Implementing Upcoming TCPA and FDCPA Rules and Regulations

Implementing Upcoming TCPA and FDCPA Rules and Regulations
Moderator: Larry Laskey, Windham Professionals Speakers: Mark Brennan, Hogan Lovells Mike Frost, CBE Companies, Inc 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

CFPB SBREFA Proposal NCHER Knowledge Symposium November 9, 2016
Lawrence A. Laskey VP, General Counsel

Confidential - © Copyright 2016 - Windham Professionals Inc.
Application Applies to “debt collectors” Creditor rules? NPRM likely to be far more detailed Though not final, the is some direction… May 11, 2018 Confidential - © Copyright Windham Professionals Inc.

Concerns Wrong consumer/amount largely due to information deficiencies “Full” creditor file not provided Information is not passed along Information consumers receive is not adequate to Recognize the debt “Navigate the process” Addressing the concerns: Debt substantiation Information transfers Disclosures Dispute Handling Contact restrictions May 11, 2018 Confidential - © Copyright Windham Professionals Inc.

Substantiation “Reasonable basis” for representations Creditor representations of accuracy and completeness Check for “warning signs” May 11, 2018 Confidential - © Copyright Windham Professionals Inc.

“Warning Signs” Initial review of “fundamental” information Consumer name, contact information Creditor account number Default date, amount then owed and subsequent payments Post default charges and basis for imposing them Chain of title Going forward, review of documents “Too many” disputes Absence of verifying documents Documents do not support claim Review prior disputes May 11, 2018 Confidential - © Copyright Windham Professionals Inc.

Dispute Handling Broadly defined Any question as to debt validity or right to collect it Oral or written, and whenever raised Substantiating documentation depends on dispute type Generic (support for “fundamental” information) Amount (details of the debt, default, post default charges and payments) Wrong party (consumer-provided identifying information and original agreement) Right to collect (chain of title) No collection activity by anyone until addressed (unless duplicative) May 11, 2018 Confidential - © Copyright Windham Professionals Inc.

Information Transfers
Capture and transfer information that allows for Ability to comply with the law Facilitation of behavior beneficial to consumer Compliance with “confirmed contact” restrictions May 11, 2018 Confidential - © Copyright Windham Professionals Inc.

Information Transfers
Examples Disputes Cease communication Contact restrictions (including POE, ATTY) Language preference Out of statute Active duty Military Discharge applied for Rehab status Confirmed contact May 11, 2018 Confidential - © Copyright Windham Professionals Inc.

Consumer Disclosures More information about the consumer, creditor and specifics of the debt and default Description of the type of debt Name of default creditor Default creditor account number and amount then owed Information about Consumer rights under FDCPA/FCRA Restrictions on garnishment Intent to litigate Fact that a debt is time barred Language used in written communications May 11, 2018 Confidential - © Copyright Windham Professionals Inc.

Contact Limitations How often? 3 attempts/week/channel up to an aggregate of 6 After “confirmed contact,” 2/week/channel (aggregate of 3) One live communication per week Similar rules for locate calls (none after confirmed contact) When? Only during “most restrictive” times Includes time of sending text messages/ s May 11, 2018 Confidential - © Copyright Windham Professionals Inc.

Contact Limitations Where ? Medical facilities Places of worship or burial Daycare How ? Only with consent if consumer charges are unavoidable Not at POE w/o (non-transferrable) consent “Limited content” messages are not FDCPA “communications” Collector name, borrower name and toll free return number State laws may differ May 11, 2018 Confidential - © Copyright Windham Professionals Inc.

Consider… Increased cost of compliance efforts More disputes/must be addressed System changes Addressing “warning sign” requirements Handling “out of statute” complexities Most efficient use of communications options May 11, 2018 Confidential - © Copyright Windham Professionals Inc.

