The Eastern District of Wisconsin recently reviewed whether a second validation notice sent within the 30-day validation window of the previous notice has the potential to confuse consumers. In Maloney et al. v. Alliance Collection Agencies, Inc., No. 17-CV-1610 (E.D. Wis. Nov. 6, 2018), the court said yes.

Factual and Procedural Background

The plaintiffs in these case both received two validation letters from Alliance Collection Agencies, Inc. (defendant). The first letter identified the debts owed by the plaintiffs and followed the statutory language to inform the plaintiffs of their validation rights. For each plaintiff, defendant sent a second validation notice within thirty days of sending the first. The second notice included the validation rights language and information about the debts listed in the first notice, but the second notice also listed additional debts owed by the respective plaintiff.

Plaintiffs filed a class action lawsuit against defendant alleging, among other things, that the two notices violated the Fair Debt Collection Practices Act (FDCPA) for being confusing and for misleading consumers about their 1692g validation rights. Both sides filed motions for judgment on the pleading. The below discusses the court’s decision on defendant’s motion.

The Decision

In reviewing a motion for judgment on the pleading, the court is charged with deciding if a judgment is appropriate for the moving party solely based on the information contained in the pleading documents filed with the court.

After reviewing defendant’s motion, the court concluded that it could not grant the motion because it found that a least sophisticated consumer could reasonably be confused by the two notices. Specifically, the court stated that the consumer may be confused about whether the statement of validation rights in the second notice applied only to the new debts listed in the second letter or to all of the debts listed. The court also found that consumers could be mislead into thinking that the validation window for the repeated debts restarted with the second notice when in reality the consumers’ statutory rights began to run with the first notice for those debts.

The court was not persuaded by defendant’s arguments that the letters were not misleading becuase it would have honored the new 30-day validation period. The court stated, “[e]ven if Alliance would voluntarily honor the new 30-day validation period, that would not be apparent to a consumer upon receipt of the letter. In other words, even if the notice were factually true, it could still confuse the consumer.”

Defendants cited case law stating that sending a second validation notice within the 30-day validation window does not violate the FDCPA. However, since this case law was not from the Seventh Circuit, the court declined to follow it.

Based on the above, the court denied defendant’s motion for judgment on the pleadings.

insideARM Perspective

The broader issue exemplified here is that debt collectors that are trying to follow the FDCPA need to alter their practices depending on the jurisdiction they are collecting in. As stated in this decision, some courts may have found that there is nothing wrong with sending a second validation letter, but the Eastern District of Wisconsin is not one of them.

Debt collectors are no strangers to adapting to jurisdiction-specific laws. However, the fact that different federal jurisdictions come to different conclusions on the same law shows just how unclear and subject to interpretation the FDCPA really is. If courts cannot reasonably agree on the same interpretations, then how are debt collectors expected to figure it out? The benefit of the forthcoming third party debt collection rules by the BCFP, due out in March 2019, is that both the industry and the courts will get guidance and more consistent FDCPA court decisions will hopefully come down the pipes.

The results of yesterday’s midterm election shifted the balance of power in Congress, which could mean some changes in store for the financial services industry.

The biggest change occurred in the House of Representatives, where Democrats gained control of the majority. With this change, it is likely that Rep. Maxine Waters (D-CA) will be the next chair of the House Financial Services Committee. After the resignation of the Bureau of Consumer Financial Protection’s (BCFP or Bureau) student loan ombudsman, Rep. Waters introduced a House bill criticizing the Bureau’s leadership under Acting Director Mick Mulvaney. Rep. Waters will likely keep a sharp eye on regulators appointed by President Donald Trump.

Another change for the House Financial Services Committee is that one of its members, Rep. Keith Rothfus (R-PA), lost re-election yesterday to a Democratic candidate, Conor Lamb (D-PA).

Republicans maintained the majority in the Senate. Sherrod Brown (D-OH), the ranking member of the Senate Banking Committee, was re-elected. Of note for the ARM industry, the full senate confirmation vote for Kathy Kraninger as the next director of the BCFP is pending. The Senate Banking Committee voted squarely along party lines to approve Kraninger’s nomination. If the full Senate follows suits, her confirmation is likely to go through.

