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On December 21, 2018, the Maryland Special Appeals Court held that a homeowners association (HOA) is not shielded from liability under the Maryland Consumer Protection Act (MCPA) simply because the law firm used by the HOA to collect certain debts is exempt from the law. According to the opinion, after an HOA was awarded a judgment of over $3,000 against homeowners for unpaid fines, the homeowners filed an action against the HOA asserting violations of the MCPA and the Maryland Consumer Debt Collection Act (MCDCA), and the HOA responded by filing a third-party complaint against its law firm, arguing the firm agreed to indemnify it. The lower court granted summary judgment in favor of the HOA on the MCPA claim, holding that because the statute specifically exempts attorneys, the HOA cannot be held vicariously liable under the statute. Additionally, among other things, the lower court held the homeowners improperly used the MCDCA to dispute the validity of the debt and granted the HOA judgment as a matter of law.
The appellate court disagreed and held that the HOA is not shielded from liability under the MCPA solely because the law firm used to collect the debts is exempt from the statute. The court reasoned that a “debt collector should not be able to hire an attorney to engage in illegal debt collection practices on its behalf as a means of avoiding liability” under the MCPA. The court also vacated the lower court’s judgment in favor of the HOA on the MCDCA claims, concluding that the homeowners were challenging the HOA’s methods in filing liens in the collection of the debt, as opposed to disputing the validity of the debt itself.
On December 20, 2018, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a debt collector, holding the collection letters effectively stated the amount of the debt under the FDCPA. According to the opinion, a consumer received four collection letters from a debt collector stating an account balance of $794.67. The consumer sued the debt collector, alleging the letters were false, deceptive, or misleading and failed to effectively state the amount of the debt in violation of the FDCPA because, according to the terms in the creditor’s online sample agreement, the original creditor could have collected interest on post-charge off fees after the debt collector closed the account. Both parties moved for summary judgment. The court determined the collection letter at issue complied with the FDCPA because the debt collector “sought to collect only the amount due on the date it sent the letter” and was not “trying to collect the listed balance plus the interest running on it or other charges.” Moreover, the court rejected the consumer’s argument that the letter was false, deceptive, or misleading because it failed to include whether the creditor could charge additional interest or other fees on the original debt, determining the letter could not mislead or deceive an unsophisticated consumer. Specifically, citing the U.S. Court of Appeals for the 7th Circuit’s decision in Wahl v. Midland Credit Management, the court stated that a debt collector “need only request the amount it is owed; it need not provide whatever the credit-card company may be owed more than that.” Because a consumer of reasonable intelligence and basic financial knowledge would read the collection letter and determine that he or she owes $794.67, the court granted summary judgment in favor of the debt collector.
On January 3, an Illinois-based for-profit education company settled with 49 state attorneys general, agreeing to forgo collection of nearly $494 million in debts owed by almost 180,000 students nationally. According to the Illinois Attorney General’s announcement, after a seven-year investigation into the company’s practices, the participating states allege that, among other things, the company (i) deceived students about the total costs of enrollment; (ii) failed to adequately disclose that certain programs lacked programmatic accreditation, which would negatively affect a student’s ability to get a license or employment in that field; and (iii) misled prospective students about post-graduate job rates. Under the settlement, the company has agreed to forgo collection of debts owed by students who either attended a company institution that closed before Jan. 1, 2019, or whose final day of attendance at two participating online institutions occurred on or before Dec. 31, 2013. In addition to the debt relief, the settlement also requires the company to, among other things, reform its recruiting and enrollment practices, including providing students with a single page disclosure that covers the (i) anticipated total direct cost; (ii) median debt for completers; (iii) programmatic cohort default rate; (iv) program completion rate; (v) notice concerning transferability of credits; (vi) median earnings for completers; and (vii) the job placement rate.
7th Circuit holds consumers can be expected to read second page of two-page collection letter, affirms dismissal of FDCPA action
On December 7, the U.S. Court of Appeals for the 7th Circuit affirmed the dismissal of a consumer’s class action against a debt collection company for allegedly violating the FDCPA by indicating “additional important information” was on the back of the first page when the required validation notice was actually on the front of the second page. According to the opinion, the consumer alleged the debt collection notice “misleads the unsophisticated consumer by telling him that important information is on the back, but instead providing the validation notice on the front of the second page, thereby ‘overshadowing’ the consumer’s rights” under the FDCPA. The debt collector moved to dismiss the action for failure to state a claim and the district court granted the dismissal and declined to allow the consumer leave to amend the complaint.
