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Financial Services Law Insights and Observations


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  • Maryland Court of Appeals rejects distinction between “methods” of debt collection and “amounts” of debt to be collected


    On August 27, the Maryland Court of Appeals reversed a circuit court’s dismissal of petitioners’ Maryland Consumer Debt Collection Act (MCDCA) and Consumer Protection Act (MCPA) claims, rejecting a distinction drawn by some courts “between ‘methods’ of debt collection and ‘amounts’ of debts sought to be collected, when assessing a claim under CL § 14-202(8).” At issue is the amount of post-judgment interest charged above the maximum legal rate to individuals who defaulted on their residential leases.

    In reversing, the Court of Appeals disagreed with the circuit court that MCDCA claims were restricted to “methods,” holding that § 14-202(8) should be interpreted “broadly to reach any claim, attempt, or threat to enforce a right that a debt collector knows does not exist,” and in this case, petitioners were not “precluded from invoking § 14-202(8) when the amount claimed by the debt collector includes sums that the debt collector, to its knowledge, did not have the right to collect.” However, the Court of Appeals held that, in contrast to the FDCPA, the MCDCA is not a “strict liability statute,” and although “where the law is settled at the time a collector takes a contrary position in claiming a right, the collector’s recklessness in failing to discover the contrary authority is equivalent to ‘aware[ness]’ (i.e., actual knowledge) of the authority,” such knowledge is a question of fact that could, in some cases, require a jury determination. As a result, the case was remanded to the circuit court to allow the petitioners an opportunity to file a new motion for class certification.

    Courts State Issues Debt Collection Consumer Finance Class Action

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  • District Court notes distinction between definition of “accounts” and “receivables”


    On August 25, the U.S. District Court for the District of New Jersey denied a defendant debt collector’s motion to compel arbitration in an FDCPA action, ruling that the defendant never purchased the rights to enforce arbitration. In so holding, the Court stated that the words “accounts” and “receivables” mean different things and that purchasing a receivable does not guarantee all the rights assigned to the account. The court originally denied the defendant’s motion to compel arbitration to allow for limited discovery to determine whether a valid arbitration agreement existed between the parties. The defendant argued that the agreements governing the accounts require that all claims be subject to arbitration on an individual basis and that it is entitled to arbitration since it is an agent of the purchasing creditor and the purchasing creditor purchased the rights to enforce arbitration from the original creditor. The plaintiffs countered that the right to compel arbitration was not transferred because the purchase agreements only transferred the rights under the “receivables” and not the “accounts.” The court agreed, noting that under the plain meaning of the purchase agreements, the purchasing creditor did not purchase, and was not assigned, the right to compel arbitration.

    Courts FDCPA Debt Collection Class Action

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  • District Court rules in defendants’ favor regarding third-party disclosure


    On August 25, the U.S. District Court for the Eastern District of Missouri granted a motion for judgment on the pleadings in favor of a defendant debt collector over a plaintiff alleging FDCPA violations. The plaintiff, a bankruptcy attorney who represents consumers in connection with discharging their debts, received a letter from defendant that disclosed a debt for a consumer he did not represent and has never represented. The plaintiff sued under the FDCPA, claiming that the defendant, among other things, engaged in abusive, deceptive, and unfair debt collection practices when defendant disclosed the existence of this third-party debt to the plaintiff by contacting him via letter. The plaintiff alleged that he was injured and suffered damages “due to the time Plaintiff had to spend trying to learn why he was being contacted and whether he had ever represented Plaintiff.” However, the court held that because the plaintiff was not a “consumer” under the FDCPA, he did not have standing to bring the FDCPA case. In so ruling, the court noted that the U.S. Court of Appeals for the Eighth Circuit has not yet ruled on whether the FDCPA “applies to persons other than a consumer[‘]” but agreed “with the greater weight of authority that concludes” only consumers have standing to bring such actions.

    Courts Third-Party Debt Collection FDCPA

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  • CFPB officially withdraws extension of compliance date for debt collection rules

    Federal Issues

    On September 1, the CFPB published a proposal in the Federal Register to withdraw its proposed rule that would have extended the effective date of its final rules amending Regulation F, which implements the FDCPA. As previously covered by InfoBytes, in April, the Bureau proposed delaying the effective date by 60 days to provide affected parties additional time to comply due to the ongoing Covid-19 pandemic. However, the Bureau determined that an extension is unnecessary and will publish a formal notice in the Federal Register, withdrawing the April notice of proposed rulemaking (covered by InfoBytes here). According to the Bureau, industry comments generally did not support an extension, and “[m]ost industry commenters stated that, despite the pandemic, they would be prepared to comply with the Debt Collection Final Rules by November 30, 2021.”

