Consumer Debt Collection and New CFPB Regs, …media.straffordpub.com/products/consumer-debt-collection-and-new... · Regs, Enforcement and Litigation: Game Changers for the ... New

Consumer Debt Collection and New CFPB

Regs, Enforcement and Litigation:

Game Changers for the Industry Navigating New Paradigms for Debt Originators, Sellers, Collectors and Attorneys

as Debt Collectors, Leveraging FDCPA Developments

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THURSDAY, FEBRUARY 6, 2014

Presenting a live 90-minute webinar with interactive Q&A

Ronald L. Rubin, Partner, Hunton & Williams, Washington, D.C.

David N. Anthony, Partner, Troutman Sanders, Richmond, Va.

Angela E. Kleine, Morrison Foerster, San Francisco

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CFPB Debt Collection ANPR

Ronald L. Rubin

Partner, [email protected]

Hunton & Williams LLP

mailto:[email protected]

Debt Collection ANPR – November 2013

• CFPB seeks data and information to assist in developing

proposed rules for debt collection

• Final Regulations may take time – 12 to 18 months?

• Asks for answers to 162 questions (questions grouped

into eight substantive categories)

• Comment period extended to February 28, 2014

– Submit comments – CFPB interprets silence as

agreement!

6

Debt Collection ANPR – November 2013

• Expected Highlights

– Persistent consumer protection problems/complaints

– Updates needed due to technological developments

since FDCPA

– Original creditor (first party collection) – national

standards

7

(continued)

CFPB Top Debt Collection Issues/Concerns

• UDAAP vs. FDCPA

• Mistaken Collection Efforts

– Quality of data

– Obligations of debt seller

8


• Time Barred Debt

– Deceptive statements

– Required disclosures

– Systems to ensure correct SOL information (how

time-barred status is calculated and tracked)

9


• Documentation

– When making calls; threatening litigation; suing

– Having documents vs. ability to get documents

– Agreements to pay debt, and amount owed (terms

and conditions, account statements)

– Chain of title

– Affidavit language and execution

10

(continued)


• Complaints/Dispute Resolution

– Always high priority for CFPB

– CFPB analyzes complaint data, looks for patterns

– CFPB looks closely at responses to complaints;

internal investigations; validation requests

• Policies and Procedures

– Impossible to be perfect

11

(continued)


• FCRA/Credit Reporting

– Steps taken to ensure accuracy and integrity of

information reported to credit bureaus

– Responses to disputes and adequacy of

investigations

– Reporting of accounts as disputed

– Reporting of time barred debt

12

(continued)


• Telephone Communications

– Call frequency, time of day restrictions (especially

across multiple accounts)

– Honoring written and verbal do not call requests

– Call recording and monitoring systems

– Statements made to encourage payment (e.g.,

regarding credit score improvement)

13

(continued)


• Payments

– Payment application/crediting

– Statements during repayment plans

– Fees (e.g., “convenience fees”)

– Offering settlement and repayment options

14

(continued)


• Servicemembers/SCRA

• Older Americans

15

(continued)

m

ofo

.com

Consumer Debt Collection and

New CFPB Regs, Enforcement

and Litigation

Angela E. Kleine (415) 268-6214

[email protected]

17

FTC Enforcement Actions

• Joint FTC / CFPB authority

• January 20, 2012 MOU

• Information Sharing (including exam materials)

• 7 Actions Emphasized in CFPB Annual Report

CFPB’s 2013 Annual FDCPA Report

12 U.S.C. §§ 5514-17, 5519, 5563, 5564

18


1. FTC v. Forensic Case Management Services, Inc., No. 2:11-CV-

07484 (C.D. Cal. Jan. 17, 2013) ($30 million judgment against debt

collection firm and employees)

2. U.S. v. Luebke Baker, No. 1:12-cv-1145 (C.D. Ill. May 22, 2012)

($3.1 million settlement, re: collection of magazine subscription

debts)

3. FTC v. Goldman Schwartz, No. 4:13-cv-106 (S.D. Tex. Jan. 31,

2013) (TRO and asset freeze against debt collector, re: alleged

false statements, including threats to take legal action)

