Yesterday the U.S. Court of Appeals for the Second Circuit denied a petition by plaintiffs Christine Taylor and Christina Klein for a rehearing, or a rehearing en banc (by the full court), in their case against Financial Recovery Services, Inc. (FRS).

In a decision released March 29, 2018, the 2^nd Circuit upheld the district court’s opinion in Taylor v. FRS. In Taylor, the district court found that not including an interest disclosure was not a violation of the FDCPA. The 2^nd Circuit agreed with the district court, finding that the concerns addressed in Avila were not present in the Taylor case.

The court referenced that in Avila, the consumer could be misled into thinking that he paid the account in full by paying the balance listed on the letter when this was not in fact so because interest would have accrued on the balance between the date of the letter and the date the payment is processed. The 2^nd Circuit found that this was not a concern in Taylor because had the consumer paid the balance on FRS’s letter, then the account would have indeed been paid in full. In its decision, the court said,

“It is hard to see how or where the FDCPA imposes a duty on debt collectors to encourage consumers to delay repayment of their debts. And requiring debt collectors to draw attention to the fact that a previously dynamic debt is now static might even create a perverse incentive for them to continue accruing interest or fees on debts when they might not otherwise do so. Construing the FDCPA in light of its consumer protection purpose, we hold that a collection notice that fails to disclose that interest and fees are not currently accruing on a debt is not misleading within the meaning of Section 1692e.”

insideARM Perspective

John Rossman, Attorney with Moss & Barnett (the law firm that prevailed in the Taylor case), commented on this recent development:

“Too often debt collectors are sued for making clear statements in communications that comply with existing law.  This case, coupled with other recent cases focusing on the materiality of purported FDCPA violations, evidence that courts can and will reject theoretical and hypothetical claimed violations of the FDCPA.  Any debt collector named as a Defendant in an FDCPA lawsuit should carefully examine the facts and law of the claims to determine if a common sense defense such as this can be maintained.”

insideARM has previously written about other cases involving the FRS and the statement regarding tax consequences. See the article on the Remington case here and the Everett case here. Click here to listen to a podcast on the topic from Moss & Barnett. 

 

Yesterday the Federal Communications Commission (FCC) published a Notice seeking comment on how it might re-interpret the Telephone Consumer Protection Act (TCPA) in light of the recent D.C. Circuit Court Decision in ACA International v. FCC.

In March, the court reversed several key provisions in the FCC’s 2015 TCPA expansion, including the FCC’s autodialer definition as well as the regulator’s approach to the treatment of consent and reassigned phone numbers. The industry had been waiting for the outcome of the case since it was filed by ACA International within days of the 2015 Declaratory Ruling and Order.  

The March 2018 decision leaves the FCC back at square one, with industry once again calling for clarification of the law, but hoping that this time the definition will be different.

The Public Notice issued yesterday asks the following questions:

1. What constitutes an “automatic telephone dialing system” (ATDS)?
2. How should calls to reassigned wireless numbers be treated?
3. How may a called party revoke prior express consent to receive robocalls?

The Notice also requests input on the following related open matters:

1. Two pending petitions take opposite positions regarding the FCC’s interpretation of “person” in the Broadnet Declaratory Ruling. One asks the FCC to clarify that federal government contractors are “persons” under the TCPA. The other asks the FCC to clarify that contractors acting on behalf of the federal government are not “persons” under the TCPA.
2. A pending petition for reconsideration of the 2016 Federal Debt Collection Rules which asks: If a federal contractor is not a “person” for purposes of the TCPA (as per the Broadnet decision), would the 2016 Federal Debt Collection Rules apply to a federal contractor collecting a federal debt? The petition argues that the Rules are not supported by the text of the statute and are contrary to Congress’s intent, and that the FCC’s 2016 interpretation of its rulemaking authority is impermissibly broad.

Read the full Public Notice here.

Interested parties may file comments by June 13, 2018, and replies to comments by June 28, 2018.

insideARM Perspective

2018 will certainly go down as the year the ARM industry gets its chance to have a say – in front of a friendly ear. Former FCC Chairman Thomas Wheeler was the primary architect of the rules. He has since been replaced as Chairman by former Commissioner Ajit Pai, who had been an outspoken critic of policies enacted under Wheeler.

