California Fair Employment and Housing Council Rule on the "Consideration of Criminal History in Employment Decisions"

The California Fair Employment and Housing Council (FEHC) has finalized the "Consideration of Criminal History in Employment Decisions" regulation (the "Rule"). The Rule, which is scheduled to take effect on July 1, 2017, will impact employers and consumer reporting agencies. You can review the Rule on the Council's website

The Rule expands items employers are prohibited from considering. Existing prohibitions include:

  • an arrest or detention that did not result in conviction;
  • referral to or participation in a pre-trial or post-trial diversion program;
  • a conviction that has been judicially dismissed or ordered sealed, expunged or statutorily eradicated pursuant to law;
  • arrest, detention, processing, diversion, supervision, adjudication, or court disposition that occurred while a person was subject to the process and jurisdiction of a juvenile court law;
  • any non-felony conviction for possession of marijuana that is older than two years;


The Rule also states that if an employer is considering adverse action, prior to taking final adverse action (i.e. during pre-adverse action) the "employer must give the impacted individual notice of the disqualifying conviction and a reasonable opportunity to present evidence that the information is factually inaccurate." This requires the employer to list the specific criminal conviction(s) that was the disqualifying item(s), differing from the FCRA requirement. This notice is mandated regardless of whether the employer has a bright line assessment, in which there is a specific policy stating that a certain conviction history automatically disqualifies all candidates, or an individualized assessment, in which the employer considers the criminal background of a candidate in concert with all other aspects of the candidate. 

As noted above, the final rule is expected to take effect on July 1. In the meantime, FEHC has scheduled a hearing on March 30 on proposed regulations related to use of criminal background checks in the context of tenant screening.

U.S. Supreme Court To Decide If Debt Buyers Are Considered Debt Collectors Under the FDCPA

Are debt buyers which regularly attempt to collect the debts they purchase after the debts have fallen into default considered “debt collectors” subject to the Fair Debt Collection Practices Act?  On January 13, 2017, the U.S. Supreme Court took an appeal from the Fourth Circuit U.S. Court of Appeals which should answer this question.  The case is Henson v. Santander Consumer USA, Inc., S.C. Case  No. 16-349

Ricky Henson defaulted on a retail installment sale contract secured by a vehicle. A deficiency remained after Henson's creditor repossessed and sold his car and applied the sale proceeds to the balance. The creditor subsequently sold Henson's deficiency to Santander Consumer, USA, Inc., which attempted to collect the deficiency. Henson then sued Santander under the FDCPA. Santander filed a motion to dismiss arguing that it was not a debt collector under the FDCPA because it was collecting the debt on its own behalf, and not on behalf of a third party. Santander argued that because it owned the debt, under the FDCPA it was a "creditor" as opposed to a "debt collector." The U.S. District Court for the District of Maryland agreed with Santander and granted the motion.  Henson appealed.

The Fourth Circuit Court of Appeals Court of Appeals affirmed the district court's decision. The Court first considered the definitions of "creditor" and "debt collector." The Court held that an entity could be considered a "debt collectors" if: (a) the principal purpose of the entity is to collect debts; (2) the entity regularly collects or attempts to collect debts owed or due or asserted to be owed or due to another; and (3) the entity is a creditor that, in the process of collecting its own debts, uses a name other than its own. Henson never alleged that Santander's principal purpose was debt collection. Further, the record established that Santander had used its own name to collect, and therefore was not a creditor collecting under a different name. Accordingly, the Court noted that the only way Santander could be a "debt collector," was if it "regularly collect[ed] debts owed to another."

The court found the material distinction between a "debt collector" and a "creditor" to be whether the entity "regularly collects" on behalf of a third party. The court found Santander to be a creditor as opposed to a debt collector because it was collecting debts on its own behalf, and because its regular business included activities other than debt collection, including origination and non-default servicing activities.   

As a result of this decision the Fourth Circuit joined the appellate courts of the Ninth and Eleventh Circuits. Appellate courts in the Third, Fifth, Sixth, and Seventh Circuits, and the District of Columbia Court of Appeals hold opposing views, having found purchasers of defaulted debts to be "debt collectors" under the FDCPA. The Consumer Financial Protection Bureau and Federal Trade Commission also consider debt buyers are FDCPA regulated "debt collectors."

Hopefully the Supreme Court will resolve this conflict and bring much needed clarity to this area of the law.

7th Circuit Court of Appeals Rule Plaintiffs Fail to State FDCPA Claims Against Law Firms Which Brought Foreclosure Action in Violation of FHA Policy

On February 17, 2017 the 7th Circuit Court of Appeals ruled In Heng v. Heavner, Beyers & Mihlar, (Nos. 16-1668 et al. Cons.) that the District Court had not erred in dismissing for failure to state cause of action plaintiffs' Complaints alleging that two law firms had violated provisions of FDCPA by filing foreclosure actions in state court against plaintiffs under circumstances where the defaulted mortgages were backed by Federal Housing Authority (FHA) and the FHA did not authorized the law firm to bring foreclosure actions and had a policy prohibiting the firms from doing so in circumstances where plaintiffs had suffered financial hardship. Although the plaintiffs argued FDCPA violation occurred because the firms had not obtained the FDA's authorization to bring foreclosure actions, the 7th Circuit found that an FDCPA claim didn’t exist because the applicable FHA regulations did not require FHA authorization prior to bringing the foreclosure actions and did not prohibit the law firms from filing the foreclosure actions.

