Editor’s Note: This article was originally published on the Maurice Wutscher blog and is republished here with permission.

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The U.S. Court of Appeals for the Seventh Circuit affirmed entry of judgment on the pleadings against a former condominium association board director’s claim that the association’s attorneys’ request for fees in a separate state court action filed by the association against the former director violated the federal Fair Debt Collection Practices Act (FDCPA).

In so ruling, the Court agreed that the former board director failed to state a cause of action under the FDCPA, 15 U.S.C. 1692, et seq., because the attorneys’ fees at issue and authorized under the association’s “Restated Declaration” agreement for violations of the board’s rules or obligations did not constitute a “debt” under the FDCPA’s limited, consumer-protection-focused definition.

A copy of the opinion in Spiegel v. Kim is available at:  Link to Opinion.

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The board director of a condominium association was removed by the board in 2015 and sued by the association in Illinois state court for a slew of allegedly unauthorized actions taken leading to and following his removal, and seeking to enjoin him from interfering with board decisions or holding himself out as a director (the “state court action”).  The state court action complaint invoked the association’s “Restated Declaration” agreement which provided that owners who violated the board’s rules or obligation would be subject to payment of damages, costs and attorneys’ fees for misconduct. 

The former board director denied wrongdoing and filed a slew of lawsuits against the association, its lawyers and condominium residents in state court — 385 separate filings in total which were dismissed with prejudice and wherein the former board director was ordered to pay over $700,000 in fees and sanctions. 

While the state court action was pending, the former board director also filed suit in federal court against the association’s counsel, alleging that the attorney’s application for fees in the state court action violated the FDCPA.

The association’s counsel moved for judgment on the pleadings.  After initially staying the former board director’s federal proceedings under Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), the trial court held that the motion did not cause conflict with the state court action, and granted the association’s counsel’s motion for judgment on the pleadings.  In so ruling, the trial court concluded that the former board director failed to state a claim under the FDCPA because the requested attorneys’ fees were not a “debt” within the meaning of the FDCPA. After the former board director’s motions to vacate the judgment and request for leave to amend the complaint, the instant appeal ensued.  

On appeal, the Seventh Circuit sought to determine whether the attorneys’ fees sought by the association’s attorney in the state court action constituted a “debt” within the meaning of the FDCPA.

It was undisputed that the association’s state court action requested that the court impose a financial obligation on the former board director by requiring him to pay fees.  However, the Court noted that to determine whether the demand qualifies as a “debt” under the FDCPA “'[t]he crucial question is the legal source of the obligation.’” Franklin v. Parking Revenue Recovery Servs., Inc., 832 F.3d 741, 744–45 (7th Cir. 2016). 

The former board director argued that any obligation to pay the association’s counsel’s attorneys’ fees was a consumer debt because but for his condominium purchase he never would have served on the association board; but for his board service, he never would have become ensnared in the state court action; and but for the state court action, he never would have found himself on the receiving end of the association’s counsel’s legal demand to pay attorneys’ fees.  The former board director cited the Seventh Circuit’s ruling in Newman v. Boehm, Pearlstein & Bright, Ltd., to support his argument, in which the Court held that assessments imposed by a homeowners’ association on its members could create a “debt” under the FDCPA. See 119 F.3d 477, 481 (7th Cir. 1997).

Reviewing Congress’s limited definition of “debt” under the FDCPA to consumer debt, the Court determined that the attorneys’ fees at issue did not  “aris[e] out of” a consumer transaction as Congress employed that requirement in defining “debt” (15 U.S.C. § 1692a(5)) and therefore fell outside the scope of the statute. 

More specifically, the Seventh Circuit held, the obligation for the former board director arose out of his alleged wrongdoings as a board member, and not from a consensual consumer transaction within the meaning of the FDCPA, and the association’s counsel’s invocation of the Restated Declaration in the state court action did not change the analysis, nor could it be connected to the former board director’s condominium purchase to constitute a consumer transaction or an obligation qualifying as a consumer debt.