Pai’s dissent in the July 10, 2015 TCPA Omnibus Declaratory Ruling and Order provides some insight into his thinking regarding the TCPA and its application to legitimate business communications with consumers:

“The TCPA’s private right of action and $500 statutory penalty could incentivize plaintiffs to go after the illegal telemarketers, the over-the-phone scam artists, and the foreign fraudsters. But trial lawyers have found legitimate, domestic businesses a much more profitable target. As Adonis Hoffman, former Chief of Staff to Commissioner Clyburn, recently wrote in The Wall Street Journal, a trial lawyer can collect about $2.4 million per suit by targeting American companies.

So it’s no surprise the TCPA has become the poster child for lawsuit abuse, with the number of TCPA cases filed each year skyrocketing from 14 in 2008 to 1,908 in the first nine months of 2014.

Some lawyers go to ridiculous lengths to generate new TCPA business. They have asked family members, friends, and significant others to download calling, voicemail, and texting apps in order to sue the companies behind each app. Others have bought cheap, prepaid wireless phones so they can sue any business that calls them by accident. One man in California even hired staff to log every wrong-number call he received, issue demand letters to purported violators, and negotiate settlements. Only after he was the lead plaintiff in over 600 lawsuits did the courts finally agree that he was a ‘vexatious litigant.’ 

The common thread here is that in practice the TCPA has strayed far from its original purpose. And the FCC has the power to fix that. We could be taking aggressive enforcement action against those who violate the federal Do-Not-Call rules. We could be establishing a safe harbor so that carriers could block spoofed calls from overseas without fear of liability. And we could be shutting down the abusive lawsuits by closing the legal loopholes that trial lawyers have exploited to target legitimate communications between businesses and consumers.

Instead, the Order takes the opposite tack. Rather than focus on the illegal telemarketing calls that consumers really care about, the Order twists the law’s words even further to target useful communications between legitimate businesses and their customers.561 This Order will make abuse of the TCPA much, much easier. And the primary beneficiaries will be trial lawyers, not the American public.” 

Now that the court has opened the door to reconsideration of the Ruling, we may get to see Pai’s influence on the re-interpretation.

The Bureau of Consumer Financial Protection (BCFP, or CFPB) has issued its spring rulemaking update. Once again, debt collection remains on the docket, but is pushed down the road. A process that began with an Advanced Notice of Proposed Rulemaking (ANPR) in 2013, is now scheduled to produce a Notice of Proposed Rulemaking (NPR) in March 2019. And that’s still not the end of it.

As the latest notice reads,

“The Bureau has been engaged in research and pre-rulemaking activities regarding debt-collection practices. Debt collection continues to be a top source of complaints to the Bureau. The Bureau has also received encouragement from industry to engage in rulemaking to resolve conflicts in case law and address issues of concern under the Fair Debt Collection Practices Act (FDCPA), such as the application of the FDCPA to modern communication technologies under the 40-year-old statute. The Bureau released an outline of proposals under consideration in July 2016, concerning practices by companies that are debt collectors under the FDCPA, in advance of convening a panel in August 2016, under the Small Business Regulatory Enforcement Fairness Act in conjunction with the Office of Management and Budget and the Small Business Administration’s Chief Counsel for Advocacy to consult with representatives of small businesses that might be affected by the rulemaking. The Bureau is preparing a proposed rule focused on FDCPA collectors that may address such issues as communication practices and consumer disclosures.”

insideARM Perspective

This lengthy timeline is a reflection of many factors. One, under former CFPB Director Cordray, all rules passed through his office. This created the true definition of a bottleneck, and — although he never missed an opportunity to say how many debt collection complaints his agency received — other matters were higher priorities. Two, I got the impression that debt collection issues turned out to be a lot more complex than the team originally expected. This required a lot of learning, and ultimately, a disentangling of creditor rules from third party rules. Three, the departure of former Director Cordray and the arrival of the current Acting Director Mick Mulvaney have changed the Bureau’s approach to… well, everything. 

