ATLANTA, Ga. — Atlanta based Flock Specialty Finance (“FLOCK”), is pleased to announce that it funded over $13 million in deal volume for June, representing one of its largest months since inception.  During June, FLOCK funded 11 portfolios from 10 customers in 9 separate asset classes.

With its current pipeline of deal flow, Flock expects 2017 deployments to approach 150% of its 2016 funding volume.  CEO Michael Flock stated, “We’re very excited about last month’s funding volume.  We believe the market is slowly growing again, and we are pleased that our new financing solution with limited back-end profit sharing is taking off.”   

In May, Flock announced a new financing solution to respond to the demands of the marketplace. Flock has expanded its offerings for debt purchasers to include more flexible terms including 60-75% advance rates, limited or no back-end profit participation and no fixed monthly principal and interest payments.  Flock’s clients now have maximum flexibility to meet their capital requirements for their portfolio purchases. 

About FLOCK Specialty Finance

FLOCK is dedicated to alternative funding in a variety of specialty finance segments. FLOCK’s mission is to provide clients with capital and expertise for the purchase of both charged off debt portfolios as well as for the financing of subprime consumer obligations. FLOCK has funded over 600 portfolios since 2013. FLOCK believes its funding is “More Than a Transaction.” FLOCK’s proprietary financing structure provides growth-minded clients with a competitive advantage in multiple asset classes. Founded in 2007, FLOCK is headquartered in Atlanta, GA. For additional information, please call 770-644-0850 or visit: www.FLOCKfinance.com.

This article previously appeared on the Holland & Knight Consumer Protection Defense & Compliance blog and is re-published here with permission. The post was co-authored by Peter P Hargitai, Josh H Roberts, and Laura B Renstrom.

Under a controversial new final rule issued by the Consumer Financial Protection Bureau (CFPB) on July 10, 2017, banks and credit card companies are prohibited from forcing consumers into arbitration to avoid class action lawsuits. The rule, if it becomes effective, will make it easier for consumers to bring class action lawsuits against financial companies. However, as discussed below, the CFPB has been targeted by the current administration, and Congress is empowered to override the rule.

A Brief Overview of Arbitration Clauses and the CFPB

Banks and credit card companies regularly insert mandatory arbitration clauses into their contracts with consumers. These clauses require consumers to bring their disputes against the company before a private arbitrator and generally prohibit a consumer from pursuing a class action claim in arbitration. In arbitration, both the evidence and the arbitrator’s final decision are typically confidential among the parties.

While consumer rights organizations have long argued that arbitration denies consumers their day in court, financial institutions view arbitration as an efficient and cost-effective way to quickly resolve legal disputes. Further, the U.S. Supreme Court has repeatedly recognized that class action waiver provisions in arbitration agreements are fully enforceable, and cannot be ignored simply because the cost of proceeding on an individual basis outweighs any potential recovery.¹

The CFPB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Since its inception, the CFPB has been tasked with reviewing arbitration clauses in financial contracts. In Dodd-Frank, Congress mandated that the CFPB study pre-dispute arbitration clauses and, if warranted, issue regulations to restrain them. In March 2015, the CFPB issued an arbitration study concluding that, although credit card issuers representing more than half of all credit card debt used mandatory arbitration clauses, three out of four consumers were not even aware they had agreed to an arbitration clause. The study, which was cited by CFPB Director Richard Cordray in rolling out the CFPB’s new rule, reported that nearly 34 million consumers received payments totaling approximately $1 billion as a result of consumer class actions over a five-year period. Meanwhile, over that same period, 78 consumers participated in arbitration, recovering a total of $360,000.

Although Cordray used the study to insinuate that consumer class actions are more effective, the study also illustrates that the benefit to individual consumers who participate in arbitration is greater than the benefit to those who are members of a class action. While the award to an individual consumer in a class action averages $29 per consumer, the award to an individual consumer in an arbitration averages $4,615 per consumer. If the CFPB’s mission is to protect the consumer (rather than punish financial institutions), Cordray’s reliance on the study seems counterintuitive.

The CFPB’s New Rule

The CFPB’s final rule will be codified at 12 C.F.R. part 1040 to Chapter X in Title 12 of the Code of Federal Regulations. The rule sets forth two primary limitations on the use of pre-dispute arbitration agreements by financial companies.

First, the rule prohibits financial companies from including class action bans in their arbitration clauses. The rule is not an outright ban on arbitration clauses. The rule also does not apply to existing contracts, and only applies to pre-dispute arbitration agreements entered into after the effective date of the new rule. While companies may still include arbitration clauses in their contracts, these clauses may not prohibit consumers from being part of a group action. If companies do choose to include an arbitration clause in a contract for a consumer financial product or service, the contract must include the following language:

“We agree that neither we nor anyone else will rely on this agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action filed by someone else.”

Second, the rule creates a significant reporting burden by requiring financial companies involved in an arbitration to submit specified arbitral and court records to the CFPB. These records include initial claims and counterclaims, answers to initial claims and counterclaims, and awards issued in arbitration. The CFPB intends to use the information it collects to monitor arbitral and court proceedings. Further, the agency intends to publish these redacted materials on its website beginning in July 2019.