Messer Strickler Makes the Cover of Collection Advisor Magazine

Messer Strickler is excited to report that it was chosen to grace the January/February 2017 cover of Collection Advisor Magazine. MS was also featured in the “Law Firm Spotlight”, where MS partner, Nicole Strickler, discussed recent trends and compliance concerns in collection litigation.  Check out https://www.collectionadvisor.com/ to view a copy of the issue. And, for more information regarding the article, contact me at nstrickler@messerstrickler.com or by phone at (312) 334-3442

Are Debt Buyers Regulated As Debt Collectors Under the FDCPA? U.S. Supreme Court to Decide

The U.S. Supreme Court on Friday agreed to decide whether firms which buy debt for pennies on the dollar can be held liable in Fair Debt Collection Practices Act lawsuits brought by the debtors they target. The Court agreed to review a lower court's decision to dismiss a consumer class action lawsuit against Santander Consumer USA Holdings Inc (SC.N) over allegations it violated the Fair Debt Collection Practices Act. Debt buyers are a fast-growing segment of the multibillion-dollar debt collection industry. This case could have a major impact on these firms. The decision hinges on the definition of "creditor" and "debt collector" since in general creditors are not subject to the FDCPA.

Four Maryland residents who defaulted on car loans filed a proposed class action lawsuit against Santander in 2012 in federal court alleging violations of the debt collection law, such as misrepresenting debt loads and bypassing debtors' lawyers.  The debts had been sold to Santander, a vehicle-financing and lending company owned in part by a subsidiary of Banco Santander (SAN.MC), the euro zone's second-largest bank by market value.  The 4th U.S. Circuit Court of Appeals in Richmond, Virginia dismissed the lawsuit last March after determining the law applied only to debt collectors, and Santander was a creditor since it purchased the loans.

MS Obtains Unanimous Jury Verdict in Favor of Clients in FDCPA Case

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On April 8, 2015, a jury of seven sitting in the Southern District of California determined that a law firm and its asset purchaser client did not violate the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq. (“FDCPA”) by including a request for 10% interest in the prayer for relief of a state court collection complaint.  In Hadsell v. Mandarich Law Group, LLP and CACH, LLC, a consumer filed an FDCPA claim against the two companies alleging a myriad of false claims, including that the companies had disclosed the debt to third parties and failed to abide by a request to cease and desist. After success on motions to dismiss and summary judgment, the case proceeded to a jury trial on one sole issue: whether a request for 10% statutory interest in the prayer for relief of a state court complaint violates the FDCPA where the credit card contract in question provided for an 8.9% interest rate. Like many consumer law claims against law firms, this complaint was spurred from a state court collection action on the debt. In late 2011, Mandarich Law Group, LLP filed a state court complaint on behalf of CACH, LLC to collect on a defaulted Bank of America account.  The state court complaint had two counts, breach of contract and account stated.  In the prayer for relief, the complaint requested that the court find that a 10% interest apply under the account stated theory.

Approximately 30 days after the state court suit was filed, the consumer filed suit in the U.S. District Court for the Southern District of California, claiming that the collection action, among other activity, violated the FDCPA. Plaintiff was represented by the San Diego law firms of Hyde & Swigart and Kazerouni Law Group.

The Plaintiff’s focal point during the jury trial was that the defendants intentionally violated FDCPA § 1692(f) and (f)(1) by requesting 10% interest when they were aware of the 8.9% interest rate that was set by the initial contract between the consumer and creditor.  Defendants argued, in contrast, that there was a valid factual basis to pursue the account stated claim and for the Court to assess 10% interest--- the default rate under the California Code---- based on the final charge-off statement on the account.  Further, Defendants’ argued that asking the state court to decide the question of interest was not an attempt to collect an authorized amount as the court had the legal ability to award it under the facts.  The jury unanimously agreed and found that no violation of the FDCPA occurred.

Lead trial counsel for Defendants was Nicole M. Strickler of MS&S. For more information on this case or any other FDCPA related issues, contact her at nstrickler@messerstrickler.com or at 312-334-3442.

