s highlighting Dodd-Frank’s provision stating funds transferred to the CFPB “shall not be construed to be Government funds or appropriated monies,” the CFPB argues this merely exempts those funds from statutes that impose limitations. The CFPB highlighted similar provisions in the funding statutes for the Farm Credit Administration, Federal Reserve Board, and the OCC as illustrative.

Further, to the extent the Fifth Circuit was motivated by separation of powers concerns, the CFPB argues such concerns are misplaced. “Where, as here, Congress has enacted a law that expressly authorized the Executive Branch expenditures at issue, ‘the straightforward and explicit command of the [a]ppropriations [c]lause’ is satisfied. And courts have no license to depart from the text and history of the constitutional provisions adopted by the Founders in pursuit of their own views about the proper structure and funding of administrative agencies.”

Lastly, the CFPB challenged the Fifth Circuit’s remedy on two grounds. First, arguing that even if the Fifth Circuit correctly held the CFPB’s funding process violates the appropriations clause, it failed to conduct a severability analysis to see if any defects in the statute could be severed, while leaving the rest intact. Second, arguing that even if the entire funding mechanism were to be found unconstitutional, that would only require that the CFPB halt further spending of funds, but it would not compel courts to unwind already completed actions like the Payday Lending Rule at issue.

Request for Expedited Review

Beyond the asserted errors above and the circuit split on the issue, the CFPB argued the Supreme Court should grant the petition because of the potentially massive implications of the decision. According to the CFPB, the Fifth Circuit’s decision “calls into question virtually every action the CFPB has taken in the 12 years since it was created … [and] threatens to inflict immense legal and practical harms on the CFPB, consumers, and the Nation’s financial sector.” Due to the gravity of the decision, the CFPB requests that the Supreme Court “consider the petition at its January 6, 2023 conference and hear the case during its April 2023 sitting.”

Going Forward

While requesting an expedited review is unusual, given the real-world implications for the financial industry highlighted in the petition if the decision is upheld, we suspect the case will indeed be decided this term, i.e., by June 2023. The CFPB’s decision to highlight just how similar its funding structure is to other agencies could serve to encourage broader challenges in the future with regard to those agencies. One thing is certain — uncertainty will remain with respect to actions taken by the CFPB, and possibly others, for the foreseeable future.

Earlier this year, the Federal Communications Commission (FCC) issued a notice of proposed rulemaking targeting unlawful text messages. Despite its targeted title, if left unchanged, the text of the rule may affect text messages sent for valid business purposes. On November 9, 2022, the Consumer Relations Consortium (CRC) submitted comments to the FCC regarding the proposed rule’s shortcomings.

The CRC’s comments were prepared by Legal Advisory Board (LAB) Brit Suttell of Barron and Newburger and Abigal Pressler of Ballard Spahr.

The CRC supports regulations involving illegal texts. However, to avoid blocking lawful text messages, the CRC urged the FCC to consider making the following changes to the proposed rule:

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• Clarify that the rule applies to illegal texts, not unwanted texts. The proposed rule appears to conflate the terms “unwanted” and “illegal.” The comment explains that, for several reasons, an unwanted text is not necessarily illegal. 

• Recognize and avoid conflict with the portions of  Regulation F wherein the Consumer Financial Protection Bureau (CFPB) provided methods for consumers to opt-out of unwanted debt collection text messages.

• Update the proposed rule to avoid any appearance of a content-based restriction in violation of the First Amendment to the United States Constitution. 

• Decline to regulate Over the Top (OTT) messaging because OTT uses internet-based instant messaging applications, which can be done from either a computer or mobile phone. Since a mobile network is not required for OTT messaging, the FCC would overstep by attempting to regulate these messages.

The CRC praised the FCC for requiring providers to create a single point of contact to address blocked texts and asked the FCC to pay attention to digital equity and inclusion in any rule it ultimately adopts.   

The full comment can be found here. 

Creditors and medical services providers should reevaluate their consumer credit agreements and collection practices in light of a recent amendment to Washington, D.C.’s debt collection law, which goes into effect on January 1, 2023. The D.C. Council previously adopted emergency debt collection restrictions in response to the COVID-19 pandemic. These restrictions are now being adopted on a permanent basis via the new amendment and impose new restrictions on communicating with consumers via email, text message and social media.

