Friday, October 12, 2018

More Use of Email by Debt Collectors - Is There an Electronic Mailbox Rule?

Currently, in debt collection, there is no universal recognition of the reliability or legality of sending legally required notices by email. Many in the collection industry and the Consumer Financial Protection Board take the position that in order to send legally required notices by email, creditors must comply with E-Sign, the Electronic Signatures in Global and National Commerce Act, a federal law setting forth standards for electronic communications.

In fact, compliance with the Uniform Electronic Transactions Act, (UETA) which is a law separate from E-Sign, should constitute a legally enforceable method of giving legally required debt notices, at least to the extent such notices are not excluded by the terms of UETA or the statutes requiring the notices themselves. The single case I know of addressing the adequacy of sending a Federal Fair Debt Collection Practices Act (FDCPA) validation notice by email, Beth Lavallee v. Med-1 Solutions, LLC, erroneously fails to take into account the effect of the UETA, so that it reaches what is probably the correct result, but does so using the wrong reasoning. Oral argument was heard in the Lavallee case at the end of May, so a decision could come at any time. I previously wrote about the case here. One of the big issues in the Lavallee case was whether electronically sent notices should receive the benefit of the 'mailbox rule.'

Creditors want to communicate with debtors by email. Businesses and consumers use paper communications less and less and electronic communication more and more. Non-electronic delivery methods, such as hand delivery, overnight mail, certified mail, return receipt requested and regular postal mail are cumbersome and expensive. These methods retain primacy because in many cases notices are statutorily required to be sent this way or courts like the one in Lavallee retain a predilection for non-electronic communications. However, creditors want to do what their customers expect and demand - to manage their business personal lives by electronic communication.

The UETA is a uniform law that has been has been adopted by 47 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Illinois, New York, and Washington have not adopted UETA, but have implemented their own statutes pertaining to electronic signatures.

Both E-Sign and the UETA affirm that electronic documents and signatures have the same validity and enforceability of paper. In effect, they state that any law requiring a transaction to be in writing is satisfied if the 'writing' is an electronic record. E-Sign contains a set of procedures for consumer transactions whereby a lender must give consumers certain disclosures and obtain the consumer's assent to receive communications electronically. Under provisions in the UETA, these E-Sign consumer assent provisions are imported into Massachusetts version of the UETA so that a Massachusetts creditor that wishes to transact business with a consumer electronically must comply with the E-Sign consumer communications provisions. Since Massachusetts' version of the UETA is sufficiently similar to the master UETA, Massachusetts' UETA supplants the remainder of the E-Sign law.

The consumer authorization provisions of E-Sign are not insubstantial. Obtaining the consumer's required assent in order to send and receive electronic communications in the possibly less than friendly posture of collection on a defaulted debt may or may not be likely, although debt collectors do attempt to do so. To the extent possible, creditors might consider obtaining E-Sign consent from all borrowers at the time any loan is originated. For example, given the rigid time frames for sending a mortgage borrower mortgage loan closing disclosures, many lenders comply with consumer E-Sign authorization requirements at or about the time the borrowers apply for their mortgages.

Even if a Massachusetts creditor obtains the assent E-Sign requires and applies the remaining provisions of the UETA, certain notices are not covered by E-Sign and UETA and therefore those notices do not have a presumption of validity when transmitted electronically. E-Sign and the UETA do not cover notices of default, acceleration, repossession, foreclosure, or eviction, or the right to cure, under a credit agreement secured by, or a rental agreement for, a primary residence of an individual. This means notices of mortgage loan defaults, acceleration, foreclosure related notices, landlord and tenant rent collection and eviction related notices, if sent electronically, do not have the validity conferred by E-Sign or the UETA. (Both statutes exclude documents and transactions relating to other areas of the law, such as wills and adoptions and several other areas of the law not relevant here)

E-Sign and the UETA also do not cover most transactions governed by the Uniform Commercial Code, which means notices legally required by the UCC sent electronically do not enjoy the presumption of validity under E-Sign or the UETA. This exclusion is important because Massachusetts' version of the UCC, like many states, has specific requirements for post-repossession notices (like motor vehicle repossessions).

Another UETA area of exclusion are those notices are required by statute to be sent by a specified method. Therefore, if a statute requires notice to be sent by registered mail, certified mail, return receipt requested, or otherwise specify the method of delivery, the UETA does not validate electronic delivery of that notice. Under Massachusetts G.L. c. 110G s.8(b)(1), "...the record shall be sent, communicated, or transmitted by the method specified in the other law." Creditors should be mindful of which notices are specifically required to be sent by means other than electrically. Debtors should be mindful that not all notices from creditors may be sent electronically.

