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Illinois regulator issues Covid-19 best practices for consumer credit licensees
On April 14, the Illinois Department of Financial and Professional Regulation issued guidance for consumer credit licensees, noting that it expects them to work with consumers during the crisis and be flexible with repayment of debt. The department recommended following a number of best practices, including increasing communication with consumers, waiving late charges and insufficient fund fees, suspending debt collection efforts, recommending that the creditor utilize the natural disaster code when reporting a consumer’s credit wherever permissible, and ensuring sufficient staffing of customer service phone lines, among other things.
2nd Circuit: Interest disclosure in collection letter did not violate FDCPA
On April 9, the U.S. Court of Appeals for the Second Circuit affirmed a district court’s dismissal of an FDCPA action, holding that a debt collection letter that stated interest, late charges, and other charges “may” vary from day to day is not deceptive or misleading. According to the opinion, the plaintiff co-signed a student loan that fell into default and was charged-off. The creditor purchased the debt and placed the account with a collection agency (collectively, defendants), and a letter was sent to the plaintiff that included a “‘time sensitive’ offer” to pay a slightly reduced amount, as well as the following language: “Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater.” The plaintiff filed a class action complaint against the defendants, claiming the letter violated the FDCPA because it suggested that late fees and other charges could accrue, even though “such charges are not legally or contractually available.” After the defendants filed a motion to dismiss, the plaintiff filed an amended complaint adding more allegations. However, the amended complaint was marked as “deficient,” and because the 21-day window had closed, the plaintiff was required to request leave from either the defendants or the district court to re-file. The defendants did not consent to re-filing, and the district court denied the plaintiff’s motion for leave and granted the defendants’ motion to dismiss.
On appeal, the 2nd Circuit first examined whether the plaintiff had timely filed her amended complaint. In concluding that the amended complaint was timely filed (notwithstanding the deficiency notice), the appellate court stated that “when a plaintiff properly amends her complaint after a defendant has filed a motion to dismiss that is still pending, the district court has the option of either denying the pending motion as moot or evaluating the motion in light of the facts alleged in the amended complaint.” However, the appellate court nevertheless concluded that the district court properly dismissed the plaintiff’s amended complaint on the merits because she failed to sufficiently state a plausible claim for relief. Furthermore, because the initial letter said that interest and late charges “may” be applied to the balance, the appellate court concluded that the letter was not inaccurate and therefore not deceptive or misleading under the FDCPA even though the debt collector had not previously charged interest and did not intend to do so in the future. Moreover, acknowledging that interest may accrue is not “threatening” language under the FDCPA, the appellate court wrote.
Wisconsin DFI issues emergency guidance on debt collection
On April 13, the Wisconsin Department of Financial Institutions issued guidance on debt collection practices that are prohibited during the Covid-19 crisis. Among them are repeated telephone calls and unsolicited threats to sue. The guidance warns that debt collectors that fail to respect hardships arising from the Covid-19 pandemic “should expect to be judged harshly.”
Massachusetts attorney general: CARES Act payments are exempt from seizure
On April 13, the Massachusetts Office of the Attorney General notified creditors and debt collectors that, in its view, stimulus payments made under the CARES Act are exempt from garnishment or attachment by creditors under Massachusetts law, and remain exempt regardless of how the funds are deposited or held after receipt. Any act, or threat to act, to garnish, attach, or otherwise seize the funds will be a violation of the attorney general’s regulations governing debt collection.
States ask Treasury to exempt stimulus payments from garnishment and urge CFPB to “vigorously enforce” FCRA
On April 13, a coalition of state attorneys general and the Hawaii Office of Consumer Protection (states) sent a letter to Treasury Secretary Steven T. Mnuchin, calling for immediate action to ensure that stimulus checks issued under the CARES Act to consumers affected by the Covid-19 pandemic are not subject to garnishment by creditors and debt collectors. While the CARES Act does not “explicitly designate these emergency stimulus payments as exempt from garnishment,” the states claim that a “built-in mechanism” contained within a provision of the CARES Act can rectify the legislative oversight. Specifically, the states point to Section 2201(h), which “authoriz[es] Treasury to issue ‘regulations or other guidance as may be necessary to carry out the purposes of this section,’” and ask Treasury to immediately designate the stimulus checks as “‘benefit payments’ exempt from garnishment.”
