Monday, January 7, 2019


I won't be posting to this blog any more, I will only be posting to the blog at my website:

Thanks for reading!

Wednesday, January 2, 2019

The Ins and Outs Of Blockchain

This is a very good article about the benefits and pitfalls of blockchain:

Blockchain clearly has a lot of potential in real estate transactions but as the article shows, implementing it has a lot of issues.

Wednesday, December 19, 2018

Why Do We Have to Send the FDCPA Notice When No One Understands It

In two recent law review articles, (here and here) law professor Jeff Sovern published his empirical findings that most people don't understand the validation notice required by the federal Fair Debt Collection Practices Act (FDCPA)

To the extent the professor's findings are representative of consumers as a whole, this is an interesting issue for debt collectors. Despite the Consumer Financial Protection Board's (BCFP) forecast that it intends to consider issuing FDCPA regulation, it does not have the power to re-write the FDCPA statute containing the validation notice. To some extent the professor's empirical findings confirm what many in the debt collection business have said for years, the validation notice is confusing. Perhaps it is time for debt collectors to view the validation notice not as a collection tool but a legal prerequisite to collection.

One of the critical aspects of debt collection by third party debt collectors is the 'validation notice' required by 15 U.S.C. s. 1692g of the FDCPA. A debt collector is required to send this notice to a consumer within five days after first contact with the consumer. The law specifies that the validation notice contain certain information and advise the consumer of certain rights, as follows:

     (1) the amount of the debt;

     (2) the name of the creditor to whom the debt is owed;

     (3) a statement that unless the consumer, within thirty days after receipt of the
     notice, disputes the validity of the debt, or any portion thereof, the debt will be
     assumed to be valid by the debt collector;

     (4) a statement that if the consumer notifies the debt collector in writing within the
     thirty-day period that the debt, or any portion thereof, is disputed, the debt collector
     will obtain verification of the debt or a copy of a judgment against the consumer
     and a copy of such verification or judgment will be mailed to the consumer by the
     debt collector; and

     (5) a statement that, upon the consumer’s written request within the thirty-day
     period, the debt collector will provide the consumer with the name and address of
     the original creditor, if different from the current creditor.

Sending the validation notice is a prerequisite to other methods of debt collection, such as calling the consumer, contacting the consumer electronically, writing letters, or filing a lawsuit. The validation notice is also an important issue for debt collectors because failure to comply with the above requirements subjects a debt collector to strict liability, meaning the debt collector is liable even for mistaken failure to comply. Further, the aggrieved consumer need not show he or she was actually harmed by anything the validation notice said or failed to say, only that the validation notice did not comply with the above law. While a consumers actual damages may be small, and statutory damages, in the case of an individual plaintiff, are relatively small, $1,000, the successful consumer is entitled to an award of attorneys fees, and these can be substantial.  There have been numerous lawsuits about compliance with the above language and the decisions are not consistent. It would not be an understatement to say the validation notice is one of the biggest issues in debt collection today. 

The validation notice language above is generally believed to protect important rights for consumers. Consumers are believed to have a  right to know the amount of the debt, the name of the creditor to whom the debt is owed, and that the consumer must dispute the validity of the debt within thirty days of the validation notice or the debt collector will assume it is valid. Consumers have a right to be advised if the consumer disputes the debt, perhaps in writing, perhaps orally (some courts have ordered the dispute need not be in writing), the debt collector is required to obtain verification of the debt and mail it to the consumer. The consumer has a right to be provided with the name and address of the original creditor, if different from the current debt collector. 

Law professor Jeff Sovern authored two law review articles, in 2017 and 2018,  publishing the results of a study he conducted using four versions of a collection letter with different iterations of the validation notice, including a 'control' that did not contain a validation notice at all. Then Sovern asked his subjects a series of questions about what the various notices notices said to test the subjects understanding of the notice. 

