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.

Will You Know A “Dispute” When You See It?

            How can a collector accurately identify, track, and respond to consumer disputes when the FDCPA does not define what a “dispute” is?  When Supreme Court Justice Potter Stewart famously stated, “I know it when I see it,” in Jacobellis v. Ohio, 378 U.S. 184 (1964), he was not talking about consumer disputes.  But his catch phrase succinctly described how it can be a struggle to define common words in different contexts.  How exactly do you define a consumer “dispute”?  Are you sure you will know a dispute when you see it?

          Collectors have to recognize when a consumer is disputing a debt so they can react appropriately.  But so far, nobody has managed to define what a “dispute” is under the FDCPA.  Consider for example whether any of the following statements qualify as a “dispute” by the consumer:

                     •         “I don’t remember this account.”

                     •         “I think I paid that one off.”

                     •         “The balance doesn’t sound right because I think my credit limit was only $500.”

           •         “I don’t recognize the name of your firm or your client.”

                     •         “Do you have any proof that I owe this?”

                     •         “I’m not going to talk to you until you send me documents.”

           •         “My ex-husband agreed to pay this as part of our divorce.”

                     •         “I think my insurance company was supposed to cover this.”

                     •         “I hired a debt consolidator who agreed to pay all my debts.”

                     •         “The television that I bought with the card never worked.”

                     •         “Stop calling me about this account.”

          A consumer advocate might argue that some or all of the statements listed above qualify as a “dispute” by a consumer, but a collector could reasonably conclude that none are.  Some of the statements express uncertainty about whether the debt is due, or about the amount owed.  Others raise questions whether someone else agreed to pay the debt.  Some ask the collector for more information; others ask the collector to stop further contact.  But none of these statements provide the collector with specific information indicating why the consumer believes he may not be responsible for payment. 

          The context of these statements is also important.  Were these comments made during the course of a collection phone call, or in a letter sent to the collector?  What else was said during the call or in the letter?  How did the phone call end?  What else, if anything was included with the letter?

          It is strange that Congress never bothered to define the term “dispute” in the FDCPA, given the important role that disputes play in the statute’s framework.  Collectors must notify consumers in writing of their right to “dispute” a debt, or any portion thereof, with their initial communication.  See 15 U.S.C. § 1692g(a).  Collection activity during the 30-day period after the notice is sent may not overshadow or be inconsistent with the disclosure of the consumer’s right to dispute the debt.  Id. § 1692g(b). 

          Collectors must treat disputed debts differently.  If a consumer verbally disputes a debt within thirty days of receiving the validation notice, the collector is not entitled to assume the debt is valid.  Id. § 1692g(a)(3).  If the dispute was in writing and within thirty days of receipt of the validation notice, the collector must cease all further collection activity until it mails validation of the debt to the consumer.  Id. § 1692g(b). 

          Even if the dispute is received outside of the thirty-day validation period, a collector violates the Act if it communicates or threatens to communicate “credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.” Id. § 1692e(8).  Where a consumer owes more than one debt and makes a single payment, the collector cannot apply the payment to any disputed debt.  Id. § 1692h. 

          In short, the word “dispute” appears in numerous places throughout the FDCPA, and the existence of a “dispute” imposes important obligations on collectors, but Congress never tells us what exactly qualifies as a “dispute” in these contexts. 

          Congress was more clear about disputes when it wrote the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. (the “FCRA”).  Under the FCRA, a furnisher of credit information must conduct a reasonable investigation of a direct dispute received from a consumer if it relates to 1) the consumer's liability for the debt (e.g., identity theft, fraud); 2) the terms of the account (e.g., the balance, payment amount); 3) the consumer's performance or other conduct concerning an account (e.g., current payment status, date, or amount of a payment), or 4) other information in a consumer report that bears on the consumer's creditworthiness.  See 16 C.F.R. § 660.4(a).  A furnisher may deem a dispute to be “frivolous or irrelevant,” however, if the consumer fails to provide the furnisher with sufficient information to investigate.  See 15 U.S.C. § 1681s–2 (a)(8)(F)(i)(I); 16 C.F.R. § 660.4(f).  Given that the FCRA and the FDCPA are both part of the Consumer Credit Protection Act, it is reasonable to believe Congress would want a “dispute” to be defined the same way, and handled by collectors in the same way, under the FCRA and the FDCPA. 

          Consumer disputes are also a main focus of the CFPB, so maybe the Bureau will ultimately define what a “dispute” is.  The Bureau gathers information about consumer complaints, including complaints about collectors’ alleged failure to properly handle consumer disputes, and publishes reports about them to Congress.  See Fair Debt Collection Practices Act, CFPB Annual Report 2015. 