The Seventh Circuit further rejected the former board director’s argument under Newman, because the resident members’ obligations to pay assessments in that action arose directly from the association’s declaration and bylaws to which the members consented upon purchasing their condominiums, but here the former board director’s obligation to pay attorneys’ fees arose from his actions as a board member. 

The Seventh Circuit also concluded that the trial court did not err in denying the former board director’s request to amend his complaint because the proposed amendment would not result in stating a viable legal claim.  See Heng v. Heavner, Beyers & Mihlar, LLC, 849 F.3d 348, 354 (7th Cir. 2017).  Lastly, the Court denied the former board director’s motions to strike ruling and orders for him to pay fees and sanctions in the state court action that were attached as exhibits to the association’s counsel’s appellate brief, concluding that the Court was permitted to take judicial notice of these public records.  See Tobey v. Chibucos, 890 F.3d 634, 647–48 (7th Cir. 2018) (collecting cases).

Accordingly, judgment on the pleadings entered in the association’s counsel’s favor was affirmed.

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Want to quickly find other cases like this? The iA Case Law Tracker can help you do that in less time than it takes to pour your morning cup of coffee.

Editor’s Note: This article was originally published on the Maurice Wutscher blog and is republished here with permission.

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The “Minnesota Consumer Data Privacy Act,” HF 3936, is a walleye-size privacy bill that significantly expands on the California Consumer Privacy Act.  Unlike the CCPA, it does not include a dollar threshold for applicability.

Instead, it would apply to entities conducting business in Minnesota or targeting its residents with products or services that:

1. control or process personal data of 100,000 consumers; or
2. derive more than 50 percent of gross revenue from the sale of personal data and process or control personal data of 25,000 or more consumers.

The legislation would provide consumers the right to know and request deletion of personal information collected about them and to opt-out of the sale of their personal information.  Additionally, consumers would have the right to correction and data portability.

Specific responsibilities are assigned to “processors“ and “controllers.”  For example, processors would be responsible for adhering to controllers’ contractual instructions, assisting controllers with consumer requests through “technical and organizational measures,” assisting controllers with respect to the security and processing of personal data and breach notification, agreeing to audits by the controller, and ensuring “each person processing the personal data is subject to a duty of confidentiality with respect to the data.

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The legislation contains a lengthy section regarding facial recognition, providing in part:

Processors that provide facial recognition services must make available an application programming interface or other technical capability, chosen by the processor, to enable controllers or third parties to conduct legitimate, independent, and reasonable tests of those facial recognition services for accuracy and unfair performance differences across distinct subpopulations . . .

Controllers’ responsibilities would include, in part, providing a CCPA-type privacy notice, establishing the means for submission and authentication of consumers’ requests and conducting and documenting data protection assessments which must be provided to the attorney general upon request.  “Authentication” is defined as “to use reasonable means to determine that a request to exercise any of the rights . . .  is being made by the consumer who is entitled to exercise such rights with respect to the personal data at issue.”

The legislation would provide exemptions for information processed pursuant to the Health Insurance Portability and Accountability Act (HIPAA), the Fair Credit Reporting Act (FCRA) and the Gramm-Leach-Bliley Act (GLBA), as well as pursuant to various other laws.

There would be no private right of action, but the attorney general would have enforcement power including the assessment of civil penalties up to $7,500 per violation.

In contrast, Minnesota HF 3096 is a minnow-size version of the CCPA that would apply to any for-profit business, regardless of whether it “does business” in Minnesota, that:

1. has annual gross revenue in excess of $25 million;
2. annually buys or sells the personal information of 50,000 or more consumers, households, or devices; or
3. derives 50 percent or more of its annual revenues from selling consumers’ personal information.

The legislation would require a notice at collection and provide consumers the right to know and request deletion of personal information collected about them and to opt-out of the sale of their personal information.

Interestingly, the legislation does not specify any particular methods to verify a consumer’s identity with respect to a request, stating only that “a business may require authentication of the consumer’s identity and the request.” 

