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CFPB alleges debt collection, debt buying companies violated 2015 consent order
On September 8, the CFPB filed a complaint against the largest U.S. debt collector and debt buyer and its subsidiaries (collectively, “defendants”) for allegedly violating the terms of a 2015 consent order related to their debt collection practices. As previously covered by InfoBytes, the defendants allegedly engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other illegal collection practices in violation of the Consumer Financial Protection Act (CFPA), FDCPA, and FCRA. According to the complaint, filed in the U.S. District Court for the Southern District of California, the defendants have collected more than $300 million from consumers using practices that did not comply with the 2015 consent order. Among other things, the complaint alleges that the defendants violated the terms of the consent order—and again violated the FDCPA and CFPA—by (i) filing lawsuits without possessing certain original account-level documentation (OALD) or first providing required disclosures; (ii) failing to provide consumers with OALD within 30 days of the consumer’s request; (iii) filing lawsuits to collect on time-barred debt; and (iv) failing to disclose that consumers may incur international-transaction fees when making payments to foreign countries, which “effectively den[ied] consumers the opportunity to make informed choices of their preferred payment methods.” The Bureau seeks injunctive relief, damages, consumer redress, disgorgement, and civil money penalties. In addition, the Bureau asks the court to permanently enjoin the defendants from committing future violations of the CFPA or FDCPA.
CFPB and New York AG take action against debt collection operation
On September 8, the CFPB and the New York attorney general jointly filed a lawsuit against a debt collection operation based near Buffalo, New York. The defendants include five companies, two of their owners, and two of their managers (collectively, “defendants”). According to the complaint, filed in the U.S. District Court for the Western District of New York, the defendants violated the Consumer Financial Protection Act, FDCPA, and various New York laws by using illegal tactics to induce consumer payments, such as (i) threatening arrest and imprisonment; (ii) claiming consumers owed more debt than they actually did; (iii) threatening to contact employers about the existence of the debt; (iv) harassing consumers and third parties by using “intimidating, menacing, or belittling language”; and (v) failing to provide debt verification notices.
The lawsuit seeks consumer redress, disgorgement, civil money penalties, and injunctive relief against the defendants.
CFPB issues Summer 2020 Supervisory Highlights
On September 4, the CFPB released its summer 2020 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of consumer reporting, debt collection, deposits, fair lending, mortgage servicing, and payday lending. The findings of the report, which are published to assist entities in complying with applicable consumer laws, cover examinations that generally were completed between September and December of 2019. Highlights of the examination findings include:
- Consumer Reporting. The Bureau cited violations of the FCRA’s requirement that lenders first establish a permissible purpose before they obtain a consumer credit report. Additionally, the report notes instances where furnishers failed to review account information and other documentation provided by consumers during direct and indirect disputes. The Bureau notes that “[i]nadequate staffing and high daily dispute resolution requirements contributed to the furnishers’ failure to conduct reasonable investigations.”
- Debt Collection. The report states that examiners found one or more debt collectors (i) falsely threatened consumers with illegal lawsuits; (ii) falsely implied that debts would be reported to credit reporting agencies (CRA); and (iii) falsely represented that they operated or were employed by a CRA.
- Deposits. The Bureau discusses violations related to Regulation E and Regulation DD, including requiring waivers of consumers’ error resolution and stop payment rights and failing to fulfill advertised bonus offers.
- Fair Lending. The report notes instances where examiners cited violations of ECOA, including intentionally redlining majority-minority neighborhoods and failing to consider public assistance income when determining a borrower’s eligibility for mortgage modification programs.
- Mortgage Servicing. The Bureau cited violations of Regulation Z and Regulation X, including (i) failing to provide periodic statements to consumers in bankruptcy; (ii) charging forced-placed insurance without a reasonable basis; and (iii) various errors after servicing transfers.
- Payday Lending. The report discusses violations of the Consumer Financial Protection Act for payday lenders, including (i) falsely representing that they would not run a credit check; (ii) falsely threatening lien placement or asset seizure; and (iii) failing to provide required advertising disclosures.
