Tuesday, September 26, 2017

Is A Bank A “Debt Collector” Under California’s Rosenthal Act? Maybe Not.

         Can a bank be sued for acting as a “debt collector” under the California Rosenthal Act?  You are probably tempted to answer “yes” it can, because you know the Act defines a “debt collector” to include an entity that is collecting on behalf of itself or on behalf of third parties.  But a closer look at the activities performed by employees of the bank in question may reveal that it is not, in fact, collecting on its own behalf.  Instead, all collection activities may be handled through separate, though related, servicing companies, or by third parties.  A consumer may have no basis for suing the bank under the Rosenthal Act, and elimination of the bank from the action could significantly reduce the available damages and decrease business interruption for bank officers.

          First, a quick review of some key provisions of the Rosenthal Act.  Unlike the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et. seq., (“FDCPA”), which, generally speaking, only applies to third party debt collectors, the Rosenthal Act broadly defines a “debt collector” to include persons or entities that collect on behalf of themselves or others.  See Cal. Civ. Code § 1788.2(c) (“The term ‘debt collector’ means any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection. . . .”) (emphasis added).  The Act defines “debt collection” as “any act or practice in connection with the collection of consumer debts.”  Id. § 1788.2(b).  The Rosenthal Act also incorporates by reference certain sections of the FDCPA, and makes any violation of those FDCPA provisions into a violation of California state law.  Id. § 1788.17.  Courts have held that consumers may pursue class actions under the Rosenthal Act, and the statutory damages in such cases are capped at the lesser of $500,000 or one percent of the net worth of the defendant.  See, e.g., Gonzales v. Arrow Financial Services, LLC, 660 F.3d 1055, 1065 (9th Cir. 2011).

          Thus, if the employees of a bank actually handle collection activity on behalf of the bank, it may be a “debt collector” subject to the Rosenthal Act.  But if the bank relies on employees of a related servicing company or other third parties to collect, then is the bank actually engaged in “debt collection” as defined by the Act?  Probably not.

          If the bank does not have employees who engage in collection efforts, such as making collection phone calls or sending collection letters, there is a strong argument the bank is not a “debt collector” under the Rosenthal Act.  In an analogous context, courts have regularly held that a debt buyer who simply purchases and owns unpaid accounts, and then utilizes other entities to actually collect them, is not a “debt collector” under the FDCPA.  See, e.g., Gold v. Midland Credit Mgmt., Inc., 82 F. Supp. 3d 1064, 1072-73 (N.D. Cal. 2015) (summary judgment granted on FDCPA and Rosenthal Act claims for debt buyer that retained affiliate company to collect debts); Kasalo v. Trident Asset Mgmt., LLC, 53 F. Supp. 3d 1072, 1077 (N.D. Ill. 2014) (“[a]n entity that acquires a consumer's debt hoping to collect it but that does not have any interaction with the consumer itself does not necessarily undertake activities that fall within this purview.”); Scally v. Hilco Receivables, LLC, 392 F. Supp. 2d 1036, 1037 (N.D. Ill. 2005) (“Hilco did not act directly to collect Scally’s debt: Hilco never contacted Scally to collect the debt nor did Hilco mail the allegedly offending collection letter.  Rather, Hilco outsourced the activity of debt collection to co-defendant MRS, which mailed the letter that is the basis of Scally’s complaint.”).

          Why does any of this matter, you may ask?  Well, it may matter a lot, depending on the claims asserted in the litigation, the identity of the parties, and the procedural posture of the case.  If the only claim asserted against the bank arises under the Rosenthal Act, it may be subject to a dispositive motion, thereby sparing the bank and its officers of the cost and distraction associated with litigation.  Employees of the servicing companies who actually do the collection work will likely make better witnesses to support other defenses to a Rosenthal Act claim.  Eliminating the bank as a defendant could also impact the damage exposure in the case.  For example, in a Rosenthal Act class action, statutory damages are capped at the lesser of $500,000 or one percent of the net worth of the debt collector.  The dismissal of a bank from the case could significantly reduce the exposure to statutory damages.  Depending on the procedural posture of your case, there may be other strategic considerations bearing on when and how this defense is best raised.

          What’s the bottom line?  Do not assume that a bank or other financial institution is a “debt collector” under the Rosenthal Act until you closely analyze the functions performed by employees of the bank, as opposed to activities performed by employees of related servicing entities or third parties.  If you determine the bank is not a “debt collector” under the Act, think strategically about when and how to break the news to your adversary.
                                               

            

Thursday, May 11, 2017

Searching For The Meaning Of “Meaningful Involvement”

     Grappling with the meaning of the so-called “meaningful involvement” doctrine is one of the most elusive and frustrating compliance challenges for collection attorneys and their clients.  What exactly must a collection attorney do to ensure they are “meaningfully involved” in a file before sending a collection letter to a consumer?  When, if ever, should collection law firms include disclaimers on their collection letters, indicating that no attorney of the firm has reviewed the particular circumstances of the debtor’s file?  What steps must an attorney take to be “meaningfully involved” when filing a collection lawsuit?  What role, if any, should a creditor client play in setting standards for the attorneys who collect on its behalf?

          Finding the right answers to these questions is difficult, and the stakes can be extremely high.  Courts across the country, and regulators like the Consumer Financial Protection Bureau (“CFPB”), have insisted that collection attorneys be “meaningfully involved” in reviewing the accounts they handle for their creditor clients, and that creditors are responsible for ensuring their attorneys are complying with the consumer protection laws.  In the past two years, the CFPB has imposed consent orders on large collection law firms and debt buyers, in part because the Bureau has taken issue with the level of attorney involvement in the collection process.  Consumer attorneys, meanwhile, routinely assert “meaningful involvement” claims in FDCPA lawsuits filed against collection attorneys and their clients.

          Adding to the confusion, some court decisions, and a recent CFPB consent order, have recognized that in some circumstances, collection attorneys may include “disclaimers” in their collection communications to indicate that no attorney has yet been meaningfully involved in reviewing the particular circumstances of the consumer’s account.  How can these authorities be reconciled?  If the requirement for “meaningful involvement” is truly meaningful, can it safely be disclaimed away?

The Origins Of Meaningful Involvement

          First, a brief history lesson is in order.  What exactly is the “meaningful involvement” doctrine anyway?  If you have read the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”), from beginning to end, you are probably still looking for the phrase “meaningful involvement.”  You can stop looking, because it is not in the Act.  Section 1692e(3) of the FDCPA contains a simple prohibition:  collectors may not make any “false representation or implication that any individual is an attorney or that any communication is from an attorney.”  15 U.S.C. § 1692e(3).  The meaningful involvement doctrine was created by judicial decisions that have slowly stretched the plain language of this section beyond recognition.