Further, at least in Massachusetts, there are other notice statutes which, by their terms, may exclude transmission by electronic means. Notices required to be sent to a borrower prior to a lender repossessing a motor vehicle require a specific format including a specific heading. Massachusetts G.L. c. 110G s. 8(b) mandates that such notices must adhere to the format required by the statute requiring the notice. This statute clearly permits creditors to forward such format-specific notices. However, whether format, margin, font, or typeface requirements may be satisfied in an electronic communication is something creditors should consider carefully before forwarding such notices electronically.

Most importantly to creditors, the UETA defines when an electronic communication is to be considered 'sent'. This is significant because very few statutes requiring notices to debtors have as a requirement for compliance that the creditor show the notice was received. The creditor need only show it sent the notice.

There are several possible rationales for this, not the least of which is what is referred to as 'mailbox rule'. This is a common law concept that properly addressed correspondence with appropriate stamps, when deposited in a U.S. postal mail system, is assumed to have been received by the addressee. Underlying this rule are the concepts that the creditor has the correct or most current address, the creditor has in fact mailed the correspondence, etc.,

This brings us back to the Lavallee case. Under the Federal Fair Debt Collection Practices Act (FDCPA), within five days of first communicating with the debtor, a debt collector is required to send the consumer a written notice containing certain specified information and giving the debtor thirty days to dispute the debt. Failure to give the correct notice prior to undertaking collection activity such as filing suit can result in liability to the debt collector. The creditor, Med-1 Solutions, sent its FDCPA notice by email. The debtor, Ms. Lavallee, could only view the notice by clicking a link in the email sent to her, which led her to a website with a validation screen requiring her to acknowledge her identity. Only then was she given access to a .pdf document containing the FDCPA notice.

In determining whether the above constituted having sent a written notice, the Lavallee court allowed that while it was likely that Ms. Lavallee received the email, rhe creditor's receipt notification system did not register that she had opened the .pdf containing the FDCPA notice, so there was no evidence she accessed the creditor's web server or viewed the notice itself. (Ms. Lavallee claimed she did not recall receiving the email)

The court faulted Med-1's using a system requiring Ms. Lavallee to take several steps in order to view the validation notice as sufficiently distant from the receipt of the email such that the email could not be considered to have been 'sent.' The court also noted common sense use of email meant opening emails and their attachments from unknown senders (Ms. Lavalee did not recognize creditor's email address) was inadvisable and Ms. Lavallee could not be expected to open Med-1's email. The court equated Med-1's action as akin to mailing a notice to the wrong address. and expressed skepticism of email as a reliable method of communication:

It is the proven reliability of the [U.S. postal] system—the very high probability that a properly addressed letter reaches its destination—that led to the common law mailbox rule presumption. … The same cannot be said for documents delivered as a web-based email attachment. Med-1 Solutions has offered no evidence that its system yields a similar result as the U.S Mail and therefore merits the same presumption underlying the “mailbox rule.” Indeed, in the court’s estimation, such attachments are more likely not to be opened and delivered than to be opened.

The Lavallee court's conclusion as to whether Med-1's email had been sent email is likely incorrect as a matter of law. In fact, the state in which the case was heard, Indiana, had adopted a portion of the UETA which defines when an electronic communications sent. Indiana Code 26-2-8-114:

Sec. 114. (a) Unless otherwise agreed between the sender and the recipient, an electronic record is sent when the information is addressed or otherwise directed properly to the recipient and either: 

     (1) enters an information processing system outside the control of the sender or of a person that sent the electronic record on behalf of the sender; or

     (2) enters a region of an information processing system that is under the control of the recipient.

Further, under Indiana Code 26-2-8-114(e), an electronic communication is considered received even if no individual is aware of its receipt. Indiana's version of the UETA unquestionably functions as a statutory version of the 'mailbox rule'. Under the Indiana statute, Med-1's email very likely should have been considered to have been sent. It is unclear why the Lavallee court did not reference or review the Indiana statute. 

Instead of focusing on Ms. Lavallee's receipt or non-receipt of Med-1's email, the Lavallee court should have focused on Med-1's failure to obtain Ms. Lavallee's assent to receive communications by e-mail. Indiana Code 28-2-6-114 requires that parties agree to conduct a transaction electronically. The statute allows that agreement can be inferred from the circumstances, but in the Lavallee case it is unlikely Lavallee could have been found to have consented to receive electronic message. Similarly, Med-1 failed to comply with the E-Sign prerequisites for communications with a consumer as set forth above. 

The Lavallee case shows the necessity of obtaining the consent of the consumer as required by both E-Sign and the UETA before sending debtors legally required notices. The question of whether the 'mailbox rule' should apply for electronic communications has yet to be answered.

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