The Telephone Consumer Protection Act: New FCC Rules Implementing the Budget Act Amendment
Note – 3D supergraphic ‘mask’ is now a selectable object in foreground of slide. Mark W. Brennan, Partner, Hogan Lovells US LLP

Disclaimer Nothing in this presentation is intended to provide legal advice. In addition, nothing in this presentation is intended to provide legal conclusions about how the FCC’s decisions should be interpreted or applied to specific entities or specific circumstances. Hogan Lovells

FCC Rules Implementing the Budget Act Amendment
Background

2015 TCPA Declaratory Ruling and Order
In July 2015, the FCC released an Omnibus Declaratory Ruling and Order aiming to clarify multiple TCPA issues. The FCC denied requests to define the “called party” for the purposes of the TCPA as the “intended recipient” of the call. “Called party” = current subscriber or customary user of the telephone number, whether or not the caller knows they are dialing the wrong number. The FCC attempted to address caller concerns about TCPA violations for calls to wireless numbers that have been reassigned by allowing a one-call exemption in those cases in which the caller does not have knowledge of the reassignment. After the one call – constructive knowledge Hogan Lovells

2015 TCPA Declaratory Ruling and Order (cont.)
The FCC also tried to clarify what qualifies as an automatic telephone dialing system, or “autodialer.” The FCC denied requests to define an autodialer as a device with the “present ability” to generate or store random or sequential numbers or to dial sequentially or randomly at the time the call is made. An autodialer is a device with the “capacity” to store or produce telephone numbers to be called, using a random or sequential number generator, and to dial such numbers. A device may be an autodialer even if it must be modified to be used in that way. The FCC refused to carve out smartphones from the definition of an autodialer, and offered a rotary telephone as the only specific safe harbor. Hogan Lovells

Budget Act Amendment - Background
In November 2015, Congress passed an amendment to the TCPA in the Budget Act. Section 301 amended the TCPA to except artificial- or prerecorded-voice calls “made solely to collect a debt owed to or guaranteed by the United States” from the “prior express consent” requirement. Section 301 also authorized the FCC to adopt rules to “restrict or limit the number and duration” of calls to wireless numbers “to collect a debt owed to or guaranteed by the United States.” “Timely and efficient collection of delinquent debts helps fund government operations, maintain key programs, and reduce the Federal deficit. … [It is] important to continue to find ways to cost-effectively collect debt owed to the government.” U.S. Department of Treasury Hogan Lovells

Campbell Ewald v. Gomez In January 2016, the Supreme Court issued a ruling in Campbell- Ewald v. Gomez. The decision had two holdings: An unaccepted settlement offer or offer of judgment for complete relief made to the named plaintiff in a class action does not moot the plaintiff’s case or the class action. Government contractors are not entitled to derivative sovereign immunity where they have failed to abide by the government’s express instructions and violated the law. Hogan Lovells

Broadnet/RTI Declaratory Ruling
In July 2016, the FCC granted three petitions for declaratory ruling filed by Broadnet Teleservices LLC, National Employment Network Association, and RTI International. The Declaratory Ruling clarified that the TCPA “does not apply to calls made by or on behalf of the federal government in the conduct of official government business.” Hogan Lovells

The FCC’s Decision

On August 2, 2016, the FCC adopted rules implementing Section 301 of the Bipartisan Budget Act. The rules apply to all callers, including the federal government and its agents. The number of covered calls allowed under the exception is capped at no more than three within a 30-day period. Calls must concern a loan that is in default, in delinquency, or at imminent risk of delinquency. Debtors can stop autodialed artificial voice and prerecorded-voice servicing and collection calls at any time. Calls and text messages must be limited to 60 seconds and 160 characters, respectively, excluding required disclosures. Hogan Lovells

FCC Rules (cont.) Covered calls may be placed by either the debt owner or its contractor. Covered calls may be placed only to the debtor or another person or legal entity legally responsible for paying the debt. Covered calls may be placed to three types of numbers: Those provided by the debtor at the time the debt was incurred Those subsequently provided by the debtor to the owner of the debt or its contractor; and Those that the owner of the debt or its contractor has obtained from an independent source, provided that the number actually is the debtor’s telephone number. Hogan Lovells

