Yesterday, U.S. Secretary of Education Betsy DeVos gave a speech at the annual Federal Student Aid (FSA) Training Conference in Atlanta focusing on student loan debt and warning of the program being in serious jeopardy if changes in policy are not made.

DeVos laid out the historical framework of the FSA program, showing its exponential growth in recent years:

It took 42 years—1965 until 2007—for the student loan balance to grow to 500 billion dollars. It took only six years for the loan balance to double—to one trillion dollars—in 2013. One-seventh the amount of time it took to get to 500 billion. And today, only five years later, FSA holds nearly 1.5 trillion dollars in outstanding loans. 1.5 trillion dollars is almost impossible to fathom. So, let me put it this way: 1.5 trillion dollars is more than 10 thousand dollars of someone else’s student loan debt for each and every American taxpayer—145 million of them.

DeVos pointed out that this loan growth is primarily due to increase in borrower debt load. Since 2010, 70% of the loan growth was due to increase in debt load whereas only 30% was due to growth in the number of borrowers. The FSA portfolio progressed twice as fast as the growth of the cost of attendance for higher education and four times as fast as the growth of the economy. The cost of attending higher education (tuition, fees, room and board) has grown almost 2.5 times the rate of growth in median income.

Only 24% of student loan borrowers are currently paying down principal and interest, and nearly 20% of the loans are delinquent or in default — seven times the delinquency rate of credit card debt. DeVos stated, “[I]n the commercial world, no bank regulator would allow this portfolio to be valued at full, face value. Federal Student Aid has a consumer loan portfolio larger than any private bank. Behemoths like Bank of America or J.P. Morgan pale in comparison.”

The speech points some fingers at the federalizing of the student loan portfolio in 2010, the complexity of current repayment options, and higher education institutions increasing the cost of attendance as the government continued to hand out student loans. However, the speech largely aims to address the issue:

I’m here to raise a warning flag with American students and American taxpayers: We have a crisis in higher education. Our higher ed system is the envy of the world, but if we, as a country, do not make important policy changes in the way we distribute, administer, and manage federal student loans, the program on which so many students rely will be in serious jeopardy. This crisis demands the attention of Congress, the American taxpayer, colleges and universities, parents, and students. In a word, everyone.

Working toward a solution, DeVos is focusing on improving student financial literacy and helping provide students a resource where they can “easily and continually plan and budget for their education” by having easy access to their loan information and having hard numbers that they can plan and prepare with. She calls on everyone involved to take initiative in fixing the problem:

The federal government must become a more responsible lender. Congress must recognize and be honest about the unmistakable implications of its favored programs on students, on taxpayers, and on rising costs. Schools must become honest about their individual roles in the cost-value proposition. Every school should focus on helping each student find the right pathway. And they should help students graduate with high-quality career prospects and with low debt. Students—our human capital—must equip themselves to be responsible consumers of education with a serious commitment to their own success. They need to have the best possible tools, data, advice, and support. And then they need to understand the implications of their decisions. Each of us has a contribution to make and a role to play in resolving our present crisis in higher education.

DeVos points out that changes need to happen now rather than waiting until later when the problem has grown and a more “abrupt and jarring” solution is needed.

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insideARM Perspective

It’s important to see someone in a position of influence like DeVos focus on the root cause of the student debt problem rather than simply blaming servicers and debt collectors. This speech touches on something that insideARM’s CEO Stephanie Eidelman wrote in an article for Forbes back in 2011: the cost of higher education is growing at an alarming and largely unsustainable rate considering the lack of growth in starting salaries for recent graduates. It was a daunting thought back in 2011, it’s even more daunting today. According DeVos’s speech, the elephant in the room has exponentially grown in size. The speech, which can be found in the link at the top of this article, is well worth a read in its entirety.

SAN FRANCISCO, Calif. — TrueAccord (www.trueaccord.com), the first-of-its-kind tech platform that transforms the antiquated debt recovery industry, announced today that financial industry veteran Sheila Monroe has been named Chief Operating Officer. Monroe joins TrueAccord from Barclays and brings more than 30 years of financial services and collections experience to the leading fintech debt recovery company. The company also announced the appointment of collections law specialist, Kelly Knepper-Stephens as Vice President of Legal and the promotion of Lapis Kim as Vice President of Finance and Analytics.

