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With complaints against debt collectors rising every year, regulators, including the Federal Trade Commission and the Consumer Financial Protection Bureau, have made debt collection a top priority. In fact, back in June, the FTC began holding “Debt Collection Dialogues” to better understand the dynamics between creditors, consumers, debt collectors and other regulators.
As president of a national debt collection company, I was invited to speak at the FTC’s November dialogue. It was focused on industry regulations on the state level and featured a lineup of speakers that included representatives from the Attorneys General and Consumer Protection offices in Georgia, South Carolina and Tennessee.
The main point I wanted to get across to everyone in attendance was that there is a difference between legitimate debt collectors and criminals. It seems every day there is a story in the news about a debt collector doing something harmful to consumers, but most of these pieces, including ones that involve federal and state enforcement actions, pertain to bad actors. And little to no efforts are made to distinguish between law-abiding companies and criminals committing theft or fraud. To be clear, when I speak of a legitimate debt collector I am referring to one that is:
Regulators at the panel did acknowledge that because of the inconsistency in state licensing and lack of federal licensing, it is difficult for them to clearly identify legitimate debt collectors from criminals using the industry to perpetrate their crimes. One of the ideas I floated during the discussion was the possibility of creating a national registry of debt collectors that would identify legitimate debt collectors through a pre-determined process. Overall, the regulators were very receptive to the idea and felt this registry would help them make important distinctions. The FTC was also interested in what recent state regulations and enforcement actions the debt collection industry found important. It’s imperative to keep in mind three things when discussing regulations:
Most people may not realize that debt collection is one of the most extensively regulated activities in the country. There are overarching federal regulations that address collection activity and more than 30 states require licensing for debt collection agencies, adding more layers of protection.
The Wild West mentality the media often portray regarding the debt collection industry appears to necessitate more stringent laws, but that image is simply untrue. A 2014 study from the Urban Institute found one in three adults in America have a debt in collection — a pervasiveness that draws attention to industry practices. However, according to stats from the CFPB’s consumer complaint database, less than 5% of the 75 million consumers with a collection account have filed a complaint with the CFPB in the past three years. Furthermore, over 65% of these complaints are related to a dispute of the debt — not poor treatment.
Any new regulation considered should aim to fix the issues consumers are complaining about: disputes about the existence or balance of debts. (It’s important to note that attempting to collect on a debt the consumer does not owe or for an amount that is not owed is already illegal.) But new laws may focus instead on the types and frequency of communication debt collectors are permitted to have with consumers. The Fair Debt Collections Practice Act already imposes these types of limitations and further restrictions would likely lead to additional adverse consequences for consumers.
Debt collectors, first and foremost, desire to resolve debts with consumers on a voluntary basis, as this resolution is the most cost effective and mutually beneficial. However, when debt collectors are unable to communicate with a debtor either due to that consumer’s unwillingness or regulation barriers, involuntary debt collection action becomes the only other option to recoup what is owed. Involuntary debt collection action refers to negative credit bureau reporting, judgments, wage garnishments, liens, bank levies, or other measures state laws allow for recovery of unpaid debts. The reality is, as regulation grows, the level of involuntary measures to collect debt will likely grow as well.
Consider, for instance, the statutes of limitations states place on how long a creditor has to enforce legal action on a debt. These statutes vary from state to state, but generally range from three to 10 years. Some states have moved to shorten their statutes of limitations on debt collection lawsuits. The prevailing thought is that doing so will help consumers and prevent creditors from suing on “zombie debts” — debts that are very old and/or no longer owed.
But as an unintended consequence of shortening these timeframes, creditors may be forced to seek involuntary legal action against consumers sooner than they would like. Creditors understand consumers face hardships and that sometimes it could take several years for them to re-establish their finances and regain the ability to repay delinquent debts. Unfortunately, reducing statutes of limitations could easily increase the likelihood that collectors won’t wait for the consumer to rebound or agree to negotiate a repayment plan. Instead, they will simply move to legal action.
It’s important that regulators take these and other issues into account as they seek to better understand the debt collection industry. The FTC’s panels are a good start; free-flowing dialogues between all parties can help root out bad actors, which would benefit consumers more than additional regulations would.
