On Tuesday a federal judge in Georgia dismissed two separate putative class action cases concerning the filing of Proofs of Claims on Out-of-Statute debt in bankruptcy proceedings.

The two cases are McNorrill v. Asset Acceptance, LLC (Case No. 14-210, U.S.D.C Southern District of Georgia, Augusta Division) and Willis v. Cavalry Investments, LLC, (Case No. 14-227, U.S.D.C Southern District of Georgia, Augusta Division). The Orders are essentially identical. 

A copy of the McNorrill Order can be found here.

A copy of the Willis Order can be found here. 

The orders cite the U.S. Supreme Court decision in Midland Funding, LLC v. Johnson (137 S. Ct.1407, 2017). insideARM wrote about that groundbreaking decision on May 15, 2017.  We also published a second, more detailed, article written by attorney Joann Needleman on May 17, 2017.  

Background

There is little reason to go into extensive background on the two cases. They both involved the issue of whether the filing of a proof of claim that is obviously time barred is a false, deceptive, misleading, unfair, or unconscionable debt collection practice within the meaning of the Fair Debt Collection Practices Act. The Midland case effectively decided that issue. 

The Court’s Order

Following the Supreme Court’s decision in Midland Funding, the court ordered the plaintiffs to explain why the cases should not be dismissed. In response, the plaintiffs asked the court to dismiss the cases without prejudice under Federal Rules of Civil Procedure 41 (a) (2). The defendants in both cases agreed that the cases should be dismissed, but argued that a dismissal with prejudice would be more appropriate.

Editor’s Note: A dismissal with prejudice is dismissal of a case on merits after adjudication. When a case is dismissed with prejudice the plaintiff is barred from bringing an action on the same claim. Dismissal with prejudice is a final judgment and the case becomes res judicata on the claims that were or could have been brought in it. A dismissal without prejudice is the exact opposite.  The case is theoretically not dismissed forever and the plaintiff could bring another lawsuit on the same claim. 

The court wrote:

“Here, the only prejudice Defendant will suffer is the slight possibility of another lawsuit. The court therefore grants Plaintiff’s motion, and this case is DISMISSED WITHOUT PREJUDICE.” 

insideARM Perspective

It is somewhat surprising that the court decided not to dismiss with prejudice. The Supreme Court decision is binding precedent. But, as the Honorable J. Randall Hall, United States District Court Judge wrote, “There is only a slight possibility of another lawsuit.” 

insideARM has not scoured other jurisdictions for similar cases. However, we suspect there are other similar cases that will be dismissed throughout the country.

insideARM last wrote about the Department of Education (ED) RFP on June 26, 2017. In that article, we reported that ED had filed a Notice of Appeal  to the U.S. Court of Appeals in the litigation originating in the Court of Federal Claims regarding the May 31st Preliminary Injunction issued in the litigation over the Department of Education (ED) RFP for private collection agency services.

We had provided a more detailed review on June 15, 2017.  In that article, we reported on the then current status of the RFP and associated litigation over the RFP.

On the RFP front, we noted in that the ED RFP “Do-Over” was in progress. Since that article was written ED has been evaluating RFP responses, including review of past performance and management approach, selecting the most advantageous proposals, making responsibility determinations and addressing other pre-award activities. That process is set to continue through August 24, 2017. ED says it will make awards on August 25, 2017. 

On the litigation front, in that same June 15^th article, we discussed the various legal machinations to date by the multiple parties involved.  We noted that Chief Judge of the United States Court of Federal Claims, Susan G. Braden, issued an order extending indefinitely her Preliminary Injunction prohibiting ED from placing any accounts to any ED Private Collection Agency (PCA) “until the viability of the debt collection contracts at issue is resolved.”  That Order still stands.

ED has not placed any new business with any PCA since the Preliminary Injunction was first issued. Accounts that should have been placed with PCA are sitting in a holding pattern. The ED account placement strategy has been effectively highjacked by the court. Consumers are suffering harm. Collections on these accounts are not occurring. It is an untenable situation.

But, as it relates to the ED RFP, litigation never sleeps.