The amendment adopts a definition of “consumer debt” that is subject to the debt collection law that includes medical debts, and it also defines “consumer debt” to include only debts that are “more than 30 days past due and owing, unless a different period is agreed to by the consumer.” Creditors, including medical services providers, should consider updating their customer agreements to better define at what stage of delinquency a debt will become subject to the D.C. debt collection law.

In addition, the amendment limits the number of permitted consumer communications, shortens the statute of limitations, prohibits collecting debts on which applicable statutes of limitations have run, limits the collection of attorneys’ fees in collection actions and requires debt collectors to provide extensive disclosures in their initial written communication in connection with a charged-off consumer debt, in English and in Spanish.

In contrast to the CFPB’s Regulation F, the amendment expressly prohibits communicating with consumers electronically via email, text message or “private messages through social media platforms.” Subject to numerous restrictions, however, debt collectors may use such electronic communications methods to obtain consumers’ consent to continue to use such methods. The amendment is unclear if creditors collecting on non-charged-off consumer debts may also communicate electronically with consumers to obtain consent to further electronic communications.

Penalties for violations of D.C.’s debt collection law include actual damages, costs and attorneys’ fees, punitive damages of between $500 and $4,000 per violation, and any other relief that the court deems appropriate.

D.C.’s debt collection amendments continue a nationwide trend toward imposing restrictions on medical debt collection practices, such as the enactment of the No Surprises Act, the Consumer Financial Protection Agency’s recent medical debt collection enforcement bulletin, California’s recent prohibition against certain sales of medical debt and its increased minimum income qualification for financial assistance, and the recent passage of Arizona Proposition 209, which limits the rate of interest on medical debt to 3% and imposes various other restrictions on debt collection practices.

The CFPB has issued a circular (2022-07) to address “shoddy investigation practices” and “affirm that neither consumer reporting companies nor information furnishers can skirt dispute investigation requirements.”  

The Fair Credit Reporting Act (FCRA) requires both consumer reporting agencies (CRAs) and furnishers of information to CRAs  to conduct a reasonable investigation when properly notified of a dispute about information furnished in a consumer report.  The first question discussed in the circular is whether the FCRA permits CRAs and furnishers “to impose obstacles that deter submission of disputes.”

The CFPB indicates that CRAs and furnishers can violate the FCRA by requiring any specific format or specific attachment to a dispute, other than as described in the FCRA and regulations, as a precondition to conducting an investigation.  It gives the following examples of requirements that would not be permissible:

• A requirement by a CRA that a consumer must provide a recent copy of the consumer’s report or file disclosure before the CRA will investigate a dispute despite the consumer providing sufficient information to investigate the disputed information;

• A requirement by a furnisher that a consumer must provide additional specific documents even though the consumer has already provided the supporting documentation or other information reasonably required to substantiate the basis of a direct dispute; and

• A requirement by a CRA or furnisher that a consumer must attach a completed proprietary form before investigating the consumer’s dispute.

The CFPB notes that while a CRA or furnisher must reasonably investigate a dispute received directly from a consumer unless it has reasonably determined that the dispute is frivolous or irrelevant, a furnisher is not permitted to deem disputes as frivolous or irrelevant if the dispute has been provided to the furnisher from a CRA pursuant to FCRA Section 623(b).  Thus, a CRA or furnisher must reasonably investigate direct disputes that are not frivolous or irrelevant and furnishers must reasonably investigate all indirect disputes “even if such disputes do not include the entity’s preferred format, preferred intake forms, or preferred documentation or forms.”

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The second question discussed in the circular is whether CRAs need to forward to furnishers consumer-provided documents attached to a dispute.  A CRA can violate the FCRA by failing to promptly provide to a the furnisher “all relevant information” regarding the dispute that the CRA receives from the consumer.  The CFPB states that while there is no affirmative requirement for a CRA to provide original copies of documentation received from consumers, it would be difficult for a CRA to prove that it provided all relevant information if it failed to forward “even an electronic image of documents that constitute a primary source of evidence.”

The CFPB notes that, through its supervisory activity, it has found that CRAs “tend to ingest dispute information from consumers using automated protocols, and they also share dispute information with furnishers electronically” and that “[t]he use of these technologies has reduced the cost and time to transmit relevant information.”  Although a CRA might be able to show that it transmitted “all relevant information” about a dispute even if it did not provide original documents received in paper form, it will be difficult for the CRA to do so.  The CFPB states that “given that primary sources of evidence provided by consumers can be dispositive in determining whether there has been a furnishing error, and given that the character of a primary source of evidence is probative and thus relevant to the investigation,” it will be difficult for a consumer reporting agency to prove that it complied with the FCRA if it does not provide electronic images of primary evidence for evaluation by the furnisher.”