The legislation does not include any exemptions for businesses or personal information subject to HIPAA, FCRA or GLBA.

The legislation does not provide for a private right of action, but the attorney general could seek damages between $100 and $750 per consumer per violation and treble damages in the event of willful and malicious violations.

This article is part of the iA Think Differently series. Written by members of the iA Innovation Council, the series showcases thought leadership in analytics, communications, payments, and compliance technology for the accounts receivable management industry.

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It’s time to think differently about how we view audits, how we treat the external auditors, and how we review and evaluate our operations.  Audits and Auditors come in all types and skillsets.  They range from the traditional auditors, who are simply there to check a box, to auditors who are there to help both sides form better partnerships, to those who are on a mission to find every flaw and hold businesses accountable for them.

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Auditors also come from a lot of different places, such as clients, states, and even, sometimes, from the Consumer Financial Protection Bureau (CFPB). The individuals may be outsourced auditors from a firm, employees of the client, or government employees who are sent out to conduct a review. Auditors (one or an entire team) are representatives of the organization or government body that sent them. They are coming to your facility to perform an evaluation and an important rating or scoring of your organization’s operations and business processes.

Why don’t we treat auditors like clients?

So, why don’t we treat auditors the same way that we would welcome a prospective or existing client? I’ve heard about auditors being put in basements, messy storage rooms, small rooms, and rooms with poor lighting, heating, or cooling. In addition, employees won’t talk to (or are even afraid of!) the auditors, so the auditors may be ignored. Water, coffee, tea or even a small bowl of snacks are common niceties for guests, but for an auditor? Forget it.  As you can imagine, being an auditor is a hard enough job, and this type of treatment at a worksite makes their job much harder.  Auditors are human, so this type of neglect can affect them and their impression of our businesses.

It’s time for all companies in our industry to realize that audits, reviews, and evaluations are here to stay, and are an accepted and integral part of our new business norm. In fact, the number of findings in audits and their severity ratings is now an increasingly important metric in determining competitive bonus rankings, and even market share allocations, especially for larger creditors.

How forward-thinking should we be?

We know it’s time to change the way we think about audits and auditors, but how forward-thinking should our audit and auditor playbooks be for the best results? Audits should be viewed as ways to improve our businesses, as well as our policies, procedures, and processes. Auditors should be treated with the same respect and professionalism as any other representative because they can impact our businesses in a positive or negative way.

One simple, tangible way to ensure better treatment of auditors is to assign them a parking space close to the main door, not one in the far back corner of the lot — or even worse, saying nothing and leaving them to find a space on their own. There should also be a sign at the front desk welcoming the auditors, as well as a decent office or working area. One or more representatives of your business should be dedicated to helping schedule meetings and ensuring that the auditors’ requests for information are fulfilled. For large audits, preparation should be completed in advance so that everyone’s time can be optimized.

As an example, usually, the auditors or audit team will provide an outline or details of what they want to see while on-site, so take the information to be reviewed and put a summary into a PowerPoint deck and present it to the audit team. This approach is far more effective than engaging in a back and forth exchange across a table or even waging a war of words about what things mean. The goal of the deck is not only to educate the auditor or audit team about your company, but to illustrate your compliance clearly, and how you are directly addressing the areas they are there to audit.  

Overall, this proactivity, preparation, and attentiveness to the audit and auditors shows that you respect them professionally, that you respect their time, and that you care enough about your business to explain it to them. Thinking differently about audits and auditors will catapult you and your business far above your peers–which they will also be visiting, auditing and rating.

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About the iA Innovation Council

The iA Innovation Council is a collaborative working group of product, tech, strategy, and operations thought leaders at the forefront of analytics, communications, payments, and compliance technology. Group members meet in person several times each year to engage in substantive dialogue and whiteboard sessions with the creative thinkers behind the latest innovations for the industry, the regulators who audit and establish guardrails for new technology, and educators, entrepreneurs and innovators from outside the industry who inspire different thinking. 

