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Financial Services Law Insights and Observations


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  • Court infers receipt of validation notice to allow pro se plaintiffs’ FDCPA claim to survive


    On September 19, the U.S. District Court for the Eastern District of New York granted in part and denied in part a complaint filed by two pro se plaintiffs who alleged that the defendant’s debt collection efforts related a balance due from a timeshare membership program violated the FCRA, TILA, and FDCPA. In reaching its decision, the court explained that complaints filed by pro se pleadings must be construed more liberally than those drafted by lawyers. Notwithstanding this more liberal approach, however, the court still determined that plaintiffs’ TILA and FCRA claims were insufficiently pled.  With respect to the TILA claim, the court stated that plaintiffs failed to specify which provisions were allegedly violated and only alleged that “Defendant has computed and imposed an internal alleged account balance on plaintiff including principal balance, interest rates, fees and terms without property consumer transparency of mode of accounting verification methods,” which was insufficient to allege a TILA violation. The court noted that to the extent it could interpret plaintiffs’ complaint to implicate specific provisions of the FCRA, plaintiffs still failed to state claim under any of the potentially relevant provisions, either because there was no private right of action or there were no facts supporting any alleged claims.

    By contrast, plaintiffs did allege specific provisions of the FDCPA that defendant’s conduct purportedly breached. While the court still concluded that plaintiffs failed to state a claim with regard to most of the cited FDCPA provisions, it determined that plaintiffs had plausibly stated a claim under 15 U.S.C. § 1692g, which, among other things, requires a debt collector to cease debt collection efforts if, within 30 days of receiving a validation notice from the debt collector, a consumer disputes the debt or any portion thereof.

    Although the record did not reflect whether the defendant had sent plaintiffs a validation notice, the court, in liberally construing plaintiffs’ complaint, found it reasonable to “infer” that such notice had been provided to the plaintiffs. Specifically, the court reasoned that plaintiffs’ notarized letter to defendant, titled “Validation of Debt / Claim” was likely sent in response to a validation notice from defendant, and therefore, under Section 1692g, all collection activity should have ceased following receipt of plaintiffs’ letter.

    Courts FDCPA New York TILA FCRA Debt Collection Consumer Finance

  • 9th Circuit affirms summary judgment finding in favor of debt collector in lawsuit over retail card debt collection


    On August 28, the U.S. Court of Appeals for the Ninth Circuit affirmed the decision of a district court to throw out a pair of consolidated punitive class action lawsuits brought against a nationwide debt collector company that alleged the company unlawfully attempted to collect debts incurred on retail-branded credit cards. A three-judge panel held that the debt collector did not “intentionally” violate provisions of the FDCPA when it circulated collection letters that did not disclose the time-barred natures of the debts under Oregon law and rejected the plaintiff’s argument that the district court had erred in granted summary judgment in favor of the company. The 9th Circuit noted that “mistakes about the time-barred status of a debt can be bona fide errors” and that the debt collector company presented evidence indicating that its failure to disclose that certain Oregon debts were time-barred were not intentional. Moreover, the 9th Circuit rejected plaintiff’s claim that a four-year statute of limitations applied to store-branded credit card accounts at the time the collection letters were sent, in part because the debt collector had sound reason to take the position that a six-year statute of limitations applied for an “account stated” under Oregon law. Ultimately, the applicable statute of limitations in this scenario remains “unsettled” under Oregon law. This, along with the fact that the 9th Circuit agreed that the company’s alleged violations were unintentional, resulted in the court’s decision to affirm the summary judgment finding in favor of the debt collector.

