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CFPB argues eviction disclosure rule does not require false speech
On May 11, the CFPB urged the U.S. District Court for the Middle District of Tennessee to deny a request for a temporary injunction of a CFPB rule that would require all landlords to disclose to tenants federal protections put in place as a result of the ongoing Covid-19 pandemic, arguing that the rule does not require false speech and is justified by the First Amendment. As previously covered by InfoBytes, the plaintiffs, including members of the National Association of Residential Property Managers, sued the CFPB asserting the Bureau’s recently issued interim final rule (IFR) violates their First Amendment rights. The IFR amended Regulation F to require debt collectors to provide tenants clear and conspicuous written notice alerting them of their rights under the CDC’s moratorium on evictions in response to the Covid-19 pandemic (covered by InfoBytes here). The plaintiffs alleged that the IFR violates the First Amendment because it “mandates untrue speech and encourages plainly misleading speech” by requiring disclosures about a moratorium that has been challenged or invalidated by several federal courts, including the U.S. Court of Appeals for the Sixth Circuit. The CFPB asked the court not to grant the plaintiffs’ request for the temporary injunction, pointing out that the “plaintiffs fail to demonstrate that they are entitled to the extraordinary relief they seek.” The brief also notes that “requiring debt collectors to provide routine, factual notification of rights or legal protections that consumers ‘may’ have, in jurisdictions where the CDC Order applies, does not compel false speech and plainly passes First Amendment muster.”
District Court allows FDCPA debt dispute to proceed
On April 26, the U.S. District Court for the Northern District of Alabama partially granted a defendant debt collector’s motion for summary judgment concerning alleged FCRA and FDCPA violations. According to the opinion, the defendant sent a dunning letter to the plaintiff’s son seeking to recover unpaid debt. The plaintiff disputed the amount of debt owed and asked that the debt not be reported to the CRAs. However, two years later the son noticed the debt was included on his credit report and wrote to a CRA to dispute the debt. The defendant conducted an investigation to verify the debt and asserted that it told the CRAs that the son continued to dispute the debt. The credit reports the son obtained after the investigation, however, did not include a notation on his credit report showing the debt as disputed. The plaintiff brought suit on behalf of his son alleging the defendant violated the FCRA by failing to investigate the disputed debt, and the FDCPA by failing to communicate with the CRAs and misrepresenting the amount of the debt. The court granted summary judgment on the FCRA claim, finding that the dispute as to the debt owed was based on a legal defense not a factual inaccuracy, and that “the FCRA makes a furnisher liable for failing to report a dispute only if the dispute is meritorious.” The court, however, permitted the FDCPA claim predicated on the alleged failure to communicate with the CRA to proceed to trial because there is no analogous requirement that the dispute be meritorious to state a claim. The court dismissed the FDCPA claim predicated on the dunning letter for lack of standing.
CFPB sued over Covid-19 FDCPA eviction rule
On May 3, plaintiffs, including members of the National Association of Residential Property Managers, sued the CFPB asserting the Bureau’s recently issued interim final rule (IFR) violates their First Amendment rights. As previously covered by InfoBytes, the IFR amended Regulation F to require debt collectors to provide tenants clear and conspicuous written notice alerting them of their rights under the CDC’s moratorium on evictions in response to the Covid-19 pandemic. Under the IFR, failure to provide notice is considered a violation of the FDCPA. The plaintiffs argue that the moratorium, however, has been challenged and invalidated by several federal courts, including the U.S. Court of Appeals for the Sixth Circuit. As such, the plaintiffs contend that the IFR compels “false speech” and “requir[es p]laintiffs to lie about the lawfulness and availability” of consumers’ rights under the moratorium. The complaint asks the court to “enjoin this CFPB policy, declare it unlawful, and set it aside.”
District Court says “state of confusion” not an injury under the FDCPA
On April 26, the U.S. District Court for the Northern District of Illinois granted a defendant debt collector’s request for summary judgment and vacated a class certification order following recent decisions issued by the U.S. Court of Appeals for the Seventh Circuit, in which the appellate court held that “the state of confusion is not itself an injury.” The court’s order reversed an earlier ruling that granted class certification and partial summary judgment in favor of a class of Illinois consumers who alleged that the defendant sent misleading or confusing dunning letters that violated the FDCPA by incorrectly identifying the name of the creditor. However, after reconsidering several 7th Circuit holdings (see InfoBytes coverage of Pennell v. Global Trust Management, LLC here), the court concluded that in the absence of any evidence showing that the plaintiff suffered a concrete injury, the plaintiff lacked standing to bring his FDCPA claims. Specifically, the court held that the plaintiff failed to claim that his confusion led him to take any actions to his detriment. Being merely confused is not a concrete injury, the court ruled, emphasizing that the plaintiff “needed to do more than demonstrate a threat that he would fail to exercise his rights because he deemed the letter a scam—he must have actually failed to exercise those rights and suffered some tangible adverse consequence as a result.”
