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On October 30, a third-party debt collector and its affiliates (defendants) entered into a stipulated final judgment in the Superior Court of California to settle a consumer protection lawsuit brought by the state of California over allegedly illegal debt collection calling practices. According to a press release issued by the Los Angeles County District Attorney, the defendants allegedly violated California’s Rosenthal Fair Debt Collection Practices Act, the FDCPA, and the TCPA by calling consumers with “excessive frequency,” continuing to call consumers even after being advised that they had reached the wrong number, and using a “predictive dialer” to place calls to consumers’ cell phones without their consent. By entering into the judgment, the defendants—who have not admitted to the allegations in the complaint—will, among other things, (i) pay $1 million in monetary relief; (ii) pay an $8 million civil penalty; (iii) maintain records of calls and complaints; (iv) conduct compliance training for employees responsible for outbound debt collection calls; and (v) conduct an annual third-party audit to ensure compliance with the settlement.
On November 1, the FTC announced a joint action with the New York Attorney General against a New York-based debt collection company for allegedly violating the FTC Act, the FDCPA, and New York state law by using false or deceptive tactics to collect money from consumers, sometimes resulting in the consumer paying more than what they allegedly owed. According to the complaint, the company’s employees threatened consumers with arrest or lawsuits while falsely posing as law enforcement officials or attorneys. Additionally, the employees allegedly added “more pressure” to consumers by telling them they owed more than the company’s records indicated they did, using forms to show a higher balance than the actual client balance—a practice known as “overbiffing.” On October 25, the U.S. District Court for the Western District of New York granted a temporary restraining order, halting the company’s allegedly illegal activity and freezing the company’s assets. The complaint seeks a (i) permanent injunction; (ii) consumer redress; and (iii) civil money penalties under New York law.
Interestingly, as covered by InfoBytes here, FTC Commissioner Rohit Chopra issued a concurring statement in another recent FTC action, suggesting the FTC should seek to partner with other enforcement agencies that have the authority to obtain monetary settlements from FTC targets. In this complaint, the New York Attorney General is seeking civil money penalties against the debt collectors under New York General Business Law § 350-d.
On October 18, the Colorado Court of Appeals held that a debt collector’s second collection letter violated the Colorado Fair Debt Collection Practices Act (CFDCPA) requirement for proper notification of the consumer’s right to dispute and request validation of the debt, reversing the lower court’s ruling. According to the opinion, a consumer filed a complaint against the debt collector alleging the two letters she received violated the CFDCPA, and the lower court disagreed, granting summary judgment in favor of the debt collector. Upon review, the appeals court determined that the first letter contained all the disclosures required under the CFDCPA but that the debt collector’s second letter, which prominently used the bold and capitalized phrase "we cannot help you unless you call," overshadowed or contradicted the statutorily required disclosures made by the company in the first letter. Specifically, the court concluded that the second letter, which arrived within the thirty-day statutory period initiated by the first letter, was “capable of being reasonably interpreted by the least sophisticated consumer as changing the manner in which the consumer was required by law to dispute the debt” and is therefore deceptive or misleading in violation of the CFDCPA.
On October 19, the U.S. District Court for the Northern District of Ohio entered an order rejecting a request that the CFPB pay $1.2 million in attorney’s fees after the Bureau lost its debt collection lawsuit, finding no evidence of bad faith. As previously covered by InfoBytes, the court entered judgment against the Bureau on all counts after ruling that the agency failed to meet its burden to show that the debt collectors mislead consumers when it sent demand letters on law firm letterhead even though the attorneys at the firm were not meaningfully involved in preparing those letters.
According to the opinion, the law firm argued that it was entitled to attorneys’ fees under the Equal Access to Justice Act because, among other things, it suffered reputation harm and expended significant resources in its defense. Furthermore, the law firm claimed that the Bureau knew or should have known its claims were meritless. But the court decided otherwise, pointing to the advisory jury’s findings that the law firm’s debt collection letters to some consumers were “false, deceptive, or misleading” and acknowledging the Bureau’s reliance on expert testimony and its survival of summary judgment and judgment on the pleadings. The court found that even if the litigation was “an overreach based on facts, or that the Bureau was attempting to expand consumer protection laws past their useful purpose,” there is no evidence to suggest the suit was targeted or in bad faith.
New York City Department of Consumer Affairs sues for-profit college for deceptive and predatory lending practices
On October 19, New York City Department of Consumer Affairs (DCA) announced that it filed suit in New York County Supreme Court against a for-profit college alleging deceptive and predatory lending practices that violate NYC Consumer Protection Law and local debt collection rules. The DCA alleges that college recruiters engaged in deceptive practices such as (i) masquerading federal loan applications as scholarships; (ii) steering students towards college loans and referring to them as “payment plans”; and (iii) deceiving students about institutional grants by failing to disclose that they require students to obtain the maximum amount of federal loans available before a grant can be awarded. DCA also alleges that the for-profit college violated debt collection laws by concealing its identity on invoices when collecting debt, and seeking payments from graduates for debts not owed.
On October 18, the U.S. Court of Appeals for the 7th Circuit held that an individual is a “qualified consumer” under the FDCPA, even when he is alleged by debt collectors to owe debts that he claims he does not owe. According to the opinion, a credit card was fraudulently opened in the plaintiff appellant’s name and was charged off, after default, to a debt collector who filed suit in an attempt to collect the debt. After the small-claims collection case was dismissed, the plaintiff appellant sued the debt collector for alleged violations of the FDCPA and the Illinois Collection Agency Act. The district court dismissed the action, holding that, to be a “consumer” under FDCPA, the individual must “allege he actually owed a debt.” On appeal, the 7th Circuit reversed. It held that the plain language of FDCPA covers individuals “allegedly obligated to pay” a debt, which includes “obligations alleged by the debt collector as well.” As a result, individuals who are alleged by debt collectors to owe debts are consumers under the FDCPA, even if they deny having any connection to the debt or any obligation to pay it.
