Archives for October 2023

Texting is the most effective way to reach delinquent consumers, but, like all communication methods used in debt collection, it’s not easy to comply with regulations. 

What does Jesse Bird, Chief Technology Officer at TCN recommend? 

In a word, flexibility. 

Some collections departments are “really rigid” in the way they want to use texting, but, according to Bird, “[u]ltimately, it may not work that way.” 

“Texting is possible,” says Bird, “but the carriers are the gatekeepers currently. If they are unsatisfied with your policies, your procedures, your controls, your consent management or any of those things, they will ask you to make changes. If you don’t make the changes, you’re not going to get your messages through.” 

What else does Bird recommend when it comes to collections contact strategies?

 

1 – Identify small wins and take them 

Many companies in the ARM space want to embrace technology, but it can be complicated to identify how the technology can be integrated into a collections strategy. Bird says: “[collections departments] shouldn’t neglect things like AI or generative or ChatGPT or machine learning. [They] shouldn’t, but [they] have to see how [those technologies] fit into their overall strategy in easy ways first.” He adds: “24-hour payments available via phone, via text, via portal, or data processing automation or agency efficiency tools for agents or these sorts of things,” are all small wins. 

2 – Advocate for clearer regulation 

It’s a longer game, but Bird says it will be important that the industry “demonstrates that these messages are wanted, allowed, and legal and they’re being unfairly targeted.” It’s no secret: consumers prefer to deal with most business matters via text. Collections business is no different. The industry must make that clear to the regulators. 

If you’re interested in how to get involved in advocating for the ARM industry, check out the Consumer Relations Consortium.

3 – Get a good partner 

The ARM industry is a complicated one. Bird recommends finding a partner who can help navigate the regulations and help you decide how to integrate technology to make your business better.  

Listen to our Executive Q&A with Jesse Bird from TCN, or read the full text below. 

Erin Kerr:

Hello everyone. I’m here with an episode of Executive Q&A. I’m Erin Kerr, Director of Content for Collections and Recovery, brought to you by Auriemma Roundtables, and I’m joined today by Jesse Bird, CTO at TCN. Jesse, can you give us a quick introduction?

Jesse Bird:

Sure.  I’m the Chief Technology Officer at TCN. TCN is the contact center of choice for a lot of collections agencies. We have been doing collections work in the ARM space since 1999, almost essentially since we were founded. We’ve been around since 1999, and I’ve been part of the company since 1999.  I’ve got kind of a long history working in contact centers, especially with dialers and in issues related specifically to what’s going on in the ARM world. I try to keep up on this sort of stuff, so I’m happy to be here and spend some time with you.

[EK]:

It’s great to be with you, Jesse. I always love our conversations. I’m going to just jump in. What do you think is the biggest challenge the ARM industry is currently facing?

[JB]:

It seems currently there’s a mix between a few issues that are front and center regularly. The first one is the new regulatory environment. It’s not really the traditional regulatory environment. I’m sure we’ll talk about that a little bit. The second one is the migration to digital channels for contact and payment strategies. And the third one is the adoption of new technologies faster and faster. All three of these things I think are pretty intimately related.

[EK]:

Okay. Can you go into why you feel that those are the biggest challenges?

[JB]:

I think it’s clear that a lot of customers prefer digital first options for their communications, right? Table stakes with a contact center is a great voice game. You have to do inbound; you have to do outbound, and you have to dial. A lot of times you have to have predictive AI. All of that is the table stakes. And now, [collections agencies] are expected to implement digital channels and [understand] how that integrates with the workflows. There is SMS, email, self-serve portals, chat, and that’s just the starting point for how digital engagement should go and how it should work. Each one of these digital channels comes with their own challenges and their own difficulties.

Looking at SMS for starters, SMS is not regulated by the FCC [the same way that] voice [channels are]. Voice is under Title II communication, which is a pretty heavy-handed regulation. SMS is regulated under Title I of the Communications Act. [Title I] is a light touch framework. The endpoint of that is the carriers have a lot of latitude in how they manage their traffic and how they terminate messages on their network. This essentially means that carriers can allow or disallow traffic based on their own rules, their own analytics, and their own understanding of what may or may not be wanted by their end users. Along with that, they’ve also created some strict rules. They call them the SHAFT categories.

SHAFT means sex, hate, alcohol, firearms, tobacco, cannabis, gambling, affiliate marketing, and high-risk financial services. I have tried to make sense of that acronym. I’ve not really been super successful. But what that means is they’ve put blanket bans on those types of services. Unfortunately for the industry, while application to person text messaging is generally allowed, the carriers have been aggressive at bundling collections messaging content into high-risk financial services.

When [collections agencies] want to engage with the carriers, [there are a lot] of rules. They have registration that you need to do, they want you to register your brand, they want you to demonstrate compliance. They want you to demonstrate consent. These are not insurmountable challenges, but they’re challenging, right? That’s how the new regulatory environment is starting to emerge: do no harm.

If you do harm, the government’s going to come after you. The carriers are being proactive. That’s a totally different approach than saying: “my policies, procedures, and controls are good. And if the government comes and looks, they have them.”

Now, it’s proactive. I need to demonstrate my policies, procedures, and controls, and the person I’m demonstrating them to is not the government, it’s a third-party big brother. It’s a totally new way that people have to think about how they’re going to start, in particular for SMS. The second thing is there’s also some interplay between the CFPB and the FCC.

 The FCC is the body that’s overseeing communications and regulations generally. In this instance, especially around digital communications, they’re a little bit at loggerheads, right? The CFPB has encouraged, and even given safe harbor, to types of digital communications, and it seems clear under those rules that [agencies] can manage consent by opt out, and that should be allowed. There are ways to engage with people and they’ve given good and specific guidelines, but the FCC via the light touch approach has really fostered a much more rigid stance. There is a complicated regulatory environment, and essentially the much more rigid stance seems to be what’s carrying the day, at least around SMS.

