Compliance Headaches Shifting to TCPA as Environment Changes

The number of lawsuits filed against debt buyers and collectors claiming violations of the Fair Debt Collection Practices Act (FDCPA) declined seven percent in 2012 compared to 2011 after years of steady increases.

As the principle law governing its activities, the FDCPA has always been at the top of any debt collection executive’s mind. Not only will FDCPA violations cost ARM companies money through consumer lawsuits, but they are the primary driver of law enforcement actions.

Another compliance challenge has been rising, however.

Consumer lawsuits claiming violations of the Telephone Consumer Protection Act (TCPA) increased nearly 34 percent in 2012. And through September, TCPA suits are up a whopping 70 percent in 2013 compared to last year, according to WebRecon LLC.

So why have consumers and their attorneys shifted their focus from the FDCPA to the TCPA?

As more consumers move to a mobile-only phone environment, debt collectors have found it harder to make right party contacts. Under current interpretations of the TCPA, the safest way to contact a mobile number is by manually dialing it (i.e., not using an autodialer). This, of course, leads to fewer contacts.

With fewer contacts come fewer FDCPA cases. With more mobile numbers dialed come more TCPA lawsuits, regardless of merit. And that’s a very important point to emphasize: current law creates ambiguity — and in some cases, paradoxes – when attempting to call mobile numbers for the collection of a debt.

This paradox has been the focus of many ARM industry groups in the past. There has long been a call to clarify the FDCPA to address the issue. But now, there seems to be more focus on the TCPA itself.

ACA International joined the U.S. Chamber of Commerce is its comments directed to the Federal Communications Commission (FCC), the regulatory body charged with enforcing the TCPA. The petition sought clarification from the FCC that predictive dialers that are not used for telemarketing purposes and do not have the current ability to generate and dial random or sequential numbers are not “automatic telephone dialing systems” as defined by TCPA and the FCC’s related rules. Debt collection calls would fall under this clarification.

But there is still ambiguity in the application of the TCPA, and that “gray area” is where lawsuits are born.

There is a third reason why TCPA suits might be up. Earlier in the year, a court decision in a TCPA case, commonly referred to as Soppet, that made TCPA verdicts easier for plaintiffs in certain cases.

What is this Soppet decision all about? The case was covered for insideARM by Alan Kaplinsky, Chair of the Consumer Financial Services Group at Ballard Spahr LLP. Kaplinsky summarized the ruling (by the Seventh Circuit Court of Appeals) by noting that the Court “held that a prior subscriber’s consent does not serve as ‘the prior express consent of the called party’ required by the TCPA for autodialed, non-emergency calls to cell phone numbers.”

But Kaplinsky noted in his conclusion that available penalties may be a driver in a higher volume of TCPA cases. “We continue to see a high volume of class actions against companies alleging TCPA violations,” he wrote. “In part, this is because the penalties are draconian. Violations can yield damages equal to a minimum of the greater of $500 or actual damages per violation, triple damages for willful violations, and unlimited class action liability.”

So there are three possible reasons for a rise in TCPA cases vs. a decline in FDCPA suits: a changing consumer contact environment that puts legal ambiguity at the forefront when contacting mobile numbers, a rise in the volume of attempts made to cell numbers driven by consumer habits, and a statute with higher possible payouts becoming the preferred target for consumers. Regardless of the reasons, ARM companies should be aware that TCPA defense is going to require much more attention going forward.

This article originally appeared in the latest issue of Know Your Debtor, a free quarterly newsletter from insideARM.com and LexisNexis focused on the U.S. consumer environment.