Many in debt collection might (or might not) be surprised to learn some of Professor Sovern's views of his findings: 
  • It did not appear to matter whether the collection letter contained the validation notice or not. On most questions the survey subjects did not show significantly better understanding of their validation rights from a letter that contained the above notice than did the subjects who saw an otherwise identical letter without any validation notice. 
  • More than half the subjects appeared to Sovern to be confused about the language referring to under what circumstances the debt collector would assume the debt to be valid.
  • About a quarter of the subjects did not realize they had a right to request verification of the debt
  • Almost all who understood they could request verification of the debt thought an oral request was sufficient - even though the statute clearly states such a request must be in writing
  • The professor's general observations on his findings that likely would disturb consumer advocates the most related to the statutory language that unless disputed, the debt collector would assume the debt to be valid:     ". . .More than a third of respondents thought that if they did not meet the thirty-day deadline specified in the validation notice for disputing the debt, they would have to pay the debt or could not defend against a suit to collect it even if they did not owe the debt."

The professor concludes his thoughts on the results of his study by claiming the validation notice would be deceptive according to the standards of the Federal Trade Commission.

The law review articles also contain a useful history of the FDCPA and survey of cases interpreting the validation notice. The professor's analysis of his survey findings is exhaustively detailed (the two articles together are almost 200 pages long) 

As Sovern aptly points out, his study was hypothetical. The subjects were not people who were alleged to owe money who had received the letters from a real debt collector. They were respondents to an internet survey requested to read the four forms of collection letters and answer questions about them. It is not known how the subjects would interpret the letters if they received them from real debt collectors alleging actual debts

Professor Sovern's studies raise significant questions as to what 'rights' consumers and/or debt collectors have under the validation notice and whether the validation notice enumerates those 'rights' reasonably or understandably. To some extent his studies merely reflect what both consumer advocates and debt collectors have said for years, that the FDCPA validation notice is not easy to understand. 

Although the studies provide an empirical basis for consumer confusion, from a debt collector's perspective, the studies may not provide much more than academic interest. Debt collectors are required by law to give the validation notice as it appears above, regardless of whether consumers understand it. A debt collector's failure to give the notice, or failure to give it in a  way that a judge feels adequately expresses itself, without overshadowing or confusion, subjects the debt collector to liability. Arguing to a judge that the consumer does not understand the notice anyway does not help.

There are other reasons the professor's findings are of only limited interest. In analyzing whether a debt collector's enumeration of the validation notice complies with the law, judges do not ask whether the particular consumer who received the notice understood. In fact, a consumer claimant need not show she read the notice at all. The standard employed courts is whether the 'least sophisticated' or 'unsophisticated' consumer understood it. The judge applies her legal judgment as to whether the notice is understanding based on these standards. Empirical evidence, regardless of how reliable, as to the abstract understandably of the validation notice, is not currently relevant to the analysis.

I know of no current intention by congress to revisit the wording of the validation notice. Rulemaking by the BCFP cannot re-write it. For the foreseeable future, debt collectors are stuck with the validation notice. 

One approach for debt collectors is to acknowledge that regardless of the statute's intent, the validation notice in reality performs functions other than to educate the consumer or set forth rights of the consumer vs. the debt collector. The debt collector should proceed based on the reality, not the alleged purpose of the validation notice.

For example, there are many other areas of the law where creditor is required to send notices to a debtor. In some cases the notices in fact function not to educate the consumer but as prerequisites to other methods of collection. Under Massachusetts G.L. c. 255B s. 20A, in order to repossess a motor vehicle, a creditor must send a '21 day notice' containing certain information regarding the amount owed, the creditor's right to repossess the vehicle, etc., and give the debtor a certain period of time to cure the default before attempting to repossess the motor vehicle. The required wording of the '21 day notice' is set forth in the statute. Whether the debtor understands the '21 day notice' or not is irrelevant. If the creditor uses the statutorily required language and the consumer does not cure the default per the '21 day notice' requirements, the debt collector's right to repossess the motor vehicle is activated.