On appeal, the 7th Circuit determined that the location of the validation notice—which “is clear, prominent, and readily readable”—did not overshadow the consumer’s FDCPA rights or misrepresent the importance of the notice, notwithstanding the language on the first page indicating the important information would be on the back of the first page, not on the top of the second page. The 7th Circuit explained, “The FDCPA does not say a debt collector must put the validation notice on the first page of a letter. Nor does the FDCPA say the first page of a debt-collection letter must point to the validation notice if it is not on the first page. Nor does the FDCPA say a debt collector must tell a consumer the validation notice is important. Nor does the FDCPA say a debt collector may not tell a consumer that other information is important.” The appellate court rejected the consumer’s unsophisticated consumer argument, concluding that "[e]ven an unsophisticated consumer—maybe especially one—can be expected to read page two of a two-page collection letter." Moreover, the appellate court upheld the denial of the consumer’s request to amend her complaint, noting that no proposed amendment would push the plaintiff’s “original claim into the realm of plausibility.”
Coalition of state Attorneys General announce settlement to resolve allegations concerning debt buyers’ collection and litigation practices
On December 4, the North Carolina Attorney General, along with 41 other state Attorneys General and the District of Columbia, announced a $6 million settlement with a national group of debt buyers to resolve allegations concerning the debt buyers’ collection and litigation practices. According to the press release, the debt buyers allegedly engaged in robo-signing practices by signing and filing large quantities of affidavits in state courts without first verifying the provided information. Under the terms of the settlement, the debt buyers have agreed to (i) completely eliminate or reduce the judgment balances for affected consumers in the participating states; (ii) reform their business practices by carefully verifying the information in affidavits for the courts and present accurate documents in court proceedings; (iii) review original account documents and provide substantiating documentation to consumers free of charge when a consumer disputes a debt; (iv) “maintain proper oversight and training over its employees and the law firms that it uses”; and (v) refrain from reselling debt for two years.
On December 3, the U.S. District Court for the District of New Jersey granted class certification to a group of borrowers alleging that a debt collection company misrepresented late charges accruing on student loan debt after default, in violation of the FDCPA section 1692e, among other sections. The lead plaintiff brought the action against the debt collector after receiving a letter regarding her defaulted federal Perkins student loans, which stated “[d]ue to interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater” even though the plaintiff later learned that Perkins loans cannot accrue late charges after default. After the FDCPA’s 1692e claim survived summary judgment, the plaintiff moved to certify the class, while the debt collector opposed the certification and separately moved to dismiss the class claim for lack of standing. In denying the motion to dismiss and granting certification, the court held the borrower had standing as she met the requirement of showing a concrete and particularized injury, stating “when a debt collector violates Section 1692e by providing false or misleading information, the informational injury that results—i.e., receipt of that false or misleading information—constitutes a concrete harm under Spokeo.” The court found that the borrower met the requirements for class certification, including the numerosity requirement as evidenced by the almost 3,000 letters sent by the debt collection company to New Jersey loan holders. Moreover, the court found that the class claims would predominate over individual ones since there exist common questions of law or fact insofar as class members received the same or substantially similar letters from the collector.
3rd Circuit reverses district court’s collateral estoppel ruling preventing plaintiff from pursuing debt collection claims
On November 29, the U.S. Court of Appeals for the 3rd Circuit reversed a district court’s decision to grant summary judgment to a university and its debt collection firm (appellees) on the grounds that the issue had already been decided in state court, ordering the district court to reconsider the plaintiff/appellant’s discovery motions and whether it can “exercise supplemental jurisdiction” over the appellees’ alleged violation of Pennsylvania law.
The plaintiff/appellant, a former university student, provided the appellees with a new address in Philadelphia after being contacted about unpaid tuition. When the debt remained unpaid, the appellees filed suit against him in Philadelphia municipal court but sent notices to a New Jersey address on file in the university’s system. The plaintiff/appellant did not appear in court and a default judgment was entered against him. The plaintiff/appellant petitioned to reopen the default judgment, arguing that the appellees had intentionally served his old address to avoid the personal service requirement in Philadelphia County. The municipal court dismissed the default judgment, despite finding that the appellees had not engaged in any intentional misconduct. Following a trial on the merits, the Philadelphia municipal court judge again ruled against the plaintiff/appellant for the full amount. Subsequently, the plaintiff/appellant filed a lawsuit in federal court alleging violations of the FDCPA and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law; however, the federal court barred the deceptive service of process claim, finding that the municipal court had already ruled that the debt collectors’ actions were unintentional.