The same day, another coalition of state attorneys general sent a letter to CFPB Director Kathy Kraninger urging the Bureau to rescind an April 1 policy statement directed at consumer reporting agencies (CRAs) and furnishers (covered by InfoBytes here) that stated the Bureau will take a “flexible supervisory and enforcement approach during this pandemic regarding compliance with the Fair Credit Reporting Act [(FCRA)] and Regulation V.” According to the states, the policy statement suggests that the Bureau does not plan on enforcing the CARES Act amendment to the FCRA, which requires lenders to report as current any loans subject to Covid-19 forbearance or other accommodation. The Bureau’s decision, the states contend, may discourage consumers from taking advantage of offered forbearances and other accommodations. The states also argue that allowing CRAs to take longer than the FCRA-prescribed 30 days to investigate consumer disputes puts consumers at risk. The states stress that the recent increase in Covid-19 scams has heightened the need for the Bureau to vigorously enforce the FCRA, and that, moreover, the thousands of complaints received by the states, FBI, FTC, and DOJ concerning phishing and other scams designed to gather consumers’ financial information have highlighted identity theft risks. The states emphasize “that even if the CFPB refuses to act. . .we will not hesitate to enforce the FCRA’s deadlines against companies that fail to comply with the law.”
District of Columbia prohibits certain debt collection activity
The District of Columbia has enacted the Covid-19 Response Supplemental Emergency Amendment Act of 2020. Under the Act, among other things, for the duration of the public health emergency and 60 days after its conclusion, debt collectors are prohibited from, among other things: (i) initiating, filing, or threatening a new collection lawsuit, garnishment, seizure, attachment, or repossession; or (ii) initiating any communication with debtors via written or electronic communication, such as text, email, or telephone, subject to certain exceptions.
2nd Circuit: Collection letter failed to properly identify creditor in violation of FDCPA
On April 3, the U.S. Court of Appeals for the Second Circuit reversed and vacated the dismissal of an FDCPA action against a debt collector (defendant), holding that a collection letter failed to identify the correct creditor to whom a debt was owed. The consumer (plaintiff) alleged that the defendant sent him a collection letter concerning a private-label credit card account offered by a merchant. The defaulted debt originally was owned by one national bank and later acquired by a different national bank. The collection letter, however, identified the merchant (the servicer of the account) and the original credit grantor, but failed to disclose the current creditor. The plaintiff filed a class-action complaint alleging that the defendant violated Section 1692g of the FDCPA by not properly identifying the name of the creditor to whom the debt was owed, and violated Section 1692e by making a “false or misleading communication in connection with a debt.” The district court granted the defendant’s motion for judgment on the pleadings and dismissed the complaint, concluding that the merchant, as servicer, was the creditor to whom the debt is owed and that the failure to name the current creditor “would not have materially affected a consumer’s decision-making process.”
On appeal, the 2nd Circuit concluded that, because the cardmember agreements between the merchant, the current creditor, and the plaintiff clearly acknowledge that the national bank—and not the merchant—is the creditor, the defendant violated Section 1692g by not naming the correct creditor in the letter. With respect to the plaintiff’s Section 1692e claim, the appellate court determined that “it is far from clear that [the defendant’s] failure to identify [the current creditor] constituted a materially misleading statement under Section 1692e.” In fact, the appellate court stated that “it might be argued that if [the defendant] had identified [the current creditor] and not [the merchant], such an action ‘likely would have caused confusion.’” (Emphasis in the original.) However, the 2nd Circuit determined that the claim should not have been dismissed because the district court erroneously concluded that the merchant was the creditor to whom the debt was owned, and that the district court failed to address whether the defendant’s failure to identify the current creditor was a materially misleading statement under Section 1692e. The appellate court vacated the district court’s judgment and remanded the case for further proceedings.
