The state of New York recently enacted new debt collection regulations, 23 NYCRR 1, for third-party debt collectors and debt buyers.
Not to be confused with the New York City Department of Consumer Affairs, the New York State Department of Financial Services (“NYSDFS”) now requires specific disclosures on all notices to consumers in New York State. Yes, that means collectors are potentially required to comply with both regulations when collecting in New York City.
Review 23 NYCRR 1 here:
NYSDFS Responds to FAQs
Helpfully, on February 9, 2015, NYSDFS published answers to FAQs which includes, among other points, valuable information about how to simultaneously comply with the NYSDFS regs and the New York City requirements. We highly recommend you review the NYSDFS Responses to FAQs very carefully. Please contact the firm with any questions.
Review the FAQs and NYSDFS answers here:
Another critical point raised in the FAQ responses appears in response number 2. NYSDFS states some collectors may be entirely exempt from the new regulations for collecting debts where credit was “provided by a seller of goods or services directly to a consumer exclusively for the purpose of enabling the consumer to purchase consumer goods or services directly from the seller.” Please contact the firm to discuss how this exemption may or may not apply to your business.
NYSDFS regulators may impose civil penalties of up to $5,000 per offense for failure to comply with the new regulations.
Consumers do not have a private right of action for a collector’s failure to comply with the NYSDFS regulations. We may see consumer claims that a collector’s failure to comply with NYSDFS requirements constitutes an FDCPA claim. It is common for the consumer bar to “bootstrap” claims whereby a NYSDFS claim would allegedly constitute a violation of the FDCPA. There are cases on both sides of the claim that a violation of state law/regulation constitutes (by itself) a violation of the FDCPA.
The Eleventh Circuit has said that a “violation of state law may support a federal cause of action under the FDCPA.” LeBlanc v. Unifund CCR Partners, 601 F.3d 1185, 1190 (11th Cir. 2010). However, the Eighth Circuit has clarified that “the FDCPA was designed to provide basic, overarching rules for debt collection activities; it was not meant to convert every violation of a state debt collection law into a federal violation. Only those collection activities that use any false, deceptive, or misleading representation or means, including the threat to take any action that cannot legally be taken under state law, will also constitute FDCPA violations.” Carlson v. First Revenue Assurance, 359 F.3d 1015, 1018 (8th Cir. 2004) (internal quotations omitted).
As long as the collector makes a legitimate effort to comply with the NYSDFS regulations, the Eighth Circuit reasoning coupled with the FDCPA Bone Fide Error defense provides viable defense arguments.
The firm can assist you in reviewing the new disclosure requirements and updating your compliance management department. Please contact Chad or Bess if you would like more information. (firstname.lastname@example.org or email@example.com)
The Echols Firm, LLC has been in business since October 25th, 2011.
I would like thank each client and friend of the firm for your support over the last three years. The firm remains focused on providing exceptional boutique legal services to creditors, debt collection agencies, and debt purchasers. With the ever increasing litigation and regulatory activity that threatens our industry, it is critical to have counsel that understands your specific needs and provides an aggressive and business minded approach to litigation and compliance. I often tell industry executives “you do not need to like attorneys, but you do need to trust one.” We take great pride in being that trusted advisor to the collection industry and its executives. Everyone at the firm looks forward to remaining a valuable partner to our clients and friends.
Chad V. Echols
Owner, The Echols Firm, LLC
A client’s perspective…
“Williams & Fudge, Inc. faces each and all of the collection industry’s challenges with confidence because of the company’s trusted relationship with Chad and The Echols Firm. In the current collection environment I am glad to be associated with counsel that understands the issues, that my executive team enjoys working with, and that is focused on defending the collection industry. Chad is my attorney and his firm is an advocate for my company, but most importantly he is my friend.”
Gary L. Williams
Owner, Williams & Fudge, Inc.
Chad to guest speak at the 2014 Commercial Law League of America Conference in New York City November 6th.
