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On October 26, the U.S. District Court for the District of Maryland entered a stipulated final judgment and order against defendants (a debt collection entity, its subsidiaries, and their owner) in an action alleging FCRA and FDCPA violations. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants in 2019 with alleged violations that included, among other things, the defendants’ failure to ensure accurate reporting to consumer-reporting agencies (CRAs), failure to conduct reasonable investigations and review relevant information when handling indirect disputes, and failure to conduct investigations into the accuracy of information after receiving identity theft reports before furnishing such information to CRAs. The Bureau separately alleged that the FCRA violations constitute violations of the CFPA, and that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts.
Under the terms of the order, the defendants—who neither admitted nor denied any of the allegations except as specified in the order—are required to, among other things, (i) update existing policies and procedures to ensure information is accurate before it is furnished to a CRA or before commencing collections on an account; (ii) ensure policies and procedures are designed to address trends in disputes; and (iii) hire an independent consultant, subject to the CFPB Enforcement Director’s non-objection, to conduct a review to ensure management-level oversight and FCRA and FDCPA compliance. The defendants must also submit a compliance plan and pay an $850,000 civil money penalty.
On October 29, the CFPB released information on validation notices to help facilitate compliance with requirements in the Regulation F debt collection final rule. As previously covered by InfoBytes, in October 2020 the CFPB issued its final rule (effective November 30) amending Regulation F, which implements the Fair Debt Collection Practices Act, addressing debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The CFPB released guidance for debt collectors offering instructions on how to provide certain validation information, including using the “Itemization Table” in the model validation notice as well as examples of how the table might be completed for different types of debts. The guidance also provides, among other things, examples of itemization tables for the collection of multiple debt owned by the same consumer.
The Bureau also issued new FAQs related to Regulation F that address validation information generally and validation information related to residential mortgage debt. Among other things, the FAQs: (i) specify the validation information debt collectors must provide consumers who owe or allegedly owe a debt; (ii) clarify that while the use of the model validation notice provided in Appendix B of the final rule is not required, debt collectors must comply with the validation information content and format requirements in Regulation F; (iii) specify that a debt collector can make changes to the model validation notice and still obtain the validation information content and format safe harbor with certain limitations; (iv) state that a debt collector does not need to provide the itemization-related information in a validation notice provided the debt collector follows a special rule for certain residential mortgage debt; (v) outline validation information that may be omitted if using the Mortgage Special Rule, and clarify that generally if a debt collector uses the Mortgage Special Rule with the model validation notice, the debt collector may still receive a safe harbor as long as certain criteria is met; (vi) define “most recent periodic statement” for purposes of the Mortgage Special Rule; and (vii) clarify that under the Mortgage Special Rule, a debt collector “uses the date of the periodic statement provided under that Special Rule as the itemization date.” As previously covered by InfoBytes, the Bureau issued FAQs last month discussing limited-content messages and the call frequency provisions under the Debt Collection Rule in Regulation F.
11th Circuit’s new opinion says plaintiff still has standing to sue in outsourced debt collection letter action
On October 28, the U.S. Court of Appeals for the Eleventh Circuit issued a split opinion in Hunstein v. Preferred Collection & Management Services, vacating its April 21 decision but still finding that the plaintiff had standing to sue. As previously covered by InfoBytes, last April the 11th Circuit reviewed the district court’s dismissal of plaintiff’s claims that the disclosure of medical debt to a mail vendor violated the FDCPA’s third-party disclosure provisions. The 11th Circuit originally held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” At the time, the appellate court determined that communicating debt-related personal information with the third-party mail vendor is a concrete injury under Article III. Even though the plaintiff did not allege a tangible injury, the appellate court held, in a matter of first impression, that under the circumstances, the plaintiff alleged a communication “in connection with the collection of any debt” within the meaning of § 1692c(b).
