The clash between the Third Circuit and just about every other jurisdiction regarding whether or not there is a written requirement for all disputes made under section 1692g of the Fair Debt Collection Practices Act (FDCPA) continues.

In Goodman v. Mercantile Adjustment Bureau, LLC, No. 18-cv-04488 (E.D.N.Y. Feb. 19, 2019), plaintiff argued that the debt collector’s letter would lead a least sophisticated consumer to believe that disputes must be in writing. In other words, the exact opposite of what is being argued within the Third Circuit. Read on to see how this one played out.

Background

Mercantile Adjustment Bureau, LLC, the defendant in this case, sent a collection letter to plaintiff Mindy Goodman that mirrored the validation notice language of the FDCPA. In the top right corner, the letter listed an address block that looked like this:

165 Lawrence Bell Drive, Suite 100
Williamsville, NY 14421-7900
1-866-513-9461
Please send payment or correspondence to:
Mercantile Adjustment Bureau, LLC
PO Box 9055
Williamsville NY 14231-9055

The letter again lists Mercantile’s phone number in the body of the letter and repeats its street address and phone number at the end of the letter.

Plaintiff filed an FDCPA lawsuit against Mercantile alleging that the letter’s instructions to “sent payment and correspondence” to an address leads a least sophisticated consumer to believe that he can only dispute the debt in writing. Mercantile filed a motion to dismiss the case.

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The Court’s Decision

The court, thoroughly unpersuaded by plaintiff’s arguments, granted Mercantile’s motion to dismiss. According to the court, the etter “contains a validation notice that accurately conveys the information required by the statute and does not ‘overshadow or contradict’ that notice simply by providing consumers an address for them to send ‘payments and correspondence.’”

Plaintiff fell flat with her argument that the limitation in the address box leads to confusion. Reviewing the letter, the court read the limitation simply as a means to communicate Mercantile’s preference that written correspondence be mailed to the P.O. Box rather than the street address.

Plaintiff argued that the phone number provided refers only to payments, but the court found that this is not so. Specifically, the court stated that the phone number was provided in several prominent locations on the letter without limitation or commentary.

The court distinguished the letter from court cases cited by plaintiff. In the cited cases, the court noticed that the request for written correspondence was found in the same section as the validation notice, which could lead the a consumer to think that all disputes must be in writing mailed to that address. However, the validation notice in Mercantile’s letter is in a completely different section than the address box. The body of the letter also contains two references to mercantile’s phone number. Because of this, the court found that the letter more closely resembles cases that found no overshadowing.

Plaintiff attempted to change her position midway through her opposition brief, which did not impress the court. Instead, the court ponders that this might have been due to “recognizing the weakness of her argument.” In the opposition brief, plaintiff attempts to argue that the letter overemphasizes the consumer’s rights to dispute the debt by phone, thus making the least sophisticated consumer believe that they can obtain validation of debt by lodging an oral dispute. The court dismissed this argument since the validation notice language explicitly states that to receive validation of debt, the consumer must send the request in writing to the debt collector.

The court went on to address the circuit split on the issue. Even though the Eastern District of New York falls into the Second Circuit, plaintiff attempted to cite several Third Circuit cases. The court responded:

[T]hose cases are entirely irrelevant, as the Third Circuit disagrees with [the Second Circuit case] Hooks and has read a ‘writing’ requirement into all dispute-related provisions of section 1692g.

insideARM Perspective

The case law on this issue is all over the place. The Third Circuit requires that all disputes under 1692g be in writing. As illustrated above, other circuits disagree. Within the Third Circuit, the Eastern District of Pennsylvania and the District of New Jersey cannot seem to agree about whether or not an almost identical letter confuses a consumer about dispute procedure. 

Thankfully there is currently a pending petition for the United States Supreme Court to review the issue and hopefully provide uniformity to validation notice requirements.

Last week, the Federal Communications Commission (FCC) released its first report on illegal robocalls, which outlines what the FCC have been working on to fight this issue. Here are some highlights from the report.

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1. Robocall Regulations

The report outlines the different laws and regulations that help the FCC regulate robocalls, including the Telephone Consumer Protection Act (TCPA), Truth in Caller ID Act, and Do Not Call Implementation Act. The report also adds a side note that other industry-specific laws might apply, specifically calling out the Fair Debt Collection Practices Act (FDCPA).