The Commercial Law League of America’s Eastern Region Conference will take place in New York City, NY from November 6th to November 8th. Chad will take part in a panel on November 6th, along with Robert Perrin of Williams & Fudge, Inc. and John Bedard of Bedard Law Group, P.C. The panel will discuss student loan debt and compliance issues within the collection industry.
- Founded in 1895, the Commercial Law League of America (“CLLA“) is North America’s oldest creditor’s rights organization. CLLA provides services to the business and credit community in legal, educational, and professional areas of the industry.
The Echols Firm, LLC will attend the November 5th Community Pack Day for Rock Hill Schools’ “Back the Pack”
Back the Pack is a charity organization that provides children in need with nutritious, nonperishable food. The firm is excited to help fill the Packs for Rock Hill kids. Back the Pack volunteers gather at the Advanced Technology Center of Rock Hill from 8:30am to 10:00am on designated Community Pack Days.
For more information, please visit the Rock Hill School District Foundation’s website: rhsdfoundation.org/back-the-pack
You can make a donation to the Foundation to support Back the Pack here.
A website called “facesoflawsuitabuse.org” has created a short video (linked below) addressing the ridiculous nature of many Telephone Consumer Protection Act (TCPA) lawsuits. As most people involved in the collection industry are aware, TCPA litigation has exploded over the last few years. TCPA attorneys have continued to take aim at the collection industry and now seem to also be focused on large creditors and other significant business entities. The more attention provided to lawsuits like the one discussed in the video, the more likely it becomes that the TCPA is adjusted in a positive manner via regulation or legislation. There needs to be a practical solution that allows 21st century technology to be utilized in a fair and reasonable way without being inappropriately hitched to a law from 1991 that failed to foresee the ubiquitous nature of cellular telephones in 2014.
Lynn v. Monarch Recovery Mgmt., Inc., CIV. WDQ-11-2824, 2013 WL 1247815 (D. Md. Mar. 25, 2013) on reconsideration in part, 953 F. Supp. 2d 612 (D. Md. 2013) and aff’d, 13-2358, 2014 WL 4922451 (4th Cir. Oct. 2, 2014)
In Lynn, the Fourth Circuit upheld the U.S. District Court for the District of Maryland’s decision that the collector violated the TCPA’s “call charged” provision.
The collector placed 37 calls to the consumer’s residential landline using an automated telephone dialing system (“ATDS”) without the consumer’s prior express consent. Unbeknownst to the collector, the consumer had converted his residential landline service to Voice over Internet Protocal (“VoIP”). The consumer was charged (in six-second increments) a monthly rate of $1.49 and $0.0149 per minute for each of the collector’s incoming calls. The consumer called the collector twice to advise the collector that he received per-minute charges for phone calls. The collector called the consumer three more times after that notice.
The consumer filed suit against the collector alleging violations of the TCPA, the Maryland Telephone Consumer Protection Act (“MDTCPA”) and the FDCPA.
In the District Court, both parties filed motions for summary judgment on all counts. The parties stipulated the calls were made via “ATDS” as defined by the TCPA. There was no evidence that the calls were made with the consumer’s prior express consent or for emergency purposes. The consumer submitted evidence that his VoIP service provider charged him for each call placed to his landline.
The District Court found, “even assuming that [the collector’s] conduct was permissible under the residential telephone line provision, it was prohibited under the separate call charged provision.” 2013 WL 1247815 (D.Md. Mar. 25, 2013) at *11. The Fourth Circuit affirmed. 2014 WL 4922451 (4th Cir. Oct. 2, 2014) at *1.
The TCPA “Call Charged” Provision
The “call charged” provision of the TCPA, § 227(b)(1)(A)(iii), prohibits persons from making any call, without the prior express consent of the called party, using any ATDS or artificial or prerecorded voice to any telephone number assigned to “any service for which the called party is charged for the call.” 2013 WL 1247815 (D.Md. Mar. 25, 2013) at *3.
The “call charged” provision appears at § 227(b)(1)(A)(iii), while the “residential telephone line” provision appears at § 227(b)(1)(B).