Yesterday, August 2, 2017, Judge Susan G. Braden, issued an Order that is completely puzzling to this writer. In the Order Judge Braden references the ED announcement regarding the RFP ED just cancelled for SERVICING of student loans.  insideARM wrote about the ED announcement regarding the RFP for Loan Servicing yesterday.

The Order reads:

“On August 1, 2017, however, the Department of Education announced that it was no longer seeking to select a single student loan servicer and would be pursuing a new proposal that would award separate contracts to one or more companies. Once again, the Department of Justice has failed to inform the court of these developments.

Since the date of the Government’s proposed action is only twenty-three days away, the court orders the Government to provide the court and the parties a status report in the above captioned case no later than the close of business on August 4, 2017.”

What is puzzling about this Order is the fact that the cancelled servicing solicitation is separate and distinct from the ED RFP for PCA services. It would seem to this writer that one has nothing to do with the other.

The parties to the RFP litigation have not been idle during the past 6 weeks. Since our last article there has been plenty of activity. The following are just a few items of interest:

• On July 7^th Judge Braden issued an Order Denying Several Motions to Intervene. Judge Braden denied requests to intervene filed by F.H. Cann & Associates, Inc., Immediate Credit Recovery, Inc., Credit Adjustments, Inc., Professional Bureau of Collections of Maryland, Inc., and National Recoveries, Inc.

• On July 18^th the Court of Appeals for the Federal Circuit issued an Order holding in abeyance Alltran Education, Inc.’s (“Alltran”) and the Government’s motions in that court pending decisions from Judge Braden and the Court of Federal claims on Alltran’s earlier motion to stay the preliminary May 31, 2017 injunction as to Alltran.

• On July 21^st Pioneer Credit Recovery, Inc., filed its Notice of Appeal from the Court’s May 31, 2017 preliminary injunction.

• On July 24^th Alltran filed a Motion for an Expedited Ruling on its earlier Motion for stay of the May 31, 2017 preliminary injunction.

• On July 28^th Continental Service Group, Inc. (ConServe) filed pleadings opposing the above referenced July 24^th request from Alltran and a Cross Motion for court to rule on motions previously filed by ConServe.

 insideARM Perspective

There is really no new/fresh perspective insideARM can provide at this time. This RFP was and is a mess. Even if ED announces results for the RFP “Do-Over” on August 25, 2017, there is still the pending litigation described above to be resolved. Plus, there will likely be new protests filed by disappointed parties.  This roller coaster ride may never end.

Editor’s Note: See here for a link to an insideARM page that provides a history of our ED-related articles. The page is automatically updated as new stories are written.

Yesterday, U.S. Secretary of Education Betsy DeVos announced her intent to transform how the Federal Student Aid Fund (FSA) provides customer service to more than 42 million student loan borrowers. The press release regarding the “Next Generation Processing and Servicing” plan can be found here. 

In the press release issued late yesterday afternoon Dr. A. Wayne Johnson, the new Chief Operating Officer of FSA commented: 

“The FSA Student Loan Program represents the equivalent of being the largest special purpose consumer bank in the world. To improve customer service, we will take the best ideas and capabilities available and put them to work for Americans with student loans. When FSA customers transition to the new processing and servicing environment in 2019, they will find a customer support system that is as capable as any in the private sector. The result will be a significantly better experience for students – our customers – and meaningful benefits for the American taxpayer.”

The anticipated FSA Next Generation Processing and Servicing Environment will provide for a single data processing platform to house all student loan information while at the same time allowing for customer account servicing to be performed either by a single contract servicer or by multiple contract servicers. 

This new approach is also expected to require separate acquisitions for database housing, system processing and customer account servicing which will allow for maximum flexibility today and into the future. 

Secretary Devos commented further:

“Doing what’s best for students will always be our number one priority. By starting afresh and pursuing a truly modern loan servicing environment, we have a chance to turn what was a good plan into a great one. 

I hired Dr. Johnson for his extensive private sector expertise, his fresh perspective and his innovative thinking.  After just a few weeks on the job, Wayne has already identified potential ways to modernize FSA and to leverage new technology that will not only enhance the customer service experience for borrowers but will also protect taxpayers.” 