Waiver Federal agencies may request a waiver of the new rules. For example, a federal agency may seek a waiver to allow it and its agents to place more than three calls per month without consent of the called party. The Consumer and Governmental Affairs Bureau may act on such waiver requests on delegated authority. The FCC noted that, to the extent waiver proceedings demonstrate that a “genuine conflict” exists between the three-per-thirty-days call limit and another federal law, it is likely to view that as probative of the good cause needed to justify a waiver. Hogan Lovells

Dissents of Commissioners Pai and O’Reilly

Commissioner O’Rielly Dissent The Commission’s interpretations of the TCPA have been “so unworkable that the Administration and Congress took the momentous step of overruling the Commission to authorize this specific class of callers to use autodialers without prior express consent to collect debt,” but the Commission “brazenly ignores this rebuke and guts the exemption.” Hogan Lovells

Commissioner O’Rielly Dissent “[I]t is beyond disappointing that the order decides that the federal government and its contractors will face more restrictions when making calls to collect debts than for any other type of call they make. That’s the exact opposite of what the Budget Act exemption was designed to accomplish. Clearly, no good law goes unabused in this Commission. To reach this illogical outcome, the order pretends that section 227(b)(2)(H), which permits, but does not require, the FCC to adopt certain limits on debt collection calls, applies to non-persons. That’s absurd.” “In the end, the order simply ignores the costs to consumers and the economy when these calls are not made, as well as the benefits when they are.” Hogan Lovells

Commissioner O’Rielly Dissent (cont.) On jurisdiction: “Sensing the weakness of its argument, the Commission attempts the legal equivalent of a Hail Mary pass: hoping that a reviewing court will find its argument ‘at least rendered permissible.’ It is not.” “Even if the Commission were able to overcome this significant threshold problem regarding the scope of its authority, which is impossible, the rules themselves are contrary to the law. The Budget Act exemption was designed to protect federal agencies and their contractors from liability when they make calls without consent of the called party. The revised order counters that there is ‘no support’ for this statement as there is no legislative history. Wow.” On waiver process: despite its own complete record for setting appropriate limits, the Commission “is putting the burden back on federal agencies to demonstrate, to a Bureau, that more relief would be appropriate.” This is “cowardly.” Hogan Lovells

Commissioner Pai Dissent In this Order the FCC fails to follow the law. The FCC is trying to solve the problem it created in the Broadnet Declaratory Ruling by “arguing that even if the TCPA’s consumer protections in section 227(b)(1) do not apply to federal contractors, the Commission is free to regulate non- persons – including ‘the federal government and its contractors’ – under section 227(b)(2).” This approach “is unlawful and makes a dog’s breakfast of the TCPA.” The federal government should not “be bestowing regulatory largesse upon favored industries such as federal debt collectors” and Congress should eliminate this exemption. Hogan Lovells

Commissioner Pai Dissent The authority of the FCC under section 227(b)(2)(H) “can only extend” to any person otherwise subject to the requirements of section 227(b)(1) and not to the federal government, a non-person. Section 227(b)(2) does not extend to the federal government because federal law does not apply to the sovereign absent “some affirmative showing of statutory intent to the contrary.” Hogan Lovells

Commissioner Pai Dissent (cont.) The holding in the Broadnet Declaratory Ruling “mortally wounds” the holding here where “Congress’s decision to indirectly indicate to whom section 227(b)(2) applies (through its reference to the ‘requirements’ of section 227(b)(1)) cannot possibly be a more ‘affirmative showing’ than Congress’s decision to directly indicate that section 227(b)(1) applies to ‘any person.’” “Even more fatal” is the proposition that waiver of sovereign immunity “cannot be implied but must be unequivocally expressed.” The consequence of applying section 227(b)(2) to the federal government is a waiver of sovereign immunity, and “the United States obviously has not delegated authority to the FCC to waive federal sovereign immunity.” Hogan Lovells

Commissioner Pai Dissent (cont.) The structure of the TCPA also does not support an expansive reading of section 227(b)(2)’s scope given that section 227(b)(2)(H) is not unique in omitting the word “person.” This is the only FCC decision to find that omission meaningful, and “every FCC to date has apparently recognized that it makes no sense to say that Congress intended a narrower scope (only ‘any person’) for the mandatory prohibitions and a broader scope (‘any person’ plus the federal government) for the discretionary prohibitions.” The FCC never proposed to extend its new rules to non- persons, and no stakeholder commented on the issue. Hogan Lovells