FOURTH CIRCUIT HOLDS DEFAULT STATUS HAS NO BEARING ON DEBT COLLECTOR SHOWING

The Fourth Circuit recently held that a debt’s default status does not automatically qualify a debt purchaser as a “debt collector” subject to the Fair Debt Collection Practices Act (“FDCPA”).  In Henson v. Santander Consumer USA, Inc., four consumers alleged that a purchaser of their defaulted automobile loans violated the FDCPA by engaging in prohibited collection practices.  The district court granted the purchaser’s motion to dismiss on the ground that the complaint did not allege facts showing that the defendant qualified as a “debt collector” under the FDCPA.  The court concluded that the complaint only demonstrated that the defendant was a consumer finance company that was collecting debts on its own behalf as a creditor and that the FDCPA generally does not regulate creditors collecting debts owed themselves.  The Fourth Circuit affirmed. In arguing that the defendant constituted a debt collector, plaintiffs relied heavily on § 1692a(6)(F)(iii) of the FDCPA which excludes from the definition of debt collector “any person collecting or attempting to collect any debt . . . owed or due another to the extent such activity . . . concerns a debt which was not in default at the time it was obtained.”  Plaintiffs maintained that because the provision excludes persons collecting debts not in default, the definition of debt collector must necessarily include persons collecting defaulted debt that they did not originate.  Essentially, plaintiffs argued that the default status of a debt determines whether a purchaser of debt, such as defendant, is a debt collector or a creditor.

The Fourth Circuit disagreed, concluding that the default status of a debt has no bearing on whether a person qualifies as a debt collector under the threshold definition set forth in § 1692a(6).  Such a determination is generally based on whether a person collects debt on behalf of others or for its own account, the main exception being when the “principal purpose” of the person’s business is to collect debt.  Section 1692a(6) defines a debt collector as (1) a person whose principal purpose is to collect debts; (2) a person who regularly collects debts owed to another; or (3) a person who collects its own debts, using a name other than its own.  Because the complaint did not allege that defendant’s principal business was to collect debt, instead alleging that defendant was a consumer finance company, nor allege that defendant was using a name other than its own in collecting the debts, defendant clearly did not fall within the first or third definitions of debt collector.  Moreover, because the debts that defendant was collecting were owed to it and not another, defendant was not a person collecting a debt on behalf of another so as to qualify as a debt collector under the second definition.

For more information on the Fourth Circuit decision or the FDCPA generally, contact Katherine Olson at (312) 334-3444 or kolson@messerstrickler.com.

Second Circuit Adopts FDCPA Least Sophisticated Consumer Safe Harbor Approach Established by the Seventh Circuit

In Avila, et al. v. Riexinger & Associates, LLC, et al., Case No. 15-1584(L), the Second Circuit Court of Appeals applied the least sophisticated consumer standard of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (“FDCPA”) to conclude that a consumer cannot be expected to know that a total debt provided in a given statement continues to increase interest or other fees.  The Second Circuit held that when a debt collector issues a notice to a borrower that includes a statement of the complete amount of their debt, the debt collector must either accurately inform the consumer that the amount of the debt stated in the notice will increase over time based upon interest or other fees, or clearly state that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date. In Avila, a consumer brought a putative class action against a debt collector for violation of § 1692e of the FDCPA alleging that the practice of disclosing in a collection notice only the “current balance” of the amount owed amounts to “false, deceptive, or misleading” collection practices under the statute.  The consumer alleged that the notice led them to believe that the amount owed was not increasing.  The Second Circuit agreed and held that the least sophisticated consumer could believe that payment in full of the current balance provided in the notice would satisfy the entire debt owed, and that a failure to mention the ongoing accrual of interest and fees was misleading. Further, the Court held that “the FDCPA requires debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees.”

The Second Circuit also held that Section 1692e requires additional disclosures to ensure that consumers are not misled into thinking that simply paying the “current balance” as listed on the collection notice will always result in full satisfaction of the amount owed. Accordingly, the Second Circuit adopted the “safe harbor” approach established by the Seventh Circuit in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, L.L.C., 214 F.3d 872 (7th Cir. 2000).  The “safe harbor” doctrine allows a debt collector to prevent liability under Section 1692e “if the collection notice either accurately informs the consumer that the amount of the debt stated in the letter will increase over time, or clearly states that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date.”

Although the Second Circuit declined to establish the exact language of any disclosure that a debt collector must use to sidestep a possible FDCPA violation, the Court expressed that the language proposed in Miller, 214 F.3d, at 876, would certainly qualify a debt collector for treatment under the newly-created safe-harbor.

Debt collection agencies, or those that act as debt collectors, should pay particular attention to the language of Miller that the Second Circuit suggests will satisfy the newly-recognized safe harbor provision. For information on revising statements to consumers to comply with the safe harbor language, or for other information regarding this topic, contact Stephanie Strickler at 312-334-3465 or at sstrickler@messerstrickler.com.

SEVENTH CIRCUIT GROWS WEARY OF EXCESSIVE TCPA LITIGATION PRIMARILY BENEFITING PLAINTIFF’S ATTORNEYS

The Seventh Circuit recently issued its decision in

Bridgeview Health Care Ctr., Ltd. v. Clark

, Case Nos. 14-3728 &15-1793 (March 21, 2016), holding that agency rules apply in determining whether a fax is sent “on behalf” of a principal in violation of the Telephone Consumer Protection Act (“TCPA”).  The appeal arose out of unsolicited fax advertisements which were blasted across multiple states in violation of the TCPA. While the parties agreed that the TCPA was violated, they disputed who was responsible for sending the faxes -- the company advertised in the faxes or the marketing company that actually sent the faxes.  The district court determined that the defendant was only liable for those faxes it authorized the marketing company to send.  The Seventh Circuit affirmed.

