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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.’”
OCC issues new guidance for higher-LTV mortgage loans
On June 19, the OCC issued Bulletin 2019-28, which highlights “core lending principles” for banks offering higher loan-to-value (LTV) loans. The Bulletin rescinds 2017 guidance from the OCC—Bulletin 2017-28, “Mortgage Lending: Risk Management Guidance for Higher-Loan-to-Value Lending Programs in Communities Targeted for Revitalization”— noting that “banks have engaged in responsible, innovative lending strategies that are different from [the previous bulletin’s] specific program parameters while being consistent with its goals.” The new guidance instead covers core lending principles that banks should consider when offering higher-LTV loans in an effort revitalize communities. Among other things, the OCC states that higher-LTV loans (i) should be consistent with safe and sound banking and comply with applicable laws and regulations; (ii) performance is effectively monitored, tracked, and managed; (iii) should be underwritten consistent with the Interagency Guidelines for Real Estate Lending and the bank’s standards for review and approval of exception loans. The Bulletin notes examples of sound policies and processes for higher-LTV loans, including underwriting standards and portfolio limits for the aggregate amount of higher-LTV loans. Lastly, the Bulletin emphasizes that marketing and consumer disclosures should describe the potential financial impacts and marketability of a higher-LTV loan where the value of the property is and could remain less than the loan amount.
Texas prohibits collection actions and arbitrations on time-barred debt
On June 14, the Texas governor signed HB 996, which prohibits debt buyers from commencing an action against or initiating arbitration with a consumer for the purpose of collecting a consumer debt after the statute of limitations (SOL) has expired. The bill defines “debt buyer” as “a person who purchases or otherwise acquires a consumer debt from a creditor or other subsequent owner of the consumer debt, regardless of whether the person collects the consumer debt, hires a third party to collect the consumer debt, or hires an attorney to pursue collection litigation in connection with the consumer debt.” Additionally, the bill (i) prevents a collection action on a debt that is passed the SOL from being revised by any activity on the debt, including payment; and (ii) requires a debt buyer to provide a specific written notice in the initial collection communication, including a statement that the debt is time-barred and the debt collector would not sue the consumer for it. The bill is effective September 1.
7th Circuit: Detailed creditor information does not violate FDCPA
On June 6, the U.S. Court of Appeals for the 7th Circuit, in a consolidated appeal, affirmed summary judgment in favor of a debt collector in actions alleging that the debt collector violated the FDCPA by naming the “original creditor” and the “client” in its collection letters, but declining to identify the current owner of the debt. According to the opinion, two consumers received collection letters naming an online payment processor as the “client” and a bank as the “original creditor,” and stating that, “upon the debtor’s request, [the collector] will provide ‘the name and address of the original creditor, if different from the current creditor.’” The consumers filed class actions against the debt collector, alleging that it violated, among other things, Section 1692g(a)(2) of the FDCPA by failing to disclose the current creditor or owner of the debt in the initial collection letters. In both cases, the respective district court granted summary judgment for the debt collector, concluding that the letter not only includes the original creditor—the bank—but also provides additional information for the unsophisticated consumer by including the online payment processor so that the consumer could better recognize the debt.
On appeal, the 7th Circuit agreed with the lower courts and concluded that the letters did not violate the FDCPA. The appellate court noted that “the letter identifies a single ‘creditor,’ as well as the commercial name to which the debtors had been exposed, allowing the debtors to easily recognize the nature of the debt.” The appellate court rejected the consumers’ argument that calling the bank the “original creditor” instead of the “current creditor” creates confusion, because the letter contained language that notified consumers that the original and current creditors may be one and the same. Because the letter “provides a whole picture of the debt for the consumer,” the court concluded it is not abusive or unfair and does not violate Section 1692g(a)(2) of the FDCPA.
Democratic Senators ask CFPB to reconsider debt collection rulemaking
On June 6, twenty six Democratic Senators sent a letter to the CFPB requesting that the Bureau reconsider the recent debt collection rulemaking proposal to “pursue more meaningful reforms that put consumers . . . first.” As previously covered by InfoBytes, in May, the CFPB released its highly anticipated debt collection rulemaking, which regulates debt collection communications and disclosures and addresses related practices by debt collectors. Among other things, the proposed rule would (i) require debt collectors to provide consumers with a validation notice containing specific information regarding the debt; (ii) restrict debt collectors from calling consumers regarding a particular debt more than seven times within a seven-day-period and prohibit telephone contact for seven days after the debt collector has had a conversation with the consumer; (iii) allow for consumers to unsubscribe from various communication channels with debt collectors, including text or email; and (iv) prevent debt collectors from contacting consumers on their workplace email addresses or through public-facing social media platforms.