2. Volume of Robocalls Continues to Increase, As Does Volume of Complaints

The volume of robocalls continues to increase, according to the report, but the data lumps together both legal robocalls made by legitimate businesses trying to communicate with their customers and illegal robocalls made by scammers. The FCC recognizes that legitimate business do try to make calls to their consumers in compliance with the TCPA, but that the framework created by legitimate businesses to place high volumes of calls to their customers also provides a ripe environment for scammers to take advantage of the situation.

The report notes a fluctuating, but generally increasing, amount of complaints made about robocalls. This is due to a number of factors according to the FCC, including an increase in robocalls, outreach to consumers about how to file complaints, and consumers filing complaints against legal, legitimate calls.

3. Caller ID Authentication

One initiative that the report mentions is actively being pursued is Caller ID Authentication. In other words, confirming that the call received by the consumer is actually coming from the number displayed. The FCC’s Chariman Ajit Pai called on voice service providers to “adopt a robust call authentication system and launch that system no later than 2019.” Comments to Chairman Pai’s request confirmed affirmed providers’ commitment to this cause.

4. Enforcement Initiatives

Between 2010 and 2018, the FCC imposed monetary forfeitures of almost $246,000,000 through enforcement actions. These enforcement actions were brought against purported violates of the TCPA and the Truth in Caller ID Act.

5. Challenges Facing the FCC

The report lists several challenges that the FCC is facing in its efforts to combat illegal robocalls. These include:

• Many illegal robocalls seem to originate in foreign countries.
• These calls appear to be coming from VoiP providers, many of whom do not update the FCC nor keep accurate records of all calls made across their networks
• The 1 year statute of limitations for TCPA actions makes it difficult for the FCC to complete complex investigations into the issue.
• Notice via citation requirements that the FCC must follow prior to a forfeiture proceeding give time for offenders to incorporate under a new name and evade the issue.

insideARM Perspective

One very interesting comment made in this report states:

When their phone rings, consumers may not have enough information to tell whether the call is wanted, unwanted, or illegal. The phone may display Caller ID and possibly a label from their voice service provider or a third-party application.  But Caller ID may be spoofed or blocked, and labelers may not have complete information about the calling party. Currently, the only certain way to determine whether a call is wanted or unwanted is to answer it or let it go to voicemail, and hope the caller leaves a message.

(Emphasis added).

The FDCPA, as well as case law that interprets the statute, lays out many restrictions about what a debt collector can and cannot say when communicating with consumers. The debt collector generally may not reveal information about the account to third parties, which causes an awkward authentication dance in the beginning of phone calls. The two most recent editions of iA’s Video Series discuss this exact issue (here are links to Part 1 and Part 2). Voicemails go a step further: debt collectors have prescribed scripts they need to use in order to leave voicemails that do not trigger an onslaught of litigation. The scripts are somewhat vague and, quite frankly, would make it difficult for a consumer to determine whether the voicemail came from a legitimate business.

When a consumer receives a call from a debt collector using a number unknown to the consumer, the report states that the consumer has two choices to determine whether the call is legitimate: answer the call (which only happens 52% of the time) or wait for a voicemail. The voicemail, as discussed above, will sound weird, decreasing the odds of the consumer calling back.

This illustrates what we at insideARM have been stating for a while: debt collectors are left in the dust.

Last week I described the awkward authentication dance that consumers and debt collectors must endure before a collector can reveal the purpose of his call. This dance is required because the FDCPA prohibits a collector from communicating with a third party about a consumer’s debt.  Because of technology advancements and, unfortunately, the growth of scams, the current way this prohibition is interpreted has become more and more problematic for all parties.

Can this really be as difficult as it appears to be? In today’s video, I share a perfect illustration in the form of a real life scenario described by a commenter on a recent insideARM article. I also describe a solution to the problem, which the Consumer Relations Consortium proposed to the CFPB last November. We are all looking forward to the long-awaited Notice of Proposed Rulemaking from the CFPB (expected sometime in the next couple of months) to see whether this — and other challenges that have been raised by industry over the last five years — will be addressed.

