On Friday, the Consumer Financial Protection Bureau (CFPB) issued a joint press release with several other regulators urging financial institutions to work with borrowers affected by the government shutdown.

The press release notes that the shutdown should be temporary. However, borrowers impacted “may face a temporary hardship in making payments on debts such as mortgages, student loans, car loans, business loans, or credit cards.” Working with such borrowers is “generally in the long-term best interest of the financial institution, the borrower, and the economy” and “should not be subject to examiner criticism.”

insideARM Perspective

The shutdown, which began on December 22, 2018, is still underway, making it the longest in United States history. It has already impacted the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC), which are now only open for limited operations. Three weeks in, it appears that the shutdown may have finally reached a point of impact on financial institutions.

According to the Washington Post, Congress approved back pay to furloughed federal employees, numbering around 800,000.

Friday, the day the regulators released the above press release, was also the first missed paycheck by the furloughed employees. These furloughed employees, who might normally be able to meet their financial obligations, may not be able to do so until the shutdown is over — whenever that may be — and they receive their back pay. This means that the incoming numbers for financial institutions may also be somewhat impacted until the shutdown is over. The numbers will eventually right-size themselves, but companies — especially those servicing areas with a higher density of federal employees — should prepare for the short-term impact. 

Editor’s Note: This article initially appeared on TrueAccord’s blog and is republished here with permission from the author.

On January 8, 2018 the California Department of Justice held a public forum to receive comments on the California Consumer Privacy Act (“CCPA”). While this law was passed in June of 2018 there is still significant work to be done to refine and implement the new legislation before it goes into full effect on January 1, 2020. I attended this packed forum and came away with some key insights from those who spoke on how businesses, consumer advocates, information security professionals, and attorneys who specialize in data privacy view the law in its present form.

I heard three common themes that were echoed by consumer advocates, businesses, and trade groups that I’ll address in more detail below.

The definitions of personal information under this law are extremely broad and ambiguous.

1798.140(o)(1) defines personal information as “information that identifies, relates to, describes, is capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household.” It goes on to list common identifying information like name, address and SSN, but also includes “unique personal identifier, Internet Protocol address, email address, account name, other similar identifiers.” The law also references inferences that may be drawn from this information to create a consumer profile. By defining personal information to as little as an IP address or inferences drawn about a consumer this law will cover many millions of records and require businesses to create complicated new tracking systems to categorize this data. This will be costly for businesses, and due to the ambiguity of this definition it may be impossible to comply or provide consumers with the data they’re requesting.

The threshold above which a business must comply is very low.

The threshold to trigger compliance could be any of three events. 1) Gross annual revenues in excess of $25,000,000, 2) Buying or receiving, or sharing (emphasis added) for commercial purposes, or 3) deriving 50% or more of annual revenues from selling consumers’ personal information. It was the second point that businesses and trade groups were most concerned with. In combination with the definition of personal information this threshold could be considered as little as 50,000 unique website visits per year. This is only 137 unique site visits per day, which could easily occur for many businesses that happen to collect IP addresses, and “share” the information with any other individual or third-party service provider. The unintended consequences of this low threshold and the ambiguity in definition of personal information will pull thousands of businesses into being required to comply with this law.

Another point raised is that it is unclear when the requirements of the law apply once a business crosses one of these thresholds. Is it immediately upon passing one threshold? Is it retroactive for the activities in the calendar year prior to passing the threshold?

The law will require businesses to link data sets together that will create personally identifiable information that otherwise wouldn’t exist and serves no business purpose. This creates more risk in the event of a data breach.

If a consumer provides a “valid request” to a business, which is ambiguous and undefined, a company must gather all consumer info that may fall under the ambiguous definition in the law and provide it to the consumer. To provide this consumer data a business will be required to combine information from various unrelated sources, that on their own would not easily be used to identify a consumer, into a single record that easily identify a consumer and serves no business purpose. Consumer advocates, trade groups, and businesses expressed significant concern about this requirement. How is a business supposed to securely transmit this information to a consumer? How does a business track these requests and prove they’ve satisfied the requirements? How should a business secure this newly created record that will surely be a hot target for hackers?

It’s clear that there is a long way to go before this law can meet its intended purpose of protecting consumers and requiring businesses to treat consumer data appropriately to be in compliance. Our industry faces unique challenges to comply with this law due to the heavily regulated nature of our business. The complications this law will add to our compliance platform cannot be understated. I encourage you to take the time now to read the law, consult with your attorneys, and provide thoughtful comments to the regulators during this open comment period. We have an opportunity to raise our concerns about this law and have a real impact on the final language for this regulation with which we’ll have to comply.

