Editor’s Note: This article, authored by Joann Needleman and Ann Lemmo, originally appeared as an Alert on ClarkHill.com, and is republished here with permission.

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On Tuesday, March 3, 2020, the Supreme Court of the United States heard argument in the case of Seila Law, LLC (Seila) v. Consumer Financial Protection Bureau (CFPB); a case many believed would have not only a lasting impact on the future of the CFPB, but the authority of a President to fire future heads of independent federal agencies. Based upon the queries of the Justices and the arguments made by the respective parties, it appears this case may be resolved in a whimper and the question of the CFPB’s structure may be left for another day.

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The Underlying Case

Seila involved a law firm from California that provided debt relief services to consumers. The CFPB served a civil investigation demand (CID) upon the law firm. When the law firm failed to respond to the CID, the CFPB filed a Petition to Enforce the CID in the Federal District Court in California. Seila argued that the CFPB did not have authority to issue the CID because the structure of the CFPB — a single director who can only be fired for cause by the President — was unconstitutional and violated the separation of powers.

The District Court granted the CFPB’s Petition and rejected Seila’s constitutional argument. Seila appealed to the Ninth Circuit Court of Appeals, which affirmed the lower court’s decision. The CFPB defended its structure in the Ninth Circuit case. Seila then petitioned the Supreme Court to review the decision. While this petition was pending, the CFPB changed its longstanding legal position and agreed with the Trump Administration’s Department of Justice (DOJ) that its own structure violated the separation of powers. The Supreme Court agreed to hear the case. Because none of the parties would be defending the CFPB’s structure, the Court appointed amicus curiae, Paul Clement, a former Solicitor General and current partner with Kirkland and Ellis, to argue on behalf of the CFPB. The House of Representatives, another amicus curiae, was also invited to present argument.

The questions presented by the Court were twofold:

Whether the vesting of substantial executive authority in the CFPB, an independent agency led by a single director, violates the separation of powers; and
If the CFPB is found unconstitutional on the basis of the separation of powers, can 12 U.S.C. §5491(c)(3) be severed from the Dodd-Frank Act?

Dissecting the Oral Arguments

On behalf of Seila

Seila’s counsel’s, Kannon Shanmugam, argument focused on the remedy owed his client if the CFPB’s structure is found unconstitutional. Shanmugam suggested that the CID be invalidated and the Court reverse the judgment below. Seila encouraged the Court to let Congress determine how best to fix the defective CFPB structure rather than just strike the for-cause clause. This encouragement strayed a bit in semantics from Seila’s original underlying argument that Title X of the Dodd Frank Act, which governs the CFPB, be eliminated.

Justice Sotomayor noted that the CFPB’s powers were not unprecedented, as other agencies like the Social Security Administration and Office of the Special Counsel have single heads subject to some limits on removal. Justice Sotomayor also expressed concern that the case lacked a contested removal, and maybe the Court should wait for an actual dispute between the President and the Director. She also asked why severability was not addressed first, because if the Court finds that the for-cause provision is unconstitutional, the issue of harm is left for another day.

Justice Ginsberg raised the issue of what encompasses the “for cause” standard which was addressed by the other Justices later in the argument, including Chief Justice Roberts. Justice Roberts somewhat framed the argument by suggesting that scrutiny of the “for clause” standard needs to occur before the clause can be struck down. Justice Kavanaugh directly questioned Seila on the issue of severability; namely, that the court would be rewriting Dodd-Frank no matter whether the Court struck the clause or chose to do nothing. Seila argued that the Supreme Court historically has found that severability clauses create only a presumption, an aid in determining the intent of a “hypothetical Congress.”

On behalf of the United States  

Noel Francisco, the Solicitor General (SG) of the United States, argued that while Humphrey’s Executor upheld the for-cause removal of the Chairman of the FTC, a multi-member commission, that authority should not be extended to single-head agencies because there is no coherent limiting principle and Congress could potentially impose such a removal restriction on the President’s entire cabinet. The SG argued that the severability clause was clear and unambiguous. The SG encouraged the Court to strike the provision while still maintaining the CFPB and the remaining portions Title X of the Dodd-Frank Act.