A fax sender is defined in federal regulations as either the person “on whose behalf” the unsolicited ad is sent or the person whose services are promoted in the ad.  The Seventh Circuit found the district court correctly rejected strict liability as applicable to junk faxes and held that “[i]n applying the regulatory definition of a fax sender . . . agency rules are properly applied to determine whether an action is done ‘on behalf’ of a principal.”  After analyzing each of the three types of agency (express actual authority, implied actual authority, and apparent authority) in the context of the case, the Court found that none of them applied to faxes sent outside a 20-mile radius of defendant’s business.

Notably the Court took the appeal as an opportunity to criticize the current state of TCPA litigation, noting:

[W]hat motivates TCPA suits is not simply the fact than an unrequested ad arrived on a fax machine.  Instead, there is evidence that the pervasive nature of junk-fax litigation is best explained this way: it “has blossomed into a national cash cow for plaintiff’s attorneys specializing in TCPA disputes.”. . . We doubt that Congress intended the TCPA, which it crafted as a consumer-protection law, to become the means of targeting small business.  Yet in practice, the TCPA is nailing the little guy, while plaintiffs’ attorneys take a big cut. . . . Nevertheless, we enforce the law as Congress enacted it.

The Bridgeview opinion is a clear indication of the Seventh Circuit’s displeasure with the TCPA plaintiffs’ bar.  Indeed, the Court even took a shot at plaintiff’s attorneys, noting the attorneys “currently have about 100 TCPA suits pending” and used the marketing company’s hard drive to find plaintiffs.

For more information on the Bridgeview opinion or the TCPA generally, contact Katherine Olson at kolson@messerstrickler.com  or (312) 334-3444.

Express Consent under the TCPA Extends from the Creditor to its Collectors

A United States District Court judge in the Northern District of California recently granted a motion for summary judgment in favor of a debt collector on a TCPA claim where the consumer had provided a cell phone number as part of an in-store application for a store credit card.  In Schwartz-Earp v. Advanced Call Center Technologies, LLC (Case No. 15-cv-01582), the judge determined that when the consumer provided her telephone number at the time she applied for the store credit card, which gave rise to the underlying debt, she consented to being contacted at that number by the credit card issuer and collection companies acting on its behalf. The Plaintiff had applied in-store for a JC Penney-branded credit card, and she provided her telephone number as part of the application process.  Plaintiff did not specify that the number she provided was her cell number.  She was approved for a credit card, and subsequently used the credit card to make purchases.  Plaintiff stopped making payments on the credit card, thus Synchrony, the creditor, placed the account with Defendant, Advanced Call Center Technologies, LLC (“ACCT”) for collection.

The case, Schwartz-Earp v. Advanced Call Center Technologies, LLC, from the United States District Court for the Northern District of California (Case No. 15-cv-01582-MEJ) involved claims for violation of the FDCPA, California’s Rosenthal Fair Debt Collection Practices Act, the TCPA, and invasion of privacy.

Between January 17, 2015 and February 22, 2015, ACCT placed at least 134 calls to Plaintiff at the number she provided. ACCT maintained it never intentionally left voicemails for Plaintiff. However, ACCT’s dialing software uses a voice recognition algorithm to distinguish live people from answering machines, and in the event that the algorithm mistakes an answering machine for a live person, a brief message may be left unintentionally.

While it is ACCT’s position that Plaintiff did not answer a majority of the phone calls placed to Plaintiff’s phone number, Plaintiff claims she would answer the call, but a live agent would not respond so she eventually hung up.  It is undisputed that Plaintiff answered a call placed on February 13, 2015.  The last call from ACCT to Plaintiff was placed on February 22, 2015.

On February 22, 2015, Plaintiff called ACCT and agreed to a payment plan to bring her credit card account current. On February 23, 2015, Plaintiff called ACCT and asked to modify the payment plan she had previously agreed to. On February 25, 2015, Plaintiff again called ACCT and asked to cancel the payment plan. During that February 25, 2015 call, Plaintiff also asked for ACCT to stop calling her, and the agent stated that the calls would cease.

Plaintiff filed a Complaint on April 7, 2015, alleging four causes of action:

  1.  violations of two sections of the Fair Debt Collection Practice Act (“FDCPA”), 15 U.S.C. §§ 1692(d) and (f);
  2. violation of California’s Rosenthal Fair Debt Collection Practices Act (“Rosenthal Act”), Cal. Civ. Code §§ 1788-1788.32;
  3. violation of the Telephone Consumer Protection Act (“TCPA”); and
  4. invasion of privacy.

ACCT moved for summary judgment on all claims.

United States Magistrate Judge Maria-Alena James denied ACCT’s Motion for Summary Judgment as to Plaintiff’s § 1692d FDCPA and Rosenthal Act claims, but granted their Motion as to Plaintiff’s § 1692f FDCPA, TCPA, and invasion of privacy claims.

