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CFPB files suit against New York-based debt-collection law firm
On May 17, the CFPB announced it filed a lawsuit in the U.S. District Court for the Eastern District of New York against a New York debt-collection law firm. According to the Bureau’s complaint, between 2014 and 2016 the law firm allegedly initiated more than 99,000 collection lawsuits in an attempt to collect debts through reliance on “non-attorney support staff, automation, and both a cursory and deficient review of account files,” in violation of both the FDCPA and the Consumer Financial Protection Act. The Bureau alleges the lawsuits contained names and signatures of attorneys despite those attorneys “not being meaningfully involved in reviewing the merits of the lawsuits,” including not reviewing pertinent documentation related to the debts, such as account applications, billing statements, payment histories, and the terms and conditions governing an account. The law firm allegedly did not perform reviews of the contracts related to debt sales, despite filing lawsuits on behalf of debt buyers that have been accused of unlawful debt collection practices. The Bureau is seeking an injunction, damages, redress to consumers, and the imposition of a civil money penalty.
2nd Circuit: FDCPA statute of limitations triggered by violation, not notice
On May 13, the U.S. Court of Appeals for the 2nd Circuit held that the FDCPA’s statute of limitations period starts when the violation occurs, rather than when the plaintiff receives notice of the violation. According to the opinion, a law firm (defendant) seeking to collect a debt against a borrower sent a restraining notice to a national bank, which erroneously referenced the plaintiff’s social security number and address. The bank froze the plaintiff’s accounts on December 13, 2011. The bank lifted the freeze two days later after the plaintiff contacted the bank about the freeze. On December 14, 2012, the plaintiff filed a lawsuit against the debt collector, alleging FDCPA violations. The plaintiff claimed the action was filed within the one-year statute of limitations because he did not learn about the restraining notice until December 14, 2011. In 2016, the district court, however, held that the statute of limitation was triggered when the defendant mailed the restraining notice (December 6), and thus the complaint was time-barred. The plaintiff appealed, and the 2nd Circuit held that an FDCPA violation occurs when an individual is injured by unlawful conduct and not when the notice is mailed. On remand, the parties conducted limited discovery, which confirmed that the bank placed a freeze on the plaintiff’s accounts on December 13, which was also the date that the plaintiff learned about the freeze. The defendant then moved for summary judgment, arguing that the complaint is time barred given that it was filed one year and one day after the date of the account freeze. The district court agreed, and the plaintiff filed a second appeal.
On the second appeal, the 2nd Circuit affirmed the district court’s decision. The appellate court reminded the plaintiff that a violation of the FDCPA occurs when an individual is injured by unlawful conduct—which in this case was the date the accounts were frozen—and emphasized that the panel’s earlier holding was not intended to “expand the FDCPA’s statute of limitations by requiring that individuals also receive ‘notice of the FDCPA violation.’” Because the plaintiff’s suit was filed one year and one day after the bank froze his accounts, his claim was time-barred.
District court denies arbitration in FDCPA action
On May 13, the U.S. District Court for the District of New Jersey denied a debt collector’s motion to compel arbitration in an FDCPA action, concluding that the existence of an arbitration agreement was not yet apparent based on the amended complaint. According to the opinion, a consumer brought a putative class action against a debt collector alleging the three collection letters it sent were “deceptive and misleading” under the FDCPA because the letters contained language regarding the possibility of IRS reporting, even though the debt was under the $600 threshold required for reporting. As previously covered by InfoBytes, the district court dismissed the action on its merits, without reaching the defendant’s motion to compel arbitration. The U.S. Court of Appeals for the 3rd Circuit reversed, finding “the least sophisticated debtor could be left with the impression that reporting could occur” and therefore the language could signal a potential FDCPA violation, notwithstanding the letter’s qualifying statement that reporting is not required every time a debt is canceled or settled.
On remand, the debt collector moved to compel arbitration of the claims arising from the three letters on an individual basis, arguing that the credit agreement between the consumer and the original creditor contained an arbitration provision and providing an example of the original creditor’s credit card agreement. The plaintiff rejected the example agreement, arguing that it was merely a generic exemplar that did not “demonstrate its applicability” to the consumer. In denying the debt collector’s motion, the court directed the parties to conduct limited discovery on the existence of an enforceable arbitration agreement between the parties. The court also denied the debt collector’s motion to dismiss new claims added to the amended complaint as time-barred because they “relate back” to the original complaint.