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In Francisco v. Midland Funding, No. 17 C 6872, 2019 U.S. Dist. LEXIS 20601, at *2 (N.D. Ill. Feb. 8, 2019), the plaintiff sued Midland Funding LLC and Midland Credit Management, Inc. (“MCM”) under the Fair Debt Collection Practices Act (“FDCPA”) for the failure to promptly report the plaintiff’s account as “disputed” to credit bureaus. The FDCPA prohibits debt collectors from “[c]ommunicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.” 15 U.S.C. § 1692e(8) (emphasis added).

MCM services millions of debt accounts and prepares reports of account disputes in bi-weekly batches. The evidence presented by MCM reflected that it had a practice of compiling batches of disputed debts every other Monday and reporting such disputed debts to the credit bureaus every other Friday. Unfortunately for MCM, the plaintiff submitted a dispute letter to MCM on Tuesday, August 22, 2017, but MCM did not report her debt as disputed to the credit bureaus until Friday, September 8, 2017. In the interim, MCM continued to report to the credit bureaus that the plaintiff owed a debt, but did not report that it was disputed.

Citing to 15 U.S.C. § 1681i(a)(1)(A), MCM argued that it complied with the FCRA, which gives credit reporting agencies up to thirty days to investigate disputes, and thus, should not be held liable for an FDCPA violation, having reported the plaintiff’s debt as delinquent within FCRA’s 30 day investigatory period. The US District Court was not persuaded. Citing Seventh Circuit precedent from Evans v. Portfolio Recovery Assocs., 889 F.3d 337, 348 (7th Cir. 2018), the Court held that FCRA does not excuse the obligation to promptly report a disputed debt under the FDCPA stating that “taking time to investigate a dispute [under FCRA] does not give a debt collector license to send a false report while the investigation is underway.”  Thus, the Court found that MCM had violated the FCDPA.

While that finding is troubling, the Court concluded that the plaintiff had not demonstrated actual damages for the three week delay in reporting her debt as disputed. Nonetheless, it concluded that the plaintiff could still recover statutory damages for the FDCPA violation.

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Editor’s note: This article is provided through a partnership between insideARM and Womble Bond Dickinson. WBD provides a steady stream of their timely, insightful and entertaining take on this ever-evolving, never-a-dull-moment topic. WBD – and all insideARM articles – are protected by copyright. All rights are reserved.

There have been several developments in the Department of Education’s (ED or Department) NextGen saga in recent weeks. Here’s what’s happened:

I last wrote about this in mid-January, when ED released a “re-do” of its solicitation for business process services under its ambitious NextGen project.

[Editor’s Note: If you need to catch up on how we got to the point of the re-do, this article has a great recap.]

Reaction to the new solicitation was mixed. Some were impressed with the obvious thought behind the multi-part RFPs. Some suggested the Department must have been assisted by the bidder most likely to receive the massive contract. As for those in the private debt collection community, the new version raised serious questions.

Federal Student Aid (FSA) wants the full life cycle of servicing to occur under its own brand. The Debt Collection Improvement Act of 1996, however, requires Federal agencies to “REFER” debts to private collection agencies and the costs to be paid from the proceeds of collection. This makes it budget neutral. FSA must necessarily change appropriation process in a highly volatile 116^th Congress with little bi-partisan support for certain key issues such as education.

Other questions include:

• How will FSA address the “bundling” issue, where PCA work is being bundled with servicing? Office of Management and Budget (OMB) Circular A-129 describes two separate regimes for loan servicing and debt collection, and FSA senior officials have already stated multiple times in the last two years via affidavits in Court that Servicing and Collections are separate and distinct.
• Bundling loan servicing and default collection services creates an internal conflict of interest for any awardee because there is a perverse incentive to shift work to that service which provides the highest compensation structure. Evidently this did not work in the old Guaranty Agency days under the FFEL program.

Meanwhile, as a result of its issuing a new solicitation, ED motioned the Court of Federal Claims to dismiss the case of Navient Solutions, LLC et al. v. The United States. On February 7, Continental Service Group, Inc. (ConServe) filed a brief opposing the motion, and shortly thereafter FMS Investment Corp. (FMS) filed a motion for leave to file a supplemental complaint. Both are private debt collectors (you’ll recognize them from the recap), and claim that the revised solicitation improperly bundles servicing and default collection services. 