Challenges to the CFPB’s New Rule Appear Imminent

The CFPB’s new rule is effective 60 days following publication in Federal Register and applies to all contracts entered into more than 180 days after that. Cordray believes that the new rule “throws open [courtroom] doors,” allowing “harmed consumers to band together and seek justice.” On the other hand, affected companies and many lawmakers believe the new rule will open the floodgates to frivolous and exceedingly costly litigation.

In the coming months, the rule is likely to face significant pushback from the financial services industry and a Republican-controlled Congress. The American Banking Industry released a statement expressing disappointment in the CFPB’s new ruling, stating that “[b]anks resolve the overwhelming majority of disputes quickly and amicably, long before they get to court or arbitration. Arbitration is a convenient, efficient and fair method of resolving disputes at a fraction of the cost of expensive litigation.”

Further, under the Congressional Review Act, Congress may override the rule by a simple majority vote within 60 legislative days of its finalization. Thereafter, once passed and signed by President Donald Trump, the affected agency is prohibited from revisiting the subject regulation for an extended period of time. The Congressional Review Act, a 1996 law, was used by a Republican-dominated Congress 14 times in the final months of the Obama Administration.

Last year, shortly before the election, the U.S. Court of Appeals for the District of Columbia found the structure of the CFPB, which is led by a single director, to be unconstitutional.² However, rather than shutting down the CFPB, the court ordered that the agency be restructured so that the Director could be removed at the will of the President. The decision was a response to a petition from mortgage lender that challenged an enforcement action from the agency and called for the CFPB to be eliminated. In May 2017, the D.C. Circuit reheard the case en banc, and no en banc decision has been issued.

Meanwhile, the Trump Administration has proposed to significantly curb the authority of the CFPB. President Trump has criticized Dodd-Frank’s impact on lending, hiring and the overall economy. Just last month, the U.S. Department of the Treasury issued a report calling for a complete overhaul of the CFPB and urging Congress to remove the agency’s authority to supervise banks and financial companies. In addition, consistent with the ruling of the U.S. Court of Appeals for the District of Columbia, the report called for the President to be able to remove the CFPB Director at will and without cause. In light of the foregoing, it remains in doubt whether the CFPB’s new rule, banning arbitration clauses that limit class actions, will become effective.

The House Financial Services Committee announced yesterday that a subcommittee met to examine several pieces of legislation aimed at providing much needed regulatory relief for community financial institutions. The list included nine bills; among them is the “Stop Debt Collection Abuse Act of 2017 (H.R. 864).”  

The announcement provided these key takeaways from the hearing:

• Community financial institutions are getting buried under red tape.

• Consumers and hardworking taxpayers bear the brunt of cost-hiking, job-killing, opportunity-choking red tape.

• To preserve consumer choice and financial independence, Congress must tackle regulatory reform and simplify rules.

The following is the list of legislation that was considered:

•  “Stop Debt Collection Abuse Act of 2017 (H.R. 864)” – Introduced by Representative Love, this bill amends the Fair Debt Collection Practices Act (FDCPA) to redefine “creditor,” “debt,” and “debt collector” to subject debt collectors, working on behalf of federal agencies, to the FDCPA.  H.R. 864 would also classify debt buyers as debt collectors under the FDCPA and require that debt collectors, working on behalf of the federal government, cannot charge fees that are more than 10 percent of the amount collected from a consumer.  H.R. 864 also requires the Government Accountability Office (GAO) to study debt collection practices at the federal, state and local levels.

• “Financial Institutions Due Process Act of 2017 (H.R. 924)” – Introduced by Representative Rothfus, this bill amends the Federal Financial Institutions Examination Council Act of 1978 to establish a three-judge independent examination review panel to mediate examination findings, compel timely completion of final examination reports, and compel timely completion of written determinations for permission, regulatory interpretation, or reporting guidance.

• “Making Online Banking Initiation Legal and Easy Act of 2017 (H.R. 1457)” – Introduced by Representative Tipton, this bill authorizes a financial institution, with an individual’s consent, to record personal information from a swipe, copy, or image of such individual’s driver’s license or personal identification card and store the information electronically for the purpose of verifying the identity of a customer and preventing fraud or criminal activity.

• “Community Lending Enhancement and Regulatory Relief Act of 2017 (H.R. 2133)” – Introduced by Representative Luetkemeyer, this bill contains fifteen sections to amend the Truth in Lending Act (TILA) and other rules in a variety of ways that provide relief to smaller lenders. It also amend the Consumer Financial Protection Act of 2010 to repeal the authority of the Consumer Financial Protection Bureau (CFPB) to take action to prevent a covered person or service provider from committing or engaging in an abusive act or practice under federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of one.  The bill also prohibits the CFPB from taking any action against a covered person or service provider without first consulting with such person’s primary financial regulatory agency.  The CFPB must comply with the same rules as govern the Federal Trade Commission (FTC) regarding unfair or deceptive acts or practices in or affecting commerce. 