Issues Raised by the Overbroad FCC Rules

Issues Raised by the Overbroad FCC Rules
The FCC’s interpretation gives it unprecedented authority and leads to absurd results. The federal government and its agents have not traditionally been bound by the prohibitions of the TCPA. But the FCC interpreted an act of Congress designed to make it easier to place federal debt collection calls as creating new restrictions on those calls. Federal debt collection calls are now restricted in more ways than other debt collections calls. Ex. A third-party debt collector would need to disclose the debtor’s right to opt-out of future calls when calling about federal debts, but not when calling about private debts. Hogan Lovells

Issues Raised by the Overbroad FCC Rules (cont.)
What the FCC has done already is bad, but it could get worse. Under the FCC’s reasoning, it would now have the authority to regulate all federal debt collection calls to wireless numbers, including calls: Placed by non-“persons” Made with “prior express consent” Placed without using an autodialer or prerecorded voice. Hogan Lovells

Issues Raised by the Overbroad FCC Rules (cont.)
Although the FCC specified that the new rules apply only to autodialed or prerecorded calls, it can change its mind on this point or adopt additional rules that do apply to such calls at any time in the future. Hogan Lovells

Next Steps

Waiver Option The FCC recognized that “some federal agencies, based on their expertise administering their respective statutes and programs, may desire additional calls.” The FCC therefore will allow agencies to seek waivers allowing a different limit on the number of autodialed, prerecorded-voice, and artificial-voice calls that may be placed without the consent of the called party. The Consumer and Governmental Affairs Bureau may address waiver requests. Hogan Lovells

Timing and Appeals The new rules will take effect 60 days after the FCC publishes notice that the Office of Management and Budget (OMB) has approved the rules that implicate the Paperwork Reduction Act (PRA). OMB sought comment on the new information collections on November 3, Comments are due on January 3, 2017. Once the new rules take effect, parties will have: 30 days to ask the FCC to reconsider the decision; and 60 days to file an appeal with the D.C. Circuit or another court of appeals. Hogan Lovells

FCC’s Expanded Definition of ATDS and the Strauss Decision:
Impact to Credit and Collections

Speaker Bios Mike Frost
Chief Compliance, Sales Officer & General Counsel Mike joined CBE in Mike manages compliance policy and a team of professionals including legal, quality assurance, regulatory compliance, legislative affairs, litigation defense, corporate governance and enterprise risk. Mike is a trusted industry expert, serving in leadership roles and as a speaker for many associations. Chad

Expanded Definition of ATDS

2015 FCC Order The TCPA defines an ATDS as “equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.” For nearly a decade, the FCC has expanded this statutory definition to include “predictive” dialers and other devices that dial a fixed set of numbers without a random or sequential number generator. In the 2015 TCPA ruling, the FCC refused to “address the exact contours of the autodialer definition,” but nonetheless rejected the “current capacity” test adopted by many federal courts Referencing one of seven Merriam-Webster definitions of capacity (“the potential or suitability for holding, storing, or accommodating”), the Commission concluded that “equipment that has the requisite ‘capacity’ is an autodialer and is therefore subject to the TCPA.” The ruling solidifies the FCC’s expansive stance that dialing equipment generally meets the TCPA’s autodialer definition, even if it is not presently used for that purpose. The expansive definition theoretically makes every telephone or like device an autodialer. Dale Proprietary Information of CBE Companies, Inc.

2015 FCC Order - Dissent Commissioner Ajit Pai adamantly disagreed with the FCC’s interpretation of the TCPA autodialer definition, arguing by analogy: that “no one would say that a one-gallon bucket has the ‘potential or suitability for holding, storing, or accommodating’ two gallons of water just because it could be modified to hold two gallons. Nor would anyone argue that Lambeau Field in Green Bay, Wisconsin, which can seat 80,000 people, has the capacity (i.e., the ‘potential or suitability’) to seat all 104,000 Green Bay residents just because it could be modified to have that much seating.” Dale Proprietary Information of CBE Companies, Inc.