          Courts have expanded section 1692e(3) to imply a broader mandate that collection attorneys be “meaningfully involved” in the review of a consumer’s file before a collection letter is sent.  See, e.g., Clomon v. Jackson, 988 F.2d 1314, 1320-21 (2d Cir. 1993); Avila v. Rubin, 84 F.3d 222, 228-29 (7th Cir. 1996).  This “meaningful involvement” doctrine has slowly morphed into a theory used by consumer attorneys, and later by regulators, to second-guess not only the collection letters mailed by attorneys, but also the methods used by collection attorneys when preparing and filing state court lawsuits.  The doctrine has now become a vehicle for courts and juries to decide on an ad hoc basis what collection attorneys must do when representing their clients.

Defining Meaningful Involvement

          Given that courts and regulators have insisted collection attorneys must be “meaningfully involved” when sending letters and filing lawsuits, it is reasonable to assume there is a universal set of requirements attorneys can follow in order to be compliant.  Wrong.  There are many examples of what is not “meaningful involvement,” but no court or regulator has set out any definitive standards or procedures an attorney can follow in order to ensure compliance.

          For example, in Clomon the defendant, an attorney, was a part-time general counsel of a collection agency.  The agency (not the attorney) mailed letters to “approximately one million debtors each year” using a computerized mass-mailing system, with a letterhead referencing the defendant – “P.D. Jackson, Attorney at Law, General Counsel, NCB Collection Services” – and defendant attorney’s mechanically-reproduced “signature.”  Clomon, 988 F.2d at 1316-17.  The attorney never reviewed the letters, and never decided whether or when the agency should mail them.  See id.  The text of the letters falsely suggested defendant had personally reviewed Clomon’s case and had advised his client litigation was a real possibility.  See id. at 1317.   

          Similarly, in Avila, a collection agency – not an attorney – mailed letters on an attorney’s letterhead “‘signed’ with a mechanically reproduced facsimile” of the attorney’s signature.  Avila, 84 F.3d at 225.  The agency mailed nearly 270,000 similar letters each year – roughly 1062 each working day.  See id.  The attorney, Rubin, had not personally prepared, signed, or reviewed any of these letters.  See id.  All of the letters threatened suit, but the Seventh Circuit observed it was “unclear (but we think doubtful) whether [Rubin & Associates] litigate anywhere,” id. at 224, and noted that “Rubin is not personally or directly involved in deciding when or to whom a dunning letter should be sent,” id. at 228.

          The attorney-defendant in Nielsen v. Dickerson, 307 F.3d 623, 635 (7th Cir. 2002), was completely uninvolved in the letter process.  The Court held that the creditor client – Household Bank – had violated the FDCPA, because the bank was the “true source” of the letters sent using the attorney’s name.  See id. at 639.  The defendant attorney “did not make the decision to send a letter to a debtor; Household did.”  Id. at 635.  The attorney had no “involvement with the file of any debtor slated to receive his form letter and played no meaningful role in the decision to send a debtor such a letter.”  Id.

          Without even trying to establish a standard for complying with the “meaningful involvement” doctrine, cases like Clomon, Avila, and Nielsen held that the FDCPA was violated.  One court that at least tried to establish a “test” of sorts was Bock v. Pressler & Pressler, LLP, 30 F. Supp. 3d 283 (D. N.J. 2014).  There, the court held a law firm violated the FDCPA by making an “implied representation that an attorney was meaningfully involved in the preparation of the complaint.”  Id. at 303.  Even though none of the claims made against the debtor in the underlying state court complaint were alleged to be false, the district court nonetheless found an FDCPA violation, because the attorney who reviewed the complaint did not spend enough time doing so.  See id. at 305-06.  The court held that a collection complaint is “inherently” false and misleading, unless, at the time of signing it, the attorney “1) drafted, or carefully reviewed, the complaint; and 2) conducted an inquiry, reasonable under the circumstances, sufficient to form a good faith belief that the claims and legal contentions in the complaint are supported by fact and warranted by law.”  Id. at 304.  Although the Bock court at least attempted to establish a standard governing the “meaningful involvement” doctrine, the court provided zero guidance for what an attorney would need to do in order to meet the standard it had articulated.

Disclaiming Meaningful Involvement

          Can a collection attorney avoid liability under the “meaningful involvement” doctrine by including a disclaimer in the collection letter, informing the consumer that no attorney of the firm has conducted any meaningful review of the file?  The answer is unclear.

          In Greco v. Trauner, Cohen & Thomas, 412 F.3d 360 (2d Cir. 2005), the letter was on the law firm letterhead, but was not signed by any attorney.  On the front of the letter, in addition to the language required by section 1692g of the FDCPA, the following statement was included: “At this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account.  However, if you fail to contact this office, our client may consider additional remedies to recover the balance due.”  Id. at 361.  The Court rejected plaintiff’s claim that the letter violated the FDCPA, noting that an attorney can send a collection letter to a consumer “without being meaningfully involved as an attorney within the collection process, so long as that letter includes disclaimers that should make clear even to the ‘least sophisticated consumer’ that the law firm or attorney sending the letter is not, at the time of the letter’s transmission, acting as an attorney.”  Id. at 364.  The Court held that “the defendant’s letter included a clear disclaimer explaining the limited extent of their involvement in the collection of Greco’s debt.”  Id. at 365; see also Jones v. Dufek, 830 F.3d 523 (D.C. Cir. 2016) (no FDCPA violation where law firm used Greco disclaimer on front of letter stating: “Please be advised that we are acting in our capacity as a debt collector and at this time, no attorney with our law firm has personally reviewed the particular circumstances of your account.”).

          Portions of the CFPB’s recent consent order with the Works & Lentz law firm suggest that the Bureau approves of the use of a Greco-type disclaimer in some circumstances.  In the Findings and Conclusions recited in the Order, the CFPB alleged that the firm had violated the FDCPA by, among other things, sending letters to consumers that “did not include any disclaimer to alert Consumers that no attorney had review their account prior to the initial demand being mailed.”  See In the Matter of: Works & Lentz, Inc., et al., Administrative Proceeding File No. 2017-CFPB-0003 (“Order”) para. 12-14, 18-23.  The Consent Order mandates that in the future, whenever the firm sends a letter to a consumer and no attorney has been “meaningfully involved in reviewing the Consumer’s account” and no attorney has “made a professional assessment of the delinquency,” the letter must “a. Clearly and prominently disclose that no attorney has reviewed the Consumer account at issue; b. State in the signature block that the letter is from the Collection Department; and c. Omit the name of any attorney and the phrase “Attorney at Law” from the signature block of any Demand Letter.”  Id. at para. 44.  At best, then, the Order suggests an attorney can send a collection letter without being “meaningfully involved” in an account, but it provides no definitive guidance for how attorneys can discharge their “meaningful involvement” obligations.  Nowhere in the Order does the CFPB explain what is required for an attorney to be “meaningfully involved in reviewing the Consumer’s account” or what an attorney must do in order to make “a professional assessment of the delinquency” on an account.