Colorado Supreme Court affirms that tort claims are not “debts” under Colorado’s Fair Debt Collection Practices Act
On October 15, the Colorado Supreme Court issued an opinion affirming the judgment of the appeals court dismissing a Colorado Fair Debt Collection Practices Act (CFDCPA) action involving a tort claim. According to the opinion, the consumer alleged that a law firm representing a subrogee auto-insurance company violated the CFDCPA when the firm obtained a judgment against her for damages in tort. In affirming the appeals court, the supreme court held that that damages arising from the tort does not qualify as a debt under the CFDCPA. The court reasoned that because a tort does not obligate the tortfeasor to pay for damages, it cannot be a transaction giving rise to an obligation to pay money and is therefore not a “debt” within the meaning of the CFDCPA.
In its decision, the Court reasoned that both the federal and state FDCPA “clearly exclude from the definition of debt any obligation to pay money for many, if not all, non-consumer related purpose.” The Court concluded that “because an insurance contract providing for the subrogation of the rights of a damaged insured is not a transaction giving rise to an obligation of the tortfeasor to pay money, but merely changes the person to whom the tortfeasor’s obligation to pay is owed,” it is not a transaction that creates debt under the CFDCPA.
On October 17, the Office of Information and Regulatory Affairs released the CFPB’s fall 2018 rulemaking agenda. According to the Bureau’s preamble, the information presented is current as of August 30 and represents regulatory matters it “reasonably anticipates” having under consideration during the period of October 1, 2018, to September 30, 2019. The Bureau also states it plans on “reexamining the requirements of [ECOA] in light of recent Supreme Court case law and the Congressional disapproval of a prior Bureau bulletin concerning indirect auto lender compliance with ECOA and its implementing regulations.”
Key rulemaking initiatives include:
- Property Assessed Clean Energy Loans (PACE): The Bureau is planning to complete an assessment of its 2013 rules for assessing consumers’ ability to repay mortgage loans by January 2019, which will inform the drafting of a request for information or advance notice of proposed rulemaking (ANPR) on PACE issues to facilitate the Bureau’s rulemaking process.
- HMDA/Regulation C: The Bureau plans to follow-up on its action in August 2017 to amend Regulation C to increase the threshold for collecting and reporting data with respect to open-end lines of credit for a period of two years so that financial institutions originating fewer than 500 open-end lines of credit in either of the preceding two years would not be required to begin collecting such data until January 1, 2020.
- Debt Collection: The Bureau states it plans to issue an ANPR addressing issues such as communication practices and consumer disclosures by March 2019, and has received support from industry and consumer groups to engage in rulemaking to explore ways to apply the FDCPA to modern collection practices.
- Small Dollar Lending: The Bureau anticipates it will issue a proposed rule on small dollar lending in January 2019.
- Payday Rule: The Bureau estimates it will issue an ANPR in January 2019 to reconsider the merits and compliance date for its final payday/vehicle title/high-cost installment loan rule.
- FCRA: Comments must be submitted by November 19 on the changes and underlying disclosures implemented by its interim final rule, which amended certain model forms under the FCRA and took effect September 21. (See previous InfoBytes coverage on the interim final rule here.)
Long term priorities now include rulemaking addressing (i) small business lending data collection; (ii) consumer reporting; (iii) amendments to FIRREA concerning automated valuation models; (iii) consumer access to financial records; (iv) rules to implement the the Economic Growth, Regulatory Relief, and Consumer Protection Act, concerning various mortgage requirements, student lending, and consumer reporting; and (v) clarity for the definition of abusive acts and practices.
On September 24, the U.S. Court of Appeals for the 3rd Circuit reversed the district court’s dismissal of a putative class action alleging a debt collector violated the FDCPA by including a statement noting that debt forgiveness may be reported to the IRS. The case was centered on the plaintiffs’ claim that letters sent to collect on debts that were less than $600, which contained the language “[w]e are not obligated to renew this offer. We will report forgiveness of debt as required by IRS regulations. Reporting is not required every time a debt is canceled or settled, and might not be required in your case,” were “false, deceptive and misleading” under the FDCPA because only discharged debts over $600 are required to be reported to the IRS. The district court dismissed the action, concluding the letters were not deceptive and the least sophisticated consumer would interpret the statement to mean in certain circumstances some discharges are reportable but not all are reportable.
Upon appeal, the 3rd Circuit disagreed with the district court, finding “the least sophisticated debtor could be left with the impression that reporting could occur,” notwithstanding the letter’s qualifying statement that reporting is not required every time a debt is canceled or settled, and therefore, the language could signal a potential FDCPA violation. Recognizing the industry’s regular use of form letters, the appeals court noted, “we must reinforce that convenience does not excuse a potential violation of the FDCPA.”
On September 21, the FTC announced settlements with multiple New York debt collection operations and their principals (defendants) for unlawful debt collection practices. The settlements are a result of 2015 joint lawsuits by the FTC and the New York Attorney General, alleging the defendants unlawfully used threats and abusive language, including false threats that consumers would be arrested, to collect more than $45 million in supposed debts (previously covered by InfoBytes here). The settlement orders ban the defendants from the business of debt collection and prohibit the defendants from (i) misrepresenting information related to financial products and services; (ii) disclosing, using, or benefitting from the consumer information obtained through the course of the debt collection activities; and (iii) failing to disclose of such personal information properly. The two orders (located here and here) impose a $22.5 million judgment against one set of defendants, and a judgment of $4.4 million against other defendants. The judgments are suspended as to some of the defendants due to inability to pay.
- 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