Indiana amends towing notification laws
On May 6, the Indiana governor signed HB 1183, which amends the state statute concerning the release of an abandoned motor vehicle that has been towed to a storage yard or towing facility. Among other things, the bill revises notification requirements for towed vehicles, providing that a public agency or towing service must conduct a search of the National Motor Vehicle Title Information System or an equivalent database to attempt to obtain the name of the person who owns or holds a lien on the vehicle and contact that person within three days regarding charges and the potential to auction the vehicle if not claimed. The bill also provides inspection rights for owners and lienholders of vehicles and allows for a towing service or storage yard to charge an inspection fee for inspections or retrievals from the vehicle. The bill is effective July 1.
CFPB proposes debt collection rules
On May 7, the CFPB issued its Notice of Proposed Rulemaking (NPRM) amending Regulation F, to implement the Fair Debt Collection Practices Act (FDCPA) (the “Proposed Rule”). The Bureau also released a Fact Sheet on the Proposed Rule. The proposed effective date is one year after the final rule is published in the Federal Register, with comments on the Proposed Rule due 90 days after publication. Generally, the Proposed Rule covers debt collection communications and disclosures and addresses related practices by debt collectors. Highlights of the Proposed Rule include:
- Coverage. The Proposed Rule incorporates many existing provisions of the FDCPA into Regulation F including existing definitions of “debt collector” and “debt,” with only minor wording and organizational changes. The Proposed Rule would generally only cover third-party debt collectors, not the first-party efforts of the original creditor or its servicer, and specifically excludes in-house collectors of creditors (“[a]ny officer or employee of a creditor while the officer or employee is collecting debts for the creditor in the creditor’s name.”). The Proposed Rule restates the FDCPA’s definition of “consumer” but interprets the term to include “a deceased natural person who is obligated or allegedly obligated to pay a debt.” Additionally, with respect to the special definition of “consumer” for the section on communications in connection with debt collection, the Proposed Rule interprets that to include a confirmed successor in interest as well as the personal representative of a deceased consumer’s estate.
- Disclosures.
- Validation Notice. The Proposed Rule requires a debt collector to provide a consumer with a validation notice that includes certain information about the debt and the consumer’s rights with respect to the debt including: (i) the debt collector’s name and mailing address; (ii) the name of the creditor to whom the debt is currently owed and, for consumer financial product or service debt as defined in the Proposed Rule, the name of the creditor to whom the debt was owed on the itemization date; (iii) the itemization date and the amount of debt owed on that date; (iv) itemization of the current amount of the debt in a tabular format reflecting interest, fees, payments, and credits since the itemization date; (v) the current amount of the debt; (vi) if the debt is a credit card debt, the merchant brand, if any, associated with the debt, to the extent available to the debt collector; (vii) information about consumer protections; and (viii) consumer response information, including dispute prompts. The validation notice must also include the “debt collector communication disclosure” indicating the communication is for the purposes of collecting a debt.
- Disclosure Safe Harbor. Under the Proposed Rule, if a debt collector delivers in writing the Bureau’s Model Form B-3 validation notice, provided in appendix B to the Proposed Rule (available on pg. 491), it is considered to be in compliance with the validation notice requirements, though use of the model form is not required.
- Electronic Disclosures. The Proposed Rule would require debt collectors who provide required disclosures electronically to obtain the consumer’s affirmative consent directly to comply with Section 101(c) of the Electronic Signatures in Global and National Commerce Act (E-SIGN Act). In the alternative, debt collectors can send the electronic disclosures to a particular email address or phone number (in the case of text messages), that the creditor or prior debt collector could have with regard to that debt in accordance with the E-SIGN Act. Additionally, the Bureau released a flow chart to clarify how a debt collector would provide certain required disclosures electronically.
- Conduct Provisions.
- Time and Place Restrictions. The Proposed Rule clarifies that calls to mobile telephones and electronic communications, such as emails and text messages, are subject to the FDCPA’s prohibition on communicating at times or places that the debt collector knows or should know are inconvenient to the consumer, subject to certain exceptions.
- Restriction on Number of Telephone Calls. With exceptions for certain types of calls (such as those responding to a consumer request for information or made with prior consent by the consumer given directly to the debt collector), the Proposed Rule prohibits a debt collector from calling a consumer about a particular debt more than seven times within a seven-day-period. The Proposed Rule also prohibits a debt collector from calling a consumer for seven consecutive days after having had a telephone conversation with the consumer regarding the debt, beginning with the date of the conversation. A debt collector who does not exceed the frequency limits is deemed in compliance with the FDCPA’s prohibition on harassment and the Dodd-Frank Act’s prohibition on unfair acts or practices as it relates to telephone calls.