TAMPA, Fla. — Midland Credit Management, an Encore Capital Group Company, named ProVest LLC its Top Internal Legal Partner. ProVest was honored at the 2022 Fall National Creditors Bar Association Conference in Tampa, Fla. Midland annually recognizes only one vendor with this prestigious award 

Midland’s Partner Award recognizes a vendor that combines strong performance with the following criteria: consistently goes above and beyond as a partner, contributes insightful feedback to help Midland improve and build upon its strategic programs; and effectively collaborates with Midland to meet business objectives.

Midland recognized ProVest for its performance in the markets it is serving, helping Midland identify internal opportunities and process improvements in multiple states in 2022 and proving to be an innovative thought leader in the industry. 

“On behalf of our experienced and client-focused team, we are pleased to accept Midland’s Top Internal Legal Partner of the Year Award,” said ProVest CEO Jim Ward. “This incredible recognition demonstrates that we are a strategic business partner and industry leader. When our clients excel, so do we.”

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ProVest is a service of process vendor with more than 30 years of experience. It has been partnering with Midland, a market leader in portfolio purchasing and recovery in the United States, for nearly a decade.

About ProVest LLC

Founded in 1991 in Tampa, Fla., ProVest plays a critical role by ensuring that defendants in a legal action have been properly served process, thus helping to protect their constitutional rights. ProVest specializes in managing the service of process related to creditors’ rights and mortgage defaults. ProVest annually serves millions of documents for the U.S.’s most notable law firms, financial institutions, and insurance companies. Learn more at provest.com.

Contact: Joel Rosenthal at joel.rosenthal@provest.us

A bankruptcy attorney received a dunning letter from a debt collector, identifying him as the attorney for the consumer named in the letter. Unable to recognize the consumer’s name, the attorney searched his records and determined that he had never represented the consumer.

The attorney filed a Fair Debt Collection Practices Act (FDCPA) suit against the debt collector in Missouri state court, alleging that the debt collector had violated Section 1692c(b) by disclosing the existence of a debt to an unauthorized third party. The attorney alleged that searching his records cost him valuable time and resources that he could have spent working on matters for actual clients.

The case was removed to federal district court where the debt collector moved for judgment on the pleadings, arguing that the attorney lack standing to sue under Section 1692.

While the district court found that the debt collector’s letter violated Section 1692c(b), it nevertheless agreed with the debt collector that the attorney lacked standing to sue under that provision of the FDCPA.

On appeal, the U.S. Court of Appeals for the Eight Circuit analyzed the attorney’s standing using the zone-of-interests test, which presumes that a statutory cause of action extends only to plaintiffs whose interests fall within the zone of interests protected by the law invoked. The full text of Section 1692c(b) reads as follows:

“Except as provided in section 1692b of this title, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.”

The court stated: “We thus read the plain language of § 1692c(b) as making clear that the provision’s purpose is to protect consumer, not third parties.”‘ The court noted that it was joining other circuits, including the Sixth, Seventh, and Eleventh circuits, that previously considered the issue and concluded that non-consumers cannot bring claims under Section 1692c(b).

The case is Magdy v. I.C. System, Inc. A copy of the opinion is available here.

In an unpublished, per curiam decision, the Eleventh Circuit found that wasted time and loss of sleep can confer Article III standing. See Toste v. The Beach Club at Fontainebleau Park Condominium Assoc., Inc., et al., No. 21-14348, 2022 WL 4091738 (11th Cir. Sept. 7, 2022). In Toste, the plaintiff fell behind on his monthly payments to his condominium association and the matter was referred to the defendants for collection. The defendants first attempted to collect the debt by threatening to file a claim of lien against the plaintiff’s condominium and then filed a claim of lien and threatened to foreclose on it if the plaintiff did not pay more than $10,000 in past-due association fees, interest, late fees, attorney’s fees, and costs.

Finding the past-due amount excessive, the plaintiff attempted to obtain an explanation of the charges from the association and the defendants. After having no success, the plaintiff consulted with an attorney and hired an accountant to assist in determining exactly how much was owed. The attorney and accountant determined that the collection letters and the claim of lien likely misstated the amount of his debt. As a result, the plaintiff retained the attorney to file suit against the association and the defendants for alleged violations of the FDCPA. In doing so, the plaintiff asserted that he was forced to waste time and money in trying to determine the correct amount of his debt, causing him emotional distress that manifested in loss of sleep. The defendants filed a motion to dismiss for lack of standing and the district court granted the motion, finding that the defendants’ actions had not caused the plaintiff any concrete injury. The plaintiff appealed to the Eleventh Circuit.