          The CFPB has also imposed new requirements for handling disputed debts in recent enforcement proceedings.   The September 2015 consent orders with Encore Capital Group, Inc. and Portfolio Recovery Associates, LLC provide that if a debt is “disputed” by a consumer, Encore and PRA must take additional steps to substantiate the debt before proceeding with collection.  See Encore Order, ¶ 129, PRA Order, ¶ 116.  The CFPB also required Encore to notify the collection agencies and law firms it retains whenever a debt has been previously disputed by the consumer.  See Encore Order, ¶ 134. 

          If the CFPB ultimately promulgates debt collection rules, it may finally provide a definition of a “dispute” under the FDCPA.  In numerous questions posed by the CFPB in its Advanced Notice Of Proposed Rulemaking relating to potential rules under the FDCPA, the Bureau strongly suggests it is considering rules that would define a “dispute” and further regulate the handling of disputes by collectors.  See ANPR, Questions Nos. 2, 5, 20, 31-53.

          At this point, it is unclear when the CFPB will publish rules, or whether those rules will include a clear definition of what a “dispute” is.  Until then, collectors will have to refine their own definition of disputes so they can implement procedures for tracking and responding to them.

            

Is Your Envelope “Benign” Under The FDCPA?

            The FDCPA prohibits a collector from placing “any language or symbol” on a debt collection envelope, other than the collector’s address.  That’s right, you read that sentence correctly – absolutely nothing can be safely placed on the envelope, except for the collector’s address.  A collector cannot even put its own name on the envelope, unless the collector is certain the name does not indicate that the company is in the debt collection business. 

            There has been a lot of litigation relating to envelopes recently, but section 1692f(8) of the FDCPA, which regulates collection envelopes, is not new.  It has been a source of frustration for collectors for decades.  Fortunately, some courts have recognized that a strict application of section 1692f(8) may lead to absurd results, and have held that “benign language” on an envelope does not violate the FDCPA.  Not every court has adopted the “benign language” exception to section 1692f(8), however, and it is not always easy to predict what language will fit within the exception.  How do you know if your envelope is “benign” or not?

            Section 1692f(8) of the FDCPA prohibits a collector from using “any language or symbol, other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.”  15 U.S.C. § 1692f(8).  By its plain language, the only “language or symbol” that can appear on the envelope is the collector’s address.  The collector’s name can only be on the envelope if the name does not indicate the company is in the collection business.  Courts have held that collectors may violate section 1692f(8) simply by placing their own name on the envelope.  See, e.g., Keasey v. Judgment Enforcement Law Firm, PLLC,  2014 WL 1744268, **3-4 (W.D. Mich. Apr. 30, 2014) (section 1692f(8) violated by use of name “Judgment Enforcement Law Firm” on envelope); Rutyna v. Collection Accounts Terminal, Inc., 478 F. Supp. 980, 982 (N.D. Ill. 1979) (envelope stating company name “COLLECTION ACCOUNTS TERMINAL, INC.” violated section 1692f(8): “The purpose of this specific provision is apparently to prevent embarrassment resulting from a conspicuous name on the envelope, indicating that the contents pertain to debt collection.”); but see Simmons v. Med-I-Claims, 2007 WL 486879, *9 ( C.D. Ill. Feb. 9, 2007) (rejecting as “frivolous” plaintiff’s claim that use of name “Med-I-Claims” on envelope violated section 1692f(8)).

            Some courts have recognized that section 1692f(8) was enacted to prevent embarrassment to consumers, and language or symbols that do not disclose the collection purpose of a letter are “benign” and do not violate the statute.  For example, in Strand v. Diversified Collection Servs., Inc., 380 F.3d 316 (8th Cir. 2004), plaintiff argued that defendant’s envelopes violated section 1692f(8) because they “included the terms ‘D.C.S., Inc.’ above the return address, ‘PERSONAL AND CONFIDENTIAL’ in capital boldface type, and ‘IMMEDIATE REPLY REQUESTED’ in capital reverse typeface” along with an image of the company’s logo “depicting a grid with an upward-pointing arrow and the initials ‘DCS.’”  Id. at 317.  The Court stated: “We first observe Ms. Strand invites us to read § 1692f(8) to create bizarre results likely beyond the scope of Congress's intent in enacting the statute.  Under her literal reading of § 1692f(8), a debtor's address and an envelope's pre-printed postage would arguably be prohibited, as would any innocuous mark related to the post, such as ‘overnight mail’ and ‘forwarding and address correction requested.’”  Id. at 318.  The Strand Court relied upon legislative history indicating that section 1692f(8) was designed to prevent disclosure that the letter pertains to debt collection as well as FTC Staff Commentary stating that words like “Personal” or “Confidential” on an envelope would not violate the statute.  Id. at 319.  The Court held, as a matter of law, “the language and symbols were benign because they did not, individually or collectively, reveal the source or purpose of the enclosed letters.”  Id. 