The fact that a NPR has now been officially pushed from 2018 to 2019 may reflect the fact that things are again being revisited. This could be a positive development for the ARM industry, which has been pushing hard for guidelines around the use of modern communication channels, and clarity related to disclosures. Sources had told insideARM last fall that the Bureau was very close to releasing an NPR when Director Cordray suddenly resigned in November. That NPR was likely not going to fully address industry concerns. When Acting Director Mulvaney took over, everything was on the table for review, and debt collection rulemaking again hit at least a side burner, if not one in the back.

One way or the other, it now seems likely that debt collection rulemaking will see a third Director before moving to its next official stage — release of a Notice of Proposed Rulemaking. Reports have indicated that President Trump is likely to wait as long as possible to nominate a permanent Director in order to allow Mulvaney to remain in place. This means a nomination on or just before June 22, the last day the law would allow Mulvaney to stay in his temporary job. This date can be extended if Congress is considering a nomination. 

According to numerous reports, President Trump is expected to name J. Mark McWatters, the current chairman of the National Credit Union Administration. The Washington Post reported on Friday that McWatters runs NCUA, which is based in Washington, D.C., from his home in Dallas, Texas, and that he is only present in the office a few days per month.  

Many already complain that Acting Director Mulvaney is only on the job at the Bureau three days per week, because he has another full time job — as Director of the White House Office of Management and Budget. It’s unclear whether a full-time-but-remote tradeoff would be better. What’s also unclear is whether McWatters — or whoever ultimately becomes the permanent director — will keep Mulvaney’s new operating philosophy and infrastructure in place. If not, I suspect that could push off a debt collection NPR even further.

 

 

The judge in the case of FMS v. USA (Department of Education or ED) set a deadline of last Friday for all parties to notify the court whether they intended to oppose ED’s motion to dismiss the case. ED is seeking to end the litigation in light of its cancellation of the contested solicitation for unrestricted private debt collection contractors. Unfortunately for ED, the matter isn’t going away just yet.

Here is the scorecard as of the Friday deadline:

• Thirteen parties said they intend to oppose the motion to dismiss the case: Account Control Technology, CBE Group, Continental Service Group, FMS, GC Services, Transworld Systems, Performant Corp., Progressive Financial Services, Windham Professionals, Texas Guaranteed Student Loan Corp., Value Recovery Holding, Williams & Fudge, and Central Credit Services.
• Two parties notified the court that they will not oppose the motion: EOS USA and Automated Collection Services.
• Five parties said they would not oppose the motion but want to remain involved as an interested party as long as there are proceedings in the case: Alltran, Pioneer Credit Recovery, Coast Professional, Immediate Credit Recovery, and Allied Interstate.

To encourage a quick resolution to the motion to dismiss, the court ordered all parties to file their responses to ED’s motion on or before this Friday, May 18; the Government is then ordered to file its reply by Wednesday May 23. Based on this Judge Wheelers past actions, we can expect a fast turnaround.

Background

For those who need the incredibly short recap…This all started in 2014 when the five-year 2009 contract ended, and new large-firm awards were delayed. Eventually, contracts were awarded in 2016 to seven large companies, down from 17 on the previous contract. This led to dozens of protests by firms that believed the process was flawed and unfair. So began Chapter Two of the matter, with a “re-do” of the solicitation, which resulted in awards to just two large companies. This led to more protests, and finally… nothing. No large company awards at all, as ED cancelled the whole solicitation on May 3, 2018, rescinded the contract awards from the two companies, and filed a motion to dismiss the litigation. And so began Chapter Three, with 13 parties opposing that motion.

For those who want to review all of the details, click here for the full coverage of the Department of Education collection contract on insideARM.

Another internal memo from Acting CFPB (or BCFP) Director Mick Mulvaney has leaked to… well, it seems, everyone… announced more changes coming to the Bureau. Here are the highlights he announced yesterday:

The Office of Students and Young Consumers will be “folded” into Office of Consumer Education and Engagement (also known as the Office of Financial Education)

Consumer advocates and Democrats are livid. A statement in American Banker says the office will “Essentially [be] working on pamphlets and web content about student loans.”