• “Clarifying Commercial Real Estate Loans (H.R. 2148)” – Introduced by Representative Pittenger, this bill amends the Federal Deposit Insurance Act to clarify capital requirements for certain acquisition, development, or construction loans.

•  “Privacy Notification Technical Correction Act (H.R. 2396)” – Introduced by Representative Trott, this bill amends the Gramm-Leach-Bliley Act to exempt from its annual privacy policy notice requirement any financial institution which: (1) has not changed its policies and practices with regard to disclosing nonpublic personal information from those disclosed in the most recent disclosure sent to consumers, (2) makes its current policy available to consumers on its website and via request, (3) notifies customers of the availability on periodic billing statements or electronically, and (4) posts all notices if it maintains more than one policy.

•  “Access to Affordable Mortgages Act of 2017 (H.R. __)” – To be introduced by Representative Kustoff, this bill amends the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 and the Truth in Lending Act to exempt from property appraisal requirements certain higher-risk mortgage loans of $250,000 or less if such a loan appears on the balance sheet of the creditor of the loan for at least three years.

•  “Ensuring Quality Unbiased Access to Loans Act of 2017 (H.R. __)” – To be introduced by Representative Hollingsworth, this bill would repeal the Office of the Comptroller of the Currency (OCC) ‘‘Guidance on Supervisory Concerns and Expectations Regarding Deposit Advance Products’’ (78 Fed. Reg. 70624; November 26, 2013), and the Federal Deposit Insurance Corporation (FDIC) ‘‘Guidance on Supervisory Concerns and Expectations Regarding Deposit Advance Products’’ (78 Fed. Reg. 70552; November 26, 2013).  The bill would also require the OCC and FDIC to follow a transparent process when issuing any subsequent deposit guidance.

•  “To simplify the process for national banks to obtain deposit insurance, and for other purposes (H.R. __) – To be introduced by Representative Tenney, this bill amends the Federal Deposit Insurance Act to simplify the process for national banks and federal savings associations to obtain deposit insurance.

insideARM Perspective

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To be clear, this was just a subcommittee hearing, so the legislation described is far from becoming law. With that said…

What the ARM community may note is that, while most of the bills sound like they are designed to achieve the stated goal of regulatory relief, the first item, introduced by a Republican from Utah — aimed at debt collectors and debt buyers — doesn’t sound like it has this same intention. 

I found three things I thought worth pointing out about this proposed bill.

First:

“Before transferring or selling a debt described in section 803(5)(B) to a debt collector or contracting with a debt collector to collect such a debt, a Federal agency shall notify the consumer not fewer than 3 times that the Federal agency will take such action.”

The practice of notifying a consumer that their account is going to be sent to a debt collector — especially if it states which debt collector — is one that some creditors have begun to adopt (though to my knowledge, not 3 or more times), and would help to reduce the skepticism consumers have when first contacted by a legitimate collector.

Second: The requirement for a study of debt collection practices by yet another Agency:

Study.—The Comptroller General of the United States shall commence a study on the use of debt collectors by State and local government agencies, including:

(1) the powers given to the debt collectors by Federal, State, and local government agencies;

(2) the contracting process that allows a Federal, State, or local government agency to award debt collection to a certain company, including the selection process;

(3) any fees charged to debtors in addition to principal and interest on the outstanding debt;

(4) how the fees described in paragraph (3) vary from State to State;

(5) consumer protection at the State level that offer recourse to those whom debts have been wrongfully attributed;

(6) the revenues received by debt collectors from Federal, State, and local government agencies;

(7) the amount of any revenue sharing agreements between debt collectors and Federal, State, and local government agencies;

(8) the difference in debt collection procedures across geographic regions, including the extent to which debt collectors pursue court judgments to collect debts; and

(9) any legal immunity or other protections given to the debt collectors hired by State and local government agencies, including whether the debt collectors are subject to the Fair Debt Collection Practices Act (15 U.S.C. 1692 et seq.).

Report.—Not later than one year after the date of enactment of this Act, the Comptroller General of the United States shall submit to Congress a report on the completed study required under subsection (a).

This would not be an easy task. insideARM published a report in 2011 on collections in the government sector.  I suspect those charged with conducting this study would find an extremely fragmented system, with many jurisdictions employing outdated technology and/or disparate policies. These differences make general conclusions or apples-to-apples comparisons quite challenging. 

Third:  The bill would classify debt buyers as debt collectors under the FDCPA. This is interesting, in light of the recent Supreme Court decision in Henson v. Santander Consumer USA Inc.., which held that a debt purchaser collecting its own debt is not subject to the FDCPA. As RMA International noted, however, that decision did not consider whether a purchaser of defaulted debt is engaged “in any business the principal purpose of which is the collection of any debts.” §1692a(6).

SAN FRANCISCO, Calif. – LiveVox Inc., a leading provider of cloud channel of choice communications solutions, today announced that it is partnering with insideARM to discuss a practical, compliance-focused approach to channel of choice engagement by integrating consent capture into existing workflows. The event takes place this Thursday, July 13^th at 2pm ET/ 11am PT. Register here.