    Courts Ninth Circuit FDCPA Oregon Consumer Finance Debt Collection

  • California appeals court reverses dismissal of Rosenthal Act class action


    On August 30, a California Appeals Court (Appeals Court) reversed a lower court’s ruling that a mere alleged debt, whether or not actually due or owing – as opposed to a debt that is, in fact, actually due or owing – is insufficient to state a claim under the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act). Enacted in 1977, the Rosenthal Act aims “to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts.” Plaintiff purchased a home with a previously-installed solar energy system. The previous homeowner and plaintiff reached an agreement whereby the prior homeowner would purchase the energy produced through the system through monthly payments. However, the defendant, the provider of the solar energy system, sent late payment notices to plaintiff demanding that he make monthly payments. Although plaintiff did not engage in a “consumer credit transaction” with the defendant, the Appeals Court found that the plaintiff’s receipt of statements and notices from the defendant constituted money “alleged to be due or owing,” as required to state a claim under the Rosenthal Act. In holding that the plaintiff’s claim “has merit,” the Appeals Court emphasized that the Rosenthal Act was specifically designed to “eliminate the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid,” and “[i]t is difficult to conceive of a more unfair debt collection practice than dunning the wrong person”.

    Courts Appellate Rosenthal Fair Debt Collection Practices Act Class Action Debt Collection Unfair Deceptive Consumer Finance

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


    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.

    Courts CFPB FDCPA Debt Collection Consumer Protection New York

  • CFPB reports on New Mexican consumers’ complaints

    Federal Issues

    On August 10, the CFPB posted a blog entry sharing insights into medical debt and junk fees in New Mexico in advance of CFPB Director Rohit Chopra’s scheduled meeting with New Mexico elected officials this week. The blog entry noted that the CFPB’s public consumer complaint database contains more than 11,600 complaints from New Mexicans, primarily focused on issues with credit products, consumer reporting, and debt collection. The CFPB indicated that almost 18 percent of New Mexico’s population had medical debt (totaling ~$881 million) and the average amount owed per individual is $2,692. Building on the CFPB’s recent hearing on medical billing and collections (covered by InfoBytes here), the CFPB stated that “along with several other states, New Mexico has alerted the CFPB to its concern about fees that consumers are routinely compelled to pay to access consumer financial services or forced to pay for services they do not want.”

    Federal Issues CFPB Medical Debt Debt Collection New Mexico

  • Judge grants MSJ in class action over disputed debt investigation


    On July 28, the U.S. District Court for the Southern District of Alabama granted summary judgment in favor of a defendant third-party debt collector in an FCRA and FDCPA putative class action, holding that the defendant carried out a reasonable investigation following plaintiff’s dispute of the debt it had reported to credit reporting agencies (CRAs) and that the plaintiff failed to establish that the defendant knew or should have known that the debt was inaccurate or invalid. Defendant entered into an asset purchase agreement with another third-party debt collector and reported debts to credit reporting agencies under the name of the non-defendant third-party debt collector, including an account erroneously associated with plaintiff. When defendant received notice that plaintiff disputed the erroneous account information, defendant verified the account information in its system and provided by the CRA, asked the creditor to provide account documentation, and then requested that the CRAs delete their reporting of the account once the creditor failed to provide account documentation within the requested thirty-day period.

    In relation to the FCRA claim, the court found that the defendant “did everything required by the FCRA in response to Plaintiff’s dispute” such that the plaintiff “failed to establish how this investigation was not reasonable” or in violation of the FCRA. The court also found that plaintiff “failed to show that any different result would have occurred had [defendant] conducted any part of its investigation differently.” Finally, plaintiff’s claim failed as a matter of law concerning defendant’s initial report of the debt to the CRAs because the defendant was not required under the FCRA to “investigate the validity of a debt before commencing to report on that account to the CRAs.” While the defendant was prohibited from reporting inaccurate consumer information, no private cause of action exists for violations of this initial reporting provision of the FCRA.

    For the FDCPA claim, the court held that the plaintiff failed to establish that the defendant had knowledge that the debt it reported was not accurate or was otherwise disputed or invalid. Because the CFPB passed Regulation F in November 2021, after the events at question in this litigation, furnishing information regarding a debt to a CRA before communication with plaintiff was not unlawful at that time. Finally, the court found that plaintiff failed to timely assert that defendant violated the FDCPA provision prohibiting false, deceptive, or misleading representation by using the non-defendant third-party debt collector’s name when reporting the account to the CRAs because this allegation was not present in plaintiff’s complaint.

