CLEVELAND, OH — McGlinchey Stafford is pleased to announce the addition of Tom Henderson to the firm’s Creditors’ Rights, Financial Restructuring, and Bankruptcy team within the Financial Services Litigation practice. With over 35 years of experience in bankruptcy law in private practice and with PNC Bank, Tom brings a wealth of knowledge and a distinct, holistic approach to solving bankruptcy problems for the firm’s clients. Tom is one of the 50 new attorneys McGlinchey welcomed in 2023, as part of its focused recruitment initiative aimed at expanding its nationally recognized team.

“Every conversation I had with McGlinchey attorneys confirmed this was the best next stop in the journey of my evolving practice,” Tom said. “I am glad to join such a powerhouse of nationally recognized attorneys counseling the financial services industry.”

Tom joins McGlinchey with significant in-house legal counsel experience, having worked most recently at PNC Bank. He primarily focuses on consumer bankruptcy, serving the sophisticated legal and compliance needs of banks, servicers, investors, and secured creditors. His private practice experience involved the financial services industry, where he handled consumer bankruptcies, foreclosures, consumer finance litigation, and appeals. This diverse background enables him to adeptly navigate complex cases and deliver comprehensive solutions. Licensed in Ohio, Tom is affiliated with McGlinchey’s Cleveland office.

“Adding Tom to our team enhances the top-tier legal services our team provides,” said Shaun Ramey, Chair of McGlinchey’s Financial Services Litigation Group. “His unique perspective, shaped by representing creditors, debtors, and trustees as both in-house and outside counsel, aligns well with our mission to offer clients practical, forward-thinking solutions.”

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In his role at PNC Bank, Tom worked closely with leadership to steer significant enhancements in consumer bankruptcy practices and adeptly navigating complex regulatory landscapes. His skill in leveraging value from difficult situations sets him apart and underscores his commitment to advancing institutional operations with a strong understanding of the client’s needs.

“We are excited to have Tom join our team,” said Kelly Lipinski, Managing Member of McGlinchey’s Cleveland office. “His extensive, varied experience in bankruptcy and consumer finance law, coupled with his ability to turn challenging situations into opportunities, makes him an invaluable asset not only to our team in Ohio but also to our clients nationwide.”

Tom Henderson’s arrival marks a significant addition to McGlinchey’s growing team, further strengthening the firm’s national reputation for excellence in financial services litigation.

About McGlinchey

McGlinchey Stafford is a premier midsized business law firm offering services in more than 30 practice areas through a highly integrated national platform. McGlinchey attorneys leverage bold innovation, diverse talent, and leading-edge technology across our powerful network to serve clients at the local, regional, and national levels. With 170 attorneys licensed in 34 states, McGlinchey operates from 17 offices nationwide. The firm currently has 24 attorneys and 12 practice areas recognized in Chambers U.S.A. and Chambers FinTech 2024, and 65 attorneys recognized by Best Lawyers, 40 attorneys recognized in various Super Lawyers rankings, 47 practice areas recognized by Best Law Firms. In 2023, McGlinchey became Mansfield Certified and was ranked in the top 30 firms nationally in 3 categories of the Best Law Firms for Diversity by Vault. To learn more, visit www.mcglinchey.com.

On January 18, a court in the Eastern District of Wisconsin denied class certification in a Telephone Consumer Protection Act (TCPA) case concluding that the factual issue of whether the proposed class members had suffered an injury-in-fact sufficient to confer Article III standing based on the receipt of a ringless voicemail was an individualized issue that would predominate over common issues.

The plaintiff, an insurance agent from Wisconsin, alleged that Advisors Ignite USA LLC violated the TCPA by using ringless voicemail technology to leave prerecorded messages on his cell phone advertising marketing events hosted by the defendant touting ways to “substantially increase his income.” The plaintiff’s name and phone number were included on a list of insurance agents that the defendant had purchased from an industry data provider, which led to the plaintiff — and thousands of other insurance agents — receiving a ringless voicemail message.

The plaintiff moved to certify a class of “[a]ll persons in the United States who (1) were called one or more times by Advisors Ignite (2) from March 17, 2022 to June 30, 2022 (3) with a ringless voicemail from SlyBroadcast (4) on their cellular telephone number with an area code starting with 7, 8, or 9 that had not been ported in the 15 days prior to either call.”

The court analyzed each of the Rule 23 factors in deciding whether to certify the class and found that the plaintiff established numerosity (which was not disputed) and adequacy of representation (which was disputed). However, “at least as to the issue of standing, common issues of fact do not predominate.” The failure to establish commonality and predominance on the issue of standing also led the court to find that the typicality and superiority requirements had not been met.

Specifically, the court found that while the plaintiff may have sufficiently alleged that he suffered an injury-in-fact to confer Article III standing by pleading that he experienced “annoyance, nuisance, and invasion of privacy” among other alleged injuries, his assumption that every insurance agent who received the ringless voicemail suffered the same harm he claimed was untenable. Indeed, the court opined that:

“[P]resumably some of the recipients of the messages [Advisors Ignite] sent were happy to receive them. They may have even followed up by calling Advisors Ignite. Some may in fact have benefitted from receiving the information Advisors Ignite provided. Even those that did not call may have felt unharmed by learning of what was offered and were not annoyed or harmed. They may well have found the information worth the little effort it takes to delete a message after it is received.”

The court concluded that the factual issue of whether the class members had suffered an injury-in-fact sufficient to confer Article III standing was an individualized issue that would predominate over common issues, thus undermining his efforts to establish commonality and predominance.