Monroe, Knepper and Kim join TrueAccord’s growing diverse C-Suite and strong female leadership team.  Monroe will take over day-to-day key operating processes and manage many of the company’s key internal functions, including: critical financial institution client relations and onboarding, call center operations and strategic planning. At Barclays, Monroe was Managing Director of Group Operations where she established the operations strategy and technology roadmap for Barclays Collection and Recoveries Operations worldwide. Most recently, she was the COO of Simplicity Payments LLC and helped the healthcare financial service startup develop operational capability to move from pilot phase to product launch.

“Sheila brings Fortune 100, top bank industry experience to TrueAccord and will play a critical role in driving our next growth phase as she takes over daily operations,” said Ohad Samet, chief executive officer, TrueAccord. “Her extensive financial and recoveries pedigree at one of the largest banks in the world, coupled with her demonstrated ability to effectively navigate sensitive regulatory environments will lead TrueAccord in continued growth and impeccable execution.”

Kelly Knepper-Stephens joins TrueAccord from Stoneleigh Recovery Associates, where she specialized in local debt collection regulations. This year, Kelly was named one of Collection Advisor’s “20 Most Powerful Women in Collections” and was also listed as one of the “25 Most Influential Women in Collections” in 2016.  

TrueAccord has also promoted Lapis Kim, who serves as Vice President of Finance and Analytics. Having led and built high-performance finance and analytics teams, as well as taken over key financial and strategic planning processes for the company, Lapis is now taking a seat at the table as part of the company’s executive leadership team.

“TrueAccord is an innovative company that is using technology to transform an incredibly antiquated industry,” said Monroe. “The debt collection marketplace is in desperate need of modernization and I’m excited by the opportunity to be a part of, and advance the company’s mission of reinventing the space.”

The company now counts 5 female executives of its executive leadership team, including 2 in the C-suite.

Founded in 2013, TrueAccord is a fully automated debt recovery technology that bridges the gap between the creditor and the roughly 77 million Americans who currently have debt in collections. The system uses behavioral analytics, machine learning, and a humanistic approach – the first time the antiquated (and often menacing) debt collection system has been challenged in decades. Over 25 percent of consumers contacted by debt collectors feel threatened. The TrueAccord platform was built with the goal of disrupting debt collection with AI, transparency, and most importantly – compassion.

For more information on TrueAccord, please visit www.trueaccord.com.

About TrueAccord

Created in 2013 by Silicon Valley tech veterans, TrueAccord is an automated debt recovery platform that bridges the gap between the creditor and those in debt. TrueAccord works with small and large businesses to recover the billions of dollars in lost revenue and works with those in debt to create flexible payments solutions. TrueAccord has developed a fully automated system that uses behavioral analytics, machine learning and a humanistic approach to help transform the historical antiquated debt recovery industry. For more information, please visit: www.TrueAccord.com. Follow TrueAccord on Twitter @trueaccord

As insideARM reported earlier, the Senate is expected to vote on the confirmation of Kathleen Kraninger to head the Bureau of Consumer Financial Protection. According to the Competitive Enterprise Institute (CEI), this is likely to happen tomorrow, and CEI supports the nomination. They provided these statements:

John Berlau, Senior Fellow:

“Based on her testimony at her confirmation hearing in July, the Competitive Enterprise Institute supports Kathleen Kraninger’s nomination to head the BCFP (formerly known as the CFPB). At the hearing, Kraninger made it clear she was against the ‘regulation by enforcement’ policies pursued by the Bureau’s first director, Richard Cordray, who arbitrarily and retroactively applied regulatory punishments against certain financial firms without due process. Kraninger says she favors competition as the best method to provide consumers with more affordable small-dollar loans. And she says she will work with Congress should it want to change the structure of the BCFP. The Senate should confirm Kraninger, and Congress should then take her up on her offer to help make the agency more accountable.”

Daniel Press, Policy Analyst:

“The Bureau of Consumer Financial Protection director is an immensely important position. Not only does the Bureau have the authority to regulate nearly every consumer financial product in the economy, but the director has enormous unilateral power in writing and enforcing those rules. At her July testimony, Kraninger affirmed that as director, she would continue the important task of reforming the Bureau’s mission to better promote a free, competitive consumer financial marketplace. The Senate should vote to support such a mission and swiftly confirm this nominee.”

