Verbal Authorization for Recurring Payments – Ask Yourself One Question: “Do I Feel Lucky?” ("The Debt Collection Drill")
Debt collectors that accept recurring payments over the phone know that federal laws – specifically Regulation E, the Electronic Funds Transfer Act, and the E-Sign Act – provide guidelines for consent and disclosures. insideARM first featured an article on those issues on January 31, 2013, "Legal Headaches of Check By Phone Payments in Debt Collection."
Since that time, the Consumer Financial Protection Bureau (CFPB) issued guidance on these issues in November 2015, stating:
Regulation E may be satisfied if a consumer authorizes preauthorized EFTs by entering a code into their telephone keypad, or, Supervision concluded, the company records and retains the consumer’s oral authorization, provided in both cases the consumer intends to sign the record as required by the E-Sign Act.
CFPB Compliance Bulletin 2015-06, "Requirements for Consumer Authorizations for Preauthorized Electronic Fund Transfers" (Nov. 23, 2015).
The CFPB guidance follows common sense and tracks consumer expectations: If a consumer consents verbally to recurring payments, and the debt collector records and maintains that consent, the law is satisfied. Despite the clear CFPB directive allowing verbal consent for recurring payments, consumer attorneys continue to bring lawsuits against debt collectors asserting that verbal consent violates the law. In the absence of guidance from a court of appeals on the issue, the lawsuits against debt collectors – with uncertain outcomes in the courts – will continue. Further, these lawsuits undermine the ability of both consumers and debt collectors to rely upon interpretations of the law from the CFPB.
In this episode of The Debt Collection Drill podcast, Moss & Barnett attorneys John Rossman and Mike Poncin are joined by special guest, Mike Etmund, to discuss a recent case addressing whether verbal authorization for recurring payments is sufficient. Also discussed in this episode are newer cases on the Spokeo requirement that a plaintiff must suffer a “concrete injury in fact” to maintain a Fair Debt Collection Practices Act case and the status of the CFPB arbitration rule.
- Mike Poncin: Welcome everybody to another episode of The Debt Collection Drill. I'm Mike Poncin and with me, as always, is John Rossman, Chair of our Creditors Remedies Practice Group here at Moss & Barnett, and I’ll let John introduce our special guest as well.
- John Rossman: Thanks Mike. It’s been an exciting month, month and a half since our last episode. I know Dave Cherner from our office and I were at the North American Collection Agency Regulatory Association meeting in Bellevue, Washington. Had some really excellent dialogue with some regulators there, some state regulators. I believe there was 18 different jurisdictions that had sent regulators to represent their jurisdictions at that meeting. Had some really good dialogue there. We want to jump right in to today’s topic. Mike Poncin I know it was back – gosh in January 2013 – you and I published an article in insideARM about accepting payments by phone and I remember the title of the article was, "Legal Headaches of Check By Point Payments and Debt Collection." Since that time, since that article four plus years ago, Mike Etmund in our office has been really the go-to person on those issues and has really established himself as being really the person in the industry that people go to when they have a question about Regulation E E-Sign Act, Electronic Funds Transfer Act. So we asked Mike to join us today to talk about a recent case. So Mike Etmund welcome and if you could tell our listeners a little bit about that recent case dealing with some of these issues.
- Mike Etmund: Thank you John. This case actually came out back in March of 2017. There wasn’t a lot of discussion of it really within the industry. At this point it was appealed to the Second Circuit. Oral argument is set up for early November. So it is more timely now as we expect the Second Circuit some time next year to at least clarify a few issues. Now we’ll refer to it as the Aikens case. The underlying facts are fairly straight forward. Plaintiff received a telephone call from the defendant requesting to set up a payment arrangement. Plaintiff agreed and set up monthly installments of approximately $30 and provided payment information to the defendant at which time the defendant a few days later sent a confirming letter summarizing the installment plan and a few of the Electronic Funds Transfer Act disclosures back to the plaintiff. Shortly thereafter the plaintiff initiated this action alleging that the letter and/or recording of the telephone conversation did not constitute a written authorization under the EFTA.