As part of the plan, the Department cancelled the current student loan serving solicitation (Solicitation #ED-FSA-17-R-001). The notice of cancellation can be found here. 

You can view the Pronouncement on FSA’s Next Generation Processing and Servicing Environment here. 

insideARM Perspective 

insideARM applauds this announcement. This has the potential to substantially improve the customer experience for student loan borrowers.

On May 22, 2017 insideARM wrote about then pending Solicitation. In the insideARM Perspective for that article we expressed concern about the potential risks associated with a single vendor handling the entire U.S. student loan portfolio. As noted above, the portfolio consists of more than 42 million borrowers. The dollar value of the portfolio is estimated at more than $1.4 trillion. 

The plan outlined for the “Next Generation” solution seems to address our concerns. Instead of a single entity handling all three critical elements of the project noted above, (database housing, system processing and customer account servicing) the plan calls for separate acquisitions of those three components.  This alone eliminates the possibility of a single point of failure. Further, as noted in the press release, the plan allows for “customer account servicing to be performed either by a single contract servicer or by multiple contract servicers.” 

Secretary DeVos announced her intention to hire Dr. Johnson as Chief Operating Officer of FSA on June 20, 2017. insideARM wrote about that announcement on June 21, 2017. In that article, we discussed Dr. Johnson’s background and unique skillset, and commented: “Hopefully, Johnson’s diverse business background and understanding of large scale operations, student loans and customer service will provide the expertise needed to resolve these and many more issues at FSA.” 

In our opinion, a single database that contains all information and activity on a consumer’s account is an absolute necessity. The Department currently has four primary servicers: Navient, NelNet, Great Lakes Educational Loan Services, and FedLoan Servicing. It is absolutely crazy for a borrower with multiple loans to potentially have accounts with multiple servicers that do not communicate nor share the same database.

insideARM suspects that the Consumer Financial Protection Bureau (CFPB) will also endorse the concept of a single database. Student loan servicing is high on the CFPB’s radar.

The “Next Generation” system must also be nimble and responsive to changing consumer behavior. 

Today’s consumers do not want to be restricted to communication via telephone and snail mail. In the private sector, customer satisfaction is now dependent upon “omnichannel” communication. FSA will need to embrace that concept. That means more self-help options. That means greater use of Artificial Intelligence and machine-based learning instead of traditional IVR’s. It means the ability for a borrower to use a smart phone to resolve account issues. That requires the ability to use chat, text, email, and even the potential for communication through social media private messaging channels.  

Today’s consumer also wants greater flexibility in how she can make payments.  The “Next Generation” solution must address those options. 

Finally, privacy and security are significant issues for a database of 42 million borrowers.  The servicing and processing environment must be on the forefront of these issues. Dr. Johnson’s experience in the private sector should assist when selecting vendors. 

While this new direction is very positive. There is significant heavy lifting ahead. Contracts with the current FSA student loan servicers expire in 2019. To fully implement the new vision will require tremendous effort. In the words of an old country western song:  “We’ve got a long way to go and a short time to get there.”

The Federal Trade Commission (FTC) announced yesterday it will start sharing complaint information about illegal robocalls with companies that are developing technology to stop them.

According to the FTC news release, when consumers report Do Not Call or robocall violations to the agency, the robocaller phone numbers consumers provide will be released each day to telecommunications carriers and other industry partners that are implementing call-blocking solutions. Acting Chairman Maureen Ohlhausen said that this is the kind of public-private partnership the FTC wants to champion.

The announcement further states:

The consumer complaint data is crucial because many of today’s call-blocking solutions rely on “blacklists” — databases of telephone numbers that have received significant consumer complaints — as one way to determine which calls should be blocked or flagged before they reach consumers’ phones.

The new data that FTC is making available also will include the date and time the unwanted call was received, the general subject matter of the call (such as debt reduction, energy, warranties, home security, etc.), and whether the call was a robocall.