Sen. Sherod Brown commented,

“Mick Mulvaney has defaulted on his obligation to help the thousands of Americans who are struggling with unfair student loans. The President should quickly nominate a Director with bipartisan support and a track record of strong consumer advocacy.”

Christopher Peterson, financial services director at Consumer Federation of America, said:

“Shuttering the CFPB’s student lending office is an appalling step in a longer march toward the elimination of meaningful American consumer protection law. This actively promotes greater profits for a handful of debt collection businesses at the expense of mistakes, neglect and confusion for millions of student loan borrowers.”

Allied Progress said,

“To date, the CFPB has received at least 53,000 complaints about student loans from consumers around the country. Student loan borrowers deserve a champion at the CFPB – Mick Mulvaney is nothing but an industry stooge who will do whatever it takes to support Education Secretary Betsy DeVos…”

About this change, CFPB spokesman John Czwartacki said,

“This is a very modest organizational chart change to keep the Bureau in line with the statute but the office is still operating within the same division. The work of the office continues, personnel are all on the job and working on the same material as they were before. The bottom line is there is no functional or even practical change.”

But NPR reports that some staffers, who spoke on condition of anonymity, don’t think this is true.

A new Office on Costs and Benefits Analysis will be established, reporting to the Director.

This may not come as a surprise, given Mulvaney’s extensive set of Requests for Information (RFI). Many view this initiative as evidence-gathering to support changes in the bureau’s operations.

Lisa Donner, executive director of Americans for Financial Reform said about the development,

“Why is Mick Mulvaney creating a new office on ‘costs and benefits’ directly under his control, when the CFPB already has a robust research department?” 

The Office of Fair-Lending and Equal Opportunity will merge with Office of Equal Opportunity and Fairness, which handles internal employee issues, and report to the Director.

This move was announced earlier in the year but has not yet taken place. A report by the Brookings Institute said,

“It may not be immediately apparent, but the Acting Director of the Consumer Financial Protection Bureau Mick Mulvaney’s decision to re-brand the Office of Fair Lending and Equal Opportunity (OFLEO) will significantly reduce the Bureau’s ability to police discriminatory lending. Converting the Office of Fair Lending to one of internal policy advocacy will in effect dismantle it, creating a significant step backward for those whose goal is eliminating racial discrimination in lending.”

Ben Olson, a partner at Buckley Sandler and former CFPB official, told American Banker,

“[Yesterday’s memo] suggests that it hasn’t happened yet; the union has objected. The practical reality is that, regardless of where the office sits, it cannot take any significant action without the acting director’s approval.”

A management layer of political appointees is in the process of being established.

insideARM has reported on a number of new appointments, but to date these are not reflected on the CFPB organization chart. Mulvaney’s memo suggests that will soon be updated, and “…will also highlight that the [policy associate directors] are my representatives in each division.” 

An Office of Innovation has been created (this was previously Project Catalyst).

Project Catalyst has received criticism for not actually accomplishing anything. In its 5~ish years of existence, the office issued just one no-action letter. Ben Olson also told American Banker he thinks there will be more action from this Office now, including “providing more advisory guidance on e-commerce or new types of financial services products that don’t fit within the lines drawn by regulations that were written before those products exist.”

insideARM Perspective

The last major leaked Mulvaney memo was from January 2018. In that one, he suggested that debt collection rules may be coming. So far that has not materialized, but he has hired Tom Pahl, who spent three years on debt collection rulemaking, then left to return to the Federal Trade Commission. Pahl returned to the Bureau last month as a political appointee, with a lot more authority than he had previously. Bureau staff has also considerably ramped up its engagement with debt collection stakeholders.

Mulvaney also said in January that the Bureau would be reviewing everything they do, which has come to pass in the form of 12 formal Requests for Information.

The Office of Innovation could be interesting for the ARM industry, which has been especially affected by regulations that were written before much of today’s communications technology existed. I’m going to watch this.