2020 members include:

GENESEO, N.Y. — Coast Professional, Inc. (Coast) has promoted Rechelle Brown to Director of Client Service. Rechelle’s promotion is a direct result of her exceptional work ethic and dedication to achieving company growth and success. 

Rechelle began her career at Coast in 2012 as the Client Relations Manager. As Director, Rechelle will oversee the Client Service team and continue to be instrumental in maintaining and developing relationships with the company’s clients. With over 35 years of management and client service experience, Rechelle’s immense industry knowledge has led to numerous process improvements at Coast. 

Rechelle is highly involved in the collection and higher education industry through participation in conferences and industry organizations. She is a board member of the Coalition of Higher Education Assistance Organizations (COHEAO), serving as the Communications Co-Chair since January 2019 while representing Coast and being an advocate for Perkins reauthorization and borrower options. Rechelle has extensive experience speaking at higher education and industry conferences and is a graduate of Barry University with her bachelor’s degree in Business Management. 

“Rechelle’s work ethic, industry knowledge, advocacy initiatives, and desire to fully understand every facet of this industry is simply unmatched,” said Jonathan Prince, Coast Chief Operating Officer. “She is exceptionally competent in the world of client relations and displays genuine, compassionate interpersonal skills. The relationships that Rechelle has cultivated and maintained have contributed to our overall company success. I want to personally congratulate Rechelle on her well-deserved promotion.” 

A resident of Palm City, Florida, Rechelle enjoys spending time with her children and grandchildren and is actively involved in her church and community. 

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About Coast Professional, Inc.:

Coast Professional, Inc. is an accounts receivable management company, dedicated to the respectful and ethical collection of higher education and government debt. Coast provides professional collection services to over 200 government clients and campus based colleges and universities. Coast is a six-time honoree on the Inc. 5000 list for America’s Fastest-Growing Private Companies provided by Inc. Magazine and in 2019, was recognized for the fourth 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.

PLANO, Texas — Chad Deatherage, CEO of Payment Savvy, is pleased to announce his company is celebrating an impressive milestone – 10 years of serving merchants across the country. To learn about Payment Savvy and what sets them apart from the competition, please visit https://mypaymentsavvy.com/why-payment-savvy/. 

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When asked how Payment Savvy was able to establish an essential stronghold in the payment space, Deatherage had a ready answer.

“Unfortunately, customer service is not a focus for our competition – they are often driven purely by profit margins. At Payment Savvy, ensuring every merchant that reaches out to us is fully satisfied is our number one goal. On the front-end we listen carefully to your needs and develop a custom payment package to help your business grow. Once a boarded Payment Savvy client, the level of service provided does not dwindle – we are always available to make sure you are optimally processing.” he said.

The fact that Payment Savvy is celebrating such a significant milestone does not surprise the many satisfied merchants who use Payment Savvy and their custom payment solutions. Deatherage and his team at Payment Savvy strive to provide innovative and state-of-the-art payment processing technology, all at the lowest possible cost.

“We never provide out-of-the-box payment solutions or standard-issue pricing. Our knowledgeable team will work one on one with you to fulfill your organizational goals.” Deatherage said, adding that “From web payments to IVR, let us know how you want to accept a credit card, debit card, or ACH payment, and we’ll make sure it happens.”

As a bonus, Payment Savvy’s systems are incredibly user-friendly and intuitive, meaning clients can quickly start using the payment processing technology. Also, the company’s open API platform will collect payment information through a merchant’s existing software.

“At Payment Savvy, we give you our best from the get-go and maintain that stance throughout our relationship. We want you to be confident, secure, and happy with us as Your Payment Partner(TM),” he said.

About Payment Savvy

Since 2010, Payment Savvy has provided innovative, compliant, and affordable payment processing solutions to high-risk industries across the country. As they celebrate a decade in the payment space, they look forward to helping more enterprises grow with their custom payment products. From their often-imitated Fee-Free Payments(TM) platform to their next-generation pay by text solution, they work one-on-one with their clients to create a scalable payment system that checks all their “must-have” boxes. For more information, please visit https://mypaymentsavvy.com.