Justices Kagen and Ginsburg had a hard time reconciling why a single director versus multi-member commission made a difference. However, both felt the President had more influence over a single director. Chief Justice Roberts questioned the scope of the for-cause removal, to which the SG noted that it cannot be interpreted to allow the President to remove the officer “simply because he has lost faith in their judgment or simply because … he [c]an do better.”

Justice Beyer noted that workability for independent agencies requires some sort of limitation regarding removal. Justice Beyer also questioned why the government was seeking another standard that does not exist and why the for-cause removal was not the best standard.

Justice Kegan raised concern that the Constitution says nothing about removal and that the decision about how these agencies should be run should be left to the political branches — as in Congress in conjunction with the President. Further, Justice Kegan added that a President has control over the appointment process and removal is more of a “nuclear bomb” which has historically been more difficult to do.

Both Justices Roberts and Kavanaugh raised issue with the fundamental structure of the Bureau, such as the lack of budgetary oversight and the tenure of the CFPB Director which could result in a holdover to the next President’s term, respectively. 

Finally, like Justice Kavanaugh, Justice Alito questioned whether the severability clause was dispositive at all.

On Behalf of the CFPB

Much like his amicus curiae brief, Paul Clement argued that a constitutional issue did not exist in the matter before the court and therefore the SG was trying to elicit nothing more than an advisory opinion.

Justice Gorsuch questioned whether Clement was seeking a DIG (dismissal of the [certiorari] as improvidently granted). Justice Gorsuch got into a heated exchange seeking an answer to the question: if the SG is not seeking a DIG and the Court approved a single member agency with no removal authority, how would the court distinguish that from other cabinet agencies or otherwise prevent Congress from enacting another single member agency where the President has no removal authority? The exchange went into additional hypotheticals of whether the removal clause could be applied to Homeland Security or the EPA, as well as what that removal standard would look like.

Chief Justice Roberts expressed concern that there would be litigation over whether the standard had or had not been met.

On Behalf of the House of Representatives

Douglas Letter was invited to speak on behalf of the House of Representatives. He argued in support of the severability clause for its limited purpose. He cautioned the Court not to go farther and hold that Title X is non-severable and return to the pre-Dodd-Frank regulatory scheme.

What will be the Outcome?

While there was tremendous fanfare leading up to this case, the questions presented by the Justices suggest somewhat of a buyer’s remorse. The circumstances which brought this case before the Court seemed somewhat orchestrated. To have the DOJ taking a position adverse to Congress and then the CFPB jump on the bandwagon made it appear that only the Supreme Court could settle the uncertainty once and for all. Yes, the structure of the CFPB is problematic and the authority of the Director is unfettered, but was Seila the appropriate vehicle to challenge those issues? As the conservative wing peeled back the layers of the onion, it was apparent that no standard existed regarding a for-cause removal, which either in effect leaves the President with no power at all or invites protracted litigation as to whether the removal was proper.

There was little persuasive argument from either side regarding the severability issue other than the amici for the House of Representatives who rightfully said that if you blow up the agency, you create a hole in the financial services regulatory system. There was simply no discussion regarding the future implications of severability due to a lack of accountability by the Director, namely, what remedies are available to parties who were targets of enforcement or supervision or how to reconcile rulemakings.

The takeaway appears to be that broad sweeping changes are not coming to the CFPB at least for the moment, and this decision will do little in settling long-standing concerns about the authority of the agency. The holding will be narrowly tailored to the facts of the Seila case, leaving open the opportunity for others to continue to challenge the agency’s authority which provides no relief for consumers the CFPB is charged to protect or for industry that seeks regulatory clarity.