    Federal Issues CFPB Debt Collection Agency Rule-Making & Guidance FDCPA Covid-19

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  • 5th Circuit orders plaintiff to pay outstanding loan


    On August 16, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court decision to require the plaintiff CEO of several petrochemical companies, who defaulted on a revolving line of credit that he guaranteed, to repay national lenders (defendants) an outstanding amount, rejecting the CEO’s argument that the agreements were fraudulently induced. The plaintiff allegedly withdrew a $90 million revolving line of credit from the defendants. His personal liability arose after his companies began breaching some of the loans’ financial covenants. To avoid acceleration, the CEO himself guaranteed the companies’ outstanding debt. Because his companies continued breaching their loan obligations and the defendants were “concerned about the borrowers’ cash burn, ‘collateral deterioration,’ and ‘poor accounting controls,’” the parties modified the total debt to $72 million. In addition, the defendants and the companies amended their credit agreement and the plaintiff “executed a personal guaranty of the debt his companies assumed.” At the defendants’ recommendation—or, as the CEO maintains—“the borrowers also brought on a chief restructuring officer (CRO) to help turn the companies around.” When the companies continued to default on the loan obligations, the CEO and the borrowers entered into two forbearance agreements with the defendants that imposed financial, operational, and reporting obligations on the borrowers. After the second agreement expired and the borrowers' defaults remained, the company sued the defendants for over $1.5 billion in damages for negligence, fraud, conversion, among other things, in which the defendants “counterclaimed and impleaded [the CEO] and the remaining borrowers and guarantors, alleging breach of contract and breach of guaranty.” According to the opinion, “[t]hose third-party defendants then counterclaimed against the lenders, asserting the same tort claims initially lodged by the company.” Furthermore, the CEO asserted the following four defenses: fraudulent inducement, duress, unclean hands, and equitable estoppel. The district court rejected each of the plaintiff’s arguments, ordering him to pay the defendants, plus interest and attorney fees, noting “that the underlying breach of guaranty was ‘not contested.’” The district court held that the waivers and releases the plaintiff signed as part of the two forbearance agreements “foreclosed any claim that he was fraudulently induced into signing the earlier Guaranty,” and determined that his allegations of intense business pressure fell short of establishing duress.

    On appeal, the 5th Circuit agreed with the district court, affirming that the plaintiff failed to prove that he signed onto the agreements under duress. According to the 5th Circuit, “[t]he district court detected a glaring problem with this theory: the timeline of events refutes it,” and the plaintiff “learned of the purported fraud—the supposed scheme to replace him with the CRO—before he ratified the Guaranty.”

    Courts Appellate Debt Collection Fifth Circuit

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  • District Court: "Least sophisticated consumer" would not be misled by collection letter disclosures


    On August 23, a magistrate judge of the U.S. District Court for the District of Colorado granted a defendant’s motion for summary judgment, ruling pursuant to the “least sophisticated consumer standard” that the debt collection letter accurately conveyed the subject FDCPA rights. The plaintiff alleged the defendant debt collector’s letter violated several sections of the FDCPA by, among other things, making false and misleading representations in violation of Section 1682e by informing the plaintiff that “calling for further information or making a payment is not a substitute for disputing the debt” because it implied that disputing the debt was mandatory instead of optional. Additionally, the plaintiff contended that this language overshadowed and contradicted the required disclosure on the second page of the letter by “suggest[ing] that disputing the debt was mutually exclusive to making a payment”—an alleged violation of Section 1692g. The defendant moved for summary judgment, arguing that the plaintiff lacked standing to sue, or in the alternative, that he lacked sufficient evidence to prove his FDCPA claims.

    The court disagreed, ruling that the plaintiff’s alleged injuries (that the FDCPA violation caused him to not pay his debt and that he lost out on the ability to make payments or to, among other things, negotiate a separate payment plan) did not rise to the level of tangible harm necessary to satisfy Article III standing. The court then reviewed the letter’s disclosures under the least sophisticated consumer standard and determined that “it is one thing to say that making a payment and disputing a debt are different, and another entirely to suggest that they are mutually exclusive. The phrase, ‘IS NOT A SUBSTITUTE FOR,’ does not carry any reasonable implication of exclusivity, and in fact demonstrates, when read in full context, that Defendant is informing Plaintiff that making a payment does not take the place of disputing the debt. In other words, both can be pursued without exclusivity.” Moreover, because the language is not misleading or contradictory, the court ruled that it did not overshadow the second-page disclosure, which informed him of his right (but not obligation) to dispute the debt.