In July 2018 Senator Elizabeth Warren, who opposes Kraninger for the job, released a report entitled Record of Failure; Kathy Kraninger’s Disastrous Tenure at the Office of Managementand Budget. You can read it here. The report concludes,

“Ms. Kraninger has no relevant experience in banking, finance, or consumer protection. The entire case for her nomination rests on her purported management abilities. Yet a close look at her record shows consistent mismanagement, often with devastating results for poor and vulnerable people. Her record does not justify a massive promotion to lead the federal agency charged with protecting consumers.”

Her confirmation hearing didn’t reveal much. During the nearly three-hour hearing, Democrats were head-scratchingly frustrated by Kraninger’s refusal to answer direct questions.

Nonetheless, the Senate Banking Committee voted along party lines to approve Kraninger’s nomination on August 23, sending the decision to the full chamber. Progress was then derailed by the contentious hearings for Supreme Court nominee (now Justice) Brett Kavanaugh, and then the mid-term elections.

It is unclear whether a BCFP Director Kraninger would change the course of current rulemaking activity in the debt collection market – a process which began five years ago. A Notice of Proposed Rulemaking (NPR) is currently slated for March 2019. Bureau staff have said they are working diligently to meet that target.

Last week, the Federal Communications Commission’s (FCC) Chairman Ajit Pai issued a press release discussing the proposed reassigned number database (database). The day after this release, the FCC issued its Second Report and Order regarding the database, including the text of the final rule in Appendix A.

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The report discusses the overwhelming support for creating a reassigned number database from the two comment periods following its first and second notice on the issue. The report mentions that some commenters suggested that the FCC focus on TCPA clarity post-ACA Int’l. v. FCC before focusing on the reassigned number database, but the FCC declined to wait. The FCC also mentioned that the database will be used to “supplement, not supplant” other currently-available commercial options.

The report discusses issues such as an aging period, the database’s contents, how caller queries will be performed, and database costs and administration.

Aging Period

The aging period refers to the amount of time between when a number is permanently disconnected and reassigned. While there already existed a maximum aging period (4 months for toll free numbers, 90 days for other numbers), there was no minimum aging period. A minimum aging period would allow time for callers to learn if a number is reassigned. Splitting the recommended aging period from the comments down the middle, the FCC established a minimum aging period of 45 days.

Database Contents and Queries

The FCC noted that the database will practice “data minimization.” The only information required to be reported is the date of a number’s most recent permanent disconnection. According to the report, commenters to the two notices stated the date of most recent permanent disconnection is more useful to them than the date of reassignment. The FCC declined to allow the database to store more information such as names and addresses.

In order to protect consumer privacy and providers’ commercially sensitive information, caller queries into the database will return limited information. To run a query, the caller will provide a specific phone number and date (which ideally should be the date of last contact with the consumer at this number). The only information the query will return is an answer of “yes,” “no,” or “no data” as to whether the number has been permanently disconnected since the date provided. The database will support both low-volume and high-volume queries so companies of all sizes can utilize it.

Editor’s Note: In the debt collection context, the date provided in the query would likely be either the date of last contact or the date the account was placed with the debt collector.

All callers who use the database will need to certify the purpose for which they are using it. The database will include both regular and toll-free numbers.

Database Administration and Costs

The database will be administered by an independent third party administrator chosen in a competitive bidding process. The FCC stated that it will not seek Congressional funding for the database. Instead, the costs will be recovered from usage fees.

Earlier this month the Consumer Relations Consortium (CRC) submitted a proposal to the Bureau of Consumer Financial Protection (BCFP or Bureau) to address the need for debt collectors to initiate communications with consumers through modern communication methods. While this topic has been a focus of discussion since the Bureau’s 2013 Advance Notice of Proposed Rulemaking, the environment changed materially since that time and continues to evolve rapidly. In addition to consumers’ movement away from landline phones, postal mail and fax and toward email, texting and mobile communications, a crisis of trust has emerged which presents unique challenges to the debt collection industry.

