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7th Circuit: “Stress and confusion” not an injury under the FDCPA
On March 11, the U.S. Court of Appeals for the Seventh Circuit held that a consumer’s alleged “stress and confusion” did not constitute a concrete and particularized injury under the FDCPA. The plaintiff alleged that the defendant debt collector violated the FDCPA when it directly communicated with her by sending a dunning letter related to unpaid debt even though she had previously notified the original lender that she was represented by counsel and requested that all debt communications cease. The district court granted the defendant’s summary judgment motion on the grounds that the debt collector could not have violated the FDCPA “without having actual knowledge of [the consumer’s] cease-communication request.”
On appeal, the 7th Circuit concluded that the complaint should be dismissed for lack of subject-matter jurisdiction because the plaintiff lacked standing. The 7th Circuit held that the consumer’s allegations—that the dunning letter caused her “stress and confusion” and “made her think that ‘her demand had been futile’”—did not amount to a concrete and particularized “injury in fact” necessary to establish Article III standing under the FDCPA. The court further noted that “the state of confusion is not itself an injury”—rather, for the alleged confusion to be concrete, “a plaintiff must have acted ‘to her detriment, on that confusion.’” Here, the consumer pointed only to a statutory violation and “failed to show that receiving [the debt collector’s] dunning letter led her to change her course of action or put her in harm’s way.” Additionally, the appellate court found the consumer’s argument that the dunning letter also “invaded her privacy,” raised for the first time on appeal, unpersuasive because she did not allege that injury in the complaint.
9th Circuit: Debt collector can invoke bona fide effort defense in time-barred suit
On March 9, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of an FDCPA lawsuit, holding that while “strict liability” under the statute applies when a debt collector threatens litigation or files a lawsuit seeking to collect time-barred debt, the debt collector can avoid liability by invoking the bona fide error defense. In the case that gave rise to the plaintiff’s FDCPA claim, the plaintiff contested the debt collector’s state court lawsuit, arguing that it was filed outside the four-year statute of limitations applicable to sale-of-goods contract claims. The debt collector countered that Oregon’s six-year statute of limitations for other contract claims applied. After the state court ruled for the plaintiff, the plaintiff filed a putative class action lawsuit in the U.S. District Court for the District of Oregon against the defendants alleging violations of Sections 1692e and 1692f of the FDCPA. The district court granted the defendants’ motion to dismiss ruling that the plaintiff failed to state a claim because the state statute of limitations was unclear when the defendants attempted to collect the debt.
On appeal, the 9th Circuit disagreed with the district court, concluding that because the “FDCPA takes a strict liability approach to prohibiting misleading and unfair debt collection practices, [] a plaintiff need not plead or prove that a debt collector knew or should have known that the lawsuit was time barred to demonstrate that the debt collector engaged in prohibited conduct.” However, the 9th Circuit held that the defendants may be able to avoid liability through the FDCPA’s affirmative defense for bona fide errors. The appellate court distinguished its holding from a 2010 U.S. Supreme Court case, Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, which held that mistakes about the FDCPA’s meaning are excluded from the bona fide error defense. Instead, the 9th Circuit found that “a mistake about the time-barred status of a debt under state law could qualify as a bona fide error within the meaning of the FDCPA” because it is a mistake of fact and not of law.
Illinois reissues and extends several Covid-19 executive orders
On March 5, Illinois Governor JB Pritzker issued Executive Order 2021-05, which extends several executive orders through April 3, 2021 (previously covered here, here, here, here, here, and here). Among other things, the order extends: (i) Executive Order 2020-07 regarding in-person meeting requirements, (ii) Executive Order 2020-23 regarding actions by individuals licensed by the Illinois Department of Financial and Professional Regulation engaged in disaster response, (iii) Executive Order 2020-25 regarding garnishment and wage deductions (previously covered here), (iv) Executive Order 2020-30 regarding residential evictions (previously covered here), and (v) Executive Order 2020-72 regarding the residential eviction moratorium (previously covered here and here).
5th Circuit: Conveying information about a debt collector is different from conveying information about a debt
On February 26, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s dismissal of a consumer’s FDCPA claims against a collection agency, concluding that “conveying information about a debt collector is not the same as conveying information about a debt.” According to the opinion, the collection agency (defendant) attempted to contact the plaintiff via telephone concerning an unpaid debt. When the plaintiff failed to answer the call, the defendant contacted the plaintiff’s sister and asked to speak to the plaintiff. During the call, a representative working for the defendant provided her own name and that of the collection agency, and provided her number so the plaintiff could return the call. The plaintiff filed suit, alleging the defendant violated FDCPA § 1692c(b) when the representative left a message with the plaintiff’s sister and asked her to have the plaintiff contact the defendant. Under § 1692c(b), a debt collector “‘may not communicate, in connection with the collection of any debt, with any person other than the consumer’ or certain other prescribed parties to the debt ‘without the prior consent of the consumer.’” An exception is provided under § 1692b for a debt collector who communicates with a third party to acquire location information about the consumer. The district court granted the defendant’s motion to dismiss, which the plaintiff appealed, arguing that the defendant’s conduct “went beyond the scope of a permissible call for the purposes of obtaining location information.”