Having found a lack of commonality and predominance as it related to standing, the court went on to conclude that the plaintiff was similarly unable to satisfy the typicality requirement because “[t]he question of whether each member of the proposed class suffered an injury in fact is so particularized as to make resolving it on a class wide basis difficult, if not impossible.”

Finally, these shortcomings in the plaintiff’s certification arguments ultimately led the court to find that a class action lawsuit was not superior to other available methods for the fair and efficient adjudication of the controversy.

Troutman Peppers’ Take:

This decision highlights that the injury-in-fact necessary to confer Article III standing is not a one-size-fits-all proposition and provides another helpful decision to use in opposing class certification in TCPA cases. What annoys one person may intrigue another. For the plaintiff in this case, the court’s denial of class certification sent another message he was unlikely to appreciate: speak for yourself.

HOUSTON, TX — InteLogix is pleased to welcome John Watson as the Senior Vice President of Financial Shared Services (“FSS”). With 20 years of comprehensive experience in the ARM industry, John’s arrival is a significant step toward enhancing and fortifying the growth of several strategic elements of our business. John will be responsible for building a best-in-class, digital-first ARM business to complement the company’s leading CX business, providing seamless experiences for our clients’ customer journey. 

John’s leadership in financial services commenced at Ernst & Young, where he specialized in accounting, strategy consulting, and M&A advisory. His most recent role before joining InteLogix was at InDebted, a global, digital-first accounts receivable management organization. Over nearly three years, John served first as  US CEO and then as global Chief Commercial Officer. Prior to InDebted, John spent over a decade at ARS National Services, building the company into one of the largest, highest performing, and most respected third-party recoveries firms in the US. Driving substantial growth and spearheading innovation has been the hallmark of John’s career. 

Mario Baddour, President and CEO, stated, “Guided by John’s visionary leadership, we are rapidly achieving significant milestones in actualizing our progressive strategy. Our focus on optimizing revenue recovery and safeguarding the customer experience is now propelled by smart solutions driven by our team of consultative advisors. This marks a decisive step forward in our commitment to excellence and innovation as we forge a path toward unparalleled success.”

About InteLogix

InteLogix is an established industry leader with over 65 years of service delivery excellence, specializing in providing tailor-made strategies to solve clients’ underlying needs to maximize results. Their smart solutions are trusted daily by clients in diverse industries, delivering a unique advantage of bringing business expertise, innovative ideas, and best practices to their clients’ programs of varying complexity and scope.

After nearly a decade of litigation, Judge Beryl A. Howell of the U.S. District Court for the District of Columbia has approved the Consumer Financial Protection Bureau’s $6.0 million settlement of class claims of alleged discrimination by the CFPB against 85 Black and Hispanic employees. The class consists of all “minority employees and women who work or worked as Consumer Response Specialists and have been subjected to and harmed by the Bureau’s agency-wide pattern or practice of discrimination and retaliation and discriminatory policies and practices,” according to the complaint. The settlement fund will be distributed to the 85 class members. In addition to the $6.0 million settlement fund, the settlement provides for an award of $1.5 million in attorney’s fees for class counsel.

The class action lawsuit was filed in 2018 against the CFPB’s former Acting Director Mick Mulvaney. Class representatives alleged that they were consistently paid less than their White male colleagues, unfairly denied promotions since 2011, and faced retaliation for making discrimination complaints.

The CFPB does not admit wrongdoing as part of the settlement. In a statement, the CFPB said it remains committed to ensuring all employees are treated fairly. The CFPB recently updated its pay structures, but advised that the compensation reform is independent of the discrimination allegations.

We view as ironic that the CFPB, which has been vigorously, and sometimes zealously enforcing fair lending laws, would be sued for employee discrimination and pay out $6.0 million in damages and 1.5 million in attorney’s fees. The optics are not very pleasant.

New Jersey Gov. Phil Murphy on Jan. 16 signed into law Senate Bill 332, making New Jersey the 13th state to enact a comprehensive consumer data privacy law, following California, Virginia, Colorado, Utah, Connecticut, Iowa, Indiana, Tennessee, Montana, Texas, Oregon, and Delaware.  The law will go into effect Jan. 16, 2025.

Applicability

The Act applies to controllers that conduct business in New Jersey or produce products or services that are targeted to New Jersey residents, and that during a calendar year either:

1. control or process the personal data of at least 100,000 consumers, excluding personal data processed solely for the purpose of completing a payment transaction; or
2. control or process the personal data of at least 25,000 consumers and the controller derives revenue or receives a discount on the price of any goods or services, from the sale of personal data.

Exemptions 

Exemptions include, but are not limited to:

1. A financial institution, data, or affiliate of a financial institution that is subject to Gramm-Leach-Bliley Act and implementing rules;
2. Protected health information collected under the Health Insurance Portability and Accountability Act of 1996;
3. Personal data collected, processed, sold, or disclosed by a consumer reporting agency as authorized by the Fair Credit Reporting Act.

Consumer Rights 

Consumers have the right to:

1. Confirm a controller’s processing of their personal data;
2. Correct inaccuracies in their personal data;
3. Delete their personal data;
4. Obtain a copy of their personal data held by the controller;
5. Opt out of the processing of their personal data if the processing is for the purpose of targeted advertising, sale of their personal data, or certain profiling.

