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District Court concludes collection attempt on old debt did not violate FDPCA
On July 11, the U.S. District Court for the Eastern District of Washington granted a debt collector’s motion for summary judgment, concluding the attempted collection of an old debt did not violate the FDCPA. According to the opinion, a consumer filed a class action lawsuit against the debt collector alleging the collector violated the FDCPA by (i) “falsely representing the legal status of the debt”; and (ii) using “false representations and/or deceptive means to collect or attempt to collect a debt,” when it sent a collection letter in March 2017 attempting to collect on a debt that allegedly incurred before 2009. The debt collector moved for summary judgment arguing that the consumer did not have standing and that the claim failed on the merits. The district court agreed with the debt collector, concluding that the consumer did not have standing to pursue the FDCPA claim because she did not incur any concrete injury, noting she made no claims that she was misled by the letter or confused about the status of her debt, nor did she pay on the debt or make a promise to pay. Moreover, the district court agreed that the debt collector adequately informed the consumer about the status of her debt, stating “[t]he letter clearly states that ‘[t]he law limits how long you can be sued on a debt’ and states that, ‘[d]ue to the age of this debt, we will not sue you for it[.]’” Lastly, the district court found that in order to comply with the FDCPA, the debt collectors were not required to inform consumers of the “supposed risks of partial payments or entering a payment plan.”
North Carolina AG sues unlicensed debt collector for multiple violations
On July 17, the North Carolina attorney general announced a lawsuit filed against multiple debt collection entities and their owner for allegedly collecting or attempting to collect on consumer debts in North Carolina without filing the appropriate registration or obtaining the necessary permits to operate as a debt collection agency in the state. According to the complaint, the entities, based and registered in Texas, purchased unpaid debts from a national rent-to-own consumer goods company. North Carolina customers allegedly received misleading collection notices from the entities simulating actual court notices and implying the customers had committed criminal offenses. Additionally, the complaint alleges that the entities filed criminal complaints against the customers, containing misleading information and resulting in actual summonses being issued. The complaint alleges violations of North Carolina’s Unfair and Deceptive Trade Practices Act, Business Corporation Act, Professional Corporation Act, Uniform Partnership Act, and North Carolina’s Prohibited Practices by Collection Agencies Engaged in Collection of Debts from Consumers and seeks among other things, civil penalties, restitution, and injunctive relief.
As a result of the complaint filing, the court approved a temporary restraining order prohibiting the entities from engaging in debt collection practices and scheduled a preliminary injunction hearing.
3rd Circuit: Debt collector cannot enforce original creditor’s arbitration agreement
On July 12, the U.S. Court of Appeals for the 3rd Circuit affirmed the denial of a debt collector’s motion to compel arbitration, concluding the debt collector did not establish authority to enforce the arbitration agreement made between the consumer and the original creditor. According to the opinion, a consumer executed a credit card agreement with a creditor containing an arbitration clause. After the consumer fell behind on her payments, her account was referred to the debt collector for collection. The consumer filed suit against the debt collector, alleging that one of the collection letters violated the FDCPA by “failing to inform her whether interest would continue to accrue on her account.” The debt collector moved to compel arbitration based on the provision in the consumer’s credit card agreement with the original creditor, under a third-party beneficiary, agency, or equitable-estoppel theory. The district court rejected each theory and denied the motion, concluding that (i) the agreement did not “evince an intent to benefit” the debt collector; (ii) the FDCPA claim “did not bear a sufficient nexus to the credit-card agreement”; and (iii) the debt collector could not equitably estop the consumer from resisting arbitration under the 3rd Circuit’s previous interpretation of South Dakota law.
On appeal, the 3rd Circuit agreed with the district court. The appellate court noted that the debt collector failed the test to enforce an agreement as a third-party beneficiary under South Dakota law, because the debt collector failed to establish that the original creditor and its consumers “would not have entered the card agreement but for the intent to benefit debt collectors.” As for the debt collector’s agency theory, the appellate court stated that the debt collector did not cite, and the court did not find, “South Dakota authority adopting a freestanding ‘agency’ theory of third-party enforcement.” Further, the appellate court noted that the debt collector’s arguments would fail under the South Dakota test for equitable estoppel and, therefore, the appellate court had “no basis to conclude that South Dakota would allow [the debt collector], as a non-signatory, to enforce [the original creditor]’s arbitration agreement with its customers.”
