The California Court of Appeal, Sixth Appellate District, recently affirmed the dismissal of a consumer’s California Rosenthal Fair Debt Collection Practices Act claim based on an alleged violation of the federal Fair Debt Collection Practices Act and the California Fair Debt Buying Practices Act in supposedly failing to properly identify the “charge-off creditor.”

In so ruling, the Sixth District held that: (1) A consumer plaintiff seeking to establish a prima facie violation of the Rosenthal Act premised on a misrepresentation in connection with the collection of a debt must show the alleged violation is material, where the alleged state law violation is premised on enumerated provisions of the FDCPA; and (2) Although the collection action complaint at issue was incorrect and did not “reasonably identify” the charge-off creditor in violation of Cal. Civ. Code 1788.58(a)(6), this error did not constitute a de facto “false representation of” the “character, … or legal status of the debt” under 15 U.S.C. § 1692e(2)(A). In other words, the purported misidentification of the charge-off creditor did not implicate the debt’s “character, amount, or legal status.” 15 U.S.C. § 1692e(2)(A).

A copy of the opinion in Aguilar v. Mandarich Law Grp. is available at:  Link to Opinion.

A consumer incurred debt on a consumer credit account with a consumer lender.  The debt was sold and assigned to a trustee, and was eventually sold to a debt buyer, which sued to collect the charged-off debt. The debt buyer dismissed that action without prejudice following the consumer’s attempt to file a cross-complaint (counterclaim) alleging violations of the Rosenthal Act, premised on incorporated provisions of the FDCPA, and an alleged violation of the California Fair Debt Buying Practices Act (CFDBPA) based on the debt buyer’s apparent misidentification of the charge-off creditor as the consumer lender rather than the trustee.

The consumer sued the debt buyer and its counsel, alleging false or misleading representations in the collection action, in violation of the Rosenthal Act. The defendants filed an anti-SLAPP (strategic lawsuit against public participation) motion under California Code of Civil Procedure section 425.16 to strike the Rosenthal Act claim from the consumer’s complaint.

California Code of Civil Procedure section 425.16, commonly known as the anti-SLAPP statute, provides that a cause of action arising from an act in furtherance of a person’s constitutional right of petition or free speech in connection with a public issue is subject to a special motion to strike, unless the plaintiff establishes a probability of prevailing on the claim. Cal. Code Civ. Proc., § 425.16, subd. (b)(1).

A court evaluates a special motion to strike in two steps. The first examines the nature of the conduct that underlies the plaintiff’s allegations to determine whether it is protected by Code of Civil Procedure section 425.16; the second assesses the merits of the plaintiff’s claim. Barry v. State Bar of California (2017) 2 Cal.5th 318, 321.

The trial court granted the defendants’ anti-SLAPP motion and struck the Rosenthal Act claim. The consumer timely appealed.

On appeal, the consumer argued that he met his prima facie burden and the trial court erred in finding otherwise. He contended that in granting the defendants’ anti-SLAPP motion, the court erred by considering the defendants’ unauthenticated hearsay evidence, improperly weighing that evidence, and making a “materiality” determination based on case law interpreting the federal FDCPA, which he maintained is not a proper consideration under the Rosenthal Act.

Section 1788.17 of the Rosenthal Act provides that “every debt collector collecting or attempting to collect a consumer debt shall comply with the provisions of [15 U.S.C. s]ections 1692b to 1692j, inclusive . . . and shall be subject to the remedies in [15 U.S.C. s]ection 1692k . . . .” § 1788.17. The Rosenthal Act, through section 1788.17, thus “incorporates by reference the [federal] FDCPA’s requirements . . . and makes available the FDCPA’s remedies for violations.” Riggs v. Prober & Raphael (9th Cir. 2012) 681 F.3d 1097, 1100.

The FDCPA regulates the conduct of debt collectors by prohibiting “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. It is a violation of the FDCPA to falsely represent “the character, amount, or legal status of any debt,” id., § 1692e(2)(A), or to “use . . . any false representation or deceptive means to collect or attempt to collect any debt.” Id., § 1692e(10). A false or misleading statement is not actionable under the FDCPA unless it is material. Afewerki v. Anaya Law Group (9th Cir. 2017) 868 F.3d 771, 773.

Here, the claimed false statement in contravention of the FDCPA (specifically, sections 1692e(2)(A) and e(10)) and comprising the alleged section 1788.17 violation was based on the collection action complaint’s alleged misidentification of the charge-off creditor, which the consumer contended violated section 1788.58(a)(6) of the CFDBPA.