This might be a more fruitful strategy for debt collectors. That is, treat the validation notice language as a gateway to collection rather than a tool for collection. This would involve reproducing the language from the validation statute as faithfully as possible and ensuring as little other language appears in the validation notice as possible, so as not to add confusion to an already confusing statute.

Having fulfilled its statutory duty to advise the consumer of his/her rights, the debt collector can move to more productive methods of debt collection, such as correspondence, phone calls, electronic communications and, if necessary, legal action.

Although long and detailed, professor Sovern's studies are interesting and worth reading.

Tuesday, December 18, 2018

Perspectives On The State of Financial Services - 2019

This is an interesting blog post with perspectives on certain financial services issues for 2019, such as marijuana banking and financial technology companies:

Tuesday, December 11, 2018

Claim For Excessive Attorney's Fees Denied

I ran across a recent case on the Fair Debt Collection Practices Act (FDCPA) where a consumer was successful but was not awarded attorney's fees because the amount, $130,000, was excessive and unsubstantiated. The case is interesting because it is the other side of the coin to the case I recently blogged about involving a western New York debt collection firm, Campbell Capital that used extremely aggressive and fraudulent methods of debt collection.

In Davis v. Credit Bureau of the South, the defendant debt collector was not a credit reporting agency as its name implied, but a collection agency, and since FDCPA 15 U.S.C. s. 1692e(16) explicitly prohibits a debt collector from falsely claiming is it a consumer reporting agency, the judge found the debt collector violated the law.  The violation amounted to the appearance of the name on the debt collector's stationary and reference to its name in a phone call. Ms. Davis neither alleged nor proved any actual harm resulting from the use of a prohibited name, but her attorneys correctly argued the FDCPA's mandates an award of reasonable attorney's fees.

In finding there were 'special circumstances' compelling it to find the attorney's fees request unreasonable, the court focused on:

  • Ms. Davis contested a $107.23 water bill owed to the City of Shreveport, Louisiana, where she lived
  • Ms. Davis falsely claimed she was a Texas resident
  • she requested the debt collector send the water bill to her parents' address in Texas, thereby generating jurisdiction in Texas under a failed Texas Debt Collection Act claim
  • Ms. Davis employed her attorneys prior to some of the complained of FDCPA violations
  • she briefly worked for her attorneys
  • at least  one call forming the basis of the suit was made in her attorney's presence and recorded by her attorneys
  • it was inferrable that the extreme attorney's fee request was an aggressive 'opening bid' to garner the maximum negotiated attorney's fees amount
  • her attorney's work was full of grammatical errors, formatting issues, and improper citations
  • the work was of neither the quality nor the quantity (there was no trial, it was decided on summary judgment) that would support fees of $450/hour or over 250 hours of work
In the Campbell Capital case the debt collectors posed as law enforcement officers and threatened consumers with jail, along with other abusive and oppressive threats, so that case is in a different class than this one. And in Davis, the collector did violate the law, albeit without actually harming the claimant. The Davis case provides the other end of the spectrum of extreme acts in the debt collection sphere.

Tuesday, December 4, 2018

Update - No New Banks Is Not Good News?

I previously looked at the drastic decline in the number of new banks established, according to the FDIC, starting in around 2010. For example, 2012, 2013 and 2014 each had 0 new commercial banks. 2011, 2012,2014 and 2015 each had 0 new savings institutions. One need not be a banking expert to formulate reasons for this trend, new banks failed more often during the financial crisis, economic uncertainty made new businesses a hard sell to investors, some banks profits were squeezed (as with many businesses) and there was increased and/or unpredictable new regulation.

However, the trend appears to be changing, with 10 new commercial banks reporting to the FDIC in 2017 and YTD 2018. This is the greatest number in the same period since 2010, when there were 9 new commercial banks reporting to the FDIC.