On appeal, the 5th Circuit first reviewed whether the call violated Section 1692c(b). The appellate court noted that it was first called to address the “threshold issue” as to “whether the alleged conversation qualifies as a ‘communication’” as defined by the FDCPA. Under § 1692a(2), a “communication” refers to “the conveying of information regarding a debt directly or indirectly to any person through any medium.” In this instance, the appellate court wrote, there was nothing in the call between the defendant and the plaintiff’s sister that conveyed information regarding the existence of a debt. “[T]o indirectly convey information regarding a debt, a conversation or message would need to, at the very least, imply that a debt existed. Knowing the name of a debt collector does not imply the existence of a debt.” The 5th Circuit further concluded, among other things, that “[e]ven if the average consumer recognized the company’s name and identified it as a debt collector, receiving a phone call from a debt collector does not suggest any information about an underlying debt.” As such, the 5th Circuit determined the plaintiff failed to adequately plead facts suggesting a plausible violation of the FDCPA.
Maryland regulator exempts RELIEF Act stimulus payments from garnishment or set-off
On February 17, the Maryland commissioner of financial regulation issued guidance specifying that stimulus payments to residents pursuant to the Maryland RELIEF Act of 2021 are exempt from garnishment and set-off laws.
Illinois reissues and extends several Covid-19 executive orders
On February 5, the governor of Illinois issued Executive Order 2021-04, which extends several executive orders through March 6, 2021 (previously covered here, here, here, here, and here). Among other things, the order extends: (i) Executive Order 2020-07 regarding in-person meeting requirements, (ii) Executive Order 2020-23 regarding actions by individuals licensed by the Illinois Department of Financial and Professional Regulation engaged in disaster response, (iii) Executive Order 2020-25 regarding garnishment and wage deductions (previously covered here), (iv) Executive Order 2020-30 regarding residential evictions (previously covered here), and (v) Executive Order 2020-72 regarding the residential eviction moratorium (previously covered here and here).
New York continues to postpone collection on certain debts
On February 1, the attorney general of New York announced an extension of its previous order to halt the collection efforts on certain debts through February 28, 2021. Consumers with student loan debt and medical debt owed to the state will receive an additional 28-day hiatus on payments including a freeze on the accrual of interest on the debts—in order to allow them to deal with the effects of Covid-19. Specifically, the moratorium on collection applies to: (i) “[p]atients that owe medical debt due to the five state hospitals and the five state veterans' home[s]”; (ii) “[s]tudents that owe student debt due to State University of New York (SUNY) campuses”; and (iii) “[i]ndividual debtors, sole-proprietors, small business owners, and certain homeowners that owe debt relating to oil spill cleanup and removal costs, property damage, and breach of contract, as well as other fees owed to state agencies.” New Yorkers who have other types of debt that are owed to the state and who are referred to the Office of the Attorney General may apply for a temporary freeze on collection by submitting an application which can be found here.
11th Circuit: Debt owner not vicariously liable for affiliate’s actions
On January 27, the U.S. Court of Appeals for the Eleventh Circuit held that a debt owner (defendant) cannot be held liable under the FDCPA or Florida Consumer Collection Practices Act (FCCPA) for the allegedly false representations made by another entity acting on its behalf. According to the opinion, after a consumer defaulted on three credit cards, the debts were sold to the defendant, and its affiliate began collection efforts in Florida state court against the consumer. The lawsuits were filed under the defendant’s name, “but [the affiliate] was ‘responsible for reviewing, processing, and entering all hearing results.’” The parties agreed to a settlement agreement and the consumer made his first payment. However, on each subsequent occasion the consumer visited the affiliates’ website, the website displayed a balance over three times as high as the settlement amount. The consumer filed suit against the defendant, alleging multiple violations of the FDCPA and FCCPA. The district court granted summary judgment in favor of the defendant, concluding that the defendant could not be liable under the FDCPA or the FCCPA, notwithstanding the fact that it qualifies as a debt collector.