When filing a complaint, the FTC makes it easy for consumers to identify the subject of the unwanted call with a drop-down menu on its website. This information is particularly helpful to law enforcement and industry. The data is posted to the FTC website every weekday, with Monday postings including weekend data, and is available on the Do Not Call (DNC) Reported Calls Data webpage.

The FTC has also posted this page, to provide quick information about reporting unwanted calls. Here’s what it says:

• Do Not Call:After your number is on the registry for 31 days, you can report unwanted sales calls.
• Robocalls:Report calls that use a recorded message instead of a live person (whether or not your number is on the Registry).
• Tell us what the call was about:Check the category that best describes what the call was about, for example debt reduction, home security or vacations.

Reminder: Even if your number is registered, some organizations may still call you, such as charities, political organizations, and telephone surveyors. For a full description of who may still call you, please consult our Consumer FAQs. 

Debt collectors may continue to call you whether your number is on the Registry or not. Know your rights regarding debt collection. If a debt collector is not respecting your rights, report it to us. 

(There is a “continue” button, which takes you to a 3-step form to submit a complaint.)

insideARM Perspective

While all of the fields are not required in the FTC’s form, the process is not perfect. For one, you could spend a fair amount of time doing this. Two, there is a catch-22; If you answer, that seems to generate more calls – and possibly risk, for instance, if you say “yes” to confirm your name (see the consumer comments on this page). If you don’t answer, you have limited information with which to complete the form.

The Federal Communications Commission (FCC) also has current initiatives related to stopping unwanted calls. In late June they released two Notices of Inquiry (NOI), one related to tracking reassigned numbers; the other related to authenticating the source of calls by telephone service providers.

Unwanted robocalls have received a great deal of attention recently. Rightfully so. Speaking personally, I get them constantly on my cell phone. Not only are they a nuisance, but the proliferation of these scam calls makes one suspect of all calls that are not from a friend already in my contacts. This too could be a real problem, as it will cause people to ignore – and possibly to report – legitimate calls. For instance, from a federal student loan collector calling to explain your options to resolve accounts not only through collection but also through other unique federal options such as rehabilitation and consolidation, followed by income driven repayment plans and even discharge. Ignoring or reporting these calls has real financial consequences, like mounting interest.

Just becasuse a call is “robo” by current FCC definition – doesn’t make it bad. It begs the question, just who will be the arbiter of what is a legitimate call and what isn’t? 

BROOKFIELD, Wisc. — Surefire Data Solutions, LLC, an innovative technology company that provides performance and compliance focused solutions, located at 250 N Sunnyslope Rd Suite 220, Brookfield, WI 53005-4809, has announced that they have surpassed 10 million redacted pages with their automated solution. 

The manual redaction process requires large numbers of employees blacking out Personally Identifiable Information, and as focus slips, risk increases. In addition to this risk, labor costs to verify redaction results are usually the largest expense when it comes to these industry projects. Seeing a need for faster and more efficient document security, Surefire developed an automated, end-to-end solution for data security and compliance. 

• Reduces cost of having a team of manual redactors
• Reduces complexity by streamlining the process
• Reduces risk with a system that promises accuracy and compliance

“You rest easier knowing that this private, confidential information is removed, not just masked or blacked out. The process is a completely digital workflow, the elevated speed works through a high volume of documents without risking high cost. There is no doubt that this data is being protected.” – CIO, RSIEH

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About Surefire Data Solutions, LLC

Founded in 2010, Surefire Data Solutions, LLC is an innovative technology company that provides performance and compliance focused solutions that enable Accounts Receivable Management (ARM) Professionals to reduce the complexity, cost and risk associated with doing business. Over the past 7 years, the Surefire team has developed applications for process improvement through automation, network management, compliance & tracking and data analysis. For more on Surefire Data Solutions, LLC, and their redaction solution, visit www.surefiredata.com/portfolio/redaction-services/.

ISLANDIA, N.Y. — Rubin & Rothman, LLC is pleased to announce the addition of Attorney Adam Olshan to spearhead the firm’s expansion into Connecticut and Massachusetts. Rubin & Rothman, LLC is a leading New York and New Jersey Creditor’s Rights law firm that represents a broad base of credit grantors. Thanks to the firm’s sophisticated process management and compliance rigor, Rubin & Rothman, LLC successfully completed a third party SOC 2 TYPE II examination this year.  Adam will serve as the firm’s Managing Attorney, CT & MA.

