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of 7 Bassford Bulletin FDCPA/FCRA/ TCPA/CFPB March 20, 2014 Bassford Remele, P.A. 33 South Sixth Street, Suite 3800 Minneapolis, Minnesota 55402 612.333.3000 www.bassford.com Greetings! Welcome again to the Bassford Bulletin - FDCPA/FCRA/TCPA/CFPB. We designed this e-newsletter with our valued clients in mind. With developments in the credit and collection industry happening at an everincreasing rate, we wanted to create a timely way to deliver updates straight to your electronic desktop. We hope you find this information useful and valuable, and we are always open to your feedback, suggestions and input. Click here for a printable copy of this month's Bulletin. Sincerely, The Bassford Remele FDCPA/FCRA/TCPA/CFPB Group FCRA: Higher Education Act By: Jessica L. Klander The Higher Education Act does not exempt universities from data furnisher requirements under the FCRA. As a matter of first impression, the Third Circuit Court of Appeals held that the Higher Education Act ("HEA") did not exempt a university data furnisher from reporting requirements under the Fair Credit Reporting Act ("FCRA"). The plaintiff obtained a federal loan from Temple University in 1989. After the plaintiff missed his first payment on the loan, the loan was declared delinquent in 1992 and placed in collections. Nearly a decade later, the plaintiff enrolled at another university and was refused financial aid due to his outstanding loan with Temple University. The plaintiff paid the loan in full. The University thereafter reported the loan information to a credit reporting agency. When the plaintiff discovered the University trade line, he formally disputed portions of the information. The University's loan servicer conducted an investigation, verified the information, and reported the same information but did not report the date of first delinquency, the collection history, or that the trade line was disputed. The plaintiff sent a second dispute requesting that the information be removed from his credit report. After the second investigation, the University modified certain information but still did not report the date of first delinquency, collection history, or the plaintiff's dispute. Noteworthy Damages Award -- $83,000 On February 24, 2014, the CFPB ordered a Connecticut mortgage lender to pay $83,000 in civil penalties for allegedly splitting real estate settlement fees in violation of federal law. The mortgage lender self-reported the violations to the CFPB, admitted liability, and provided information related to the conduct of other actors to facilitate the investigation. CFPB Director Richard Cordray stated that "[t]hese types of illegal payments can harm consumers by driving up the cost of mortgage settlements, the bureau will use its enforcement authority to ensure that these types of practices are halted. We will, however, also continue to take into account the self-reporting and cooperation of companies in

of 7 The plaintiff sued the University claiming that it failed to conduct a reasonable investigation and negligently or willfully violated the FCRA when it reported the loan without the date of first delinquency, collection history, and dispute information. The University moved for summary judgment arguing that the HEA exempted it from compliance with the FCRA. The district court granted the University's motion and the plaintiff appealed. The Third Circuit Court of Appeals vacated and remanded the decision to the district court holding that the HEA did not exempt the university from its reporting obligations as a data furnisher under the FCRA. The Court rejected the University's argument that the date of first delinquency and collection history should be omitted when reporting federal loans to credit reporting agencies because such loans cannot be "aged off" a credit report. The Court determined that the HEA only applied to credit reporting agencies - not data furnishers. Thus, the University as a data furnisher was obligated to fully and accurately report the collection history and date of delinquency as required under the FCRA. In addition, the Court held that the University failed to conduct a reasonable investigation when it reported incomplete and omitted information. The Court based its holding on the notion that even when information is "technically correct... [it] may nonetheless be inaccurate if, through omission, it creates a materially misleading impression." Here, the omission of the collection history, date of delinquency and the fact that the debt was disputed were determined to be materially misleading and the Court vacated the district court's Order for summary judgment and remanded for further proceedings. Seamans v. Temple