CFPB report finds one in four consumers have debts in collection
On July 18, the CFPB released a report providing an overview of third-party debt collection tradelines from 2004 to 2018, which the Bureau segmented into two parts: debt buyer tradelines and non-buyer debt collections tradelines. The CFPB’s report, “Market Snapshot: Third-Party Debt Collections Tradeline Reporting,” is based on a nationally representative sample of approximately 5 million credit records from one of the three major credit bureaus. According to the report, as of the second quarter of 2018, more than one in four consumers in the sample have at least one debt in collection by third-party debt collectors. Additionally, fewer than 900 unique furnishers of third-party collections tradelines nationwide reported unpaid debts for consumers in the sample, according to the Bureau—a decrease from the 2,294 collectors reported back in 2004. The report also notes that in the second quarter of 2018, the top four debt buyers account for 90 percent of all debt buyer tradelines for consumers in the sample, while the top four non-buyers, by comparison, accounted for just 13 percent of reported tradelines. Furthermore, in the second quarter of 2018, 3 out of 4 of all reported tradelines in the sample from non-buyers were for non-financial debt, such as medical, telecommunications, or utilities debt. Buyers, in contrast, were more likely to report unpaid financial, retail, or banking debts.
3rd Circuit: Collection letter failed to properly identify creditor in violation of FDCPA
On July 10, the U.S. Court of Appeals for the 3rd Circuit reversed the dismissal of a FDCPA action against a debt collector, holding that the collection letter failed to apprise the least sophisticated debtor of the creditor’s identity. The complaint alleges that the debt collector “failed to identify ‘the name of the creditor to whom the debt is owed’” as required by the FDCPA because the letter listed “at least four entities” that were connected in some way to the debt. The district court dismissed the complaint, concluding the debt collector sufficiently identified the creditor.
On appeal, the 3rd Circuit concluded that the letter failed to notify the least sophisticated debtor of the creditor’s identity for three reasons: (i) the letter did not expressly state that the bank was the creditor or the owner of the debt; (ii) the letter identified the bank as the “assignee of” three other financial entities and “assignee” is a legal term that does not assist a debtor in understanding the relationships between the parties; and (iii) the letter as a whole failed to sufficiently identify the bank as the creditor, as the reference to three other entities “‘overshadowed’ the creditor’s identity.” The appellate court concluded that the letter failed to properly disclose the creditor and therefore, violated the FDCPA, reversing the district court’s dismissal of the complaint.
California Court of Appeal: Prejudgment interest accrual did not violate Rosenthal Fair Debt Collection Practices Act
On July 1, the California Court of Appeal for the Fourth Appellate District affirmed in part and reversed in part a previous superior court judgment in favor of a debt collector, holding that the debt collector did not violate the California Rosenthal Fair Debt Collection Practices Act (the Rosenthal Act) by adding prejudgment interest from the date of charge-off to a consumer’s account, and reporting the account, with such additional interest, to several credit bureaus.
The lawsuit initially arose when the debt collector sued to collect the entire amount owed, and the consumer filed a cross-complaint alleging the debt collector had violated the Rosenthal Act, among other laws, by “‘falsely representing the character, amount, or legal status of the alleged debt,’ ‘failing to verify that the amount demanded was accurate,’ and ‘failing to provide an accurate accounting of the alleged debt.’” The superior court rejected the consumer’s claims and entered judgment in favor of the debt collector in the amount of the debt plus attorney’s fees.
On appeal, the Court of Appeal concluded that the debt collector did not violate the Rosenthal Act because the consumer failed to show that the original creditor waived the right to accrue additional interest on the account by not accruing the interest after charge-off. Moreover, the Court of Appeal noted that the statutory prejudgment interest rate is only available when there is no specified contractual rate. However, the Court determined that the debt collector did not improperly accrue interest when it applied a seven percent interest rate, as seven percent is lower than the statutory interest rate and the contractual interest rate. With respect to attorney’s fees, the Court of Appeal concluded the superior court improperly awarded fees associated with the legal action to collect the debt and the cross-complaint, noting that the superior court, “should have limited the fee award to time spent on efforts necessary to prove the allegations in the complaint.” Therefore, the court reversed the fee judgment and remanded the case back to superior court for “further consideration of the fee award in accordance with our narrower interpretation of the contractual fee provision.”