As it becomes more and more difficult to reach consumers via telephone, multichannel communication presents an increasingly important opportunity to maximize contact rates. However, the ability to effectively capture, store, and manage consent poses significant obstacles to capitalizing on additional channels. As a result, many businesses remain without a clear path forward.

Dusty Whitesell, LiveVox Chief Evangelist states, “There is no doubt that businesses are aware of the growing need to expand their contact channels. But the question remains how. This is especially true for businesses in highly regulated environments and I am very excited to share just that on the upcoming webinar.  Drawing from our proven expertise in compliance and cloud, we will provide participants with a practical and operations-focused approach to addressing multichannel consent. In doing so, we are empowering our clients and the industry to take a significant step towards channel of choice engagement.”

This webinar will shed light on an actionable approach to establishing compliance-focused multichannel strategies to drive contact performance. Topics covered include:

• An operations-focused understanding of today’s multichannel compliance environment
• How to empower agents to gather and manage consent
• Leveraging consent to expand beyond non-voice channels
• Driving multichannel ROI with cross-channel analytics

About the event

• EVENT: “A Practical Approach to Capturing Consent and Driving Multichannel ROI“

• REGISTER HERE

• DATE: Thursday, July 13th, 2017

• PANELISTS:

• Mark Mallah, General Counsel, LiveVox, Inc.
• Boris Grinshpun, Director, Product Management, LiveVox, Inc.
• Dusty Whitesell, Chief Evangelist, LiveVox, Inc.

About LiveVox 

LiveVox is a leading provider of enterprise cloud contact center solutions, managing more than 9 billion interactions a year across a multichannel environment. With over 15 years of pure cloud expertise, we empower contact center leaders to drive effective engagement strategies on the consumer’s channel of choice. Our leading-edge risk mitigation and security capabilities help clients quickly adapt to a changing business environment. With new features released quarterly, LiveVox remains at the forefront of cloud contact center innovation. Supported by over 450 employees and rapidly growing, we are headquartered in San Francisco with offices in Atlanta, Bangalore, and Colombia. To learn more, visit LiveVox.com or email us at info@livevox.com.

ROCKVILLE, Md. — The Consumer Relations Consortium (CRC) is pleased to announce it has recognized two individuals with special awards for dedicated service to the group. Michael Kraft, General Counsel of The CCS Companies and John Rossman, attorney with Moss & Barnett, have been a part of the CRC and have served on the steering committee since its founding in 2013.

The CRC is a group of more than 30 forward-thinking and compliance-oriented “larger market participants” in debt collection (as defined by the Consumer Financial Protection Bureau). As of 2017, the group now also includes creditors and — as part of its new Innovation Council – technology providers. The unique mission of the CRC has been to develop collaborative relationships with consumer advocacy groups and other thought leaders, along with regulators, in part to inform the ongoing debt collection rulemaking process.

John Rossman has dedicated countless hours to the group, including casual discussion among peers of the latest court cases affecting the industry and — more formally — drafting input for regulators on behalf of the group. Among many notable projects, John coordinated the CRC’s 100+ page response by more than 26 contributors to the CFPB’s Advance Notice of Proposed Rulemaking for debt collection. “He will no doubt provide similar leadership when the time comes to respond to a Notice of Proposed Rulemaking,” said Tim Bauer, co-executive director of the CRC.

Michael Kraft is a smart, passionate and thoughtful advocate for the ARM industry, and has also devoted numerous hours and travel time to the CRC over the past several years. Michael rarely misses a weekly steering committee call, and is often the first to volunteer to take the lead on a project. Stephanie Eidelman, co-executive director of the CRC said, “The consistency of Michael’s engagement is greatly appreciated. He is a joy to work with, and is one of the reasons the CRC is able to be so productive.”

All of the CRC members appreciate the leadership that John and Michael – as well as other excellent contributors in the group – provide. Bauer and Eidelman both regularly note that this group is one of the more enjoyable professional experiences they’ve had, largely due to the quality of the participants.

About the Consumer Relations Consortium

The CRC is a group of more than 30 forward-thinking and compliance-oriented “larger market participants” in debt collection (as defined by the Consumer Financial Protection Bureau). As of 2017, the group now also includes creditors and — as part of its new Innovation Council – technology providers. The unique mission of the CRC has been to develop collaborative relationships with consumer advocacy groups and other thought leaders, along with regulators, in part to inform the ongoing debt collection rulemaking process. Our approach has been to adopt a non-combative attitude in discussing practical solutions in a small, non-public and candid environment. More at www.crconsortium.org.

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With the Affordable Healthcare Act (ACA) still the law of the land, tax-exempt hospitals are wise to take — and keep — stock of any work aimed at complying with Section 501(r) of the Internal Revenue Code.

Maybe your organization has already worked hard to comply with 501(r), and if so, that’s great. Still, it can only be a benefit to regularly assess the situation:  

• Are your practices and procedures sufficient? Are they documented?
• Are you well positioned to avoid or at least reduce the severity of any violations that may pop up despite your best efforts?
• Do you routinely audit the hospital and its vendors with an eye toward recent enforcement actions that other hospitals have suffered?