When you look at other digital channels like email, there are some challenges around getting messages delivered and around dealing with the big three email providers. You have to learn how to contend with how they might mark and label your emails. You have to set up your SPF, your DKIM, your DMAR, some of the technical things that need to be done in order to get your emails through. As agencies start to develop digital communication channels, it’s important that you have some expertise in-house or a really good partner.

The last challenge is adopting new technology. There are some overhanging questions as [agencies] adopt new technology that they are wrestling with: AI, work from home options, how the interplay between the government works, how are they are going to manage the costs because new technology costs a lot.

As we’ve started to develop AI solutions, I‘ve had a few conversations with people where their eyes get a little big once they realize how expensive some of these solutions are. TCN has always thought about how we are going to democratize this technology, make it affordable and available. We’re doing a really good job with that with some aspects of AI, but it’s difficult, especially for some agencies that are running on tight margins to figure out. They think: I need to adopt this. I also need to manage the costs. Then they have to think about how they are going to manage productivity. That’s a long-winded way of saying there are a lot of challenges, but the biggest one are regulatory, digital channels, new technology, and I think that they’re all basically related.

[EK]:

Absolutely. To your point about cost: that upfront cost seems really high. It’s really difficult for a lot of agencies to stomach, but at the end of the day, if you don’t adopt some of these tools, it won’t really matter because you probably aren’t going to get any market share. There are cost savings to down the road. Thanks for breaking all that down. Now that we’ve outlined those challenges, are there ways of getting around those challenges?

[JB]:

One of the things that I say internally from time to time is: you invest or you die. You move ahead or you die. If you stop moving, you die eventually. There are ways to get around these challenges.

My opinion, and this may be a little bit biased, is that first you need to have a good partner. There is a lot of deep knowledge and expertise around the way to handle some of these challenges. You should find a partner that is both committed and invested in the ARM space and knows the industry. Because this industry is not like a lot of other industries, so find somebody that’s willing to put up time, money, and effort into understanding these issues and the best way to navigate the challenges.

TCN has been there. We spend a lot of time, money, and effort making sure that we can help people navigate these challenges. We spend a lot of effort interacting with the FCC, interacting with the CFPB, participating in the rulemaking so that we can advocate on the industry’s behalf. It’s one of the things that we feel sets TCN apart from others in the industry. It’s clear that there are probably some players that aren’t interested in some of these challenges as much, and some are even stepping away. We’re not, that’s our focus. We’re going to help the ARM industry navigate the rules. We’re going to advocate at the Federal level, and we’ve been implementing solutions that work around all of these challenges.

The next thing to get around it is you have to be flexible. I have talked with some agencies that are really rigid in what they want to do, and they have a really clear idea of what they want to do and how it should work. Ultimately, it may not work that way. You may get similar results, but you may not get it done exactly the way that you want it to do. We spent a bunch of time earlier in this conversation talking about texting. Texting is possible, but the carriers are the gatekeepers currently. If they are unsatisfied with your policies, your procedures, your controls, your consent management or any of those things, they will ask you to make changes. If you don’t make the changes, you’re not going to get your messages through. Agencies have understand how to do that. They have to be flexible and work with them because they are basically the gatekeepers. They are the de facto standard. There are only three [carriers] in United States, you have T-Mobile, ATT, and Verizon. [They are] all running very similar rules that cover more than 98% of all cell phones in America. You have to play by the rules. The FCC has essentially set them up so that they can make the rules. Be flexible.

The second is, especially in the last 12 months, technology has come fast. There have been a lot of cool proofs of concept. ChatGPT and Generative AI has been groundbreaking. For some, there is a desire to reach for the neatest and greatest and best thing. I believe that it’s important that [agencies] take the easy wins first. I talk to quite a few agencies, and I’ve talked to several recently that are looking for some of this [new technology]. They want to put generative AI in their contact center immediately. They think that’s going to be the thing. And you start talking to them about their processes and their policies, their procedures, their controls, the things that they’re doing now, and [there are quite a few] things that they can grab that are easy, that aren’t going to be as expensive and that are right in front of them.

Even if it’s as simple as having 24-hour payments available via phone, via text, via portal, or data processing automation or agency efficiency tools for agents or these sorts of things.

[The agencies] may be running down the street after a hundred-dollar bill and forget that they have about a hundred dollars in their pocket. They need to stop and count what they have. Not to diminish the importance of these technologies, because these technologies are really important. What I’m saying is they can’t implement them all at once.

I advise my own IT staff to do this as we were picking features: pick the easy wins, take them, and then do the next thing, and then do the next thing. You may have heard of a guy, and his name is Simon Sinek, he’s like a business consultant, right?

[EK]:

Yes.

[JB]:

He says a lot of times businesspeople forget this: we are not playing a game to win or lose. We’re playing an infinite game. The most important thing is that you’re still playing tomorrow.

Sometimes, if you don’t take the easy win, you’re not going to play tomorrow. I don’t want to diminish how important it; you shouldn’t neglect things like AI or generative or ChatGPT or machine learning. You shouldn’t, but you have to see how they fit into your overall strategy in easy ways first. Make it part of your ongoing plans for improvement. Don’t jump right to the end game. You need a consistent plan on how you’re going to improve every day, how you’re going to get better every day.

This is also a place where I think most agencies would be well-served to have a good partner. TCN has been investing in our AI capabilities. We’ve been investing in our machine learning capabilities, especially targeted towards the ARM space. We’ve done a lot with analytics, conversation analytics. We’re doing quite a bit trying to improve our bot automation. We’re also doing quite a bit with workforce management and agency efficiency tools. Find a partner that’s implementing these things that get you a lot of easy wins with AI without having to do a lot.