CFPB issues latest fair lending report to Congress
On June 28, the CFPB issued its seventh fair lending report to Congress, which outlines the Bureau’s efforts in 2018 to fulfill its fair lending mandate. According to the report, in 2018, the Bureau continued to focus on promoting fair, equitable, and nondiscriminatory access to credit, highlighting several fair lending priorities that continued from years past such as mortgage origination, mortgage servicing, and small business lending. The Bureau also noted two new focus areas for fair lending examinations or investigations: (i) student loan origination, specifically, whether there is discrimination in underwriting and pricing; and (ii) debt collection and model use, specifically, whether there is discrimination in governing auto servicing and credit card collections, including the use of models that predict recovery outcomes. Additionally, the report highlighted several other Bureau activities from 2018, including, among other things (i) issuing guidance to facilitate the implementation of the August 2018 HMDA final rule (covered by InfoBytes here); and (ii) recommending supervisory reviews of third-party credit scoring models, noting that the “use of alternative data and modeling techniques may expand access to credit or lower credit cost and, at the same time, present fair lending risks.”
FTC and NY AG settle with phantom debt operation
On July 1, the FTC announced, together with the New York attorney general, a settlement with two New York-based phantom debt operations and their principals (collectively, “defendants”) resolving allegations that the operations bought, placed for collection, sold lists of, and collected on fake debts that consumers did not owe. As previously covered by InfoBytes, the June 2018 complaint alleged that the defendants ran a deceptive and abusive debt collection scheme in violation of the FTC Act, the FDCPA, and New York state law. The settlement order against one company and its owners bans the defendants from debt collection activities, including buying, placing for collection, and selling debt. The order requires the defendants to pay a combined $676,575, suspending the total judgment of $6.75 million, due to inability to pay. The settlement order against the other company and its owner prohibits the defendants from engaging in unlawful collection practices and requires the payment of $118,000, suspending the total judgment of $4.94 million, due to inability to pay.
Court dismisses FDCPA action after plaintiff admits possibility of late charges
On June 20, the U.S. District Court for the Eastern District of New York granted a debt collector’s motion to dismiss in an FDCPA action after the plaintiff conceded that it was possible for late charges to be imposed on his account in the future. The consumer filed an action against the debt collector after he received a collection notice stating that, “[a]s of the date of this letter, you owe the total balance due reflected above. 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 consumer argued the letter violated the FDCP’s prohibition on using any false, deceptive, or misleading representation or means in connection with the collection of any debt, because the debt was not subject to the imposition of late charges, because his original creditor, the Department of Education, allegedly “‘did not have the legal or contractual authority to assess late charges on the [debt],’ and [the debt collector] was ‘never authorized . . . to charge or add late charges to the balance of the [debt].’” After discussing conflicting precedents, the court noted that it need not reach the issue because the plaintiff conceded that it would be possible for his account to be assessed late charges in the future should he rehabilitate his debt and subsequently fail to make timely payments. Because late charges could “conceivably be assessed” the debt collector’s letter was not inaccurate, as the plaintiff alleged and therefore, the court dismissed the action.
Court says debt collector’s name doesn't violate FDCPA
On June 18, the U.S. District Court for the Eastern District of Washington granted summary judgment in favor of a debt collector, concluding the debt collector did not violate the FDCPA by using the name “State Collection Service.” The class action alleged the debt collector’s name “gave the false impression that the debt collection company was in some way associated with the State of Washington in violation of the FDCPA.” The debt collector moved for summary judgment. Upon review of the debt collector’s written and oral communications with the plaintiff, the court noted that using the term, “State” in its name, or omitting the term “Inc.” from its name are not deceptive or misleading as a matter of law. Moreover, the court stated, “even if [the debt collectors]’s use of the term ‘State’ or omission of ‘Inc.’ could be construed as faintly misleading, it was not a material misrepresentation that affected Plaintiff’s ability to ‘intelligently choose’ her response to the collection notice.” Additionally, because all of the debt collector’s communications identified the original creditor and the amount of the debt, the court found that “the least sophisticated debtor would not be misled by [the debt collector]’s use of the name ‘State Collection Service.’”