Given the complexities of today’s revenue cycle operations, a solid, ongoing plan to comply with 501(r) is essential. It’s not going to happen without planned effort, and it’s not something that can be checked off a list and forgotten. 

What’s 501(r) Again?

501(r) governs the financial assistance policies, billing, and collection practices of hospitals exempt from taxation under IRC § 501(c)(3), including government hospitals with dual tax-exempt status. These regulations not only require specific policies and procedures, but also require hospital organizations to identify, correct and in many cases publicly disclose their own implementation errors in order to avoid penalties. And, the rules apply even to revenue cycle vendors and subvendors that service healthcare provider organizations.

Who’s Keeping Track of the Strictest Legal Requirements?

IRC 501(r) is one of many regulations tax-exempt hospitals must unpack and operationalize. Rather than displace other federal laws like the Fair Debt Collection Practices Act (FDCPA) or preempt existing state laws, such as California’s Hospital Fair Pricing Policies and New York’s Patient’s Financial Aid Law, hospitals must layer 501(r) and develop policies and procedures that comply with the strictest applicable legal requirements of state and federal requirements.

Notably, hospital reviews to check up on compliance can be triggered by a consumer complaint through the IRS’s established process for submission of complaints about tax-exempt organizations. In February 2016, the IRS noted that it would take into consideration any complaints it receives in connection with its decision to refer hospitals for field examinations.

Is There a Routine for Evaluating Compliance Practices?

The 501(r) regulations make clear that, in addition to helping prevent violations, strong compliance practices and procedures are essential to reducing the legal impact of violations that will inevitably occur in complex revenue cycle operations. Under the 501(r) framework, there are three types of violations:

1. minor omissions or errors requiring correction, but not disclosure;
2. excusable failures that must be corrected and disclosed to the IRS; and
3. inexcusable failures that must be corrected and disclosed but also threaten a hospital organization’s tax-exempt status.

In the absence of intentionally wrongful conduct, the crucial distinction between minor and serious 501(r) these violation types depends largely on the organization’s compliance practices and procedures.

In fact, of the nine factors that the IRS has stated that it will consider when deciding whether a failure to meet 501(r) requirements justifies revocation of a hospital organization’s tax exemption, eight either expressly require a hospital organization to maintain an established compliance program or involve examination of the functions of such program (e.g., early detection and correction of violations, measures to prevent recurrence of compliance errors).

Who’s Combing for Violations?

Failure to comply may result in audits, investigation, required corrections, public disclosure of violations and even loss of a hospital’s tax-exempt status. To get credit for correcting and disclosing a violation (which can reduce its seriousness), it must be identified, disclosed and corrected before the IRS itself discovers the violation.

For inexcusable failures, the IRS may revoke a hospital or hospital organization’s tax-exempt status. Even for excusable failures (i.e., those failures that are not willful or egregious), a hospital organization will be required to correct and publicly disclose such failure to the IRS, which may review, conduct intensive field examinations (during which the IRS may investigate any compliance errors, even if unrelated to the 501(r) failure at issue), and require further corrective actions. Additionally, the scrutiny on a hospital that arises from disclosure may lead to media inquiries, government investigations and, potentially, litigation from consumer attorneys.

Prevent, Limit, Detect, Disclose & Cure

Given the extensive regulatory framework, a significant ramp-up in enforcement activity, and the work required to establish a legally sufficient compliance program, tax-exempt hospitals need to implement and continually monitor a robust compliance program. A sound program will have procedures in place designed to limit violations, identify them when they do occur, and dedicate resources to appropriately correct and disclose the violations. Last but not least, hospitals must also ensure that their contracts with billing and collection vendors include essential terms prescribed by 501(r) regulations, and that those vendor’s activities are routinely audited with 501(r) and other relevant medical collections best practices in mind.

On Monday the Third Circuit Court of Appeals issued an opinion reversing the prior district court opinion in the case of Sussino v. Work Out World (Case No. 15-cv-5881, United States District Court for the District of New Jersey).  insideARM had written about the earlier decision on August 25, 2016. 

The Third Circuit opinion was written by the Honorable Thomas Hardiman, Third Circuit Judge. His opinion can be found here. Sussino v. Work Out World, (Case No. 16-3277, Third Circuit Court of Appeals). 

Background 

Ms. Susinno alleged that on July 28, 2015, Work Out World (WOW) left a pre-recorded message on her cellular telephone’s voicemail regarding membership. The message lasted a total of one minute and six seconds. 

The complaint was originally filed on July 30, 2015 (2 days after the call) and later amended on June 15, 2016. A copy of the Amended Complaint can be found here.  The Amended Complaint alleges a litany of “harm” to the plaintiff caused by that single call. The “harm” is detailed in our August 25, 2016 story.

On August 1, 2016, United States District Court Judge Peter Sheridan dismissed the putative class action complaint with prejudice.  The order dismissing the complaint was only a single page.  A copy of the one-page Order dismissing the case can be found here. 

