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7th Circuit dismisses FDCPA action over interest accrued post-write off
On June 19, the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of an action alleging a debt collector violated the FDCPA by attempting to collect interest that accrued on a debt after the creditor wrote off the debt but before the collector acquired it. According to the opinion, the plaintiffs’ original unpaid debt was $3,226.35 before the original creditor ceased collection efforts and stopped sending monthly statements. Approximately two years later, the creditor sold the debt to the collection agency, and approximately two years after that, the debt collector sent a demand letter seeking payment of $5,800, which included around $1,600 in interest for the months after the original creditor ceased collection efforts. The debt collector sent a second letter two months later, and a third letter the following year to their attorney in response to the attorney’s request to verify the debt, but the third letter did not explain how much of the debt was interest. The plaintiffs filed the action against the debt collector, alleging the collector violated the FDCPA’s prohibition on false, deceptive, or misleading representations in connection with collection of a debt by demanding interest that accrued between charge-off and sale. The district court dismissed the action as untimely.
On appeal, the 7th Circuit affirmed dismissal, but determined the suit was filed timely. Specifically, the appellate court concluded that the one year statute of limitations applied to the third letter the debt collector sent to the plaintiffs’ lawyer in response to a demand for debt verification. However, the appellate court concluded that the third collection letter did not violate the FDCPA, arguing the plaintiffs “promised to pay interest, and [the debt collector]’s computer used the correct rate.” Moreover, the appellate court stated that “[a] statement is false, or not, when made; there is no falsity by hindsight,” and previous instances in the circuit “in which a letter was deemed to have falsely stated the amount of the debt dealt with errors known or readily knowable when the letter was sent.” Lastly, the appellate court rejected the plaintiffs’ post-argument submission that the debt collector “must openly state the legal position behind its calculation” in order to avoid having the letter be misleading, noting that the third letter was sent to their lawyer, and it “would not have misled a competent lawyer.”
Maryland Department of Labor issues financial relief guide for Marylanders
On June 19, the Maryland Department of Labor’s Office of the Commissioner of Financial Regulation issued the Covid-19 Health Crisis: Financial Relief Guide for Marylanders. Among other things, the guide contains information and resources regarding relief programs for consumers relating to economic impact payments, mortgage payments and foreclosure, rental evictions, student loans, automobile and personal loans, collections and garnishment, credit reporting, and insurance coverage and payments.
Washington amends and extends proclamations regarding state of emergency, garnishments, and accrual of interest
On June 18, the Washington governor issued Proclamation 20-49.5, which amends and extends proclamations 20-05 (declaring a state of emergency) 20-49 (regarding garnishments and accrual of interest), 20-49.1 (garnishments and accrual of interest), 20-49.2 (garnishments and accrual of interest), 20-49.3 (garnishments), and 20-49.4 (garnishments). These proclamations were previously covered here and here. The referenced proclamations are amended to (1) recognize the extension of statutory waivers and suspensions by the Washington Legislature until the termination of the Covid-19 State of Emergency or 11:59 p.m. on July 1, 2020, whichever is first, and (2) similarly extend the prohibitions therein until the termination of the Covid-19 state of emergency or 11:59 p.m. on July 1, 2020, whichever is first.
New York adopts language access requirements for debt collectors
Recently, the New York Department of Consumer Affairs (Department) adopted language access amendments to the state’s debt collection rules. The Department published the proposed rules on March 5, and held a public hearing on April 10. The new rules, among other things, require debt collectors to (i) detail in debt validation notices and on any publically maintained websites, the availability of language access services provided by the collector and a statement that a translation of commonly-used debt collection terms is available in multiple languages on the Department’s website; (ii) request and retain, to the extent reasonably possible, a record of the language preference of each consumer from whom the collector attempts to collect a debt; and (iii) maintain a report that details the number of consumer accounts the collector attempted to collect a debt on in a language other than English. The amendments also prohibit debt collectors from (i) providing false, inaccurate, or incomplete translations to a consumer in the course of collecting a debt; and (ii) misrepresenting or omitting a language preference when returning, selling, or referring for litigation a consumer account, when the debt collector is aware of the preference. The new rules are effective June 27.