Yesterday, ERC secured a tremendous win in an FDCPA lawsuit—the District of Connecticut sanctioned plaintiff and her counsel for continuing to pursue a claim even though it was clear the claim is meritless. Overall, the court awarded ERC $41,871.95 in attorneys’ fees and costs.

The Facts

In Cobb v. ERC, No. 3:17-cv-01629 (D. Conn. Mar. 10, 2020), plaintiff filed a lawsuit claiming that ERC failed to identify its true name—Enhanced Recovery Company, LLC—in debt collection communications, and thus violated the FDCPA. Prior to filing an answer, ERC reached out to plaintiff’s counsel with evidence showing that ERC is a registered trade name under which the company is licensed to collect consumer debt in Connecticut. In this communication, ERC also stated that if the matter is not voluntarily dismissed, “ERC will litigate and entertain filing for sanctions due to the continuance of the matter knowing that your allegations lack merit.” 

Lo and behold, the claim was not dismissed. ERC filed its answer and the litigation continued. Plaintiff’s counsel engaged in several interesting tactics, including:

• Attempting to get ERC to stipulate in its Rule26(f) report that it has not filed a trade name certificate in Connecticut;
• Stating that “early settlement should be advisable” since ERC started using its full name in collection communications, despite a very well-known legal doctrine that prohibits evidence of subsequent remedial measures taken after the lawsuit was filed. 
• Sending to ERC an out-of-state court decision that was not on-point, when Connecticut’s rules regarding using trade names are different. ERC sent to plaintiff a decision from that same jurisdiction showing that plaintiff’s claim is meritless.
• Sending an undated notice of deposition to an ERC representative. 

The sequence of attempted settlement negotiations was a roller coaster ride as well. At first, plaintiff’s counsel demanded $5,000. Prior to a court-mandated settlement conference, plaintiff’s counsel threatened to increase the demand, only to later lower it. When ERC refused to settle, plaintiff’s counsel stated she did not “understand why [ERC] continues to fight this,” only to later lower the demand to $1,000 plus fees and costs. 

Ultimately, ERC filed a motion for summary judgment on the case. In her opposition to the motion, plaintiff’s counsel “demanded that ERC’s counsel confirm with ERC’s new CEO whether he had any interest in settling the case.” 

The court granted summary judgment in favor of ERC. In its decision, the court states:

The FDCPA protects consumers from unscrupulous debt collectors; the statute does not create an avenue to harass legitimate creditors with litigation through superficial interpretation of its provisions.

Order Granting Sanctions Against Plaintiff’s Counsel

To say the court was not impressed is an understatement. Here are some nuggets from the opinion:

• “[I]t is clear that Plaintiff has at best misconstrued and at worst intentionally misinterpreted 15 U.S.C. § 1692e(14).”
• “This is important because it highlights that this case should never have been brought in the first place. A modicum of research would have revealed that this case was baseless, and as noted in the Court’s ruling on summary judgment, ‘Plaintiff allege[d] no instances of misleading conduct or misrepresentations’ and ‘fail[ed] to cite a single case in which a court allowed a § 1692e(14) claim to proceed against an entity for use of an initialism that the entity uses as a registered trade name in that jurisdiction.'”
• “Everything after ERC notified Plaintiff that her claim was baseless was unnecessary and ERC is entitled to attorneys’ fees from that point forward.”
• “Those other actions include Plaintiff’s insistence, by the Court’s count not fewer than 15 times, that Defendant pay damages and mounting legal fees to settle the case despite the fact that Defendant presented factual and legal authority soundly proving it was baseless and Plaintiff’s counsel failed to present facts or law to refute it. Bringing a case under the mistaken belief that it has merit is one
  thing. Maintaining a case after learning it is does not have merit is another. Demanding increasing legal fees for a known unmeritorious case is quite another.”
• “Plaintiff’s counsel sent an undated, improper deposition notice to Richard Landoll for a deposition to occur the day after the settlement conference, in what appears to be a threat to run up litigation costs for ERC.”