Since there is now a divide in control of the House and the Senate, one thing we may not see again for a while is the use of the Congressional Review Act (CRA) to stop regulatory rules. Back in 2017, the CRA was used to kill the BCFP’s arbitration rule. At that time, Republicans held the majority in both the House and Senate. This is good news for the debt collection industry, which has been asking the BCFP for guidance on how to comply with the Fair Debt Collection Practices Act in the modern world. Currently, the Bureau’s third-party debt collection rules are set to be released in March 2019. If the CRA is not used to stop the rules, then the industry will recieve the comprehensive guidance it has been waiting for.

One other election result that might be of interest to the industry is that Richard Cordray, the BCFP’s former director, lost the Ohio gubernatorial race. Former director Cordray stepped down from the top role at the Bureau in November 2017 to run for the role of Ohio’s governor.

DEFIANE, Ohio — Credit Adjustments, Inc. (CAI), a values-led, family-owned call center and receivables management company, has announced the hiring of Ricardo King as Chief Compliance Officer & General Counsel. In his new role, Ricardo will lead the compliance team, assume responsibility for all legal activities at CAI and ensure compliance with the relevant laws and regulations that govern CAI’s services. Ricardo brings a wealth of experience to the team, previously working in a variety of industries including private practice, Fortune 500, manufacturing, non-profit and healthcare.

“Ricardo has a vast array of knowledge that is very valuable and critical to CAI’s success,” said Lisa Bloomfield, President of CAI. “He’s an influential leader for our compliance team and plays a key role in guiding our organization through the legalities of our growth, helping us stay compliant at every level. I have full confidence that he is the right person for this critical role and am thrilled to welcome him to our Leadership Team here at CAI.”

With 24 years of experience, Ricardo joins the CAI team as a seasoned veteran. “One of the things that attracted me to this opportunity was the ability to work for an organization that is not only an industry leader in receivables management, but also one that is an active corporate citizen seeking to positively impact all of the communities in which they operate,” says King.

Ricardo grew up in New York City and moved to the Northwest Ohio area to pursue an undergrad in psychology at The University of Toledo, where he met his wife of 22 years. He then attended and graduated law school at the University of Notre Dame before moving back to Northwest Ohio where he and his wife raised their three sons.

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About Credit Adjustments, Inc.

Credit Adjustments, Inc. (CAI) is a world-class leader in receivables management. Founded in 1977 and headquartered in Defiance, OH, CAI has additional call centers in Toledo, OH, and Manchester, NH. CAI employs actionable analytics with experienced personnel to provide a fully secure suite of contact management solutions in first and third-party engagements. As a faith- based corporation, CAI believes it is part of the company’s mission to invest in our communities by partnering with other organizations to help address social issues. CAI follows the motto: Delivering Respect. Collecting Results. To learn more, visit: www.credit-adjustments.com/

Allied Interstate LLC and its parent company, iQor Holdings, Inc., reached a settlement with several California county district attorneys’ offices over call volumes and other debt collection practices. A stipulated judgment in the litigation was entered on October 30, 2018.

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According to a press release issued by the Santa Clara District Attorney’s office, Allied Interstate and iQor allegedly violated the Fair Debt Collection Practices Act, the California Rosenthal Fair Debt Collection Practices Act, and the Telephone Consumer Protection Act by “calling consumers with excessive frequency, sometimes hundreds of times and sometimes calling the wrong person numerous times; failing to cease calling even when advised that they had reached the wrong number; and using a robo-dialer, known as a ‘predictive dialer,’ to place calls to the cell phones of consumers without having adequate proof that the consumer had consented to be called on their cell phone.”

