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Financial Services Law Insights and Observations

District Court denied motion to dismiss CFPA and FDCPA claims against debt buyers

Courts CFPB FDCPA Debt Collection Consumer Protection New York


On August 22, the U.S. District Court for the Western District of New York refused to dismiss CFPA and FDCPA claims brought by the CFPB that alleged violations related to misrepresentations made to debtors by debt collectors. The CFPB’s complaint alleged that defendants purchased defaulted consumer debt and then placed it for collection with, or sold it to, a network of debt collectors who consistently violated consumer protection laws by making false statements to debtors. These false statements included informing consumers that (i) they would be sued for failing to pay the debts; (ii) that their credit score would be impacted by paying or not paying the debt; and (iii) that they could face criminal charges for failing to pay the debt. The complaint additionally alleged that defendants were aware of the allegedly unlawful acts by the debt collectors they used through monitoring of the debt collectors and consumer complaints made to defendants.

The CFPB’s complaint alleged violations against a variety of corporate entities responsible for the alleged debt collection practices, as well as individual executives at those entities.  Defendants moved to dismiss the complaint on several grounds. The defendants argued that they are not “covered persons” under the CFPA, because they do not actually collect debts themselves. The district court held that the defendants were “covered persons” under the CFPA since they were engaged in the collection of consumer debt, writing that it would “strain ordinary understanding to say that a company is not engaged in collecting debt when it purchases defaulted debt, places that debt with other companies for collection, and then receives some of the money recovered by those debt collectors.” Similarly, the defendants argued that they are not “debt collectors” under the FDCPA. The court also rejected this argument, reasoning that defendants’ principal purpose was debt collection making them a “debt collector” for FDCPA purposes, because they purchased portfolios of debts and derived most of their revenue from collecting those debts.

The district court also rejected defendants’ arguments that they could not be held vicariously liable for the conduct of the third-party debt collectors under the CFPA or FDCPA, reasoning that parties can be found vicariously liable for the acts of their agents under both statutes. The court held that because the CFPB’s complaint alleged that the defendants exercised authority over the debt collectors, vicarious liability for the violations by the debt collectors was appropriate.

The district court further held that the complaint adequately alleged violations of the CFPA by the individual defendants. The court held that the individual defendants enabled violations of the CFPA, relying on the fact that the individual defendants had both knowledge of the violations and the ability to control the violations, by either providing instructions to the debt collectors or by refusing to place debts with those collectors. Further, the court held that the individual defendants could be liable for “substantially assisting” violations of the CFPA, because the complaint alleged that the individual defendants recklessly disregarded unlawful behavior by the debt collectors and continued to place or sell debts to those collectors.

Finally, defendants also argued that both the CFPA and the FDCPA claims are time barred by the statute of limitations. The court rejected the defendants’ argument that the CFPB’s FDCPA claims were barred by the FDCPA’s one-year statute of limitations, holding that this provision applies only to private plaintiffs. The court held that FDCPA claims brought by the CFPB are subject to the CPFA’s statute of limitations, which bars claims brought more than three years after the CFPB’s discovery of the violations. The court further rejected the defendants’ argument that the claims were barred by this three-year statute of limitations, holding that it is unclear from the complaint when the CFPB became aware of facts constituting the violation and that the receipt of a consumer complaint by the CFPB will not necessarily constitute the date that the CFPB discovered or should have discovered the facts constituting the violation.