On Monday, the United States Supreme Court heard oral arguments in Obduskey v. McCarthy & Holthus LLP. As a brief recap, the case questions whether a law firm engaging in non-judicial foreclosure is considered a debt collector under the Fair Debt Collection Practices Act (FDCPA). The Consumer Financial Protection Bureau filed an amicus brief in this case back in November, siding with McCarthy & Holthus (McCarthy) on the issue.

The crux of the oral arguments seemed to rest on whether the FDCPA intended the exclusion of those enforcing a security interest to mean only those who do not engage with consumers. The justices asked counsel for both parties to discuss the difference between a law firm engaging in non-judicial foreclosure versus a repossessor. McCarthy’s counsel argued that there is no distinction, both are enforcing a security interest, whereas Obduskey’s attorney argued that sending a pre-foreclosure notice constitutes debt collection. Some of the justices seemed to side with Obduskey’s attorney. differentiating that repossessor only engages with the collateral “in the dark of night,” whereas a foreclosure attorney engages with the consumer by, for example, sending a pre-foreclosure notice.

In a rather unexpected turn, two of the right-leaning, pro-business justices — Chief Justice John Roberts and Justice Brett Kavanaugh — both seemed to side with Obduskey’s counsel on this question.  Since such a notice encourages payment, Chief Justice Roberts referred to it as “indirect collection.” Justice Kavanaugh, the newest addition to the Supreme Court’s bench, likewise indicated that the purpose of a foreclosure notice is to tell someone that they need to pay or they will lose their home.

The oral arguments also turned to statutory interpretation of the FDCPA text itself. The FDCPA’s definition of debt collector explicitly includes those enforcing a security interest in the definition when it applies to one section of the statute, which indicates they are exluded from the remainder of the definition.

This issue also brought a split among the justices. Justice Samuel Alito sided with McCarthy, finding that the inclusion and exclusion in the text of the statute itself indicates that Congress intended there to be a divide. Justice Elena Kagan seemed to lean toward the interpretation that the law firm can be either a debt collector or an entity enforcing a security interest, but not both. Justice Sonya Sotomayor believed an entity can be both and that the real issue here wasn’t the definition but rather the engagement in unfair practices.

It seems the justices are split on the issue, which makes it difficult to predict how they will rule so we have to wait until the decision is published to find out the answer.

The ever-elusive question of what exactly is meaningful attorney involvement is once again not answered. In Boerner v. LVNV Funding et al., No. 17-cv-1786 (E.D. Wis. 2019), the court addresses the issue but ends up punting it to a jury. This case also addressed the right to cure under Wiconsin’s consumer protection laws, but the summary below pertains solely to the meaningful attorney involvement issue.

Factual and Procedural Background

In this case, plaintiff fell behind on his credit card payments. The original creditor allowed plaintiff to make minimum payments while working to bring the account current. At some point while plaintiff was making minimum payments, the account was purchased by a debt buyer, which placed the account, along with the consumer’s debt file, with a collections law firm.

The collections firm sent a letter to plaintiff’s bankruptcy attorney containing the notice of validation rights as required by the Fair Debt Collection Practices Act (FDCPA). Neither the attorney nor plaintiff responded to this letter. The collections firm then went to file a lawsuit against plaintiff.

Prior to filing the lawsuit, the complaint was reviewed by one of the attorneys at the collections firm. When the law firm receives files from creditors, it inputs them into a computer system that provides easy access to the information.  The firm’s records contained two time stamps for this complaint, one at 4:04 that was placed after the attorney reviewed the complaint, and one at 4:05 when the complaint was sent to staff to prepare for filing. The collection attorney working on plaintiff’s case was listed as counsel of record for hundreds of cases throughout Wisconsin.

The Decision

On the issue of meaningful attorney involvement, the court denied summary judgment. The court found that the determination for whether the attorney involvement was meaningful is a question for trial, not summary judgment.

Editor’s Note: When deciding on a motion for summary judgment, the court looks to whether there is no issue of material fact and that the moving party is entitled to judgment as a matter of law.