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

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Although just over five pages in length (excluding the cover page and three-page summary), New Jersey S269 is not your garden-variety piece of privacy legislation and is packed with plenty of weedy issues. The bill was introduced by the state Senate Republican leader.

The legislation would capture a significantly greater number of smaller businesses than the California Consumer Privacy Act (CCPA) due to decreased thresholds.  A business would be subject to the privacy act if it does business in New Jersey and:

1. has an annual gross revenue of $5 million or more (as opposed to $25 million under the CCPA);
2. derives 50 percent or more of its annual revenue from selling the personally identifiable information of data subjects; or
3. alone or in combination, annually buys, receives, sells, or shares for commercial purposes the personally identifiable information of at least 25,000 data subjects (as opposed to the CCPA’s 50,000 threshold).

Unlike the CCPA, the definition of “business” does not expressly exclude non-profit entities.

Like the CCPA, the legislation would require a notice at collection, but the information required is more onerous.  As a refresher, the CCPA and its recently modified proposed regulations require that the notice at collection include:

1. the categories of personal information to be collected;
2. the business or commercial purposes for the collection;
3. a “Do Not Sell My Personal Information” link, if applicable; and
4. a link or directions to the business’s privacy policy.

In contrast, the New Jersey legislation would require the notice at collection to include:

1. a complete description of the personally identifiable information that the business collects about a data subject and the means by which a business collects the personally identifiable information [as opposed to the CCPA’s categories of information];
2. the purpose and legal basis for the processing of the personally identifiable information;
3. all third parties with which the business may disclose a data subject’s personally identifiable information [here too, the CCPA only requires disclosure of categories of third parties];
4. the purpose of the disclosure of personally identifiable information, including whether the business profits from the disclosure; and
5. the contact information of the person employed at the business responsible for personally identifiable information data protection, where applicable.

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Consumers would have the right to know and request deletion of the personal information collected about them, and to opt out of the processing of their personal information.

The legislation does not include any exemptions for businesses or personal information subject to the Health Insurance Portability and Accountability Act of 1996, the Fair Credit Reporting Act or the Gramm-Leach-Bliley Act.

The legislation provides a private right of action in the event of a breach and damages equal to  actual damages or $100 to $750 per data subject per incident, whichever is greater.

The director of the Division of Consumer Affairs in the Department of Law and Public Safety would be tasked with rulemaking.

The bill is identical to one introduced by the sponsor in October 2019, at the end of New Jersey’s 2018-2019 session where it soon died with no significant action taken. At the start of the 2020-2021 legislative session, the bill was reintroduced as S269 and now has two years to make its way through the New Jersey legislative process. No significant action has been taken since its introduction. It is too early to say what the final bill will look like or if it even has the prospect of becoming law.

On Tuesday, the U.S. House of Representatives passed H.R. 5003, also known as the Fair Debt Collection Practices for Servicemembers Act, in an effort to provide stronger protections for servicemembers from debt collectors. The proposed legislation, sponsored by Rep. Madeleine Dean (D-PA), passed with a unanimous vote, 355-0. The bill is now being reviewed by the Senate.

H.R. 5003 would, among other things, would prohibit debt collectors from communicating with the servicemember’s chain of command to locate the servicemember and threatening to have the servicemember’s rank reduced or security clearance revoked. The bill also prohibits threats of prosecution under the Uniform Code of Military Justice. The text of the bill can be found here.

H.R. 5003 was among several recent House Financial Services Committee bills proposed to amend and strengthen consumer protections under the FDCPA. 

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insideARM Perspective

I think everyone can applaud the House’s passing of this bill. Its prohibitions are reasonable and, most importantly, they protect servicemembers from unscrupulous conduct. The good news is that legitimate debt collectors, like members of the Consumer Relations Consortium, will not have to change anything if this bill becomes law—they already refrain from the prohibited conduct. The only debt collectors impacted would be the bad actors or fraudulent debt collectors. Considering that all sides of the aisle, consumer advocates and industry alike, support these added protections, it’s very likely that this piece of legislation will make it through the Senate and onto the President’s desk.