Finally, the confluence of developments at the CFPB and the Department of Education are indeed interesting, especially if they have been coordinated. ED has annouced plans to launch an incredibly ambitious systems project to build a centralized database for student loan servicing and collections. which is really only just getting underway. A lot of their strategy is riding on this — which is fine, but it seems so likely that a project of this scope can’t possibly launch, successfully, on the aggressive timeline expected. Meanwhile, this system is already part of a plan to better manage loans prior to default. And, meanwhile, ED has cancelled a solicitation for large contractors to handle collection work for defaulted accounts. Instead, they will rely on small contractors — who will now be in the position of outsourcing to, and managing the work of, large businesses, which requires a significant number of staff and experience. 

But I digress.

 

 

 

For any industry group to be worth the time, it has to deliver value. For insideARM, bringing the Consumer Relations Consortium (CRC) and Innovation Council members together to solve industry challenges doesn’t only add value to our members, it fundamentally shapes the future of the ARM industry. It’s truly what drives the insideARM team.

Over the last sixty days, insideARM, in partnership with our CRC/Innovation Council members, have been on a quest to develop an industry innovation roadmap as part of our #BetterWay project.  

What we’ve accomplished:

• Gathered data through seventeen hours of interviews with member companies to identify top challenges
• Analyzed results and provided a comprehensive view of where we need to focus
• Shared priorities in our April Innovation Council meeting in Washington, DC
• Facilitated solution design session for priority #1 with industry creditors, agencies and technology leaders 
• Engaged a working group to advance progress on the process that started in Washington

Categories rising to the top:

BRIDGE THE GAP – building trust during and after the handoff of customers from the creditor to the agency; contact information, customer preference, consent management, etc.

SUBSTANTIATION – streamlining and improving the ability to validate the existence of the debt across servicing parties; historical account information, statements, etc.

BIG DATA – exploring ways that the plethora of data housed and stored across companies and platforms can be safely leveraged for industry trends, modeling and analysis

DATA STANDARDS – addressing the fact that agencies and creditors work with dozens – or even hundreds – of ETLs (extract, transform, load) across their client base. This initiative would explore how to establish a uniform approach that provides benefits for creditors to adopt the standard. 

What now?

We get to work – the first working group of CRC/Innovation Council members has been commissioned to advance the findings and explore ways to bring them to market.

We’ll be sharing further insights on the #BetterWay Project at the First Party Summit, June 4-6 in Dallas, TX. 

Session Overview

Panel Discussion – The Path to a #BetterWay

Thanks to many industry leaders committed to finding a “BetterWay, we’ve gained tremendous insight into the core challenges requiring innovation across the ARM industry. Get a glimpse into the highly impactful and strategic work and what it will mean for you.

Brad Bartram, COO, Pairity AI

Isaac Goldman, COO, Vertican Technologies

Ed Bray, Head of Collections and Recovery Strategy, Citizens Bank

Michael Meyer, Chief Risk and Chief Security Officer, MRS BPO LLC

Amy Perkins, Chief of Content and Industry Intelligence, insideARM

Click here to see the full agenda and register to attend.

On Tuesday Performant Financial Corporation (Nasdaq: PFMT) reported financial results for its first quarter ended March 31, 2018. As one of the two firms that had been awarded a Department of Education student loan collection contract in January, the company’s CEO comments on ED’s cancellation of the large company debt collection program.

Highlights

• Total revenues of $57.0 million, compared to revenues of $33.1 million in the prior year period, up 72.2%
• Net income of $8.5 million, or $0.16 per diluted share, compared to a net loss of $3.0 million, or $(0.06) per diluted share, in the prior year period
• Adjusted EBITDA of $(3.4) million, compared to adjusted EBITDA of $2.8 million in the prior year period
• Adjusted net loss of $4.3 million, or $(0.08) per diluted share, compared to an adjusted net loss of $1.9 million or $(0.04) per diluted share in the prior year period

The company provided the following update regarding its Department of Education defaulted federal student loans award:

On January 11, 2018, the Department of Education announced that Performant Recovery, Inc., and another company had been awarded contracts to provide debt-collection services on defaulted Federal student loans. Those contract awards have been the subject of protests by unsuccessful bidders at the U.S. Court of Federal Claims and performance under the contract has been stayed pending the protest process. This past Thursday, May 3, 2018, the Department of Justice, on the Department of Education’s behalf, notified the U.S. Court of Federal Claims that the Department of Education has decided to cancel this procurement and, as a result, will terminate for convenience the contracts awarded to Performant and the second awardee. The notice states that the Department of Education has decided to cancel the current procurement as part of its plan to make substantial changes in the collection and administrative resolution of defaulted Federal student loans, which the Department of Education concluded would eliminate the need for this procurement.