In reviewing the matter, the court looked primarily to a Seventh Circuit case called Nielsen v. Dickerson that addressed similar questions. In Nielson, the Seventh Circuit took issue with the following:

[F]irst, the law firm only received information from accounts selected by the creditor—the law firm did not decide who to pursue, but simply conducted additional, ministerial screening. Second, the law firm did not receive the debtor’s file, only the information needed to determine delinquency and draft the letter. Third, the review of the letters, even if conducted by an attorney, “did not call for the exercise of professional judgment. The most substantive aspect of this review involved checking an internal database to determine whether a debtor had declared bankruptcy and running a [screening] computer check.” Fourth, the dunning letter was on a pre-written form letter that contained “no individualized assessment of the individual debtor’s circumstances or her liability,” and was issued in an “assembly-line fashion” that “betray[ed] the purely nominal nature” of the law firm’s participation. The court found that the attorney’s testimony that he spent two minutes reviewing one page containing forty accounts confirmed the “ministerial nature” of the review. Fifth, the firm was not authorized to resolve issues with the debtor, and routed almost all communication back to the creditor. Finally, the attorney never litigated on behalf of the creditor. The firm’s efforts “amounted to no more than a veneer of compliance with the FDCPA.

(Internal citations omitted.)

The court found that certain factors favor defendants in this matter. For example, the law firm received the consumer’s entire client file from the debt buyer and the firm actively litigates matters on behalf of the specific debt buyer.

However, the court could not conclusively determine some of the other factors. The court could not determine who made the professional judgment on which cases to litigate. There was an issue about the consumer not receiving notice of his right to cure the account as the court determined was required. There was also evidence presented that usually a firm shareholder reviewed the file, but in this particular case a legal assistant did so (Editor’s Note: The legal assistant’s review was done three days prior to the review by the attorney who reviewed the complaint.)

Based on these open questions, the court reasoned that the question of meaningful attorney involvement in this matter is best for determination at trial.

insideARM Perspective

The issue of meaningful attorney involvement is far from clear and this decision does little to help shed light on the picture. How much time and in what depth is a collections attorney supposed to review a file to pass muster? Many court decisions tell us what fails to meet the standard, but don’t often tell us what does. This forces the industry to slowly piece the picture together while at the same time fielding templated lawsuits from plaintiffs’ counsel.

When reviewing attorney’s fees, the courts are usually instructed to look at the complexity of the matter involved. They should do the same for meaningful attorney involvement cases. While collections lawsuits against consumers are serious, especially considering the impact such a suit may have to a consumer, litigation of such suits is not complex. The elements required to state a claim are simple and static. The files sent by creditors include all of the information needed to determine whether a suit is appropriate. These files are uniform and do not take a long time to review to ensure that the file is ripe for a suit.

There is a balance here somewhere. There is a way to protect consumers while also providing enough clarity so that collection law firms are not shooting in the dark hoping they are complying. However, without clear guidance, that balance will take longer to achieve and may ultimately harm consumers (e.g., decreased access to credit).

Editor’s Note: This article previously appeared on the Ontario Systems Blog and is republished here with permission.

No one has a crystal ball, but some people have more experience reading tea leaves than others. As we ring in the new year, let’s see how close I come with my 2019 ARM industry predictions.

1. Consumer debt will continue to rise during the first quarter as the U.S. slips into a recession. Many believe the Federal Reserve will be forced to halt any rate hikes and could even lower interest rates to stop the recession. ARM professionals should brace themselves for increased charge offs and in turn increased inventory of debt less than 36 months old.

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2. The flood of new debt will support current collection agency business valuations and possibly drive sale prices even higher.

3. Equity investors representing completely new markets will find a new interest in the accounts receivable management industry. Telcom, cable and EBOs may all find collection agencies to be a perfect complement to their current business.

4. Agency valuations will hold at all time high levels through Q2. The collections industry is, by definition, a responsive industry. It reacts to changes in the credit cycle and is typically the last segment of the credit cycle to suffer the impact of a recession.

5. The Consumer Financial Protection Bureau (CFPB), enjoying the fall back to its original name, will publish the new proposed rules for debt collection. This will trigger a compliance scramble much like we experienced when the CFPB launched its Larger Market Participant collection agency, debt buyer and collection law firm examination program in 2012.

6. Robocalling restrictions imposed by the Federal Communications Commission (FCC), and the marketplace’s corresponding response with new, robust consumer call access controls will make text messaging programs the #1 contact system of choice for debt collection purposes.