The CFPB Issues Warning and Guidance on Obtaining Consumer Authorization for Preauthorized Electronic Funds Transfers that Confirms a Recording of a Consumer’s Oral Authorization Can Satisfy Regulation E’s Requirementsposted on 2015-12-02 by David.Anthony, Ashley Taylor
Protecting the Attorney-Client Privilege: Companies Sue CFPB For Not Allowing Them to Attend Their Former Counsel’s Investigatory Testimonyposted on 2015-11-04 by Ethan G. Ostroff, Keith J. Barnett and Ashley L. Taylor, Jr
In July 2015, several companies that were the targets of non-public Consumer Financial Protection Bureau investigations sued the Bureau after it refused to allow their current counsel to attend the Bureau’s investigative testimony of one of the companies’ former attorneys. The companies wanted one of their current attorneys to attend the testimony and assert the attorney-client privilege when necessary. The companies sought an injunction to prevent their former counsel’s testimony and claimed that the Bureau’s refusal to allow their current counsel to attend violated the Administrative Procedures Act. The plaintiffs and the Bureau appeared to work out their differences with respect to the testimony before the Court reached a decision on the injunction. Notwithstanding the apparent agreement, targets of CFPB investigations should be cognizant of the possibility that the Bureau will likely try to prevent counsel for the targets from attending third party testimony even when there is a serious possibility that the attorney-client privilege will be compromised.
The plaintiffs, who filed all of their pleadings under seal, asked the district court to issue an order directing that the filed documents remain under seal and inaccessible to the public because they did not want the public to know that they were the targets of the CFPB’s investigation. The Bureau opposed plaintiffs’ request. The United States District Court for the District of Columbia issued an Order that required the Clerk of the Court to re-caption the case as a John Doe lawsuit, and directed the plaintiffs to redact identifying information from the pleadings that they had previously filed under seal. The balance of the information in the pleadings would be available to the public.
In its analysis, the Court considered the following:
(1) the need for public access to the documents;
(2) the extent to which the public had access to the documents prior to the sealing order;
(3) the fact that a party has objected to disclosure and the identity of that party;
(4) the strength of the property and privacy interests involved;
(5) the possibility of prejudice to those opposing disclosure; and
(6) the purpose for which the documents were introduced.
The first and sixth factors weighed in favor of denying the plaintiffs’ request. With respect to the first factor, the Court stated that “[t]here is a ‘strong presumption in favor of public access to judicial proceedings’” especially when the government is a party. The fact that the Bureau’s investigation was non-public did not change this analysis because “judicial proceedings are normally open to the public” and sealing the entire proceeding “would thus deny the public even the most basic knowledge of its subject matter.” The fifth factor weighed in favor of denying the request because the plaintiffs did not file documents containing privileged information and they did not identify “a risk that attorney-client privileged information would be made public if this case were unsealed.”
The second and fifth factors weighed in favor of granting the plaintiffs’ request. With respect to the second factor, the public never had access to documents publicly identifying the plaintiffs as targets of the Bureau’s investigation. Although the plaintiffs had filed petitions to modify or set aside the Bureau’s Civil Investigative Demand (CID) and the Bureau usually makes the petitions available to the public through its website, the Bureau had not publicly disclosed plaintiffs’ petitions as of the date of the district court’s Order. The fifth factor weighed in favor of sealing the record because “it is not difficult to see how disclosure of the fact that an entity is subject to investigation by federal authorities would inflict non-trivial reputational and, possibly, associated financial, harm on that entity.” The third factor was not an issue. The fourth factor did not favor either side because although the Bureau’s investigations are non-public, there are circumstances under which a CFPB investigation could be disclosed to the public.
The Doe case epitomizes the paradoxical situation that targets of CFPB investigations face when they—or their agents and service providers—are confronted with a CID. Because the Bureau itself decides whether to grant a petition to quash or modify a CID—and the Bureau has denied every petition that has been filed—investigatory targets know that they have a better chance at prevailing in a courtroom. Although the plaintiffs understandably wanted to make sure that their former counsel was not left to himself to protect the attorney-client privilege, their act of filing a public lawsuit against the Bureau, which presumably facilitated the compromise between plaintiffs and the Bureau, potentially exposed plaintiffs to the public as targets of the CFPB’s investigation. Query whether the outcome of this case would have been different if the Bureau had publicly filed the plaintiffs’ petition to modify or quash the subpoena before the Court rendered its decision. Going forward, parties must weigh the risks of allowing the Bureau to obtain potentially privileged information versus the public knowing that they are the target of a CFPB investigation.
|Justin Brandt, Alan D. Wingfield and Chad Fuller
On October 20, the United States Court of Appeals for the Fifth Circuit delivered its opinion in Ybarra v. DISH Network, LLC (“DISH”), a case involving alleged violations of the Telephone Consumer Protection Act, which prohibits callers from using an automatic telephone dialer system (“ATDS”) and delivering messages with an “artificial or prerecorded voice” without prior express consent of the called party.