- Mike Poncin: Okay and now Mike I believe in this case the interesting thing is the judge didn’t really get to the EFTA portion. Rather he looked at the standing, the constitutional standing issue that we’ve seen under Spokeo in cases since.
- Mike Etmund: That’s exactly right. So the judge in this matter … the defense was based on a lack of a concrete injury. So under Spokeo and that’s really what the court focused on in its decision back in March basically saying that the plaintiff had authorized the withdrawal of the money from her account, the defendant did not take any more money from the account than what was agreed to and that they did in fact withdraw the money from the account that was specified. So the court said hey there’s really no concrete injury here at all and dismissed the matter under Spokeo.
- Mike Poncin: So it’s different than what we’ve seen with a lot of the FDCPA cases where the court’s have shot down the Spokeo arguments on the grounds that the FDCPA itself created the damages if you will for the consumers. In this instance the consumer had … you know they took out the money that was requested. They didn’t do too much. The consumer said they could and just didn’t get the notice that she believed she was entitled to. So the court and I think rightfully held that there were no damages.
- John Rossman: We’ve seen a lot of writings. We’ve talked a lot about whether or not this verbal authorization for recurring payments is sufficient. I know the CFPB had issued a bulletin. I believe it was in 2015. Issued a bulletin which in essence stated that this verbal authorization for recurring payments is sufficient. However, if you look at some of the text of Regulation E and the E-Sign Act, it seems to me that it can be read to mean that a verbal authorization can’t be an actual person’s voice. It has to be some type of sound. So I know I’ve seen some technology that would allow a consumer to authorization payments by pushing a button on their phone or making some type of electronic sound. You know I look at cases like this where you have some conflicting rulings in the debt collection space about whether it can be a verbal authorization or whether it needs to be written. What kind of disclosures need to be given and even look at a lawsuit like this where the law is unclear and we had a debt collector that chose to take a stand and fight this and it reminds of probably my favorite line from my favorite movie which is Dirty Harry and it’s actually a line he says twice in the movie. He says “You’ve got to ask yourself one question. Do I feel lucky?” And really that’s the way I look at these cases is you have to weigh the odds. Certainly there was no luck involved with the excellent lawyering that was done on behalf of the debt collector here in taking on this case and making the arguments that they made. Certainly the judge did a fantastic job with the case issuing a really thoughtful ruling on the issue of Spokeo. Mike Poncin on the issue of Spokeo, you know it’s funny when that case first came out we thought that this was going to have some really broad application and we thought that there were going to be a lot of instances where courts were going to find that these frivolous FDCPA cases where there is no damages, we thought the courts were going to be throwing them out right and left. Well a year and half two years later that really hasn’t been the case and in fact we’ve seen a number of motions to dismiss denied on kind of the Spokeo issue. But Mike there has been kind of a resurgence on the Spokeo issue as being a defense. Could you speak to that a little bit.
- Mike Poncin: Definitely and I still think it’s worthwhile raising that defense. When you bring a motion to dismiss if you think the facts, if it’s appropriate to do so. Back in September of 2017 we received a decision on a motion to dismiss which granted it based upon the lack of standing and the lack of constitutional damages. In that case the issue had been that the collector had sent out a letter saying that because of the age of your account you will not be sued and it will not be credit reported. And the consumer had filed a lawsuit stating that well you previously credit reported it and technically we don’t think it’s time-barred therefore you know full well that you could credit report it in the future and thus it created a false sense of security for the consumer. We had other arguments in our motion to dismiss but the one that the court hung his hat on was the Spokeo decision and the court in holding that the plaintiff lacked standing set forth that a plaintiff cannot for example allege a bare procedural violation divorced from any concrete harm and satisfy the injury fact requirement of Article III. Here plaintiff does precisely that. He identifies a statement that at most would constitute a bare procedural injury and then claims that the statement caused him a false sense of security. He does not allege that this false sense of security caused him to do anything or not do anything and he does not allege that this false sense of security otherwise injured him in any way. Plaintiff’s false sense of security for however long it lasted before his attorney or someone else disabused him of it is not the type of concrete and particularized injury that can satisfy Article III standing.