And, the biggest gem of them all:

In sum, Plaintiff’s counsel’s communications display an entitlement mentality or at least a firm expectation that ERC should and would simply settle and pay the maximum damages allowed under the statute even though Plaintiff’s claim was baseless. This leads the court to conclude that this case was brought for an improper purpose, to induce ERC to settle rather than to redress wrongs suffered by Plaintiff.

(Emphasis added.)

Overall, the court awarded ERC $40,213.62 in attorneys’ fees and $1,658.33 in costs.

insideARM Perspective

insideARM spoke with Shelly Gensmer, Vice President of Legal and Compliance, to get her thoughts on this victory. Gensmer said:

Filing sanctions and going after fees and costs is always a tough gamble; one which ERC didn’t approach without careful consideration. Plaintiff’s counsel was made aware time and again that the case had no merit. Instead of backing down, counsel chose to double down. We’re very pleased and believe the court made the appropriate decision here.

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Needless to say, this case provides great support for debt collectors who choose to seek sanctions against other plaintiffs’ counsel who continue pushing meritless cases. For those of us in the industry, at least a few names come to mind.

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Want to quickly find other cases where courts call out questionable tactics by plaintiffs’ counsel? The iA Case Law Tracker can help you do that in less time than it takes to pour your morning cup of coffee.

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. 

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As previously reported here, Federal Communications Commission (FCC) Chairman Ajit Pai had circulated a proposal to mandate carrier implementation of the STIR/SHAKEN call authentication protocol to reduce Caller ID spoofing.

Today, the FCC released a draft of its Report and Order and Further Notice of Proposed Rulemaking (Draft Order) to implement the mandate, and seek comment on additional measures to combat illegal spoofing, including further implementation of the Pallone-Thune TRACED Act (TRACED Act).

Formal FCC consideration of the Draft Order will occur at the agency’s Open Meeting on March 31, 2020. It is reasonable to expect that it will be adopted, although between now and March 24, 2020, interested parties are allowed to seek changes.

The Fact Sheet accompanying the Draft Order outlines its contents as follows:

What the Order Would Do:

Require originating and terminating voice service providers to implement the STIR/SHAKEN caller ID authentication framework in the Internet Protocol (IP) portions of their networks by June 30, 2021, a deadline that is consistent with the TRACED Act, which was recently passed by Congress.

What the Further Notice Would Do:

• Propose to extend the STIR/SHAKEN implementation mandate to intermediate providers.

• Propose to implement caller ID authentication and other provisions of the TRACED Act, including through proposals to: Grant an extension for compliance with the STIR/SHAKEN implementation mandate for small voice service providers so long as those providers implement a robocall mitigation program.

• Require voice service providers using non-IP technology to either (i) upgrade their networks to IP to enable STIR/SHAKEN implementation, or (ii) work to develop non-IP caller ID authentication technology and implement a robocall mitigation program in the interim.

• Establish a process by which a voice service provider may be exempt from the STIR/SHAKEN implementation mandate if the provider has achieved certain implementation benchmarks.

• Prohibit voice service providers from imposing additional line item charges on consumers and small businesses for caller ID authentication.

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The Draft Order sets comment dates for the rulemaking component as May 15, 2020, for initial comments and May 29, 2020, for reply comments.

TCPAWorld will continue to track and report as the FCC process moves forward.

SYRACUSE, N.Y. — Capital Collection Management, a provider of first-party and third-party collections, debt purchasing, and litigation services, hired Alistair Canal as President of Global Sales. In this role, Canal leads the sales department responsible for driving CCM revenue, brand development, and strategic client relations. 