Overview of the Full Range of the Problem

Because of the proliferation of scams through the mail, the phone and online, a majority of consumers do not trust anyone unknown who is seeking to contact them. Regulators, consumer groups and the media regularly advise consumers a) not to respond to unknown callers, and/or b) not to provide any sensitive information to someone they don’t know.

Spurred by the vast explosion of illegal “robocalls,” consumers are demanding transparency – they want to know who is calling before they decide to answer a call. The Federal Communications Commission and industry responded with a host of solutions and with each passing day, more calls are being labeled and caller ID information is being enhanced. While there are a range of hardware and software barriers today, it is clearly only a matter of time before an unidentified (or un-labeled) caller will become the exception rather than the norm.

Yet the requirements of the Fair Debt Collection Practices Act (FDCPA) for communicating with consumers directly conflict with this new consumer demand for transparency. The FDCPA defines “communication” as “the conveying of information regarding a debt directly or indirectly to any person through any medium,” but the statute does not define this key term “information.”

As a result, courts established an extremely broad definition of “information” which evolved to include internal collection agency account numbers appearing through the window of a collection letter envelope and even the legal name of the debt collector in some circumstances.

Due to the legal landscape caused by FDCPA litigation, debt collectors are forced to appear unforthcoming when initiating communication with consumers. If using U.S. Postal Mail, debt collectors cannot clearly identify the name of the sender on envelopes — their identity is limited to solely an address — thus appearing like junk mail. Most debt collectors do not leave voicemails or if they do, the messages that are left in compliance with current laws sound vague and provide little useful information. The notion of a debt collector sending an email raises further concerns and initiating communication by text – the overwhelmingly preferred communication method for a growing number of consumers – is largely untested due to further compliance concerns including third party disclosures and the difficulty with including all required disclosures in a short message.

To avoid potential litigation when a collector connects with a consumer on an outbound telephone call, debt collectors must confirm they are speaking with the right party before they can disclose information about who they are or why they are calling. The best practice (often dictated by creditor clients and required of credit issuers by Federal banking regulators) is to request personal data the collector can verify, such as a birthdate or the last four digits of a social security number. This is exactly the kind of data consumers are urged not to share with people they don’t know.

An uncomfortable standoff ensues, where neither the consumer nor the collector is willing to share information before the other does so first. Further, the consumer feels vulnerable because the caller has more information about the consumer and appears unwilling to share that information until the consumer divulges sensitive information to verify a right party contact.  

When collectors cannot reach the consumer in any meaningful way, additional adverse consequences may result for the consumer. Many accounts which would otherwise be resolved are instead escalated, resulting in unnecessary negative credit reporting, debt collection lawsuits, garnishments, repossessions and other litigation against consumers.

This Authentication Dance Could be Eliminated

A rule that clearly authorizes and enables debt collectors to initiate communication through digital channels would make it possible to employ the dozens of more advanced ways to authenticate the consumer’s identity. These very same methods are already in wide use by banks and other financial institutions. Enabling use of these newer methods preferred by consumers would greatly benefit the consumer from the very beginning of the collection cycle by making communication far less awkward and frightening, more immediate, more likely to be opened and not ignored – and thus less likely that an account would escalate unnecessarily.

Contact which is initiated digitally rather than via phone call would also give the consumer the opportunity to independently check out the organization that is contacting them before they engage in a live discussion. In fact, it might even remove the direct interpersonal interaction via phone entirely – in the case of a consumer who chooses to pay or dispute online.

Additionally, a rule that clarifies the definition of “information” would provide guardrails for all stakeholders. To be clear, CRC is not recommending the elimination of the US Postal Mail. Rather, debt collectors simply seek to be able to use the consumers’ communication channel of choice without requiring hurdles which render that channel useless.

The Recommendations

The CRC offered five recommendations that –together– provide a comprehensive solution to the complex set of challenges outlined above:

1. Declare that for purposes of the FDCPA, email is equivalent to U.S. Postal Mail.
2. Provide an exemption in the E-Sign law for the FDCPA’s 1692g notice.
3. Clarify the meaning of “information” as it relates to a communication under the FDCPA.
4. Affirmatively declare that disclosure of the debt collector’s true legal identity or a trade name by which it is more commonly known does not constitute an unauthorized conveyance of information about the debt.
5. Affirmatively declare that a limited content message does not constitute a conveyance of information subject to the disclosure requirements of the FDCPA.