          Including a disclaimer of attorney involvement in a collection letter does not always insulate an attorney from liability under the FDCPA.  For example, in Gonzalez v. Mitchell N. Kay, 577 F.3d 600 (5th Cir. 2009), the letter was sent on law firm letterhead but was not signed.  The front of the letter included the section 1692g notice, and directed the reader to “Please see reverse side for important information.”  Id. at 602.  On the back of the letter was a notice stating: “At this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account.”  Id.  The court noted that the debtor “would not learn that the letter was from a debt collector unless the consumer turned the letter over to read the “legalese” on the back. The disclaimer on the back of the letter completely contradicted the message on the front of the letter-that the creditor had retained the Kay Law Firm and its lawyers to collect the debt.”  Id. at 607.  The Court therefore reversed the district court’s holding that the plaintiff had failed to state a claim for relief under the FDCPA.

          Similarly, in Lesher v. The Law Offices Of Mitchell N. Kay, 650 F.3d 993 (3d Cir. 2011), the Court held that settlement letters sent on a law firm’s letterhead with the Greco disclaimer on the reverse side of the letter violated the FDCPA.  According to the Court, “the least sophisticated debtor, upon receiving these letters, may reasonably believe that an attorney has reviewed his file and has determined that he is a candidate for legal action.”  Id. at 1003.  The letters “raise[d] the specter of potential legal action,” and were therefore false and misleading because the firm was not acting in a “legal capacity” when it sent the letters.  Id.


          Where does all of this leave us?   The answer is a clear as mud.  The “meaningful involvement” doctrine does not appear in any statute, rule, or regulation.  What exactly does it require of attorneys who seek to comply with it?  When can attorneys disclaim it?  What, if anything, should clients insist upon from their collection attorneys?  This judicially-created doctrine has been around for the twenty-four years, and has been widely embraced by many courts and by regulators.  Despite this, collection attorneys are still at a loss as to what they must do to comply with these unwritten requirements, and it remains unclear whether a “disclaimer” of attorney involvement will always be accepted.  Collection attorneys and their clients must continue to do their best to piece together all available authority on how to comply with this amorphous doctrine.  

Sunday, January 22, 2017

For Attorneys Representing Community Associations: A Primer On FDCPA Class Actions And How To Avoid Them

(This post is adopted from the materials presented at the CAI Law Seminar in Las Vegas, Nevada on January 20, 2017)

Demystifying the FDCPA Class Action For HOA Attorneys

      Consumer attorneys have been filing FDCPA class actions against collection attorneys for decades, and the pace of those filings has increased sharply in the past ten years.  Attorneys who collect for national banks, debt buyers or other financial institutions have been regular targets in FDCPA class actions.  Attorneys who engage in collection work for community associations, however, have managed to remain off of the FDCPA class action radar.  This may now be changing as consumer attorneys are starting to focus more on your practice area.  This is another way of saying welcome to the FDCPA Class Action Party – you got here late.

       Any standardized statement that you make, or any standardized practice that you engage in, while collecting for your community association clients can be the target of an FDCPA class action.  As you evaluate your firm’s risk to these cases, you will want to review every consumer-facing interaction of the firm top to bottom, including any letter forms utilized, your standard telephone practices and voicemail messages, the complaints, pleadings, discovery requests, and the post-judgment collection practices you employ.  You will also want to evaluate all third party interactions that your firm engages in, such as contacts with relatives of the debtor, co-workers, interactions with consumer reporting agencies, and the procedures of the vendors that your firm employs, such as process servers. In some jurisdictions, even statements that you make to a court, or to your opposing counsel, may be governed by the FDCPA, so these practices should also be evaluated for compliance with the Act.

       If your firm is served with a class action complaint, you certainly must turn your attention to it immediately.  But there is no reason to panic.  There is a long road between the filing of a putative class action and the actual certification of a class by a court, and the plaintiff faces a lot of hurdles along the way. A class action lawsuit is only as strong as the claim that has been asserted by the class representative(s) who filed the case, and if their claim is not viable, the entire case fails.  Even if the class representative has a viable claim, that does not mean the case will necessarily be certified as a class action, or that it must be settled as one.  Class actions are the exception, not the rule.  The normal rule is that the aggrieved party is only allowed to pursue his or her own claims.  If that person can also meet all the requirements of Rule 23 of the Federal Rules of Civil Procedure, then the case may be certified as a class action.  But many putative class actions never make it that far.

Conducting Class Action Triage

      If an FDCPA class action complaint is served on your firm, you will want to do some immediate triage on the case to ensure that you are taking your defense in the right direction. Is the FDCPA claim asserted by the named plaintiff legally viable?  For cases that appear to be of marginal merit, your first instinct may be to file a motion to dismiss the complaint.  A motion to dismiss can be a great way to dispose of class action before it gets off the ground. You should consider the risks of filing such a motion, however, because in many jurisdictions, FDCPA claims can be decided by the Court as a matter of law.  You will ask the Court to rule in your favor as a matter of law on the motion, but are you prepared to lose this case as a matter of law in response to your motion? 

You should consider the entire account history of the named plaintiff and how that will impact the optics of the case. If the case optics are favorable for you, then how will they be best presented to the court?  You may be better off developing the facts of the claim and then presenting your defense in the form of a summary judgment motion, so the facts of the case can shine in your favor.

           What is the communication or practice that is being challenged by the plaintiff?  Is this a case that targets a core part of your firm’s business model, or a key part of your client’s business?  Or is this just a drafting mistake made by your firm that you need to correct anyway?  The answer to these questions will help you assess the true stakes of the case, and they can impact your decision on whether to seek to settle the case, or fight it, and how best to get to your desired goal.

         Finally, you should immediately begin your assessment of whether the case will be able to meet the Rule 23 requirements. What do you know about the class representative's account history and whether there are unique defenses to his claim?  You should pull his entire file to assess it for weaknesses in his ability to represent the class.  What do we know about the assigned judge?  It makes sense to see how this judge has ruled on FDCPA cases or other similar consumer protection cases in the past, and to determine the judge’s track record on certifying class actions of any type. 