“I’m excited to have Adam join our talented team,” said firm Principal Keith H. Rothman, Esq. “Adam’s experience and compliance knowledge will add value as we expand our practice into these two new states. We continue to be successful because of the hard work of our team. With Adam’s addition, Rubin & Rothman, LLC will ensure that we bring the same high level of performance, ethics and compliance expertise to Connecticut and Massachusetts as we do to our core states of New York and New Jersey.” 

Practicing Connecticut collection law since 1991, Attorney Olshan is well known to the creditor’s rights industry since his 2001-03 term as NARCA president. In addition, Adam serves as an industry advocate at the local, New England regional and national levels. Adam is the president of the CT Creditor Bar Association. Adam will open an office in Windsor, Connecticut where Rubin & Rothman will soon begin to assist client legal collection needs through both Connecticut and Massachusetts. Attorney Olshan is admitted to practice law in NY, CT and MA. 

“I have known and respected Rubin & Rothman, LLC as one of the leading creditor’s rights law firms for many years,” said Adam Olshan, Esq. “I’m proud to be joining this team and helping to move Rubin & Rothman, LLC into New England.” 

Rubin & Rothman, LLC has successfully met client needs for many years throughout New York and New Jersey. The firm has won over 40 national client awards including recent awards such as Firm of the Year by a major credit grantor, the Partnership Award and the Partner of Choice Award by two national auto finance creditors, as well as Best Performance in its market and the Responsiveness Award by a leading national network. The firm looks forward to this new phase of its growth and to be able to assist its clients in these New England states. 

About Rubin & Rothman, LLC

Rubin & Rothman, LLC is an industry leading creditor’s rights law firm practicing throughout the states of New York, New Jersey, Connecticut and Massachusetts. Established in 1955, Rubin & Rothman, LLC represents many national lenders, auto finance companies, debt purchasers as well as credit unions, healthcare providers and small businesses. The firm’s team of in-house attorneys has over 200 years of litigation experience and is well versed in handling all aspects of creditor’s rights litigation. In addition, the firm’s compliance department is expert in all facets of national and state regulations as well as industry best practices that impact the practice of law in the creditor’s rights space.  Rubin & Rothman, LLC prides itself on treating all consumers with dignity and respect while upholding the ideals of the legal profession. Visit www.rubinrothman.com

Companies that provide first party, early-out and billing services on medical accounts scramble to stay abreast of the continuously shifting regulatory requirements that, up until just a few years ago, rarely experienced any significant changes on an annual basis. The Consumer Financial Protection Bureau (CFPB) is presently contemplating widespread regulation of first party collections while many state regulators seek to shoe-horn servicers of medical accounts that are not in default into the definition of a “debt collector” to require state collection agency licensure and oversight.

Presently, there are two significant changes to the first party medical environment – one on the Federal level and one state requirement – about which every company in industry must be aware: 

Credit reporting rule for medical accounts changes, but what date should we use?

Starting September 15, 2017, the Credit Reporting Agencies (CRAs) will require that a furnisher not report a medical account on a consumer’s Credit Bureau Report (CBR) that is less than 180 days old. While this is a well-intended change to allow insurance companies and other third party payors sufficient time to process and pay medical claims without affecting a consumer’s credit, it is unclear when the 180 days begins. If the servicer uses the date of discharge from the hospital or completion of medical services as the starting point of the 180 days, then consumer attorneys will likely argue that the account is in default the day after discharge and that the first party servicer is subject to the FDCPA. If the servicer uses a date sometime after discharge – perhaps 90 days after discharge – then the total delay before credit reporting would be 270 days (90 days after discharge plus 180 days). 

The best approach for calculating the start of the 180 days is to work with the creditor (the healthcare provider) to develop a consistent policy – reviewed by counsel – that is consumer centric and also considers possible ramifications to the requirements of servicing accounts that are not in default pursuant to the FDCPA.  