The legal action commenced on September 14, 2016, when the district attorneys’ offices of Los Angeles, Riverside, San Diego and Santa Clara counties filed suit. Throughout the life of the case, fourteen other county district attorneys’ offices in California joined as plaintiffs.

insideARM Perspective

Information about the substance of this case has thus far been limited to the district attorneys’ press releases. The Los Angeles County Court online case docket shows the actions taken in the litigation; unfortunately, a copy of the stipulated judgment is unavailable. However, insideARM obtained the following comment from iQor telling its side of the story:

To avoid the time and expense of further litigation, Allied Interstate LLC has reached a settlement with district attorneys representing the People of the State of California to conclude a 2016 lawsuit. The settlement involves no admission of liability or finding of wrongdoing. The case focused primarily on calls that Allied placed to certain California consumers dating back to 2011-2013. Allied maintains that such calls were lawful, including under California’s Rosenthal Act. Contrary to public announcements from the District Attorneys, the company does not engage in the practices addressed in the settlement and has long had robust compliance policies and best-in-class training to prevent them. Under its current leadership team, Allied has enjoyed an A(+/-) rating from the Better Business Bureau for the last three years and will continue to update its policies in response to the evolving law governing its industry.

SAN FRANCISCO, Calif. —  The City of San Francisco Office of the Treasurer and Tax Collector (TTX) exactly one year ago launched their first Cloud Financial Ecosystem, “CSS IMPACT! HD™ 2.0”. CSS, Inc., the developers of “IMPACT! HD™ 2.0” are the leading provider of Cloud Financial Ecosystem platforms for enterprises & government.

“Our first year on IMPACT HD 2.0 was a huge success! Through leveraging their robust and innovative automation tools, accessible workflow controls and the creativity and guidance from their devoted support team we greatly increased the effectiveness of our collection outreach, improved the efficiency of multiple business processes and enhanced the quality of the collection services we provide to our City government clients. This has been a great and valuable partnership,” said Jeff Smejkal, Assistant Director, Bureau of Delinquent Revenue CCSF Office of the Treasurer & Tax Collector.

CSS’s financial cloud architecture removes the debilitating costs of acquiring new technology and workforces to overcome fundamental day to day processes. Municipalities, like the City of San Francisco, have experienced a huge uplift in automation with CSS’s cloud Financial Ecosystem platform, enabling them to cost-effectively leverage the latest financial technology rapidly and with the added benefit of a streamlined workforce. This in turn frees the City’s veteran operations staff to focus solely on revenue management and customer service.

“The City of San Francisco is the leading authority in FinTech. We are honored & privileged to have been recognized by the City for our advanced Financial Ecosystem Technology, as well as becoming the City’s first ever approved Cloud platform. We look forward to a long partnership with the great City of San Francisco,” said Carl A. Briganti, President of CSS, Inc.

To learn more about how municipalities are leveraging CSS’s Financial Ecosystem cloud, please visit http://www.cssimpact.com/software/tax-information-platform-system or download our tax platform brochure at http://tax.cssimpact.com.

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About San Francisco – Office of the Treasurer and Tax Collector (TTX)

The Office of the Treasurer & Tax Collector serves as the banker, tax collector, collection agent, and investment officer for the City and County of San Francisco.

For more information, visit http://www.sfgov.org.

About CSS, Inc.

CSS is a leading provider of end-to-end cloud Financial Ecosystem platforms & Contact Center solutions for enterprises that generate & manage mass receivables, payments, recoveries & revenues. By delivering cognitive cloud Financial Ecosystems technology, CSS helps enterprises & municipalities improve and automate all their daily financial processes, consumer engagement & business process.

For more information, download our brochure at http://brochure.cssimpact.com or visit us http://www.cssimpact.com or call 877-277-4621.

NEW YORK, N.Y. — RIP Medical Debt announced a national campaign today that will forgive $250 million in medical debt across the country before the year’s end. This is the biggest medical debt abolishment in the history of the United States and was made possible by one couple’s generous donation.

RIP Medical Debt is a nonprofit that qualifies and helps groups of individuals and families by buying large portfolios of debt from medical providers and debt sellers on the debt market (for pennies on the dollar) and forgiving it. As little as $1 donated to RIP can alleviate $100 of medical debt. The debt is removed from credit reports and can no longer be collected on.