D.C. Circuit says consumer failed to show injury in FDCPA action
On June 9, the U.S. Court of Appeals for the D.C. Circuit vacated the district court’s judgment in favor of a consumer, concluding that the consumer failed to demonstrate a concrete injury-in-fact traceable to the FDCPA violations she alleged. According to the opinion, the consumer brought the putative class action against the debt collector after the collector sued the consumer to collect an outstanding auto loan debt. The collector allegedly used affidavits in its lawsuit against the consumer that were signed by an agent of the collector, not by an employee as attested. As requested by the debt collector, the action was then dismissed with prejudice. Subsequently, the consumer filed the putative class action against the debt collector and its agent alleging various violations of the FDCPA. The defendants moved to dismiss the action, which the district court denied. Subsequently, the district court granted their motion for summary judgment, concluding that any “any falsehoods in the [] affidavits were immaterial—and thus not actionable—because they ‘had no effect on [the consumer]’s ability to respond or to dispute the debt.’”
On appeal, the D.C. Circuit disagreed with the district court, concluding that the consumer lacked standing to sue the defendants altogether. Specifically, the appellate court held that the consumer failed to identify a traceable injury to the “false representations” made in the affidavits, citing to the fact that the consumer “testified unequivocally that she neither took nor failed to take any action because of these statements.” Moreover, citing to the U.S. Supreme Court decision in Spokeo, Inc. v. Robins, the appellate court emphasized that “[n]othing in the FDCPA suggests that every violation of the provisions implicated here…create[] a cognizable injury.” The appellate court vacated the district court’s judgment and remanded the case with instructions to dismiss the complaint.
7th Circuit upholds summary judgment in favor of debt collector
On June 9, the U.S. Court of Appeals for the Seventh Circuit affirmed summary judgment in favor of a third-party debt collector in a class action asserting violations of the FDCPA. According to the opinion, a consumer filed a putative class action alleging the debt collector sent a misleading letter in violation of the FDCPA because the letter stated that her debt “may be reported to the national credit bureaus.” The consumer argued that the use of the word “may” was deceptive, as it implied “future reporting” even though the debt had already been reported at the time she received the letter. The debt collector moved to dismiss the action, which the district court denied, concluding that whether a communication is misleading is a question of fact and therefore, “dismissal would be premature.” After class certification, the consumer and the debt collector submitted cross-motions for summary judgment, and the district affirmed in favor of the debt collector.
On cross-appeals, the 7th Circuit agreed with the district court’s denial of the debt collector’s motion to dismiss, stating that “[w]hether a significant fraction of debtors would be misled as [the consumer] describes is questionable, but it is not so implausible….” As for summary judgment, the appellate court also agreed with the district court, concluding that the consumer “failed to present any evidence beyond her own opinion” that the collection letter was misleading. The appellate court rejected the consumer’s assertion that her own opinion was evidence enough and noted that the consumer cited to cases using the “least sophisticated consumer standard,” which the 7th Circuit has rejected. Moreover, the appellate court emphasized that the consumer failed “to provide any outside evidence as to the likelihood that a hypothetical unsophisticated debtor (or even the least sophisticated debtor) would in fact be confused by the language in [the debt collector]’s letter.”
3rd Circuit: Credit card customers’ claims against retailer and national bank fail
On June 9, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s order granting summary judgment in favor of a retailer and a national bank (collectively, “defendants”), holding that the proposed class failed to assert their claims for implied covenant of good faith and fair dealing and unjust enrichment. The class, comprised of customers who applied for private-label credit cards offered and serviced by the retailer, argued they were prompted to purchase a debt-cancellation product, which would “cancel the balance on the customer’s account up to $10,000 when a covered person experienced a qualifying involuntary unemployment, disability, hospitalization, or loss of life.” The class’s first claim—that the debt cancellation product provided “‘little or no value,” and that they did not voluntarily enroll in the product because the retailer allegedly unilaterally enrolled card holders in the product—was no longer viable after discovery showed that customers voluntarily enrolled. The class posed a second claim asserting breach of the implied covenant of good faith and fair dealing, arguing, among other things, that any legal authorization they gave was to the retailer and to the original issuing bank who sold the cards to the defendant bank. However, the district court rejected this second theory and granted summary judgement in favor of the defendants, ruling that the debt cancellation product was assigned to the defendant bank and stating the class failed to show that the retailer did not honor the terms of the debt cancellation product because they received exactly what was described in their contracts. Nor were the defendants unjustly enriched “because their collection of [] fees was ‘legally justified.’”