[EK]:

Absolutely. I know that [TCN] is deeply involved in a lot of that stuff, and you’re obviously involved in our Consumer Relations Consortium, which is doing advocacy on behalf of agencies with those regulators. I agree; it’s important for agencies to be strategic especially now, as we’re not seeing that forward flow that we thought we would see, and the margins are getting thinner. For a minute, I just want to focus on texting specifically because that’s a huge deal [for agencies]. I want to ask you, what do you see on the horizon in terms of making it easier for collection agencies to text consumers?

[JB]:

I’m not super keen that it’s going to get easier in the very near term. I think we’re going to have to continue to work with the carriers and be flexible and find the types of campaigns that they’re going to allow and work on that. It’s possible. There has been an industry-wide ongoing challenge around texting, and it is possible, but you’ve got to be flexible. The carriers require that you demonstrate consent and that you show them the types of campaigns that you’re sending. If you do that, you’re going to get your messages out. If you’re inflexible in what you send and the messages exactly that you want to send, you probably won’t get your messages out. And we’ve helped dozens of agencies set up can texting campaigns and get their messages out consistently. If you follow the current best practices, and are willing to be flexible, it will happen.

I believe it will continue to get a bit more challenging before it begins to swing the other way. I believe that the only way that it’s going to swing the other way is if the industry mobilizes and advocates for some change in the FCC. I think that that’s going to be important that [the industry] demonstrates that these messages are wanted, allowed, and legal and they’re being unfairly targeted. We have had some conversations that I think are going to be beneficial to that end. I think that’s how the pendulum will begin to swing. If we can demonstrate some harm that’s going on in a way that resonates with the regulators. If we do that it will start to swing back.

TCN has been active on this front. We do quite a bit of work trying to make sure that we are involved in the rulemaking and engaging with regulators as much as possible. I think that in time, the, the rules will find a way that agencies can work through. I liken this back to when everyone got really frightened about the auto dialer definitions.

There are a lot of solutions that people were starting to come up with around manual calling and human intervention on some of the calls. They’ve eventually found a path that the industry could walk through reasonably.

[EK]:

That makes sense. Part of the Consumer Relations Consortium’s mission this year was to engage with the FCC around this specifically. [TCN] was part of those conversations they’re ongoing, but I agree, I think advocacy is the industry’s best bet to try to get texting to be accepted by the carriers. Well thank you so much, Jesse, for answering all my questions. I’ll turn it over to you for the closing and final thoughts for the audience.

[JB]:

Thank you for your time as well. I enjoy engaging about these sorts of things. As the industry moves forward it may start to seem like there is a lot to grapple with. If you have a good partner, you’re going to be able to continue to improve. That’s one of the things that we say: we’re going to make sure that we bring the best of breed contact center for the ARM space to bear, for the industry, for customers of all size.

I think with some creativity and some persistence, it’s possible and likely to thrive in the current environment, even as you’re having to bring on more digital channels, even as you’re having to grasp and wrestle with new types of communications, and even as you’re asking to make sense of how you’re going to walk through the regulatory landmines that are ahead of you. I appreciate the opportunity to talk about all of that.

[EK]:

Thank you again so much for your time today, and thanks everyone for tuning in to this episode of Executive Q&A. I’m Erin Kerr with Collections and Recovery. This is Jesse Bird with TCN. Thanks so much, Jesse, and have a great rest of your day.

The Delete Act (SB 362), signed into law by California Gov. Gavin Newsom on October 10, 2023 imposes additional disclosure and registration requirements on data brokers. It requires data brokers to support deletion requests through a central “deletion mechanism” managed by the California Privacy Protection Agency (CPPA). The law also empowers consumers to request deletion of their personal information from all registered data brokers with a single submission.

As our Privacy + Cyber professionals explain in a more detailed summary, the expanded new requirements of the Delete Act are a legal and operational game-changer for organizations that qualify as data brokers. Data brokers will now have to provide more information during registration, including details about their collection of minors’ personal information, precise geolocation data, and reproductive health care data. They are also required to compile and disclose certain metrics related to CCPA requests annually, undergo audits, and maintain audit records for at least six years. The act presents several challenges for any organization deemed to be a data broker, including determining applicability, managing broader business impacts, handling technical complexities related to verification of requests and a continuing duty of deletion, and bearing potentially high costs.

Even if your business isn’t considered a data broker, data obtained or used by your business likely comes from a data broker. Our team’s advisory includes best practices to comply with the growing number of data protection laws in the United States, including conducting data-mapping assessments, reviewing registration requirements, maintaining deletion request policies, developing record-keeping policies, conducting training, and considering the impact of data deletion on vendor management and contracts.

American Banker recently reported that the CFPB is planning to substantially increase the size of its staff, particularly its Enforcement Division staff. 

The American Banker article was based on an internal memo from Eric Halperin, CFPB Enforcement Director, which was sent to CFPB employees on September 21.  As reported by American Banker, the memo indicates that Director Chopra has allocated about 75 new full-time employees to the Enforcement Division.  As the CFPB currently has approximately 150 enforcement attorneys and support staff, the addition of the 75 new full-time employees would increase the number of full-time employees in the Enforcement Division by 50%.  The memo also references CFPB plans to hire additional staff in its legal, operations and research, monitoring, and regulations divisions.  American Banker reports that the CFPB will begin recruiting and hiring the new enforcement attorneys and staff this fall and into 2024.

The article includes the following quote from Mr. Halperin’s memo:

“These additional resources will enable us to open more investigations, including matters with significant market impact and against large market actors, consistent with the Bureau’s priorities.  We also will be in a better position to meet resource demands from our increasing number of matters in contested litigation.”