The “residential telephone line” provision prohibits persons from initiating calls to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party, unless the call is exempted by rule or order by the FCC. TCPA § 227(b)(2)(B)(ii) authorizes the FCC to exempt from paragraph (1)(B) “such classes or categories of calls made for commercial purposes as the Commission determines—(I) will not adversely affect the privacy rights that this section is intended to protect; and (II) do not include the transmission of any unsolicited advertisement.” With this authority, the FCC published 47 C.F.R. § 64.1200(a)(2)(iii), creating the familiar “established business relationship exemption,” whereby collectors have correctly been able to defend themselves from TCPA liability when calling consumer landlines using a dialer without express consent – until now (if VoIP is utilized by the consumer and the consumer is charged for the call). 2013 WL 1247815 (D. Md. Mar. 25, 2013) at *3.
In Lynn, the collector argued that the calls it made to the consumer were properly exempted from TCPA liability because the calls were made to a residential phone line for a commercial purpose without any solicitation – pursuant to the “established business relationship exemption.” The Fourth Circuit affirmed the District Court’s determination that the TCPA’s “call charged” provision is wholly distinct from the TCPA’s residential phone line provision and the FCC’s exemption for calls related to an established business relationship. “[E]ven assuming that [the consumer’s] use of VoIP service did not fundamentally change the nature of his residential telephone line, [the consumer] has established that the service charged him for the calls. [The consumer’s] TCPA claim thus fits squarely within the separate, prohibition of the call charged provision.” 2013 WL 1247815 (D. Md. Mar. 25, 2013) at *7.
Obtaining and documenting the consumer’s prior express consent is the cornerstone to defending any TCPA claim. Case law is developing towards a broader definition of consent. Whenever an entity engages in any sort of automated dialing or prerecorded messaging, entities should continue to press clients for specific TCPA consent language in all consumer credit agreements that eventually lead to the collection account. Also, it remains important to remember how lucrative TCPA claims have become for the consumer bar. TCPA claims have grown at a rapid pace over the last few years. If you have questions regarding this case or its application to your practices, please contact the firm.
There are various statements by the court in the case of Douglass v. Convergent Outsourcing that agencies should make sure to understand and apply to their notices. 2014 WL 4235570 (3rd Cir. 2014). Of note, the Third Circuit Court of Appeals sets precedent for the federal district courts in Delaware, New Jersey, and Pennsylvania. Despite the limited geographical scope of the opinion, the outcome will generate additional litigation on this issue. Consumer attorneys will actively advance any new theory against the collection industry. The account number at issue in this case was the account number of the collection agency rather than the account number of the original creditor, but this does not appear to be an overly important distinction because practically, there should be no reason for an agency to put the original creditor account number in an envelope window. If an agency is using the same account number as the original creditor, the agency’s use of the creditor account number falls squarely within the facts of this case.
Despite the language at issue being visible through the window rather than on the envelope, the court holds “§ 1692f(8) applies to language visible through a transparent window of an envelope.” Id. at *3. There are prior cases on this issue that held certain language on an envelope to be “benign” and therefore not in violation of the FDCPA. In the cases supporting “benign” language the information on the envelope “revealed no information about the debtor” (for example “personal & confidential”). Id. at *5. In this case the court states that the account number “is not meaningless – it is a piece of information capable of identifying Douglass as a debtor.” Id. at *6.
The court in Douglass believes the account number is a core piece of information related to the consumer’s status as a debtor and the agency’s debt collection effort. Id. at *4. If the number is disclosed to the public, it may expose the consumer’s financial situation. Id. The potential exposure is the essence of the problem and distinguishes this case from the line of cases where “benign” language was on an envelope.
In light of this case, agencies should carefully review any and all information that is on a collection notice envelope or that will appear through the envelope’s window with a qualified attorney. The review should include words, letter sequences, number sequences, symbols, bar codes, and any other printed item. Consumer attorneys will consistently argue that any debtor related information is problematic. Agencies may continue to argue that certain statements, numbers, language, or symbols are benign, but it is important to understand that agencies are left arguing the exception to the rule, and the exception is narrowed by the Douglass opinion.
