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

Show Notes

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

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

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

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

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

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

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

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

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

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

—

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

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

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So, what happened?

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

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

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

The court notes:

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

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

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

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

insideARM Perspective

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

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

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

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

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So, what happened?

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

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

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

The court notes:

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

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

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

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

insideARM Perspective

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Debt collection highlight—threats everywhere

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

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

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

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

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

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

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

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

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

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

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

SAN DIEGO, Calif. and MANASQUAN, N.J. — Nancy Hughes and Bob Picone, two highly respected industry executives, are proud to announce the establishment of Connect1 Consultants. Nancy currently owns and operates Sync Now, LLC while Bob is the owner of RJP Consultants. The formation of Connect1 Consultants allows both companies to continue the high level of services our clients expect under one umbrella.

We have over 65 years combined industry experience in BPO, collections and recovery management, debt portfolio sales, capital raise, analytics, fraud prevention, data security, technology, compliance and more.

Connect1 Consultants specializes in matching the right vendors with the right clients. We work with Fortune 500 companies across several verticals including financial, healthcare, communications and cable, retail and more.

“I truly could not have found a better person and partner in Nancy and I am excited to continue my successful journey in the industry.  It’s great to see the positive impact that we make in many different areas for our clients,” says Bob.

“I echo Bob’s sentiments! It is rare to find such synergy in a partnership that it not only provides our clients best in class service, but has allowed us to grow and expand our offerings substantially since forming our alliance,” says Nancy.

For more information, contact:

Nancy Hughes
858-877-0551
nhughes@connect1consultants.com 

Bob Picone
732-600-6265
rpicone@connect1consultants.com

GENESEO, N.Y. — Coast Professional, Inc. (Coast) was recently named to the Inc. Magazine’s Inc. 5000 list of the nation’s fastest-growing private companies. This is Coast’s seventh time being named to Inc.’s prestigious list of high-growth organizations. Coast has demonstrated continued revenue growth over the past decade and in the last three years, the company has experienced a revenue growth of 346 percent.  

In the last year, Coast has seen company success and growth through the opening of additional office spaces in East Aurora, NY and West Monroe, LA. Coast’s consistent forward progress is an indication of the company’s dedication to compliance, as well as an established reputation of providing exceptional service to consumers.  

According to Everett Stagg, Coast President and member of the company’s Shareholder’s Board, being named to a nationally ranked list such as Inc. 5000 is the result of a company-wide philosophy based on strict professionalism and compliance.  

“The Inc. 5000 list is extremely competitive and I am proud of our team for their consistent, diligent effort to overcome, persist, and remain innovative in this industry,” said Stagg. “We are looking forward to another year of continued growth and opportunity.” 

A complete list of the Inc. 5000 fastest growing private companies, including individual company profiles can be found at www.inc.com/inc5000. The top 500 companies are also being featured in the September issue of Inc. 

About Coast Professional, Inc.: 

Coast Professional, Inc. is an accounts receivable management and call center-based company, dedicated to the respectful and ethical communication with consumers. Coast provides professional call center services to over 200 campus-based colleges, universities, and government clients. Coast is a seven-time honoree on the Inc. 5000 list for America’s Fastest-Growing Private Companies provided by Inc. Magazine and in 2020, was recognized for the fifth time as one of the “Best Places to Work In Collections” by insideARM.com and Best Companies Group. Since 1976, Coast has worked closely with clients to increase recoveries by assisting consumers in resolving their financial obligations. Coast’s success is exemplified by exceptional recoveries, superior service, and dedication to the highest levels of compliance. More information about Coast can be found at www.coastprofessional.com 

Yesterday, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Encore Capital Group, Inc. and its subsidiaries—Midland Funding, LLC and Midland Credit Management, LLC—for allegedly violating terms of the 2015 consent order between the parties, specifically as it relates to collection litigation disclosures and time-barred debts. Read on for a summary of the claims made against the Encore defendants.