2nd Circuit: New York usury law does not apply to interest rate applied after default
On March 30, the U.S. Court of Appeals for the Second Circuit affirmed multiple orders issued by a district court in favor of an assignee mortgage holder (plaintiff), concluding that a borrower (defendant) was liable for interest at a default rate of 24 percent per year. After the defendant fell behind on his mortgage payments, the debt ultimately was assigned to the plaintiff, who initiated a foreclosure action. The plaintiff alleged a default date of February 1, 2008, and contended that the defendant was liable for interest at the 24 percent per year default rate. The district court granted the plaintiff’s motion for summary judgment, holding that the motion was supported by record evidence and that defendant’s affirmative defenses were meritless. The defendant’s motion for reconsideration was denied. A court-appointed Referee issued a report calculating the amount due on the note and mortgage, which the defendant appealed on several grounds, arguing, among other things, that (i) the plaintiff is a “debt collection agency” under New York City Administrative Code, and is precluded from taking action without being licensed; (ii) the 24 percent default interest rate applied by the Referee violates New York’s civil usury stature (which caps interest rates at 16 percent); and (iii) “the Referee erred by applying the default interest rate from the date of default rather than from the date of acceleration.”
On appeal, the 2nd Circuit concluded that, regardless of whether the plaintiff allegedly failed to obtain a debt collection agency license, the plaintiff was not necessarily barred from foreclosing on the mortgage and collecting the debt at issue. The appellate court also determined that New York’s civil usury statute “‘do[es] not apply to defaulted obligations . . . where the terms of the mortgage and note impose a rate of interest in excess of the statutory maximum only after default or maturity.” The appellate court further held that the mortgage note and agreement clearly stated that a lender is “entitled to interest at the [d]efault [r]ate . . . from the time of said default. . . .”
Minnesota governor extends stay at home order
On April 8, Minnesota governor issued an executive order extending the previously issued stay at home order to May 3, 2020. Minnesota also issued guidance regarding the business exemptions. Financial services, notaries, and real estate transactions are considered critical sectors, but, debt collection professionals and other workers supporting debt collection are not.
11th Circuit interprets FDCPA statute of limitations
On March 31, the U.S. Court of Appeals for the Eleventh Circuit partially affirmed a district court’s dismissal of federal and state law claims against a loan servicer, concluding that while a 1099-A form sent to the plaintiff was not an attempt to collect a debt under the FDCPA, the district court erred in determining that the claim was time-barred. The plaintiff filed suit alleging violations of the FDCPA, the Florida Consumer Collection Practices Act, the Florida Deceptive and Unfair Trade Practices Act, and the Florida Mortgage Brokerage and Lending Laws (MBBL). After the district court dismissed her initial and amended complaints, the plaintiff appealed, arguing, among other things, that the district court erred when it (i) determined that the defendant’s mailing of IRS form 1099-A was not an attempt to collect a debt under the FDCPA; (ii) dismissed her FDCPA claim as time-barred because the statute of limitations had expired; (iii) found that the defendant was not involved in the original loan transaction and therefore could not be liable for damages under the MBLL; and (iv) declined “to exercise supplemental jurisdiction” over the other state law claims after dismissing the FDCPA claims with prejudice.
On appeal, the 11th Circuit agreed that the form 1099-A “was not a communication in connection with debt collection” because it did “not demand payment, state that it was an attempt to collect a debt, or state to whom or how to make a payment of the debt.” The appellate court also agreed that the district court properly dismissed the plaintiff’s MBLL claim because she failed to plead that the defendant made her mortgage loan as required under the MBLL. The district court’s decision to dismiss the remainder of the state-law claims was also affirmed. However, the 11th Circuit disagreed with whether the plaintiff’s FDCPA claim was time-barred, concluding that while the one-year statute of limitations under the FDCPA begins to run on the date the communication is mailed, the appellate court has “never held that, when the date of mailing is in dispute and a plaintiff alleges receipt of a letter on a certain date, a court could presume a mailing date based on the date of receipt and the parties’ addresses.” (Emphasis in the original.) According to the 11th Circuit, “the district court erred in dismissing [the plaintiff’s] FDCPA claims as untimely when her complaint did not allege a date of mailing of the February mortgage statement, and it was not apparent from the face of her complaint whether her claim was time-barred.”