On appeal, the 11th Circuit agreed with the district court, affirming summary judgment in favor of the defendant. Specifically, the appellate court rejected the consumer’s arguments that the defendant should be held indirectly liable for the affiliate’s representations made on their website. The appellate court noted that if the defendant qualified as a debt collector under the “principle purposes” clause of the FDCPA, “it cannot be held liable based on the use of ‘indirectly’ in the separate and inapplicable ‘regularly collects’ definition.” Moreover, the appellate court rejected the consumer’s argument that the definition of “communication” under the FDCPA supports indirect liability, concluding it is similarly “irrelevant to [the consumer]’s false representation claims under Section 1692e.” Lastly, because the district court properly granted summary judgment on the consumer’s FDCPA claim, “it correctly granted summary judgment on his FCCPA claim as well.”
7th Circuit affirms dismissal of FDCPA claims for lack of standing
On January 21, the U.S. Court of Appeals for the Seventh Circuit affirmed a lower court’s ruling dismissing a plaintiff’s FDCPA lawsuit for lack of standing. According to the opinion, the plaintiff claimed a debt collector violated the FDCPA when it sent her a collection letter including the following statement: “If you dispute this balance or the validity of this debt, please let us know in writing. If you do not dispute this debt in writing within 30 days after you receive this letter, we will assume this debt is valid.” The plaintiff argued that section 1692g(a)(3) of FDCPA does not specify how a consumer may dispute the validity of a debt, claiming that consumers should be allowed to dispute debts in whatever manner they choose. Instead of determining whether the debt collector violated section 1692g(a)(3) by requiring consumers to dispute debts in writing, the 7th Circuit determined that the plaintiff lacked standing to sue in the first place. The appellate court referenced an observation made by the district court that the plaintiff “‘did not allege she had any doubt that she owed the creditor the stated amount of money,” and that “she failed to allege any injury that flowed from her failure to dispute the debt.” Noting, however, that not all alleged section 1692g(a)(3) violations lack standing, the appellate court stated that in this case, the plaintiff “did not allege injury, because she did not try to show what good a dispute would have done her. She is no worse off than if the letter had told her that she could dispute the debt orally.”
CFPB issues Covid-19 supervisory highlights
On January 19, the CFPB released a special edition of Supervisory Highlights detailing the agency’s Covid-19 prioritized assessment (PA) observations. Since May 2020, the Bureau has conducted PAs in response to the pandemic in order to obtain real-time information from supervised entities operating in markets that pose an elevated risk of pandemic-related consumer harm. According to the Bureau, the PAs are not designed to identify federal consumer financial law violations, but are intended to spot and assess risks in order to prevent consumer harm. Targeted information requests were sent to entities seeking information on, among other things, ways entities are assisting and communicating with consumers, Covid-19-related institutional challenges, compliance management system changes made in response to the pandemic, and service provider data. Highlights of the Bureau’s findings include:
- Mortgage servicing. The CARES Act established certain forbearance protections for homeowners. The Bureau pointed out that many servicers faced significant challenges, including operational constraints, resource burdens, and service interruptions. Consumer risks were also present, with several servicers (i) providing incomplete or inaccurate information regarding CARES Act forbearances, failing to timely process forbearance requests, or enrolling borrowers in unwanted or automatic forbearances; (ii) sending collection and default notices, assessing late fees, and initiating foreclosures for borrowers in forbearance; (iii) inaccurately handling borrowers’ preauthorized electronic funds transfers; and (iv) failing to take appropriate loss mitigation steps.
- Auto loan servicing. The Bureau noted that many auto loan servicers provided insufficient information to borrowers about the impact of interest accrual during deferment periods, while other servicers continued to withdraw funds for monthly payments even after agreeing to deferments. Additionally, certain borrowers received repossession notices even though servicers had suspended repossession operations during this time.
- Student loan servicing. The CARES Act established protections for certain student loan borrowers, including reduced interest rates and suspended monthly payments for most federal loans owned by the Department of Education. Many private student loan holders also offered payment relief options. The Bureau noted however that servicers faced significant challenges in implementing these protections. For certain servicers, these challenges led to issues which raised the risk of consumer harm, including (i) provision of incorrect or incomplete payment relief options; (ii) failing to maintain regular call center hours; (iii) failing to respond to forbearance extension requests; and (iv) allowing certain payment allocation errors and preauthorized electronic funds transfers.
- Small business lending. The Bureau discussed the Small Business Administration’s Paycheck Protection Program (PPP), noting that when “implementing the PPP, multiple lenders adopted a policy that restricted access to PPP loans beyond the eligibility requirements of the CARES Act and rules and orders issued by the SBA.” The Bureau encouraged lenders to consider and address any fair lending risks associated with PPP lending.
The Supervisory Highlights also examined areas related to credit card accounts, consumer reporting and furnishing, debt collection, deposits, prepaid accounts, and small business lending.