Sensitive Data 

A controller may not process sensitive data concerning a consumer without first obtaining the consumer’s consent, or, in the case of the processing of personal data concerning a known child, without processing such data in accordance with the Children’s Online Privacy and Protection Act.

“Sensitive data” means personal data revealing:

1. Racial or ethnic origin;
2. Religious beliefs;
3. Mental or physical health condition, treatment, or diagnosis;
4. Financial information, which shall include a consumer’s account number, account log-in, financial account, or credit or debit card number, in combination with any required security code, access code, or password that would permit access to a consumer’s financial account;
5. Sex life or sexual orientation;
6. Citizenship or immigration status;
7. Status as transgender or non-binary;
8. Genetic or biometric data that may be processed for the purpose of uniquely identifying an individual;
9. Personal data collected from a known child; or
10. Precise geolocation data.

Contract Requirements 

A contract between a controller and processor must clearly set forth:

1. The processing instructions to which the processor is bound, including the nature and purpose of the processing;
2. The type of personal data subject to the processing, and the duration of the processing;
3. That the processor ensures each person processing the personal data is subject to a duty of confidentiality;
4. That any subcontractor engaged by the processor is subject to the same contractual obligations as between the controller and the processor;
5. That the controller and processor implement appropriate technical and organizational measures to ensure a level of security appropriate to the risk;
6. That the processor deletes or returns all personal data to the controller as requested at the end of the provision of services;
7. That the processor makes available to the controller all information necessary to demonstrate compliance; and
8. That the processor allows for, and contributes to, reasonable assessments and inspections by the controller.

Data Protection Assessments 

A controller must conduct a data protection assessment for processing that presents a heightened risk of harm to a consumer, including:

1. Processing personal data for the purposes of targeted advertising or certain profiling;
2. Selling personal data;
3. Processing sensitive data.

Enforcement

The Act does not create a private right of action. A violation that is not cured within 30 days of notice is an unlawful practice under N.J. Stat. § 56:8-1, et seq., and the Attorney General may seek injunctive relief, costs, and penalties of not more than $10,000 for the first offense and not more than $20,000 for the second and each subsequent offense.

Rulemaking

The Attorney General, through the Division of Consumer Affairs, is charged with promulgating rules and regulations.

Impression

This legislation, which was introduced in 2022, is a good example of legislators listening to stakeholders and making appropriate changes in response. The bill was amended six times, with the next to the last gutting the bill and replacing it with provisions akin to those in laws adopted by most other states, which will be a relief to those incorporating the requirements into a compliance program. For a chart comparing the state comprehensive data privacy acts, and more information and insight from Maurice Wutscher on data privacy and security laws and legislation, click here.

WASHINGTON, D.C. — The National Creditors Bar Association (NCBA) today announced that Barron & Newburger, P.C. will sponsor an annual Scholarship, pledging $50,000 over five years to the NCBA Foundation. Funds will support a $10,000 per year college scholarship. Application forms can be found at creditorsbar.org/scholarship.  

Established in 2022, the NCBA Foundation was created to guide and complement the charitable initiatives of the National Creditors Bar Association. It is the mission of the Foundation to support financial, civic, and judicial literacy programs and programs dedicated to promoting equitable access to opportunity. As part of its mission, the Foundation continues the NCBA tradition of awarding annual scholarships. 

This scholarship, generously sponsored by the Barron & Newburger, P.C. Foundation, reflects NCBA’s commitment to investing in the education and future success of individuals within our legal community. 

“Barron & Newburger remains committed to providing equal opportunity to all students looking to further their education,” said Thomas Good, President and Chief Executive Officer of Barron & Newburger, P.C. “Partnering with NCBA, an association with a strong appreciation of community, allows us to give back by supporting educational and economic growth within our industry.”

Each year the scholarship application will include a timely industry relevant question. The 2024 industry essay question is: “Do restrictions on collection and credit reporting of medical debts affect the availability, cost, and quality of medical services and treatment?” NCBA encourages applicants to be creative and thoughtful in their submissions. A panel of judges, including the NCBA Foundation and Awards & Scholarship Committees, will evaluate the submissions based on originality, clarity, and insight of the subject matter. 

“NCBA is thrilled to be able to continue this great program and appreciates Barron & Newberger’s generosity to make it all possible,” said Liz Terry, NCBA Executive Director. “Their support not only alleviates the financial burden for students but encourages recipients to become independent thinkers.”

Scholarships will be awarded in May 2024. All applications are due no later than April 4, 2024. For more information visit: creditorsbar.org/scholarship.

About National Creditors Bar Association (NCBA)

NCBA is the premier bar association dedicated to serving law firms engaged in the practice of creditors rights law. Currently, our membership is comprised of over 350 law firms and individual members, totaling approximately 1,700 attorneys, in the areas of creditors rights law, defense and in-house counsel. Members practice in over 20 different practice areas in the 50 states, Puerto Rico, and Canada. Our attorney members are committed to being professional, responsible, and ethical in their practice and profession.

Media Inquiries:

Chip Bergstrom, Evergreen Communications, 617.784.6145, cbergstrom@evergreen-communications.com

January 2024 was another busy month for the CFPB. In this article, we’ll share some of our top CFPB “bites” of the month so you can stay on top of recent developments. 