- Text and Email Communications. The Proposed Rule does not contain a restriction on the frequency or number of communications a debt collector can make via email or text message. However, the Proposed Rule requires a debt collector to include—in emails, text messages and other electronic communications—an option for the consumer to unsubscribe from future such communications and would prohibit a debt collector from attempting to communication through a medium the consumer has requested the collector not use, including a particular phone number or email address. The Proposed Rule would prohibit a debt collector from contacting a consumer through a workplace email address (absent prior consent by the consumer or receipt by the debt collector of an email sent from the consumer’s work email account) or through a public-facing social media platform, except through the platform’s private message function.
- Limited-Content Messages. The Proposed Rule specifies certain content parameters for a “Limited-Content Message” that a debt collector could send by voicemail or text that would not be considered a “communication” and therefore, would not need to include the required disclosures. Additionally, if the limited-content message was heard or observed by a third party, it would not constitute a prohibited third-party disclosure.
- Other prohibitions. The Proposed Rule prohibits a debt collector from, among other things, (i) suing or threatening to sue on a time-barred debt; (ii) reporting debts to credit reporting agencies prior to initiating communications with the consumer; and (iii) selling, transferring or placing for collection a debt to another debt collector that the collector knows or should know has been paid or settled, discharged in bankruptcy, or relates to a filed identity theft report.
District Court: No FDCPA violation when letter contains safe harbor language
On May 1, the U.S. District Court for the Eastern District of New York granted a debt collector’s motion for judgment on the pleadings in a suit concerning alleged FDCPA violations. In 2018, the plaintiff filed a putative class action against the defendant contending the debt collection letter he received omitted debt amount information and failed to provide any information about the accruing interests and charges. In its motion, the defendant argued that the letter did not violate the FDCPA because it provided the minimum amount due, current balance, and safe harbor language approved by the U.S. Court of Appeals for the 2nd Circuit in Avila v. Riexinger & Associates LLC. In that opinion, the 2nd Circuit held that “a debt collector will not be subject to liability under section 1692e for failing to disclose that the consumer’s balance may increase due to interest and fees if the collection notice . . . accurately informs the consumer that the amount of the debt stated in the letter will increase over time.” The district court agreed and ruled that because the defendant’s letter informed plaintiff of “the total, present quantity of money due” as of the date of the letter and contained the safe harbor language, the plaintiff failed to plead that the letter violated the FDCPA.
Washington state amends debt collection laws
On April 30, the Washington state governor signed HB 1531 and HB 1066, which amend certain state debt collection laws. HB 1531 covers medical debt and among other things, outlines certain requirements for medical debt collection notices, including providing information regarding the medical creditor, the date(s) of service, and the health care services provided. The notice must also include the principal amount of the debt incurred, interests and fees, and the amount of any payments already received. HB 1531 also prohibits a collector from reporting any adverse information regarding the medical debt to credit reporting agencies until at least 180 days after the obligation with [was?] received by the collector and limits prejudgment interest to nine percent. Additionally, HB 1066 prevents a debt collector from serving a debtor with a court summons unless the summons and complaint are first filed with the appropriate court and bear a case number assigned by the court. The amendments both take effect July 28.
7th Circuit: Bona fide error defense applies for collection of time-barred debt
On April 29, the U.S. Court of Appeals for the 7th Circuit affirmed summary judgment for a debt collector, concluding the collector’s FDCPA violations were unintentional and the debt collector was entitled to the bona fide error defense. According to the opinion, a consumer made his last credit card payment in August 2010, but attempted to make an additional payment in June 2011, which never cleared. In December 2015, the debt collector sent a collection letter to the consumer and subsequently filed a collection action in state court, both assuming a last payment date of June 2011 (the date of the payment that did not clear). The state court dismissed the suit because the last payment that actually cleared was outside of the state’s five-year statute of limitations, meaning the debt was time-barred. The consumer filed suit against the debt collector for violating the FDCPA’s prohibition on collecting time-barred debt. The district court granted summary judgment in favor of the debt collector, holding that the debt collector’s violations were “unintentional and occurred despite reasonable procedures aimed at avoiding untimely collection attempts,” under the statute’s bona fide error defense.