The couple responsible for the charitable donation said, “Catastrophic illness strikes people in all walks of life without warning. Paralyzing medical debt hits people when they’re down, turning tragedy to travesty. A quarter billion dollars is just the tip of the immense iceberg of debt submerging millions of Americans in a sea of hopelessness that can adversely affect the course of their illnesses, damaging their ability to recover. We only wish that we could do more. We pray for a day when disease is the only thing patients will need to fight and the one-two punch of life-threatening illness and overwhelming debt will no longer face so many of our fellow Americans.”

The debt will be forgiven in stages. $150 million will be forgiven immediately, with random recipients receiving branded RIP abolishment letters, noticeable by their yellow envelopes, by November 6th. $50 million of that debt will be for U.S. veterans and their families. The rest of the funds will power medical debt relief through the year’s end – with a $50 million mailing for Thanksgiving, and another $50 million for the holidays.

“Healthcare financing is a major crisis in the U.S. This extraordinary act will bring hope to so many people who have felt they were carrying this burden alone at a time when they need it most”, said RIP co-founders Jerry Ashton and Craig Antico.

Medical Debt Statistics

• 1 in 5 people living in the U.S. are grappling with medical debt;
• Nearly 50% of all credit card debt in the US is from medical debt;
• Medical debt contributes to 60% of all bankruptcies in America; and
• More than 40% of Americans wouldn’t be able to cover an emergency expense of $400.

About RIP

RIP Medical Debt is a nonprofit that buys and forgives medical debt across America. RIP works with individual donors, philanthropists and organizations to purchase medical debt for pennies on the dollar to provide financial relief for those burdened by impossible medical bills. Founded in 2014 by two former collections industry executives, Craig Antico & Jerry Ashton, RIP rose to national prominence on an episode of HBO’s “Last Week Tonight” with John Oliver in which RIP facilitated the abolishment of $15M in medical debt. To learn more visit www.ripmedicaldebt.org.

Third-party debt collectors take note: there may have been an unannounced change in the regulations governing third-party collection agencies in Massachusetts. Traditionally, the Massachusetts Division of Banks (DOB) regulated third-party debt collectors while the Massachusetts Attorney General’s Office (AG) regulated creditors. Without an announcement or warning, the AG recently changed its website to now list third-party debt collectors as entities that it regulates.

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Background

Massachusetts splits the regulation of debt collection practices. In a January 2007 press release, the AG stated that it regulates debt collection practices by creditors through 940 C.M.R. 7.00 and the DOB regulates debt collection practices by debt collection agencies through 209 C.M.R. 18.00.

The mortgage crisis of 2009 brought an increase in certain collection practices such as filing foreclosure actions without proper documentation and debt buyers purchasing and trying to revive zombie debt. In response, the AG amended its rules to include passive debt buyers in the definition of “creditor,” placing them within the umbrella of the AG’s regulatory oversight.

This amendment caused uncertainty about where traditional third-party agencies fell within the regulatory environment in Massachusetts. Debt collection industry representatives from ACA International and the New England Collectors Association met with the AG to get clarity on the issue. At that time, the AG gave verbal assurances that the amendment’s intention was to deal with non-collection agency entities and that it did not apply to third party debt collectors. Based on these assurances, ACA International released guidance to its members that third-party debt collectors are not “creditors” under the amendment, and thus are not governed by the AG rules.

Nonetheless, questions began to arise within the industry about the applicability of the AG rules to traditional debt collectors. On February 28, 2018, ACA International sent a letter to the AG requesting confirmation that the previous assurances received from the AG’s office were still correct. insideARM previously published an article about ACA International’s request. The AG did not respond to this letter. 

As recently as September 22, 2016, the AG’s office and the DOB maintained that regulation of third-party debt collectors was the responsibility of the DOB, not the AG. At a hearing attended by both the AG and DOB Commissioner David Cotney, Cotney stated, “…the Division [of Banks] licenses and supervises third-party debt collectors, as well as debt buyers actively engaged in debt collection activity. The Office of the Attorney General oversees creditors, including passive debt buyers, through its regulation, 940 CMR 7.00.” The AG gave no indication during the hearing that this description was incorrect or that the AG also regulated third-party debt collectors.

Website Change

At some point, the AG quietly updated its website to include third-party debt collectors in the list of entities that it regulates. The images below show the difference between the old website and the new website. insideARM added the red underline emphasis to the images below.