7. Payment portals will explode, as will the lawsuits claiming noncompliance with the Americans with Disabilities Act (ADA), Fair Debt Collection Practices Act (FDCPA), and Electronic Funds Transfer Act (EFTA). Small fonts, pictures without captions, unauthorized disclosures of a debt, improper disclosures of fees, and payments will all drive portal litigation.

8. Data privacy statutes will become the collection industry’s new Health Insurance Portability and Accountability Act (HIPAA). Just as HIPAA turned agencies and their clients’ upside down and inside out about privacy and security responsibilities in 2003, so too will new state and Federal laws regarding data privacy impact how consumer data is collected, stored, shared and sold. This means the reckless, cross pollination of consumer data, including demographic data among and between accounts and creditors, will come to a screeching halt.

9. Maxine Waters (D-CA), Chair of the House Financial Service Committee, will not rock the boat. Armed with subpoena power, Waters is more likely to launch investigations into banking, lending and payday loan practices rather than drive a legislative agenda that has no hope of passage. She is no stranger to the Committee however, and this may just be the calm before the storm.

There is no formula to help us predict events. There is no fairy dust to help us see into the future. But educated guesses about how economic, political and societal pressures will impact the credit and collections industry are possible. Use these nine predictions to stimulate thoughts and discussion about your 2019 business strategy, collections strategy and market position. Happy New Year!

SEATTLE, Wash. — National Service Bureau Inc., a leading nationwide debt collection agency located in Seattle, Wash., has hired industry veteran Nick Jarman to lead their business development. Jarman will be responsible for all the business development efforts at NSB which includes the current and future aspects of the department. Among some of Jarman’s previous accomplishments, he served on the Board of Directors for ACA International, was past President of the Missouri Collectors Association, and received the distinguished International Fellowship of Certified Collection Executives (IFCCE) from ACA International. Jarman brings with him two decades of experience in the debt collection industry and plans to leverage his vast industry network to architect the strategic growth at NSB.

Commenting on the addition to the team, NSB CEO Dave Conyers stated, “We are thrilled that Nick has joined NSB, bringing a high caliber of industry and business development experience. He has contributed a great deal to our industry and we look forward to being a part of what he accomplishes next.”

About National Services Bureau Inc.

National Service Bureau, a debt recovery agency, was established in 1986 and is presently headquartered in Seattle, Washington. We hold tight to our roots as a family business but have grown organically into a nationwide debt collection agency. We bring a breadth of experience and a range of services to the recovery of delinquent accounts receivable. NSB has experience working debt collection for commercial, financial, retail, insurance, education, and medical clients. We have been looking after the interests of both creditors and consumers for over 30 years and we can help you collect on accounts past due.

Editor’s Note: This article previously appeared on the Ontario Systems Blog and is republished here with permission.

Below is a compliance checklist of key decisions and pivotal regulations of 2018 that are identified as the most critical compliance issues of the year. 

1 – Mobile Phone Communications

Any compliance checklist worth checking has to start with a review of the Telephone Consumer Protection Act (TCPA). In March, the long-awaited decision by the DC Circuit Court of Appeals in ACA v. FCC, left us with little to no definition of an Automatic Telephone Dialing System (ATDS) and jettisoned the one free call rule. The decision also left calling parties in doubt as to whether TCPA consent must be provided by the consumer who the calling party intended to call by way of their mobile phone or the consumer the calling party actually called using an ATDS, prerecorded message or text message.

In effect, the DC Circuit’s decision was a time machine that threw us back to the late 90’s – a time when debt collectors were exempt by rule from the TCPA and life was good. For many, the decision felt like a win, but the Monday morning quarterbacks quickly realized the only thing ACA v. FCC really accomplished was to create even more confusion and ambiguity in the law. By casting aside the FCC’s 2003, 2008, 2012 and 2015 orders interpreting the definition of an ATDS, ACA v. FCC basically left consumers and businesses alike wondering if they would even know an ATDS if they saw one.

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On November 7, 2018, in the closely-followed case Marks v. Crunch San Diego, LLC, No. 14-56834 (9th Cir.), the 9th Circuit became the third appellate court to address the TCPA in the wake of ACA v. FCC. Departing from the 2d and 3rd Circuits, the Marks court adopted yet another definition of ATDS. Rather than interpreting the statutory definition of ATDS as a device that can store or produce random or sequential numbers and to dial such numbers [as did the 2nd and 3rd Circuits], the Marks court held that any device that can store and dial numbers to a consumer’s mobile number is an ATDS. Unfortunately, Marks did not even attempt to define the word “store.” Callers now wait with baited breath for an appeal to the U.S. Supreme Court or a new rule from the Federal Communications Commission (FCC) clarifying a host of open TCPA issues.