American Banker reports that the memo also indicates that the expansion of the CFPB’s Enforcement Division includes plans to hire a litigation deputy, assistant litigation deputies, and other support staff and to create a fifth litigation team.  Mr. Halperin is also quoted as having said in the memo that “[t]he office will benefit from standing up a fifth litigation team that is as strong as the existing four teams.  It will take several months to build the fifth litigation team and will involve both internal moves as well as new hiring.”

This is truly an ominous development which will undoubtedly greatly increase the volume of investigations launched and lawsuits brought by the CFPB.  This increases the risk that more banks and non-banks will be targeted by the CFPB, thus making it increasingly important for them to put their compliance houses in order.

The U.S. Court of Appeals for the Seventh Circuit recently affirmed a trial court’s summary judgment ruling in favor of a debt collector asserting a bona fide error defense to an action under the federal Fair Debt Collection Practices Act.

Here, the debtor disputed the debt by emailing two officers of the debt collector company, and not by following the dispute procedures described in the written instructions provided by mail to the debtor.

A copy of the opinion in Ross v. Financial Asset Management Systems is available at:  Link to Opinion.

A debtor defaulted on a debt then later married his spouse. The debtor and spouse shared a phone plan and office. In an attempt to collect the debt, a debt collection company initially mailed the debtor a letter. The debtor did not follow the dispute process as outlined in the letter and separately emailed the chief executive officer and vice president of operations of the collection company to dispute the debt.

The officers of the company did not recall seeing the debtor’s dispute email. As a result, the company took no action to address the debtor’s dispute letter. Therefore, the company did not follow its standard policy of stopping collection activity and proceeded to contact the debtor’s spouse via telephone. The company contacted the debtor’s spouse 12 times in an attempt to reach the debtor to collect the debt.

The debtor’s spouse (“plaintiff”) ultimately sued the debt collector (“defendant”) alleging the calls violated the FDCPA, 15 U.S.C. § 1692 et seq. The plaintiff asserted the defendant violated § 1692g(b) by continuing debt collection activities after the debtor disputed the debt and without first providing verification of the debt. The plaintiff further alleged the defendant violated § 1692d and 1692d(5) because (1) the defendant continued to call the plaintiff after the debtor disputed the debt, (2) the defendant continued to call the plaintiff after she notified the defendant that she does not use her phone, and (3) the defendant disconnected calls with the plaintiff after she answered. 

The plaintiff alleged that the 12 unwanted phone calls were illegal and caused her to experience stress, which physically manifested in crying and difficulty sleeping. The plaintiff and defendant both moved for summary judgment. The trial court held the plaintiff could not bring a claim under § 1692g(b) because she is not a “consumer” for the purposes of that provision. The trial court also concluded that a reasonable jury could not infer that the defendant violated § 1692d and 1692d (5), and even if it could, the trial court found that the defendant would prevail under the affirmative defense of bona fide error under § 1692k(c). The plaintiff appealed.

On appeal, the plaintiff argued that the trial court erred by finding that she was not a “consumer” under 15 U.S.C. § 1692g(b). As you may recall, the statute provides that if the consumer notifies the debt collector in writing that the debt is disputed within 30 days after receipt of the notice, the debt collector must cease collection of the debt until the debt collector mails verification to the consumer.

Here, the Seventh Circuit assumed, without deciding, that the plaintiff has a cause of action in order that it could address the merits of the trial court’s decision addressing the defendant’s bona fide error defense. See Knopick v. Jayco, Inc., 895 F.3d 525, 529–30 (7th Cir. 2018); Dunnet Bay Constr. Co. v. Borggren, 799 F.3d 676, 689 (7th Cir. 2015).

The bona fide error defense requires a debt collector to show that (1) the violation was not intentional, (2) the violation resulted from a bona fide error, and (3) the debt collector maintained procedures reasonably adapted to avoid any such error. Kort v. Diversified Collection Servs., Inc., 394 F.3d 530, 537 (7th Cir. 2005).

Notably, this defense does “not require debt collectors to take every conceivable precaution to avoid errors; rather, it only requires reasonable precaution.” Kort, 394 F.3d at 539; see also Hyman v. Tate, 362 F.3d 965, 968 (7th Cir. 2004).

The plaintiff did not properly dispute the first two elements, and the only question concerned the third element — that is, whether or not the defendant maintained procedures that were “reasonably adapted” to avoid any such error.

The plaintiff argued they did not because the vice president of operations’ deleted e-mail showed that the defendant did not maintain procedures reasonably adapted to avoid the error and did not have procedures to detect deviations from the prescribed dispute procedures. The plaintiff’s argument relied on the case of Morris v. Choice Recovery, Inc., No. 18-cv-05548, 2020 WL 6381926 (N.D. Ill. Oct. 30, 2020). In Morris, the plaintiff faxed a dispute to the administrative team in charge of forwarding all disputes to a particular individual who logged the disputes in an internal database. 

However, the record on appeal showed that training was not the only procedure the defendant had in place, and the type of error here was different than Morris because the defendant set up specific procedures to dispute a debt. Additionally, the defendant mailed a letter with instructions to dispute a debt that directs consumers to its website or standard mailing address and sought to avoid communications to corporate officers whose day-to-day duties seldom include consumer communications.

Notably, in emailing the CEO and VP of operations, the debtor circumvented the defendant’s instructions for how to dispute his debt outlined in the letter. Specifically, the debtor pulled a Massachusetts registration document to uncover the email addresses of the defendant’s employees. Although the officers of the company receive training to forward dispute emails to its client services department, they are normally not involved in day-to-day communications with debtors.

Moreover, unlike Morris where the plaintiff properly disputed the debt and the error occurred while executing a routine procedure, the plaintiff here invented an alternative channel to dispute the debt and thus no one at the debt collector company noticed the dispute, which would have started its procedure. 

