Legal Advisory Board Members Discuss Hunstein, the CFPB, and Omnichannel Communication

The ARM industry is complex, and it's often difficult to keep up with industry-shaking cases, emerging technologies, and regulatory entities throwing the occasional wrench into the machinery. Despite the challenge, staying on top of the newest cases, laws, and trends is essential to succeeding in the current debt collection landscape.

That's why we've compiled the must-know takeaways from the insideARM Legal Advisory Board’s (LAB) recent webinar “Arm Industry Legal Trends to Know Now” presented by the Consumer Relations Consortium (CRC).  In the April 27, 2023 webinar, LAB members Justin Penn of Hinshaw & Culbertson, Jim Schultz of Sessions, Israel & Shartle, and Jedd Bellman of Orrick, tackled the following topics: 

• Hunstein's aftermath in state courts  and how it can benefit debt collectors;
• The dos and don'ts of texting, emailing, social media, chatbots, and AI in debt collection; and
• The future of debt collection under a more consumer-friendly Consumer Financial Protection Bureau (CFPB). 
  

You can watch the full webinar here, but read on for some of the main takeaways

With the caveat that nothing below should be considered legal advice, and you should always consult your own counsel for legal advice, here’s what Justin, Jim, and Jedd had to say:

The Aftermath of the Hunstein Case

In Justin’s view, while the Hunstein case turned the debt collection industry on its head for the better part of a year, the battle is not over, but it has shifted primarily from federal courts to state courts. The good news is FDCPA lawsuits fell 43% in the six months following the final Hunstein decision and state courts are not consumer attorneys' preferred venue. 

In state court, consumer attorneys have to show up personally, oral arguments are more prevalent, and state court judges are more likely to make their own decision instead of following non-binding cases from other courts. Many consumer attorneys are trying to force debt collectors into arbitration rather than attempt to litigate their cases in state court.

Justin shared some of the successful tactics he's seen in state court Hunstein cases including:

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• Using oral argument as an opportunity to make common sense arguments that may not translate well to written motions.  For example, asking whether telegraph companies are considered “third-party vendors” to highlight the absurdity of the Hunstein decision.

• Raising practical arguments about the effects of eliminating the use of third-party letter vendors. The cost of doing business for the big collectors is going to go up, and that cost will be passed along to the consumer. Smaller collectors couldn’t possibly survive without leveraging the help of third-party letter vendors.

Texting, Emails, Social Media, and Chatbots

Jim remarked that the use of digital communication and technology in debt collection has revolutionized the industry and created new collection strategies. However, it is essential for debt collectors to be aware of the legal implications of using these channels and recognize that laws and regulations have not yet caught up with this change.

Here are some things to keep in mind if you plan on implementing these strategies:

• To qualify for the Reg F Safe Harbor protection, you must obtain consumer consent for sending them an email or text, even though Reg F doesn't explicitly require it otherwise.
  
• Make sure to include opt-out notices in your emails and monitor for bounce-backs to ensure delivery.
  
• Be aware that some state laws, like those in New York and Washington D.C., limit the ability to email consumers.
  
• Your text message should have a company name, an opt-out notice, and a debt collector disclosure.
  
• State monitoring laws may come into play with a chat function on your website if it is keeping a transcript of the conversation.
  

The CFPB’s Abusive Conduct Guidance & State Issues

Jedd‘s experience in government service for over a decade has given him some insight into the recent changes at the CFPB. The CFPB has increasingly emphasized outcomes over intent and is demanding that companies be accountable while minimizing the responsibilities of the consumer, using "abuse" as a vehicle for implementing these changes. However, the lack of guidelines as to what "abuse" means has led to a significant blur of the line. This lack of clarity may result in individual circumstances determining the outcome of cases.

Here are some things to keep in mind as we watch the CFPB moving forward:

• They see “dark patterns” as a trick by the industry and will look to eliminate those practices.
  
• The CFPB wants to prevent predetermined outcomes and may even consider a high default rate as evidence of an abusive practice.
  
• They believe servicers are driving outcomes that benefit them and want to prevent that from happening. 
  
• Many states are now including “abuse” in their debt collection laws
  
• CFPB has stated that a debt collector obscuring information and maximizing excessive profits is an “abuse of conduct” which could affect how the industry handles settlement negotiations with consumers.
  
• They are attempting to throw out the guardrails of “good faith and fair dealings” that comes with a contractual relationship between consumer and collector by moving towards a fiduciary relationship.

Compliance these days is like a game of whack-a-mole and it's difficult to stay on top of everything. We thank Justin, Jim, and Jedd for sharing their insights with us.  

You can watch the full webinar here

* The Legal Advisory Board's next “legal trends to know now webinar” will be 5/24 at 2pm EST.  You can check out the topics and presenters as well as register here.

For more info on the Legal Advisory Board click here.

For more info about the Consumer Relations Consortium, including how to apply for membership, click here and follow CRC on LinkedIn here. 

About the Consumer Relations Consortium 

The Consumer Relations Consortium (CRC) is a premier organization comprised of more than 60 national companies representing the diverse ecosystem of debt collection including creditors, data/technology providers and compliance-oriented debt collectors that are larger market participants. Established in 2013, CRC is evolving the debt collection paradigm by engaging stakeholders—including consumer advocates, Federal and State regulators, academic and industry thought leaders, creditors and debt collectors—and challenging them to move beyond talking points and focus on fashioning real-world solutions that actually improve the consumer experience. CRC’s collaborative and candid approach is unique in the market.  CRC is managed by The iA Institute.

About the Legal Advisory Board

The Legal Advisory Board(LAB) is an exclusive membership group of outside counsel with expertise in the accounts receivable industry who have each pledged their time and resources to support the mission of the CRC. The LAB is limited to ten law firms and is comprised of fourteen total attorneys. The 2023 members can be found here. Throughout the year, the LAB serves as a legal resource to the CRC membership and assists in fulfilling the mission of promoting forward-thinking approaches to the issues raised by regulatory policy and technology innovation in the accounts receivable industry.