PHOENIX, Ariz. — Remitter USA Inc. is pleased to announce Jennifer Cummings as the newest member of its Executive team.  Jennifer brings over 15 years’ experience with her, having experience working with a vast array of privately held companies in start-up, growth, and turnaround situations in various industries working in both public accounting and private sector over the course of her career.

Jennifer has helped startups grow into well-established companies over the past 10 years in the consumer debt buying space, consumer collections, online consumer lending, and SaaS.  Her curious and innovative approach has helped entrepreneurs formalize their visions into actionable and executable plans to successfully reach their financial targets and goals. Jennifer brings an individualized approach to advising companies on C-Level Decision-Making, Strategic Planning & Execution, Financial Process Improvement, Project & Program Management, GAAP Principles & Best Practices, and more.

“Her experience, both within our industry and more broadly in accounting, finance and corporate structure, is going to be an invaluable asset as we scale our business into new states and address a more diverse clientele,” stated Jon van Doore, Remitter founder.  “Jennifer is also a serial founder, having been there at the beginning of multiple successful projects, helping to set them up for success and guiding their financial strategy.”

Jennifer is delighted to join Remitter and has high hopes to help the organization achieve success here in the US, she best expresses her enthusiasm by stating, “I knew when I met the other members of the executive team that this group has that “special sauce” and this was an organization I wanted to be a part of”.

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About Remitter USA Inc. 

Remitter is an innovative communication platform using artificial intelligence to deliver world-class, adaptive recovery experiences to creditors’ customers. At the core of Remitter’s success is its proven ability to lift recovery performance using predictive and heuristic behavioral data to provide consumers with personalized experiences.

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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Most collection agency compliance departments listen to and analyze thousands of calls each year. This makes compliance professionals uniquely positioned to identify trends and patterns and to raise the flag when they identify something interesting. Case in point, a little while back I was speaking with our compliance manager about call blocking and labeling technology. The conversation pivoted to a trend our compliance department was seeing where a collector would get stuck in a nonsensical conversation with a bot recording. The collector doesn’t realize they are interacting with a bot, which often makes the calls kind of comical. Intrigued, I had to investigate this issue.

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Bots are designed to waste the caller’s time

Here’s the skinny – there are applications, websites, and/or services a consumer can subscribe to that allow a bot to answer their phones (i.e., bot answering services). These bots play recordings which are programmed to make the caller believe they are speaking with a real person. Essentially, a pre-recorded voice carries on a conversation with the caller and the programming is sophisticated enough to convince the caller that they are speaking with a real person. Bot answering services are designed to waste a caller’s time, make the caller frustrated or uncomfortable, and essentially make the caller give-up. They are also designed to let the consumer have a little fun with telemarketers, collectors, or others who are not on the consumer’s whitelist. Usually, the consumer can retrieve the call recording so they can listen to it later and laugh at the caller who was fooled into thinking they were speaking with a real person.

I’ve studied multiple bot calls, and the recordings run the gamut. Some are silly – for instance, I listened to one bot that was programmed to sound like and impersonate President Trump. Some bot conversation plots make you feel like you’re listening to a soap opera unfold in the background – for instance, I listened to one call where the person answering the phone has an entire conversation with his girlfriend’s husband (who presumably caught the couple having an affair) while keeping the caller on the phone during the whole ordeal. Some bot conversation plots are downright sad – such as making the caller believe they are speaking with an elderly man who is reminiscing about his children and his life. Some of the bot conversation plots are pretty effective!