Nonetheless, ED’s motion was granted on February 12, 2019; the consolidated cases (Nos. 18-1679 C, 18-1758 C, 18-1786 C, 18-1813 C, 18-1824 C, 18-1852 C and 18-1853 C) were dismissed without prejudice.

[Editor’s note: Dismissal without prejudice means that the plaintiff is free to re-file a case against the defendant based on the same claim.] 

Judge Wheeler told the parties that if they wish to protest the new solicitation, the Court would open a fresh docket to address the complaints.

If you read the recap of how we got here, you’ll note that I’ve dubbed the dismissed Navient case “Chapter 5” in this story that began five years ago. I typically end chapters upon dismissal of a case, and begin new chapters upon the filing of new litigation and assignment of a new docket. At the moment we’re lingering, waiting for a new chapter to begin. Meanwhile, the Court held a status conference last Friday afternoon, just before the holiday weekend. Sources tell insideARM that Judge Wheeler expressed continued frustration with the situation; he said he wished ED would mediate the matter with the contractors, but unfortunately they have not expressed a willingness to do so. Sources also tell insideARM that new lawsuits will likely be filed this week.

Against this backdrop, last week the U.S. Department of Education Office of Inspector General (OIG) released its latest audit report evaluating the performance of FSA’s oversight of servicers. The OIG report highlighted two major Findings:

First – FSA did not track all identified instances of noncompliance and rarely held servicers accountable for noncompliance with requirements.

Further, FSA did not track all information necessary to identify trends in servicer noncompliance with federal requirements. OIG found that about 61 percent of the documents analyzed disclosed instances of noncompliance related to forbearances, deferments, income-driven repayment, interest rates, due diligence, and consumer protection. Primarily, servicer representatives didn’t always inform borrowers of the available repayment options, and incorrectly calculated income-driven payment amounts. OIG also found that noncompliance rates, and FSA’s documentation of these instances, differed significantly among servicers (see tables 1 and 2 below).

While the tables above represents FSA’s failure to document servicing errors, OIG’s report notes that the rate of servicing errors themselves were actually much higher, including 9.2% for Navient and 24.2% for PHEAA. PHEAA had been chosen to proceed from Phase 1 to Phase 2 of the now cancelled first round of the NextGen solicitation for business processing services.

Second – FSA did not always collect information necessary to evaluate servicer interaction with borrowers.

OIG’s audit found that in 8.2% of instances audited, FSA employees didn’t follow procedure by completing a scoresheet for monitored calls. In other instances, FSA’s system wasn’t sufficient to identify call sheets that were not completed properly. OIG also found that, from June 2016 through March 2017, FSA didn’t communicate the results of its call monitoring activity to servicers. FSA said this was because they were revising the report format.

FSA neither agreed nor disagreed with the findings but agreed with OIG’s recommendations for improvement and says it has already implemented new quality control measures – including a QA process for the QA process.

insideARM Perspective

ED has signaled that it would prefer not to contract directly with private debt collection companies. It prefers to use a smaller number of large servicers to handle the whole cycle of student loan servicing and collection. The OIG’s report, and lawsuits filed by state and federal regulators, would suggest that not all of these servicers are perfect at the job either.

Turns out, it’s an incredibly complex job with a seemingly endless number of processes requiring lots of manual handling by thousands of human beings. In this New York Times article Navient CEO John F. Remondi said “[California’s suit] is another attempt to blame a single servicer for the failures of the higher education system and the federal student loan program to deliver desired outcomes.”

It’s not my place to let anyone off the hook for servicing failures. I will, however, imagine for just a moment what might transpire during a phone call between a borrower and a call center employee at a servicer or debt collector, and how it could be possible that all options may not be presented. First, let’s assume it’s a tense call. The borrower is not happy to be having the conversation at all. And, they’ve likely had to jump through some hoops to prove they are the person they claim to be before the conversation could begin at all.