Bite 10: CFPB Report on College-Sponsored Financial Products

On December 19, 2023, the CFPB issueda report on college sponsored financial products, which the CFPB warned could have higher fees and worse terms. The report addressed college sponsored credit cards and deposit accounts, noting that some of the college-sponsored deposit accounts include NSF and overdraft fees, two types of fees that many large banks have stopped charging. The CFPB claimed that as a result, organizations may be steering students into products that cost them more than they would pay on the open market. The report also found that the fees students paid varied by institution type; students at Historically Black Colleges and Universities, for-profit colleges, and Hispanic-servicing institutions all paid higher than average fees per account. Some students also faced unexpected fees upon graduation. The report found that some financial institutions imposed additional fees when a student graduates or reaches a certain age, relying on what the CFPB characterized as “sunset clauses” that change the terms of the account. The report noted that the CFPB will continue to examine these practices for potential violations of federal consumer protection law.

Bite 9: CFPB Reports on Challenges in Student Loan Repayment

On January 5, 2024, the CFPB published an issue spotlight on the CFPB’s oversight of student loan servicing practices. After a three-year pause of required payments due to the COVID-19 emergency, student loan repayments resumed in the fall of 2023. The report found that borrowers are experiencing long hold times of more than an hour and that average call wait times for a borrower to speak to a representative reached 70 minutes in October 2023. The CFPB claims that borrowers abandoned about half of all calls to servicers that month. Consumers submitted millions of applications for new income-driven repayment plans, and by October, 1.25 million applications were pending, with more than 450,000 pending for more than 30 days. The report also claimed that borrowers are receiving incorrect and confusing bills from their servicers. The errors include listing premature due dates before the end of the payment pause, inflating monthly payment amounts due to the servicer using outdated poverty guidelines, or using the incorrect income when calculating a borrower’s new income-driven repayment plan payment.

Bite 8: CFPB Issues Report on Neighborhoods and Mortgages

On December 21, 2023, the CFPB announced that staff have analyzed recent HMDA data to explore how the numbers of mortgage originators per capita varied on the neighborhood level. They also analyzed how that variation could impact lending outcomes. According to the CFPB, the data suggests that there is wide variation across neighborhoods in originators per capita, and that this measure was correlated with neighborhood-level characteristics like poverty, income, internet access, and racial and ethnic composition. Different financial institution types responded to these variations differently; credit unions originated a similar number of loans across all percentiles of originators per capita, bank originations fell with originators per capita, and originations by non-depository institutions increased with originators per capita. The report showed that even with groups of transactions that posed a similar credit risk, loan applications in neighborhoods with a larger number of originators per capita were less likely to be rejected. Additionally, consumers that took out mortgages in neighborhoods with more originators paid lower origination charges and lower total loan costs.

Bite 7: CFPB Report on Consumer Experience with Overdraft and NSF Fees

On December 19, 2023 the CFPB issued a new report that found many consumers are still experiencing unexpected overdraft and NSF fees, despite recent changes by many banks and credit unions to eliminate some of these fees. According to the report, more than 25% of consumers stated that financial institutions charged their household an overdraft or NSF fee in the past year, and that only 22% of those households expected the most recent overdraft. Many of these consumers appeared to have access to cheaper alternatives – like available balance on a credit card – when the overdraft occurred. The report also found that some of the consumers who experienced overdraft fees appear to use overdrafts intentionally and frequently; in households that experienced more than 10 overdrafts in a year, more than half said they expected the fees. The CFPB says that low-income households were the most likely to experience an overdraft or NSF fee. Financial institutions only charged 10% of households with over $175,000 in income with an overdraft fee in the past year, compared with 34% of households with an income below $65,000. Finally, the CFPB also noted that most account overdrafts are exempt from Regulation Z, which is designed to promote informed use of credit and allow consumers to compare the cost of credit products.

Bite 6: CFPB Issues Guidance on Credit Reporting Issues

On January 11, 2024, the CFPB issued guidance to credit reporting companies through two advisory opinions. The opinions address inaccurate background check reports and credit file sharing practices. The CFPB’s advisory opinion on background check reports highlighted that credit reporting companies must maintain reasonable procedures to avoid producing reports with false or misleading information. These procedures should prevent the publication of expunged, sealed, or other legally restricted information. They should also report disposition information for arrests, criminal charges, and evictions, and prevent the reporting of duplicative information. The advisory opinion on credit file sharing explained that individuals who are requesting their credit files only need to make a request and provide identification, and they do not need to use specific language or jargon to obtain their report. The CFPB says the organization providing the report must provide the complete file with information sources, with clear and accurate information presented in an understandable way, in a format that will help the recipient address inaccuracies.

Bite 5: FDIC Finalizes New Rule on Use of Name and Logo

On December 20, 2023, Director Rohit Chopra issued a statement on the FDIC’s new rule concerning use of its name and logo by nonbanks, saying that this rule is necessary to conform the FDIC framework with the modern banking experience. Chopra said that nonbanks are increasingly offering deposit-style products in partnership with banks, and that these nonbanks then state that the consumer funds benefit from FDIC insurance on a pass-through basis. According to the CFPB director, however, this pass-through protection is not automatic or guaranteed and it does not protect the public from risks associated with the possible failure of the nonbank, such as the potential for frozen funds. The new FDIC rule establishes a new official digital sign that banks will need to display near the name of the bank on all bank websites and mobile applications, and requires the signs to differentiate insured deposits from non-deposit products across banking channels and to indicate that certain financial products “are not insured by the FDIC, are not deposits, and may lose value.” The rule also clarifies that marketers may not use FDIC-associated terms or images to inaccurately imply or represent that any uninsured financial product or non-bank entity is insured or guaranteed by the FDIC.