Topics to be discussed include bankruptcy, the analysis on whether or not certain debts on campus qualify as “student loans” pursuant to the United States Bankruptcy Code, and steps schools can take to better protect their debts from being discharged. Other topics to be explored are legal hot topics, along with a discussion focusing on the current legal issues facing the collection industry and the impact those issues have on the higher education community.
Williams & Fudge, Inc.’s Student Loans & Receivables Collection Conference in Charlotte, NC
September 28th through October 1st
Texas BUC$’s 2014 Annual Conference “BUC$ by the Bayou” in Houston, TX
October 12th through October 15th
Since 1996, the Texas Association of Bursars and University Cashier$ (BUC$) has organized a professional forum for student business office administrators and staff to discuss issues relevant to student business services. This year’s 19th annual Texas BUC$ conference will continue in this endeavor, providing necessary networking opportunities and exhibitions to continually approve the student business services industry across all public, community, and private sector levels.
Minnesota Collection Network’s Mega Conference XXII in Minneapolis, MN
October 26th through October 29th
With an emphasis on Upper Midwest professionals working at the university and college level, the Minnesota Collection Network is proud to host it’s 26th annual conference on Campus Based Programs and Student Accounts Receivable. The Minnesota Collection Network prioritizes increasing communications between educational institutions and offers this conference as an affordable colloquium to the collection industry for this purpose.
The New York State Assembly recently passed a package of bills targeting the debt collection industry. The new legislation addresses increased disclosure requirements to consumers, codifying new requirements for collection lawsuits, and requiring statewide licensure for collectors. For more information, please see Patrick Lunsford’s June 12th article on insideARM.
Collectors may be required to provide consumer additional proof of debt information than is currently customary.
Haddad v. Alexander, Zelmanski, Danner & Fioritto, PLLC, 13-2026, 2014 WL 3440174 (6th Cir. July 16, 2014).
On July 16, 2014, the United States Court of Appeals in the Sixth Circuit found, pursuant to the FDCPA, “verification of a debt requires a debt collector to provide the consumer with notice of how and when the debt was originally incurred or other sufficient notice from which the consumer could sufficiently dispute the payment obligation.”
The plaintiff, a condominium owner, brought action against the collector law firm, alleging violations of the FDCPA and Michigan Collection Practices Act. On behalf of condominium homeowner association (“HOA”), the collector attempted to collect unpaid HOA assessments/fines from the plaintiff. The plaintiff disputed the debt within the 30 day period pursuant to FDCPA § 1692g and the collector provided him a recent copy of his HOA account ledger (the “POD”). The plaintiff contacted the collector again and disputed the POD and requested more information regarding at least one line-item appearing on the account ledger. The collector responded a second time to the plaintiff and provided another account ledger evidencing the HOA debt.
The plaintiff argued the collector did not adequately verify the debt as required in § 1692g(b).
The FDCPA does not specify what the process of “verification” requires. As a matter of first impression, the Sixth Circuit took on the question in Haddad. The court found that the POD information provided to Haddad was inadequate for the plaintiff to “sufficiently dispute the payment obligation.” The court explained that the FDCPA’s verification provision “must be interpreted to provide the consumer with notice of how and when the debt was originally incurred or other sufficient notice from which the consumer could sufficiently dispute the payment obligation. This information does not have to be extensive. It should provide the date and nature of the transaction that led to the debt, such as a purchase on a particular date, a missed rental payment for a specific month, a fee for a particular service provided at a specified time, or a fine for a particular offense assessed on a certain date.”
This development is especially relevant for our clients collecting medical and higher education obligations in that the POD is often presented in a way that could be confusing for the least sophisticated consumer.
The Fifth Circuit Court of Appeals oversees the federal courts in Kentucky, Michigan, Ohio, and Tennessee.
Please contact the firm if you have additional questions regarding the impact of this case.