By Patrick Lunsford – insideARM.com
The number of lawsuits filed against debt buyers and collectors claiming violations of the Fair Debt Collection Practices Act (FDCPA) declined seven percent in 2012 compared to 2011 after years of steady increases.
As the principle law governing its activities, the FDCPA has always been at the top of any debt collection executive’s mind. Not only will FDCPA violations cost ARM companies money through consumer lawsuits, but they are the primary driver of law enforcement actions.
Another compliance challenge has been rising, however.
Consumer lawsuits claiming violations of the Telephone Consumer Protection Act (TCPA) increased nearly 34 percent in 2012. And through September, TCPA suits are up a whopping 70 percent in 2013 compared to last year, according to WebRecon LLC.
So why have consumers and their attorneys shifted their focus from the FDCPA to the TCPA?
As more consumers move to a mobile-only phone environment, debt collectors have found it harder to make right party contacts. Under current interpretations of the TCPA, the safest way to contact a mobile number is by manually dialing it (i.e., not using an autodialer). This, of course, leads to fewer contacts.
With fewer contacts come fewer FDCPA cases. With more mobile numbers dialed come more TCPA lawsuits, regardless of merit. And that’s a very important point to emphasize: current law creates ambiguity — and in some cases, paradoxes – when attempting to call mobile numbers for the collection of a debt. [read more]
By Rachel Witkowski – American Banker
The Consumer Financial Protection Bureau is considering new rules to govern debt collection practices that could for the first time include banks and other creditors that are collecting their own debt.
The agency announced an advance notice of proposed rulemaking early Wednesday that would seek public comments on how to regulate the multi-billion dollar debt collection industry that regulators have said is plagued with problems. The CFPB is looking to write rules that may establish new restrictions on originating creditors; require accuracy of documents shared between all collection parties, such as buyers and settlement firms; and update rules on how collectors communicate to consumers, including through text messages.
“Updating the legal framework to protect today’s consumers and to allow fair and appropriate use of modern technology is a high priority for the Consumer Bureau, which motivates this advance notice of proposed rulemaking,” said CFPB Director Richard Cordray in a call with reporters on Tuesday. “We are seeking to hear from the public — consumers, consumer advocates, creditors, debt buyers, and debt collectors — about what works and what does not in the current debt collection market.”
Senior CFPB officials said on the call that creditors that originate and collect their own debt will be the most affected by the new rules since most existing regulations do not cover such firms. Instead, the Fair Debt Collection Practices Act places restrictions on third-party debt collectors.
CFPB officials said they are currently looking at whether first-party creditors should be subject to the same restrictions as third-parties or face separate rules. [read more]
By Sarah Todd – American Banker
When Florida attorney David Stern was at the height of his powers during the housing crisis, his firm employed 150 lawyers to process thousands of foreclosure cases for lenders, including Bank of America (BAC), Citibank (NYSE: C), Fannie Mae and Freddie Mac.
Those days appear to be long gone for the Law Office of David J. Stern, based in Plantation, Fla. Court referee Nancy Perez recommended that the Florida Supreme Court revoke Stern’s law license and order him to pay roughly $50,000 to cover the Florida Bar’s legal costs, according to a report filed Oct. 30. The recommendation that Stern be disbarred follows a 17-count complaint filed by the Florida Bar.
Stern has 60 days from Oct. 30 to ask the court to review his case or request the right to make an oral argument, according to a Florida Bar spokeswoman. Jeffrey Tew, Stern’s lawyer, did not respond to calls seeking comment.
According to Perez’s report Stern “created chaos on the courts of the state of Florida” by providing inadequate supervision of overworked and inexperienced employees. That resulted in his office mishandling foreclosure cases.
Stern took on more foreclosure cases than his staff could handle as part of a bid to sell his back-office document preparation services-a $58 million deal that was dependent in part on the volume of files his firm processed, according to Perez. [read more]
By Patrick Lunsford – insideARM.com
Minnesota Attorney General Lori Swanson Wednesday filed a lawsuit against a Florida debt buyer that purchased millions of charged-off customer accounts from large banks, and then allegedly manufactured affidavits to aid in the collection of those accounts from individuals and businesses.
“This lawsuit is about protecting the integrity of the legal system,” said Swanson. “Because these affidavits were resold to other debt buyers, we need the involvement of the court to contain their usage.”
According to the complaint, United Credit Recovery, LLC (UCR) touts itself as the nation’s largest buyer of overdraft debt. UCR, formed in 2007, purchased electronic portfolios containing accounts of hundreds of thousands of individuals and small businesses that allegedly owed overdraft fees and balances to large banks, including Wells Fargo, US Bank, Bank of America, Fifth Third Bank, and Huntington National Bank.
In 2010, the average overdraft fee was $35, and banks impose smaller daily or periodic fees for each period in which an account is in arrears. Banks eventually charge-off such fees and balances and in some cases may bundle hundreds of thousands of accounts together and sell the charged-off accounts to debt buyers like UCR. In some cases, bank fees may constitute a significant portion of the debt that is sold.
The lawsuit alleges that UCR created on a mass scale “cut and pasted” affidavits that falsely appeared to have been sworn to and signed by officers of the original banks and notarized, and that bear the logo of the banks. While made to appear as if they were individually and personally signed and sworn to by the bank officers before a notary, the affidavits were actually created using computer software that simply cut and pasted into an affidavit template a bank officer’s signature and notary from a different document. UCR then sold the affidavits to other debt buyers. The affidavits were then used to aid in the collection of the alleged customer debt, directly with consumers and through presentation to courts, both by UCR in some cases and more frequently by subsequent debt buyers to which UCR resold the debt and affidavits. In one case, UCR created about 1,600 affidavits involving Minnesota customers and bearing the identical pasted-in April 29, 2008 signature of a US Bank officer whose signature was supposedly witnessed by a notary on March 19, 2008—over a month before the officer supposedly signed the affidavit. [read more]
By Stephen J. Shapiro – Mondaq
The Third Circuit, addressing an issue of first impression in the circuit, recently held that debtors who receive communications from debt collectors in the course of bankruptcy proceedings are not barred from pursuing claims alleging that those communications violate the Fair Debt Collections Practices Act (FDCPA). In Simon v. FIA Card Services, N.A., the plaintiffs filed for bankruptcy and FIA, one of their unsecured creditors, hired a law firm to represent its interests in the bankruptcy proceeding. The law firm sent a letter to the Simons’ bankruptcy counsel in which it offered to refrain from initiating a proceeding to declare the debt nondischargeable if the Simons either stipulated that the debt was nondischargeable or agreed to settle the debt by paying a discounted amount. The letter also enclosed a notice of the law firm’s intent to question the plaintiffs pursuant to Bankruptcy Rule 2004.
The Simons sued FIA and the law firm, arguing that the letter and notice violated the FDCPA. The district court dismissed the suit because, it held, the Bankruptcy Code precluded the Simons’ FDCPA claims and because the Simons’ allegations were not sufficient to state a claim under the FDCPA.
The Third Circuit reversed. First, the Court rejected the law firm’s argument that the FDCPA did not apply because the firm’s communication did not demand payment of a debt. The Court held that the “FDCPA applies to litigation-related activities that do not include an explicit demand for payment when the general purpose is to collect payment,” and that “[t]he letter and notice were an attempt to collect the Simons’ debt through the alternatives of settlement… or gathering information to challenge dischargeability” through a Rule 2004 examination. [read more]