Judge Sheridan’s decision was based on two conclusions: (1) a single solicitation was not “the type of case that Congress was trying to protect people against,” and (2) Susinno’s receipt of the call and voicemail caused her no concrete injury. 

Susinno timely filed this appeal. 

The Third Circuit Opinion 

Judge Hardiman began his opinion with a summary of the court’s opinion: 

“Because the TCPA provides Susinno with a cause of action, and her alleged injury is concrete, we will reverse the order of the District Court and remand for further proceedings.” 

He then succinctly described the issues presented: 

“This appeal poses two distinct questions: Does the TCPA prohibit the conduct alleged by Susinno? And if it does, is the harm alleged sufficiently concrete for Susinno to have standing to sue under Article III of the United States Constitution?” 

Does the TCPA Prohibit the Conduct? 

Judge Hardiman wrote: 

“WOW argues that the structure of this provision limits the scope of “cellular telephone service” to cell phone services where “the called party is charged for the call.” WOW Br. 15 (emphasis omitted) (quoting 47 U.S.C. § 227(b)(1)(A)(iii)). According to WOW, when Congress prohibited prerecorded calls to cell phones in the TCPA, it primarily was concerned with the cost of those calls. See WOW Br. 2, 4–5 (quoting the House and Senate reports for the TCPA). 

If it were the case (as WOW suggests) that cell phone calls not charged to the recipient were not covered by the general prohibition, there would have been no need for Congress to grant the FCC discretion to exempt some of those calls. We also think it significant that this section states “calls to a [cell phone] . . . not charged to the called party” can implicate “privacy rights” that Congress “intended to protect,” even if the phone’s owner is not charged for the call. 47 U.S.C. § 227(b)(2)(C).” 

Was the harm alleged sufficiently concrete for Susinno to have standing to sue under Article III of the United States Constitution? 

The court concluded that the injuries alleged by Susinno were concrete for two reasons: 

“First, Congress squarely identified this injury. The TCPA addresses itself directly to single prerecorded calls from cell phones, and states that its prohibition acts “in the interest of [ ] privacy rights.” 47 U.S.C. § 227(b)(2)(C). The congressional findings in support of the TCPA likewise refer to complaints that “automated or prerecorded telephone calls are a nuisance [and] . . . an invasion of privacy.” Pub. L. 102– 243, § 2. We therefore agree with Susinno that in asserting “nuisance and invasion of privacy” resulting from a single prerecorded telephone call, her complaint asserts “the very harm that Congress sought to prevent,” arising from prototypical conduct proscribed by the TCPA. App. 11 (First Amended Complaint); see also Van Patten v. Vertical Fitness Grp., LLC, 847 F.3d 1037, 1043 (9th Cir. 2017) (finding two unwanted text messages constituted a concrete injury under the TCPA, as they “present the precise harm and infringe the same privacy interests Congress sought to protect”). 

Where a plaintiff’s intangible injury has been made legally cognizable through the democratic process, and the injury closely relates to a cause of action traditionally recognized in English and American courts, standing to sue exists.” 

insideARM Perspective 

The insideARM perspective in our August 26, 2016 article expressed optimism that other courts throughout the country might follow the lead of the district court judge that originally dismissed this case. That optimism was short-lived. Unless and until the Court of Appeals for the District of Columbia Circuit issues a common-sense result in ACA International v. Federal Communication Commission — or the FCC itself reverses rules promulgated in 2015 — these types of TCPA cases will continue to be filed. 

 

Last Friday the Consumer Financial Protection Bureau (CFPB) announced a new slate of advisory board members, including one single representative of the debt collection community, to replace Joann Needleman, attorney with ClarkHill and past president of NARCA, who just completed a three year term on the board.

The Dodd-Frank Wall Street Reform and Consumer Protection Act charges the CFPB with establishing a Consumer Advisory Board to advise and consult with the Bureau’s Director on a variety of consumer financial issues. At the behest of the Director, the Bureau also created a Community Bank Advisory Council, a Credit Union Advisory Council and an Academic Research Council. In January 2016, the CFPB issued a Federal Register Notice outlining the responsibilities of the advisory groups, as well as the duties of its members, and solicited applications for appointment.

The following are those who have been selected to join the respective boards:

Consumer Advisory Board Members (to serve 3-year terms):

• Randi Adelstein, Assistant General Counsel for Regulatory Affairs, MasterCard International Incorporated, Purchase, N.Y.

• Patricia L. Arvielo, President and Co-Founder, New American Funding, Tustin, Calif

• Julie Kalkowski, Executive Director, Financial Hope Collaborative, Creighton University, Omaha, Neb.

• Brent A. Neiser, Senior Director, National Endowment for Financial Education, Denver, Colo.

• Ohad Samet, CEO, One True Holding Company, San Francisco, Calif.

• Dr. Howard B. Slaughter, Jr., President and Chief Executive Officer, Habitat for Humanity of Greater Pittsburgh, Pittsburgh, Pa. 

Community Bank Advisory Council Members (to serve 2-year terms):

• Richard H. Harvey, Jr., Senior Vice President and Chief Compliance Officer, Colonial Savings F.A., Fort Worth, Texas

• Max S. Yates, Senior Executive Vice President and Chief Risk Officer, Bank Plus, Ridgeland, Miss.