CFPB alleges deceptive advertising by NJ reverse-mortgage company
On April 27, the CFPB announced a consent order against a nationwide, New Jersey-based mortgage broker and direct lender for allegedly sending deceptive loan advertisements to hundreds of thousands of older borrowers. According to the CFPB, the respondent’s advertisements and letters violated the Mortgage Acts and Practices Advertising Rule (MAP Rule), TILA, and the CFPA, by, among other things; (i) misrepresenting the costs of reverse mortgages, including fees, associated taxes, and insurance; (ii) failing to inform borrowers that if they did not continue to pay taxes or insurance they were at risk of losing their homes; (iii) creating the impression that consumers had a preexisting relationship with the lender; and (iv) informing consumers that they were preapproved for specific loan amounts and likely to obtain particular terms or refinancing. Under the terms of the consent order, the respondent is required to pay a $140,000 civil money penalty. Additionally, an advertising compliance official must review the respondent’s mortgage advertisement template before it is put into use in an advertisement “to ensure that it is compliant with the MAP Rule, Regulation Z, TILA, the CFPA,” as well as the consent order. The respondent must also develop and provide the CFPB a “comprehensive compliance plan designed to ensure that Respondent’s mortgage advertising complies with all applicable Federal consumer financial laws and the terms of this Order.”
DFPI issues proposal on debt collector licensing applications
Recently, the California Department of Financial Protection and Innovation (DFPI) issued a notice of proposed rulemaking (NPRM) to adopt new requirements for debt collectors seeking to obtain a license to operate in the state. As previously covered by InfoBytes last September, California enacted the “Debt Collection Licensing Act” (the Act), which requires a person engaging in the business of debt collecting in the state, as defined by the Act, to be licensed and provides for the regulation and oversight of debt collectors by DFPI. Under the Act, debt collection licenses will be required starting January 1, 2022; however, debt collectors who submit applications before January 1, 2022 will be allowed to operate while their applications are pending.
Among other things, the NPRM seeks to:
- Include new sections for definitions of key terms, such as affiliate, debt buyer and debt collector.
- Adopt several licensing application forms and require applicants to apply for a license through the Nationwide Multistate Licensing System & Registry (NMLS).
- Provide requirements for obtaining a debt collector license, including for affiliates applying for a single license.
- Add other licensure requirements, including requiring applications to (i) identify all direct owners, executive officers, and indirect owners; (ii) include the principal place of business, in addition to all branch locations; (iii) submit background checks and fingerprints; (iv) submit to a credit report check; and (v) post surety bonds of at least $25,000.
- Specify the information required to enable the Commissioner of Financial Protection and Innovation to investigate applicants to determine whether they meet the standards for licensure.
- Outline the process for challenging information entered in NMLS, as well as the grounds for which the Commissioner may deny an application.
According to DFPI’s notice, if adopted, the final rule would take effect on or about November 19, 2021 and permit debt collectors to apply for a license prior to January 1, 2022. Additionally, DFPI announced its intention to adopt additional regulations later in 2022 to specify the requirements for maintaining books and records and set forth the amounts required for a surety bond based on a licensee’s volume of debt collection activity.
Comments on the NPRM are due by June 8.
District Court: Identity theft alone is not enough to remove allegedly fraudulent debt from credit report
On April 20, the U.S. District Court for the Southern District of California granted a defendant debt collector’s motion for summary judgment, ruling that claiming to be a victim of identity theft alone is not enough to have a collection item removed from a credit report, or to give rise to an FDCPA violation. In 2014, the plaintiff purportedly obtained a payday loan from a lender who ultimately assigned the loan to the defendant for collection. In 2019, the plaintiff called the defendant to verbally dispute the debt as fraudulent after seeing the loan on her credit report. The defendant continued to report the loan to the consumer reporting agencies (CRAs), but marked the account as disputed, and informed the plaintiff of measures she needed to take to have the item removed from her credit report, including instructions for filing an identity theft affidavit. After an attorney representing the plaintiff submitted a formal written dispute of the debt, the defendant responded with the required verification and continued reporting the debt until the account was recalled by the lender. At this point the loan record was deleted and the defendant stopped reporting the loan account to the CRAs. The plaintiff filed suit alleging the defendant violated FDCPA Sections 1692e and 1692f and various state laws by continuing to report the debt after it was notified of the potential fraud. The court disagreed, stating, “there was nothing about [the defendant’s] statements that would confuse or mislead even the least sophisticated debtor’s attempt to remove the fraudulent account from their credit report,” the court wrote, adding that none of the defendant’s communications were false, deceptive, or misleading, nor did they undermine the plaintiff’s “ability to intelligently choose her action concerning the loan account.”