The report also highlights the Bureau’s recently issued rules and guidance, including the various responses to the CARES Act and the Covid-19 pandemic.
Massachusetts AG sues auto lender for deceptive loans
On August 31, the Massachusetts attorney general announced an action against a national auto lender for allegedly making unfair and deceptive auto loans and engaging in unfair debt collection practices. According to the complaint, since 2013, the auto lender allegedly made “high-risk high-interest subprime” loans to Massachusetts borrowers who the lender “knew or should have known were unable to repay their loans,” in violation of the Massachusetts Consumer Protection Act. Additionally, the attorney general asserts that consumers were subject to “hidden finance charges,” which resulted in consumers’ actual interest rates being higher than the state’s usury ceiling of 21 percent. Moreover, the lender’s collection employees allegedly “harassed” consumers in default by calling them “as often as eight times a day,” when state law limits collection calls to no more than two calls per week, sent improper repossession notices, and failed to use the correct fair market value when calculating deficiency amounts. Lastly, the attorney general argues that the lender used “false or misleading statements” concerning the characteristics of the loans packaged and securitized to investors.
The attorney general is seeking a permanent injunction, restitution, and civil penalties.
FTC takes action against debt collection schemes
On August 19, the U.S. District Court for the District of South Carolina lifted the temporary seal of two FTC complaints (available here and here) filed against two groups of debt collection companies and their owners (collectively, “defendants”), alleging that the defendants’ debt collection practices violated the FTC Act and the FDCPA. According to both complaints, which were filed on July 13, the FTC alleges that the defendants engaged in a scheme to collect payments from consumers for debts that they did not actually owe or that the defendants had no authority to collect. Specifically, the defendants used a “two-step collection process,” in which they used robocalls with prerecorded messages to tell consumers they were subject to “an audit or other proceeding.” After the consumers contacted the defendants about the information in the robocalls, the defendants “falsely represent[ed] that they are representatives of a law firm or a mediation company” and falsely alleged that the consumers would be subject to legal action, including arrest, on a delinquent debt if it was not paid. The FTC asserts that the defendants collected over $17 million from the alleged scheme and is seeking, among other things, restitution, injunctions, and asset freezes.
Pennsylvania settles with bank to resolve “aggressive” collection practices
On August 19, the Pennsylvania attorney general announced it had entered into an Assurance of Voluntary Compliance with a national bank to end the bank’s “aggressive” debt collection practices. According to the AG, the bank allegedly filed collection lawsuits against individuals with unpaid auto loans “in a district justice court in Warren, Pennsylvania despite the fact that most of the defendants in those actions were consumers who purchased their vehicles in another part of the state and merely had their vehicle installment contract assigned to [the bank].” After obtaining judgments, the bank also allegedly violated Pennsylvania law by sending post-judgment letters that threatened further legal action, including a sheriff’s sale of an individual’s vehicle. These alleged misrepresentations constituted an unfair or deceptive debt collection act or practice, the AG stated. The bank did not admit to the violations, but agreed to modify its collection practices to, among other things, (i) strike all existing judgments entered between 2013 and the effective date of the agreements in a magisterial district court that the consumer did not reside in at the time the vehicle was purchased or the action commenced, or that was not where the vehicle was purchased; (ii) issue a credit to the deficiency balance on any amount that was paid as a result of a judgment; (iii) refund any remaining amounts once the deficiency balance has been reduced to $0; and (iv) pay $15,000 in monetary relief.
Illinois reissues and extends several Covid-19 executive orders
On August 21, the Illinois governor issued Executive Order 2020-52, which extends several earlier executive orders through September 19, 2020. Among other things, the order extends Executive Order 2020-25 regarding garnishment and wage deductions (previously covered here) and Executive Order 2020-30 regarding residential evictions (previously covered here and here). However, Executive Order 2020-30 has been amended to provide that the moratorium on the enforcement of eviction orders for residential premises does not relieve an individual of the obligation to pay rent, make mortgage payments, or comply with any other obligation that the individual may have pursuant to a lease, rental agreement, or mortgage.