- John Rossman: I think it’s a great quote. I think it’s really an issue that we see a lot in this industry and we’ve seen it for years where these cases are brought. There is no real damage but yet there might be if you look at a letter a certain way or if you look at a statement a certain way with one eye closed, sideways, standing on your head you might find a violation but you’re certainly not going to find any injury. Mike what do you see as the future for the Spokeo defense on these FDCPA claims?
- Mike Poncin: You know I think it’s still a mixed bag. The majority of cases have gone against and refused to follow Spokeo or hold that it’s applicable with regards to the FDCPA. But in instances such as the one that the case was Asbridge that we prevailed on in cases such as that I think you still have to bring it bearing in mind that there are numerous cases against it but I guess I don’t see a harm in bringing it. As we see with the EFTA and FCRA Spokeo is definitely still a very viable argument to be making in these cases.
- John Rossman: Mike Poncin another hot issue that a lot of people are talking about nowadays is the CFPB rule regarding arbitration. The CFPB issued some commentary earlier this year stating that arbitration really severely limiting the applicability of arbitration clauses in contracts and I know a lot of people have asked me well when is Congress going to act and what is the deadline for Congress to act. I’ve narrowed it down to two different dates. It’s either November 13th or November 15th. It kind of depends on how you count the days. But nonetheless by sometime in mid-November Congress must act otherwise that arbitration rule would go into effect. Mike what are your thoughts on what would be the impact if Congress did not act on that arbitration rule?
- Mike Poncin: Well there is going to be a lot of scrambling because I believe the arbitration rule kicks in in March of 2018.
- John Rossman: Correct.
- Mike Poncin: And as I recall, it has to do with prohibiting the inclusion of class waivers and so it’s going to cut down on your ability to move to compel arbitration if they allege class claim. So I think it could result … we all know in New York every attorney out there files every case as a putative class action no matter what the allegations are but I suspect you might see more attorneys trying that if this arbitration rule doesn’t get revoked and I think it’s just the Senate that has to do so at this time. I think the House has already said no go on it. So the Senate shouts it down you know great for the industry but if not, I think we’re going to be looking at more class actions.
- John Rossman: And I think timing has been especially poor for this with the recent data breach at Equifax and the issues involving whether or not Equifax might be able to use arbitration as a defense. And I think a lot of folks are really confusing the two issues. You know you have to understand most consumers do not have a contract with Equifax. Did not reach out to Equifax to extend credit. Did not agree as part of their terms as the extension of credit to an arbitration clause. So really I think we need to make the distinction that what we’re talking about with arbitration clauses, with class action waivers, this deals with a situation where there is a contract between two parties, the consumer receives a benefit usually an extension of credit and one of the terms of the agreement to which the consumer agrees is this arbitration clause. My concern is that because these two events happen kind of close to each other that one is going to get confused with the other.
- Mike Poncin: I do think where there is some confusion is that as I recall in the Equifax situation initially when people went to their website to see if they were a victim there was some small print saying that if you agree to this, you can’t be part of a class action against us and they took that down and stopped doing it and I’m quite sure the CFPB would not approve of that to begin with. But that’s a whole different situation than a consumer entering into a contract for services and agreeing to it versus somebody trying to take steps to make sure that they’re not further damaged by someone else’s actions.
- John Rossman: Great episode today gentlemen. I’d like to thank Mike Poncin and Mike Etmund for some great commentary. I'd also like to thank our Executive Producer, Jodi Newsom, and we look forward to speaking with you next time. Thank you.
Visit the website for this podcast at The Debt Collection Drill.com and follow us on Twitter @CollectDrill. This program does not create an attorney/client relationship between Moss & Barnett, a Professional Association, or any attorney appearing on this program and any listener. Please remember that we can only give general information and every case is unique. Always check with your individual attorney for any specific legal concerns.