We believe these suggestions are all within the scope of the Bureau’s authority to clarify and modernize the FDCPA. We hope the team will carefully consider this full range of solutions so that legitimate collectors and consumers will have the practical ability to engage in order to resolve accounts – whether resolution involves payment, clarification, correction, a cease contact request, or anything else.

Can a named class representative continue to represent a putative TCPA class action even after a Defendant pays the Plaintiff the highest amount he/she could possibly recover on their individual claim? That question was left open in the U.S. Supreme Court’s decision in  Campbell-Ewald Co. v. Gomez,136 S. Ct. 663 (2016) but was answered  affirmatively by a district court in Maryland last week in Boger v. Trinity Heating & Air, Inc., Case No. 17-7729, 2018 WL 6050886 (D. Md. Nov. 16, 2018.)

Setting the stage. Supreme Court precedent counsels that a named class representative must have standing at all stages of the litigation. Black letter law also dictates that an uncertified class is not a legal entity capable of pursuing a claim on its own. So if a named class representative’s claim is mooted, the entire action–including the class components–should go away.

At least in theory.

In practice appellate courts over the years have concocted numerous “relation back” doctrines designed to save class actions from efforts by Defendants to “pick off” class representatives by paying them the full amount recoverable on their individual claims. The fear is that class actions under Rule 23 would evaporate if a Defendant could always just throw  few bucks at a class representative and make the claim disappear.

The law in this area continues to be in flux. In Campbell-Ewald the Supreme Court confirmed that an offer to settle a claim exceeding the amount recoverable by a class representative is insufficient to moot a claim at all–a rejected offer is a legal nullity with no effect on an underlying claim (probably).  But the divided Supreme Court in Campbell-Ewald reserved the issue of whether mootness can be bought with an effective delivery of the necessary sums to the Plaintiff.

Since Cambpell Ewald, many have tried and failed to pick off TCPA claims using the old “deposit-money-with-the-court trick.” The Ninth Circuit was first to determine that class representatives cannot be forcefully bought off in Chen v. Allstate Insurance Company, 819 F.3d 1136 (9th Cir. 2016).  The Seventh and Second Circuits have followed suit–although the Seventh Circuit has suggested that a pick off move may create valid grounds to challenge a class representative’s adequacy to represent the class. See Fulton Dental v. Bisco, Inc., 860 F.3d 541 (7th Cir. 2017).

That brings us to Boger. In that case a named class representative received 3 faxes. It sued on behalf of thousands of others that had received similar faxes. The Defendant deposited $6,000.00 with the court for Plaintiff’s benefit–more than Plaintiff could have ever recovered on its individual claim. Defendant then moved to dismiss on the ground that the claim had been mooted by the tender of complete relief.

The Boger court disagreed. Following Chen the court concluded “a class action plaintiff should have the opportunity to seek class certification before a defendant can force a settlement.” Even if a complete payment is made, therefore, the Boger court finds that it does not “necessarily satisfy Boger’s interest in pursuing a class action, which simply cannot be met by any offer that precludes him from seeking class certification.” Boger at *5.

The idea that a Plaintiff has a non-pecuniary “interest” in representing a class that cannot be mooted is curious and does not appear to derive from Rule 23 or any other federal statute. Nonetheless, this notion has cropped up time and again in TCPA “pick off” cases. Keep it in mind folks.

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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.

Currently pending before the U.S. Supreme Court in Obduskey v. Wells Fargo is the question of whether the FDCPA applies to nonjudicial foreclosures. A circuit split currently exists on the issue: the Tenth Circuit in the underlying Obduskey case found that nonjudicial foreclosures do not fall under the FDCPA’s purview, whereas the Sixth Circuit found the opposite.

Directly impacted by this circuit split is a case in the Eastern District of Michigan, Garland v. Orlans PC, No. 18-cv-11561 (E.D. Mich. Nov. 21, 2018), where a judge decided to stay the matter pending the U.S. Supreme Court’s decision on the issue.

