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A Look Back at 2022 in Consumer Credit and Collections Case Law and Federal and State Regulation

California State CapitolJust a few years ago, the annual review would primarily encompass federal activity. But a shift began in 2018, and by the close of this year, it’s clear there is far more state activity impacting consumer debt collection.

The CFPB has reverted to its old form of issuing circulars and reports and engaging in regulation by enforcement. But it didn’t move the ball nearly at all compared to what was done at the state level.

And so here we will look at one federal regulation (which is not “new” but was still impactful) and 21 state and local laws and regulations that are game changers.

FEDERAL ACTIVITY

Regulation of the Year – Safeguards Rule Amendments

Last year I pegged the Federal Trade Commission’s amendments to the Safeguards Rule as the “dark horse” to watch in 2022. By July, it was apparent that the Dec. 9 compliance date was going to be difficult for many, and the FTC ultimately extended the compliance date to June 9, 2023. As various trade groups pushed for a delay, the Consumer Financial Protection Bureau issued a circular reminding covered entities that regardless of the Safeguards Rule, it has its own expectations for consumer data protection. Those expectations remain very fluid.

Case Law of the Year – Bibbs v. Trans Union LLC (3rd Cir. Aug. 8, 2022)

When originating creditors sell charged-off accounts, it is not uncommon to furnish information to a credit reporting agency noting that the account had a delinquent “pay status,” was closed, transferred to another entity, and has a $0 balance.

The practice has faced several challenges under the Fair Credit Reporting Act, usually on the claim that the consumer could not have a delinquent account if there is no present relationship with the creditor who furnished the information. Continuing to report a delinquent pay status allegedly misleads persons who review the consumer’s credit report. The argument focuses solely on the “pay status” and ignores notations that the account was sold or transferred to another entity.

The Bibbs decision applied a “reasonable reader standard reading the report in its entirety.” Using this standard, the court wrote, revealed multiple indicia that the account’s pay status was historical and did not reflect its present status. The court noted multiple conspicuous statements reflecting that the accounts were closed and the appellants had no financial obligations. These statements do not conflict with the “pay status” notations, the court concluded, because a reasonable interpretation of the reports, when read in their entirety, is that the pay status of a closed account is historical information.

Courts outside the Third Circuit rely on Bibbs to dismiss similar claims, including a federal court in the Eastern District of Texas (Palomo v. Trans Union, LLC). Bibbs has also impacted similar lawsuits brought against furnishers, leading to dismissals in federal courts of the Northern District of Illinois (Frazier v. Dovenmuehle Mortg., Inc.) and Arizona (Sanchez v. JPMorgan Chase Bank, NA).

Going Out With a Whimper – Hunstein v. Preferred Collection and Management Services, Inc. (11th Cir., Sep. 8, 2022)

Hunstein, last year’s disrupter, ended with a whimper on Sept. 8 when the U.S. Court of Appeals for the Eleventh Circuit, sitting en banc, found that a consumer did not identify a concrete harm sufficient to allow him to bring a federal complaint alleging a violation of the federal Fair Debt Collection Practices Act.

The complaint alleged that when a debt collector supplied its letter vendor with consumer information needed to print and send a dunning letter, it violated the FDCPA’s prohibition against third-party disclosure.

While the decision put a significant damper on several similar lawsuits pending in both federal and state courts, the ultimate question of whether a debt collector violates 15 U.S.C. 1692c(b) when using a third party to print and send its dunning letters was never decided.

STATE ACTIVITY

State and local governments continued to regulate debt collection activity, but this year, a new twist was a successful ballot measure curtailing debt collection activity. As has been the case over the past two years, these measures focus primarily on judgment executions, reductions in limitation periods, and regulation of medical and student loan debt collection. Much of this compilation comes from my work for the Receivables Management Association International. I thank its Executive Director, Jan Stieger, and General Counsel, David Reid, for allowing me to share it with you.

Arizona

Proposition 209 – Effective: Dec. 5, 2022 – A first of its kind, 72% of Arizona voters approved this ballot measure on Nov. 5. Advertised as offering medical debt relief and counter “predatory debt collection,” most of the measure dealt with exemptions applicable to all judgments, and substantially increased those exemptions. To be clear, it is not just judgments arising from a debt that get these protections, judgments arising from damages because of fraud, personal injury, or wrongful death also receive the same protections against garnishments and executions. Aside from that, it reduced judgment interest on medical debt from 10% to 3%.

California

AB 2424 [Chapter 965] Effective: Jan. 1, 2023 – This law regulates the activities of credit services organizations. It requires CSOs to provide customers with a monthly statement detailing the services performed and making available copies of written communications sent on a customer’s behalf. It prohibits CSOs from assisting a consumer in making a statement to a creditor or credit reporting agency that is known or should be known to be untrue or misleading. It requires CSOs, when making their first written communication to a credit reporting agency or data furnisher, to provide “sufficient information to investigate a dispute of an account.”