University, No. 12-4298, 2014 WL 658401 (3rd Cir. Feb. 21, 2014). FDCPA: Least Sophisticated Consumer Standard By: Jessica L. Klander The "least sophisticated consumer" standard includes a materiality requirement. An Eastern District of New York court dismissed a plaintiff's claims holding that a misleading statement that was not material is not a violation of the Fair Debt Collection Practices Act ("FDCPA"). The plaintiff filed a putative class action alleging that a collection letter including a heading and statement that the plaintiff was a "valued customer" and a preprinted signature of "C. Hearn, Director of Payment Control" violated the FDCPA. The plaintiff alleged that the letter was deceptive because the plaintiff had only one transaction with the creditor and therefore could not have known "C. Hearn" or been a "valued customer." The collection agency moved for summary judgment. The district court granted summary judgment and dismissed the plaintiff's claims entirely. The district court determined that applying the "least sophisticated consumer" standard also "encompasses a materiality requirement; that is, statements must be materially false or misleading to be actionable under the FDCPA." Thus the court concluded that "even if it is true that plaintiff only engaged in one transaction with the creditor, the court fails to see how the term 'valued customer' violates 1692e, as it is simply a comment regarding the creditor's perception of the plaintiff." In addition, the court noted that the allegation that inclusion of the preprinted signature of C. Hearn was misleading was nothing more than "a bizarre or idiosyncratic interpretation of a determining how to resolve such matters." Noteworthy Award -- $761,000 A debt buyer was ordered to mail 8,352 checks to consumers for an amount totaling more than $761,000 in restitution to consumers who paid convenience fees. The debt buyer was charged with allegedly deceiving consumers for requiring them to pay an extra fee to pay by telephone but failing to disclose that they could avoid the fee by mailing the payment or paying online. Collection Agency Owner Takes $72,000 in Client Funds A former Minnesota collection agency owner pleaded guilty to felony counts of theft and swindle for taking more than $72,000 that was meant for his clients and using it for personal and business expenses, including a lawn service, rent money and car payments. The former collection agency owner was sentenced to 30 days of "sentence to serve," probation for up to twenty years, and restitution that has yet to be determined. The Minnesota Department of Commerce revoked the debt collection's license in April 2010. The former owner acknowledged he was using client money, saying that he was the victim of a bad economy. Bassford FDCPA Team News Michael Klutho recently presented UDAAP and the CFPB for ACA International. He has also fulfilled the requirements to maintain his

of 7 debt collection letter..." and therefore did not "affect a consumer's ability to make intelligent decisions concerning the alleged debt." The district court granted the collection agency's motion for summary judgment and dismissed the plaintiff's claim entirely. Kassel v. Universal Fidelity, No. 13-CV-3756 (E.D.N.Y. Mar. 3, 2014). FDCPA: Law Firm Liability Exemptions By: Jessica L. Klander A law firm is not liable under the FDCPA where state consumer statute exempts attorneys. An Illinois Appellate Court for the First District dismissed a plaintiff's complaint against a law firm holding that the law firm could not be held liable for violations under the FDCPA because the Illinois Collection Agency Act excluded attorneys from its requirements. In 2008, the law firm filed a collection action against the plaintiff on behalf of its collection agency client. At the time, the collection agency was not licensed in Illinois. Seven months later, the collection agency obtained its Illinois license. The plaintiff was thereafter served with the lawsuit and moved to dismiss the action based on the licensing issue. The parties entered into a settlement agreement. The collection agency voluntarily dismissed the case and reimbursed her for the court fees. The plaintiff sued the law firm, alleging putative class action claims in connection with the licensing issue. The district court granted the motion to dismiss and the plaintiff appealed. The Court of Appeals affirmed the district court's ruling, holding that the law firm's conduct did not violate the FDCPA. The Court of Appeals rejected the plaintiff's argument that the law firm violated the FDCPA by filing lawsuits on behalf of an unlicensed debt collection agency in violation of the Illinois consumer statute. The Court determined that the Illinois consumer