“We’re thrilled to have Alistair join the CCM team,” said Jacob Corlyon, Co-Founder and CEO of Capital Collection Management. “With more than 20 years of expertise building and growing sales organizations, he is well-poised and equipped to increase CCM’s market share. I look forward to working together to drive the company’s growth.” 

Prior to joining CCM, Canal held several leadership roles at some of the nation’s most highly regarded organizations. Most recently, he was SVP of Strategic Programs for Live Oak Bank, where he was responsible for building, launching, and directing new financing programs for its SBA 7(a) loans. Prior to that, he was VP of Market Development at Promontory Financial Group. Most notably, Canal was a member of the Bankers Healthcare Group executive team for more than six years, serving in multiple roles as EVP of Business Development, Chief Relations Officer, and President of FundEx, a BHG affiliate company.

Canal is active on several boards and serves as an advisor to NextGen companies. He earned his bachelor’s degree from New England College and graduated with distinction. 

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About Capital Collection Management

Capital Collection Management (CCM) provides modern, technology-driven collections, debt purchasing, and litigation services for enterprises that need engagement with empathy, experience with compliance, and excellence in debt recovery. Leveraging state-of-the-art analytics and machine learning combined with a service-focused approach, CCM helps organizations from a variety of industries protect their brands and improve their bottom lines. To learn more, visit www.capitalcollect.com and follow us on LinkedIn.

With the Consumer Financial Protection Bureau’s (CFPB) new Supplemental Notice of Rulemaking (SNPRM) for time-barred debts, statutes of limitations are on everyone’s mind. One common concern—shared even by the CFPB itself—is the complexity involved in determining which statute of limitations applies to each particular debt. Each state governs its own laws regarding limitations periods. Different types of debts can have different limitations periods (for example, traditional banking debts v. auto deficiencies).

Choice of law provisions in credit agreements can throw things for a loop as well, as recently highlighted in a court decision out of the District of Maryland. Specifically, the court examined if the issue of a debt being time-barred is a procedural or substantive one. The answer to this question could have a dramatic impact on the determination on a time-barred debt. And, go figure, the answer also lies in an individual state’s laws.

So, What Happened?

In Jennings v. Dynamic Recovery Solutions, No. 19-cv-1895 (D. Md. Feb. 27, 2020), a consumer entered into a credit agreement that listed Delaware in the choice of law provision. The consumer, however, received collection letters from the defendant in Maryland, where she presumably resided. The letters contained a time-barred debt disclosure, similar to the one proposed by the SNPRM, but did not contain a revival provision.

Editor’s Note: In some states, an expired statute of limitations can be revived if the consumer makes a partial payment or acknowledges the debt in writing. The SNPRM proposes that revival provisions be included in time-barred debt disclosures if they apply. This is very similar to requirements already imposed by certain states with revival provisions. 

Why no revival provision? Because Maryland, where the consumer lived, has a law that prohibits the revival of an expired statute of limitations regardless of the consumer’s actions. In other words, nothing the consumer does will revive the statute of limitations. If this is the case, then there should be no required disclosure, right? 

The Court’s Decision and the Complex Determination

Wrong, says the court, because of the Delaware choice of law provision. The court states “The Court must determine the applicable law using the forum state’s choice of law rules.”

Under Maryland law, procedural issues are decided under the forum state’s laws—meaning, the state that is hearing the case—and substantive issues are decided under the state’s laws that are selected in the choice of law by the parties. Typically, the statute of limitations and whether a claim is time-barred is a procedural issue. But, in the context of debt collection, the revival could have a real-world consequence to consumers. The court itself struggled whle making this determination, but ultimately decided that it is a substantive issue.

On one hand, revival of a debt collection action due to the acknowledgement or partial payment of a debt could be framed purely as a qualification of the statute of limitations for those actions, therefore warranting a procedural characterization. On the other hand, whether acknowledgement or partial payment of a debt would reopen a debtor to legal liability for that debt surely affects the real-world activity of debtors; indeed, if debtors knew that they were likely to make themselves vulnerable to suit by making a payment toward a debt, they would be less likely to make that payment than if they knew they would be protected from legal action. The Court determines that the latter characterization is a more accurate and honest characterization of the potential for revival of a debt collection action, and so it concludes that it is a substantive matter.