SB 975 [Chapter 989] Effective: July 1, 2023 – Creditors and debt collectors must cease collection activities upon receipt of documentation or a sworn written certification of a coerced debt until a review is performed. It allows a consumer a private right of action to establish that a particular debt is coerced and obtain injunctive relief prohibiting collection.

SB 1099 [Chapter 716] Effective: Jan. 1, 2023 – Under the Bankruptcy Code, a chapter 7 debtor has three options when addressing a motor vehicle loan: reaffirm the vehicle loan, redeem (pay the loan off), or surrender the vehicle. Some say there is a fourth option – just continue to pay the loan and keep the vehicle, but not all courts agree. This law seeks to allow Californians to take advantage of the “fourth option” by providing that filing a bankruptcy petition does not constitute a default of the motor vehicle loan and cannot serve as a basis for accelerating the maturity of any part or all of the amount due under the contract or for repossessing the motor vehicle.

SB 1200 [Chapter 883] Effective: Jan. 1, 2023 – The time that a debtor may move to vacate or modify a renewal of judgment is increased to 60 days after service of the notice renewal. The law also limits the renewal of certain judgments. A judgment creditor, having a money judgment of under $200,000 that remains unsatisfied relating to medical expenses or for personal debt under $50,000, is limited to one renewal of judgment for five years from the date the renewal application is filed. The interest rate for money judgments less than $200,000 relating to medical expenses and personal debt under $50,000 is reduced from 10% to 5%.

SB 1477 [Chapter 849] Effective: Sept. 1, 2023 – Increases exemptions on wages subject to execution.

Colorado

HB 1049 [Chapter 118] Effective: April 21, 2022 – Prohibits “postsecondary institutions” from withholding a student’s transcript or diploma for failure to pay any debt if it is required for a job application; to transfer to another postsecondary institution; to apply for “state, federal, or institutional financial aid . . .  pursuit of opportunities in the military or national guard. . . or pursuit of other postsecondary opportunities.”

HB 1137 [Chapter 367] Effective:  Aug. 9, 2022 – Imposes requirements upon “unit owners associations” when collecting “assessments, fines, or fees.”

HB 1285 [Chapter 447] Effective: Feb. 15, 2023 – Prohibits a hospital that was not in “material compliance” with federal hospital price transparency laws “on the date that items or services are purchased from or provided to a patient by the hospital” from pursuing or initiating a collection action against the patient or patient guarantor for a debt owed for the items or services.”

SB 86 [Chapter 74] Effective: April 7, 2022 – Increases homestead exemptions from $75,000 to $250,000 and for the elderly and disabled from $105,000 to $350,000. Increases by two-fold exemptions for household goods and other exemptions and makes wholly exempt any “economic impact payment,” which is defined as “a payment from a federal, state, or local government to a debtor or to a debtor’s dependents to assist in managing the economic consequences of a national or statewide emergency or disaster.”

District of Columbia

Section 28-3814 – Effective Jan. 1, 2023 – DC undertook a significant rewrite of its debt collection law. Where the law previously was limited to well-defined entities, it is now expanded to encompass pretty much anyone seeking payment from individuals in the nation’s capital. Financial institutions are not the only businesses that should be concerned – any entity requesting payment for goods or services is now a covered entity. Aside from regulating all communications (regardless of whether made by mail, electronic or in-person), it creates requirements that are confusing and conflicting. It also amounts to a boon for plaintiffs’ attorneys with uncapped class action statutory damages of up to $4,000 per violation for each class member, plus attorney’s fees. Expect to see the class actions filed later in 2023 after utilities, cable providers, and other businesses have emailed or texted hundreds of thousands of past dues notices to DC consumers.

Illinois

HB 4243 [Public Act No. 102-0727] Effective: May 6, 2022 – Prohibits a school district from withholding a student’s grades, transcripts, or diploma because of an unpaid balance on the student’s school account.

Louisiana

HB 610 [Chapter 710] Effective: Aug. 1, 2022 – Regulates “student loan servicers” by prohibiting certain activities and requiring acknowledgment within 10 days of receipt of “written” inquiries or complaints from borrowers or their representatives and a response by the services within 30 days.

Maine

SB 656 (LD 1838) [Public Law No. 538] Effective: Aug. 8, 2022 – Not a year passes without some consumer credit law coming from Maine. This law prohibits a two-year or four-year postsecondary educational institution from proving a transcript or diploma unless the student owes a debt of $500 or more at a two-year or $2,500 or more at a four-year postsecondary educational institution. The law also imposes requirements relating to payment plans. One such prohibition is that payment on such a plan cannot be a condition for releasing a transcript or diploma.