Judge James’ decision as to the TCPA claim is beneficial for debt collection agencies in that the decision approved of an indirect way for collection agencies to obtain prior express consent from consumers.

Judge James’ determined that by providing a cell phone number on an in-store application for a credit card when asked for a telephone number constituted “prior express consent.”  Furthermore, this prior express consent is in relation to the creditor, in this case Synchrony, and not the store itself.

“No reasonable consumer could believe that consenting to be contacted for a store credit card requires that all communications be made by direct employees of the store, but never by the company that issued the card.  When a consumer provides a cellular telephone number to a creditor as part of the underlying transaction, the provision of the number constitutes express consent for the creditor to contact the consumer about the debt.”

The court further stated that the “prior express consent” given to the creditor was also considered prior express consent to the agents of the creditor.  The court wrote:

“An individual may indirectly provide a third party with express consent to be called under TCPA. …calls placed by a third-party debt collector on behalf of the creditor are treated as if the creditor itself placed the call.

For more information on this topic, please contact Stephanie Strickler at sstrickler@messerstrickler.com or 312-334-3465.

Class Actions Seeking Meaningless Relief Are Not Appropriate For Class Certification

The Second Circuit recently opined that a low-value class settlement is not appropriate for class certification.  In Gallego v. Northland Group, Inc., plaintiff filed a class action under the Fair Debt Collection Practices Act (FDCPA) against a debt collector for allegedly sending consumers a demand letter which failed to identify the name of the person to call back.   Because the FDCPA does not incorporate state or local-law standards of conduct, the plaintiff’s claim seemingly lacked merit.  Notwithstanding same, the defendant debt collection agency agreed to settle the lawsuit on a class-wide basis.  The parties then jointly moved for approval of the class-wide settlement and to certify the settlement class consisting of 100,000 class members.  Notably, the settlement agreement provided for class members to release their claims against the defendant, not only under the FDCPA, but also under state law and New York City law (including the New York City Administrative Code).   The agreement also called for a class fund of $17,500, of which the named plaintiff would receive $1,000 with the remainder distributed pro-rata amongst the class members – meaning that if all 100,000 class members were to submit claims, each would only receive 16.5 cents.  The district court denied class certification, concluding that the class action was “neither the superior nor fairer method for litigating the issues in the Complaint.”  The Second Circuit affirmed the district court’s ruling, finding that class members’ interest would not be best served by a settlement that required them to release any and all claims in exchange for as little as 16.5 cents.

The Gallego decision recognizes that many FDCPA cases are ill-suited for class certification.  Specifically, class certification should be denied where class members will only receive meaningless or trivial relief.  The Gallego decision is also a reminder that courts will not rubber-stamp class-action settlements reached by the parties, but rather will examine them to determine whether class members are giving up too much.

For more information on the Gallego decision, defense of class actions or the FDCPA, contact Katherine Olson at (312) 334-3444 or kolson@messerstrickler.com.

Debt Collector Succeeds with FDCPA Bona Fide Error Defense

The United States District Court for the Southern District of Alabama recently granted a Motion for Summary Judgment in favor of a defendant debt collection agency.  In Robert L. Arnold v. Bayview Loan Servicing, LLC, et al., the plaintiff filed suit against the collection agency for multiple FDCPA violations.  Arnold fell behind on his mortgage payments and declared bankruptcy in 2012, under which the judge granted a discharge for the mortgage.  In January 2013, Arnold received written notification that the mortgage loan servicing had been transferred to Bayview.  Bayview was well aware of the default and that the debt had been discharged in bankruptcy.  Upon receipt of the account, Bayview started the foreclosure process, and purchased the property for most of the amount of the outstanding principal on Arnold’s loan.  While the account was properly coded in Bayview’s system upon transfer, and no billing statements were produced, in December 2013, ten months after the transfer, two billing statements were sent to Arnold.  The statements reflected the outstanding balance; they did not reference the bankruptcy discharge, and they did not reference a credit for the foreclosure sale.

Bayview sought summary judgment based solely on the bona fide error defense.  To succeed on this defense, Bayview must show “a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid such an error.”  This defense is not available for mistakes of law or misinterpretations of the FDCPA, but instead “to protect against liability for errors like clerical or factual mistakes.”  See Edwards v. Niagara Credit Solutions, Inc.

The court found Bayview sufficiently demonstrated that the December 2013 mailings were unintentional based on the following:

  1. Arnold’s loan had been coded with a foreclosure man code when Bayview assumed servicing responsibilities, effectively suppressing all billing statements;
  2. Bayview sent no billing statements to Arnold between February 2013 and November 2013;
  3. The Bayview employee who performed a pre-foreclosure review of Arnold’s loan was bound to follow a Bayview checklist that did not call for changing the man code or issuing billing statements;
  4. Nothing in the checklist or employee comments suggested that this individual intended to change the man code or reactivate Arnold’s loan;
  5. The man code was changed anyway, even though Bayview had no reason to do so in its pre-foreclosure review;
  6. Bayview ceased communications to Arnold when it discovered the error; and
  7. Bayview provides extensive, ongoing training to employees in the area of FDCPA compliance.