In its most recent opinion, the majority wrote that it was vacating its prior opinion “[u]pon consideration of the petition for rehearing, the amicus curiae briefs submitted in support of that petition, and the Supreme Court’s intervening decision in TransUnion LLC v. Ramirez.” The appellate court first re-examined whether the plaintiff had standing to sue. Among other things, the majority held that while the plaintiff cannot demonstrate “a risk of real harm,” he was able to show standing “through an intangible injury resulting from a statutory violation.” Further, the majority determined that TransUnion reaffirmed its conclusion that the plaintiff “alleged a harm that bears a close relationship to a harm that has traditionally been recognized in American courts.” (In TransUnion, the Court concluded, among other things, that “[i]n looking to whether a plaintiff’s asserted harm has a ‘close relationship’ to a harm traditionally recognized as providing a basis for a lawsuit in American courts, we do not require an exact duplicate.”) The majority further concluded that Congress’s judgment also favors the plaintiff because Congress indicated that violations of § 1692c(b) constitute a concrete injury.
The appellate court next considered the merits of the case, with the majority concluding that the plaintiff adequately stated a claim that the transmittal of personal debt-related information to the vendor constituted a communication within the meaning of § 1692c(b)’s phrase “in communication with the collection of the debt.”
Judge Tjoflat dissented, arguing that the April decision was issued before TransUnion, and following the Supreme Court’s reasoning, the plaintiff did not have standing because he did not suffer a concrete injury, and that there is an important difference between a plaintiff’s statutory cause of action to sue over a violation of federal law and “a plaintiff’s suffering concrete harm because of the defendant’s violation of federal law.” Judge Tjoflat further added that a “simple transmission of information along a chain that involves one extra link because a company uses a mail vendor to send out the letters about debt is not a harm at which Congress was aiming.”
Recently, the Connecticut Department of Banking entered into a consent order with a North Carolina-based company resolving allegations that it violated Connecticut collection practices laws and regulations by allegedly using a name other than the company’s legal name when collecting unpaid debts without a Connecticut consumer collection agency license. The Department’s investigation stemmed from a newspaper article in which a Connecticut resident complained that he received bills from a company in an attempt to collect $314 for a Covid-19 test. The company responded to the Department’s inquiry by stating that a collection agency license was not required because the collections were made by an in-house division of the company, and not on behalf of a third party. The company also cited cases in which federal courts dismissed similar allegations under the federal FDCPA. After an investigation, the Department alleged that the company constituted as a “creditor” and by using a different name, was in violation of the Regulations of Connecticut State Agencies, “which prohibits the use of any business, company or organization name other than the true name of the creditor’s organization.” The consent order requires that the company pay a civil money penalty of $10,000 and that the company cease and desist from using any name other than its true legal name to collect debts.
On October 19, the U.S. District Court for the Middle District of Florida denied a defendant’s motion for judgment without prejudice concerning allegations that it knowingly ignored cease-and-desist letters sent by an individual while the individual had a pending bankruptcy petition. The plaintiff allegedly incurred a debt that was placed with the defendant for collection. After, the plaintiff sought protection under the Bankruptcy Code. During the bankruptcy case, the defendant allegedly sent the plaintiff text messages to collect the debt, the plaintiff responded with a cease-and-desist letter, and then the defendant sent the plaintiff a collection letter. The plaintiff sent another cease and desist letter and the defendant sent four more collection letters. Based on the defendant’s post-petition actions, the plaintiff sued for FDCPA and Florida Consumer Collection Practices Act violations. The defendant argued that the plaintiff failed to disclose this lawsuit in her bankruptcy case, which would result in the FDCPA case being dismissed on judicial estoppel grounds. However, the court found that while the plaintiff omitted the name and specific circumstances of her claims against the defendant, she “put the Bankruptcy Court, trustee, and creditors on notice she had a claim against a creditor and properly sought approval from the Bankruptcy Court before retaining counsel to pursue it.” The court went on to state that if the plaintiff “intended to deceive creditors or others in bankruptcy, filing the Application strayed from that intent,” and that “the filing mitigates any prejudice claimed by [the defendant].”
On October 26, the CFPB Private Education Loan Ombudsman published its annual report on consumer complaints submitted between September 1, 2020 and August 31, 2021. The report is based on approximately 5,300 complaints received by the Bureau regarding federal and private student loans. Of these complaints, roughly 900 were related to debt collection, while approximately 730 mentioned Covid-19. The Bureau’s press release noted that the overall decrease in both federal and private student loan complaints may be attributed to the CARES Act relief measures and administrative extensions that were extended through January 31, 2022. The Bureau stated, however, that the pandemic exacerbated socio-economic and racial disparities in the student lending space and caused heightened risk of borrower harm, particularly to vulnerable populations. Additionally, the Bureau warned that the risk of borrower harm may also increase as more than 32 million borrowers with federal loans resume payments in the first quarter of 2022, and, because four of nine federal student loan servicers have or will soon stop servicing federal student loans, over 16 million borrowers will transfer to different servicers. Findings in the report included topics related to student loan complaint trends, debt collection complaints, and supervisory findings related to student loan servicers, etc.