Minnesota

SB 2922 [Chapter 70] Effective: Sept. 1, 2023 –The law requires the Department of Commerce to develop a consumer notice in English, Spanish, Somali, Hmong, Vietnamese, and Chinese, which collection agencies must provide in their initial written communications with consumers. The notice reads: “There are resources available to help manage your debt. The following Minnesota organizations offer debt and credit counseling services. The Department of Commerce does not control or guarantee any of the services provided by these organizations. The provision of this list is not a referral to, or endorsement or recommendation of, any organization or the organization’s services.”

New York

AB 6938 [Chapter 180] Effective: June 3, 2022 – Prohibits a  “degree-granting institution or licensed private career school” from withholding “a transcript because a student owes a debt” or conditioning the transcript upon the payment of the debt or charging “a higher fee or provid[ing] less favorable treatment of a transcript request because a student owes a debt” to the school.

AB 7363 [Chapter 648] Effective: Nov. 23, 2022 – Amends CPLR section 5201 to provide that no money judgment may be “entered or enforced against a debtor’s primary residence in an action arising from a medical debt and brought by a hospital licensed . . . or a health care professional authorized under” New York law.

AB 7487 [Chapter 238] Effective: Dec. 27, 2022 – New York amended its law concerning collection on accounts subject to a claim of identity theft by adding to the enumerated documents a consumer can provide to trigger the protections of the law. Now a completed and signed FTC identity theft victim’s report as well as “an express statement that the debtor was coerced to authorize the use of the debtor’s name or personal information for incurring the debt” or “criminal or family court documents that support the statement of identity theft” will serve as a basis for identity theft.

North Carolina

SB 496 [Session Law Number 2022-46] Effective: July 7, 2022 – Debt collection agencies must cease collecting debt against consumers who reside within an area where a major disaster has been declared when the consumer notifies the collection agency that they are experiencing significant financial hardship related to the public health emergency or stay at home order. It remains in effect for the length of the “deferral period” which is “the time period covered by the proclamation or declaration or the time period prior to the expiration of the Commissioner’s order declaring this section effective for the specific disaster. This deferral period shall be 30 days from the last day the premium or debt payment may be made under the terms of the policy or contract.”

Rhode Island

HB 7781 [Public Law No. 2022-338] Effective: June 29, 2022 – Requires licensed debt collectors to file a bond of $50,000 that “shall run to the state for the use of the state and of any person who may have [a] cause of action against the obligor of the bond under the provisions of this title.”

Virginia

HB 1071 [Chapter 678] Effective: July 1, 2022 – Prohibits hospitals from undertaking “extraordinary collection actions” as defined by § 501(r)(6) of the Internal Revenue Code (such as garnishing wages, placing liens on a primary residence, adverse credit reporting, filing of a lawsuit, or any similar action) if they have not made reasonable efforts to determine whether the debtor qualifies for medical assistance.

PREDICTIONS

Last year’s prediction was “[m]ore states will focus on medical and student loan debt. You can add condominium and homeowners’ association debt to that mix.” The same holds true for 2023. My bet is that Massachusetts will finally pass legislation in this area after many failed attempts over the past decade

Repeating what was predicted in 2021, state and local governments will continue “to roll back the new FDCPA rules. Because the FDCPA will give way to more restrictive state regulation, you should see several states introduce legislation designed to limit electronic communications and the frequency of telephone communications.” DC did just that this year. Both the New York Department of Financial Services and the New York City Department of Consumer and Worker Protection have proposed “anti-Reg. F” provisions that are likely to be effective in 2023. Other states that might do so are Colorado, Maine, Oregon and Washington.

Finally, there will be more data security litigation. Although Hunstein is often viewed as a “third-party disclosure” claim in the debt collection space, it has the same basic principles as a data security claim – non-public personal information was alleged to be in the hands of an unauthorized party. The QR code cases from years past (like Styer and DiNaples) fall into this category. Indeed, standing will remain an issue if these are claims brought in federal court, but that will not be an impediment in certain state courts. And, as the CFPB’s recent data security circular explained, a case can be made that failed data security is also an unfair or deceptive act or practice.

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Donald Maurice provides counsel to the financial services industry, successfully litigating matters in the state and federal courts in individual and class actions. He has successfully argued before the Third, Fourth and Eighth Circuit U.S. Courts of Appeals, and has represented the financial services industry before several courts including as counsel for amicus curiae before the United States Supreme Court. He counsels clients in regulatory actions before the CFPB, and other federal and state regulators and in the development and testing of debt collection compliance systems. Don is peer-rated AV by Martindale-Hubbell, the worldwide guide to lawyers. In addition to being a frequent speaker and author on consumer financial services law, he serves as outside counsel to RMA International, on the governing Board of Regents of the American College of Consumer Financial Services Lawyers and on the Governing Committee of the Conference on Consumer Finance Law. From 2014 to 2017, he chaired the ABA's Bankruptcy and Debt Collection Subcommittee. For more information, see https://mauricewutscher.com/attorneys/donald-maurice/

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