These telltale signs may suggest you’ve got a bot on your hands

• The conversation is non-sensical (and if you stay on the line long enough, sometimes the recording even loops to the very beginning and starts over).
• The person answering the phone is overly talkative, which allows them to take control of the conversation.
• The person answering the phone often speaks over the caller and/or ignores what the caller is saying.
• The person answering the phone asks the caller a lot of questions that have nothing to do with what the caller is calling about.
• The person answering the phone does not answer open-ended questions. They can only answer yes/no type of questions, and usually their answers are short and vague, such as “yes,” “uh-huh,” “okay,” “hmmm,” “sure,” “yeah,” or even grunts in order to trick the caller into thinking they are speaking with a real person.
• They keep the caller on the line, sometimes asking the caller to “hang on” while they start talking to someone else in the background.
• They seem distracted or say they can’t hear or understand the caller and often ask the caller to repeat themselves or to start over after they were interrupted.

So, what can you do about bots?

The first step is awareness. If you ever find yourself engaged in a nonsensical conversation with a consumer and you suspect you’re talking with a bot recording, here are tips for navigating the call:

1. Ask open-ended questions. An open-ended question cannot be answered by a simple “yes” or “no” response. Open-ended questions require a customized, more thoughtful response. For example, ask the person to provide their address (this invokes an open-ended response), instead of providing an address and asking a person if it is correct (which invokes a closed-ended response of “yes” or “no”). Another example of an open-ended question could be “what better time can I call you back at?” This kind of question invokes an open-ended response since it cannot be answered by a “yes” or “no” type of response.
2. Remain professional. Remember, these calls are usually being recorded and can easily be posted to YouTube, for example. In fact, I was able to study a lot of bot calls through YouTube because consumers and bot answering services post them there with great pride.
3. End the call. If a person refuses to answer your questions, is being uncooperative, or is simply wasting your time, end the call in a professional manner and document your experience in your system of record.

Add bot answering services to the list of reasons why it is more challenging than ever before to communicate with consumers over the telephone. As we look for ways to innovate and better communicate with consumers through their communication channels of choice, remember that we also need to stay alert to the evolving tools available to consumers. 

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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:

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

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Illinois SB 3299 and HB 5603 are nearly identical and would create the “Consumer Privacy Act.” 

The legislation is similar to the California Consumer Privacy Act. It would apply to any for-profit business, or any entity that controls or is controlled by such a business, that does business in Illinois and:

1. Has annual gross revenues in excess of $25 million;
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.

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.  It includes CCPA-like requirements for submitting, receiving and verifying consumer requests.

The legislation excludes protected information under certain federal and state health care laws or regulations such as the federal Health Insurance Portability and Accountability Act (HIPAA), the sale of personal information to or from a credit reporting agency pursuant to the federal Fair Credit Reporting Act (FCRA), or personal information collected, processed, sold or disclosed pursuant to the federal Gramm-Leach-Bliley Act (GLBA) or the Illinois Banking Act.

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Unlike SB 2330 which we described previously, these bills would not require businesses to conduct risk assessments of “processing activities involving personal information” and make them available to the attorney general upon request.

There is a private right of action if “unencrypted or unredacted personal information” of any consumer is exposed as a result of a data breach “or disclosure” which was the result of the business’s failure to comply with the proposed law’s “duty to implement and maintain reasonable security procedures and practices appropriate to the nature of the information.”

A consumer may seek statutory damages of $100 to $750 “per incident” or actual damages (whichever is greater), and civil penalties of not more than $2,500 per violation or $7,500 for each intentional violation.

The legislation would become effective Jan. 1, 2021, and the attorney general is tasked with rulemaking.

If your organization was planning on submitting a comment to the Consumer Financial Protection Bureau’s (CFPB) Supplemental Notice of Proposed Rulemaking (SNRPM) for time-barred debts, it’s time to set your calendars. The SNPRM is set to be published in the Federal Register tomorrow, March 2, which means the clock for the comment deadline—set to expire 60 days after publication—is ticking. 

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The 60-day mark falls on May 2, which is a Saturday so it is likely that the due date will be the following Monday or the Friday immediately prior. In the current version, there is still a placeholder on the due date, but that might be updated tomorrow when the actual text of the Federal Register notice—rather than just the PDF—is published.