In the letter, the Senators argue that the proposed rule as currently written “will only exacerbate and increase troubling harassment tactics” by debt collectors. The Senators note that the Bureau received 81,500 consumer debt collection complaints, and the FTC received nearly 458,000 such complaints in 2018, and argue that the proposed rule does not do enough to address the particular abusive practices that those complaints raised. The Senators allege that the proposed rule “permits collectors to overwhelm consumers with intrusive communications” because it allows for unlimited text messages and emails and allows for collectors to call consumers seven times per week, per debt. Additionally, the Senators argue that the proposed rule “could encourage collectors to practice willful ignorance about the status of the debt they collect,” as it only “prohibits filing or threatening to file a lawsuit if the collector ‘knows or should know’ that the debt is not enforceable.” Lastly, the Senators assert that the Bureau should hold attorneys who engage in debt collection to a “higher standard, [they should] not be granted a safe harbor to engage in abusive and deceptive practices.”
District Court denies debt collector’s motion for summary judgment FDCPA action concerning a consumer who filed for bankruptcy
On May 29, the U.S. District Court for the Northern District of Ohio denied a debt collector’s motion for summary judgment in an action alleging the debt collector violated the FDCPA by sending a collection letter three days after the consumer filed for bankruptcy. According to the opinion, the debt collector confirmed that the consumer had not yet filed for bankruptcy following placement of the consumer’s account for collection and, thus, sent an initial communication to the consumer’s attorney. Thereafter, the consumer filed for bankruptcy, but before the collector learned of the bankruptcy, it sent a collection letter to the consumer’s counsel. As a result, the consumer filed a lawsuit claiming that the debt collector violated the FDCPA by sending a collection letter to the consumer’s attorney after the bankruptcy proceeding had been initiated. The debt collector moved for summary judgment, arguing that it could not be held liable under the FDCPA because, at the time it sent the collection letter, it had not yet received notice of the bankruptcy proceeding. The court, however, rejected this argument, citing to the U.S. Court of Appeals for the 6th Circuit in stating that “‘[t]he FDCPA is a strict-liability statute: A plaintiff does not need to prove knowledge or intent . . . and does not have to have suffered actual damages.’” Because the debt collector did present arguments or evidence relating to FDCPA’s bona fide error provision, which provides an affirmative defense for a violation that is not intentional and is the result of a bona fide error, the court said that it was essentially being asked by the debt collector “to read an intent or knowledge requirement into the FDCPA,” something it could not do, and, thus, it denied the motion for summary judgment.
CFPB publishes spring 2019 rulemaking agenda
On May 22, the Office of Information and Regulatory Affairs released the CFPB’s spring 2019 rulemaking agenda. According to a Bureau blog post, the information presented represents regulatory matters it “reasonably anticipates having under consideration during the period of May 1, 2019, to April 30, 2020.” The rulemaking activities include implementing statutory directives mandated in the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), continuing certain other rulemakings previously outlined in the Bureau’s fall 2018 agenda (covered by InfoBytes here), as well as considering future projects and requests for information.
Key rulemaking initiatives include:
- Property Assessed Clean Energy Loans (PACE): On March 4, the Bureau published an advanced notice of proposed rulemaking (ANPR) and request for comments in response to Section 307 of the Act, which amended TILA to mandate the CFPB propose regulations related to PACE financing. The regulations must carry out the purposes of TILA’s ability-to-repay requirements, and apply TILA’s general civil liability provisions for violations. (InfoBytes coverage here.)
- Remittance Transfers: On April 25, the Bureau issued a request for information (RFI) on two aspects of the Remittance Rule that require financial companies handling international money transfers, or remittance transfers, to disclose to individuals transferring money the exact exchange rate, fees, and the amount expected to be delivered. The RFI seeks information related to the expiration of the temporary exception and whether to propose changing the number of remittance transfers a provider must make to be governed by the rule. (InfoBytes coverage here.)
- HMDA/Regulation C: On May 2, the Bureau issued a notice of proposed rulemaking (NPRM) to raise permanently coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under the HMDA rules. Specifically, the NPRM would raise permanently the reporting threshold for closed-end mortgage loans from 25 loans in each of the two preceding calendar years to either 50 or 100 closed-end loans in each of the preceding two calendar years. (InfoBytes coverage here.)