The consumer contended that the trial court erred in finding that his Rosenthal Act claim lacked minimal merit under the applicable anti-SLAPP standards. He asserted that the failure of the collection action complaint to comply with the charge-off creditor disclosure requirement set forth in the CFDBPA (§ 1788.58 (a)(6)) was “patent” when comparing the collection action complaint with the verified discovery responses from the collection action which supplied the relevant debt assignment information.

The consumer argued that the verified discovery responses and collection action complaint together satisfied his burden to make a prima facie showing of facts to support a judgment in his favor because the section 1788.58 violation “necessarily also constitutes a false statement in an attempt to collect a debt” under the federal FDCPA.

As a preliminary matter, the Sixth District concluded that the consumer did not meet his initial burden to demonstrate that his prima facie showing was enough to win a favorable judgment on his Rosenthal Act claim.

The Sixth District found that the purpose of the CFDBPA, as set forth in the uncodified legislative findings and declarations, is to regulate “the adequacy of documentation required to be maintained by the [debt buying] industry in support of its collection activities and litigation,” Stats. 2013, ch. 64, § 1, subd. (a), and to ensure the “[d]ocumentation used to support the collection of a debt [is] sufficient to prove that the individual who is being asked to pay the debt is in fact the individual associated with the original contract or agreement” Id., § 1, subd. (c).

Given these statutory purposes, the Court concluded that the requirement that the collection complaint allege “[t]he name and an address of the charge-off creditor at the time of charge off … in sufficient form so as to reasonably identify the charge-off creditor,” § 1788.58(a)(6), appears intended to ensure adequate documentation to link the debt buyer’s claim to the charge-off creditor and consumer account of the debtor.

Whether the nature of the relationship between the consumer lender and the trustee was such as might satisfy the “reasonably identify” standard set out in section 1788.58(a)(6) was a factual question that the Sixth Appellate District decided it need not resolve for purposes of this appeal. This is because the Court was not persuaded that the asserted CFDBPA violation supported a Rosenthal Act violation for false or misleading statements in connection with collection of a debt, as stated in the federal FDCPA.

Whether debt collection efforts are false, deceptive, or misleading for purposes of the federal FDCPA requires an objective analysis that “‘takes into account whether the “least sophisticated debtor would likely be misled by a communication.”’” Tourgeman v. Collins Financial Services, Inc. (9th Cir. 2014) 755 F.3d 1109, 1119. This inquiry “does not ask the subjective question of whether an individual plaintiff was actually misled by a communication. Rather, it asks the objective question of whether the hypothetical least sophisticated debtor would likely have been misled.” Afewerki, supra, 868 F.3d at p. 775.

Here, assuming that the consumer established that the consumer lender was not the charge-off creditor at the time of charge off and, as a result, the collection action complaint was incorrect and did not “reasonably identify” the charge-off creditor in violation of section 1788.58(a)(6), the Sixth District determined that there was no support for his contention that this translated into a de facto “false representation of” the “character, . . . or legal status of the debt” under title 15 U.S.C. § 1692e(2)(A). This is because the purported misidentification of the charge-off creditor did not implicate the debt’s “character, amount, or legal status.” 15 U.S.C. § 1692e(2)(A).

In the Sixth District’s view, the consumer did not show how the purported misrepresentation of the charge-off creditor was a material misrepresentation under the standard applicable to alleged FDCPA violations, let alone how it would likely mislead the hypothetical least sophisticated debtor. See Tourgeman, supra, 755 F.3d at p. 1119; Afewerki, supra, 868 F.3d at p. 775. To the contrary, unlike the identity of a consumer’s original creditor, whose “false identification in a dunning letter would be likely to mislead some consumers in a material way,” Tourgeman, supra, 755 F.3d at p. 1121, a hypothetical debtor receiving the debt buyer’s collections complaint would recognize the consumer lender as the creditor that issued and serviced the credit account until nonpayment on the account, charge-off, and sale to the debt buyer bringing the collections suit. The misidentification of the trustee in this instance fell squarely within the category of “mere technical falsehoods that mislead no one.” Donohue v. Quick Collect, Inc. (9th Cir. 2010) 592 F.3d 1027, 1034.