Who is the attorney who filed the suit?  Some attorneys who file class actions are simply trying to leverage the case into a larger individual settlement, and they have no intention of following the case through to class certification.  Other attorneys have an established track record of pursuing and certifying FDCPA class actions.  Is this a dabbler, or a veteran FDCPA class action attorney? Your approach to the case may be significantly impacted by the identity of the attorney who filed it. 

Who is your defense attorney?  You should be working with an attorney who is experienced in defending FDCPA cases generally, but who also has experience defending class actions.  You should take an active role in your own defense, but resist the urge to represent yourself in an FDCPA class action unless the attorneys in your firm already have significant experience in this area.

Rule 23 Requirements

In many respects, a defendant is at a distinct advantage in an FDCPA class action.  From the moment you are served with the complaint, you have access to much of the evidence the plaintiff needs to pursue class certification.  You can immediately begin your assessment of the named plaintiff in the case, and you can start gathering evidence to defend against the plaintiff’s class certification motion, which likely will not be heard for several months.  The plaintiff will bear the burden of proof on the class certification motion, and the courts have made it clear that certifying a class is not a rubber stamp process. The Supreme Court has held that a district court must conduct a “rigorous analysis” of all the Rule 23 requirements. General Tel. Co. Of Southwest v. Falcon, 457 U.S. 147, 161 (1982). 

Plaintiff attorneys will often argue that the allegations of the complaint must be assumed true in a class certification motion, but this is not correct.  The Supreme Court has also observed that “class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff's cause of action,” and that “it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question.”  Falcon, 457 U.S. at 160; see also Powers v. Credit Mgmt. Servs., Inc., 776 F.3d 567, 569 (8th Cir. 2015) (district court abused discretion certifying FDCPA class “by failing to conduct rigorous analysis . . . of what the parties must prove that Rule 23 requires”) (citations and quotation marks omitted).

Numerosity

In order to prevail on a motion for class certification, plaintiff must show the class is “so numerous that joinder of all members is impracticable.”  See Fed. R. Civ. P. 23(a)(1). Generally this means at least 40 similarly situated class members, but “classes of fifteen or less are too small.”  Gomez v. Rossi Concrete, Inc., 270 F.R.D. 579, 588 (S.D. Cal. 2010); see also Ikonen v. Hartz Mountain Corp., 122 F.R.D. 258, 262 (S.D. Cal. 1988) (classes of twenty generally “are too small” and classes of forty or more are “numerous enough”).

The Court may make reasonable inferences about numerosity but the Court may not speculate that it exists.  Plaintiff needs to provide the court with evidence.  Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1267-68 (11th Cir. 2009) (district court’s “inference of numerosity” without supporting evidence “was an exercise in sheer speculation”); Smith v. City of Oakland, 2008 WL 2439691, *1 (N.D. Cal. June 16, 2008) (numerosity argument was “unsupported by anything other than ‘mere speculation’”); Thorne v. ARM, Inc., 2012 WL 3090039 (S.D. Fla. June 28, 2012) (no proof of numerous class members with section 1692d(6) claims).

Commonality

The Plaintiff bears the burden of proving that “there are questions of law or fact common to the class.”  See Fed. R. Civ. P. 23(a)(2). Commonality requires proof that class members have “suffered the same injury” and evidence their claims turn on a “common contention” that “must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011); Powers v. Credit Mgmt. Servs., Inc., 776 F.3d 567, 571-73 (8th Cir. 2015) (reversing certification of FDCPA class where, inter alia, to resolve plaintiff’s theory of liability, every state-court collection lawsuit needed to be reviewed).

Typicality/Adequacy

Plaintiff also bears the burden of proving typicality and adequacy in order to prevail on a motion for class certification.  Typicality means evidence that “the claims or defenses of the representative parties are typical of the claims or defenses of the class.”  Fed.R.Civ.P. 23(a)(3).  Adequacy requires proof that named plaintiff and class counsel will “fairly and adequately protect the interests of the class.” Fed.R.Civ.P. 23(a)(4).

A defendant should immediately start gathering evidence regarding the named plaintiff and the particular circumstances of their account.  It is possible to upend an FDCPA class action if you can prove that the class representative is not typical of the rest of the class, or if the class rep would not be adequate.  See, e.g., Beck v. Maximus, Inc., 457 F.3d 291 (3d Cir. 2006) (remanding FDCPA class action to determine if BFE defense rendered class rep atypical and inadequate); Savino v. Computer Credit, Inc., 164 F.3d 81 (2d Cir. 1998) (denying certification in FDCPA case; class rep testified inconsistently on whether he received letter at issue); Dotson v. Portfolio Recovery Associates, 2009 WL 1559813 (E.D. Pa. June 3, 2009) (denying certification of FDCPA class action; unique defenses re: plaintiff’s credibility and cognitive disabilities). 

Predominance

Plaintiff also must prove “that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” See Fed. R. Civ. P. 23(b)(3); see also Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935, 947 (9th Cir. 2009) (Rule 23(b)(3) not satisfied where proceeding as a class would “require a fact-intensive, individual analysis of each employee's exempt status”); Zinser v. Accufix Research Institute, Inc., 253 F.3d 1180, 1189 (9th Cir. 2001)(affirming denial of cert:  “[i]mplicit in the satisfaction of the predominance test is the notion that the adjudication of common issues will help achieve judicial economy (Citation).”).

Courts have denied class certification in FDCPA class actions when they conclude that resolution of the class claims would require a series of mini-trials regarding the particular circumstances of each account.  See, e.g., Lee v. Javitch, Block & Rathbone, 522 F. Supp. 2d 945, 958-59 (S.D. Ohio 2007) (Rule 23(b)(3) not satisfied: whether affidavit violated FDCPA “would depend upon individual circumstances that pertain to that class member.”); Corder v. Ford Motor Co., 283 F.R.D. 337, 343 (W.D. Ky. 2012) (individual inquiries needed to determine if trucks of class members were purchased “primarily for personal, family or household purposes”; noting “this court will not certify a class action under the premise that Ford will not be entitled to fully litigate that statutory element in front of a jury. . . .”); OnStar Contract Litig., 278 F.R.D. 352, 381 (E.D. Mich. 2011) (defendant could not be deprived of the right to litigate defenses to each class member’s claim to prove that cars were not leased primarily for “personal, family or household purposes”).