District court certifies class in a lawsuit against an unlicensed debt collector
On August 17, the U.S. District Court for the District of Utah certified two classes related to a debt collector’s efforts to pursue judgments on defaulted debts without being appropriately registered with the state. The order certified two classes: one for class claims arising under the FDCPA, and another for class claims brought under the Utah Consumer Sales Practices Act (UCSPA). The court certified the UCSPA class for liability purposes only, as the statute does not allow a plaintiff to seek statutory damages on behalf of a class, leaving “issues related to what relief may be available for which class members to subsequent proceedings.” According to the order, the lead plaintiff filed a lawsuit against the defendant after it attempted to collect unpaid medical debt. The defendant obtained a judgment but was not registered as a debt collector in the state when it filed the action. The defendant argued that Utah’s registration requirement did not apply to it and filed a motion for summary judgment, but the court disagreed and allowed the plaintiff to seek certification for two classes of individuals who had debt collection lawsuits filed against them in Utah by the defendant while it was unlicensed. Among other things, the defendant argued that the plaintiff’s proposed class included individuals without an underlying consumer debt, which destroyed commonality under Rule 23. The court agreed and limited the proposed FDCPA class to individuals who were sued for a “debt” as defined by 15 U.S.C. § 1692a(5). However, the court stated that the need for individualized determinations concerning each class member’s debt did not upset Rule 23’s predominance requirement, and concluded that the issue does not predominate over the question of whether the failure to register as a debt collector was a violation of the FDCPA and UCSPA. The court also disagreed with the defendant’s res judicata argument to defeat the certification request, ruling that even though the defendant ultimately obtained a judgment against the lead plaintiff—which it also allegedly did for at least 645 other members of the class—that was not enough to prove a conflict existed between the lead plaintiff and the other unaffected members of the class.
D.C. enacts law extending obligations for debt collection, credit reporting, mortgage servicing, and evictions during the Covid-19 pandemic
On August 19, the mayor of D.C. signed the Coronavirus Support Second Congressional Review Emergency Act of 2020. The act extends the provisions of D.C.’s prior Covid-19 relief act (previously covered here), which was set to expire after 90 days, until November 16. Among other things, the act includes consumer protection provisions, including provisions regarding debt collection and credit reporting. It also provides housing and tenant protections, including in the areas of mortgage relief, restrictions on evictions, and foreclosures.
9th Circuit: No bona fide error defense when relying on creditor to provide information
On August 17, the U.S. Court of Appeals for the Ninth Circuit reversed a summary judgment ruling in favor of a debt collector (defendant) accused of violating the FDCPA, determining the district court erred in concluding that the defendant qualified for the bona fide error defense. According to the opinion, the plaintiff incurred a debt to a medical provider (creditor), who eventually placed the debt with the defendant for collection. The plaintiff alleged that the defendant violated the FDCPA when it miscalculated the interest on the unpaid debt. While the parties did not dispute the issue of whether the defendant unintentionally violated the FDCPA when it miscalculated interest on the debt, the issue remained as to whether the defendant had reasonable procedures in place to qualify for the bona fide error defense. The defendant argued that it has reasonable procedures in place because its agreement with the creditor contained a requirement that the creditor supply it with accurate information for collection. The defendant argued “that this procedure was reasonably adapted to avoid violations of the FDCPA,” and that it should be entitled to the bona fide error defense. The district court agreed with the defendant and granted its request for summary judgment.
On appeal, the 9th Circuit determined that relying on creditor-clients to provide accurate information is insufficient to establish a bona fide error defense. Moreover, a “boilerplate agreement” between the creditor and the defendant “effectively outsourced the defendant’s statutory duty under the FDCPA,” the appellate court held, noting that defendants are not allowed to simply rely on the information they are being provided.