The Court also concluded that Bayview’s violation was in good faith in that it properly relied on the foreclosure code to suppress monthly statements to Arnold, and that it had no reason to believe that the man code would be changed during the pre-foreclosure review process.  Furthermore, Bayview had provided appropriate training and checklists to its employees concerning pre-foreclosure review.

Finally, the Court also concluded that Bayview maintained policies and procedures to avoid readily discoverable errors.  Bayview had general training procedures and specific procedures for pre-foreclosure review.  It also had ongoing FDCPA compliance training for its employees.

This case demonstrates the importance for debt collection agencies to have clear policies and procedures for FDCPA compliance, as well as ongoing training to reinforce the implementation of these policies and procedures.

For more information on this topic or questions regarding your FDCPA policies and procedures, please contact Stephanie Strickler at sstrickler@messerstrickler.com or at 312-334-3465.

SIXTH CIRCUIT REJECTS HYPERTECHNICAL READING OF TCPA CONSENT REQUIREMENT

The Sixth Circuit recently joined the Federal Communications Commission (FCC) and Eleventh Circuit in holding that “prior express consent” can be obtained and conveyed via intermediaries. In Braisden v. Credit Adjustments, Inc., plaintiffs filed a putative class action contending that defendant violated the Telephone Consumer Protection Act (“TCPA”) when it placed calls to their cell phone numbers using an automatic telephone dialing system and artificial or prerecorded voice in an attempt to collect a medical debt. Defendant did not dispute that it placed the calls or that it used an autodialer. Rather, defendant maintained that by virtue of giving their cell phone numbers to the hospital where they received medical care, plaintiffs gave their “prior express consent” to receive such calls. The district court entered summary judgment for defendant on this basis and the Sixth Circuit affirmed.

Specifically, plaintiffs had received medical care from a hospital which utilized the services of a third party anesthesiologist. When the anesthesiologist did not get paid, the anesthesiologist transferred the delinquent accounts to defendant for collection. Defendant contacted plaintiffs at the numbers provided by the anesthesiologist, which had received the numbers from the hospital. Notably, the plaintiffs had signed admission forms permitting the hospital to release their “health information” to third parties for purposes of “billing and payment” or “billing and collecting monies due.” Plaintiffs argued that because they had not given their numbers to defendant or the creditor on whose behalf it was calling, plaintiffs had not provided prior express consent to be called at those numbers. The Sixth Circuit disagreed, finding that the FCC held in a 2014 Declaratory Ruling that consent can be obtained and conveyed by intermediaries. The Sixth Circuit further found that cell phone numbers fell within the definition of “health information” under a logical reading of the admission forms and rejected plaintiffs’ narrow interpretation of a 2008 FCC Declaratory Ruling which stated that a number must be “provided during the transaction that resulted in the debt owed.” Relying on its own prior ruling on the matter, the Sixth Circuit found that “during the transaction that resulted in the debt owed” was to be read as only applying to the “ ‘initial transaction’ that creates the debt.” Thus, “consumers may give ‘prior express consent’ . . . when they provide a cell phone number to one entity as part of a commercial transaction, which then provides the number to another related entity from which the consumer incurs a debt that is part and parcel of the reason they gave the number in the first place.”

For more information on the Sixth Circuit’s decision, “prior express consent” or the TCPA generally, contact Katherine Olson at (312) 334-3444 or kolson@messerstrickler.com.

FTC to Help Consumers Report and Recover from Identity Theft

On January 28th, the Federal Trade Commission (“FTC”) updated identitytheft.com with personalized information and tools for consumers to report and recover from identity theft. This change comes after consumers submitted 47% more identity fraud complaints to the FTC in 2015 than in 2014.  As a result, the FTC has made a form letter available for victims to better communicate with debt collectors about debts incurred due to theft. Additionally, the FTC has recommended victims contact credit bureaus to block information on their credit reports in regards to any fraudulent debts. For more information about the FTC’s new identity theft tools, please contact Joseph Messer at 312-334-3440 or at jmesser@messerstrickler.com.

When a Creditor is a “Debt Collector” Under the FDCPA

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The Federal Trade Commission (“FTC”) recently released a statement that the meaning of “debt collector” may be more expansive under the Fair Debt Collection Practices Act (“FDCPA”) than previously thought. A “debt collector” is defined under the FDCPA as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” §803(6). With this definition, it has long been assumed that creditors who collect their own debts are not covered by the FDCPA. However, Section 803(6) goes on to say “the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts.”

The FTC has asserted FDCPA claims against companies using other names to collect their own debts, characterizing them as “debt collectors” under the FDCPA. The FTC has issued a warning toremind creditors that the FDCPA can in fact apply to creditors who collect on their own behalf. Creditors should regularly review their policies to ensure their practices and procedures follow all applicable laws and regulations.