Fortunately, the FCC confirmed its intent to permit the creation of a reassigned mobile number data base. Seemingly a signal the FCC will later rule that a caller must have the consent of the actual party called to use an autodialer, prerecorded message or text. Time will tell how this new data base will impact the unrelenting deluge of TCPA cases.

 2 – Mobile Phone Communications – Text Messaging

Undaunted by the foregoing mess of legal chaos, callers of mobile phones for commercial purposes jumped head first into the world of text messaging. Noting the use of an automated platform to send or launch a commercial text message falls squarely under the TCPA, callers pulled off the band aid and embraced text messaging to collect debt. Some of the more critical compliance requirements for a text messaging program include:

• Determining the business case for your organization’s text message service (e.g. improve consumer satisfaction, offer an alternative form of communication, accept payments, reduce postage and letter costs by sending your legally required notices and letters electronically or reduce staff)
• Securing the consumer’s consent to receive single message, key word, recurring or chat text messages from the business, healthcare provider or governmental body
• Securing the consumer’s assent or acceptance of the Terms and Conditions for any one or more of the four text message services listed above
• Managing revocation of consent to text as well as the impact of a cease and desist directive for one or more of their accounts

3 – Robocall Communications

It pains me to even use the term “robocall” in a compliance article written for the thousands of sophisticated first and third-party debt collectors, credit issuers, debt buyers, governments and healthcare providers who do not call consumers repeatedly with the intent to harass, annoy or drive to the point of madness with their telephone communications. Yet, such is the case.

The legitimate commercial calls and texts placed by legitimate businesses have been caught in the regulatory effort intended to protect consumers from the calls placed relentlessly by illegitimate business’s sales and marketing calls. Time will tell if the call blocking and call identification solutions currently used in the marketplace as an aid for consumers will solve the problem. In the meantime, collection agencies should take steps to work with their software vendors and contact management vendors to employ equally strong solutions designed to penetrate the call block and caller ID solutions and allow you to reach your consumers.

 4 – Letters and Notices

Collection notice lawsuits are back in vogue. The most common letter claims arise when collecting out of statute debt; disclosing interest, fees and charges; and referencing the name of the original creditor and/or current creditor in the collection notice.

Overshadowing claims kicked off the year in the matter of Riccio v. Sentry Credit, Inc. et al, 2018 WL 638748 (D.N.J. Jan. 31, 2018). In this case, the plaintiff alleged her right to dispute the debt or any portion thereof in writing, during the 30-day validation period, was eviscerated by the defendant agency’s inclusion of an invitation to contact the agency by way of a phone call. Though the Court held in favor of the agency, Riccio marked the first in a rash of cases alleging the inclusion of an invitation to contact the collection agency by phone in a validation notice constituted overshadowing.

Adding to the confusion is a series of cases alleging a verbatim restatement of the consumer’s rights, as provided in Section 1692g of the Fair Debt Collection Practices Act, can also trigger overshadowing claims should the statement of the consumer’s rights include the word “if.” Agencies are well advised to have each of their 1692 g notices reviewed by legal counsel prior to use.

Plaintiffs’ counsel and state legislatures seemingly drank the same Kool-Aid and are aligned when it comes to collecting out of statute debt. Convinced the attempt to collect an out of statute debt constitutes a deceptive, abusive or unfair practice, claims alleging the collector’s failure to disclose the debt was out of statute and the consumer cannot be sued is a violation of the Fair Debt Collection Practices Act or state law are rampant and states such as California are requiring special text requirements in notices as a condition to the collection of a time barred debt.

 5 – Convenience Fees are not for the Faint of Heart

This issue should not be on our list but it is. Third-party debt collectors know, or should know, FDCPA section 15 USC 1692f (1) makes clear the collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law, is an unfair practice and therefore illegal. This makes the answer to the common question about convenience fees an easy one to answer. The third-party debt collector cannot charge a fee in connection with the collection of a debt or expense incidental to the principal obligation unless a state law permits the charge, or the charge is included – clearly included – in the underlying agreement between the consumer and the creditor.