    Courts Debt Collection FDCPA Disclosures

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  • 10th Circuit affirms summary judgment in FDCPA action


    On August 17, the U.S. Court of Appeals for the Tenth Circuit affirmed a district court’s decision in granting a plaintiff summary judgment, finding that the debt collector (defendant) violated the FDCPA by allegedly attempting to collect a debt despite receiving written notice disputing the debt, and by allegedly calling the defendant despite receiving a “cease-and-desist letter.” According to the opinion, the plaintiff allegedly incurred a medical debt that was placed with the defendant for collection, in which the defendant sent a letter on April 25 to the plaintiff seeking payment of the debt. On April 30, the defendant called the plaintiff and left a voice message. Subsequently, the defendant received a letter from the plaintiff on May 7 disputing the debt and demanding that the defendant cease calling, and that future correspondence should be in writing. However, the letter was not documented into the defendant’s system until May 10; meanwhile, on May 8, the defendant placed another call to the plaintiff, leaving another voice message. The plaintiff filed suit, alleging the defendant violated Section 1692g(b) of the FDCPA “by attempting to collect the debt despite receiving her written notice disputing the debt” and Section 1692g(c) of the FDCPA “by continuing to call her despite receiving her cease-and-desist letter.” The district court ruled that the plaintiff violated the FDCPA and the defendant’s bona fide error defense did not excuse the FDCPA violations, emphasizing that “the bona fide-error defense is an affirmative one, requiring that [the defendant] prove the prongs of the defense, not that [the plaintiff] disprove them.”

    On appeal, the 10th Circuit agreed with the district court and cited TransUnion v. Ramirez, where the U.S. Supreme Court clarified the Spokeo standing requirements, including that the tort of intrusion upon seclusion is recognized as an intangible harm providing a basis for a lawsuit in American courts (covered by InfoBytes here). According to the opinion, in consideration of the FCRA, “the TransUnion Court noted that a company’s maintaining incorrect information in its database, absent dissemination to a third party, failed to create a harm bearing a close relationship to the common-law tort of defamation.” Further, “[w]ithout the ‘necessary’ defamation component that the tortious words were published, this harm differed in kind.” The appellate court pointed out that “this analysis doesn’t control the case at question because the plaintiff alleged the necessary components for a common-law intrusion-upon-seclusion tort.” The appellate court further affirmed that the phone call that was placed after the cease-and-desist letter was received is considered enough to confer standing for the plaintiff to sue. The 10th Circuit held, “[t]hough a single phone call may not intrude to the degree required at common law, that phone call poses the same kind of harm recognized at common law—an unwanted intrusion into a plaintiff’s peace and quiet.”

    Courts Appellate FDCPA Debt Collection Tenth Circuit Spokeo

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  • Georgia settles with debt collection company

    State Issues

    On August 12, the Georgia Attorney General announced that it entered an assurance of voluntary compliance with a debt collection company resolving allegations that the company committed multiple violations of the FDCPA and the Georgia Fair Business Practices Act. According to the AG, the company deceived consumers by, among other things: (i) threatening consumers with jailtime if a debt was not paid; (ii) failing to disclose that they were debt collectors; and (iii) failing to provide consumers, within five days after the initial communication, a written notice containing certain information required by law. Under the settlement, the company must cease collections on all Georgia consumer accounts it owns and turn those accounts over to the AG, which represents over $19.8 million in purported consumer debt. In addition, the company must pay $41,500 in penalties and fees, and fully comply with the FDCPA and the Georgia Fair Business Practices Act. Finally, if the company violates any provisions of the settlement during a three-year monitoring period, it must immediately pay an additional $41,500 payment to the state.