Insofar as section 1788.17 “incorporates the FDCPA, so that a violation of the FDCPA is per se a violation of the Rosenthal Act,” Best v. Ocwen Loan Servicing, LLC (2021) 64 Cal.App.5th 568, 576, the Sixth District concluded that the inverse was also true: a misrepresentation that is immaterial and thus not actionable under the FDCPA fails to support a prima facie violation of section 1788.17.

Furthermore, the Sixth District held that, although a court tasked with an anti-SLAPP motion “does not weigh evidence or resolve conflicting factual claims,” Baral v. Schnitt (2016) 1 Cal.5th 376, 384, where, as here, the relevant representation in connection with the collection of the debt (i.e., the collection action complaint) is not subject to conflicting factual claims and the viability of the claim is evaluated according to an independent, objective standard of review, the court can properly ascertain the plaintiff’s showing at the second step of the anti-SLAPP procedure without weighing the evidence or resolving factual disputes.

Thus, having applied the settled standard for evaluating a false statement or misrepresentation as set forth in the FDCPA, the Sixth District decided that the consumer had not met his burden to demonstrate a prima facie violation of section 1788.17 of the Rosenthal Act. Accordingly, the Court concluded that the trial court did not err in granting the defendants’ anti-SLAPP motion.

ATLANTA, GA — FLOCK Specialty Finance announces a strategic investment in technology and human capital related to data-driven insights and innovation.  “Our investment in an analytical platform is foundational to our commitment to provide best-in-class support to our customers and our investors.  The FLOCK analytics platform enables operational efficiencies, improved insights, and opportunities for data-driven innovation.  To support and implement this vision, we have made two new strategic hires,” Michael Flock, Founder and CEO stated.   

• Jennifer Priestley, Ph.D., Chief Data Officer.  Jennifer will have responsibility for the data platform which supports Flock’s business processes, analytics, and market insights.  She will oversee automation of operational processes as well as data security and cybersecurity protocols.  Her background as a Professor of Statistics and Data Science at Kennesaw State University for almost 20 years and developer of the country’s first Ph.D. program in Data Science has made her uniquely qualified to help FLOCK become a leader in translating data into information to drive value.  Prior to her career in academia, Jennifer held positions with VISA EU in London, MasterCard International, and Accenture.   Jennifer holds a B.S. from Georgia Tech, an MBA from Pennsylvania State University, and a Ph.D. in Decision Sciences from Georgia State University.  

• Will Bowers, Senior Data Scientist.  Will has nearly a decade of experience in data science.  His background and proven success in data engineering, analytics and business intelligence will contribute to the successful development of data-driven solutions for underwriting, portfolio management, and internal FLOCK financial processes. He was the Senior Manager of Performance Data and Analytics with Credigy before coming to FLOCK.  He holds a Bachelor of Arts degree from the University of Georgia.

“These strategic investments in our organization allow us to continue to drive value in the marketplace, bring deeper analytical insights, and enrich our customers’ use of capital.  FLOCK intends to become the nerve center of capital, data, and expertise for the middle market of debt buyers.  Our enhanced investment in human capital and in technology is evidence of our strategy,” Michael Flock added.

Please contact Jennifer at jpriestley@flockfinance.com, for information or questions related to Flock Specialty Finance’s data platform.

The U.S. Supreme Court has granted the certiorari petition filed by the CFPB seeking review of the Fifth Circuit panel decision in Community Financial Services Association of America Ltd. v. CFPB.  In that decision, the Fifth Circuit panel held the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution and, as a remedy for the constitutional violation, vacated the CFPB’s payday lending rule (Rule).  The Court was unwilling, however, to expedite the case and hear it this Term as requested by the CFPB and instead will hear the case next Term.

The Court also denied the cross-petition for certiorari filed by Community Financial Services Association (CFSA) asking the Court to review the alternative grounds for vacating the Rule that the Fifth Circuit rejected.  The Court was also unwilling to add the alternative grounds to the CFPB’s petition as antecedent questions.  CFSA had asked the Court to consider the alternative grounds as antecedent questions as an alternative to granting its cross-petition.  A ruling by the Court in favor of CFSA on one of the alternative grounds might have allowed the Court to avoid reaching the constitutional issue.  

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The sole question presented by the CFPB’s petition is:

“Whether the court of appeals erred in holding that the statute providing funding to the Consumer Financial Protection Bureau (CFPB), 12 U.S.C. 5497, violates the Appropriations Clause, U.S. Const. Art. I, § 9, Cl. 7, and in vacating a regulation promulgated at a time when the CFPB was receiving such funding.”