Conversely, if the charge is not assessed by the third-party debt collector (e.g. Western Union telegram fee concept), such a fee may arguably be permitted because it is not charged, collected, or assessed by the debt collector. But don’t stop here. CONSULT WITH INDEPENDENT LEGAL COUNSEL, to determine if your process passes the convenience fee smell test or not. Class actions abound on this issue.

 6 – Dispute Investigation and Resolution

Third-party debt collectors must respond to disputes as required by the FDCPA. Data furnishers who report consumer data to credit reporting agencies must respond to disputes as required by the Fair Credit Reporting Act (FCRA). Third-party debt collectors who report data to consumer reporting agencies must respond to disputes as required by both the FDCPA and the FCRA. For reasons that escape most defense attorneys who specialize in consumer law, third-party debt collectors and data furnishers simply don’t understand their duties under either law. Let’s be clear:

• Under the FDCPA, if the consumer notifies the debt collector in writing within the thirty-day validation period that the debt, or any portion thereof, is disputed, the debt collector will obtain, and mail, a copy of the verification of the debt or a copy of a judgment to the consumer;
• Under the FDCPA, if the consumer disputes the debt in writing or verbally at any time, or if the debt collector either knows or should know, the consumer disputes the debt for any reason, the debt collector must investigate the dispute and flag the item as disputed if the debt collector has also reported or will report this debt to a consumer reporting agency;
• Under the FCRA, if the consumer disputes the debt directly with the data furnisher, the data furnisher must investigate the dispute, respond to the consumer and flag the item as disputed. Using specified condition codes, the data furnisher will indicate where they are in the process and whether the consumer agrees or disagrees with the outcome of the investigation; and
• Under the FCRA, if the consumer disputes the debt indirectly by using the E-OSCAR process, the data furnisher must investigate the dispute, obtain any additional information from the creditor to assist in resolution of the dispute, and report the findings back to the credit reporting agencies using the E-OSCAR process.

Additional investigation and response requirements are triggered under the FCRA for frivolous disputes and under both the FCRA and the FDCPA for identity theft/red flags rule disputes.

These compliance highlights from 2018 are only a drop in the bucket. However, they do highlight the issues driving most of the consumer and administrative agency actions. Boards of Directors, senior leadership, operations and compliance professionals should be mindful of these issues, ensure all related policies and procedures are current, relevant and accurate and require in-house and outside legal counsel written opinions on every one of these topics.

Ever since the Senate confirmed Director Kathy Kraninger to lead the Consumer Financial Protection Bureau (CFPB or Bureau), many have wondered in which direction she would guide the Bureau. A memo emailed by Director Kraninger to Bureau staff last week provides a glimpse of her views.

According to American Banker, Director Kraninger stated:

We must do our work with an open mind and without presumptions of guilt, and to always carefully weigh the costs and benefits to consumers of our enforcement activities and regulatory rulemakings…

On my watch as Director, the CFPB will vigorously enforce the law. I also want the Bureau to respect the rights of all we serve and interact with, to safeguard their personal information, and to be transparent in its operations…

Let’s move forward as a team to make sure the American people are treated fairly, that the financial institutions that serve them are competing on a level playing field, and the marketplace is innovating in ways that enhance both choice and the needs of the consumers.

insideARM Perspective

Right off the bat, Kraninger’s memo indicates that she will lead the Bureau to a balanced medium between the polar opposite philosophies of Former Director Cordray and Former Acting Director Mulvaney.

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Particularly of interest to the ARM industry is Director Kraninger’s comment about innovation in the marketplace. While many financial services providers have the ability to evolve with technology, debt collectors have been left behind. Debt collectors are eager to implement technology into their business to meet the expectations and preferences of consumers, but outdated statutes and inconsistent case law governing the debt collection industry prevent them from doing so. For example, email and voicemail — technologies that are decades old — are still the wild west in the debt collection sphere.

In November, insideARM published an article outlining the Consumer Relation Consortium’s comprehensive solution to this problem as it relates to communicating with consumers. As Director Kraninger goes forward, especially with debt collection rulemaking, we hope she will continue to keep this in mind.

Just a few days ago, Judge William F. Jung of the Middle District of Florida denied certification in a wrong-number TCPA class action, and tore to shreds the most common methodologies proposed by plaintiffs to ascertain wrong number class members, drove a steak through the heart of the case by finding individualized inquiries of consent will predominate where a Defendant only intends to calls actual known consenting customers , then tied it all up in a nice little bow of due process considerations.  Wilson v. Badcock Home Furniture, No. 8:17-cv-02739-T-02AAS, 2018 WL 6660029 (M.D. Fla. Dec. 19, 2018).