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Account-Level Documentation Disclosure and Requests

The 2015 consent order required Encore and its subsidiaries, prior to filing collection litigation, to provide consumers with a disclosure that the companies would provide original account-level documentation at no cost to the consumer within 30 days of a request. The complaint alleges that the defendants failed to state that the documentation would be provided at no cost in 750,000 incidents since the effective date of the consent order, and failed to state that such documentation would be provided within 30 days upon request in 25,000 incidents.

The complaint also alleges that, after consumers requested the account-level documentation, the defendants failed to provide them in 250 incidents. 

Time-Barred Debt Issues

The 2015 consent order prohibited the defendants from filing collection litigation on accounts that were time-barred by the applicable statute of limitations. It also required that the defendants provide a specific time-barred debt disclosure if defendants were engaging in non-legal collection efforts on such accounts. The complaint alleges that the defendants failed to do both of these. Specifically, the complaint alleges that the defendants sued on 100 time-barred debt accounts since the 2015 consent order and failed to provide the time-barred debt disclosure in 425,000 letters. Of the latter, 845 consumers made payments totaling $125,000.

International Transaction Fees

The complaint also alleges that the defendants began using a foreign payment processor, which resulted in consumers’ banks charging the consumers international transaction fees.

Encore’s Response

Encore released a statement regarding the lawsuit, stating:

Our efforts in 2015 to implement the CFPB’s new requirements under the consent order were quite thorough and effective, but for a very small percentage of transactions our execution was not immediately perfect. We have long since refined our processes, making the necessary changes to improve our operations, and provided appropriate relief for impacted accounts over three years ago.

…

We are disappointed that the CFPB has chosen to file this lawsuit on outdated issues, but we will continue to engage with the CFPB and work to ensure that we maintain policies and practices that fully comply with all applicable legal requirements. We believe that there will be no material operational impact as a result of the suit.W e fully corrected the issues underlying the allegations in this lawsuit years ago and are unaware of any unresolved consumer impact.

insideARM Perspective

Some of these allegations need to be put in perspective. Let’s keep in mind that earlier this year when the CFPB released its Supplemental Notice of Proposed Rulemaking for time-barred debts, the CFPB acknowledged that:

[D]etermining whether the statute of limitations for a particular debt has expired can, in certain cases, be a complex undertaking, and debt collectors may be uncertain about whether a particular statute of limitations has passed even after conducting a reasonable investigation.

It was one of the reasons why the CFPB proposed a “know or should know” standard regarding the determination of whether a debt is time-barred.

But, let’s take a look at the numbers in some of the claims made in the lawsuit against Encore. The complaint alleges that Encore filed lawsuits on 100 time-barred debts since the 2015 order went into effect. That’s 100 lawsuits in the 4-year span covered by the claims, which averages about 25 lawsuits per year. For perspective, the complaint mentions that Encore and its subsidiaries are the largest debt buyer in the United States. Even the FDCPA acknowledges that errors happen even if robust policies and procedures are in place, and debt collectors are relieved from liability in such instances. 25 incidents per year for the largest debt buyer would fall squarely into this category, especially considering the CFPB’s own acknowledgment that calculating the time-barred status of a debt can be complex.

The same analysis goes toward the allegation that Encore failed to provide consumers with requested account-level documentation in 250 incidents. In a 4-year span, that averages to roughly 62 incidents per year. For the largest debt buyer in the United States that like receives an unimaginable amount of consumer requests each day, this also smells like bona fide error.

We, of course, don’t know the facts or the background of these allegations. But what we do know is the CFPB’s own litigation tactics against debt collectors. A few years ago, the CFPB sued Weltman, Weinberg & Reis Co., L.P.A., where the CFPB dropped many of its claims on the day of trial. This was after many years of time-consuming and resource-consuming pre-litigation and litigation tactics that cost the debt collection law firm—which won the lawsuit, by the way—$1.2 million to defend. This doesn’t even take into consideration the taxpayer dollars used to pursue the ultimately baseless claims.

We’ll be watching closely to see what the CFPB does in the Encore lawsuit, especially on the two claims referenced above. The “throw the spaghetti on the wall” litigation tactic doesn’t look good on anyone.