Thus, by denying CFSA’s cross-petition and also rejecting CFSA’s request to consider the alternative grounds as antecedent questions to the CFPB’s petition, the Supreme Court is poised to decide the Appropriations Clause issue.

While the Court’s decision not to hear the case this Term means the Fifth Circuit decision will continue to be a cloud over all CFPB actions and could slow the pace of enforcement activity (particularly in pending cases where defendants can be expected to assert the Appropriations Clause issue as a defense), we do not expect it to impact the CFPB’s ongoing supervisory activity in any material way or deter Director Chopra from continuing to pursue his aggressive regulatory agenda. 

In collections, the biggest challenge is getting in contact with account holders and setting up a payment agreement to resolve outstanding debt, especially with consumers who have a low propensity to pay. But once the agreement is made, it’s smooth sailing. Right?

Not quite. 

The cost involved with processing payments can be significant for agencies, especially when they are not charging a fee, and if a fee was not expressly authorized in the original agreement that created the debt, it’s difficult to imagine how agencies can reduce costs in a compliant manner. 

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So, what can you do? Can you charge a fee to offset this expense? What about compliance? The best question you can ask yourself is, “do we have the right payment processing partner to help show us the way?”

Fortunately, with the right payment processing partner, the modern iteration of the No-Cost-to-Biller fee model allows agencies to save money on processing fees in a manner compliant with the FDCPA, CFPB, Card Brands, state law, etc.

What is a No-Cost-To-Biller fee model, and how can it help my business?

At a high-level, the No-Cost-To-Biller fee model applies the principal transaction amount to the agency, and with consumer consent, a fee may be assessed by the third-party technology platform which enables the convenience of processing the payment. With the right fintech partner, this model can be deployed in several iterations to fit a merchants payment ecosystem, while ensuring compliance with the appropriate regulations. In all cases, the payment processor collects the principal and uses the model to offset costs.

Where there is a restriction (either due to a state regulation or client restriction), no fee is applied, and the merchant is charged the processing fee directly.

Is it compliant?

Yes, with the correct fee model.

There are several key considerations to ensure compliance, but this model is nuanced and every rule cannot be conveyed in one article. Here are several key principles which need to be embedded in any merchant’s payment ecosystem: 

Consumer Consent

Consumer consent is critical. Agencies are responsible for providing consumers with disclosures that contain the necessary items for compliance. With proper disclosures, an agency can then obtain consumers consent to move forward in the process. It’s also important to ensure the agency does not receive revenue from the fee, but only uses it to offset costs. This has been a hot topic lately, but it has always been a rule for any vendor who has expertise in this field. 

Adherence to Regulations

When reviewing individual states’ statutes, one must recognize where a consumer resides at the time of payment, and adhere to individual state statutes. This can get tricky, as you need to keep in mind fee rules set by the Card Brands do not supersede state law. In fact, all of the salient compliance pillars, i.e. the FDCPA, CFPB, Card Brands, State Law, etc. need to be adhered to in every transaction.  All of these items (and more) need to be integrated into your authoritative database so rules are followed programmatically.

There is a lot of nuance involved with employing a No-Cost-To-Biller fee model. The best way for debt collectors to ensure compliance while offsetting costs is to find a payment processor who has done their legal due diligence, is able to provide guidance on the subject and is a true expert in this area. 

To learn more about how to stay compliant with the law, watch our one-hour webinar: Breaking Down the CFPB’s Opinion on Convenience Fees, featuring experts Rick Perr (Co-Managing Partner, Philadelphia, Kaufman Dolowich & Voluck LLP) and Rob Kennedy (Vice President of Sales, North America, Nuvei).

In a recent decision, a Michigan district court found that because there was a genuine issue of fact as to whether the defendant debt collector notified the consumer reporting agency (CRA) to remove a disputed debt notification from the plaintiff’s tradeline, the case could proceed to trial.

In Evans v. Merchants and Medical Credit Corp., the plaintiff received a letter from the defendant attempting to collect on an unpaid debt. The plaintiff provided notice to the defendant that the debt was disputed. The following year, when the plaintiff attempted to obtain a home equity loan the dispute flag on her consumer report caused her application to be denied. The plaintiff’s attorney then informed the defendant that the plaintiff no longer disputed the account.