Old website as of December 6, 2017 according to a source:

New website as visible today:

insideARM Perspective

Third-party debt collection agencies should review and take note of this change. The AG’s rules differ from the DOB rules. For example, the verification requirements under the AG rules contain more procedures than the DOB rules. If this is indeed a change, then clarification needs to be provided by both the AG and the DOB on how third-party debt collection agencies are supposed to proceed.

More concerning is the covert, unannounced change implemented by the AG after it provided assurances to the industry that its rules did not govern third-party debt collection agencies. The language of the two Code of Massachusetts Regulations (CMR) sections have not changed, only the language on the AG’s website.

Many questions arise out of this situation:

• Why was the website change not announced, especially considering prior guidance by the AG?
• Why was the website change done under the cover of darkness when ACA International openly requested guidance on this very issue?
• Does the website language change, without a change in the CMR, mean that third-party debt collectors are now also subject to the AG rules?
• Why is there a need for third-party debt collectors to follow a second, separate set of rules when they are already fully regulated by the DOB?

One thing is for sure: the industry needs clarification on this issue.

LAKEVILLE, Minn. — CenterPoint Legal Solutions (CPLS) was a proud sponsor last month for Tee it up for the Troops at Brackett’s Crossing Country Club. Tee It Up for the Troops, Inc. (TIUFTT) is a non-profit organization whose mission is to honor, remember, respect and support all those who serve(d) in the armed forces for this great nation. TIUFTT has donated over $7,000,000 to more than 300 veterans support organizations since their inception in 2005. Seven of the 35 annual TIUFTT events are held in Minnesota; which is CenterPoint’s headquarters.

Mark Hutchins (COO at CenterPoint) jumped at the opportunity to support in this event. Mark noted, “There is no greater honor than honoring those that have served. We appreciate having the opportunity to support such a great organization and the wonderful contributions they give to our veterans”.

Aaron Rose (President of CenterPoint) represented CPLS on the course. In Aaron Rose fashion, he did so sporting Red, White and Blue star-spangled attire to go along with the patriotic theme and high-energy of the day. The CPLS team consisted of Gress Hickman, Cooper Warren, Rusty Golfis, and Aaron Rose. Aaron noted, “It’s always special to sponsor and participate in Tee It Up for the Troops events. Not only is it a most worthy cause, it’s a first-class event attended by a very caring, giving community. Hats off to our veterans and all who support them.”

For Tee it up for the Troops events near you, visit the Events Page.

About CenterPoint Legal Solutions

CenterPoint Legal Solutions provides a full-scale Non-Performing Judgment Program, Verified Place of Employment Services, and Litigation Recovery Solutions that include a skilled network of collection agencies and law firms, industry-leading compliance management systems, data verification and support services.

CenterPoint strives for unmatched transparency and integrity to increase trust and create value for all stakeholders. This is done through comprehensive analysis, oversight, and hands-on management to enhance consumer experience, reduce risk, and safeguard the brand image of clients. Their mission is to provide positive experiences, services, and solutions, thus improving the welfare of consumers, clients and employees

On October 23, 2018, the Federal Trade Commission and New York Attorney General filed a lawsuit against multiple defendants for a debt collection scheme where the defendants tricked consumers into paying more money than they owed.

The complaint, filed in the Western District of New York, alleges that the defendants’ employees:

• Did not reveal during initial calls with consumers that they were debt collectors; instead, the employees pretended to be law enforcement officers or process servers.
• Made threats of arrest for committing a crime or litigation to consumers in order to get them to pay their debts;
• Inflated the amount owed by the consumer up to thousands of dollars in order to coerce payments;and
• Used profane language while peaking with consumers.

The defendants include multiple companies and one individual, who controls the operations of these debt collectors.

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insideARM Perspective

Practices such as those alleged in this complaint undermine the tireless efforts and reputation of legitimate debt collectors. Unfortunately, there are bad actors out there and everyone would agree they should be stopped.