- Debt Collection Rule: On May 7, the Bureau issued a NPRM to amend Regulation F, which implements the FDCPA, covering debt collection communications and consumer disclosures and addressing related practices by debt collectors. The Bureau reports that the NPRM “builds on research and pre-rulemaking activities regarding the debt collection market, which remains a top source of complaints.” (InfoBytes coverage here.)
- Payday Rule/Delay of Compliance Date: On February 6, the Bureau released two NPRMs related to certain payday lending requirements under the CFPB’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule). The first proposal would rescind portions of the Rule related to ability-to-repay underwriting standards for payday loans and related products scheduled to take effect later this year, while the second proposal would delay the compliance date for those same provisions for fifteen months. The Bureau anticipates it will issue a final rule concerning the compliance date this summer and a final determination on reconsideration thereafter. (InfoBytes coverage here.)
Long term priorities include rulemaking addressing (i) consumer reporting; (ii) amendments to FIRREA concerning automated valuation models; (iii) disclosure of records and information; (iv) consumer access to financial records; (v) Regulation E modernization; (vi) rules to implement the Act, concerning various mortgage requirements, student lending, and consumer reporting; and (vii) clarity for the definition of abusive acts and practices.
West Virginia high court: Insufficient facts to determine whether arbitration is enforceable
On May 17, the West Virginia Supreme Court of Appeals vacated a state circuit court’s ruling to deny a motion to compel arbitration in a case related to bounced convenience checks drawn on a consumer’s credit card account, finding that the circuit court’s order failed to contain sufficient findings of fact or conclusions of law to allow the Supreme Court of Appeals to conduct a proper review. According to the opinion, the plaintiff-respondent sued the debt collector defendants for invasion of privacy and violations of the West Virginia Consumer Credit and Protection Act after the defendants attempted to collect debt arising from two convenience check transactions that were allegedly returned as unpaid. The defendants moved to compel arbitration and presented enrollment forms that contained arbitration clauses purportedly signed by the plaintiff-respondent. However, the plaintiff-respondent claimed the enrollment forms were never presented to her, that her signature was applied to the forms electronically after she used a card reader terminal to electronically cash her checks, and that the “signing process was ‘rushed’ and unfair.” Following a brief hearing on the motion to compel arbitration, the circuit court entered an order denying the motion to compel arbitration.
On appeal, the state’s highest court vacated the circuit court’s order, which it found to be “unclear and contradictory in its rulings,” in that the lower court appeared to determine that the plaintiff-respondent had not agreed to the terms of the arbitration agreement, but also appeared to determine that the contract was unconscionable and could not be enforced. The high court remanded the case for further proceedings, including determining whether an arbitration agreement existed, and if it did, whether the agreement was unconscionable.
7th Circuit agrees with reduction of attorney’s fees in FDCPA action
On May 15, the U.S. Court of Appeals for the 7th Circuit held a prevailing consumer’s request for $187,410 in attorney’s fees was unreasonable in a FDCPA action. In 2014, the consumer and a debt collector settled the consumer’s FDCPA related claims for $1,001 plus attorney’s fees of $4,500. Despite the settlement agreement, the debt collector continued to attempt to collect the debt, and the consumer sued a second time alleging violations of the FDCPA and FCRA. The consumer did not respond to multiple settlement offers from the debt collector, including one in March 2015 for $3,051, proceeding to trial on the FDCPA claim, and subsequently rejected a settlement offer from the debt collector of $25,000 and reasonable attorney’s fees. At trial, the jury only awarded the consumer the $1,000 in FDCPA statutory damages, after which he sought to recover $187,410 in attorney’s fees. The district court reduced his request to $10,875, concluding that the consumer’s rejection of “meaningful settlement offers precluded a fee award in such disproportion to his trial recovery.”
On appeal, the appellate court agreed with the district court that the March 2015 settlement offer of $3,051 was reasonable, rejecting the consumer’s argument that the settlement “was not substantial and therefore should have been disregarded by the district court in determining the fee award.” The appellate court also rejected the consumer’s argument that because the settlement offer disclaimed liability for the debt collector, his results at the jury trial were much better than the settlement as it yielded judgment on the merits. The appellate court noted that settlement offers regularly disclaim liability, and by operation, judgment against the debt collector would still have been entered under Rule 68. Therefore, the appellate court concluded the district court did not abuse its discretion when reducing the attorney’s fees to $10,875 based on 29 hours’ worth of work at an hourly rate of $375 prior to the March 2015 settlement offer.