Texas requires notice of mediation on medical accounts

Starting September 1, 2017, servicers of medical accounts in Texas will be required to provide notice to consumers that certain accounts are eligible for mediation. The law provides, in relevant part, that the disclosure must state as follows:

“You may be able to reduce some of your out-of-pocket costs for an out-of-network medical or health care claim that is eligible for mediation by contacting the Texas Department of Insurance at [website] and [phone number].”

The law states that mediation requirements generally apply to out-of-network charges in excess of $500, subject to several considerations.  

The challenge for this disclosure is in determining where it is applicable due to a charge being out-of-network. Certainly including this disclosure with all Texas accounts could result in numerous requests for mediation filed with the Texas Department of Insurance on accounts that were not out-of–network. Please note that while the implementation date is September 1, 2017, this disclosure requirement only applies to accounts incurred on or after January 1, 2018.  

For more information on First Party and Early Out servicing, listen to this 12 minute podcast titled: “Overlooked Traps for First Party and Early Out Servicers.”

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This publication is provided only as a general discussion of legal principles and ideas. Every situation is unique and must be reviewed by a licensed attorney to determine the appropriate application of the law to any particular fact scenario. If you have a legal question, consult with an attorney. The reader of this publication will not rely upon anything herein as legal advice and will not substitute anything contained herein for obtaining legal advice from an attorney. No attorney-client relationship is formed by the publication or reading of this document. Moss & Barnett and the author assume no liability for typographical or other errors contained herein or for changes in the law affecting anything discussed herein.

DULUTH, Ga. — BFrame Data Systems today announced the availability of BFrame Virtual Agent. BFrame Virtual Agent is a smart payment portal that negotiates the maximum payment from a consumer in the same way that a human agent might. The system can be configured to make a variety of offers to consumers, including payment plans, settlement offers and partial payment based on a customizable rules engine that considers portfolio, balance, days on file, existing payment arrangement and other variables to develop appropriate payment offers. 

In addition to payment negotiation, BFrame Virtual Agent includes modules for account lookup, consumer assistance, pre-filled form download, electronic signature and document upload. Electronic signature and document download/upload permit agents to talk consumers through completing, signing and submitting documents live on the phone, rather than waiting for the U.S. mail. The portal is branded for the agency and can be tailored for any agency. 

“BFrame Virtual Agent brings a new level of sophistication to web payment portals. Rather than passively accepting what the consumer might pay, the system makes a series of tailored offers designed to achieve maximum payment,” remarked BFrame CEO Eric Bentz. “Our beta customers are seeing significant payment flows from Virtual Agent and a corresponding decrease in agent call time. They are also enjoying substantially reduced cycle time and increased completion rates on document requests.” 

Virtual Agent is hosted at Amazon Web Services, ensuring high availability and a secure infrastructure, and is tightly integrated with the BFrame Account Portal, Dashboard and core Recovery Management System. Virtual Agent is entirely web-based and mobile responsive, so usable on everything from a smart phone to a tablet or desktop. 

About BFrame

Founded in 1990, BFrame is a leading provider of collections and accounts receivable management software for collection agencies, debt buyers and credit grantors. The BFrame Recovery Management System is rock-solid hosted or licensed software that is easy to implement, easy to use and easy to pay for. Its feature-rich browser interface provides a powerful, flexible and user-friendly front-end to an industrial strength debt collection and recovery management system. System modules include collections, recovery, agency management, buy/sell management and SQL query tools.

More than 3,000 collection and recovery agents use the BFrame system in daily collection operations, with approximately 20 million accounts processed each day. For more information, or to request a personalized product demonstration, visit the BFrame web site at www.bframe.com, or email sales@bframe.com.

insideARM maintains a free FDCPA resources page to provide the ARM community a destination for timely and topical information on the Fair Debt Collection Practices Act (“FDCPA”). This page is generously supported by TransUnion. See the page here or find it in our main navigation bar from any page on insideARM under Compliance Resources.

The centerpiece of the page is a chart of significant FDCPA cases. Case information and analysis is provided by Joann Needleman, a Clark Hill attorney and leader of the firm’s Consumer Financial Services Regulatory & Compliance Group. Click on the link in the chart for the complete text of the decision. Where insideARM has already published a story on the case, we provide a link to the story.