Now, the servicer/collector asks a bunch of seemingly intrusive questions about the borrower’s finances. They get into a discussion of pretty complex topics that aren’t black & white, and aren’t terribly simple to explain/understand. Is it possible that conversations like this get derailed by frustration, lack of understanding, interruptions by children or employer, a quick decision to pursue the first option and get off the phone, or any number of other circumstances? Would this set of events cause an auditor to have to check the box “no,” all options weren’t explained? 

I get that some servicers had more failures than others, so clearly there is more going on than what I’ve imagined. But let’s acknowledge for a moment that maybe the process is so incredibly complicated that some amount of failure is inevitable. I’d focus at least as much on root cause as I would on QA-ing the QA people.

A major issue has been brewing for more than a year among data furnishers and credit bureaus regarding a practice that is sometimes known as “pay for deletion.” This is where a debt collector will tell a consumer that, in exchange for payment, they will delete the tradeline from the consumer’s credit report. This practice is expressly against the rules set out by the Consumer Data Industry Association (CDIA) guidelines, and some argue that it undermines the credit system.

insideARM received a copy of a letter sent September 5, 2018 by Kevin Stevenson, the President and CEO of PRA Group, Inc., to the leaders of Transunion, Equifax, Experian, CDIA, and federal regulators including the Board of Governors of the Federal Reserve, CFPB, OCC, and FTC. The letter provides an interesting history of the matter.

Stevenson outlines the problem:

“Our debt buying competitors are deleting tradelines from the Credit Bureaus upon payment or settlement in full. As you are likely aware, this is a clear violation of the Metro 2 standard.

For your reference, Encore Capital announced this policy over a year ago. 

We respect the integrity of the credit bureau data as well as our contractual agreement to abide by the Metro 2 format. 

Please understand that when these tradelines are deleted by debt buyers there is NO record anywhere of that charged off account, as all sellers, except for one, delete the tradeline upon sale.” 

He argues that the lack of response to his considerable outreach on this issue has put his firm at a competitive disadvantage because consumers regularly become frustrated and note that others offer the “delete for payment” benefit. He also suggests that the failure of the Bureaus to enforce the CDIA policy is creating a “data integrity issue that may prove extremely harmful to parties who rely on such information in making lending decisions.”

Stevenson concludes,

“We now are forced to assume that you do not agree with us that the Pay for Deletion practice is a systemic risk to the financial system by corrupting the integrity of your credit reporting data. Therefore, PRA will adopt a Pay for Deletion policy, effective October 1, 2018. Upon adoption, our new policy will result in just under 3 million tradelines being deleted from the Bureau’s systems immediately, and millions more as the years go by.”

Indeed, the company did begin this practice late last year. On January 15, 2019, insideARM noticed a “pop-up” FAQ on the PRA website, highlighting that it will now request the deletion of tradelines for accounts that are resolved. That pop-up no longer appears on the website, but here is a screenshot of what we noticed:

The landing page which provided further details also appears to have been removed from the website (at least I couldn’t find it), but here is a screenshot of what we saw in January:

The FAQ says that PRA will request that credit bureaus delete their tradeline approximately 30 days after a consumer’s final payment. The company also notes, “We do not control the timing within which the credit reporting agencies process our requests. For further assistance pertaining to your credit report, please contact the credit reporting agencies.”

As for the Encore policy, here is a direct link to their January 10, 2017 press release (it was hard~ish to find, as it’s no longer referenced on their Newsroom page), which begins:

Encore Capital Group, Inc. (NASDAQ: ECPG), an international specialty finance company, today announced it has enhanced its credit reporting policy for collections tradelines, dramatically shortening the time certain negative information remains on a consumer’s credit report. Now, after only two years, rather than the current industry-standard seven-year period, all of Encore’s U.S. subsidiaries (Midland Credit Management, Midland Funding, Asset Acceptance, Atlantic Credit & Finance) will remove credit report tradelines (the payment history of a consumer’s credit account provided to the major credit reporting agencies) on accounts where the consumer has paid or otherwise settled their debt. Encore is the first debt recovery solutions company to adopt such a consumer-centric policy. This policy change is important for consumers seeking to re-establish their financial independence after working hard to pay off a debt.