Risk Impact – Post Strauss

Post 2015 FCC Order – Litigation Climate
Higher claim volume Larger and more aggressive plaintiff’s bar Operate under the assumption that all call centers utilize automatic dialing equipment when calling consumers Plaintiffs counsel with no experience in the field are filing claims due to massive damages awards / settlement amounts – shark affect Plaintiffs are emboldened by the FCC’s expansive definition of ATDS High volume shops will threaten TCPA with no intent to litigate in an attempt to gain leverage in advancing other frivolous claims Dale Proprietary Information of CBE Companies, Inc.

FDCPA & TCPA Litigation Cost Trend
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 TCPA Litigation 14 16 39 354 830 1,102 1,904 2,558 3,710 3,914 4,671 FDCPA Litigation 4,316 6,140 9,403 11,151 12,237 11,342 10,391 10,071 11,697 10,498 10,551 Actual # of Claims Projected # of Claims Cost of TCPA claims estimated at $7,000 per claim & cost of FDCPA estimated at $2,000 per claim Proprietary Information of CBE Companies, Inc.

Post-Strauss Risk Impact
Since the Strauss ruling, CBE has experienced significant reduction in TCPA claims presented by plaintiff’s counsel (PC). TCPA claims have reduced 40% in comparison to the prior 6 month average. TCPA claims since the Strauss ruling have reduced by 54% in comparison to prior 5 month average. Confidential & Proprietary

Overview of MCA Dialing

Manual Clicker Application (MCA) 3 Hurdles to Compliance Approach
Random/Sequential Number Generation “Future Capacity” Human Intervention Human “clicks” to generate the call, no “queue” is built to initiate calls throughout the day Predictive Algorithm Command Center manages pacing, agent availability and other key performance indicators manually and prior to human intervention, not post-human intervention Phone server does not have capacity to dial randomly or sequentially and would need complete rebuild to quality as an ATDS Mike Confidential & Proprietary

Overview of Case Dale

Strauss v. CBE Group Facts of the case Evidence from discovery
Non-debtor files suit alleging CBE violated TCPA/FDCPA by placing calls to cellphone from April 2014 through September 2014 According to CBE’s account notes, number was provided by creditor Verizon and initially was identified as landline CBE acknowledges first two calls were placed using Noble’s Predictive Dialer – Serves offer of judgment for $2,500 Evidence from discovery CBE’s corporate representative testifies all calls other than initial two were placed using CBE’s Manual Clicker Application (MCA) MCA calls initiated by “point and click” performed by CBE employee Noble and later, LiveVox provided “pass-through” connectivity to telephone network Dale Proprietary Information of CBE Companies, Inc.

Strauss v. CBE Group Plaintiff hires Expert Witness
Jeffrey Hansen has issued expert opinions in other CBE TCPA cases Hansen admits that MCA is not an ATDS under TCPA Hansen admits that MCA connected with Livevox PBX is not ATDS under TCPA Hansen conflates Noble Predictive Dialer and Noble pass-through and opines that MCA connected through Noble Dialer is ATDS under TCPA LiveVox is voluntarily dismissed from the case by Plaintiff (no judicial decision is therefore rendered in Strauss v. CBE Group that applies to LiveVox equipment) Dale Proprietary Information of CBE Companies, Inc.

Strauss v. CBE Group CBE wins summary judgment
“There appears to be no disagreement that the MCA, by itself, lacks the capacity to predictively dial.” “CBE has presented substantial evidence that human intervention is essential at the point and time that the number is dialed using the MCA and that the Noble equipment used does not have the functionalities required to classify it as a predictive dialer.” Hansen’s “report merely assumes that CBE was using the same Noble Dialing Equipment to make all calls to plaintiff and switching that equipment between ‘predictive and manual mode’’’ Dale Proprietary Information of CBE Companies, Inc.

November 7 – 9, Sheraton Downtown, Nashville, TN
Questions? 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Implementing Upcoming TCPA and FDCPA Rules and Regulations

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