    State Issues State Attorney General Enforcement FDCPA Debt Collection

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  • 6th Circuit: Consumer lacks standing to bring FDCPA voice message claims


    On August 16, the U.S. Court of Appeals for the Sixth Circuit held 2-1 that a plaintiff lacked Article III standing to bring claims against a debt servicer defendant for allegedly violating the FDCPA by failing to properly identify itself in voice messages. The plaintiff filed suit in 2019 alleging violations of three FDCPA provisions, including that the defendant: (i) failed to identify itself as a debt collector in its voice messages; (ii) failed to identify the “true name” of its business, thus causing the plaintiff to send a cease-and-desist letter to the wrong entity; and (iii) placed calls without meaningfully disclosing its identity. The district court granted summary judgment in favor of the defendant, ruling that because the defendant did not qualify as a “debt collector” under the FDCPA it was not subject to the statute’s requirements.

    On appeal, the 6th Circuit raised the issue of standing “for the first time on appeal,” concluding that the plaintiff “does not automatically have standing simply because Congress authorizes a plaintiff to sue a debt collector for failing to comply with the FDCPA.” Pointing out that the appeal “centers on whether [the plaintiff] suffered a concrete injury,” the appellate court rejected the plaintiff’s arguments that the defendant’s statutory violations constituted a “concrete injury” and “that the confusion he suffered, the expense of counsel, and the phone call that he received from [the defendant] qualify as independent concrete injuries.” Among other things, the 6th Circuit noted that although the plaintiff claimed that the FDCPA “created an enforceable right to know who is calling about a debt and that [the defendant’s] failure to identify its full name concretely injured him,” the plaintiff ultimately failed to demonstrate that the defendant’s “failure to disclose its full identity in its voice messages resembles a harm traditionally regarded as providing a basis for a lawsuit.” Additionally, the appellate court determined that “confusion alone is not a concrete injury for Article III purposes,” and that the plaintiff “cannot show concrete harm simply by pointing to the cost of hiring counsel.” Moreover, because the plaintiff “did not clearly assert in his complaint that he received—let alone was harmed by—an additional phone call, [the appellate court] need not decide whether an unwanted call might qualify as a concrete injury.” The 6th Circuit vacated the district court’s order entering summary judgment and remanded the case to be dismissed for lack of jurisdiction.

    Courts Debt Collection FDCPA Appellate Sixth Circuit

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  • District Court: State law right-to-cure provisions preempted by National Bank Act


    On August 4, the U.S. District Court for the Western District of Wisconsin granted defendants’ motion for partial summary judgment in an action alleging claims under the FDCPA and the Wisconsin Consumer Act (WCA). The defendants were a debt-purchasing company and a law firm hired by the company to recover outstanding debt and purported late fees on the plaintiff’s account in a separate state-court action. After the plaintiff failed to make payments on his outstanding balance, the original creditor (a national bank) charged late fees and mailed him a “right to cure” letter advising him of the minimum payment due and the deadline to make the payment. The account was eventually sold to the debt-purchasing company after the plaintiff failed to make any minimum payments. The law firm sent the plaintiff two letters on behalf of the debt-purchasing company, one which outlined his right to dispute the debt and one which provided a “notice of right to cure default.” A small claims action was filed against the plaintiff in state court, in which the plaintiff argued for dismissal, contending in part that the notice of default failed to itemize delinquency charges as required under Wisconsin law. The plaintiff then filed this suit in federal court alleging violations of the FDCPA and the WCA, claiming that the defendants “falsely represented the status of his debt in violation of § 1692e by purporting to have properly accelerated his debt and filed suit against him despite [the plaintiff] never being provided an adequate right to cure letter pursuant to Wisconsin law.”

    First, in reviewing whether the plaintiff had standing to sue, the court determined that the “costs, time, and energy” incurred by the plaintiff to defend himself in the state-court action amounted to a “concrete injury in fact” that established his standing in the federal-court action. However, upon reviewing the WCA’s right-to-cure provisions as the basis for the plaintiff’s claims that the defendants violated federal and state laws by allegedly falsely representing that they could accelerate the plaintiff’s debt and sue him, the court examined whether the state law’s notice and right-to-cure provisions were federally preempted by the National Bank Act (NBA), as the original creditor’s rights and duties were assigned to the debt-purchasing company when the account was sold. The court determined that while the WCA right-to-cure provisions “do relate in part to debt collection,” they also “go beyond that by imposing conditions on the terms of credit within the lending relationship.” The court ultimately concluded that the WCA provisions “are inapplicable to national banks by reason of federal preemption,” and, as such, the court found “that a debt collector assigned a debt from a national bank is likewise exempt from those requirements” and was not required to send the plaintiff a right-to-cure letter “as a precondition to accelerating his debt or filing suit against him.”

    Courts Debt Collection FDCPA State Issues Consumer Finance National Bank Act

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