Letter claims

      Collection attorneys are particularly vulnerable to FDCPA class actions targeting collection letters, since there is no way to dispute the contents of a letter, and most collection letters are forms that are used over and over again.  There are countless FDCPA class actions and individual actions filed that have successfully challenged the contents of collection letters.  See, e.g., Janetos v. Fulton, Friedman & Gullace, LLP, 825 F.3d 317 (7th Cir. 2016) (granting summary judgment for plaintiff in FDCPA class action where defendant’s letter failed to specifically identify the name of the current creditor); Avila v. Riexinger & Assoc., LLC, 817 F.3d 72 (2d Cir. 2016) (reversing dismissal of FDCPA class action where defendant’s letter stated “current balance” but failed to disclose balance might increase due to interest and late fees); Roundtree v. Bush Ross, P.A., 304 F.R.D. 644 (M.D. Fla. 2015) (certifying FDCPA class action; initial demand letter allegedly overshadowed notice of debtor’s rights required by section 1692g); Hanson v. JQD, LLC, 2014 WL 3404945 (N.D. Cal. July 11, 2014) (denying motion to dismiss FDCPA class action complaint; defendant sent letters to class seeking to collect late fees and threatening foreclosure allegedly in violation of California law); McCarter v. Kovitz Shifrin Nesbit, 2015 WL 74069 (N.D. Ill Jan. 5, 2015) (certifying FDCPA class action where initial demand letter allegedly overshadowed the notice required by section 1692g of the Act).

Collection Complaint claims

       Collection complaints filed in state court, and other discovery or pleadings served in state court actions, have been a fertile ground for FDCPA class action attorneys.  These suits often argue that a pleading, or a state court collection practice, does not comply with state law, and because it does not comply with state law, it also violates the FDCPA.  If a client has provided the attorney with incorrect information, that can also lead to an FDCPA claim against the attorney.  There are numerous examples of FDCPA claims that are based on state court pleadings or state court collection practices.  See, e.g., Marquez v. Weinstein, Pinson & Riley, P.S., _F.3d_, 2016 WL 4651403 (7th Cir. 2016) (collection complaints violated FDCPA where they alleged debt would be “considered valid” if not disputed within 30 days of the date of the complaint); Tourgeman v. Collins Fin. Servs., Inc., 755 F.3d 1109 (9th Cir. 2014) (collection complaints violated the FDCPA where they identified incorrect “original” creditor that had made the loans to class members); McCollough v. Johnson, et al., 637 F.3d 939 (9th Cir. 2011) (service of requests for admission on pro se defendant seeking admissions that law firm knew were false violated FDCPA).

Third Party Disclosure Claims

      The FDCPA not only regulates the contents of all of your direct communications with consumers, it also regulates the interactions that you have with third parties while engaged in debt collection.  This includes conversations with third parties while seeking to collect, such as family members or co-workers, messages left with third parties (either live, or on voice mail), interactions with consumer reporting agencies, and the conduct undertaken by vendors that you may retain, such as process servers.  All of your third party practices should be evaluated to guard against such claims.  See, e.g., Evon v. Law Offices of Sidney Mickell, 688 F.3d 1015 (9th Cir. 2012) (sending collection letters to work address “care of” the employer violated 1692c(b)); Halbertstam v. Global Credit and Collection Corp., 2016 WL 154090 (E.D.N.Y Jan. 12, 2016) (leaving a message with a third party with the collector’s callback information was improper third party disclosure in violation of FDCPA).

        Attorneys who collect for community associations have increasingly become targets for FDCPA class actions in recent years.  To reduce your exposure to these claims, a fresh look at all of your standardized practices and communications is well worth your time and effort.

Monday, August 22, 2016

The “Least Sophisticated Debtor” Is Getting More Sophisticated, And Has An Improved Memory Too

When collectors get sued in an FDCPA action, they face a steep uphill battle.  Courts apply the very pro-consumer “least sophisticated debtor” standard when evaluating a collector’s communications, and most violations of the Act are “strict liability” – meaning the debtor can win the case without proving the collector intended to violate the statute.  Recently, however, the “least sophisticated debtor” seems to have gotten more sophisticated, and his memory about his account and his past communications with the collector has improved.  

Courts have gradually demanded more of the “least sophisticated debtor” and have rejected suits based on hypertechincal misstatements and strained interpretations of the Act.[i]  Even when a collector’s statement is false or misleading, it must also be “material” or it does not violate the FDCPA.[ii]  And in a significant recent trend, courts have insisted that the challenged communication cannot be considered in a vacuum.  Even though the “least sophisticated debtor” standard is objective, that hypothetical debtor is charged with knowledge of the account’s history, and the communication at issue must be considered in the context of all other communications made to the plaintiff regarding the debt.[iii] 

A striking example of this trend is the Ninth Circuit’s decision in Davis v. Hollins Law Firm, _F.3d _, 2016 WL 4174747 (9th Cir. Aug. 8, 2016).  There, the collection law firm defendant communicated with plaintiff on a number of occasions, and each time the firm identified itself as a “debt collector,” as required by section 1692e(11) of the FDCPA.  Id. at *2.  In a subsequent voice mail message, however, the defendant’s employee stated only “Hello, this is a call for Michael Davis from Gregory at Hollins Law. Please call sir, it is important, my number is 866-513-5033. Thank You,” without specifically reciting he was a “debt collector.”  Id. at *3.  Although the trial court felt this was only a “de minimus” violation of section 1692e(11), it entered judgment in favor of Davis.  Id.  On appeal, the Ninth Circuit reversed.

The Court observed that the overarching purpose of the FDCPA “is to prevent debt collection actions that frustrate consumers' ability to chart a course of action in response to a collection effort.”  Id. at *1.  The Court applies “an objective standard” to decide whether the “least sophisticated debtor” would be misled by the communication.  Id. at *4.  The standard presumes “that the debtor has a basic level of understanding, which does not include bizarre or idiosyncratic interpretations of the communication at issue.  We also must avoid taking a hypertechnical approach.”  Id. (citations, quotation marks omitted).  

The Court emphasized that while the “least sophisticated debtor” standard protects consumers, it must be interpreted in a way that protects collectors from “bizarre or idiosyncratic” interpretations of collection communications.  The Court stated: “Even though the least sophisticated debtor may be uninformed, naive, and gullible, the debtor's interpretation of a collection notice cannot be bizarre or unreasonable.  Courts have carefully preserved the concept of reasonableness and have presumed that debtors have a basic level of understanding and willingness to read [the relevant documents] with care in order to safeguard bill collectors from liability for consumers' bizarre or idiosyncratic interpretations of collection notices.”  Id. at *1. (citations, quotation marks omitted).