The report also advised policymakers to consider several recommendations, including: (i) considering metrics for sharing risks shouldered by borrowers with schools that fail to provide meaningful paths to repayment; (ii) accelerating efforts to incorporate qualitative and quantitative metrics to protect consumers into future federal student loan servicing contracts; (iii) requiring detailed disclosures provided with every student loan disbursement; (iv) considering various loan forgiveness programs; (v) examining return to repayment and servicer transitions; and (vi) identifying and prosecuting data aggregators and payment processors, as well as student loan debt relief scammers.
Recently, the CFPB issued a Spanish-language translation of its Model Validation Notice. Debt collectors are permitted to send a consumer a completely and accurately translated validation notice if the consumer was either provided an English-language version in the same communication or in a prior communication. Debt collectors that meet these requirements and use the translated notice qualify for the Debt Collection Rule’s safe harbor that any translation be complete and accurate. The Bureau noted that the translated validation notice omits the disclosure informing consumers of their right to request the validation notice in Spanish, “because no translation of those disclosures is necessary,” but debt collectors who choose to include the optional Spanish-language disclosures in a Spanish-language validation notice are still eligible for the safe harbor.
On October 20, the U.S. District Court for the Northern District of Georgia entered a default judgment and order against five participants in an allegedly illegal debt collection scheme involving certain payment processors and a telephone broadcast service provider (collectively, “default defendants”) for their role in the operation. As previously covered by InfoBytes, in 2017, the U.S. District Court for the Northern District of Georgia dismissed claims brought by the CFPB against the default defendants. (See additional InfoBytes coverage here.) According to a complaint filed in 2015, the defendants “knew, or should have known” that the debt collectors were contacting millions of consumers in an attempt to collect debt that consumers did not owe or that the collectors were not authorized to collect by using threats, intimidation, and deceptive techniques in violation of the CFPA and the FDCPA.
The court entered a $5.1 million judgment against the default defendants, who are jointly and severally liable with the non-default defendants. The default defendants must pay civil monetary penalties ranging from $100,000 to $500,000 to the Bureau. The judgment also, among other things, permanently bans the default defendants from attempting collections on any consumer financial product or service and from selling any debt-relief service.
On October 12, the U.S. District Court for the Northern District of Illinois granted plaintiff’s motion to remand a debt collection class action lawsuit back to state court. The plaintiff claimed the defendants violated the Illinois Collection Agency Act and FDCPA Section 1692c(b) by using a third-party mailing vendor to print and mail collection letters to class members. According to the plaintiff’s complaint filed in state court, conveying the information to the vendor—an allegedly unauthorized party—served as a communication under the FDCPA. The defendants removed the case to federal court, but on review, the court determined the plaintiff did not have Article III standing to sue because Congress did not intend to prevent debt collectors from using mail vendors when the FDCPA was enacted. Specifically, the court disagreed with the U.S. Court of Appeals for the Eleventh Circuit’s decision in Hunstein v. Preferred Collection & Management Services, which held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” (Covered by InfoBytes here.) In this case, the court stated it “is difficult to imagine Congress intended for the FDCPA to extend so far as to prevent debt collectors from enlisting the assistance of mailing vendors to perform ministerial duties, such as printing and stuffing the debt collectors’ letters, in effectuating the task entrusted to them by the creditors—especially when so much of the process is presumably automated in this day and age.” According to the court, “such a scenario runs afoul of the FDCPA’s intended purpose to prevent debt collectors from utilizing truly offensive means to collect a debt.”
On October 8, the New York governor signed S737A, which requires creditors and debt collectors to clearly and conspicuously disclose to a debtor that communications are available in alternative formats. Among other things, the bill requires that creditors and debt collectors: (i) be assessed a civil penalty of up to $250 for violations of the law and up to $500 for each subsequent violation; and (ii) supply a phone number for consumers to request the letter in an alternative format. The bill also defines “communication,” “debt,” and “debt collector.”