Since it is a substantive issue, Delaware law would apply in this case, and Delaware has a revival provision for partial payments. For this reason, the court denied this portion of defendant’s motion to dismiss.

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iA Perspective

Was that confusing for you? I’m about to twist this up a little more, so hang on to your hats—we’re going down the legal rabbit hole. 

The consumer in this case completely availed herself of the laws of Maryland. Not only did she reside there, but she also filed the FDCPA suit there. Had the creditor chosen to file a litigation suit against the consumer, it very likely would have been in Maryland, thus the issue of whether the debt is time-barred would have been a procedural question within that suit. So why is it all of a sudden different simply because it is an FDCPA suit? 

On top of that, Maryland’s non-revival provisions are some of the most protective in the country for consumers. Why, other than to attempt to score a hefty legal settlement for herself and her attorneys (sound familiar?), would the consumer want to avail herself of Delaware laws if she already has the country’s strongest protections? 

This short-sighted, self-benefiting tactic of consumers and their attorneys has the potential to considerably harm consumers. If Delaware law applies, and the debt can be revived, then does that mean that creditor can now file collection suits against consumers in Maryland after a partial payment is made post-expiration? Does this mean that the measures Maryland has taken as a state to protect its consumers means next to nothing? 

On top of that, the same card agreement that selected Delaware as the choice of law also states that the agreement was made in Delaware. As do many other creditors. Creditors can typically file collection suits in the state where the consumer resides or in the state where the agreement was made. What if creditors all of a sudden started filing all collections suits against consumers in Delaware as a result of decisions like this? That would be a disaster for consumers. Even if creditors were required to file suits only in the states where consumers reside, then wouldn’t Maryland law regarding the statute of limitations apply in this case, thus making the claims here moot? 

Long story short, statutes of limitations are complicated. Some consumer attorneys take such complexity and, rather than allowing the consumer to benefit from the more conservative interpretation, turn it into a green opportunity for them. I hope the CFPB is watching this, because this is what causes harm to consumers.

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If you collect time-barred debt, you need to be aware of how courts are ruling on issues like these. The iA Case Law Tracker can help you keep up with new court decisions and conduct quick, incisive legal research in less time than it takes to pour your morning cup of coffee.

Editor’s Note: This article was originally published on the Maurice Wutscher blog and is republished here with permission.

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Rhode Island S 2430 is titled the “Consumer Privacy Protection Act” and has a number of provisions similar to the California Consumer Privacy Act, though the annual gross income threshold is much lower.

It would apply to any for-profit business that does business in Rhode Island and collects consumers’ personal information or has such information collected for it, or determines the purposes and means of processing such information, and:

1. Has annual gross revenues in excess of $5 million (as opposed to $25 million under the CCPA);
2. Alone or in combination, annually buys, receives for the business’s commercial purposes, sells, or shares for commercial purposes, alone or in combination, the personal information of 50,000 or more consumers, households, or devices; or
3. Derives 50% or more of its annual revenues from selling consumers’ personal information.

An entity that either shares “common branding” or controls or is controlled by such a business would also be covered as a “business.”

The legislation would require a notice at collection, provide consumers the right to know and request deletion of personal information collected about them and to opt-out of the sale of their personal information. 

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There is no exemption for personal information or businesses subject to the HIPAA, FCRA or GLBA. The bill’s restrictions on the sale of personal information, we believe, adversely impact usual and customary assignments and sales of consumer loans and other credit instruments. Because the bill does not include exemptions for information already protected by the HIPAA, FCRA, GLBA or other law, we believe it would further complicate compliance and likely lead to conflicts with existing law.

The legislation provides for a right to cure and a private right of action for a breach resulting from a failure to implement and maintain reasonable security measures, with damages limited to the greater of actual damages or $100 to $750 per consumer per incident.