statute exempted licensed attorneys from its application. Thus, the law firm did not violate the state consumer statute and could not be liable for such conduct under the FDCPA. The Court noted that the mere "act of filing a debt collection suit under various circumstances, without more, is not sufficient to state a claim under the FDCPA." Accordingly, the plaintiff's claims were dismissed in their entirety. Gibbs v. Blitt & Gaines, P.C., No. 1-12-3681 (Ill. Ct. App. 1st Dist., Feb. 11, 2014). ACA International Professional Collection Specialist designation. In addition to his FDCPA practice, Michael assists other lawyers with professional liability issues. At the 2014 Legal Malpractice & Risk Management Conference in Chicago, Michael was a panel member at the session titled Update on Statutory Causes of Action - Not the Ones You Normally Consider, which addressed a range of laws and regulations that can impact attorneys' practices. Bassford News Bassford Remele is proud to be recognized as the Top Large- Sized Minnesota Business and Litigation Law Firm in the 2013 Super Lawyers Business Edition. The firm was selected based on the number of attorneys who were listed in a 2012 or 2013 Super Lawyers list within a business practice area, in addition to a combination of metrics indicating the quality of those attorneys. Quick Links March 2014 Bulletin February 2014 Bulletin CFPB Sues ITT Educational Services, Inc. for "Predatory Lending" On February 26, 2014, the CFPB announced that it filed suit against ITT Educational Services, Inc. ("ITT") claiming it engaged in predatory student lending. In its lawsuit, the CFPB alleges that ITT: (1) engaged in "pressured" predatory lending by allegedly pushing students into loans they could not afford and without a fair opportunity to understand the loan obligations involved; (2) providing credits that could not be transferred to other schools; (3) misleading students regarding their future job January 2014 Bulletin November 2013 Bulletin October 2013 Bulletin September 2013 Bulletin August 2013 Bulletin July 2013 Bulletin June 2013 Bulletin May 2013 Bulletin

of 7 prospects and the ability to repay their loans; and (4) pressuring students to take on loans that ITT knew would likely fail and fall into default. Commenting on the lawsuit, CFPB Director Richard Cordray, stated that "ITT marketed itself as improving consumers' lives but it was really just improving its bottom line. We believe ITT used high pressure tactics to push many consumers into expensive loans destined to default. Today's action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics." CFPB Announces New Function that Allows Consumers to Submit Supporting Documents with Credit Disputes On February 27, 2014, the CFPB announced that credit reporting agencies would be adding a function to their dispute handling system to ensure that consumers could upload, mail, or fax any supporting documents to explain potential errors or disputes in a consumer's credit report. The announcement noted that credit reporting agencies must forward the dispute, including all relevant information to the furnisher, and that the furnisher must review the information and correct any errors based on the information provided by the consumer. The CFPB noted that consumers can now provide supporting documents such as a paid bill, a letter explaining the issue, a police report, proof of identity or other correspondence. CFPB Calls on Top Credit Card Companies to Make Credit Scores Available to Consumers On February 27, 2014, the CFPB announced that CFPB Director Richard Cordray sent letters to the nation's top credit card companies, urging them to make credit scores freely available to their customers. The CFPB noted the request was based on a report showing credit reporting accuracy as a top complaint by consumers. Between October 2012 and February 2014, the CFPB handled roughly 31,000 complaints from consumers frustrated with credit reporting agencies. The top three concerns included: (1) incorrect information on a credit report; (2) frustration with credit reporting agencies' investigation; and (3) difficulty obtaining a credit report or score. The announcement also cautioned data furnishers not to avoid investigating consumer disputes. Director Richard Cordray stated that "[m]aking consumers' credit scores freely available on their monthly statement or on-line makes it easier for them to spot problems with their credit report. We will continue to work to ensure that credit report disputes are fully investigated, errors are fixed, and consumers are treated fairly." In addition, the CFPB noted that it published a supervisory bulletin in conjunction with this announcement directed at data furnishers. [see below].