The SNPRM proposes to govern how debt collectors proceed with accounts where the debt is beyond the applicable statute of limitations for a creditor to sue the consumer to recover.

insideARM Perspective

On its face, the rule attempts to take certain time-barred debt requirements from a couple of states and make them applicable nation-wide. There are several good points made by the CFPB, the most important of which is that consumers don’t understand the concept of an account being time-barred nor the consequences of making a payment on such account unless such information is disclosed to them.

When digging deeper into the proposal, certain issues arise. For example:

• Consumers might be confused by “double disclosures,” which the SNPRM requires if the applicable state has a verbatim time-barred debt disclosure it requires debt collectors to follow. It would be better if there was an exception to the SNPRM rules—at least as it relates to the script of the disclosure—for accounts in states where a verbatim disclosure is already provided by law.
• The SNPRM conflicts with certain state laws, making the collection of time-barred debts nearly impossible as a practical matter in those states. The SNPRM requires that any state-specific disclosure be placed on the reverse side of the letter, whereas some states require that their time-barred debt disclosure appears on the front of the letter.
• The SNPRM attempts to help alleviate the complexity of determining when a debt becomes time-barred by implementing a “knows or should know” standard for the debt collector. This is an improvement from strict liability; however, without narrowing down what “should know” means, the issue will be left for courts to decide through the endless litigation that is likely to occur.
• There is concern about the CFPB exceeding its scope of authority in the SNPRM.

These are all things that should be taken into consideration and commented on by anyone in the industry who might be impacted by the rules.

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.  Well, this is about as big a district court ruling in the text message space you’re ever going to see.

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Twilio—the seemingly ubiquitous supplier of mass text aggregation services—has just earned a profoundly-important summary judgment ruling determining that its services do not qualify as an ATDS under the TCPA. While Twilio has been fighting for years to extract itself from TCPA cases by arguing that it cannot be held liable for texts sent by its customers using its platform, this latest ruling may be even better for it (and its customers) given the substantive nature of the ruling.

The case is Northrup v. Innovative Health Ins. Partners, LLC, Case No: 8:17-cv-1890-T-36JSS, 2020 U.S. Dist. LEXIS 31851 (M.D. Fl. Feb. 25, 2020) and it’s a doozy for a couple of reasons. First, as already mentioned, the case represents the first time Twilio’s platform has been found affirmatively to NOT be an ATDS and on an evidentiary basis. That is hugely important because a massive number of blast texts are sent via the Twilio platform nationwide. These texts—at least in the eyes of the Northrup court—are not subject to the TCPA.

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Second, and more basically, Northrup is the first Court in the country to grant summary judgment to a Defendant following the Eleventh Circuit’s big Glasser ruling. In Glasser, of course, the Eleventh Circuit Court of appeal determined that a dialer is only an ATDS if it randomly or sequentially generates numbers to be dialed. The evidence in Northrup demonstrated that Twilio’s platform lacked that capability. So summary judgment was granted to the defense.

Third, the Northrup court also offered a very favorable (for Defendants) take on human intervention. The Court concluded that the human intervention needed to create a text campaign was sufficient to remove the platform from the TCPA. Thus, electing what numbers to text and determining the content to be sent to those numbers was plenty for the Court to treat the texts as manually transmitted. This is true although there was no meaningful intervention at the time of dial. As the Court put it: Plaintiff’s emphasis on the fact that instances of human intervention occurred before the devices dialed is not persuasive.”

Northrup is classically the sort of ruling that would have been unlikely—if nor unimaginable—in the MD Fl prior to Glasser. But with Glasser in hand, TCPA Defendants are now waging battle with a Voltron-esque flaming sword. We’ll keep an eye on these cases as they continue to pour in.

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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.

COPLEY, Ohio — DebtNext Software, a hosted recovery management software provider, welcomes Katie Greathouse as its new Client Success and Operations Director. In her new role, Katie will look to continually improve internal processes and workflows to streamline support and project communications with clients. She will join DebtNext in its Northeast Ohio headquarters located in Copley, Ohio. 