Bite 4: New Proposed Rule on Overdraft Fees

On January 17, 2024, the CFPB proposed a new rule that it says is aimed at changing the way overdraft fees are disclosed. The CFPB indicated that the Truth in Lending Act has long exempted overdraft services from many of its provisions, which the CFPB now calls a “loophole” that financial institutions take advantage of. The CFPB says that this proposed rule is part of a continued effort by the CFPB to rein in “junk fees” and spur competition in the consumer financial product marketplace. Under the current Truth in Lending Act rules, the CFPB noted that banks do not need to disclose the cost of credit when they extend a loan to cover the difference on an overdrawn account. The proposed rule would require large financial institutions with more than $10 billion in assets to treat overdrafts like credit cards or lines of credit and provide clear disclosures to consumers about the cost of these credit products, including an interest rate. Alternatively, the institutions would be able to charge a flat fee at a cost that calculated based on demonstrated data. Comments on this proposed rule are due by April 1, 2024.

Bite 3: CFPB Files Amicus Brief in Debt Collection Case

On January 2, 2024, the CFPB filed a friend-of-the-court brief in a debt collection case, responding to a debt collector’s FDCPA argument. In that case a consumer filing for bankruptcy had received a letter from a debt collector during the bankruptcy process demanding payment and threatening a lawsuit. The individual sued the debt collector for this alleged misrepresentation. The debt collector argued that it was only responsible for intentional false statements, and that at the time it sent the letter, it was unaware that the consumer had filed for bankruptcy. According to the CFPB’s brief, that argument is incorrect and a debt collector can be liable under the FDCPA even if they claim that they did not know that their statement was false; however, a debt collector will not be held responsible in a lawsuit brought by an individual if they can show that they didn’t intend to make the false representation and that they had effective procedures in place designed to prevent the mistake.

Bite 2: CFPB Sues Lender-Developer

On December 20, 2023, the CFPB sued a lender-developer in Texas for alleged predatory lending. The CFPB announced that it joined the Department of Justice to sue the Texas-based lender-developer, alleging that the company operated an illegal land sales scheme that targeted Hispanic borrowers with false statements and predatory loans. The lawsuit alleges that the company sold flood-prone land without water, sewer, or electrical infrastructure, despite advertising claims that the homes came with all city services and that the lots have never flooded. The CFPB also alleged that the company advertised in Spanish, but only made important sale documents available in English. The CFPB further alleged that the company was “churning” borrowers through cycles of foreclosure and then re-selling the foreclosed properties at a profit. According to the CFPB, deed records show that the lender-developer repurchased at least 40% of the properties and resold them between two and four times over three years. The CFPB alleged that the company violated the ECOA, the Interstate Land Sales Full Disclosure Act, and implementing regulations. The DOJ joined the CFPB in its ECOA claims and separately alleged violations of the Fair Housing Act. The lawsuit seeks an injunction, consumer redress, and a civil penalty.

Bite 1: CFPB To Distribute Relief to Veterans

On January 2, 2024, the CFPB announcedthat it has distributed $6 million in financial relief to consumers that were harmed by alleged illegal lending practices that targeted veterans. According to the CFPB, five connected companies misled consumers, including veterans, into selling their pension and disability payments, which is illegal under federal and state law. The CFPB alleged that these transactions were not sales, but illegal, high-interest loans. These payments stem from years-old enforcement actions. In 2019, the CFPB and the state of Arkansas reached an agreement with one of the companies, and three others faced a lawsuit filed by the CFPB and the state of South Carolina. The 5th named defendant worked along with the others named in these actions. He settled with the CFPB in 2019 in response to allegations that he violated the CFPA by misleading consumers about interest rates and the validity of the contracts, as well as when the consumers would receive their funds from the transactions. The harmed consumers received a distribution in December 2023 that totaled $6 million, partially funded from the CFPB’s civil penalty fund.

Still hungry? Please join Hudson Cook for our next CFPB Bites of the Month. If you missed any of our prior Bites, including the webinar that covered the above topics, request a replay on the Hudson Cook website here. 

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This article is provided for informational purposes and is not intended nor should it be taken as legal advice.  The views and opinions expressed in this article are those of the authors in their individual capacity and do not reflect the official policy or position of the partners of Hudson Cook, LLP or clients they represent.

COPLEY, OH — DebtNext Software, a Recovery Management and Operations Solution Provider, today announced that it has completed its SOC 2 Type II audit, performed by KirkpatrickPrice. This attestation provides evidence that DebtNext Software has a strong commitment to security and to delivering high-quality services to its clients by demonstrating that they have the necessary internal controls and processes in place.

A SOC 2 audit provides an independent, third-party validation that a service organization’s information security practices meet industry standards stipulated by the AICPA. During the audit, a service organization’s non-financial reporting controls as they relate to security, availability, processing integrity, confidentiality, and privacy of a system are tested. The SOC 2 report delivered by KirkpatrickPrice verifies the suitability of the design and operating effectiveness of DebtNext Software controls to meet the standards for these criteria.

“Our team is extremely proud of the effort that has gone into attaining the SOC 2 Type II attestation and appreciates the partnership with Kirkpatrick Price and their efforts in the audit.  The protection of our clients’ data is a critical element of our success, and the policies and procedures we have put in place that are validated through this annual audit aid in our continual improvement in that area”, said Paul Goske, President of DebtNext Software.