    Courts Third-Party Debt Collection FCRA FDCPA Alabama Credit Reporting Agency Class Action

  • Supreme Court of New York: FDCPA does not require collectors to explain how debt is acquired


    On July 19, the Supreme Court of the State of New York filed an order granting defendants’ motion for summary judgment, ruling that the FDCPA does not require debt collectors to provide debtors with proof of how they came to acquire the debt from the original creditor. One of the defendants purchased plaintiff’s defaulted credit card debt, which was placed with the second defendant for collection. The second defendant sent plaintiff a collection letter that identified the original creditor, along with the last four digits of the account number and identified the current creditor by name. Plaintiff sued, alleging violations of several sections of the FDCPA, claiming the letter was “false, deceptive, and misleading” because he never entered into a transaction with the current creditor and that the defendants reported the alleged debt to the credit reporting agencies. Plaintiff also maintained that prior to filing the lawsuit, he sought to validate the alleged debt but that neither defendant provided information sufficient to establish the current creditor’s ownership of the debt. Defendants filed for summary judgment seeking dismissal of plaintiff’s claims. In granting the motion, the court held that nothing in the FDCPA requires debt collectors “to educate the debtor ‘with proof, or at least a narrative, as to how it came to acquire the debt from [the] original creditor,’” and that the statute does not require plaintiffs to be notified when their debt is sold.

    Courts State Issues FDCPA Debt Collection Consumer Finance New York

  • 9th Circuit partially reverses FDCPA dismissal


    On July 14, the U.S. Court of Appeals for the Ninth Circuit partially affirmed and partially reversed a district court’s dismissal of an FDCPA suit. The district court reviewed plaintiff’s claims under the FDCPA, which alleged that defendants violated the bankruptcy court’s order discharging his debt and knowingly filed a baseless debt collection lawsuit. The district court determined that the claims should be dismissed because (i) debtors do not have a private right of action for violations of the Bankruptcy Code; and (ii) the claim was time-barred due to the FDCPA’s one-year statute of limitations. On appeal, the 9th Circuit affirmed the dismissal of the plaintiff’s claims based on a violation of his bankruptcy discharge order but reversed the dismissal of the plaintiff’s baseless lawsuit claim, holding that it was not barred by the FDCPA’s statute of limitations.

    The 9th Circuit reasoned that the plaintiff “correctly asserts that some litigation acts can constitute independent FDCPA violations and that each such violation triggers its own one-year statute of limitations under the FDCPA.” In making its decision “to determine whether a litigation act constitutes an independent violation of the FDCPA and thus has its own statute of limitations,” the appellate court derived a test, stating: “Under this test, if a debt collector decides to take a certain action during litigation, courts must assess whether that act was the debt collector’s ‘last opportunity to comply’ with the FDCPA.” Because the appellate court determined that service and filing are separate FDCPA violations and plaintiff brought suit within one year of defendants’ state law claim, the 9th Circuit held that plaintiff’s action was timely.

    Courts Appellate Third Circuit Bankruptcy Consumer Finance FDCPA Debt Collection

  • CFPB, states sue company over deceptive student lending and collection

    Federal Issues

    On July 13, the CFPB joined state attorneys general from Washington, Oregon, Delaware, Minnesota, Illinois, Wisconsin, Massachusetts, North Carolina, South Carolina, and Virginia in taking action against an education firm accused of engaging in deceptive marketing and unfair debt collection practices. California’s Department of Financial Protection and Innovation is participating in the action as well. Prior to filing for bankruptcy, the Delaware-based defendant operated a private, for-profit vocational training program for software sales representatives. The joint complaint, filed as an adversary proceeding in the firm’s bankruptcy case, alleges that the defendant charged consumers up to $30,000 for its programs. The complaint further alleges that the defendant encouraged consumers who could not pay upfront to enter into income share agreements, which required minimum payments equal to between 12.5 and 16 percent of their gross income for 4 to 8 years or until they had paid a total of $30,000, whichever came first.