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Here’s a rundown of just some of the FDCPA Cases in the spotlight the last 30 days: 

Cameau v. National Recovery Agency, Inc.

The gist: Summary judgment granted in favor of defendant National Recovery Agency. Plaintiff alleged violation of FDCPA § 1692d(6), § 1692e as well as § 1692e(10)—essentially accusing the collection agency of failing to provide the company name via its employee agent, which plaintiff characterized as a deceptive refusal, and alleged that the agency used unfair means to collect a debt. All claims were dismissed due to lack of evidence. In fact, the plaintiff contradicted the claims in the complaint during deposition. Significantly, plaintiff’s attorney failed to respond to the defendant’s motion for summary judgment.  

Infante v. Portfolio Recovery Associates, LLC

The gist: Plaintiff claimed defendant did not report a disputed debt to CRAs. In discovery, defendant produced evidence that it did report to all three credit reporting agencies (CRAs) at once, and could not control the response of the CRA that delayed in reporting the dispute on the plaintiff’s credit file. This evidence could have caused plaintiff to dismiss the case, but did not. Defendant moved for sanctions against plaintiff, which the court denied. “Plaintiff and her counsel acted reasonably in relying on the Experian report to pursue her claim through discovery, even if discovery revealed evidence undermining her claim.” 

Huffmann v. BC Services, Inc.

The gist: Having received a collection letter stating a zero balance, plaintiff alleged the letter in question was both harassing and misleading and violated the FDCPA. Defendant’s Motion to Dismiss was granted: “Because actions taken after the termination of a debt “by former debt-collectors . . . could not be deemed to be ‘in connection’ with a present debt collection proceeding,” the defendant’s conduct could not constitute a violation of the FDCPA.”

Gebhardt v. LJ Ross Associates

The gist: Defendant collection agency was not held responsible for having placed a call to a debtor while a letter from that debtor’s attorney was being processed in the agency’s mail room. FDCPA requires the debt collector to have actual knowledge of an individual’s legal representation prior to making a communication. The mailroom employee only signed for the letter and did not read it or have knowledge of its contents. 

Cottle v. Associated Credit Service, Inc.

The gist: The court found no FDCPA violation when a demand letter referred to original and current creditor as the same entity. Court found claims to be meritless. 

Feldheim v. Financial Recovery Services, Inc.

The gist: Case dismissed when the court found that a settlement letter that stated “As of this date you owe____” did not infer or imply that the stated balance would necessarily change.

insideARM Perspective: FDCPA Claims or Theater of the Absurd? 

It’s hard to miss the theme in a good batch of this summer’s FDCPA cases of far: Quick wins went to defendants facing baseless claims. Where the courts are meant to grapple with the interpretation of law, they frequently also become the backdrop for the theater of the absurd, where plaintiff’s bar is willing to drag just about any case beyond discovery, regardless of what it reveals. This is partly due to the fact that the FDCPA allows for the plaintiff to recover fees if they are successful, but the same is not true for defendants. With the standards for sanctions set very high and a desire by the courts to avoid a chilling effect that could discourage legitimate suits, sanctions against defendants or their counsel are almost unheard of.

Will debt collectors decide, en masse, that fighting to collect fees and other costs when baseless suits are brought is worthwhile on principle?  At the moment, while there are a number of rules under which a defendant can move for sanctions after a win, they are rarely granted and they’re expensive to pursue. Even when sanctions are granted, they’re notoriously difficult to collect on. Rule 11 sanctions, for example, require a warning letter to opposing counsel, a 21-day safe harbor meant to encourage a “cure” or resolution, and then a motion for sanctions after the case is won. It’s costly. It’s time consuming. It’s a crap shoot. It’s no wonder motions under Rule 11 are rare. While understandable, it’s also possible that we’d see more sanctions for baseless suits if more defendants pursued them.