However, it is also important to remember that there are many debt collectors that genuinely try to do the right thing. Many legitimate debt collection agencies and firms exist that treat consumers kindly and fairly. These legitimate companies devote a lot of effort and resources to ensure that they comply with the vast amount of laws and regulations that govern the industry, some of which are vague and outdated. Many of these companies give back to their community as seen by the many articles on insideARM about charitable works. These legitimate companies should continue their efforts and be encouraged when regulators stop bad actors that tarnish the good reputation they are trying to build.

On Monday, the Second Circuit issued a summary order in DeRosa v. CAC Financial Corp., No. 17-3189 (2d Cir. Oct. 29, 2018), upholding the district court’s summary judgment in favor of CAC Financial Corp. (CAC). The Second Circuit shot down the issue it did not address in Taylor v. Financial Recovery Services, Inc.: whether interest is still technically accruing for Avila purposes if the original creditor charged interest and the underlying credit agreement states that interest would accrue even in default.

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Factual and Procedural Background

insideARM previously published an article discussing what occured in the district court case. To summarize, CAC sent a collection letter to the consumer without a disclosure that interest is or is not accruing. The consumer filed a Fair Debt Collection Practices Act (FDCPA) lawsuit against CAC alleging that failure to include an interest disclosure did not accurately convey the amount of the debt. The district court granted summary judgment in favor of CAC stating that there was no need to include an interest disclosure if the balance was static. The consumer appealed to the Second Circuit.

While this case was on appeal, the Second Circuit sided with the debt collector in Taylor v. Financial Recovery Services. In Taylor, the court found that debt collection letters are not false or misleading if the balance is static and the letters are silent as to interest.

According to this case’s PACER docket, counsel for the consumer did not appear for oral arguments before the Second Circuit.

The Decision

The Second Circuit affirmed the district court’s decision, finding that the consumer failed to raise a genuine issue of fact about interest continuing to accrue on the account.

The court stated that CAC put forth sufficient evidence to show that interest was not accruing on the account while it was placed with CAC. This evidence included a declaration from CAC stating that the amount on the account remained static and two collection letters that show the balance did not increase between the months of June and August.

The consumer’s argument relied on two pieces of evidence. The first piece of evidence was the consumer provided a personal declaration stating that the account previously accrued interest. The second piece of evidence was the credit card agreement indicating that interest and fees would continue to accrue even in default.

The court did not find either of these pieces of evidence persuasive, stating:

The fact that the account accrued interest and fees when being administered by the original creditor is not indicative of how the account would function when transferred to a debt collection agency like CAC. It is thus speculative to claim that the underlying account would continue to accrue interest and fees when the account had been transferred or assigned to another party for collection. Speculation alone is not enough to defeat a motion for summary judgment.

insideARM Perspective

Avila-related interest disclosure cases were filed in mass quantities against debt collectors over the past couple of years. A disclosure that interest is accruing on an account makes sense. However, the “reverse Avila” argument — that debt collectors need to explicitly state that interest is not accruing for static accounts — baffled many, including the courts.

The district court’s opinion in the Taylor case was among the first to find that a debt collector need not include any sort of interest disclosure for static accounts. That decision came out in June 2017. Shortly after this, court opinions siding with debt collectors come out one after the other, including, but not limited to:

• October 2017: The underlying district court decision in DeRosa.
• November 2017: Cruz v. Credit Control Services, Inc., finding pre-judgment interest does not trigger Avila disclosure requirements.
• December 2017: Altieri v. Overton, Russell, Doerr, and Donovan, LLP, coming to the same conclusion on pre-judgment interest as the Cruz case above.
• December 2017: Kraus v. Professional Collections Bureau of Maryland, Inc., where the Eastern District of New York ripped into the plaintiff’s bar on the absurdity of the reverse Avila claims.
• March 2018: The Second Circuit’s decision in Taylor v. Financial Recovery Services.
• May 2018: The Second Circuit’s refusal to rehear the Taylor case en banc.

Considering the Second Circuit’s DeRosa decision, it is difficult to see how plaintiffs who still have outstanding reverse-Avila claims can continue fighting them. It’s time for these claims to be voluntarily dismissed and this issue to be put to bed once and for all.