    The complaint asserts that the defendant engaged in deceptive practices by misrepresenting its income share agreement as not a loan and not debt, and mislead borrowers into believing that no payments would need to be made until they received a job offer from a technology company with a minimum annual income of $60,000. The defendant is also accused of failing to disclose important financing terms, such as the amount financed, finance charges, and annual percentage rates, as required by TILA and Regulation Z. The complaint also claims that the defendant hired two debt collection companies to pursue collection activities on defaulted income share loans. One of the defendant debt collectors is accused of engaging in unfair practices by filing debt collection lawsuits in remote jurisdictions where consumers neither resided nor were physically present when the financing agreements were executed. The complaint further alleges the two defendant debt collectors violated the FDCPA and the CFPA by deceptively inducing consumers into settlement agreements and falsely claiming they owed more than they did.

    According to the Bureau and the states, after the Delaware Department of Justice and Delaware courts began scrutinizing the debt collection lawsuits, the defendant unilaterally changed the terms of its contracts with consumers to force them into arbitration even though none of them had agreed to arbitrate their claims. Additionally, the complaint contends that settlement agreements marketed as being “beneficial” to consumers actually released consumers’ claims against the defendant and converted income share loans into revised “settlement agreements” that obligated them to make recurring monthly payments for several years and contained burdensome dispute resolution and collection terms.

    The complaint seeks permanent injunctive relief, monetary relief, consumer redress, and civil money penalties. The CFPB and states are also seeking to void the income share loans.

    Federal Issues State Issues Courts State Attorney General State Regulators CFPB Consumer Finance Student Lending Debt Collection Income Share Agreements Deceptive Unfair UDAAP FDCPA CFPA TILA Regulation Z Enforcement

  • District Court orders individual to pay $148 million in student debt-relief scam


    On July 7, the U.S. District Court for the Central District of California entered a final judgment and order against an individual defendant accused of operating and controlling a deceptive student loan debt relief operation. As previously covered by InfoBytes, in 2019, the CFPB, along with the Minnesota and North Carolina attorneys general and the Los Angeles City Attorney (together, the “states”), announced an action against the student loan debt relief operation for allegedly deceiving thousands of student loan borrowers. The Bureau and the states alleged that since at least 2015, the debt relief operation violated the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), FDCPA, and various state laws by charging and collecting over $95 million in illegal advance fees from student loan borrowers. In addition, the Bureau and the states claimed that the debt relief operation engaged in deceptive practices by misrepresenting the purpose and application of the fees they charged and the nature and benefits of their services. Specifically, the debt relief operation allegedly failed to inform borrowers that, among other things, (i) they would request that the loans be placed in forbearance and interest would continue to accrue during the forbearance period, thereby increasing the borrowers’ overall loan balances; and (ii) it was their practice to submit false information about the borrowers to student loan servicers to try to qualify borrowers for lower monthly payments. The individual defendant was accused of owning, controlling, and managing the student loan debt relief operation, materially participating in the operation’s affairs, and providing substantial assistance or support while knowing or consciously avoiding knowledge that the operation was engaging in illegal conduct.

    The individual defendant was held liable, jointly and severally, in the amount of approximately $95,057,757, for the purpose of providing redress to affected borrowers. Because the individual defendant was found to have recklessly violated the TSR and the CFPA, the court also imposed second-tier civil monetary penalties of $147,985,000 to the Bureau, of which $5,000 will be paid to each state. The final judgment also imposes various forms of injunctive relief, including permanent bans on engaging in consumer financial products or services and violating the TSR, CFPA, and similar laws in Minnesota, North Carolina, and California. The individual defendant is also prohibited from disclosing, using, or benefiting from customer information obtained in connection with the offering or providing of the debt relief services, and may not “attempt to collect, sell, assign, or otherwise transfer any right to collect payment from any consumer who purchased or agreed to purchase” a debt relief service from any of the defendants.

    Courts Federal Issues State Issues CFPB Consumer Finance Enforcement Student Lending Debt Relief State Attorney General CFPA TSR FDCPA Debt Collection Settlement


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