Some see this as a hopeful sign and point to the FDIC's apparent willingness to encourage the establishment of new banks.

The reasons why new banks are not established are likely complex, as are the reasons why banks fail, and may not be subject to generalized conclusions. However, to the extent new banks provide financing for economic expansion and opportunities for investors, more of them can't be a bad thing.

Wednesday, November 28, 2018

Multiple Collection Calls May Violate The Law But It Depends On Whose Law

The recent Massachusetts Federal District Court decision Hatuey v. IC System Civil No. 1:16-cv-12542-DPW 11/14/2018 points up an interesting contrast between the application of the Federal Fair Debt Collection Pratices Act (FDCPA)  to a debt collector versus the Massachusetts Attorney General's Debt Colletion regulations applied to a creditor. The cases emphasize that debt collection regulation is not consistent and those in receivables management must use extreme care to keep themselves educated as to sometimes contradictory regulatory frameworks.

In the Hatuey case, the plaintff, Josie Hatuey, received collection calls from the defendant, ICS, seeking payment for debts owed by a Brian O'Neill and O'Neill LLC. Hatuey received one call in February 2015 during which Hatuey informed ICS he was not O'Neill or O'Neill LLC and did not owe the debt. ICS did not thereafter call him with reference to that debt. ICS called Hatuey six times between November 23 and December 1, 2016 with reference to a different debt owed by O'Neill and O'Neill LLC. Hatuey answered only one of the six 2016 calls. He told ICS that he was not O'Neill or O'Neill LLC, and that he did not owe the debt. ICS thereafter stopped calling him.

The Hatuey court focussed on the low number of calls, that Hatuey did not answer them, that ICS immediately ceased calling when advised the debts were not Hatuey's, that the calls were not at inconvenient hours nor abusive, and found that ICS did not call Hatuey with an intent to annoy, abuse of harass and therefore did not violate the FDCPA. The court found in favor of ICS.

The Hatuey case provides an interesting contrast to Brent Watkins v. Glenn Associates a 2016 Massachusetts Superior Court case decided under 940 CMR 7.00, the Massachusetts Attorney General's Fair Debt Collection Regulations.  In the Watkins case, Glenn Associates sought payment for its own debt, presumably debt it had purchased. As in Hatuey, at issue were phone calls Glenn Associates made to Watkins. Glenn Associates spoke to Watkins on his cell phone on December 17, 2014 regarding an alleged outstanding college tuition debt. Glenn Associates then called Mr. Watkins' cell phone twice on December 22, 2014 and twice on the next day, December 23, 2014. Glenn Associates did not speak to Watkins during the December 22 and 23, 2014 calls, nor did it leave messages, and made no other calls to Watkins.

The Watkins court found Glenn Associates violated The Massachusetts Debt Collection Regulations when it called Watkins and left no messages. "The unambiguous language of the Debt Collection regulations states that it is an "unfair and deceptive act or practice for a creditor to . . . initiat[e] a communication with any debtor via telephone . . . in excess of two such communications in each seven day period . . . . 940 Code Mass. Regs. § 7.04(1)(f)." The court referred to Attorney General's guidance on the regulations and reasoned a creditor "... cannot circumvent the Debt Collection law on excessive "initiation of communication" merely by choosing not to leave a voicemail. To hold otherwise would render the limit on initiating communication meaningless and permit creditors to call ceaselessly ..." 

In the Hatuey case, the debt collector made six calls during the period from November 23 to December 1, 2016, and would undoubtedly have violated the Massachusetts regulations. In fact, ICS' acts were arguably worse than those of Glenn Associates because it called Hatuey six times without leaving messages to Glenn Associates four times. The FDCPA and the Massachusetts Debt Collection Regulations cover the same classes of persons, debt collectors and creditors. No one is served when the same activities are illegal under one set of regulations but legal under another. Debt collection regulation should be made more consistent and predictable.