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Financial Services Law Insights and Observations

District court voids debt collectors’ $2.5 million jury award

Courts Credit Repair FCRA Debt Collection FDCPA Credit Report Fraud

Courts

On February 6, the U.S. District Court for the Northern District of Texas vacated a jury award of $2.5 million in favor of two nationwide debt collection agencies (plaintiffs), in an action alleging fraud by a law firm and vendor (defendants) in their provision of credit repair services. According to the opinion, the plaintiffs claimed that the defendants ran “a fraudulent credit repair scheme” in which the defendants “prey[ed] on financially troubled consumers by drafting, signing, and mailing frivolous dispute correspondences—all using [the defendant’s] patented software that generates context-based unique letters—in the name of consumers, without the consumer’s specific knowledge or consent, and without identifying that the letters are from a law firm, rather than a consumer,” in violation of the FDCPA and the FCRA. The defendant law firm responded that all of its credit repair clients provided consent for the law firm to send the letters on their behalf in an effort to improve their credit. After a six day trial, the defendants filed an amended motion for judgment as a matter of law, claiming the plaintiffs had not met their burden of proof on several elements of their fraud claims. The court “reserved ruling on the motion and stated that it would consider the arguments raised in the motion post-verdict, as necessary.” After the jury found in favor of the plaintiffs and awarded them $2.5 million in damages, the defendants filed a renewed motion for judgment as a matter of law, arguing that the plaintiffs had not shown any “material misrepresentation” or “material false statement” by the defendants, and further, that the plaintiffs did not show a “reasonable reliance” on such statements, or that the defendants had any duty to disclose facts to the plaintiffs.

According to the opinion, the defendants’ motion for judgment as a matter of law called into question the “legal sufficiency” of the plaintiffs’ evidence in support of the jury’s verdict. In granting the motion and vacating the jury award in favor of the plaintiffs, the court held that the plaintiffs failed to show a material false statement by the defendants, and therefore the evidence could not support the jury’s fraud verdict.

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