Credit Union Advisory Council Members (to serve 2-year terms):

• Kayce Bell, Chief Development Officer, Alabama Credit Union, Tuscaloosa, Ala.

• Jack Fallis, President and CEO, Global Credit Union, Spokane, Wash.

• Luis Peralta,  Chief Administrative Officer, Kinecta Federal Credit Union, Manhattan Beach, Calif.

• David Tuyo, Senior Executive Vice President and Chief Financial and Operations Officer, Power Financial Credit Union, Pembroke Pines, Fla.

Academic Research Council (to serve 3-year terms):

• Dr. John G. Lynch, Senior Associate Dean for Faculty and Research, Leeds School of Business, University of Colorado Boulder, Boulder, Colo.

More information on the Bureau’s advisory groups can be found at www.consumerfinance.gov/advisory-groups/

insideARM Perspective

For those who don’t recognize the name, Ohad Samet of One True Holding Company is the new member who was selected to represent the ARM industry on the Consumer Advisory Board. This is an interesting choice. Founded in 2013, his debt collection firm, TrueAccord, is based on a primarily digital collection model, which is currently considered to be unconventional for the industry. A newcomer to collections, TrueAccord is not hampered with legacy systems or processes, or evidently with clients who are too conservative to pursue the strategy. To get a sense of the firm’s philosophy, read this article by Ohad, which we also published today.

We reached out to Ohad for comment on the appointment. He said this,

“I’m honored and excited to have been appointed to the CFPB’s Consumer Advisory Board. With this appointment, the CFPB is sending a strong message about how it views technology’s role in shaping the future of consumer finance in general, and debt collection in particular. I’m proud to be able to represent the industry’s point of view while making sure we usher in a new era of great user experience and technology innovation.”

Indeed. It will be interesting to see whether the CFPB is sending such a message. New rules for the collection industry have been 3+ years in the making, and a next step in that process has been promised in the forseeable future (though the spring schedule update has yet to be released). Many will be watching to see whether the bureau issues a proposed rule that provides specific guidelines for the use of communication methods other than landline telephones and sending mail through the postal service.

MINNEAPOLIS, Minn. — DCM Services, LLC, the industry leader in estate and specialty account recovery services, has been named one of the Top 150 Workplaces in Minnesota by the Star Tribune for the second year in a row. Top Workplaces recognizes the most progressive companies in Minnesota based on employee opinions measuring engagement, organizational health and satisfaction. 

“Being named a Top 150 Workplace for the second time, based exclusively on anonymous feedback from our employees is a real honor for our company,” said Ben Boyum, CEO of DCM Services. “A positive work environment with engaged employees is a very good thing for all stakeholders—including our clients, our owners and employees.” 

The analysis included responses from over 69,000 employees at Minnesota public, private and nonprofit organizations. More than two-thirds of DCM Services employees, a total of 181 employees (67 percent) completed the survey. Questions measured employee satisfaction with the organization in four areas: alignment with goals, effectiveness, connection and management. DCM Services received its highest scores in the areas of management and encouraging new ideas.

The Top 150 Workplaces list was published in the Star Tribune on Sunday, June 25; the full report can be found here.

For additional information regarding DCM Services, please visit www.dcmservices.com. 

About DCM Services

Minneapolis-based DCM Services, is the industry leader in estate and specialty account resolution services, maximizing the value of client portfolios across financial services, healthcare, retail, and telecom industries through innovation and performance. Its recovery solutions offer a full range of services from proprietary web-based solutions to full outsourcing, maintaining an unmatched spectrum of innovative solutions that increase recoveries, protect brand value, and enhance survivor relationships – with respect and sensitivity. For more information on all DCM Services’ offerings, visit www.dcmservices.com.

Debt collection has existed for as long as consumers have been taking loans. For the past few decades, collectors have been building call center businesses – hundreds and thousands of calling agents, using automated dialers to contact indebted consumers, compensated with commission once they reach their collection goals. Consumers are often harassed by overzealous collectors looking to meet their goals, calling as much as 6 times per day. It’s a stressful environment focused on one thing – get the money or get out. 

In the past few years, collectors have seen a shift in consumer behavior, and the old way of collecting is becoming less relevant and effective. Mobile and digital experiences have changed how we interact and communicate, and consumers are demanding the same from collections. Reply rates to letters have plummeted, as well as the number of consumers who pick up the phone. Some issuers report double-digit growth in the percent of consumers who are strictly digitally engaged.  By 2018, according to Gartner, consumers will consume more than 50% of content on mobile devices, and expect communication by email and text. At the same time, more consumers are taking loans and end up in collections (several banks have reported a surge in default rates above 5% in the past two quarters), and communicating with all of them at scale, and while staying compliant is impossible. Burdened by thin margins and a legacy call center approach, collection agencies have failed to make the deep investment required to use modern, integrated technologies and adapt to consumer needs. This, along with ongoing changes in regulation, is why collectors’ success rates are decreasing while litigation numbers keep rising. 