Two consumer groups provided positive comment for the release about the policy and how it helps consumers to earn a second chance:

“Encore’s tradeline policy change is a huge benefit for consumers who have stepped up to pay off their debt obligations,” said Steve Rhode, consumer advocate and author of GetOutofDebt.org. “I know personally how important this can be to those who are trying to earn a second chance.”

“Many times people find themselves in a position to bounce back from financial setbacks, but there remain hurdles like the standard tradeline policy that hinder recovery,” said John Fisher, chief relationship officer of Money Management International, a nonprofit, full-service credit counseling agency. “With this decision, Encore is helping remove a barrier for people working hard to make progress in their financial lives.”

I gathered input for this article from Debb Gordon, Ph.D. She was formally the CFPB Program Manager for Markets for Credit Reporting, Scoring, Big Data and Alternative Data. She also is a statistician, and worked at FICO for 9 years. She offered the following thoughts on the consumer advocates’ perspective:

“It may be true that the deletion enables a consumer to have a second chance, however, because many of the credit issues consumers encounter are derived from job loss or medical issues, they are not in a viable position to graduate from a credit score that reached sub-prime to a score that was artificially generated by the deletion to be Prime or Super Prime. 

This creates significant issues for the credit economy in general. When a financial institution validates their credit scores, this will place two very different credit-worthy individuals in the same score band. The ability to offer prime rates and terms to one client who can well afford the credit will be negatively impacted as the probability of reoccurrence of default or minor and major derogatories will occur for the other consumer due to the deletion.  There would be no way to distinguish one consumer from the other.

The lack of credit score validation will drive approval rates up and the benefitted consumer would soon find they were not credit worthy any longer. This will make the credit market tighter and will have a significant effect on the housing market, auto sales and credit card availability, rates and limits. In the long term, this will create a recession. The short term idea of a win-win will actually turn into a long term lose – lose scenario.”

The iA Perspective

On the promise of anonymity, I spoke with some credit bureau insiders. One individual mentioned that Encore/Midland’s policy is to delete paid tradelines two years after the first date of delinquency. I wonder how that is explained to the consumer. I suspect if we’re talking about purchased debt, it’s possible that two years has typically already elapsed by the time the organization receives a final payment. But still, it could be pretty confusing, and difficult to set expectations about when the deletion will happen.

Another practice I heard about is that some debt buyers’ policy is to not report newly purchased accounts to the credit bureaus for 120 days. This allows them to attempt to collect first, and to tell consumers there is a window during which they can pay, and the account won’t be reported.

Reacting to this, Gordon said, “If the debt buyer does not report to the credit bureaus, then the original tradeline MUST remain on the consumer’s record. The offer to the consumer can also be determined to be extortion and will violate the UDAAP statute. This is a threat to the consumer to pay.” 

A third point worth making highlights a discrepancy between a claim made by PRA’s CEO and what may actually be happening. Stevenson said in his letter that “…all sellers, except for one, delete the tradeline upon sale.” I was told by one of those insiders that a majority of major issuers in fact leave their charge-off trade line on the credit file with a remark code of “SOLD.” While I don’t have data to support this, the latter practice certainly makes more sense to me, as it is an accurate reflection of what happened with the account.

Gordon said that many of the issuers will delete their tradeline once the sale is complete. The debt buyer is required by Metro 2 to list the originator so the consumer can identify the origin of the debt.  

Finally, it was conveyed to me that credit bureaus have a responsibility to review and execute any complete/accurate requests for tradeline updates; their mission is to create an environment where the consumer’s file is as complete and accurate as possible. They could threaten to exclude a furnisher for violations like Pay for Delete, but then they would also likely be excluding millions of tradelines that are not ultimately deleted (evidently, the lion’s share of purchased accounts). This would cause greater credit report inaccuracy than deleting the delinquent but ultimately paid tradelines. So, they claim they don’t really have the teeth required to enforce all of the CDIA’s guidelines.

What does the Fair Credit Reporting Act (FCRA) say about this? The law says creditors who furnish information about consumers to consumer reporting agencies must:

• Provide accurate information, which includes the duties to:
• correct and update information;
• provide notice of dispute or closed accounts;
• provide notice of delinquency of accounts; and
• provide notice of identity theft-related information
• Inform consumers about negative information which will be or already has been furnished to a reporting agency (no later than 30 days after furnishing).
• Investigate certain disputes submitted directly by consumers.