 In addition, a collector’s statement must be “material” in order to be actionable under the FDCPA.  Id. at *2.  This means a false or misleading statement does not violate the FDCPA, unless it also frustrates the ability of the consumer to intelligently choose an appropriate response.  “Immaterial errors, by definition, would not frustrate a debtor's ability to intelligently choose an appropriate response to a collection effort.”  Id.  

With this in mind, the Ninth Circuit concluded the failure to expressly state the voicemail was from a “debt collector” did not violate section 1692e(11).  Significantly, the Court noted that “given the extent of the prior communications” between Davis and the law firm, and given “the context,” the voice mail message complied with the Act: “We conclude, given the extent of the prior communications, that the voicemail message's statement that the call was from "Gregory at Hollins Law" was sufficient to disclose to a debtor with a basic level of understanding that the communication at issue was from a debt collector.  Indeed, any other interpretation of Daulton's voicemail message would be bizarre or idiosyncratic. Given the context, the call was not false, deceptive, or misleading, and would not frustrate consumers' ability to intelligently chart a course of action in response to a collection effort.  Although Daulton's voicemail message did not expressly state that Hollins Law is "a debt collector," § 1692e(11) does not require a subsequent communication from the debt collector to use any specific language so long as it is sufficient to disclose that the communication is from a debt collector, as it was here.”  Id. at *4.
             
The decision in Davis continues an encouraging new trend for collectors.  Consumers cannot simply pluck a single communication out of a series of interactions with a collector and argue that, when read in isolation, a minor misstatement contained in it would be confusing to the least sophisticated debtor.  Rather, the challenged communication must be materially false or misleading when evaluated in the context of the entire account history and all prior communications relating to the debt. 






[i] See, e.g, Wahl v. Midland Credit Mgmt., Inc.,556 F.3d 643, 645 (7th Cir. 2009) (“The unsophisticated consumer isn’t a dimwit.  She may be uninformed, naive, and trusting, but she has rudimentary knowledge about the financial world and is capable of making basic logical deductions and inferences.”) (citations and internal quotations marks omitted); Campuzano-Burgos v. Midland Credit Mgmt., Inc., 550 F.3d 294, 299 (3d Cir. 2008) (“Even the least sophisticated debtor is bound to read collection notices in their entirety.”); Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360, 363 (2d Cir. 2005) (“[E]ven the least sophisticated consumer can be presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care.”) (citations and internal quotation marks omitted).

[ii] See, e.g.,  Donohue v. Quick Collect, Inc., 592 F.3d 1027, 1034 (9th Cir. 2010); Hahn v. Triumph Partnerships LLC, 557 F.3d 755 (7th Cir. 2009) (letter that accurately stated total amount due did not violate §§ 1692e or e(2)); Wahl, 556 F.3d at 646 (“If a statement would not mislead the unsophisticated consumer, it does not violate the FDCPA - even if it is false in some technical sense.”); Miller v. Javitch, Block & Rathbone, 561 F.3d 588, 596 (6th Cir. 2009).

[iii] See Wahl, 556 F.3d at 645-46 (the “unsophisticated consumer, with a reasonable knowledge of her account’s history, would have little trouble concluding that the ‘principal balance’ included interest charged by [the original creditor].”); McNair v. Maxwell & Morgan, P.C., 142 F. Supp. 3d 859, 871 (D. Ariz. 2015) (“ The least sophisticated debtor is charged with a reasonable knowledge of both communications between the debtor and the debt collector, and the account's history.”) (citations omitted); Goodrick v. Cavalry Portfolio Services, LLC, 2013 WL 4419321 (D. Ariz. Aug. 19, 2013) (“[E]ven the most unsophisticated debtor would not have been confused by Defendant's failure to say that Plaintiff's longstanding loan was continuing to accrue interest.”).

Saturday, May 21, 2016

Consent Order Compliance: Navigating The CFPB’s Unofficial “Rules” Governing Debt Collection

          The CFPB has entered into consent orders with major creditors, debt buyers and law firms during the past year relating to key areas of their collection practices.  The consent orders impose significant new requirements relating to data integrity, dispute handling, debt substantiation, debt sales, affidavit practices, and litigation practices.  The orders are not formal “rules” from the CFPB, nor are they “binding” on anyone, other than those identified in the orders.  In a speech given on March 9, 2016 to the Consumer Bankers Association, however, the CFPB Director, Richard Cordray, stated it would be “compliance malpractice” for other companies not to take “careful bearings” from the consent orders when assessing how to comply with the consumer protection laws.

          What unwritten “rules” can we glean from the string of consent orders that began in July 2015, with an order between the CFPB and Chase Bank USA, N.A., continued in September 2015, with orders against Encore Capital Group and Portfolio Recovery Associates, and culminated in orders with Frederick J. Hanna & Associates, Citibank, N.A., and Pressler & Pressler in January, February and April, 2016, respectively?  One theme that emerges is that the CFPB expects all participants in the collection space – creditors, debt buyers, and attorneys – to ensure that all other companies they deal with are using accurate and complete data, and are collecting in compliance with the consumer protection laws.

          Data Integrity, Debt Substantiation and Dispute Handling – The allegations in the consent orders reflect the CFPB’s deep skepticism with the way consumer disputes are handled, and the accuracy and integrity of the data creditors and collectors have used.  Although none of the allegations were proven to be true, and every one of the companies denied the allegations made by the CFPB when agreeing to the orders, the CFPB claimed the following:

                     •         Creditors allegedly failed to maintain accurate data about their own accounts or the accounts they acquired from other entities, and failed to properly investigate consumer disputes. This allegedly led to the sale of accounts with inaccurate balance or APR data, and the sale of accounts that were not owed, because they were opened as a result of fraud, the account holder was deceased or in bankruptcy, or the account had been settled or paid in full.

•         Debt buyers allegedly purchased accounts with inaccurate or unreliable balance information.  They allegedly signed purchase and sale agreements that disclaimed the accuracy of data sold, and limited the availability of media they could obtain from the sellers.  When media was obtained, debt buyers allegedly did not review it to compare it with the electronic data they had been provided, nor did they require their law firms to do so before filing suit.  Debt buyers allegedly continued to buy from sellers who had previously provided them with bad data, or who had promised to supply account documents but had been unable to do so.  When consumers disputed debts outside of the 30-day validation period, debt buyers allegedly made consumers prove they did not owe the debts, and did not obtain or review account documentation to investigate the disputes.  Nor did debt buyers inform their attorneys if accounts had been disputed.

          To address these concerns, the CFPB consent orders imposed the following “rules” relating to data integrity, debt substantiation and dispute handling:

•         Creditors agreed to adopt procedures to ensure that they sell accurate documents and account information to debt buyers, and that sale contracts prohibit the buyers from collecting unless sufficient account level documentation had been provided.  Future debt sales must include twelve to eighteen months of account statements as well as a copy of the terms and conditions that apply to the accounts sold.  Accounts with unresolved disputes should not be sold, and information about recent disputes and how those disputes were resolved must be provided to the buyer.