View the FTC’s Original Post Here

To learn more about the FTC’s warning and how to avoid FDCPA violations please contact Joseph Messer at 312-334-3440 or jmesser@messerstrickler.com.

GEICO Insurance Investigators Not Exempt from FLSA

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On December 23, 2015, the 4th Circuit, in Calderon v. GEICO, ruled that GEICO insurance investigators are not subject to the administrative exemption of the FLSA and therefore, are entitled to overtime.   The plaintiff investigators follow company procedures and spend 90% of their time investigating potential fraudulent insurance claims.  GEICO has been classifying its investigators as exempt for a long time.

The administrative exemption applies to those who: (1) are paid, on a salary basis, in an amount not less than $455 per week; (2) “whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers;” and (3) whose primary duty involves the exercise of discretion and independent judgment. 29 C.F.R. §541.200(a).

The district court found that GEICO could not establish that the insurance investigators primary duties involved independent judgment and discretion, therefore, summary judgment was granted in favor of the plaintiffs.  The 4th Circuit upheld the decision for plaintiffs but relied upon the second element of the exemption – whether the work was directly related to the management or general business operations – find that their primary duty was “the investigation of suspected fraud, including reporting their findings.”  The court stated “[t]hus, in the end, the critical focus regarding this element remains whether an employee’s duties involve “‘the running of a business,’” Bratt v. County of Los Angeles, 912 F.2d 1066, 1070 (9th Cir. 1990), as opposed to the mere “‘day-to-day carrying out of [the business’s] affairs,’” Desmond I, 564 F.3d at 694 (citing Bratt,912 F.2d at 1070).

The court further stated that “[r]egardless of how [i]nvestigators’ work product is used or who the Investigators are assisting, whether their work is directly related to management policies or general business operations depends on what their primary duty consists of… the primary duty of the Investigators… is not analogous to the work in the “functional areas” that the regulations identify as exempt. 29 C.F.R. § 541.201(b).”  Conversely, the court found that the primary duties were directly analogous to the work the regulations identify as not satisfying the directly relatied element. See 29 C.F.R. §§ 541.3(b)(1), 541.203(j).   Admitting that the issue was very close, the court held GEICO could not establish that the plaintiffs’ primary duties were “plainly and unmistakably” directly related to the company’s management or general business operations.

This case is yet another reminder of the importance of properly classifying your employees pursuant to the FLSA.

For more information on the FLSA or any further employment related matters, please contact Dana Perminas, at 312-334-3474 or dperminas@messerstrickler.com for more information.

FCC Tightens Medical Debt Collection Rules

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A hospital chain in California is feeling the effects of the FCC’s July interpretative ruling making medical debt collection more difficult.  In an already active area for Plaintiff’s suits, a TCPA class action was filed against Prospect Medical Group’s Southern California facility alleging the hospital used an auto dialer to call Plaintiff on her cellphone to collect the medical debt without her consent.  Relying upon the FCC’s July interpretation clarifying that hospitals need prior express consent to autodial debtors, even in situations where the number has been reassigned, Plaintiff alleges Prospect violated the TCPA. Healthcare providers should obtain written consent to autodial collection calls during the admission process.   The consent should be broadly worded to cover all calls, texts or communications, automated or otherwise.  Further, providers must be sure the consents cover all services regarding which patients may receive collection calls.

What remains from the FCC’s July interpretative ruling is the question of how to deal with reassigned numbers.  Although the FCC may be willing to grant a one-time break to collectors who accidentally use auto dialers to call reassigned numbers once, this may not solve the problem when a call is made and no one answers, hangs up without speaking or, incorrectly states the called party is not there.

This remains an enormous risk for the credit and collection industry as telephone numbers are reassigned so frequently it is nearly impossible to keep on top of them.  Providers must use best efforts to obtain bullet-proof consents and honor all opt-outs received.

For more information about the TCPA, the FCC’s medical debt collection rules or consumer protection laws generally, please contact Joseph Messer at 312-334-3440 or jmesser@messerstrickler.com.

The CFPB, UDAAP and the Credit and Collection Industry

The CFPB’s mounting reliance on the authority given it under the Unfair, Deceptive and Abusive Acts or Practices (“UDAAP”) provision of the Dodd-Frank Act has caused confusion and difficulty for those in the credit and collection industry. The Dodd-Frank Act granted the CFPB the ability to identify and prohibit unfair, deceptive or abusive acts and practices (UDAAP).  The CFPB has made some of their enforcement matters public, half of which have included alleged violations of the UDAAP provision.

The CFPB has published two bulletins on UDAAP.  The July 2013 bulletin included some examples of what it considers UDAAP violations.  These include:

■ Collecting or assessing a debt and/or any additional amounts in connection with a debt (including interest, fees, and charges) not expressly authorized by the agreement creating the debt or permitted by law.

■ Failing to post payments timely or properly or to credit a consumer’s account with payments that the consumer submitted on time and then charging late fees to that consumer.

■ Taking possession of property without the legal right to do so.

■ Revealing the consumer’s debt, without the consumer’s consent, to the consumer’s employer and/or co-workers.