“We disagree with the Department of Justice’s decision, particularly given that the Department of Education held over $120 billion in defaulted student loans as of September 30, 2017. Moreover, between 2015 and 2017 over $62 billion in student loans defaulted, which coincides with the wind down of the old unrestricted contract,” stated Lisa Im, Performant’s Chief Executive Officer. “However, we will continue to stay close to this situation because default rates are going to necessitate that actions be taken before long. As a reminder, our previously stated comments regarding 2018 guidance and the snapshot of our view of Performant in 2021, which reflects a business with over $200 million of revenues and 20% EBITDA margins, excluded any potential impact of an award from the Department of Education.”

The following data was provided regarding first quarter 2018 results:

Student lending revenues in the first quarter were $19.1 million, a decrease of 22.0% from revenues of $24.5 million in the prior year period. Guaranty Agency clients, U.S. Department of Education subcontracts and the U.S. Department of Education accounted for revenues of $17.9 million, $1.2 million and $0.0 million, respectively, in the first quarter of 2018, compared to $22.9 million, $0.4 million and $1.2 million in the prior year period.  Student loan placement volume (defined below) during the quarter totaled $0.9 billion, compared to $0.7 billion in the prior year period.

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Healthcare revenues in the first quarter were $31.3 million, up from $1.6 million in the prior year period. Medicare audit recovery revenues were $29.1 million in the first quarter, an increase of $29.0 million from the prior year period, primarily due to $27.8 million in revenues from release of liabilities on our balance sheet related to the 2009 CMS Region A contract, which terminated on January 31, 2018. The Company began work on the MSP CRC programs in February 2018, so the quarterly revenue from that contract of $0.9 million is really the result of about five weeks of activity. Commercial healthcare clients contributed revenues of $2.2 million, an increase of $0.6 million or 37.5% from the prior year period.

Other revenues in the first quarter were $6.6 million, down from $6.9 million in the prior year period. There is a delay in the U.S. Department of Treasury contract start up, which is causing a delay of revenue from Q1 (and likely Q2) to the back half of the year. Adjusted for this contract start up delay, other revenue is up $1.7 million, or 25% versus prior year period.

Net income for the first quarter of 2018 was $8.5 million, or $0.16 per share on a fully diluted basis, compared to net loss of $3.0 million or $(0.06) per share on a fully diluted basis in the prior year period. Adjusted EBITDA for the first quarter of 2018 was $(3.4) million as compared to $2.8 million in the prior year period. Adjusted net loss for the first quarter of 2018 was $4.3 million, resulting in $(0.08) per share on a fully diluted basis. This compares to adjusted net loss of $1.9 million or $(0.04) per fully diluted share in the prior year period. The adjusted amounts in the most recent quarter do not reflect the $18.8 million net benefit from the release of liabilities, net of related expenses, resulting from the termination of the 2009 CMS Region A contract.

As of March 31, 2018, the Company had cash, cash equivalents and restricted cash of approximately $10.5 million.

Click here for more background and information regarding the Department of Education student loan contract.

 

 

SARASOTA, Fla. — Leadership and staff note with sadness the passing of Donald B. Kramer, the Founder, first President, and Chairman Emeritus of The National Association of Retail Collection Attorneys (n.k.a. National Creditors Bar Association).

Don passed away Tuesday, May 8, 2018.