4. FTC v. AMG Services, Inc., No. 2:12-cv-536 (D. Nev. Apr. 2, 2012)

(TRO and asset freeze against lender)

19


“Phantom Debt” Collection

5. FTC v. Broadway Global Master, Inc., No. 2:12-cv-855 (E.D. Cal.

Apr. 3, 2012) (ongoing)

6. FTC v. Pro Credit Group, LLC, et al., No. 12-CV-586 (M.D. Fla. Mar.

19, 2012) (Sept. 11, 2013 Stipulated Final Judgments and Orders

for Permanent Injunction)

7. FTC v. American Credit Crunchers, No. 12-CV-1028 (N.D. Ill. Oct.

10, 2012) (Oct. 23, 2012 Stipulated Final Judgment and Order for

Permanent Injunction)

20

FDCPA Circuit Splits

Key Definitions: FDCPA § 803

• “[C]reditor": “any person who offers or extends credit creating a debt or to

whom a debt is owed”

• Exception: “any person” who “receives an assignment or transfer of a

debt in default solely for the purpose of facilitating collection of such

debt for another.”

• “[D]ebt collector”: “any business the principal purpose of which is the

collection of any debts, or who regularly collects or attempts to collect,

directly or indirectly, debts owed or due or asserted to be owed or due

another.

• Exception: Collection of “a debt” that (1) was originated by such person” or

(2) “was not in default at the time it was obtained by such person”

• But, see the Bureau’s 2013 Guidance and ANPR

21


“Debt Collectors”

• 9th Circuit

• Foreclosure: [The bank] acquired the loan in default and later

foreclosed. Held, it could be both a “creditor” and a “debt collector.”

Schlegel v. Wells Fargo Bank, N.A., 720 F. 3d 1204 (9th Cir. 2013).

• Mods: Bank was both a “debt collector” and “engaged in debt collection

activities when it offered the TPP.” Corvello v. Wells Fargo Bank, N.A.,

728 F. 3d 878 (9th Cir. 2013).

• 11th Circuit

• Reese: Law firm that sent dunning letters was a “debt collector”

• Birster left open whether the servicer was a “debt collector”

22


“Debt Collectors”

• 5th Cir.: “[M]ortgage servicing companies” and “debt

assignees” are not debt collectors, and therefore are

not regulated by the FDCPA, “as long as the

[mortgage] was not in default at the time it was

assigned” by the originator.” Miller, et al. v. BAC Home

Loans Servicing, 726 F.3d 717 (5th Cir. Aug. 13, 2013).

• 6th Cir.: “[Servicer] obtained the . . . loan for servicing

before default. Therefore, [servicer] is not a ‘debt

collector.’” Glazer.

23


Enforcement of a Security Interest as "Debt Collection"

• 6th Circuit rejected “[t]he view adopted by a majority of district courts

. . . that mortgage foreclosure is not debt collection.” Glazer v. Chase

Home Fin. LLC, 704 F.3d 453, 457 (6th Cir. 2013).

• 11th Circuit: “The rule the . . . law firm asks us to adopt would

exempt from the provisions of § 1692e any communication that

attempts to enforce a security interest regardless of whether it also

attempts to collect the underlying debt [in the note]. That rule would

create a loophole in the FDCPA. A big one.” Reese v. Ellis, Painter,

Ratterree & Adams, LLP, 678 F.3d 1211, 18-17 (11th Cir. 2012); Birster v.

American Home Mortgage Servicing, 481 Fed.Appx. 579 (11th Cir. 2012)

• CFPB amicus brief

24


Oral vs. Written Notice of Dispute

• 4th Circuit: There is no “inherent writing requirement” for consumers

to dispute the validity of a debt under the FDCPA. Clark v. Absolute

Collection Service Inc., No. 13-1151 (4th Cir. Jan. 29, 2014)

• “ACS asks that we disregard the statutory text to read into it words that

are not there . . . . We decline to do so.”