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The Wilson ruling is truly a holiday treat filled with so many delightful little presents.  So let’s start unwrapping those presents like my frenzied, Santa-crazed kids will soon be doing on Christmas morning!

Ascertainability

There’s a fundamental problem with wrong-number class actions: it’s impossible to accurately track down and identify each person who received a “wrong number” call intended for a consenting customer of the caller.  All the defendant’s records will typically provide is some coding that plaintiffs will claim shows a true “wrong number” call (more on the problem with that below).  But otherwise, since the person who received the call is—according to the class definition—not the actual customer, the defendant’s records won’t get you any further.

So how does the gap between the Defendant’s records and the true identity of a wrong number call recipient get bridged?

Most commonly, plaintiffs will propose using a reverse number look-up (aka “the unobservable, proprietary ‘black box’ techniques of LexisNexis), and subpoenas to cell phone carriers.  Ok.  But the best that will probably net is the name of the subscriber.  This process won’t work, however, to identify true wrong number recipients who are regular users of under a family plan (among other problems).

And this is where the court found that the Plaintiff’s reverse look-up plan “truly f[ell] apart.”  The flaw was glaringly obvious too: this methodology wouldn’t have even identified Plaintiff herself because she was not the subscriber of the number (it was her grandma’s family plan), and she wasn’t identified anywhere in the carrier’s records.  Thus, “[s]hort of relying on a claimant’s assertions,” through individualized inquiries, there was “no way to definitively determine who actually answered the call from Defendant and stated ‘wrong number.’”

There was another problem too.  The Defendant had identified multiple documented instances where more than one customer provided the same phone number.  The Court described the issue with this “multiple hit” scenario thusly:

This “multiple hit” scenario means that a call to an otherwise consenting customer might be designated as “wrong number” simply because Defendant had intended to call—and asked for—the other customer who provided the number.

So how do all these gaps get bridged?

As we saw just a couple of weeks ago, Plaintiff proposed the same “ask a subscriber” approach the Czar covered in the Keim case.  But the court rejected this approach for three powerfully fundamental reasons.

First, the “ask a subscriber” approach “ignores the very purpose of ascertainment and will, in any event, require an individualized inquiry.”  Yes!  This is exactly what the Czar was saying when he covered the Keim case.

Second—and this one just strikes right at the heart of the “ask a subscriber” approach—it will impact the Defendant’s due process protections.

Let’s let that sink in: the “ask a subscriber” approach to ascertaining wrong number class members likely violates due process.  And this makes perfect sense.  As the court explained:

While an affidavit certifying inclusion in a class might be appropriate in some cases where damages for an individual claimant are negligible…here Defendant could face up to $1500 per call.  This amount is relevant both as an incentive for individuals to improperly enter the class and…a danger that impacts due process protections for Defendant.

Third, and even putting these clear dangers aside, the entire plan was nothing but a bunch of inadmissible hearsay held together with band aids and duct tape:

[A] call recipient’s statement of “wrong number,” as well as the simple act of Defendant listing a number as “wrong number” may not be admissible as a matter of federal evidence as proof of the matter asserted, even if the number is labeled as “wrong” in Defendant’s business records.  The unknown person answering on the phone was under no business duty to make that declaration, which is likely hearsay to prove the number was in fact wrong.

So let’s tie this all together:  the reverse look-up and “ask a subscriber” approach to ascertaining class members is ineffective to definitively determine who actually received a wrong number call, necessitates individualized inquiries, violates due process, and is based on a bunch of inadmissible hearsay.

Predominance of Individualized Inquires of Consent

Notably, the Court found that—even putting aside ascertainability issues—the class couldn’t be certified because individualized issues of consent predominated (and there probably wasn’t even commonality to begin with).

While recognizing that there were some common issues, the overarching issue was one that was a “complex, fact-specific…aspect of each case: how [each telephone] number entered Defendant’s records and, related, the issue of consent.”

And there were multiple scenarios presented by the Defendant that would necessitate individualized inquiries across the class over the issue of consent:

• [A] defaulting [consenting] customer may reply with “wrong number” when the customer answers a call from the creditor collecting a past-due debt;
• Someone in the customer’s household might intentionally mislead the caller on behalf of the defaulting customer;
• The call’s recipient might also be bound by a customer’s consent, like if a household member used the recipient’s number to make a purchase;
• More than one consenting customer provided the same number to Defendant (i.e. the “multiple hit” scenario).