Garland, like Obduskey, deals with a nonjudicial foreclosure. Defendant filed a motion to dismiss the case, however the motion to dismiss requests that the matter be stayed (or put on hold) until the U.S. Supreme Court’s decision is released. Since the Eastern District of Michigan sits within the Sixth Circuit, the court would ordinarily be bound by the Sixth Circuit’s precedent. In this matter, it would mean that the FDCPA applies to nonjudicial foreclosures like the one from where this suit stemmed. However, since all courts in the United States — including the Sixth Circuit and the courts within its jurisdiction — are bound by the decisions of the U.S. Supreme Court, the Obduskey decision might overturn the current precedent that binds the Eastern District of Michigan and may require the court to come to a completely different conclusion.

The court agreed with the defendant. Since the Obduskey decision will directly impact the court’s decision in this matter, the court found it would be better to wait. Additionally, the court noted that staying the matter could save a substantial amount of effort and expense for the court and the parties. If the court were to deny the request to stay, the litigation would continue as usual while the Obduskey decision is pending. If the Obduskey decision comes down and finds that the FDCPA does not apply to nonjudicial foreclosures, then the FDCPA claims in this case would be moot and the time, effort, and expense used to continue the litigation would have been wasted. Since the risk of continuing the litigation while Obduskey is pending far outweighs the minimal risk to plaintiff caused by staying the matter, the court decided to grant the request to stay.

insideARM Perspective

Right now, all signs point toward the U.S. Supreme Court siding with the Tenth Circuit. Two relatively recent items support this prediction. First, the Bureau of Consumer Financial Protection (BCFP or Bureau) recently filed an amicus brief in the Obduskey case, siding with the Tenth Circuit and arguing that the FDCPA does not apply to nonjudicial foreclosures. Second, after Justice Brett Kavanaugh joined the bench, the U.S. Supreme Court now has a right-leaning majority that is unlikely to extend the reach of the FDCPA. Based on this, it sounds like the judge in the Garland matter made the right call.

Last month I attended the Online Lending Policy Summit in Washington, D.C. A number of takeaways will be of interest to the ARM industry, including the Federal Reserve’s view of the nation’s regulatory structure, and some pre-election insight into the Democrats’ agenda for leadership of the House Financial Services Committee.

The one-day event was hosted by the Online Lending Policy Institute (OLPI), which is based out of Boston University. It was attended by approximately 200+ (my estimate) state and federal regulators, as well as government affairs and industry stakeholders in the fintech space. Speakers were from the Office of the Comptroller of the Currency (OCC), Treasury, the Bureau of Consumer Financial Protection, Congress, and state regulators/attorneys general.

Overall messages I took away:

• The U.S. regulatory structure is in the way of robust fintech progress
• 10+ federal agencies are vying in uncoordinated fashion to regulate the space
• 50 states, 50 AGs complicate the regulatory environment even further
• There is disparity between treatment of bank vs. non-bank service providers
• There is a constant swing of the pendulum between over and under regulation
• The industry lauded a recent Treasury report about innovation which recommended that:
  • Laws should be harmonized
  • Regulatory overlap should be reduced
  • Regulations should be better tailored for the size and complexity of businesses
  • Credit flow needs to be improved
  • The cost of credit is an important component
  • Innovation is of critical importance – it’s exploding outside of the regulated world, but not inside
  • Regulators should network more (it was noted by a Conference of State Bank Supervisors speaker that this happens more than it used to) and work together (i.e. importance of NMLS).
  • Lending by fintechs currently = 36% of all personal loans
  • The mortgage process will be increasingly more digitized
  • The IRS income verification system should be updated to a modern, technology-driven interface that protects taxpayer information and enables automated and secure data sharing with lenders or designated third parties.

Of particular note is that the report specifically recommends “modernizing rules for digital communications, such as the Telephone Consumer Protection Act and the Fair Debt Collection Practices Act.”

The following are highlights from some of the speakers I thought would be of interest. 

Grovetta Gardiner, Senior Deputy Comptroller for Compliance and Community Affairs at the OCC shared that there is a war of sorts going on between the OCC — which recently announced the availability of a special purpose charter for fintechs (which would allow them to operate nationally and level the playing field, and is in the public interest because their mission is to expand access to the financial system) — and states, which think this usurps their power. She reminded attendees that “innovation is inherent in the banking system” – as examples she said that checking accounts, ATMs and banking by smart phone were all novel when introduced.