Ultimately, the Courts want to stay out of attorney skirmishes and focus on evaluating the merits of each case. When behavior does actually rise to the standard of sanctionable conduct, judges have an inherent power to sanction bad faith litigants on both sides of the aisle under both the FDCPA and FCRA, or under 28 U.S.C. § 1927. That statute provides that “[a]ny attorney…who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”

As usual, the cases we summarize in our chart are both positive and negative for the ARM industry. Readers should be cautious about the applicability of a particular case to their jurisdiction. There are often conflicting decisions on the same or similar issue.  A slight change in facts could dramatically impact a future decision.

At a press conference held today Massachusetts Attorney General Maura Healey announced that her office had entered into a Consent Order with the Waltham law firm of Lustig Glaser & Wilson, P.C. (LGW), and Ronald E. Lustig and Kenneth C. Wilson, individually.  The Consent Order brings to an end litigation brought in December, 2015 by the Attorney General’s office regarding the collection practices at the law firm. The press release from the Attorney General’s office can be found here.

A copy of the Joint Motion for Entry of Final Judgment by Consent may be found here.  

In consideration for the release of claims by the Commonwealth, LGW paid one million dollars ($1,000,000). No portion that payment shall be characterized or considered to be a penalty, fine or forfeiture.  

Many of the allegations brought by the Commonwealth and the much of the settlement impacts debt collection activity for debt buyers. The Consent agreement addresses the issues of proper identification of the consumer/debtor, account documentation, use of affidavits from a client, attorney review of files and “meaningful attorney involvement” will continue to be lightning rods for state or federal review of law firm collection practices. Litigation of accounts for debt buyers will require additional information and documentation. 

The agreement also imposes several additional restrictions regarding collection from consumers with exempt income. It imposes disclosure requirements in all communications with a consumer to help identify consumers with exempt income. The firm is also required to make oral disclosures in connection with potential exempt income.

The agreement also imposes certain obligations on LGW to cease collection activity if the consumer: 

1. has only exempt income and exempt assets; and
2. is either:
   1. handicapped (as defined by MA statute); or
   2. 70 years of age or older

Finally, the agreement addresses substantiation issues and litigation on time barred debt and requires certain future reporting to the Commonwealth. 

The LGW law firm issued its own press release today. From that press release:

“This agreement acknowledges that there are no findings of liability or wrongdoing on the part of LGW, no finding of harm caused to consumers and it does not impose any penalty on the firm. LGW felt it was in the firm’s best interest to end the expense and uncertainty of ongoing litigation. Throughout this process LGW cooperated fully and transparently, producing tens of thousands of pages of documents and answering all relevant questions.  LGW has a long track record of employing best practices in consumer and commercial debt collections. The agreement reflects existing policies and procedure that have been in place at LGW for a number of years, and outlines new provisions and practices not currently mandated by existing law or regulations, to ensure that the needs of certain consumer’s facing particular hardships can be fairly addressed, LGW is fully committed to adopting the new practices.” 

insideARM Perspective 

This case follows on the heels of two actions brought by the Consumer Financial Protection Bureau (CFPB) against the New Jersey collection law firm of Pressler & Pressler LLP and the Georgia law firm of Frederick J. Hanna & Associates.

insideARM wrote about the Pressler settlement on April 26, 2016 and wrote about the Hanna settlement on December 28, 2015. On April 29, 2016, Joann Needleman, Practice Group Leader at the Clark Hill PLC law firm, wrote an article discussing the challenges facing collection law firms. Even though the LGW Consent Order is with the Commonwealth of Massachusetts and not the CFPB, the issues identified in that story are still relevant after the LGW settlement.

The Consent Agreement is 38 pages. insideARM recommends that debt collection attorneys and compliance officers at debt collection law firms study the entire agreement for insight into potential problem areas for law firm collection practices in other state jurisdictions. You can be certain that other state regulatory bodies will be studying the document. 

Finally, it was clear from the press conference today that debt collection litigation on accounts for debt buyers was the hot button for the Attorney General. While Attorney General Healey acknowledged that debt buying is a legitimate business and litigation on purchased accounts is a legitimate method to collect delinquent accounts, the activity is clearly under the microscope in the Commonwealth of Massachusetts.