•         Debt buyers agreed to conduct a heightened review of account documentation with respect to 1) any accounts that have been disputed verbally or in writing, 2) any accounts purchased as part of a portfolio that contains “unsupportable or materially inaccurate information,” or 3) any accounts purchased pursuant to an agreement that lacks “meaningful and effective” representations regarding the accuracy and validity of the accounts, or the availability of media.  The review must be of “Original Account Level Documentation” (“OALD”) reflecting the charge-off or judgment balance, and OALD is defined as “(a) any documentation that a Creditor or that Creditor's agent (such as a servicer) provided to a Consumer about a Debt; (b) a complete transactional history of a Debt, created by a Creditor or that Creditor's agent (such as a servicer); or (c) a copy of a judgment, awarded to a Creditor or entered on or before the Effective Date.” If the claimed amount the debt buyer seeks to collect is higher than the charge off balance, the debt buyer must also review an explanation of how the amount was calculated and why it is authorized by the agreement or law.

                     •         Attorneys agreed not to threaten suit or initiate suit for a debt buyer without possessing of OALD reflecting the customer’s name, last four digits of the account number at charge off, the claimed amount (excluding post charge off payments), and, if suing under a breach of contract theory, the terms and conditions relating to the account.  In addition, attorneys must possess a certified or otherwise properly authenticated bill of sale or other document evidencing transfer of the debt to each owner, which must include a “specific reference to the debt being collected” and any one of the following:  1) a document signed by the consumer evidencing the opening of the account; or 2) OALD reflecting a purchase, payment, or other actual use by the consumer.

          Affidavit And Litigation Practices – The allegations of the consent orders also reflected the CFPB’s criticisms of the affidavit and litigation practices employed by creditors, debt buyers and attorneys.  Again, although none of these allegations were proven true, the CFPB claimed the following:

•         Creditors were accused of using affidavits signed by individuals who lacked personal knowledge of the record-keeping practices they described, or who had not actually reviewed the business records they referenced. Affidavits were allegedly notarized without properly administering an oath or witnessing the signature.  Dates and signatures were allegedly inserted after affidavits had been notarized, and dates were allegedly changed after affidavits were signed.  Creditors allegedly obtained judgments against consumers for incorrect amounts, and failed to promptly notify consumers or move to vacate judgments.

•         Debt buyers allegedly used affidavits which claimed personal knowledge of the debt or of the seller’s account-level documentation, where the affiant had only reviewed computer screens of data.  Affidavits allegedly made false representations that the generic terms and conditions specifically applied to the account.  Affiants allegedly claimed they had knowledge of account agreements but those agreements could not be located.  Debt buyers allegedly used seller affidavits which falsely stated that “hard copy” records had been reviewed by the seller’s affiants.  Debt buyers referred too many accounts to law firms staffed with too few attorneys, did not require those attorneys to review OALD before filing suit, did not tell the attorneys that the sellers had disclaimed the accuracy of the account data or had put limits on the availability of documentation.

•         Attorneys allegedly sued for debt buyers who lacked chain of title information, and without knowing if media would be made available or if the sellers had disclaimed the accuracy of the data provided, used affidavits when the attorney knew or should have known the affiant lacked personal knowledge, filed too many lawsuits and spent too little time reviewing account records, relied too much on computers and non-attorney staff to determine which accounts were suit-worthy and whether the amount due, interest, fees, date of last payment, and venue were correct.

          To address these concerns, the consent orders imposed the following “rules” relating to affidavit and litigation practices: 

•         Creditors must use affidavits with facts supported by “Competent and Reliable Evidence,” (“CRE”) which is defined as “documents and/or records created by Respondent in the ordinary course of business, which are capable of supporting a finding that the proposition for which the evidence is offered is true and accurate, and which comport with applicable laws and court rules.”  All affidavits must be based on personal knowledge of the affiant, who must actually review the referenced records and the affidavit for accuracy, and affidavits may not misrepresent the date of execution, the amount owed, or that the debt is supported by CRE.  Creditors must have written standards for training and quality control of affiants.  They may not pay affiants for volume and they must employ sufficient affiants to handle the workload.


•         Debt buyers may not use affidavits that falsely state the affidavit was executed in the presence of a notary, that generic documents actually apply to the consumer’s account, that documents have been reviewed when they have not been, or that the affiant has reviewed the affidavit when he has not.  Debt buyers may not file a collection lawsuit unless they posses OALD reflecting the customer’s name, last four digits of account number at charge off, the claimed amount (excluding post charge-off payments), and if suing for breach of contract, the terms and conditions for the account.  If the claimed amount in the suit is higher than the charge-off balance, the debt buyer must also be prepared to explain for how the increase was calculated and why it is permissible by contract or law. Debt buyers also must possess a certified or properly authenticated bill of sale or other document evidencing transfer of the debt to each owner of the account, which must include a “specific reference to the debt being collected,” plus either of the following: 1) a document signed by the consumer evidencing the opening of the account; or 2) OALD reflecting a purchase, payment or other actual use by the consumer.

•         Attorneys may not submit an affidavit to any court that falsely represents personal knowledge of the validity, truth, or accuracy of the character, amount or legal status of any debt; falsely represents the affidavit has been notarized if not executed in the presence of a notary; contains an inaccurate statement, including that attached documentation relates to the specific consumer; misrepresents the affiant's review of OALD or other documents; or falsely states the affiant has personally reviewed the affidavit.  Attorneys may not file suit against a consumer unless they have logged into their software system to create a record they have accessed the account, and have reviewed OALD showing name, last four digits of account number at charge-off, the claimed amount (excluding any post charge off payments), and if suing under a breach of contract theory, the applicable terms and conditions.  Attorneys must review a certified or properly authenticated bill of sale or other document evidencing transfer of the debt to each owner which must include a “specific reference to the debt being collected”, plus any one of the following:  1) a document signed by the consumer evidencing the opening of the account; or 2) OALD reflecting a purchase, payment or other actual use by the consumer.  Attorneys must also confirm, using “methods or means proven to be historically reliable and accurate,” that the statute of limitations has not expired, that the debt is not subject to bankruptcy, and that the identity of the consumer, address, and venue are correct.

