2021 was an extremely active and unusual year for case law, regulatory developments, and M&A activity in the ARM industry. Here's my “year in review” for what was nothing short of an exhausting year.
Following years of uncertainty over the definition of an auto-dialer, the Supreme Court finally put this to bed. Sort of. The court determined that “to qualify as an automatic telephone dialing system under the Telephone Consumer Protection Act (TCPA), a device must have the capacity to either store a number using a random or sequential number generator, or to produce a number using a random or sequential generator.” That was great, except that the infamous footnote 7 included an example with an important nuance that suggests an auto-dialer might still qualify if it uses a random generator to determine the order in which to call numbers from a pre-produced list. So, TCPA litigation continues, just in a different form.
Hunstein v. Preferred Collection & Management Services
The mother of all cases affecting the industry this year, Hunstein v. Preferred Collection & Management Services came out of nowhere. The gist of this case is that the 11th Circuit said it’s a 3rd party disclosure violation under the Fair Det Collection Practices Act (FDCPA) to send consumer data to a letter vendor for the purpose of producing collection notices. And, there has been an inundation of copycat cases filed nationwide. Of course, in addition to letter vendors, the concern was that this claim would be expanded to all types of vendors that are experts in providing specialized services.
We’ve covered the many developments of Hunstein over the course of this year. From the initial ruling to the substitute opinion, to the Eleventh Circuit’s decision to vacate the original ruling, to the decision to consider standing only during the en banc hearing, this case was of great interest to the ARM industry for obvious reasons. While the en banc hearing will take place in February 2022, the court’s instruction for briefs focusing on standing only means that while, if the matter is dismissed based on standing in federal courts, the same premise could continue to be used in state courts. The overall result of this matter remains to be seen, but the impact seems as though it will be less significant than initially feared.
Unusually, this was a second Supreme Court case in the same year that impacted the collection industry. This one was about standing, and gives us “No concrete harm, no standing.”
While Hunstein and TransUnion deal with fundamentally different issues, they have become increasingly intertwined in deciding where and whether a consumer can bring a claim for an alleged ‘Hunstein’ violation, since it’s unlikely that actual concrete harm would come from a company sharing data with a 3rd party like a letter vendor.
If the cases above didn’t exist, this onee would likely be getting a lot more attention. As we all know, a collector must verify the identity of a consumer before disclosing the existence of a debt to make sure they’ve got the right party. This “who's on first” conundrum is something we’ve highlighted with regulators and advocates a lot over the last several years. This case established that a collector did not violate the FDCPA by stating it was a ‘financial services company’ calling about a ‘personal business matter.’
Two significant things about this particular case are 1) the court looked at the totality of the situation and acknowledged the ‘caught-between-a-rock-and-a-hard place’ situation for the collector and 2) it highlights how critical it is to have thorough policies and procedures in writing and - most importantly - followed. Footnote 9 of the decision spells out MRS’s procedures, which perfectly track the FDCPA, and the call recording provides evidence that the procedures were followed. It’s likely this case will become important in the context of implementing Reg F’s limited content message.
At the federal level, the CFPB leadership transitioned twice this year, as former president Trump’s appointee Kathy Kraninger was dismissed (courtesy of another Supreme Court decision) and Dave Uejio stepped in. Then, President Biden’s pick, Rohit Chopra, was finally confirmed and took the reins.
These transitions added to the extended uncertainty around the debt collection rule. We all believed the release of Regulation F was imminent under Director Cordray in late 2016, only to be shelved when he left and announced he would be running for Governor in Ohio. Although the final rule was released in October 2020, the actual implementation date, or whether it would take effect at all, was in doubt until well into 2021. As we now know, Richard Cordray was not successful in his bid for governor, however, he has been busy and recently resurfaced as President Biden's pick to run Federal Student Aid at the Department of Education.
Federal Student Loan Collections
I covered the years-long litigation over the large PCA contract, which ended in July of 2019 with the Court of Federal Claims closing the door on the large collection agencies. This left the contract in the hands of the small agencies, with the threat by the department of ed that the days of the PCAs are numbered because it would be moving to a different servicing model under its NextGen system.