“The SOC 2 audit is based on the Trust Services Criteria,” said Joseph Kirkpatrick, President of KirkpatrickPrice. “DebtNext Software delivers trust-based services to their clients, and by communicating the results of this audit, their clients can be assured of their reliance on DebtNext Software controls.”

About DebtNext Software 

DebtNext Software has been utilizing advanced technology combined with a breadth of industry knowledge to build function-rich solutions to drive recovery optimization and the management of third-party collection vendors since 2003. At DebtNext, we view our clients as the driving force behind what we do every day. We currently partner with many of the nation’s largest utility companies, telecommunications providers, financial services, and accounts receivables management firms, to fully illuminate their recovery management processes and help drive billions of dollars to our client’s bottom line.

About KirkpatrickPrice

KirkpatrickPrice is a licensed CPA firm, PCI QSA, and a HITRUST CSF Assessor, registered with the PCAOB, providing assurance services to over a thousand clients in North America, South America, Asia, Europe, and Australia. The firm has more than a decade of experience in information security by performing assessments, audits, and tests that strengthen information security practices and internal controls. KirkpatrickPrice most commonly performs assessments on SOC 1, SOC 2, PCI DSS, HIPAA, HITRUST CSF, GDPR, ISO 27001, FISMA, and FERPA frameworks, as well as advanced-level penetration testing. For more information, visit www.kirkpatrickprice.com, follow KirkpatrickPrice on LinkedIn, or subscribe to ourYouTube channel.

On January 11, the Consumer Financial Protection Bureau (CFPB or Bureau) issued two “advisory opinions” addressing the CFPB’s views of the obligations of consumer reporting agencies (CRAs) under the Fair Credit Reporting Act (FCRA). The advisory opinions are interpretive rules issued under the Bureau’s authority to interpret the FCRA pursuant to § 1022(b)(1) of the Consumer Financial Protection Act of 2010.

First, the CFPB advised that in order to assure “maximum possible accuracy” under § 607(b) of the FCRA, a CRA that provides background check reports must have procedures in place that: (1) prevent reporting public record information that is duplicative or that has been expunged, sealed, or otherwise legally restricted from public access; and (2) include any existing disposition information if it reports arrests, criminal charges, eviction proceedings, or other court filings.

Second, the CFPB advised that under § 609(a) of the FCRA, CRAs responding to file disclosure requests must also disclose to a consumer “the sources” of information, including both the original source and any intermediary or vendor sources.

In its first advisory opinion, the CFPB addressed FCRA § 607(b), which provides that “[w]henever a [CRA] prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” The CFPB advised of its view that, to comply with this section, CRAs must:

• Identify information that is duplicative to ensure that a report does not give the impression that a single event occurred more than once.

• Have procedures in place to ensure that information regarding the stages of a court proceeding (such as an arrest followed by a conviction) is presented in a way that makes clear the stages all relate to the same proceeding or case.

• Have reasonable procedures in place to check for any available disposition information in criminal and court proceedings.

  –  For example, the CFPB advised that it would be misleading to report that an individual has been arrested for the charges without also reporting that the charges have been dismissed.

  –  Similarly, the CFPB advised it would be misleading to report a bankruptcy filing without also reporting the result.

• Once a conviction has been sealed, expunged, or otherwise legally restricted from public access, the CFPB advised that it is misleading and inaccurate to include it in a consumer report because there is no longer any public record of the matter.

Relatedly, the CFPB addressed § 1681c, which generally prohibits the reporting of “[a]ny . . . adverse item of information . . . which antedates the report by more than seven years.” The CFPB advised that, to comply with this provision, CRAs generally should not report an adverse event that antedates the report by more than seven years and that each adverse item of information is subject to its own seven-year reporting period. The CFPB also stated that such reporting period is not restarted or reopened by the occurrence of subsequent events.

In the press release announcing the release of the advisory opinions, CFPB Director Rohit Chopra stated: “Background check and other consumer reporting companies do not get to create flawed reputational dossiers that are then hidden from consumer view … Background check reports, and all other consumer reports, must be accurate, up to date, and available to the people that the reports are about.”

In its second advisory opinion, the CFPB addressed FCRA § 609(a), which provides that “[e]very [CRA] shall, upon request . . . clearly and accurately disclose to the consumer, among other things: (1) All information in the consumer’s file at the time of the request . . .; and (2) The sources of the information.” The CFPB advised of its view that, to obtain a file disclosure, a consumer is not required to use any specific language, but may simply make a “request” and provide proper identification. Specifically, the CFPB advised that a consumer need not request “[a]ll information in the consumer’s file” or request a “complete file” or even use the word “file.” Instead, a consumer’s request for a “report” or “credit report” or “consumer report” or “file” or “record,” along with proper identification, triggers a CRA’s FCRA obligation. Further, the CFPB advised of its view that a CRA must:

• Disclose all information in the consumer’s file at the time of the request, including all information provided to a user.

  –  For example, the CFPB advised that a CRA must provide a file that allows a consumer to see criminal history information in the format that users see it, so that the consumer can check for any inaccuracies.

• Provide the information that formed the basis of any summary.

  –  For example, when a credit score or a tenant screening recommendation is provided to a user, the CFPB advised that the FCRA requires the CRA to include information that formed the basis for the score or recommendation.

• Disclose both the original source and any intermediary or vendor sources.

  –  For example, the CFPB advised that if a CRA discloses to a consumer only the vendor and does not also disclose the original source of the information, the consumer may not be able to correct any erroneous public records information that could be included in their files at all of the CRAs that receive data from the original source.