He was the beloved husband of Elaine Phillips Kramer; dear father of Jeffrey (Diana) Kramer of Glen Carbon, IL and father-in-law of Charles (the late Janet) Esrock; dear grandfather of Emily Kramer, Hannah Kramer, Rebecca Esrock, Jonathan Esrock, and Joseph Esrock; dear brother and brother-in-law of Judy A. (the late Harold) Glaser, Ronald L. Kramer, and Dr. Dean (Barbara) Kramer of Gainesville, FL; dear uncle, cousin, and friend to many.

Funeral services will be held Friday, May 11, at 1:00 p.m. at Congregation B’nai Amoona, 324 S. Mason Road, in Creve Coeur, MO. Interment follows at Beth Hamedrosh Hagodol Cemetery, 9125 Ladue Road.

The service will be live streamed on their web site at bnaiamoona.com under Main Sanctuary streaming.

Memorial contributions are preferred, to Ready Readers, 10403 Baur Boulevard, Ste., H, St. Louis, MO 63132 or www.readyreaders.org, the Harvey Kornblum Jewish Food Pantry, 10601 Baur Boulevard, St. Louis, MO 63132, or to the charity of your choice. Please visit bergermemorialchapel.com for more information.

“Don Kramer was a pioneer in our industry – his foresight that an association was needed for creditors’ rights attorneys, his willingness to go against the status quo to create it and his unwavering belief in this Organization – has made the National Creditors Bar Association what it is today. I am proud to have known Don Kramer and I know he will be fondly remembered and appreciated by our members for a very long time.”

Yale R. Levy, current president, National Creditors Bar Association

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In March, the District of Oregon reviewed whether a situation of mistaken identity rises to the level of an FDCPA and FCRA violation.  Under the facts of Drake v. Enhanced Recovery Company, LLC, No. 6:15-CV-1899, 2018 WL 1402586 (D. Or. Mar. 19, 2018), the resounding answer was “no.” 

Read the decision here. 

Factual and Procedural Background 

Raymond Drake incurred and failed to pay a debt to AT&T. AT&T placed the account with Enhanced Recovery Company, LLC (“ERC”) for collection. AT&T provided ERC with the amount owed, the name of the debtor, and a Los Angeles address. AT&T provided no other information. 

In order to obtain the most current information for the debtor, ERC submitted the information provided by AT&T (debtor’s name and Los Angeles address) through a “scrub” with one of the credit reporting agencies. The scrub provided a more current address for a Raymond Drake in Salem, Oregon.

The problem? Unknown to ERC, the Raymond Drake from Oregon – the plaintiff in this case – was not the debtor, but rather a different person with the same name.

Without a reason to know that the information received from the CRA was incorrect, ERC sent a collection letter to plaintiff. Plaintiff called and sent a letter to ERC stating that he was not the debtor. ERC internally notated the account as disputed, treated it as a dispute of validity, and sent verification of the debt to plaintiff. Plaintiff again called ERC to state that the account was not his. In response to the second phone call, ERC informed plaintiff that they would cease further collection attempts. 

About 20 days after the second phone call, ERC reported the account as “disputed” to the CRAs. Four months later, ERC requested that the CRAs delete this information about the account. 

Plaintiff filed a lawsuit against ERC alleging, among other things, that ERC violated the FDCPA and FCRA with its actions. ERC moved for summary judgment for all claims. 

Decision 

The court granted ERC’s motion for summary judgment on all claims, including the FDCPA and FCRA claims. 

The court failed to see a violation of the FDCPA. Plaintiff alleged that ERC reporting the account to the CRAs after the dispute was a false, deceptive, and misleading representation in violation of 1692e. The court specified that in order to have a violation of 1692e, the communication must have been in connection with the collection of a debt. Since the recipient of the allegedly violative representation was the CRA, not plaintiff, the court found that it was not made in connection with the collection of a debt. Additionally, the court found that the representation – meaning, the reporting of the dispute – was not false, therefore it could not violate 1692e. For the same reasons, the court found that there was no unfair or unconscionable means used by ERC to collect the debt, thus no violation of 1692f.

Turning to the FCRA, the court reviewed plaintiff’s allegation that ERC obtained his credit report without a permissible purpose. Plaintiff failed to persuade the court for two main reasons. 