On appeal, the 3rd Circuit found that the district court had erred in ruling that collateral estoppel prevented the plaintiff/appellant from pursuing claims against the appellees simply because the municipal court judge said that he did not think the notices were intentionally served to the old address so a default judgment could be obtained. “Although the [m]unicipal [c]ourt’s finding may meet the first four elements of collateral estoppel, its determination that [a]ppellees did not intentionally serve [the plaintiff/appellant] at the wrong address was not essential to its judgment at that hearing, i.e., vacating the default judgment. In fact, its finding was contrary to this ultimate judgment,” the appellate court concluded. The appellate court also reversed the grant of summary judgment to the appellees on the plaintiff/appellant’s remaining FDCPA claims and remanded them to the district court to determine whether there had been “false and deceptive service of process; misconduct in opposing the opening of default judgment; and misstatements of the case caption, case number and court in the [c]ollection [l]etter.”
On November 16, the U.S. Court of Appeals for the 5th Circuit affirmed a Texas district court’s denial of attorney’s fees in an FDCPA action, concluding the district court did not abuse its discretion in denying the fees based on the “outrageous facts” in the case. The decision results from a lawsuit filed by a consumer against a debt collector, alleging the company violated the FDCPA and the Texas Debt Collection Act (TDCA) by using the words “credit bureau” in its name despite having ceased to function as a consumer reporting agency, and therefore misrepresented itself as a credit bureau in an attempt to collect a debt. The district court adopted a magistrate judge’s recommendation and found the company violated the FDCPA, granted summary judgment in part for the plaintiff (while denying the TDCA claims), and awarded her statutory damages of $1,000. The plaintiff then filed a motion for $130,410 in attorney’ fees, based on her attorney’s hourly rate of $450. The magistrate judge denied the attorney’s fees, noting that although violation of the FDCPA ordinarily justifies awards of attorneys’ fees, the amount claimed was “excessive by orders of magnitude,” and the lawsuit appeared to have been “created by counsel for the purpose of generating, in counsel’s own words, an ‘incredibly high fee request.’” The district court adopted the magistrate judge’s order.
On appeal, the 5th Circuit noted that other circuits have held there can be narrow exceptions to the FDCPA’s attorneys’ fees mandate, including the presence of bad faith conduct on the part of the plaintiff. In determining the “extreme facts” of the case justify the district court’s denial of attorney’s fees, the appeals court noted the almost 290 hours claimed to be worked by the attorneys are not reflected in the pleadings filed, which were “replete with grammatical errors, formatting issues, and improper citations.” The poor craftsmanship of the filings, the court noted, did not justify the $450 hourly rate charged.
7th Circuit affirms summary judgment for repossession company, holds property-retrieval fee is not subject to FDCPA
On October 31, the U.S. Court of Appeals for the 7th Circuit affirmed summary judgment for a third-party repossession company and an auto lender, holding that a fee that the repossession company required to process personal items left in a repossessed car did not constitute an impermissible demand for repayment under the FDCPA. According to the opinion, after a consumer fell behind on her auto payments, the third-party company repossessed her vehicle on behalf of the auto lender. The repossession company, according to the consumer, demanded a $100 payment in order to retrieve personal property she had left in the car. The consumer sued the company and the lender arguing that the retrieval fee was an impermissible debt collection in violation of the FDCPA. In response, the repossession company and the lender moved for summary judgment, arguing that the fee was an administrative handling fee that the lender had agreed to pay to the repossession company—not a fee assessed to the consumer. The lower court agreed.
On appeal, the 7th Circuit determined that the documentary evidence showed that the $100 fee was an administrative fee that the lender agreed to pay to the repossession company, stating “[t]here is no way on this record to view the handling fee as some sort of masked demand for principal payment to [the lender].” The appellate court concluded the consumer did not establish a genuine issue of fact as to whether the repossession company demanded the $100 payment on behalf of the lender and, therefore, affirmed summary judgment in favor of the repossession company and the lender.
On October 31, the U.S. District Court for the Eastern District of Pennsylvania granted class certification for a group of debtors in three states who alleged that the debt collection letters they received that were printed on law firm letterhead violated the FDCPA by falsely implying attorneys reviewed the underlying debts. The debt collector argued against certification because not all of the recipients of the letter at issue had consumer debts covered by the FDCPA, arguing “that there is no administratively feasible way to ascertain class members without doing individualized fact-finding.” The court disagreed, finding the plaintiff met the burden of demonstrating class members can be identified. Specifically, the court noted that the plaintiff’s proposed methodology would rely on the business unit that sent the letters, as well as information in the debt collector’s records, to determine which accounts are covered by the FDCPA. Because the plaintiff “demonstrated an administratively feasible and reliable method for identifying class members,” the court granted class certification.
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer and Dan Ladd to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program