As a result, the Seventh Circuit held that the defendant took reasonable steps to avoid the bona fide errors caused by the debtor’s behavior, and even assuming the plaintiff is a “consumer” under § 1692g(b) and that the defendant violated that provision, the bona fide error defense shields the defendant from liability under § 1692g(b).

Next, the plaintiff argued the trial court erred by finding that a reasonable jury could not infer that the defendant intended to annoy the plaintiff, in contravention of 15 U.S.C. § 1692d. Section 1692d provides: “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.”

The Seventh Circuit dismissed this argument and noted that same facts and logic shield the defendant from liability through the bona fide error defense because if the defendant’s procedures had been followed, the plaintiff’s number would have been immediately placed on a do-not-call list. Therefore, the plaintiff would not have continued to receive calls and the plaintiff ultimately complied with the requirements of the bona fide error defense.

Lastly, the plaintiff argued that the defendant intended to annoy her by calling and then hanging up on her twice, in violation of § 1692d (5). The Seventh Circuit rejected this argument based on the bona fide error defense because the defendant had policies and procedures that should have prevented these calls from going out to the plaintiff in the first place.

Accordingly, the Seventh Circuit affirmed the trial court’s grant of summary judgment in favor of the defendant debt collector.

CHESAPEAKE, VA. — Spring Oaks Capital, LLC is pleased to announce the closing of a new credit facility, as well as a large capital raise to support the growth of its technology-focused consumer debt investing and collections platform. The $150 million senior secured revolving credit facility provided by funds managed by Värde Partners and UBS O’Connor, coupled with a fourth-round capital raise will support the Company’s portfolio acquisition strategy along with the continued development of industry leading consumer engagement and analytical tools. The new credit facility reduces borrowing costs while increasing flexibility, positioning Spring Oaks to execute upon a robust pipeline of investment opportunities while building a platform with an unmatched compliance focus that empowers consumers on their journey to resolve the burden of financial debt through machine learning, data science, and deep industry expertise.

Tim Stapleford, President & CEO commented, “This is a significant milestone for Spring Oaks as we continue to build our leading portfolio acquisition platform, and we are thrilled to partner with Värde Partners and UBS O’Connor as we embark on the next chapter for our Company. We worked with the team at KBW and achieved this outcome in challenging market conditions, a testament to the company’s success. The new credit facility and capital raise further positions us to be the buyer of choice for sellers, from leading-edge financial technology lenders to global banking institutions seeking a well- capitalized, technology-enabled partner to transition customer relationships.”

About Spring Oaks Capital

Spring Oaks Capital is a national financial technology company, focused on the acquisition of non-performing credit portfolios. The Company subscribes to an employee and consumer-centric operating philosophy that creates high-value jobs, a significant performance lift and highest standards of compliance. Spring Oaks’ business strategy is rooted in innovative data-driven technology to maximize collection results and a contact platform that offers multi-channel options to meet each consumer’s communication preference. Spring Oaks has the management vision and experience to nurture a culture and DNA that is unique in the industry. To learn more about Spring Oaks, please visit www.springoakscapital.com.

The New York Department of Consumer and Worker Protection (DCWP) is proposing to amend its rules relating to debt collectors. The lengthy proposals cover many aspects of the debt collection cycle, including validation, verification, consumer communication, credit reporting, monthly reporting, and recordkeeping. The proposal also includes specific provisions relative to medical debt and time-barred debt.  

The DCWP will hold a public hearing to address the proposed rules at 11 a.m. ET on Wednesday, November 29, 2023. Details regarding the hearing and the rule can be found here.  

Recordkeeping and Monthly Reports 

The proposed amendment requires debt collectors to submit monthly reports with required fields, including reports for complaints (whether filed with DWCP or another entity), disputes, and cease and desist requests. (page 5).  Additionally, it requires debt collectors to keep the following records: 

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• Communications and attempted communications must be searchable and easily identifiable by time and duration, medium of communication, names and contact info of people involved, and include a contemporaneous plain language summary (page 4) 

• The consumer’s preferred communication method. (page 6) 

• Certain disclosures the debt collector made to consumers regarding credit reporting or unverified debt. (page 6) 

• Copies of policies addressing hospital financial assistance programs related to medical debt. (page 7) 

New and Updated Definitions 

The proposed amendment includes updated and newly added definitions for the following terms (pages 7-10): 

• Attempted communication 
• Clear and conspicuous 
• Covered medical entity 
• Electronic communication 
• Electronic record 
• Financial assistance policy 
• Itemization reference date 
• Language access services 
• Limited-content message 
• Original creditor and originating creditor 
• Communication 
• Debt Collector  

An excerpt of the complete definitions section with all the above terms can be found here.

Unconscionable and Deceptive Trade Practices 

The proposal includes significant and numerous updates regarding what is unfair and unconscionable when dealing with New York City consumers. Here is a non-exhaustive list of the proposed new requirements and prohibitions:  

• Debt collectors can place only three calls to a consumer within seven calendar days (page 12) 

• Debt collectors cannot contact consumers via email or text unless the consumer has provided revocable consent in writing or has used that communication method to communicate with a debt collector within the past 30 days. (pages 13-14) 

• Debt collectors cannot provide information to consumer reporting agencies (CRAs) without sending the consumer a notice stating clearly and conspicuously that the debt will be reported. Debt collectors will have five days from the rule’s effective date to send notice to consumers whose information has been previously furnished to a CRA. (page 18) 

• Debt collectors cannot sell, transfer, or place with an attorney for collection an account where the debt collector was previously unable to provide written verification of the debt. (page 19) 

• Validation Notices must include information beyond that required in Reg F and a new disclosure about the consumer’s rights. (page 20-21)

• Verification of a debt must be provided within 45 days of receiving a dispute or request for verification (orally or in writing). If the debt cannot be verified, the debt collector must send the consumer a notice of unverified debt with specific pieces of information included. (pages 23-24) 

• Debt collectors pursuing time-barred debt must comply with certain disclosures and waiting periods (page 26). 