On appeal, the 3rd Circuit, among other things, reviewed and rejected a third theory presented by the class, which blamed the district court for fundamentally misinterpreting their claims and asserted that the retailer failed to notify customers that it had stopped enforcing certain terms of the debt cancellation product and implemented a new refund policy, holding that this theory was not grounds for reversal because it was not argued in court. Moreover, the appellate court agreed with the district court that the retailer stopped enforcing its rights under amendments made to the debt cancellation product, but did not change the formal terms.
7th Circuit holds recoverable costs under FDCPA do not include damages or compensation for expenses
On June 5, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s holding that the costs recoverable under the FDCPA and Rule 54(d) of the Federal Rules of Civil Procedure do not include damages or compensation for the plaintiff’s time and mailing expenses related to litigation. According to the opinion, the plaintiff filed suit against a debt collector alleging various violations of the FDCPA for failing to verify that the plaintiff owned the debt after it was disputed and for sending a demand letter with the plaintiff’s personal information in an envelope viewing screen. The debt collector made an offer of judgment to the plaintiff for “$1,101, ‘plus costs to be awarded by the Court.’” The plaintiff sought costs that included damages under the FDCPA while the debt collector argued that the offer was only for “taxable costs as a prevailing party.” After the district court concluded that the plaintiff had accepted the offer of judgment, it entered judgment for the award of $1,101 and instructed the plaintiff to file a bill of costs “‘limited to those contemplated by [Federal Rule of Civil Procedure] 54(d).’” The plaintiff demanded over $24,000 for “hundreds of hours” spent litigating the action, over $150 in “mailing costs,” $1,000 in “additional damage costs,” and over $47,000 in punitive damages. The district court denied the costs under Rule 54(d) and awarded final judgment for the $1,101 in statutory damages.
On appeal, the 7th Circuit disagreed with the plaintiff’s assertion that the costs he submitted were recoverable under Section 1692k(a) of the FDCPA, concluding that “damages are not part of the costs ‘properly awardable under’ § 1692k(a),” which contains both provisions for damages and for costs; therefore, if costs included damages, “the damages provisions would be superfluous.” The appellate court went on to state that “[w]ithout a special definition in the [FDCPA], the ‘costs’ it contemplates are simply those awardable under Federal Rule of Civil Procedure 54(d),” which do not include the damages or compensation sought by the plaintiff.
D.C. law creates new requirements for debt collection, creditor reporting, and mortgage servicing during the Covid-19 pandemic
On June 8, the mayor of D.C. signed the Coronavirus Support Congressional Review Emergency Amendment Act, which amended and consolidated four existing emergency acts passed in response to the Covid-19 pandemic (including the Coronavirus Omnibus Emergency Amendment Act and Foreclosure Moratorium Emergency Amendment Act). Among other things, the new act includes requirements for debt collection, credit reporting, remote notarizations, mortgage lending, and eviction and foreclosure moratoriums. It requires mortgage lenders to offer 90 day payment deferrals, waive late fees, and cease negative credit reporting, subject to specific requirements. It also prohibits initiating or conducting foreclosure sales on residential mortgages for the duration of the Covid-19 public health emergency and for 60 days thereafter, subject to certain specified limitations, and prohibits residential and commercial evictions during the same time period.
New Mexico issues order prohibiting writs of garnishment or writs of execution of consumer debt
On June 5, the New Mexico Supreme Court issued an order prohibiting writs of garnishment or writs of execution as they pertain to consumer debt collection cases. The order does not affect writs of garnishment and writs of execution issued prior to June 8, 2020. Other rules pertaining to consumer debt collection cases are also unaffected. The order does not apply to domestic support obligations, including support and spousal maintenance obligation. The order will remain in effect until amended or withdrawn by a future order.