According to Gordon, it is clear that deletion only pertains to disputes or fraud. Deleting the tradeline in full should only occur in a case of identity theft and/or fraud. She referenced Metro 2, page 2-7: (Note: Paid in full collection accounts must not be deleted.) 

Finally, Debb Gordon offered this comment,

“I spoke with PRA Group previously and they delayed ‘pay for deletion’ as long as they could and still stay competitive in their market. If the CFPB, FTC, or the Federal Reserve is not monitoring or issuing consent orders on this topic, they needed to match Encore’s behavior to stay competitive.

This problem has a wholesale effect on the entire credit score-based industry that will result in tightening credit across the board. As financial institutions realize that a score does not mean what they thought (due to poor credit individuals’ tradelines being cleansed from the credit bureaus), they will need to increase reserves, increase CECL calculations and restrict credit to meet their regulatory requirements to lend. This will ultimately show up in the model risk management validations going forward, and will also have a direct effect on Fannie Mae, Freddie Mac, and Sallie Mae credit models. Ultimately, this could result in a widespread recession similar to that of 2008.”

The FCRA does grant the Consumer Financial Protection Bureau (CFPB) both enforcement and rulemaking authority in connection with those it supervises, which would include debt buyers and debt collectors, and many — but not all — data furnishers. So the CFPB could address this policy if it chose to. 

Download the accompanying whitepaper: On the Horizon? Delete-for-Pay Lawsuits

On February 12, Sen. David Perdue (R-GA), a member of the Senate Banking Committee, introduced Senate Bill 453, also known as the CFPB Accountability Act of 2019. According to the text of the bill, it would amend the Consumer Financial Protection Act of 2010 to subject the Consumer Financial Protection Bureau (CFPB) to the regular appropriations process.

A press release issued the same day that the newest bill was introduced, Sen. Perdue stated:

Dodd-Frank gave the CFPB unprecedented power with no Congressional oversight. Despite the new Director’s efforts to bring transparency to the Bureau, its structure is still completely unconstitutional. The American people deserve a closer look at the CFPB to understand how its actions will impact consumers.

The bill is co-sponsored by seventeen republican senators.

Sen. Perdue has introduced a similar bill in the past. In 2015, Sen. Perdue introduced S. 1383 (114^th Congress). In 2016, Sen. Perdue sponsored S. 3318 (114^th Congress). Both bills were likewise titled as the Consumer Financial Protection Bureau Accountability Act, the only difference in the titles was the year. The House of Representatives saw a similar bill in 2015 in H.R. 1261 (114^th Congress), sponsored by Rep. Sean Duffy (R-WI).

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insideARM Perspective

The CFPB not being subject to Congress’ power of the purse is one of the two main arguments over the past year or so in court cases arguing that the structure of the CFPB is unconstitutional. Three main cases come to mind.

1. The argument was first introduced in PHH Corp. v. Consumer Financial Protection Bureau, which founds its way through the D.C. Circuit Court of Appeals. At the en banc review phase, ultimate the D.C. Circuit found the structure of the CPFB is constitutional in January 2018.
2. In September 2018, a petition for writ of certiorari – a request for the U.S. Supreme Court to hear the case – was filed in State National Bank of Big Spring v. Mnuchin. The Supreme Court denied that petition on January 14 of this year.
3. A similar case, CFPB v. RD Legal Funding, has been brewing in New York. The district court found that the Bureau’s structure is unconstitutional. The CFPB appealed to the Second Circuit, where the case is still pending.

While the issue seems stalled in the court system, Sen. Perdue continues his efforts to challenge the CFPB’s structure – at least its appropriations – through the legislative branch. Of note, the prior two iterations of Sen. Perdue’s bill were introduced while Former Director Cordray still ran the Bureau. It seems that the change in Bureau leadership has done little to assuage Sen. Perdue’s efforts on the issue.

As I have written repeatedly, the TCPA is quite unfair to corporate officers who would usually have no liability for the acts of a corporate entity. In most tort situations, a corporate officers knowledge and participation in a company’s illegal conduct would—at most—make the corporation subject to enhanced (punitive) damages, but the corporate officer herself would suffer no personal exposure.