Ybarra focused on DISH’s attempts to collect an outstanding balance owed by one of its customers by calling a cell phone number believed to belong to that customer. At some point, the customer relinquished that cell phone number, and Ybarra subsequently became the subscriber to that number. When DISH’s customer failed to pay the account balance, DISH called the phone number now belonging to Ybarra fifteen times from two different DISH phone numbers. (Under recent FCC guidance, the TCPA only allows a “one-call exception” for reassigned numbers; potential liability exists after the first call attempt to a number’s new subscriber, even if the caller has no actual knowledge that the original subscriber no longer utilizes the number.)
There has been confusion regarding whether TCPA liability exists for call attempts using ATDS or prerecorded messages that fail to reach their intended recipient, whether due to lack of answer or other transmission error. In Ybarra, DISH contended that four of the calls did not violate the TCPA because “none of these calls resulted in a prerecorded voice being used because no prerecorded voice was played.”
Based on its strained reading of the TCPA, the Fifth Circuit determined that ATDS calls do not require actual connection to violate the statute because the system is still being “used.” However, the Fifth Circuit came to the opposite conclusion as to prerecorded messages, finding that the prerecorded voice is not “used” if no connection is made.
Although this decision presents a sliver of good news for callers using prerecorded messages, the more onerous outcome is the expansive liability for usage of ATDS even in situations in which contact is not made with the called party. DISH evaded liability for the four calls only because Ybarra failed to produce admissible evidence that those calls were also placed with an ATDS. Plaintiff’s lawyers will likely argue that under the view espoused by the Fifth Circuit, the TCPA can be violated by attempted calls – not just calls that actually reach the intended called party or the called party’s voicemail.
Troutman Sanders LLP has unique industry-leading expertise with the TCPA, with experience gained trying TCPA cases to verdict and advising Fortune 50 companies regarding their compliance strategy. We will continue to monitor regulatory any judicial interpretation of the TCPA following this ruling in order to identify and advise on potential risks.
| Justin Brandt, Alan D. Wingfield and Chad Fuller
On October 19, Missouri Attorney General Chris Koster filed a federal lawsuit in the United States District Court for the Eastern District of Missouri against Charter Communications, Inc., alleging violations of federal and state telemarketing and “do-not-call” laws. Koster claims that his office received 350 complaints from consumers “about harassing practices by Charter’s telemarketers … [in] an attempt to sell Charter’s cable, internet, and phone services.”
In addition to the National Do Not Call Registry, Missouri has its own No-Call list of 4.5 million phone numbers, comprised of both cell phones and landlines. Additionally, Missouri’s telemarketing law supplements federal law by prohibiting telemarketers from contacting consumers “repeatedly or continuously in a manner a reasonable consumer would deem to be annoying, abusive, or harassing.”
Koster’s complaint generally alleges that Charter Communications and its vendors “placed at least thousands of telemarketing calls to Missouri consumers, even after the consumers asked that Charter stop calling.” The complaint specifically alleges that individual consumers received dozens of calls in less than a year and up to five calls per day. Despite requests for the calls to cease, Charter allegedly informed consumers that it would take forty-five days to place consumers on its internal do-not-call list.
The complaint seeks substantial damages, including up to $16,000 for each violation of the federal Telemarketing Sales Rule (TSR), at least $500 for each violation of the federal Telephone Consumer Protection Act (TCPA), up to $5,000 for each violation of the state No-Call statute, and an unspecified civil penalty for each violation of the state telemarketing statute. Given the substantial damages potential, it is imperative for companies to institute robust compliance procedures to avoid and/or defend against such litigation.
Koster’s complaint is a reminder that in addition to federal do-not-call requirements of the TCPA and the TSR, many states have their own specific requirements.
Troutman Sanders LLP has unique industry-leading expertise with state and federal telemarketing laws, with experience gained trying such cases to verdict and advising Fortune 50 companies regarding their compliance strategies. We will continue to monitor litigation in this area, especially interpretation and application of unique state telemarketing laws, in order to identify and advise on potential risks.
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