• Circuit Split:

• Hooks v. Forman, Holt, Eliades & Ravin, LLC, 717 F.3d 282 (2d Cir.

2013); Camacho v. Bridgeport Fin. Inc., 430 F.3d 1078 (9th Cir. 2005)

(followed by the Fourth Circuit here).

• Graziano v. Harrison, 950 F.2d 107 (3d Cir. 1991) (Section 1692g(a)(3)

must be read to include a writing requirement).

25

FDCPA: Cost Recovery

Marx v. General Revenue Corporation,

133 S.Ct. 1166 (Feb. 26, 2013)

• FRCP 54(d): authorizes award of costs to prevailing party, “Unless a

federal statute . . . provides otherwise.”

• FDCPA: “On a finding by the court that an action under this section

was brought in bad faith and for the purpose of harassment, the court

may award the defendant attorney’s fees reasonable in relation to the

work expended and costs.” 15 U.S.C. § 1692k(a)(3)

• 10th Cir.: Prevailing defendant may be awarded costs regardless of

whether the lawsuit was brought in bad faith and for harassment.

• CFPB and FTC amicus brief urging reversal.

• SCOTUS: Affirmed, 7-2

26

FDCPA: Collection Fees

Limitation on Percentage Collection Fees

Bradley v. Franklin Collection Services, Inc., 739 F.3d 606 (11th Cir. 2014)

• 2 plaintiffs with past due medical bills.

• 2 different agreements re: payment of collection agency fees. (“all

costs of collection including . . . reasonable collection agency fees”

vs. “costs of collection”)

• FDCPA: “[U]nfair or unconscionable” includes collection of additional

fees or charges “unless such amount is expressly authorized by the

agreement creating the debt or permitted by law.”

• Bradley: The 30% amount assessed by Franklin constituted

liquidated damages rather than the “costs of collection” that this

plaintiff agreed to pay.

27

FDCPA: Attorney Issues

• “Regularly” Collecting Debts under Heintz v. Jenkins (U.S. 1995)

• 10th Cir.: “over the span of one decade Wadas engaged in only six to

eight debt collection cases. . . . cases accepted from this client

comprises only a small portion of [her] overall caseload . . . [She] has not

issued debt collection communications, and she does not have any

system or personnel to assist with debt collection activity.” James v.

Wadas, 724 F.3d 1312 (10th Cir. 2013).

• 11th Cir.: Claims that law firm sent similar dunning letters to over 500

others in the past year plausibly alleged that the firm regularly attempted

to collect debts. Reese, 678 F.3d 1211.

• Personal Liability: Principle of debt collection firm, who was a

lawyer, was personally liable for signing debt collection letters that

contained false statements. Cruz v. Int'l Collection Corp., 673 F.3d

991 (9th Cir. 2012).

28

FDCPA: Punitive Damages Update

Miller v. Equifax, No. 3:11-cv-01231 (D. Or. Jan. 29, 2014)

• Jury

• $180,000 compensatory damages

• $18.42 million punitive damages

Punitives = 102x multiplier

• Judge:

• 102x punitives award violated due process limitations.

• Revised to $1.62 million = maximum consistent with BMV v. Gore

/ State Farm v. Campbell (9x)

• No real discussion of Exxon Shipping 1x multiplier

29

Consumer Debt Collection and

New CFPB Regs, Enforcement

and Litigation

David N. Anthony

Troutman Sanders 804.697.5410

[email protected]

Federal Court Private Litigation

2007 2012

FDCPA 4,329 11,495

FCRA 1,516 2,249

TCPA - 1,101

TOTALS 5,845 14,845

Summary of Litigation Risks

for Debt Collection Actions

FDCPA TCPA FCRA

Class action risk Class action risk Class action risk

Damages capped in

class actions to the

lesser of $500,000 or

1 percent of the debt

collector's net worth

Damages uncapped Damages uncapped

No punitive damages;

actual damages plus

statutory damages up

to $1,000.

Statutory damages of

$500 for each violation

and up to $1,500 for

each willful violation.

Actual, punitive and

statutory between

$100 and $1,000.