The TCPA is so so very different. TCPAland is full of stories of individuals facing unfair personal liability for the acts of corporate entities—often to the tune of millions in personal exposure. The most common line of cases holds that if a corporate officer “directly participated” in the illegal fax or call campaign that she may be held liable for those calls as if she made the calls herself. At $500.00 (minimum) per call those damages can add up fast—and personal liability for treble damages ($1,500.00 per call) is not unheard of.

Making matters even scarier, a Plaintiff recently sued the CEO of a medical supply company arguing that he was liable for illegal faxes sent by the company merely by virtue of his not implementing TCPA policies! In Arwa v. Med-Care Diabetic & Med. Supplies, 14 C 5602, 2019 U.S. Dist. LEXIS 22087  (N.D. Ill Feb 11, 2019) the court was asked to determine whether faxes sent to complete the process of filling orders previously placed by customers contained advertising materials as defined by the TCPA. The Court held that the faxes were not advertisements to begin with, but also paused to address the allegations against the Defendant’s CEO who was being personally pursued in the action. After determining that the corporate officer has no direct participation in the illegal conduct the Court refused to hold him liable merely because he knew the illegal conduct was ongoing.

Most importantly, however, the Court rejected the Plaintiff’s argument that the officer was liable for the faxes because he failed to implement TCPA compliance policies. The Court rejected this proposition however, noting that the case cited by Plaintiff was off point and the Arwa court would not abide the expansion of direct liability to so great an extent.

It is also notable that Arwa makes mention of City Select Auto Sales Inc. v. David Randall Assocs., Inc., 885 F.3d 154, 159-161 (3d Cir. 2018) wherein the “direct participation or authorization” standard for TCPA liability was “questioned” by the Third Circuit, which suggested that officers should rarely be held liable under the TCPA if acting in their corporate, rather than personal, capacities. As TCPAlanders know, I have been trumpeting City Select for some time and it is nice to see a district court outside of the Third Circuit take notice.

So there you have it. Stay safe TCPAland.

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Editor’s Note: This article is published on insideARM with permission from the author.

On February 7, Rep. Maxine Waters (D-CA) and Rep. Al Green (D-TX) submitted a request for documents to the Consumer Financial Protection Bureau (CFPB or Bureau) related to recent settlements the Bureau entered with certain financial services companies. This request was included in a three-page long letter to the Bureau’s Director Kathy Kraninger.

The letter opens with:

The Consumer Financial Protection Bureau (“Consumer Bureau”) has recently announced several settlements against entities for engaging in unlawful practices without requiring the payment of redress to consumers harmed by the illegal conduct. This stands in stark contrast to the Consumer Bureau’s practice under the leadership of former Director Cordray. During Director Cordray’s tenure, the Consumer Bureau recovered nearly $12 billion in relief for harmed consumers over its first six years. American consumers deserve a Consumer Bureau that will fight to recover their hard-earned money when they are cheated.

The letter goes on to outline three settlements entered into since the beginning of the year where, according to the letter, redress to consumers was missing. The three settlements include:

1. Sterling Jewelers Inc., where the company was accused of enrolling credit card customers into a payment protection plan without consent. The settlement includes a $10 million penalty payment, but does not include a refund for consumers impacted by the company’s actions.
2. Enova International, Inc., where the company was accused of debiting consumers’ bank accounts without authorization. The settlement included a $3.2 million penalty, but does not include a redress to consumers for “extract[ing] millions of dollars in unauthorized debits from consumers’ accounts.”
3. NDG Financial Corp., where the company is accused of collecting on payday loans made in violation of state law. The settlement did not require the company to provide relief to impacted consumers.

The documents requested include any communications the between the Bureau and others, including the accused companies listed above, related to restitution or redress to impacted consumers.

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insideARM Perspective

Rep. Waters made it clear that she would focus her attention at the CFPB if she were to become the Chair of the House Financial Services Committee. As far back as October – shortly before the midterm election that resulted in Democratic control of the House of Representatives – Rep. Waters took action directed at the CFPB by introducing a bill that would require the CFPB to meet its statutory purpose. A month and a half after being chosen to serve as the Chair of the Committee, it seems Rep. Waters is keeping true to her word.