          Navigating the unwritten “rules” from consent orders – It is worth repeating that none of the factual allegations made by the CFPB were ever proven to be true, and the consent orders are not binding on any company not identified in the orders.  Having said this, any company that wants to take “careful bearing” of the orders as suggested by Director Cordray might ask some of the following questions about the accounts it handles, or that are being handled for it:

What is your criteria for identifying disputes and are you giving disputed accounts any heightened scrutiny or other special handling?
Are you training your staff to correctly identify disputed accounts and to promptly report them?
Has the seller disclaimed the accuracy of the data sold?
Has the seller restricted the availability of media?
Has the seller failed to provide media when asked?
Has the media supplied by the seller conflicted with the electronic data the seller supplied?
Are there certain portfolios that contain a high percentage of problem accounts?
Do you possess OALD reflecting the claimed amount, as well as OALD reflecting a purchase, payment, or actual use by the consumer?
Has the affiant reviewed OALD?
What have you done to confirm the affiant has personal knowledge of the facts attested to? 
Have you confirmed the affiant reviewed the affidavit and that it was executed in the presence of a notary?
Have you confirmed the attachments relate to the consumer’s account?
Has a record been created of the steps that were taken to verify the accuracy of the affidavits submitted to the court?
What is the proper role of attorneys, non-attorneys, and computers in preparing the complaint?
Should there be a maximum number of accounts, complaints, or letters that an attorney can review and approve in one day?
What information and documents have been provided to support the factual allegations of the complaint?
What documents have been reviewed to confirm the information supplied supports the factual allegations made in the complaint?
What investigation have you done to confirm the correct consumer is being sued, in the right venue, and that statute of limitations has not run?
What has been done to document attorney involvement?


Tuesday, December 15, 2015

Is The CFPB’s Collection Litigation Strategy Consumer Friendly?

   Collection attorneys who are nervous about the risks involved in handling consumer accounts can relax.  The CFPB has devised an ideal litigation strategy for you to follow.  Let’s take a closer look at what the Bureau wants you to do to make sure it dovetails with the CFPB’s consumer protection goals.

          First, if your client plans to place accounts with your office, you should ensure the client has access to or possesses all the evidence needed to file suit and win the case at trial.  Next, as soon as an account is placed with your office, you should sue the consumer quickly, before the expiration of the shortest possible statute of limitations period.  Finally, when you sue the consumer, you better mean business.  A dismissal may be viewed by the CFPB as an admission of guilt by your firm and your client – an acknowledgment that you never had sufficient evidence to support your claims, and that you did not intend to pursue the case through judgment. 

          In sum, in order to protect consumers, the CFPB wants you to follow this litigation strategy:  quickly sue all accounts placed with your office, and take every contested case to trial to get a judgment against the consumer. This description is too sarcastic, you say?  You may be right.  But let’s examine the positions taken by the CFPB to see if this summary of its ideal litigation strategy is accurate.

          There is no question the CFPB wants you to sue consumers quickly. The Bureau believes that filing a lawsuit after the statute of limitations expires violates the FDCPA and the Consumer Financial Protection Act.  See, e.g., CFPB Amicus Brief in Delgado v. Capital Management Services, LP, filed August 14, 2013.  Any attorney who files suit after the limitations period has run puts the attorney and the client at risk.  If there are two possible limitations periods that might apply to your client’s claims, the wisest path is to select the shorter of the two.  To avoid risk, attorneys must sue consumers faster. 

          The CFPB has also been openly hostile to the practice of dismissing collection lawsuits.  In the Spring 2014 Supervisory Highlights, it said the filing of a lawsuit is a “representation” to a consumer that the company intends to establish that the consumer owes the amount claimed in court filings.  See CFPB Spring 2014 Supervisory Highlights, p. 14.  If the case is dismissed after the consumer answers, the CFPB says the dismissal may be evidence that the company made a false representation when it filed suit.  Id.  This anti-dismissal mantra was repeated at page 19 of the CFPB 2015 Annual Report To Congress On The FDCPA.  Given this, whenever an attorney dismisses a consumer lawsuit, he may be putting himself or his client at risk. 

          The CFPB also wants attorneys to ensure that their clients have sufficient documents to prevail in the lawsuits they file against consumers.  In its July 2014 suit against the Frederick J. Hanna & Associates law firm, the CFPB faulted the firm for filing lawsuits for debt buyers who allegedly did not have “basic documents, such as the original contracts” or chain of title information, and for submitting affidavits signed by persons who lacked personal knowledge of their contents.  See CFPB v. Frederick J. Hanna & Associates Complaint, ¶¶ 20, 23 The Hanna firm allegedly did not confirm whether documentation to support the client’s claims would be made available, and did not review the clients’ purchase and sale agreements for disclaimers regarding the accuracy or validity of the debts.  Id. ¶ 24.  According to the CFPB, the firm “routinely” dismissed cases, and did so at a higher rate when the consumer retained an attorney.  Id.  ¶ 22.  The CFPB says these alleged practices violated the FDCPA and the Consumer Financial Protection Act.  Id.  ¶¶ 28-45.

          All of these themes were confirmed in the CFPB’s September 2015 Consent Orders with Encore Capital Group, Inc. and Portfolio Recovery Associates, LLC.  The Bureau faulted both companies for buying portfolios where the seller had placed restrictions on the availability of media.  See Encore/CFPB September 2015 Consent Order, ¶¶ 32-35; PRA/CFPB September 2015 Consent Order, ¶¶ 29-32.  Encore was accused of using “scattershot litigation” tactics, including filing suit without verifying that account-level documentation existed to support the claims.  See Encore Consent Order, ¶ 51.  Both companies were criticized for misrepresenting their intent to “prove the debt, if contested” – and this allegation was based in part on their filing lawsuits without sufficient documentation.  See Encore Consent Order, ¶¶ 48-53; PRA Consent Order, ¶ 67-70.  Both companies allegedly threatened to sue, or actually filed suit, on claims where the statute of limitations had expired.  See Encore Consent Order, ¶¶ 65-69; PRA Consent Order, ¶¶ 56-59.  Both are now required to possess detailed documentation and information before filing suit, presumably to ensure they can pursue cases through judgment even if contested by the consumer.   See Encore Consent Order, ¶ 129; PRA Consent Order, ¶ 116.

          What message should collection attorneys glean from all of this CFPB activity?  Arguably, the Bureau is telling attorneys:  “Go Big or Go Home.”  To minimize risk, you should not accept new placements unless your clients have access to the documents and witnesses needed to prove the claim at a contested trial.  Once an account is placed with your office, sue the consumer quickly to avoid risks with the statute of limitations.  If the consumer files a response, do not dismiss the case – litigate the case through trial and get a judgment.  Follow all of these steps and you can help the CFPB achieve its consumer protection goals.