Critically, while these scenarios weren’t statistically quantified for the court (as we saw in the Tomeo v. City case I covered  back in October), the court found that wasn’t necessary given two fundamental problems in the case that are—as it so happens—common in virtually all wrong number class actions.

First, is that Defendant wasn’t just randomly calling people but was specifically intending to call its customers who had provided their consent to be called using an ATDS in the first instance:

Rather than engage in random robocalling, Defendant only calls numbers in its records and its intent was to call actual known customers in arrears…Actual customers almost certainly consented.  This means Defendant would likely have a possible defense against many class members, the precise contours of which could vary substantially.  The scope of this sort of inquiry is likely to dwarf the much simpler question of whether Defendant called a given class member with a prohibited system.  This is not a case where a defendant sprayed robocalls across a nonconsenting public.

The Court here really did an elegant job laying out exactly why issues of consent will always predominate when a Defendant’s practice is to call its own customers who provided consent.  But the Court ties everything up in a nice little bow of due process considerations that show why these individualized issues of consent can’t be ignored or minimized as they so often are in cases where wrong number classes have been certified:

 [T]his case does not concern marginal damages for an ineffective, relatively cheap product…the TCPA carries with it damages up to $1,500 per call.  Plaintiff was called at least thirty times, which could total $45,000.  With such a looming threat, due process allows Defendant to inquire whether the alleged wrong number belonged to a customer by consulting each individual file and, if not, how the number entered Defendant’s records, whether the claimant was actually the one called, whether privies or associates might have consented, and whether the call represents a “multiple hit.”

(emphasis added).

And the court then took the opportunity drive home again why the “ask a subscriber” approach is unworkable given these considerations:

A mail-in affidavit for a $45,000 claim is not going to work in this class setting.  Consent requires an individualized inquiry especially when the source list, by definition, is consented as with credit applications.

To put it plainly, when the stakes are that high it’s unacceptable to “leave[] a defendant at the mercy of prospective class members.”

So there you have it.  In the course of one ruling, Judge Jung forcefully laid out why most wrong number class actions should never be certified.  Aside from the inherent unreliability of trying to find class members in an administratively feasible way, individualized inquiries of consent will almost always eclipse any other common issue when the Defendant’s practice is to call consenting customers, and these issues of consent can’t be given short shrift (as we’ve seen some courts apt to do) given the magnitude of statutory damages at issue.

Just a few days ago, Judge William F. Jung of the Middle District of Florida denied certification in a wrong-number TCPA class action, and tore to shreds the most common methodologies proposed by plaintiffs to ascertain wrong number class members, drove a steak through the heart of the case by finding individualized inquiries of consent will predominate where a Defendant only intends to calls actual known consenting customers , then tied it all up in a nice little bow of due process considerations.  Wilson v. Badcock Home Furniture, No. 8:17-cv-02739-T-02AAS, 2018 WL 6660029 (M.D. Fla. Dec. 19, 2018).

The Wilson ruling is truly a holiday treat filled with so many delightful little presents. 

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Editor’s note: This article is provided through a partnership between insideARM and Womble Bond Dickinson. WBD powers our TCPA case law chart and 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.

The Federal Communications Commission (FCC) issued a press release earlier this week stating that it will suspend operations midday today due to running out of funding caused by the partial shutdown of the federal government.

In a notice released on Wednesday, January 2, the FCC outlined the impact of the shutdown to its operations. The notice states that many of the FCC’s operational functions will be unavailable. The FCC will remain open to for spectrum auction activities, as they are funded by the auctions and not impacted by the government shutdown, and for emergencies.

The Federal Trade Commission (FTC) remains closed due to lack of funding from the partial shutdown. The shutdown makes the FTC’s Do Not Call Registry, Complaint Assistant, and Identitytheft.gov unavailable.

The partial shutdown began on December 22, 2018. Today, the newly-elected members of congress will be sworn in. With the new Congress in place, there is a shift of power in the House of Representatives, which is likely to have an impact on the shutdown.

insideARM Perspective

For the many people and entities seeking clarity from the FCC regarding the TCPA, the partial shutdown is not good news. The Ninth Circuit turned the TCPA world on its head when it issued its Marks v. Crunch San Diego, LLC decision, leaving everyone confused about what is and is not an automatic telephone dialing system. The FCC’s partial closure during the shutdown only means one thing: delay to those waiting for answers.