In both advisories, the CFPB concluded by warning CRAs of liability for a “willful” violation of the FCRA if they fail to heed the provided guidance. According to the press release, “the CFPB has taken action against consumer reporting companies when they have broken the law, as well as affirmed the ability of states to police credit reporting markets.”

Troutman’s Take:

The CFPB’s advisory opinions reflect the Bureau’s strategy of leveraging the FCRA to maximize the scope of its regulatory authority pertaining to consumers. The opinions also continue the CFPB’s use of every arrow in its quiver in an attempt to expand the reach of the FCRA. Other tools are “lawmaking” through enforcement actions, various guidance statements and formal rulemaking — all of which the CFPB has used aggressively for the FCRA.

On the specifics, the common theme here is a goal of limiting the data that can pass through the consumer reporting ecosystem about consumers, either by raising the compliance bar of having to report subsequent history on public records, or explicitly requiring CRAs to purge data about public records that have been expunged, and expanding the rights of consumers to contest data in the system. The CFPB continues to assume that less information about consumers is a net benefit for consumers, but this conclusion is highly debatable. In other words, these pronouncements are par for the course from the CFPB, but whether they will actually make a lasting change in the law is yet to be seen as, ultimately, the CFPB’s positions will have to pass through litigation in court to become real. After all, the CFPB’s advisory opinions are not the law.

A look back at bankruptcy trends and litigation in 2023 reveals a spike in bankruptcy filings driven by economic factors and fallout from the pandemic while in upper courts several interesting cases were decided involving proofs of claim, stay violations, and discharge issues.

Bankruptcy filings in 2023 were up significantly, although the long-awaited tsunami that was anticipated did not arrive. In 2022, there were 383,000 total bankruptcy filings in the United States. In 2023, there were 445,186 filings for the year, which is an increase of approximately 5,000 cases a month. Chapter 7 filings, which include both consumer and business cases, increased by 17 percent. Chapter 13 consumer cases increased by 18 percent and Chapter 11 cases increased by 19 percent.

However, those increases are a far cry from the record-high filings in the early 2000’s. It is important to note that the numbers at times become skewed as some businesses that file bankruptcy have numerous subsidiaries, and each entity is filed as a separate bankruptcy action, with the cases ultimately being administratively consolidated.

Interest Rates, Inflation, Covid Lead to More Bankruptcies 

What are the causes of the increase in bankruptcies?

First and foremost, there were the Federal Reserve interest rate hikes, which caused variable-rate loans, credit card interest rates, and mortgage rates to increase. The rate increases coupled with the end of any state or federal government subsidies due to Covid-19 has made it more difficult for consumers and businesses to meet their obligations. Inflation has also been on the rise, which has caused consumers to cut back on discretionary spending.

In addition, with the lack of a return to the office and as more individuals continue to work at home, small businesses and restaurants in downtown locations are facing a rough business environment. Many landlords, both commercial and residential, are seeing increased defaults leading to vacancies that have not been re-let. As a result, we are seeing subsequent defaults with their mortgage lenders.

Student Loans Did Not Play a Role 

Student loans have not played a major role in the increase in bankruptcy filings. The White House signed an executive order setting forth procedures on how to handle adversary proceedings for hardship discharges of student loan debt. However, United States Attorneys have been instructed to accept the facts pleaded by a debtor to be true, which should allow for more summary judgments or judgments on the pleadings.

Although this initiative has been in place for approximately six months, we have not seen a large increase in complaints to discharge student loan debt due to hardship. This is mainly because only a small number of student loan obligations fall under this order. The standard to prove hardship student loan dischargeability has not changed from the well-established case law.

Bankruptcy Litigation in 2023 

There has been increased litigation of bankruptcy issues and the U.S. Supreme Court continues to address those issues. The appellate system saw various other bankruptcy litigation including proof of claim and stay violation issues.

LVNV Funding, LLC v. Myers (In re Meyers)

A case that could have had a major effect on creditors and debt buyers was recently decided by the U.S. Court of Appeals for the Ninth Circuit. In LVNV Funding, LLC v. Myers (In re Myers), No. 22-16615 (9th Cir. Nov. 21, 2023), the court held that a proof of claim is valid if it complies with the Federal Rules of Bankruptcy Procedure, rejecting the argument that a proof of claim needs to comply with Nevada judgment documentation requirements.

The court found that compliance with the Federal Rule of Bankruptcy Procedure 3001 substantiates a claim, and the bankruptcy court should not look at state law, following the Supreme Court’s 1938 decisions in Erie R.R. Co. v. Tompkins. The Ninth Circuit held that Nevada laws conflict with the Federal Rules of Bankruptcy Procedure and that the Nevada laws are not “applicable laws” that can render a claim unenforceable under Section 502(b)(1) of the bankruptcy code.

Golden One Credit Union v. Fielder (In re Fiedler)

The U.S. Bankruptcy Court of the Eastern District of California addressed the issue of filing complaints to determine dischargeability without conducting due diligence. Although Section 524 of the Bankruptcy Code provides a remedy for fees if such a complaint is not filed in good faith, the court in Golden One Credit Union v. Fiedler (In re Fiedler), No. 23-20862 (Bankr. E.D. Cal. Nov. 2, 2023), took it one step further.