In contrast, machine learning and digital first systems are emerging to deliver great consumer experiences at scale and with better results. Developed with the most modern tools, these systems offer the best possible user experience, a personalized communication, and enable a strategic, data-driven approach to collections. Using their advantage in efficiency, scale, performance and compliance, machine learning based systems are delivering a better alternative to call center based collections. Whenever the human-intensive and the machine learning based approach square off, these modern tools provide a superior result. 

Machine learning beats call centers in scale and efficiency 

Call center agents are humans, and like the rest of us, they too lose focus if a task is too repetitive or they see a bigger reward elsewhere. That is why, when given a new set of accounts, they call those furiously over 30-45 days before reducing their call volume. Consumers who get caught in this early push are often driven to pay, sometimes by coercion – but quickly fall off the wagon once the calls stop. Collectors often get angry when facing a difficult debtor, distracted by the end of the day, or stressed when they fail to meet their goals. Finally, when collectors see that they can’t get consumers on the phone, they move to the next fresh batch of accounts.

The debt collection process is broken and neither side ultimately is set up for success. Consumers in debt need a steady, personalized, and consistent communication stream to put the right offer in front of them, and then nurture them through the payment process. They have limited attention spans, they work irregular hours, are often tired and distracted. They need a helping hand and a service that’s available when they are. They may not be paid the same amount in regular intervals, and need a payment option that accounts for that. Because consumers can engage when it’s convenient for them, a lot of engagement can happen when a call center would not legally be permitted to contact consumers. 

Machine learning based systems deliver great consumer experiences tailored to individual needs. A machine doesn’t get emotional, instead it uses data from hundreds of millions of previous interactions to tailor its strategy to every individual. When a consumer needs a highly personalized payment plan, these sophisticated systems detect that and offer the customization the consumer needs, subject to approval by their creditor. Then, they nurture the consumer through the process with personalized communication, through whichever channel they prefer, and follow up flows that get more consumers than ever beyond the finish lines of their payment plans. 

Machine learning scales much faster than call centers 

Call centers are a people driven business model, thus they are susceptible to negative emotions, lack of consistency in how they communicate with each client, and challenges to scale. One of the biggest challenges in call center based collections is staffing. Collectors are paid low base rates and high commissions, and are expected to deliver compliant collection calls while getting consumers to pay, and making hundreds and thousands of calls per day. This high stress environment yields high churn, so call centers are constantly hiring, rehiring, retraining and firing collectors. Churn rates of 40% are considered good, and 100% churn rate in 12 months is not uncommon. Call centers often struggle with not having enough collectors or being overstaffed, leading to low performance and profit margins. 

On the other hand, machine learning based systems are the most flexible constructs. While often supported by a small team of customer care agents, the bulk of the system’s operation is controlled and delivered by machines. Firing up a server or turning it off in response to changes in required capacity is as easy as a flip of a switch. A machine learning platform could handle thousands of accounts per customer care agents, compared with a call center’s 750 per agent, delivering unprecedented scale that a legacy collection agency simply cannot achieve, and one that is much easier to control for compliance purposes. Instead of training new hires, the operation manager spins up another server that has the same, code controlled, compliance policy and the same pre-written content. As a result, consumers get the same personalized treatment governed by the same code-driven compliance policy, no matter which server actually runs the computations that delivered their collection communication. 

Machine learning performs better than call centers 

Based on its scale, efficiency and uniformity, machine learning based systems prevail when tested head to head against call center based agencies. Drawing from its vast amount of data, a machine learning based system personalizes the contact strategy with the consumer (timing, channel, frequency, and tone) as well as the offer strategy (whether to offer payment-in-full, percent of settlement, or what length of payment plan – all with the creditor’s approval). Consumers end up paying more when they are sent personalized communication – and the system can then track their responses, in real-time, to feed its scalable decision engine and decide what its next action should be. This way, it can trigger a phone call to a non-responsive consumer, while offering a longer payment plan to someone that reviewed a 3 month plan but wouldn’t sign up, all the while modifying the latest payment for a consumer who can’t make it on time. 

This personalized, behavior based treatment strategy is what makes a huge difference between machine learning based systems and call center based ones. Consumers don’t feel coerced into making a payment and do not trigger a charge back. Payment plan breakage is phenomenally lower than traditional agencies’ which leads to superior liquidation, just weeks into each placement. In addition, this improved performance is achieved while significantly reducing contact attempt frequency, contacting consumers an average of 3 times per week compared to 6-8 times per day with traditional agencies, which in turn, means a significant reduction in complaint rates.  

Bottom line – the future is here 

Call centers have reigned in the world of collections since their model was the only way to collect profitably. That is changing. Mobile devices, consumer preferences, creditor focus on user experience and repeat business, regulatory pressures and above all – the maturation of machine learning and marketing technologies – are enabling a new paradigm in debt collection. Machine learning based systems are growing more and more prevalent, competing head to head with traditional agencies and gaining ground with the most sophisticated creditors in financial services. It is a change that garners great benefits for everyone involved – creditors, debtors, and service providers.