            Consistent with Strand, other courts have recognized the “benign language” exception to section 1692f(8).  See, e.g., Goswami v. American Collections Enter., Inc., 377 F.3d 488, 492 (5th Cir. 2004) (envelope with half-inch thick blue bar across front and words “Priority Letter” in white did not violate section 1692f(8), because subsection “only prohibits markings on the outside of envelopes that are unfair or unconscionable, such as markings that would signal that it is a debt collection letter and tend to humiliate, threaten, or manipulate debtors.”); Johnson v. NCB Collection Servs., 799 F. Supp. 1298, 1305 (D. Conn. 1992) (no violation to use terms “Revenue Department” and “Personal and Confidential” on envelope: “Nothing in the innocuous designation of ‘Revenue Department’ distinguishes the letter from other permissible forms of correspondence such as direct billings from creditors for debts not yet past due. The mere use of the departmental designation ‘Revenue Department’ in the return address of a collection notice is simply not the type of abusive collection practice that the FDCPA was intended to reach.”); Lindbergh v. Transworld Sys., Inc., 846 F. Supp. 175, 180 (D. Conn. 1994) (envelope with symbol comprised of blue stripe and the word “TRANSMITTAL” did not violate section 1692f(8), because symbol did not pertain “to debt collection in any way” and the “mechanical interpretation of section 1692f(8)” would not comport with the structure or purpose of the FDCPA); Masuda v. Thomas Richards & Co., 759 F. Supp. 1456, 1466 (C.D. Cal. 1991) (envelope containing notice that theft of mail or obstruction of delivery is federal crime, as well as words “PERSONAL & CONFIDENTIAL” and “Forwarding and Address Correction Requested” did not violate section 1692f(8): “Congress' interest in protecting consumers, however, would not be promoted by proscribing benign language.”).

            It is risky to rely on the “benign language” exception.  Many courts have never formally recognized the exception, or have held that the words or symbols used by the collector did not fall within it.  For example, in Douglass v. Convergent Outsourcing, 765 F.3d 299 (3d Cir. 2014), the Court held the collector violated section 1692f(8), because the debtor’s account number was visible through the window of the envelope.  The Court declined to adopt the “benign language” exception, noting that the language of section 1692f(8) was “unequivocal.”  Id. at 303.  Even if a “benign language” exception existed, however, the Court held disclosure of the account number was not benign, because it “implicates a core concern animating the FDCPA – the invasion of privacy.”  Id.  The Douglass Court summarized:  “The account number is a core piece of information pertaining to Douglass's status as a debtor and Convergent's debt collection effort.  Disclosed to the public, it could be used to expose her financial predicament.  Because Convergent's disclosure implicates core privacy concerns, it cannot be deemed benign.”  Id. at 303-04; see also Peter v. GC Servs. L.P., 310 F.3d 344, 352 (5th Cir. 2002) (envelope containing words “US Department of Education. . . . Official Business.  Penalty for Private Use $300" violated section 1692f(8):  “We do not need to reach the issue of whether § 1692f(8) implicitly includes an exemption for benign language, since the Defendants' impersonation of the Department of Education is certainly not benign.”); Kryluk v. Northland Group, Inc., 2014 WL 6676728, *11 (E.D. Pa. Nov. 21, 2014) (granting consumer leave to amend complaint to add section 1692f(8) claim where account number was visible through envelope’s window); Voris v. Resurgent Capital Servs., LP, 494 F. Supp. 2d 1156 (S.D. Cal. 2007) (envelope with words “return service requested” and “You are Pre-approved* See conditions inside” may violate section 1692f(8) by causing debtor to discard envelope without reading section 1692g notice inside:  “[I]f printed language on an envelope causes a debtor damage, loss of rights, or other harm, the language is not benign.”).

            Have you looked closely at your collection envelopes lately?  Given the renewed focus on section 1692f(8) claims, now is probably a good time to ensure that your envelopes do not have any language or symbol on them that may run afoul of the Act.