In Golden, the credit union filed a complaint to determine dischargeability of debt due under Bankruptcy Code Section 523(a)(2) based on the incurrence of a $9,000 loan within 45 days of filing of the bankruptcy petition. The creditor’s counsel filed what the judge described as a boilerplate complaint. Counsel for the creditor did not conduct any thorough due diligence before the filing of the complaint. Further, before filing the complaint, the creditor did not attend the First Meeting of Creditors, have the debtor sit for a Rule 2004(a) examination, or reach out to the debtor’s counsel to discuss the potential of filing the complaint and learn more about the facts.

The court found that the filing of the complaint without reasonable inquiry constituted a violation of Rule 9011(b)(1). The court viewed the complaint as a tactic designed only to force the consumer into a non-dischargeable judgment. The court held that the complaint did not have a reasonable basis in law or fact. Since Rule 9011 (c)(2)(B) prevents the issuance of monetary damages, the judge created his own sanction to deter future behavior and required that for 19 months, any complaint to determine dischargeability of debt due filed by counsel in the district must be reviewed by the judge who issued the decision.

Golden is not the first case where we have seen a bankruptcy judge raise Rule 9011 issues on his or her own initiative. This is an issue that impacts both debtors, creditors, and their counsel. The ramifications can be substantial and due diligence must be conducted before legal pleadings are filed to prevent the ramifications that could follow. Unfortunately, we expect to see more cases of this type brought before bankruptcy courts in 2024.

Skaggs v. Gooch (In re Skaggs)

Another case dealing with sanctions against a creditor for violating the discharge injunction is Skaggs v. Gooch (In re Skaggs), No. 17-50941 (Bankr. W.D. Va. Jan. 19, 2023). This case concerns a bankruptcy discharge violation and considers whether a discharge injunction violation warrants an award of remedial damages to the debtor.

In 2000, the defendants obtained a judgment against the debtors. At the time of the judgment, the debtors owned no real estate, meaning the judgment debt was unsecured. In 2017, the debtors filed for bankruptcy and obtained a bankruptcy discharge in 2019. This discharged the unsecured debt and rendered the judgment effectively uncollectable. Months after the bankruptcy discharge, the debtors inherited real estate and were erroneously advised that the judgment would have to be paid before selling their inherited real estate. When the debtors contacted the defendants, the defendants provided the debtors with a payoff statement and offered a discounted payment for the judgment debt. In doing this, the defendants violated the discharge injunction.

The main issue the court considered here was to what extent the defendants should pay damages for their violation of the bankruptcy discharge injunction. Ultimately, the court held the defendants in contempt of the discharge order and imposed a remedial sanction upon the defendants for $25,000, which represented the debtors’ attorney’s fees. However, the court declined to award punitive damages.

The court also considered whether the defendants acted in good faith, which could affect the amount and type of sanction award, and determined that the defendants did not act in good faith. The court reasoned that all the defendants’ actions were unjustified, unreasonable, and harmful. For example, when the defendants emailed the debtors with the payoff letter for the prior judgment, the defendants committed an intentional debt collection act in violation of the debtors’ discharge injunction. As such, the court found the debtors’ request for $25,000 in attorney’s fees to be reasonable and necessary to compensate the debtors for the harm caused by the defendants.

Bartenwerfer v. Buckley (In re Bartenwerfer)

In Bartenwerfer v. Buckley (In re Bartenwerfer), 143 S. Ct. 665 (2023) the Supreme Court determined that Bankruptcy Code section 11 U.S.C. § 523(a)(2)(A) exempts a fraudulently obtained debt from discharge, even when the detor was not the person who acted fraudulently.

The question presented to the Supreme Court was whether the debtor must be the party that conducted the fraud, or whether a debt obtained by fraud is exempt from discharge, regardless of the actor. The court affirmed the ruling of the Ninth Circuit in holding the latter. Justice Barrett delivered the opinion of the court on the unanimous decision.

In this case, Kate and David Bartenwerfer (who were not married at the relevant time) purchased and remodeled a home, then sold it for a profit. David took the lead on the project. He did not disclose defects in the property to the purchaser. The buyer obtained a state court judgment against both debtors. The debtors then filed for Chapter 7 bankruptcy. The purchaser initiated an adversary proceeding seeking a declaration that the state court judgment against the debtors should not be dischargeable to either debtor under Section 523(a)(2)(A) of the Bankruptcy Code.

The Ninth Circuit Bankruptcy Appellate Panel held that Kate’s debt was non-dischargeable only if she knew or had reason to know of David’s fraud. The Ninth Circuit reversed on that point. The Supreme Court affirmed. In so ruling, the Court found that the use of the passive voice in Section 523(a)(2)(A) shows that the actor conducting the fraud is not relevant to non-dischargeability.

It further reasoned that, in the legal context of common law fraud, liability is not limited to the party committing the fraud but can extend to other parties (e.g., agents and partners). The court juxtaposed the express references to the debtor in other exceptions from discharge provisions against the absence of the same here, which supported that any debt obtained by fraud would be non-dischargeable, regardless of the actor.

Looking Ahead to 2024 

As seen by recent court rulings, the world of sanctions and non-dischargeability of debts could be a very active area in 2024. Debtors, creditors, and their counsel need to make sure to review all aspects of a case carefully and do their due diligence before proceeding with any complaints to determine dischargeability of debt due.

As we move forward into 2024, we expect to see an increase in bankruptcy filings both on the consumer and commercial end. The Federal Reserve has indicated that they expect to cut interest rates throughout the year. However, it will still be difficult for consumers and will require many to look for a fresh start. It seems that counsel has also become more litigious, so we expect to see increased litigation on claim and stay violation issues.