On appeal, the Eleventh Circuit noted that the plaintiff alleged the following injuries resulting from the defendants’ misrepresentations: (1) a claim of lien reflecting an inaccurate debt filed against his property; (2) significant time wasted “to determine whether the amounts sought were correct, and whether to make payments in response to the communications, contesting and preparing to contest the amounts sought in each of Defendants’ communications, taking time away from [his] work and personal life”; (3) confusion over the amount he owed, resulting in him being unable to pay what he owed and resolve the matter without legal assistance; and (4) emotional distress manifesting in “loss of sleep, extreme stress, frustration, anger, agitation, and anxiety.”

The Eleventh Circuit focused on the injury-in-fact requirement for standing and rejected the district court’s determination that the alleged emotional distress damages and time spent trying to discover the true amount of his debt were too insubstantial. The Eleventh Circuit acknowledged that whether emotional distress alone is a sufficiently concrete injury for standing purposes has not yet been decided in a published opinion but noted that the Eleventh Circuit has found standing where a plaintiff experienced both emotional distress manifesting in a loss of sleep and wasted time spent resolving problems caused by a defendant’s mistakes. Moreover, the Eleventh Circuit conceded that the time and money spent on the FDCPA lawsuit itself cannot give rise to a concrete injury for Article III standing purposes but distinguished this case as the plaintiff initially consulted with an attorney in part to help him accurately calculate his debt to the association. Ultimately, the Eleventh Circuit found that the plaintiff presented evidence that he suffered injuries sufficiently tangible to confer standing and vacated the district court’s decision.

Before filing a motion to dismiss for lack of standing, it is imperative that defendants review and understand the precedent on Article III standing in the jurisdiction in which the case is pending to determine whether the harm alleged by the consumer satisfies the injury-in-fact requirements.

Read the decision here.

Automation, artificial intelligence and machine learning are at the forefront of the continued digital transformation within the world of collections. And organizations from across industries — including healthcare, financial services and the public sector — are learning how automation can improve their workflows and collection efforts.

When implemented well, automation can ease pressure from call center agents, which can be especially important when there’s a tight labor market and retention is at the forefront of every employer’s mind. Automated systems can also help improve recovery rates while minimizing the risk of human error and the corresponding liability.

These same systems can increase long-term customer satisfaction and lifetime value. Deeper insights into consumers’ financial situations and preferences allow you to avoid wasting resources and making contact when consumers are truly unable to pay. Instead, monitoring and following up with their preferred contact method can be a more successful approach — and a better experience for consumers.

The end of pandemic assistance programs and policies, along with new compliance requirements, are making automation more important than ever before.

Three tips when automating debt collections

Automation and artificial intelligence (AI) aren’t new to collections. You may have heard about or tried automated dialing systems, chatbots, text message services and virtual negotiators. But the following three points can be important to consider as the technology and compliance landscapes change.¹

1. Good automation depends on good data

Whether you’re using static automated systems to improve efficiencies or using a machine learning model that will adapt over time, the data you feed into the system needs to be accurate. The data can be internal, from call center agents and your customers, and external sources can help verify and expand on what you know.

With your internal systems, consider how you can automate processes to limit human errors. For example, you may be able to auto-fill contact information for customers and agents — saving them time and avoiding typos that can cause issues later.

External data sources can be helpful in several ways. You can also use third-party data as a complementary resource to help determine the best address, phone number or email address to increase right-party contact (RPC) rates. External sources can also validate your internal data and automatically highlight errors or potentially outdated information, which can be important for maintaining compliance.²

Robust and frequently updated datasets can make your collection efforts more efficient and effective. An automated system could be notified when a debtor resurfaces or gets a new job, triggering new reminders or requests for payment. And if you’re using the right tools, you can automatically route the account to internal or external servicing and prioritize accounts based on the consumer’s propensity to pay or the expected recovery amount.

2. Expand consumers’ communication options and choices

Your automated systems can suggest when and who to contact, but you’ll also want them to recommend the best way to contact consumers. An omnichannel strategy and digital-first approach is increasingly the preferred method by consumers, who have become more accustomed to online communications and services throughout the pandemic.