■ Falsely representing the character, amount, or legal status of the debt.

■ Misrepresenting that a debt collection communication is from an attorney.

■ Misrepresenting that a communication is from a government source or that the source of the communication is affiliated with the government.

■ Misrepresenting whether information about a payment or nonpayment would be furnished to a credit reporting agency.

■ Misrepresenting to consumers that their debts would be waived or forgiven if they accepted a settlement offer, when the company does not, in fact, forgive or waive the debt.

■ Threatening any action that is not intended or the covered person or service provider does not have the authorization to pursue, including false threats of lawsuits, arrest, prosecution, or imprisonment for non-payment of a debt.

Due to the CFPB’s increased activity in the credit and collection industry and its reliance on its authority under UDAAP, collectors should enact and enforce policies to avoid UDAAP violations in addition to violations of the FDCPA, TCPA, FCRA and state consumer protection laws.  Collectors should review CFPB guidance and monitor the CFPB’s enforcement.  Consent Decrees issued pursuant to CFPB enforcement actions can serve as roadmaps to assist collectors to avoid repeating conduct that could create CFPB liability.

The most troubling aspect of the CFPB’s enforcement actions are the potential penalties.  Those penalties can reach $25,000 per day for unintentional violations and $1,000,000 per day for intentional violations.  Since initially the question of what constitutes a UDAAP violations is up to the CFPB, it pays to monitor the CFPB’s enforcement activities.

For more information about the CFPB or the UDAAP provision of the Frank-Dodd Act, please contact Joseph Messer at 312-334-3440 or jmesser@messerstrickler.com.

Back Wages Owed for Docking Employees for Break Time

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On December 16, 2015, a publishing company in Pennsylvania was found to have violated the FLSA for docking employees for break time.   The telemarketing workers at the company were being docked for almost all time not spent making phone calls – whether it was a quick 2 minute water, bathroom or rest break or longer lunch break.   The amount of back wages has not yet officially been determined but the estimate is at least $1.75 million (back wages and liquidated damages as the court determined the violations to be willful) to compensate more than 6,000 employees who were working in the company’s 14 calls centers. The timekeeping system used by the company was deducting those short break times from the employees total hours worked.  The FLSA does not require lunch or others breaks but when employers do offer short breaks (5-to-20 minutes), the law considers the breaks compensable work hours that must be included in the total hours for the week and considered in determining entitlement to overtime.

Like most of these cases, the publishing company was also found to have failed to maintain proper records as required by the FLSA.  Companies must be vigilant in ensuring that all docking of its employees’ time is lawful pursuant to the FLSA and any applicable state laws and that proper records are kept.

For more information on the FLSA or any further employment related matters, please contact Dana Perminas, at 312-334-3474 or dperminas@messerstrickler.com for more information.

Illinois Amends The Collection Agency Act

On January 29, 2016, Illinois amended the Illinois Collection Agency Act (“ICAA”) through the enactment of Senate Bill 1369 (the “Amendment”). The Amendment, which was effective immediately, removes confusing and burdensome requirements provided by the ICAA and corrects amendments made to the ICAA last August.  Those amendments had expanded sections of the ICAA to commercial debt and required disclosures contrary to the federal Fair Debt Collection Practices Act (“FDCPA”).

To clarify that licensing requirements apply to both commercial and consumer collections the Amendment adds the following definitions:

“Collection agency” means any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in the collection of a debt.

“Consumer debt” or “consumer credit” means money or property, or their equivalent, due or owing or alleged to be due or owing from a natural person by reason of a consumer credit transaction.

The Amendment changes location requirements to match those provided by the FDCPA requiring a debt collector to provide the name of their company to a third party only when it is expressly requested when trying to collect a “consumer debt.” Additionally, the Amendment changes the validation notice requirements so that only a written request will trigger the requirement that the collector provide original credit’s name and address:

(5) That upon the debtor's written request within the 30-day period, the The collection agency will provide the debtor with the name and address of the original creditor, if different from the current creditor. If the disclosures required under this subsection (a) are placed on the back of the notice, the front of the notice shall contain a statement notifying debtors of that fact.

(b) If the debtor notifies the collection agency in writing within the 30-day period set forth in paragraph (3) of subsection (a) of this Section that the debt, or any portion thereof, is disputed or that the debtor requests the name and address of the original creditor, the collection agency shall cease collection of the debt, or any disputed portion thereof, until the collection agency obtains verification of the debt or a copy of a judgment or the name and address of the original creditor and mails a copy of the verification or judgment or name and address of the original creditor to the debtor.

(c) The failure of a debtor to dispute the validity of a debt under this Section shall not be construed by any court as an admission of liability by the debtor.

(d) This Section applies to a collection agency or debt buyer only when engaged in the collection of consumer debt.

The Amendment constitutes a win for the collection industry by eliminating confusing and harsh requirements for collection agencies.  To learn more about the Amendment or the ICAA in general feel free to contact Joseph Messer at 312-334-3440 or jmesser@messerstrickler.com.

View the Amendment in Full Here