On appeal, the appellate court rejected the consumer’s arguments that the debt collector was unreasonable by not engaging in a meaningful review of the account to learn the true last payment date and that the debt collector had “‘thinly specified policies’” to weed out time-barred debts. The appellate court determined that the FDCPA violations were unintentional, as the debt collector was unaware that the June 2011 payment had failed. Additionally, the appellate court held that the debt collector was not required under the FDCPA to independently verify the validity of the debt to satisfy the requirements of the bona fide error defense. Moreover, while the debt collector’s policies and procedures were “simple,” they were “reasonably adapted to avoid late collection efforts,” and even though they did not prevent the mistake, the FDCPA “‘does not require debt collectors to take every conceivable precaution to avoid errors; rather, it only requires reasonable precaution.’” Because the bona fide error defense applied, the appellate court affirmed summary judgment for the debt collector.
District Court: Usury claim not preempted by National Bank Act
On April 24, the U.S. District Court for the Western District of Pennsylvania denied in part and granted in part a national bank’s motion to dismiss a complaint alleging violations of, among other things, the Pennsylvania Loan Interest and Protection Act (“Act 6”). The allegations stem from the bank’s servicing of the plaintiffs’ mortgage. Pursuant to a settlement agreement reached between the parties in a separate 2012 lawsuit over alleged misrepresentations made by the bank concerning whether the plaintiffs were in arrears in their mortgage and escrow payments, the mortgage principal was reset. The plaintiffs asserted that although they made timely monthly payments, a 2014 mortgage statement reflected an escrow shortage, including unpaid late charges and outstanding advance/fees. Arguing that because the loan servicers refused their allegedly timely payments, which increased the principal balance, the plaintiffs claimed that the bank breached the terms of the settlement agreement by adding the unauthorized charges without providing notice. However, the bank argued—and the court concurred—that the breach of contract claim was outside the applicable statute of limitations. The plaintiffs further alleged that the bank charged an interest rate that exceed the rate permitted under Act 6, and that the loan servicer charged the plaintiffs “undisclosed, excessive, and retaliatory attorney’s fees ‘from at least one if not two prior lawsuits,’ in violation of the [s]ettlement [a]greement and Act 6,” along with other “unwarranted charges.”
Concerning the bank’s motion to dismiss the Act 6 usurious interest rate claims based upon preemption, the court referred to the loan’s origination and rejected the bank’s argument that the usury claim was preempted by the National Bank Act, explaining that the homeowners’ mortgage was originated by a non-national bank even though a national bank was later assigned the note and mortgage. Additionally, the court rejected the bank’s argument that the Act 6 claim of unlawful attorney fees was barred by the applicable four-year statute of limitations. According to the court, “an Act 6 claim for excessive fees accrues upon payment of said fee; it does not accrue upon charge of the fee or upon the obligor’s knowledge of the fee.” However, the court determined that the plaintiffs failed to adequately allege that they made “the requisite unlawful payments of usurious interest or unlawful attorney’s fees” required to state valid Act 6 claims. As such, the court dismissed the Act 6 claims without prejudice.
8th Circuit: Letter did not violate FDCPA's “unsophisticated consumer” standard
On April 22, the U.S. Court of Appeals for the 8th Circuit affirmed a district court’s dismissal of a consumer’s FDCPA action. The plaintiff alleged that the credit collections bureau violated the FDCPA’s prohibition against false, misleading, or deceptive representations when it sent a collection letter that included, among other things, the words “PROFESSIONAL DEBT COLLECTORS” along with an acronym for the company, which the plaintiff claimed violated the FDCPA’s provision which states that a debt collection may not use “any business, company, or organization name other than the true name. . . .” The plaintiff further alleged that the defendant violated the FDCPA and Minnesota law by (i) representing that she could submit payments on-line or correspond with the company through a designated website; (ii) stating it may seek pre-judgment interest; and (iii) including the signature of an individual who was not licensed to engage in debt collection activities in the state. The district court dismissed the claims, concluding that the use of the aforementioned language was not false or misleading under the “unsophisticated consumer” standard, and that neither the signature nor the pre-judgment interest statement violated the FDCPA.
On appeal, the 8th Circuit affirmed the dismissal of the claims, holding that the collection letter did not violate the FDCPA, Minnesota law did not prohibit the defendant from seeking pre-judgment interest, and the Minnesota Supreme Court has yet to determine whether the law “allows for the recovery of pre-judgment interest in a case such as this.” Furthermore, the FDCPA “was not meant to convert every violation of a state debt collection law into a federal violation,” the appellate court wrote, and that even if one of the signatories was not licensed in the state to collect debt, the defendant was legally licensed and did not engage in unfair or unconscionable conduct under the statute.