On April 7, 2016 a Judge for the United States District Court, Eastern District of Texas, granted a motion for Summary Judgment against a Dallas-based debt collector, Commercial Recovery Systems, Inc. (CRS), and its owner Timothy L. Ford, in a Federal Trade Commission (FTC) enforcement action.

The court granted injunctive relief against the collection agency based on the numerous Fair Debt Collection Practice Act (FDCPA) and Federal Trade Commission Act (FTCA) violations committed by the firm’s collectors.  The court also held that injunctive relief against the collection agency’s president was appropriate due to his management position and his day-to-day involvement in the collection agency’s operations.  Finally, the court found the collection agency’s president liable for civil penalties for his collection agency’s FDCPA violations because he had the authority to control the company’s collection practices. A copy of the order can be found here.

The Complaint in the case, United States of America v. Commercial Recovery Systems, et.al. (Case No. 4:15-CV-36), was originally filed on January 20, 2015. It alleged the company regularly engaged in the following conduct:

  1. False Claims that Calls Are on Behalf of an Attorney or Judicial Employee
  2. False Litigation Threats
  3. False Garnishment Threats

The Complaint alleged the conduct violated the FTCA by engaging in deceptive Attorney, Litigation, and Garnishment Representations in Violation of Section 5 of the FTC Act.

The Complaint also alleged the conduct violated the FDCPA by False or Misleading Representations in Violation of Section 807 of the FDCPA.

The order shows that in February 2013 the company had entered into Stipulation and Final Agency Order with the Colorado Attorney General to resolve multiple violations of the Colorado Fair Debt Collection Practices Act.

The order also notes that in November 2013, CRS sought bankruptcy protection under Chapter 11. Defendant Tim Ford, CRS’s President, Director, and majority shareholder, testified in CRS’s bankruptcy proceedings that the company’s insolvency resulted, in large part, from a number of Fair Debt Collection Practices Act (“FDCPA”) lawsuits brought by private litigants.

Shortly before filing the Chapter 11 bankruptcy, the company employed approximately 300 employees, but downsized in 2013 to employing approximately 80 collectors.

On December 18, 2015, the FTC filed a motion for summary judgment against all defendants. No response was filed by CRS or Ford.

Editor’s note: A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. The summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial.

In the Summary Judgment Order the Honorable Amos L. Mazzant, United States District Court Judge made a number of findings supporting his decision, including the following:

  1. FDCPA compliance training at CRS was virtually nonexistent, and some collection groups were more FDCPA-compliant than others.
  2. CRS noted that it administered an FDCPA compliance test to all new employees. However, some former employees do not remember any FDCPA training for new hires. According to them, newly hired employees were on the floor collecting the day they were hired.
  3. Part of CRS’s response to the FTC’s discovery requests was the production of a hard drive containing audio recordings of thousands of calls made by CRS collectors between November 1, 2012 and March 21, 2013. Given the volume of recordings, FTC listened to a random sampling of 300 calls to determine whether the database contained any FDCPA violations. The best evidence of CRS’s repeated abusive and deceptive collection tactics, discussed in detail below, is contained in those recordings.
  4. The most common misrepresentation employed by CRS collectors was impersonating attorneys, attorneys’ staff, or judicial employees. Of the 300 random calls analyzed, 77 included such impersonations. In these call recordings, collectors described themselves as attorneys or calling on behalf of attorneys or a law firm, such as by claiming that they were calling from “the Law Offices of CRS and Associates.”

Injunctive Relief

Judge Mazzant ultimately determined that the record provided more than ample evidence to support the allegations in the Complaint; that CRS debt collectors repeatedly and routinely violated the FDCPA; and thus the FTC Act, in multiple ways. The court found that “based upon any one of the numerous violations proven, CRS is liable for injunctive relief.”

The court found:

“Based upon the summary judgment evidence, the Court finds that Ford, as President and owner of CRS, not only played a role in formulating the policies and practices that resulted in the violative acts, but in fact actually set the policies of his company. As the President, he had the authority to fire or otherwise discipline his employees for employing deceptive debt collection tactics. Because he failed to respond to Plaintiff’s First Set of Discovery Requests to Defendant Ford, pursuant to Federal Rule Civil. Procedure 36(a)(3), he has now deemed to have admitted them. Thus, Ford has admitted that he was aware of complaints filed by consumers with the Better Business Bureau and the Federal Trade Commission regarding CRS collectors, that he participated in responding to FDCPA brought against CRS, and that he had the authority to control the debt collection practices of both CRS offices. Therefore, Ford, by virtue of his management positions and his day-to-day involvement in the company’s operations, is subject to injunctive relief.”

Individual Liability

The FTC had also moved for summary judgment asserting that Ford should be held liable for civil penalties.  The court found:

“The summary judgment record establishes that Ford was the sole owner and President of CRS up until November 2013. He received daily updates on the company and represented the company in negotiations with government investigations…… Thus, Ford had the authority to control the company’s collection practices. Therefore, Ford is liable for civil penalties for FDCPA violations by CRS.”

The amount of the civil penalties will be determined at a subsequent trial.

insideARM Perspective

This case should be a sobering reminder to all senior executives in the ARM industry, both at credit grantors and at vendors.

Per the summary judgment order, CRS was, at one time, an agency with 300 employees. The company was not a debt buyer. The company was strictly a third-party servicer for credit grantor clients. There were no allegations in the complaint that the company was calling consumers on bogus or phantom debts. The company was apparently representing legitimate clients.

insideARM is not aware of the company’s former client base. But, assuming all of the findings to be true, it is absolutely mind-boggling that those legitimate clients did not identify the behavior that was occurring. How was the behavior not identified in client audits? Were the clients auditing the company? Was there ever even a site visit? The behavior could have been easily identified during a site visit.

The behavior that was identified is appalling. How it developed and continued is beyond belief. The allegations in the complaint and the findings in the summary judgment order are a checklist of behavior that cannot be allowed at any ARM company.

It will be interesting to see what type of civil penalty will come out of the trial.  The court’s order noted that Ford “drew a salary of up to $200,000 per month from the company until its bankruptcy.” Apparently, running a non-compliant operation can be quite lucrative. It is likely the FTC will seek a very significant civil penalty.

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