Paul Watkins, head of the BCFP Office of Innovation –which, notably, has three employees where the Research group has 40– offered his guiding principles. He said that consumer protection advocates usually relate to the concept of innovation negatively and with skepticism, but as we (the Bureau) were engaging in consumer protection we had to shift from the eyes of just the regulator to the eyes of the consumer. From a consumer perspective, only a small portion of transactions are redressable by enforcement. As a regulator, he said, you have to care because innovation drives competition, and we noticed that regulators around the world were creating sandboxes, promoting innovation through change in regulatory structure.

Watkins reiterated the Bureau’s responsibility to review regulations that may be outdated or unnecessary, and he described their trial disclosure and no action letter programs (which have been essentially unused since created). He said they will be taking a more flexible approach, allowing disclosures to be tested (with the ability to tweak) for up to two years, and trade groups can apply. By the way, consumer groups have bashed this approach as irresponsible. Watkins said he’s learned that it’s rare for fraud to occur in a sandbox; crooks tend to not want to engage with regulators. He noted that most financial disclosures were created for paper delivery and we need to facilitate new ways of communicating with consumers in the market.

He concluded with his core principles of clarity of timing, expectations, and coordination with other regulators. His advice to industry is to know specifically what you want and back it up with statutory support; in other words, “Here’s what we want, and here is how we think you can use your scope of jurisdiction to make the change.” He said, “We just don’t see this from business.”

Rep. Gregory Meeks (D-NY) serves on the House Financial Services Committee. He shared that during law school he used rent to own furniture, and his father used legal and illegal sources of capital to make ends meet.

This event took place just about one month prior to the election. He said, “If we take back the house, I would hope we don’t make the same mistakes. We need compromise. Blue dog dems are more moderate and more likely to compromise and bring us back together. Being from NY, I don’t see how we can say all the financial institutions are bad. The dialogue of Main Street vs. Wall Street is bad. One doesn’t work without the other.”

Meeks confirmed that if the Democrats win control of the House, Maxine Waters would be Chair of the Financial Services Committee, and that she would work to fix/shore up the CFPB (he said CFPB, not BCFP) to restore consumer confidence that someone is working to level the playing field and make sure those that are good get to move forward; those who are bad don’t. He said that opportunities for early wins/cooperation include a charter for online lenders, and rules/regulations from the CFPB to create certainty.

“I’ve started to sit down with consumer groups – to try to compromise and get them to pull back on some of their objections — take the ‘them vs. us’ out of it. The only way to fix the CFPB is through legislation. The problem is we have one head vs. five directors. I may be on the other side of my colleagues on this. It should not be a ping pong ball. That’s not good for anybody. Good folks need certainty. A board would help this.”

You can watch additional highlights here.

insideARM Perspective

I shared a version of this recap the November meeting of the Consumer Relations Consortium (CRC). Innovation and modernization are key focus areas for the group, illustrated in part by our current work on proposing a standard debt collection disclosure form (which would serve as the validation notice) — including a digital-first version, designed to be delivered on a mobile device.  

Other takeaways from the Online Lending Summit that align with CRC initiatives include the concepts that access to large amounts of data will drive the future of the industry, and API standards are needed to facilitate data sharing. 

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

Telephone Consumer Protection Act (TCPA) litigation is hot. Fueled by the DC Circuit Court of Appeal’s decision last March in ACA International v. FCC, callers of all types are being sued and cases before all courts are being appealed faster than we can spell certiorari. Why? Because the stakes are high.

First Comes Confusion

ACA v. FCC left us with little to no definition of an Automatic Telephone Dialing System (ATDS). 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.

Along Came Crunch

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 in the wake of ACA v. FCC.  Departing from the 2nd 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 any device which can store and dial numbers to a consumer’s mobile number is an ATDS.

Marks basically skipped over the words in the statutory definition pertaining to random or sequential number generators and ruled equipment that stores and dials telephone numbers from a list, regardless of whether those numbers were randomly or sequentially generated, is an ATDS, thus classifying the common smart phone as an ATDS. It’s terribly disappointing that the 2nd Circuit did not take the time to define the word “store” as used in the statute. None the less, Crunch San Diego appealed. The 9th Circuit denied its petition and sent Crunch on its way to the U.S. Supreme Court.