First, the court differentiated between a credit report and basic contact information furnished by CRAs. The court cited several decisions where more information than that received by ERC did not constitute a credit report. If the information received by ERC was not a credit report, then the argument that ERC obtained the credit report without a permissible purpose necessarily fails.  

Second, the court found that there was a permissible purpose for pulling this information. A well-established permissible purpose codified in the FCRA is when the requestor “intends to use the information with… [the] review or collection of an account of the consumer.” The court found that ERC requested the information to get contact information related to the account, and therefore ERC had a permissible purpose.

Plaintiff’s allegation that ERC misused his social security number fell dead in the water. ERC never received plaintiff’s social security number. As stated above, the only information provided by AT&T was the amount owed, the debtor’s name, and an address. ERC never submitted plaintiff’s social security number because it did not have a social security number to submit when it made its information request to the CRAs.

The court likewise found no basis for plaintiff’s defamation claims against ERC. Defamation necessarily involves a false statement. Since the information reported was true, the defamation claim fails.

Analysis

With a very well-reasoned decision, the court came to a conclusion that a plaintiff cannot recover for an error unless the collector had knowledge or a reason to know of the error. Additionally, this case provides some additional clarity regarding permissible purpose and what does and does not qualify as a “credit report” under the FCRA.

Shelly Gensmer, Senior Director of Legal for ERC, offered this statement:

“ERC is pleased to see an industry-positive ruling on the topic of permissible purpose under the FCRA. The FCRA and FDCPA put a dispute process in place for the very reasons outlined in this case. Agencies that comply with the law’s requirements regarding how a dispute is treated should certainly not be punished for taking the prescribed actions as outlined in the FCRA and FDCPA. ERC is hopeful that this ruling will open the door for more industry-positive rulings for its peers facing similar allegations.”

PHOENIX, Ariz. – Empereon-Constar, a leading provider of end-to-end customer engagement and customer management solutions, was named a St. Mary’s Food Bank Alliance 2017 Hunger Hero, a community service award.

The Hunger Hero award is given annually to recognize the significant contributions made by St. Mary’s community partners who make a profound impact on hunger relief in Arizona through their contributions of food, funding, and/or volunteer time.

“Empereon-Constar is strongly committed to strengthening the communities where we live and work, and deeply appreciates the contributions our employees make to organizations like St. Mary’s Food Bank,” said Travis Bowley, Empereon-Constar’s Chief Executive Officer. “We are honored and humbled to be recognized by St. Mary’s.” 

Empereon-Constar employees participated in food drives for St. Mary’s and volunteered time throughout the year that helped St. Mary’s provide food to members of the Phoenix community. 

“Working with St. Mary’s reflects Empereon-Constar’s commitment and spirit of giving back to the community,” said Marth Hewitt, Executive Administration, Empereon-Constar. “I am so proud and honored to say our company was able to support St. Mary’s Food Bank.” 

Pictured: Martha Hewitt, Travis Bowley and Ashley Metz

 

About Empereon-Constar

Empereon-Constar is a leading business process outsourcing company providing end-to-end customer engagement and customer management solutions for New Sales Account Generation, Customer Care, Risk / Fraud Operations, Collections Operations, QA Agent Call Monitoring, Back Office Administration Support, and Tech Support across the entire customer account lifecycle. Our customized solutions, real-time analytics, and global footprint help our clients achieve their business goals. 

Empereon-Constar’s full range of consumer and commercial services includes: lead generation, inbound / outbound sales, account origination, customer care, customer service, technical support, first party collections, recovery collections, credit bureau dispute management, fraud risk management, anti-money laundering, loan servicing and loan processing. Our world-class services and unique global strategy allows us to meet the needs of our client partners across multichannel (email, chat, phone) communication platforms, provide exceptional customer experiences, and consistently deliver world-class performance results, while maintaining the highest level of data security and compliance. For more information, please visit us online at www.empereon-constar.com or www.linkedin.com/company/22345663. 

Empereon-Constar portfolio of companies: Empereon Marketing, LLC, Constar Financial Services, LLC, Empereon International, Constar International, and HQC International.