The Experian 2022 Global Insights Report highlights that 81 percent of consumers say they think more highly of brands when they have a positive experience with the brand online, including when there are multiple digital touchpoints. Additionally, 59 percent of consumers trust organizations that use AI.³

Organizations can benefit by using alternative communication methods, such as push notifications, as part of an AI-driven automated process. These can be unobtrusive reminders that gently nudge customers without bothering them, and send them to self-cure portals.

Many consumers may need to review the payment options before committing — perhaps they need to check their account balances or ask friends or family for help. Self-service options through an app or web portal can give them choices, such as a single payment or payment plan, without having to involve a live agent.

3. Maintaining compliance must be a priority

As the pandemic responses made clear, you need to be ready to adjust to a rapidly changing compliance environment. Over the last few years, organizations have also had to react to changes that can impact Telephone Consumer Protection Act (TCPA) compliance. And the first part of the debt collection final rule from the Consumer Financial Protection Bureau (CFPB), which impacts collectors’ use of electronic communications and increases consumers’ control over communication.⁴

The automated systems you use should be nimble enough to comply with required changes, and they should be able to support your overall operation’s compliance. In particular, you may want to focus on how automated systems collect, verify, safeguard and send consumers’ personal information.

Why partner with Experian?

Whether you’re looking to explore or expand your use of automated systems in your collection efforts, you want to make sure you’re taking the right approach. Experian helps clients balance effective collections and a great customer experience within their given constraints, including limited budgets and regulatory compliance.

The Experian Ascend Intelligence Platform and award-winning PowerCurve® Collections solutions are also making AI-driven automated systems accessible to more lenders and collectors than ever before. Taking a closer look at Experian’s offerings, we can focus on three particular areas:

Industry-leading data sources

Experian’s data sources go well beyond the consumer credit database, which has information on over 245 million consumers. Clients can also benefit from alternative financial services data, rental payment data, modeled income estimates, information on collateral and skip tracing data. And real-time access to information from over 5,000 local exchange carriers, which can help you validate phone ownership and phone type.⁵

Tools for maximizing recovery rates

Experian helps clients turn data into insights and decisions to determine the best next step. Some of Experian’s offerings include:

• PriorityScore for Collections℠: Over 60 industry-specific debt recovery scores that can help you prioritize accounts based on the likelihood to pay or expected recovery amount.⁶
• RecoveryScore 2.0: Helps you prioritize charged-off accounts based on collectability.
• TrueTrace™ and TrueTrace Live™: Find consumers based on real-time contact information. We’ve seen a 10 percent lift in RPC with clients who use Experian’s locating tools, TrueTrace or TrueTrace Live.
• Collection Triggers℠: Sometimes, waiting is the best option. And with an account monitoring tool like Collection Triggers℠, you’ll automatically get notified when it makes sense to reach out.
• RPC contact scores: Tools like Phone Number ID™ and Contact Monitor™ can track phone numbers, ownership and line type to determine how to contact consumers. Real-time data can also increase your RPC rates while limiting your risk.

You can use these, and other, tools to prioritize collection efforts. Experian clients also use different types of scores that aren’t always associated with collections to segment and prioritize their collection efforts, including bankruptcy and traditional credit-based scores.

Custom models based on internal and external scores can also be beneficial, which Experian can help you build, improve and house.

Prioritize collections activities with confidence

Collections optimization comes down to making the right contact at the right time via the right channel. Equally important is making sure you’re not running afoul of regulations by making the wrong contact.

Experian’s data standards and hygiene measures can help you:

• Identify consumers who require special handling
• Validate email addresses and identify work email addresses
• Get notified when a line type or phone ownership changes
• Append new contact information to a consumer’s file
• Know when to reach out to consumers to update contact information and permissions
• Recommend the best way to reach consumers

Automated tools can make these efforts easier and more accurate, leading to a better consumer experience that increases the customer’s lifetime value and maximizes your recovery efforts.

Learn more about Experian’s end-to-end automated debt collections solutions

¹Consumer Financial Protection Bureau Issues Final Rule to Implement the Fair Debt Collection Practices Act, October 2020.

²Collections After Compliance, Experian August 2019

³“Experian 2022 Global Insights Report” Experian April 2022

⁴Consumer Financial Protection Bureau Issues Final Rule to Implement the Fair Debt Collection Practices Act, October 2020

⁵Phone Number ID with Contact Monitor, Experian, August 2020

⁶PriorityScore for Collections Product Sheet, Experian 2020