11th Circuit: Outsourcing debt collection letters can violate FDCPA
On April 21, the U.S. Court of Appeals for the Eleventh Circuit held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” According to the opinion, the plaintiff’s medical debt was assigned to the defendant debt collector, who, in turn, hired a mail vendor to produce a dunning letter in the course of collecting the outstanding debt. In order to produce the letter, information about the plaintiff was allegedly electronically transmitted from the defendant to the mail vendor, including his status as a debtor, the exact balance of the debt, its origin, and other personal information. The plaintiff filed suit, claiming the disclosure of the information to the mail vendor violated the FDCPA’s third-party disclosure provisions, which the district court dismissed for failure to state a claim.
On appeal, the 11th Circuit reviewed whether a violation of § 1692c(b) gives rise to a concrete injury under Article III, and whether the defendant’s communication with the mail vendor was “in connection with the collection of any debt.” In reversing the district court’s ruling, the appellate court determined that communicating debt-related personal information with the third-party mail vendor is a concrete injury under Article III. Even though the plaintiff did not allege a tangible injury, the appellate court held, in a matter of first impression, that under the circumstances, the plaintiff alleged a communication “in connection with the collection of any debt” within the meaning of § 1692c(b). In choosing this interpretation over the defendant’s “‘industry practice argument,’” in which the defendant referred to the widespread use of mail vendors and the relative lack of FDCPA suits brought against debt collectors who use these vendors, the 11th Circuit recognized that its interpretation of the statute may require debt collectors to in-source many of the services previously outsourced to third-parties at a potentially great cost. “We recognize, as well, that those costs may not purchase much in the way of ‘real’ consumer privacy, as we doubt that the [mail vendors] of the world routinely read, care about, or abuse the information that debt collectors transmit to them,” the appellate court wrote, adding, “Even so, our obligation is to interpret the law as written, whether or not we think the resulting consequences are particularly sensible or desirable.”
CFPB, NY AG sue debt collector to seize transferred property
On April 22, the CFPB and the New York attorney general filed a complaint against the owner of a now-defunct debt-collection firm for allegedly transferring ownership of his $1.6 million home to his wife and daughter for $1 shortly after he received a civil investigative demand and learned that the Bureau and the AG were conducting an investigation into his debt-collection activities. As previously covered by InfoBytes, the Bureau and the AG reached settlements in 2019 with the debt collection operation to resolve allegations that the defendants established and operated a network of companies that harassed and/or deceived consumers into paying inflated debts or amounts they may not have owed. The terms of the settlements imposed civil money penalties and consumer redress and permanently banned the defendants from acting as debt collectors. According to the complaint, the owner defendant has paid nothing toward satisfying the 2019 settlement, nor has he cooperated with the Bureau and the AG’s efforts to obtain relevant financial information. The complaint further claims that the transfer of the property was a fraudulent transfer under the Federal Debt Collection Procedures Act and made with the intent to defraud (a violation of the New York Debtor and Creditor Law), and alleges that the owner defendant “removed and concealed assets in an effort to render the Judgment obtained by the Government Plaintiffs uncollectable.” Moreover, because the property was allegedly “transferred with intent to hinder, delay, or defraud a creditor,” the complaint contends that the owner defendant is “not entitled to claim any homestead exemption.” The complaint asks the court to void the property transfer and to allow seizure of the property. Additionally, the Bureau and the AG request that the house be sold with all proceeds going towards the owner defendant’s 2019 settlement, and seek a monetary judgment against the owner defendant’s wife and daughter for the value of the property as transferees of the fraudulent conveyance of the property.
CFPB updates debt collection small entity compliance guide
On April 16, the CFPB updated its small entity compliance guide to incorporate amendments in the December 2020 debt collection rule (covered by InfoBytes here). Updates to the guide, originally issued in January (covered by InfoBytes here), include: (i) a new section discussing the prohibition against legal action and threats of legal action to collect time-barred debt; (ii) a new section discussing the prohibition on passive collection; (iii) the incorporation of requirements and guidance on providing validation information; (iv) an updated discussion of the prohibition against overshadowing consumer rights to incorporate reference to the safe harbor; (v) an updated discussion of requests for original-creditor information to include reference to applicable requirements if the current creditor and the original creditor are the same; and (vi) a new annotated version of the model validation notice in Appendix B of the December 2020 Rule. Miscellaneous administrative changes have been made throughout the guide as well.