Medical Debt 

In addition to specific disclosures regarding medical debt (page 28), requirements regarding what a debt collector should treat as a dispute regarding medical debt (page 25), and how a debt collector must respond (page 25), the proposal states that a debt collector must: 

• Treat all unverified accounts related to a discrete hospitalization or treatment within a six-month period the same. (page 25) 

• Verify that the covered medical entity on whose behalf it is trying to collect met its obligations under federal, state, or local law and the financial assistance policy. (page 25) 

Further, debt collectors are prohibited from collecting if they know or should know that collecting violates the financial assistance policy of a covered medical entity or that the patient has an open application for financial assistance. Debt collectors must conduct reasonable corrective measures upon obtaining information that a financial assistance policy was not disclosed to the patient, and must maintain a monthly log of these corrective measures. (pages 27-28) 

Instructions regarding how to participate or comment on the proposed rules can be found on the first page of this document; all proposed changes can be found on pages 4-29 

InsideARM Perspective 

This is not the DWCP’s first attempt to amend its debt collection rule. When a similar proposal was published in late 2022, the DWCP was not very receptive to industry comments. The 2022 proposal was not finalized, and now we have the 2023 version, complete with arduous, difficult to comply with requirements that will ultimately harm consumers. 

There is a danger that other cities or states might copy this proposal. Therefore, everyone in the ARM industry is encouraged to file a comment with the DWCP, even if your organization does not collect from New York City consumers. Perhaps an abundance of comments will help the DWCP see the significant flaws in the proposal. 

On September 20, the Senate Banking Committee held its first hearing on the use of artificial intelligence (AI) in the financial services space, further revealing a partisan divide regarding the utilities and risks associated with the technology. 

In his opening remarks, Committee Chairman Sherrod Brown cautioned that although AI technology promises new efficiencies and opportunities, it also carries unique risk of harm to consumers and workers in the financial services space, including the potential for discriminatory practices in lending and the reduction of job security and wages. He called for “rigorous testing and evaluation of AI models” before they are put to use by companies and other organizations in the financial services space. 

By contrast, Chairman Brown’s counterpart, Acting Ranking Member Mike Rounds touted the successes that similar technologies have brought to the financial services industry and stated that AI presents more upside than risk, particularly in the space of fraud detection and prevention. He urged Congress to take a “pro-innovative” role in regulating AI and warned that halting or slowing progress in this space will only allow competitors in other countries to develop more advanced technologies. 

The Committee then heard from several witnesses working in the AI and machine learning (ML) space, including both industry professionals and professors. Overall, these witnesses championed the potentials of AI, explaining its potential for “greater efficiency, enhanced insight, expanded access, and lower costs” but cautioned that the utilization of AI and ML is not a “one size fits all” model and will require careful consideration and oversight to minimize the risks it could pose to consumers and the markets.

DENVER, Colo. — Harvest Strategy Group is pleased to announce the expansion of its leadership team with the addition of two industry veterans, Cathy Fellabaum as VP Recovery and Jennifer Young as VP Operations as well as the promotion of Scott Hoffman to VP Client Services.  

Cathy Fellabaum joins Harvest from TRAKAmerica where she has been Vice President of Performance Management for the last 5 years.  Fellabaum has been at TRAKAmerica for 13 years, and has had multiple positions in recovery and operations.  Previously Fellabaum worked as a paralegal, legal assistant for two law firms, and as an automobile warranty administrator for Coconut Point Ford.  Fellabaum has a BS in Legal Studies from Florida Gulf Coast University, and is working on her MBA.  

Jennifer Young joins Harvest from Collection Partner Solutions where she has been Director of Operations.  Previously, Young worked 16 years for the multi-state collection law firm Machol & Johannes, where she had several positions of increasing authority, the last role as Director of Legal Operations. 

Scott Hoffman has been promoted to VP Client Services where he will manage the team that support Harvest’s expanding client base.  Hoffman has been with Harvest for nine years through several roles of increasing responsibility including Performance Manager and VP Recovery and previously worked for Resurgent Capital Services.  

“The growth of Harvest is due to our talented and dedicated team who have a tremendous depth of industry experience.  I am excited about the addition of these people and I am confident they will further expand our capabilities in delivering industry-leading services to our growing base of top industry consumer lenders,” said Pete Klipa, COO at Harvest. 

About Harvest Strategy Group

Harvest Strategy Group, Inc. (Harvest) is a recognized leader in national accounts receivable management services, delivering best-in-class results for the nation’s largest banks, finance companies and credit unions. Harvest’s mission is to execute custom recovery programs on behalf of its clients to maximize revenue, while protecting their brand with proven regulatory compliance and vendor oversight processes. Harvest’s leading recovery performance is fueled by ProScoreTM, its proprietary portfolio scoring and segmentation model. For more information, visit www.harveststrategygroup.com or call (303) 531-0631.

On October 11, the Consumer Financial Protection Bureau (CFPB or Bureau) published a special edition of its Supervisory Highlights report. This report serves as a “victory lap” for the Bureau, which highlights the relief it has obtained for consumers since the release of its March 2023 Special Fees Edition, discussed here. According to the Bureau, its supervisory efforts have led to institutions refunding over $140 million to consumers, including $120 million in overdraft and non-sufficient funds (NSF) fees.

Simultaneously, the Federal Trade Commission (FTC) announced a proposed rule to prohibit “hidden and bogus” fees. The proposed rule is in response to a proceeding last year where the FTC sought public input on such fees.

These initiatives were announced by CFPB Director Rohit Chopra and FTC Chair Lina Khan at a White House event where they received the express approval of President Biden.