Supreme Court Review

Review by the Supreme Court is not automatic. The Supreme Court only accepts cases for review in limited situations — specifically, Rule 10. Considerations Governing Review on Writ of Certiorari, provides:

Review on a writ of certiorari is not a matter of right, but of judicial discretion. A petition for a writ of certiorari will be granted only for compelling reasons. The following, although neither controlling nor fully measuring the Court’s discretion, indicate the character of the reasons the Court considers:

(a) a United States court of appeals has entered a decision in conflict with the decision of another United States court of appeals on the same important matter; has decided an important federal question in a way that conflicts with a decision by a state court of last resort; or has so far departed from the accepted and usual course of judicial proceedings, or sanctioned such a departure by a lower court, as to call for an exercise of this Court’s supervisory power;

Author’s Explanation: Huge conflict among courts of appeals and courts of last resort or some court somewhere came up with some goofball interpretation of the law.

(b) a state court of last resort has decided an important federal question in a way that conflicts with the decision of another state court of last resort or of a United States court of appeals;

Author’s Explanation: Conflict of legal decisions interpreting a federal issue among courts of last resort.

(c) a state court or a United States court of appeals has decided an important question of federal law that has not been, but should be, settled by this Court, or has decided an important federal question in a way that conflicts with relevant decisions of this Court.

Author’s Explanation: A court of last resort or court of appeals has interpreted a federal issue which conflicts with the Supreme Court’s previous or relevant decisions.

My Prediction

Due to the conflict in opinion among Circuit Courts of Appeals interpreting the definition of an ATDS, applying the requirements of Rule 10, I believe the U.S. Supreme Court may very well grant the Crunch San Diego’s petition for certiorari. Should such a review occur, we will hopefully receive the long-awaited answers to questions such as:

• Does an ATDS have to possess the capacity to generate random or sequential numbers and to dial such numbers?
• What is the definition of store? Is storage limited to RAM memory, the load of a pool, or the retention of a call record in the device after call launch?
• If the consumer you intend to call must grant consent or must the consumer you actually call grant TCPA style consent?

For an interesting blog on this topic, click here.

In the meantime, behave conservatively, document consent and revocation, audit to your processes, update your policies and procedures and diagram your call and data flows through your autodialer and your manual contact system. Remember if you do use a manual contact system, make sure it does not store numbers in RAM memory or use or save lists of numbers. Finally, if you need assistance with any aspect of your consumer contact processes or procedures please reach out to me – Happy to consult and happy to help.

Happy Thanksgiving to you my friends.

On November 20, 2018, the Federal Communications Commission’s (FCC) Chairman Ajit Pai issued a press release proposing a reassigned number database and reaffirming the FCC’s fight against robocalls.

According to the release, the reassigned number database “would help legitimate callers know whether telephone numbers have been reassigned to somebody else before calling those numbers so they can direct their calls to parties who asked for them rather than individuals who have subsequently obtained those reassigned numbers.”

The FCC’s top priority remains combatting robocalls, according to Chairman Pai. Chairman Pai also adds that preventing robotexts is also an issue that needs to be addressed.

Ultimately, the release suggests that Chairman Pai wants to establish new rules regarding the reassigned number database and create a Declaratory Ruling on robotexts. The next FCC Open Commission Meeting will be held on December 12, 2018, where these items will be addressed.

insideARM Perspective

Legitimate players in the industry want to ensure that they are calling the right party. The reassigned number database, depending on how it is created and deployed, could help companies ensure they are using their time and efforts to contact the correct person. However, without seeing how the database looks and functions, it is difficult to tell what kind of a compliance and operational burden it will place on companies.

While all of this is going on, the country continues to wait for long-needed clarity on the TCPA. A group of Republican senators submitted a letter to Chairman Pai back in August addressing the need for TCPA clarification. Chairman Pai responded in September saying that he agrees. This all occurred prior to the Ninth Circuit taking a divisive position on the definition of an ATDS in Marks v. Crunch San Diego, LLC. Since yesterday’s press release is silent as to TCPA clarification, it sounds like it may not be addressed at the next Open Commission Meeting, so we continue waiting.