One year SOL Four year federal

catch-all SOL or state

SOL?

Two year SOL from

discovery/five year

SOL maximum.

32

TCPA - Stale Numbers Soppet v. Enhanced Recovery, 679 F.3d 637 (7th

Cir. 2012).

• Holding: A person who owns a cell phone

number previously used by another is entitled to

bring TCPA claims for calls directed to the prior

owner of the cell phone number.

• Practical Impact: Companies may: (1) increase

frequency of vendor and number scrubbing; (2)

ensure initial calls are manual with non-capacity

phone; and (3) alter reps and warranties to

require change-in-number disclosure.

33

TCPA - ATDS Definition Nelson v. Santander Consumer USA, Inc., 931 F.

Supp. 2d 919 (W.D. Wis. 2013)

• Holding: If system used by debt collector had

“capacity” to make calls, even if that feature was not

used, then TCPA is triggered. Summary judgment

entered against Defendant for $500,000 for one

account.

• Practical Impact: Increased focus on construction and

capabilities of phone/dialer.

• Compare Hunt v. 21st Mortgage Corp., 2013 U.S. Dist.

LEXIS 132574 (N.D. Ala. Sept. 17, 2013). Alabama

federal court held that dialer definition requires

“present” capacity.

34

TCPA - ATDS Definition Pending FCC Petitions

• GroupMe, Inc. – March 2012 º Seeks ruling in which the FCC “adopt[s] a

definition of ATDS that excludes technologies with

a theoretical capacity, but not the actual capacity,

to autodial random or sequential numbers.”

• Others: º Revolution Messaging, LLC – Jan 2012

º Communication Innovators – June 2012

º 3G Collect – Oct. 2012

º YouMail, Inc. – April 2013

35

TCPA - Recent Circuit Ruling Dish Network, L.L.C. v. FCC, et al., No. 13-1182

(D.C. Cir. Jan. 22, 2014)

• Holding: D.C. Circuit panel refused Dish

Network’s petition to review certain FCC

guidance on TCPA. Court held that FCC

guidance was not binding on courts.

• Practical Impact: Federal agencies can issue

influential legal interpretations, including of the

TCPA, without accountability or legal challenge

in court.

36

TCPA - Prior Express Consent

Mais v. Gulf Coast Collection Bureau, Inc., 944 F.

Supp. 2d 1226 (S.D. Fla. May 8, 2013).

• Holding: Neither creditors nor debt collectors

have “prior express consent” to call a cell phone

number via an ATDS merely by obtaining a

phone number on a credit application.

• Practical Impact: Outlier case that runs counter

to 2008 TCPA guidance from the FCC?

37

TCPA - Prior Express Consent, cont. Baird v. Sabre, Inc., 2014 U.S. Dist. LEXIS 11246

(C.D. Cal. Jan. 28, 2014)

• Holding: Individuals who knowingly release their

cell phone numbers (e.g., on credit applications)

have, in effect, given their “prior express

consent” to be called at that number.

• Practical Impact: Baird followed the FCC’s 2008

TCPA Order and hopefully should resolve

concerns that Mais would represent a bell-

weather of change in the law.

38

TCPA - Prior Express Consent, cont. Wills v. Optimum Outcomes, Inc., 2014 U.S. Dist.

LEXIS 7377 (D. Utah 2014)

• Holding: Prior express consent is provided when

a cellphone number is included in a

dispute/cease & desist letter to the creditor.

• Practical Impact: Provision of a cell phone

number in any document could be considered

“prior express consent” under the TCPA.

39

TCPA - Good Faith Exception Chyba v. First Fin. Asset Mgmt., 2013 U.S. Dist.

LEXIS 165276 (S.D. Cal. Nov. 20, 2013)

• Holding: Where consumer listed cell phone

number as “Home” number on rental car

application, Defendant had good faith basis to

believe that Plaintiff provided “prior express

consent.”

• Practical Impact: Shakes up the notion that the

TCPA is a strict liability statute.

40

TCPA - Standing Olney v. Progressive Casualty Ins. Co., 2014 U.S.