Katie brings over 15 years of operations and management experience within the Collections Industry. For the past decade Katie has worked in various managerial roles at a leading collections law firm. With this background, Katie can review all levels of processes to find and create efficiencies and standardization. She is a proven leader and has won awards for her work in developing, testing and implementing interfaces and new strategies. Her education background includes an Associate of Applied Business with a specialization in Software Development.

“We’re very excited to have Katie joining our team as a leader in helping us continue to grow as an organization and develop new ways to support our clients’ needs” said Paul Goske, President of DebtNext Software. “Katie is a natural problem solver and brings a unique skill set which will help us on our path of growth into new markets as well as support our current client base.”  

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About DebtNext Software 

DebtNext Software has been delivering robust solutions for their clients’ recovery management needs since its founding in 2003. They utilize 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. Their industry-leading Platform, dPlat, is currently used by some of the nation’s largest utility, telecommunications, financial services and accounts receivable management firms to fully illuminate their recovery management processes. Visit www.debtnext.com for more information.

This article, authored by Joann Needleman and Ann Lemmo, originally appeared as an Alert on ClarkHill.com, and is republished here with permission.

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Last Friday, the Consumer Financial Protection Bureau (CFPB or Bureau) released its Supplemental Notice of Proposed Rulemaking (SNPR) for time-barred debt disclosures. The CFPB seeks to amend Regulation F, specifically §§ 1006.26 and 1006.34, which implements the Fair Debt Collection Practices Act (FDCPA) and requires debt collectors to make certain disclosures when collecting on time-barred debts. The CFPB published its Notice of Proposed Rulemaking (NPR) for Debt Collection on May 21, 2019, and that comment period has closed. The comment period for the SNPR is sixty days from publication in the federal registrar. As of the date of this alert, the SNPR has not been published.

The optics of time-barred debt have never been overly positive. Unfortunately, instances of consumers being harassed about debts that are sometimes decades old are frequently reported. Older debt can sometimes lack substantiation and proof that it is owed by the correct person for the right amount and for this reason it poses risk to consumers. However, as the CFPB admits in its analysis in support of the SNPR, while the size of the market for the collection of time-barred debts is unknown, it certainly is not the majority of collected delinquent debt. While the CFPB seeks to put forth proposals that are well-intended to address the problem of older debt and potential consumer harm, the proposals ultimately accomplish this goal by doing an end-around many state laws and rules of civil procedure.

What the CFPB is Proposing 

The proposals would require that a debt collector who “knows or should know” that a debt is time barred to clearly and conspicuously disclose in an initial communication, or in a validation notice under §1692g, “(i) [t]hat the law limits how long the consumer can be sued for a debt and that, because of the age of the debt, the debt collector will not sue the consumer to collect it; and (ii) [i]f, under applicable law, the debt collector’s right to bring a legal action against the consumer can be revived, the fact that revival can occur and the circumstances in which it can occur.” (§ 1006.26(c)(1)). This disclosure can be made orally or in writing and if required, must be placed on the front of the validation notice. 

The Bureau also addresses the timing of the disclosure to account for instances when the debt may become time barred during the collection process or in instances when the debt collector discovers that the debt is time barred.

The SNPR revises the model validation notice proposed last year by adding model language to reflect additional scenarios of a time-barred debt and differing state laws regarding consumer conduct that could revive a time-barred debt. The Model Forms cover the following scenarios:

1. Model Form B-4: Used when a debt is time barred and either the state has no law regarding revival of the debt or the debt collector will not choose to revive the debt even if a payment is made
2. Model Form B-5: Used if state law allows revival of a debt when the consumer acknowledges in writing that he/she owes the debt or makes a payment on the debt
3. Model Form B-6: Used if state law allows revival of the debt when the consumer makes only a payment on the debt
4. Model Form B-7: Used if state law allows revival of the debt when the consumer acknowledges in writing that he/she owes the debt.