On the state level, last week California Governor Gavin Newsom signed into law Senate Bill 478 (SB 478). Effective on July 1, 2024, this law will prohibit hidden fees in California.

In all, these events show that the coordinated federal-state emphasis on attacking so-called “junk fees” is continuing.

CFPB’s Supervisory Highlights:

The CFPB highlighted the below issues as the most significant ones identified by examiners during their supervisory activities, and notably, many of them are repeat issues the CFPB has written about in prior editions of Supervisory Highlights.

Overdraft, NSF, and Statement Fees:

Examiners found that some financial institutions charged consumers re-presentment NSF fees without giving the consumer an opportunity to prevent another fee after the first failed attempt.

• A re-presentment occurs when, after declining a transaction because of insufficient funds and assessing a fee, the merchant presents the same transaction to the consumer’s account-holding institution for payment again.

• The CFPB noted that beyond issuing refunds, most institutions reported plans to stop charging NSF fees going forward.

Examiners continued to cite institutions that charged consumers Authorize-Positive Settle-Negative (APSN) overdraft fees.

• APSN overdraft fees occur when financial institutions assess overdraft fees for debit card transactions where the consumer had a sufficient available balance at the time the transaction was authorized, but an insufficient balance when the transaction settled, i.e., another transaction settled during that time frame.

• According to the CFPB, institutions reported they planned to stop charging APSN overdraft fees.

Examiners found that some institutions charged fees for the printing and delivery of paper statements, including additional fees when a statement was returned undelivered.

• According to the CFPB, some institutions did not print or attempt to deliver paper statements but still assessed paper statement fees and returned mail fees each month.

Auto Loans:

Examiners founds that some auto servicers failed to ensure consumers received refunds for add-on products, such as vehicle service contracts, guaranteed asset protection (GAP), or credit-life insurance, following early loan termination or repossession.

Examiners also found that some servicers miscalculated add-on product refund amounts after early loan termination. For example, these servicers either inaccurately communicated higher deficiency balances or provided smaller refunds than warranted.

Remittance Rule:

Examiners found that some remittance providers failed to disclose fees, which resulted in a reduced wire transfer amount.

Examiners also found that certain providers failed to refund fees when the recipients did not receive the transfers on time.

FTC Proposed Rule:

The proposed rule by the FTC would “prohibit unfair or deceptive practices relating to fees for goods or services, specifically, misrepresenting the total costs of goods and services by omitting mandatory fees from advertised prices and misrepresenting the nature and purpose of fees.” Specifically, the proposed rule aims to ban “hidden fees,” or fees imposed shortly before the purchase is made that significantly increase the total amount. The proposed rule also seeks to ban “bogus fees” by requiring businesses to disclose upfront the amount and purpose of the fees and whether they are refundable.

Under the proposed rule, the FTC will be able to seek reimbursement for harmed consumers and levy monetary penalties against companies that do not comply with its provisions.

The proposed rule will be published in the Federal Register and interested parties will have 60 days to submit comments.

White House Support:

The CFPB and FTC are receiving the Biden administration’s full support. Last year, as part of his Executive Order on Promoting Competition, President Biden called on federal agencies to crack down on fees and provide consumers with disclosures of the full price up front. More recently in his State of the Union address in February, discussed here, President Biden called out fees in a variety of transactions involving banks, ticket vendors, airlines and online sellers.

The press release announcing the October 11 White House event stated:

“Junk fees cost American families tens of billions of dollars each year and inhibit competition, hurting consumers, workers, small businesses, and entrepreneurs. Research shows that fees charged at the back-end of the buying process make it harder to comparison shop for the best deal and lead to consumers paying upward of twenty percent more. Junk fees also make it hard for honest businesses to compete, stifle innovation, and hurt small businesses.”

California SB 478:

Fees are not just a priority for the federal government. As of July 1, 2024, California will prohibit advertising, displaying, or offering a price for a good or service that doesn’t disclose all mandatory fees or charges other than taxes or fees imposed by the government. Companies that don’t comply with the new law could face steep penalties.

This legislation is significant, as California has the fifth largest economy in the world and the nation’s largest population.

Troutman Pepper’s Take:

It’s obvious that the “war on fees” continues to rage with the federal regulatory agencies, and that the Biden administration views it as a beneficial political issue to pursue. Interestingly, the FTC proposed rule and the California statute are focused on disclosure of fees, while the CFPB’s actions are more of a frontal assault on the existence of fees themselves, which the CFPB believes are inherently unfair or abusive. It is also unclear how impactful the FTC and California measures would be in connection with credit transactions, since both of them only address disclosure of “mandatory” fees, and many of the fees that occur in consumer lending are not mandatory, but rather are either optional (like payment convenience fees) or are triggered by some occurrence after the credit transaction is entered into (like a late fee or NSF fee). But regardless of what the FTC and California measures may mean, the CFPB has shown itself to be hostile to fees of any kind, in any context.

Companies that report consumer accounts to the credit reporting agencies are experiencing an unprecedented increase in so-called “Fair Credit Dispute” lawsuits. These hybrid consumer claims typically assert violations of the Fair Debt Collection Practices Act (“FDCPA”) and/or the Fair Credit Reporting Act (“FCRA”) arising from a similar factual pattern (discussed below). Due to the sheer volume of new cases filed nationwide, this surge of Fair Credit Dispute litigation is being compared to the thousands of cases the credit and collection industry faced recently with both Telephone Consumer Protection Act lawsuits and Hunstein lawsuits.