of 7 CFPB Supervisory Bulletin to Data Furnishers Regarding "Reasonable Investigation" Requirement On February 27, 2014, the CFPB issued a supervisory bulletin providing guidance on a data furnisher's obligation under the FCRA to conduct a "reasonable investigation" of disputed information. The CFPB states that it is "concerned that, when a furnisher responds to a consumer's dispute, it may, without conducting an investigation, simply direct the consumer reporting agency ("CRA") to delete the item it has furnished." The bulletin highlights the importance of conducting an investigation because it provides a "critical check on the accuracy of furnished items" and allows the furnisher to "learn of a systemic problem, thereby benefitting not only the consumer who raised the dispute, but also other similarly situated consumers who did not submit disputes." The bulletin concludes that by failing to conduct a reasonable investigation, other consumers may be indirectly harmed. The bulletin cautions against simply requesting the information be deleted, stating that a "furnisher should not assume that it ceases to be a furnisher with respect to an item that a consumer disputes simply because it directs the CRA to delete that item... furnishers should not assume that simply deleting that item will generally constitute a reasonable investigation." The CFPB stated that it will continue to monitor furnishers' compliance with the FCRA regarding consumer disputes of information. CFPB Recovers More Than $1 Million for Service Members, Veterans and Families The CFPB announced on March 6, 2014 that it had recovered more than $1 million for service members, veterans and their families who complained to the CFPB about financial products or services. The CFPB noted that service members, veterans and their families submitted more than 14,000 complaints from July, 2011 to February, 2014. The Office of Service Member Affairs, a section of the CFPB, was created to address specific consumer protection concerns for the nation's military community. The priority of the office is to monitor the consumer complaints the CFPB receives from active duty service members, veterans and their families. By and large the top complaints received by the office submitted by the military track with those of the population at large: (1) debt collection practices; (2) student loans; (3) pay day loans; and (4) mortgages.

of 7 Consumer Financial Protection Bureau Preparation & Response Team Jessica Klander, Michael Klutho, Susan Gustad and Christopher Morris The Consumer Financial Protection Bureau (CFPB) is an independent federal agency housed within the Federal Reserve System. Of critical importance to the collection industry, the CFPB has enforcement and supervisory authority over collection professionals, as well as rule-making authority under the Fair Debt Collection Practices Act (FDCPA). The CFPB has expansive power, including the ability to create and enforce its own regulations as well as enforce compliance under the FDCPA, Fair Credit Reporting Act, Truth in Lending Act, and Gramm-Leach-Bliley Act. As part of its broad enforcement powers the CFPB: 1. 2. 3. 4. Conducts investigations of collection agencies auditing compliance with applicable law. Conducts hearings and adjudication proceedings. Issues cease and desist orders. Commences civil actions to impose monetary penalties and equitable relief. Penalties can include rescission of contracts, monetary restitution, public notification of violations, limits on collection activities, and civil penalties ranging from $5,000 to $1,000,000 per day. The investigatory audits performed by the CFPB are broad in scope and can last between six to eight weeks or longer. Given the exhaustive approach of the audits and the risk of high civil penalties, the industry has recommended that collection professionals undergo supervisory examinations of their own processes in advance of a CFPB audit to ensure compliance. Bassford Remele is here to help. Our CFPB Practice Group is dedicated to creditors' rights related to the CFPB. Comprised of attorneys who regularly defend credit professionals and who possess the knowledge and experience necessary to guide agencies through the new regulations and compliance requirements under the CFPB, our Team can: 1. 2. 3. Answer any questions you might have related to the CFPB. Provide guidance on compliance with the CFPB. Perform pre-audit consultation to decrease the risk of an adverse audit. The process may involve an initial review of the client's business records, policies and procedures, an on-site audit of the company's collection practices, consultations with the entity's management, compliance officers and compliance team, the development of additional policies and procedures to ensure CFPB compliance. If you have any questions related to the CFPB or about the services that Bassford Remele can provide, please do not hesitate to contact Michael Klutho or any member of the Team. About Our Law Firm Bassford Remele, A Professional Association, is a full-service litigation firm located in Minneapolis, Minnesota. Founded in 1882, the firm represents local, national, and international clients in all areas of civil litigation and alternative dispute resolution.

of 7 Disclaimer The information you obtain from the Bassford Bulletin is not legal advice and does not establish an attorney/client relationship. Sending an email to Bassford Remele, A Professional Association, is merely a request for information and does not establish an attorney/client relationship. The Firm cannot consider representing you until after we have confirmed that doing so will not create a conflict of interest. Any retention will be confirmed by an engagement letter. Unsolicited information sent to Bassford Remele, A Professional Association, by persons who are not clients of the firm is not subject to any duty of confidentiality on the part of Bassford Remele, A Professional Association. Forward email This email was sent to jnelson@bassford.com by jnelson@bassford.com Update Profile/Email Address Instant removal with SafeUnsubscribe Privacy Policy. Bassford Remele, PA 33 South Sixth Street, Suite 3800 Minneapolis MN 55402