Use of the Model Forms in a validation notice or use of its relevant content in any other required communication acts as a safe harbor for the debt collector.

Issues to look out for: 

1. Proving “know or should know”

Although the FDCPA is a strict liability statute, the CFPB recognizes that determining whether a debt is time barred is not an exact science. For this reason, the Bureau in both the NPR and in the SNPR lowered the standard upon a debt collector to “know or should know” that a debt is time barred when sending appropriate disclosures. The problem arises when it is learned at a subsequent time that the debt is in fact time barred and previous communications did not include a disclosure. This is when a debt collector’s knowledge will ultimately become a question of fact. Therefore, debt collectors may need to do a deeper dive into due diligence and develop new methods of documenting their knowledge (or lack thereof) about the status of the debt. Will it be enough to rely on the creditor for this information? Debt collectors will need to not only keep track of the age of the debt and any prior placements but also whether the creditor or a prior debt collector was ever aware of the debt’s status as this may be relevant in determining the debt collector’s “should have known” status. 

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2. Timing

The SNPR provides that if the debt collector subsequently learns that the debt became time barred either after an initial communication is made or after a validation notice is sent, then the debt collector “must provide disclosures… in the debt collector’s first communication, if any, with the consumer on or after the date on which the debt collector knows or should know that the debt became time barred.” (§ 1006.26(c)(i-ii)). Yet the SNPR is silent regarding when this next communication should occur. What if the consumer sends in the payment before that communication? What if the debt collector does not plan to contact the consumer for several days or weeks? A collector’s policies and procedures may certainly come into question if a consumer learns that the debt became time barred and yet they heard nothing further from the debt collector.

3. Oral disclosures

Although time-barred debt disclosures can be provided orally, doing so will only invite a conversation about a consumer’s legal rights. Inevitably, that discussion will result in a consumer having more questions that could lead to seeking legal advice from the debt collector. While a collector will do their best to field these follow-up questions and provide agents with the appropriate training, any response, even a proper response, could lead to the consumer’s further confusion. Debt collectors will inevitably be the ones tasked with explaining the ramifications of time-barred debt beyond the disclosure language provided in the SNPR.

4. Reconciling State Law Requirements

Several states already require the exact SNPR proposed language. However, there are some instances where the language may be slightly different. A consumer will, therefore, be faced with somewhat repetitive disclosures in the same validation notice or communication.

Furthermore, the CFPB requires that its disclosures be placed on the front of a communication or validation notice. However, some states also require these same disclosures to be placed on the front of communication as well. In the instance of a validation notice, the real estate on the page is limited. What is a debt collector to do and which requirement will take precedence?

Can the right to file a lawsuit be taken away outside a courtroom?

In many states, the statute of limitations is a procedural rule and a defense to a claim that a debt is time barred. The statute of limitations must be raised as an affirmative defense, otherwise, the defense is waived. Thus, the CFPB’s disclosures state that “the law limits how long a consumer can be sued for a debt” is technically, and more importantly, not legally accurate. Undeniably, some cases hold that maintaining a lawsuit that was time-barred is an unfair and deceptive act within the meaning of the FDCPA. However, denying the right to proceed with a claim and file the suit is not within the province of the CFPB. The text of the FDCPA states nothing of the kind. It will be up to the industry to decide whether to fight this battle. However, given that these rules will impede a creditor’s ability to enforce their legal rights, expect those rights to be enforced at a much faster rate and certainly before the expiration of the applicable statute of limitations.

Clark Hill’s Consumer Financial Services Regulatory and Compliance Practice Group can help you navigate this rapidly evolving regulatory environment by providing technical guidance, policy advice and strategic outreach to relevant stakeholders as well as governmental agencies who oversee the financial services industry. Our exceptional team of lawyers and government and regulatory advisors has extensive experience in – and an in-depth understanding of – the laws and regulations governing financial products and services.

Please contact Joann Needleman for further information.