Consumer Form Letter Commences Dispute

Most of the recent Fair Credit Dispute cases follow a similar factual pattern: The consumer mails a form dispute letter to the furnisher (typically a creditor or debt collector). While these form letters vary, most assert that the consumer disputes all debts. The letters may also state that the consumer does not seek written verification of the debt. Further, some dispute letters indicate that the consumer may only be contacted during a brief time frame each week and only by certain means of communication, such as email or text. Some experts in our industry note that these recent consumer dispute letters are similar to form letters sent by many credit repair organizations.

Furnisher Investigates Consumer Dispute

After receipt of the consumer dispute, the furnisher (typically a creditor or debt collector) commences an investigation and reports the code “XB” to the credit reporting agencies (the credit bureaus) on the disputed account. “XB” denotes that the consumer disputed the account information “directly” to the furnisher and that the furnisher is “conducting its investigation.”* The furnisher then investigates the dispute and mails the consumer a written response advising on the outcome of its investigation.

Upon conclusion of the investigation, the furnisher then reports the code “XH” to the credit reporting agencies which denotes that the consumer’s account was “previously in dispute” and that the furnisher “completed its investigation.”

Consumer Commences Fair Credit Dispute Lawsuit

After the furnisher concludes its investigation, the consumer typically commences a so-called Fair Credit Dispute lawsuit against the furnisher, asserting violations of the FDCPA and often the FCRA due to the furnisher’s “failure” to report the account as disputed upon conclusion of the dispute investigation. Specifically, the consumer will allege that the furnisher should have reported the code “XC” to the credit reporting agencies when concluding the investigation, instead of “XH”. The “XC” code denotes that the investigation of the consumer’s dispute is “complete,” but that the consumer “disagrees” with the results.

The Plaintiffs in these matters will contend that they advised the furnisher of an “ongoing dispute” and thus the furnisher should have used the XC code to denote the ongoing dispute. Further these Plaintiffs allege that the XH code is misleading because it indicates the “previous dispute” and the furnisher’s “completed investigation” but is silent as to whether the consumer continues to dispute after the completion of the investigation.

Courts Uniformly Reject Consumer Claims of “Ongoing Dispute”

As noted in a previous edition of InsideARM, Courts have examined and rejected these Fair Credit Dispute claims.ii In Wood v. Security Credit Services (Case No: 2020-CV- 02369, N.D. Ill. 2023) the Court examined the very fact pattern described above in the context of an FDCPA case and dismissed the consumer’s claim completely, writing:

“. . . when a debt collector investigates a dispute and communicates the results to the consumer, the dispute is resolved unless the consumer indicates that it disagrees with the results.”

This result above was similar to the ruling of the in Foster v. AFNI No. 2:18-CV-12340 (E.D. MI March 31, 2020) where the Court reviewed a similar fact pattern, granted summary judgment in favor of the debt collector, completely dismissed the claims of the consumer and wrote:

“After receiving the letter from Defendant indicating that it concluded that debt was valid, Plaintiff did not communicate any disagreement with the investigation. Instead, she filed this lawsuit. On this record, Defendant could not have had knowledge that Plaintiff disputed the outcome of its investigation.

Plaintiff argues that Defendant should have understood her original dispute of the debt to mean that she also disputed the outcome of the investigation and also disputed any resolution that involved her owing the debt. But she did not communicate this to Defendant at any point. . . .”

Three Strategies for Avoiding “Fair Credit Dispute” Liability

The prevalence of these Fair Credit Dispute lawsuits nationwide cannot be understated. The author of this article is presently involved in defending furnishers against these consumer FDCPA and FCRA claims in jurisdictions including Alabama, District of Columbia, Florida, Georgia, New York, Pennsylvania, Tennessee and Texas. Below are three strategies every furnisher should consider to avoid liability in these lawsuits:

1. Investigate all Direct Disputes

The recent Fair Credit Dispute cases all begin with the consumer sending a form letter to the furnisher. Furnishers must have a written policy with procedures detailing how direct disputes are investigated and be aware of form letter disputes used by consumers. Often these form consumer disputes may include contradictory language such as “I dispute but don’t send me verification”.

Further, we expect that the consumer dispute form letters will continue to evolve to challenge even the recent Court rulings cited herein. Furnishers must continue to monitor these form consumer disputes for variations and new attempts to create liability.

2. Consider all Defenses

The Fair Credit Dispute claims are scripted and formulaic. Thus, these claims are susceptible to defenses including challenges to standing (because the consumer suffered no harm) and materiality.

Additionally, the written form disputes that the consumers use in these recent cases are often sent months after the debt collector sends the consumer a validation notice. At least one Federal Appellate Court has held that a consumer’s failure to articulate a dispute in response to the validation notice precludes subsequent challenges to the validity of the debt. Richmond v. Higgins 435 F.3d 825 (8th Cir. 2006).

3. Avoid Settlement if No Liability

Many companies have chosen to settle these recent Fair Credit Dispute cases for less than the anticipated cost of litigation defense. Unfortunately, settling these cases only results in more litigation, similar to the issues caused by settlements during the peak of the TCPA and Hunstein lawsuits. The plain language of the FCRA, the FDCPA and case law all support the furnishers in these cases as set forth above. Thus, we encourage furnishers to fight these cases where counsel advises that the facts and law warrant a vigorous defense.

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*  The codes XB, XH and XC — which are discussed in this article — are components of the Metro 2 Format, which was developed by the Consumer Data Industry Association for furnishers to report debts to the national credit reporting agencies.

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This article is provided only as a general discussion of legal principles and ideas. Every situation is unique and must be reviewed by a licensed attorney to determine the appropriate application of the law to any particular fact scenario. If you have a legal question, consult with an attorney. The reader of this publication will not rely upon anything herein as legal advice and will not substitute anything contained herein for obtaining legal advice from an attorney. No attorney-client relationship is formed by the publication or reading of this document. Rossman Attorney Group, PLLC assumes no liability for typographical or other errors contained herein or for changes in the law affecting anything discussed herein.