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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
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
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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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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
CFPB Top Debt Collection Issues/Concerns
• Time Barred Debt
– Deceptive statements
– Required disclosures
– Systems to ensure correct SOL information (how
time-barred status is calculated and tracked)
9
CFPB Top Debt Collection Issues/Concerns
• 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)
CFPB Top Debt Collection Issues/Concerns
• 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)
CFPB Top Debt Collection Issues/Concerns
• 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)
CFPB Top Debt Collection Issues/Concerns
• 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)
CFPB Top Debt Collection Issues/Concerns
• Payments
– Payment application/crediting
– Statements during repayment plans
– Fees (e.g., “convenience fees”)
– Offering settlement and repayment options
14
(continued)
CFPB Top Debt Collection Issues/Concerns
• 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
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
FTC Enforcement Actions
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
FTC Enforcement Actions
“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
FDCPA Circuit Splits
“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
FDCPA Circuit Splits
“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
FDCPA Circuit Splits
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
FDCPA Circuit Splits
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
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.