Then the pandemic brought a 2-year moratorium on federal student loan interest and payments and prohibited any outreach by collectors. This basically forced some of the few remaining collectors out of business.
Just last month I'm told that FSA met with those private collection companies and recalled all remaining accounts. And with that, we've since seen the final demise of the long-running federal student loan private debt collection program (at least as we've come to know it).
Without dwelling on this, it’s safe to say that 2021 was the year of reading and implementing Reg F. The CFPB released a series of FAQs on the limited content message and more general guidance throughout 2021, as well as providing the Spanish Model Validation Notice in October, 2021. Of course, this story is still being written, and the coming year will reveal the impacts on both businesses and consumers of some of the important provisions like 7-in-7 and the ability to communicate electronically.
Remember robocalls, call blocking, and call labeling? This was a major concern in 2018-2019 before the pandemic overshadowed everything else. Well, the STIR/SHAKEN component of the 2019 Pallone-Thune TRACED Act took effect July 1, 2021.
STIR/SHAKEN is a framework to verify the point of origination of a call so it can be traced back to where it started, should illegal activity be discovered in relation to a phone number’s usage. It should reduce the spoofing problem. Now, “Know your Customer” meets the telecom industry because we need to know any entity that is originating, facilitating, or terminating call traffic. Enter the concept of “attestation”. Attestation is basically the level of confidence a carrier has in who has originated the call it is passing along.
But who gets to attest? Who can be trusted to say, this caller is who they say they are? We’re familiar with the verification of a consumer’s identity. Robocalling has introduced the need to verify the identity of entities in the world of telecommunications, just like it exists in banking. I think we’ll hear a lot more about this in 2022. The bottom line on this is that, even with STIR/SHAKEN, AI-driven reputational analytics are going to continue to play a key role in call delivery.
Reassigned Number Database
The long-awaited FCC reassigned number database finally launched. Due to privacy concerns, though, the database includes only two data points: the cell phone number and reassignment dates. Basically, this means the database can be used to identify reassigned numbers, but not wrong numbers. This also introduces a new data point to be tracked: the last good date. I’m sure 2022 will bring a variety of discussion around this subject.
Remote WorkWhen we all got sent home because of the pandemic in March of 2020, many states issued emergency orders to allow collectors to work remotely. As these orders expired, many were left hanging. In 2021 Maryland, Minnesota, and Connecticut all came out with permanent or long-term guidance allowing remote work to continue but (like many other things) this practice still faces a patchwork of rules across the country. Also of note is that Minnesota announced this year that debt buyers will now require a license, with applications due by January 1st, 2022.
CaliforniaThe Governor of California approved both the state’s debt collection licensing act and its consumer financial protection law in the Fall of 2020 (the deadline to submit license applications is December 31, 2021). And, the California mini-CFPB opened for business on January 4, 2021,
Medical Collections in Maryland, Nevada, and New MexicoNew state laws took effect this year in Maryland, Nevada and New Mexico. Notably, Nevada enacted a law requiring (among other things) a 60-day notification period before collections can begin. Notice must be sent via certified letter and voluntary payments can only be accepted during that window if the consumer was provided notice that they do not have to pay. There is a lawsuit pending and many open questions remain about this law.
2021 was a year of major M&A activity, especially among technology firms. These are just a few highlights. I have no doubt that Reg F and other forces driving the need to implement digital strategies will cause this trend to continue into 2022.
- Ontario Systems (now Finvi) acquired Pairity (2020) and Katabat (2021)
- TransUnion acquired Neustar
- TSI acquired Account Control Technology Holdings
- REPAY acquired Billing Tree
- Payment platform Remitter acquired collection agency Mercantile Adjustment Bureau
- Livevox went public
All that being said (and wow, it was a lot), if anyone wants to pray to the legal and regulatory gods for a quiet year in 2022, I wouldn’t complain.