Dist. LEXIS 9146 (S.D. Ca. Jan. 24, 2014)

• Holding: The party with standing under TCPA is

the subscriber of the telephone number, which is

both: (1) The “account holder,” and (2) The

“regular user” of the phone.

• Practical Impact: Provides for a potentially

dispositive affirmative defense on standing

grounds.

41

Recent CAFA Decision Mississippi ex rel. Hood v. AU Optronics Corp.,

Case No. 12-1036 (U.S. 2013)

• Holding: CAFA cannot be used to remove

federal court cases filed by state AGs as parens

patriae on behalf of the state’s citizens.

• Practical Impact: (1) Less favorable state courts;

(2) Massive power of AGs as plaintiffs; (3)

Increased partnerships between AGs and the

plaintiffs’ bar; and (4) May not bring finality,

despite class action settlement.

42

FDCPA - Communications/Voicemails

Foti v. NCO Financial Systems, Inc., 424 F. Supp.

2d 643 (S.D.N.Y. 2006).

• Holding: If a debt collector leaves a message on a

debtor’s answering machine that merely invites a return

phone call, the message amounts to a “communication”

within the meaning of the FDCPA; voicemail message

must disclose it is from a “debt collector” in order to

comply with FDCPA.

• Practical Impact: “Foti paradox”: Third parties can often

gain access to voicemails, and many debt collectors have

been sued under the FDCPA for violating prohibition on

third party disclosure.

43

FDCPA - Recent Foti Decisions

• Marisco v. NCO Fin. Sys., 946 F. Supp. 2d.

(E.D.N.Y. 2013) (Denying motion to dismiss and

rejecting argument that Foti places debt collectors

between “a rock and a hard place,” i.e. Foti

disclosure vs. 3rd party disclosure).

• Brody v. Genpact Servs., LLC, 2013 U.S. Dist.

LEXIS 158792 (E.D. Mich. Oct. 28, 2013) (no

FDCPA violation where defendant’s agent failed to

divulge any information that could “reasonably be

construed to imply a debt”)

44

FDCPA - Affidavit Compliance

Midland Funding v. Brent, 2011 U.S. Dist. LEXIS

90004 (N.D. Ohio Aug. 12, 2011).

• Debt collector accused of filing actions based on

affidavits signed by employees claiming

personal knowledge of the debts when they, in

fact, did not possess such knowledge.

• Holding: The practice of robo-singing affidavits

in debt collection actions violates the FDCPA.

The district court certified a nationwide class and

approved a $5.2M class settlement.

45

FDCPA - Affidavit Compliance, cont. Midland Funding v. Brent, 2011 U.S. Dist. LEXIS

90004 (N.D. Ohio Aug. 12, 2011).

• Robo-signing: Procedures must ensure an

affidavit process that:

(1) accurately describes the knowledge of

the affiant,

(2) sets up significant controls around the

creation of the affidavits themselves, and

(3) helps to ensure that affiants themselves

are qualified and trained.

46

FDCPA - Affidavit Compliance, cont. Midland Funding v. Brent, 2011 U.S. Dist. LEXIS

90004 (N.D. Ohio Aug. 12, 2011).

• Data Integrity - Important factors:

(1) Process for obtaining account records

(2) Process for integrating those records into its own

record-keeping system,

(3) Evidence and testimony regarding the Legal

Specialists’ knowledge of these processes, and

(4) The reliability of the account records obtained and

maintained by Midland.

47

FDCPA - Affidavit Compliance, cont. Vassale v. Midland Funding LLC, 2013 U.S. App.

LEXIS 3914 (6th Cir. Feb. 26, 2013).

• 6th Circuit ultimately vacated the Brent class

settlement.

• Holding: Settlement was unfair because of the

disparity of relief between named plaintiffs and

unnamed class members.

º Class reps’ debts were extinguished, class

members’ not.

º Class reps received $2,000 incentive payments.

Documents

Consumer Debt Collection and New CFPB Regs, …media.straffordpub.com/products/consumer-debt-collection-and-new... · Regs, Enforcement and Litigation: Game Changers for the ... New