The defendant removed the dispute flag from the plaintiff’s account in its system, but the debt continued to be reported as disputed by the CRA. The CRA’s records showed that it had not received a request from the defendant to remove the code from the tradeline.

The plaintiff filed a lawsuit against the defendant in the District Court for the Eastern District of Michigan, alleging violations of the Fair Debt Collection Practices Act (FDCPA), and other state statutory claims.

The plaintiff filed for summary judgment, and the defendant counter-filed a motion to dismiss or, in the alternative, for summary judgment. Because the court found that there was a genuine issue of fact as to whether the defendant notified the CRA to remove the dispute notification, the court denied both motions, finding that “both sides have offered sufficient evidence upon which a reasonable jury could find in their favor.” The court went on, “whether [the defendant’s] procedures are reasonably adapted to avoid the error that occurred here is a question of fact for the jury to decide.”

The defendant also argued that the plaintiff lacked standing to sue; however, the court found that the denial of her home equity loan application was a sufficient injury to confer standing.

The FTC recently sent its annual letter to the CFPB reporting on the FTC’s activities related to the Equal Credit Opportunity Act (ECOA) and Regulation B.  The new letter reports on the FTC’s activities in 2022.  The Bureau includes the FTC’s annual letter in its own annual report to Congress on the ECOA.

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The FTC has authority to enforce the ECOA and Regulation B with respect to nonbank financial service providers within its jurisdiction.  The letter notes that, consistent with the Dodd-Frank Act, the FTC continues to coordinate certain ECOA enforcement and other activities with the CFPB pursuant to a memorandum of understanding with the Bureau.

With regard to fair lending enforcement, the letter highlights the settlements in two FTC enforcement actions against two groups of auto dealerships, Passport Automotive Group and Napleton Auto Group, in which the FTC alleged the dealerships violated the ECOA and Regulation B by discriminating against Black consumers (and, in the case of Passport, also Latino consumers), charging them higher financing costs and fees.  The FTC’s lawsuit against Napleton was filed jointly with the Illinois Attorney General.  In its lawsuit against Passport, the FTC alleged that the alleged discriminatory conduct also constituted unfair discrimination in violation of Section 5 of the FTC Act.

With regard to fair lending research and policy development, the letter discusses (1) a report to Congress issued by the FTC in 2022 that discussed risks arising from the use of artificial intelligence by big tech platforms and other users, including the risk that AI can result in discrimination against protected classes of individuals; (2) a conference co-hosted by the FTC in 2022 that included a discussion on designing compensation in the auto loan market and concerns arising from discretionary markups; (3) the FTC staff’s continuation of its work as a liaison to the American Bar Association’s Standing Committee on Legal Assistance for Military Personnel which supports initiatives to deliver legal assistance and services to servicemembers, veterans, and their families, and (4) the FTC’s continuation of its (a) service as a member of the Interagency Task Force on Fair Lending along with the CFPB, DOJ, HUD and the federal banking agencies, and (b) participation in the Interagency Fair Lending Methodologies Working Group which consists of staff members from the FTC, CFPB, DOJ, HUD, federal banking agencies, and the Federal Housing Finance Agency.

With regard to fair lending consumer and business education, the letter discusses the FTC’s “efforts to provide education on significant issues to which Regulation B pertains.”  The efforts described consist of guidance for consumers on credit discrimination, data released by the FTC on harm to people living in majority Black communities arising from fraud and other consumer problems, alerts to consumers about the 2022 auto dealer enforcement cases, and guidance to business on the settlements in those cases.

DENVER, Colo. — Harvest Strategy Group, Inc. (Harvest) announces the addition of Marc Savage to its Board of Directors.  

“We are excited to have Marc join our board.  Marc’s deep knowledge of technology and diverse background gives him great insights into strategic solutions,” said Harvest President & CEO Brad McCurnin.  “His role on the Harvest board supports our long-term technology roadmap.” 

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Savage brings over 25 years of technology management experience and will further support Harvest’s direction of being a leader in technology for compliance, reporting, and operational efficiencies.  Savage has a long history of serving the technology needs of the accounts receivable management industry and is the founder and CEO of Emprise Technologies, a Toledo, OH based technology company.  

“I am excited to serve the Harvest organization in this capacity.  Harvest has a long history of innovation and growth, and I look forward to contributing to that continued success,” said Savage.  

“The importance of technology in service delivery cannot be overstated.  Marc’s experience strengthens our board in this important area.” reports Martin Ravin, Executive Chairman.

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.