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District Court rejects request for attorneys’ fees in dismissed CFPB debt collection suit
On October 19, the U.S. District Court for the Northern District of Ohio entered an order rejecting a request that the CFPB pay $1.2 million in attorney’s fees after the Bureau lost its debt collection lawsuit, finding no evidence of bad faith. As previously covered by InfoBytes, the court entered judgment against the Bureau on all counts after ruling that the agency failed to meet its burden to show that the debt collectors mislead consumers when it sent demand letters on law firm letterhead even though the attorneys at the firm were not meaningfully involved in preparing those letters.
According to the opinion, the law firm argued that it was entitled to attorneys’ fees under the Equal Access to Justice Act because, among other things, it suffered reputation harm and expended significant resources in its defense. Furthermore, the law firm claimed that the Bureau knew or should have known its claims were meritless. But the court decided otherwise, pointing to the advisory jury’s findings that the law firm’s debt collection letters to some consumers were “false, deceptive, or misleading” and acknowledging the Bureau’s reliance on expert testimony and its survival of summary judgment and judgment on the pleadings. The court found that even if the litigation was “an overreach based on facts, or that the Bureau was attempting to expand consumer protection laws past their useful purpose,” there is no evidence to suggest the suit was targeted or in bad faith.
New York City Department of Consumer Affairs sues for-profit college for deceptive and predatory lending practices
On October 19, New York City Department of Consumer Affairs (DCA) announced that it filed suit in New York County Supreme Court against a for-profit college alleging deceptive and predatory lending practices that violate NYC Consumer Protection Law and local debt collection rules. The DCA alleges that college recruiters engaged in deceptive practices such as (i) masquerading federal loan applications as scholarships; (ii) steering students towards college loans and referring to them as “payment plans”; and (iii) deceiving students about institutional grants by failing to disclose that they require students to obtain the maximum amount of federal loans available before a grant can be awarded. DCA also alleges that the for-profit college violated debt collection laws by concealing its identity on invoices when collecting debt, and seeking payments from graduates for debts not owed.
7th Circuit holds individual who denies owing a debt can qualify as a consumer under FDCPA
On October 18, the U.S. Court of Appeals for the 7th Circuit held that an individual is a “qualified consumer” under the FDCPA, even when he is alleged by debt collectors to owe debts that he claims he does not owe. According to the opinion, a credit card was fraudulently opened in the plaintiff appellant’s name and was charged off, after default, to a debt collector who filed suit in an attempt to collect the debt. After the small-claims collection case was dismissed, the plaintiff appellant sued the debt collector for alleged violations of the FDCPA and the Illinois Collection Agency Act. The district court dismissed the action, holding that, to be a “consumer” under FDCPA, the individual must “allege he actually owed a debt.” On appeal, the 7th Circuit reversed. It held that the plain language of FDCPA covers individuals “allegedly obligated to pay” a debt, which includes “obligations alleged by the debt collector as well.” As a result, individuals who are alleged by debt collectors to owe debts are consumers under the FDCPA, even if they deny having any connection to the debt or any obligation to pay it.
Colorado Supreme Court affirms that tort claims are not “debts” under Colorado’s Fair Debt Collection Practices Act
On October 15, the Colorado Supreme Court issued an opinion affirming the judgment of the appeals court dismissing a Colorado Fair Debt Collection Practices Act (CFDCPA) action involving a tort claim. According to the opinion, the consumer alleged that a law firm representing a subrogee auto-insurance company violated the CFDCPA when the firm obtained a judgment against her for damages in tort. In affirming the appeals court, the supreme court held that that damages arising from the tort does not qualify as a debt under the CFDCPA. The court reasoned that because a tort does not obligate the tortfeasor to pay for damages, it cannot be a transaction giving rise to an obligation to pay money and is therefore not a “debt” within the meaning of the CFDCPA.
In its decision, the Court reasoned that both the federal and state FDCPA “clearly exclude from the definition of debt any obligation to pay money for many, if not all, non-consumer related purpose.” The Court concluded that “because an insurance contract providing for the subrogation of the rights of a damaged insured is not a transaction giving rise to an obligation of the tortfeasor to pay money, but merely changes the person to whom the tortfeasor’s obligation to pay is owed,” it is not a transaction that creates debt under the CFDCPA.
CFPB publishes fall 2018 rulemaking agenda
On October 17, the Office of Information and Regulatory Affairs released the CFPB’s fall 2018 rulemaking agenda. According to the Bureau’s preamble, the information presented is current as of August 30 and represents regulatory matters it “reasonably anticipates” having under consideration during the period of October 1, 2018, to September 30, 2019. The Bureau also states it plans on “reexamining the requirements of [ECOA] in light of recent Supreme Court case law and the Congressional disapproval of a prior Bureau bulletin concerning indirect auto lender compliance with ECOA and its implementing regulations.”
Key rulemaking initiatives include:
- Property Assessed Clean Energy Loans (PACE): The Bureau is planning to complete an assessment of its 2013 rules for assessing consumers’ ability to repay mortgage loans by January 2019, which will inform the drafting of a request for information or advance notice of proposed rulemaking (ANPR) on PACE issues to facilitate the Bureau’s rulemaking process.
- HMDA/Regulation C: The Bureau plans to follow-up on its action in August 2017 to amend Regulation C to increase the threshold for collecting and reporting data with respect to open-end lines of credit for a period of two years so that financial institutions originating fewer than 500 open-end lines of credit in either of the preceding two years would not be required to begin collecting such data until January 1, 2020.
- Debt Collection: The Bureau states it plans to issue an ANPR addressing issues such as communication practices and consumer disclosures by March 2019, and has received support from industry and consumer groups to engage in rulemaking to explore ways to apply the FDCPA to modern collection practices.
- Small Dollar Lending: The Bureau anticipates it will issue a proposed rule on small dollar lending in January 2019.
- Payday Rule: The Bureau estimates it will issue an ANPR in January 2019 to reconsider the merits and compliance date for its final payday/vehicle title/high-cost installment loan rule.
- FCRA: Comments must be submitted by November 19 on the changes and underlying disclosures implemented by its interim final rule, which amended certain model forms under the FCRA and took effect September 21. (See previous InfoBytes coverage on the interim final rule here.)
Long term priorities now include rulemaking addressing (i) small business lending data collection; (ii) consumer reporting; (iii) amendments to FIRREA concerning automated valuation models; (iii) consumer access to financial records; (iv) rules to implement the the Economic Growth, Regulatory Relief, and Consumer Protection Act, concerning various mortgage requirements, student lending, and consumer reporting; and (v) clarity for the definition of abusive acts and practices.
3rd Circuit says IRS reporting language may violate FDCPA
On September 24, the U.S. Court of Appeals for the 3rd Circuit reversed the district court’s dismissal of a putative class action alleging a debt collector violated the FDCPA by including a statement noting that debt forgiveness may be reported to the IRS. The case was centered on the plaintiffs’ claim that letters sent to collect on debts that were less than $600, which contained the language “[w]e are not obligated to renew this offer. We will report forgiveness of debt as required by IRS regulations. Reporting is not required every time a debt is canceled or settled, and might not be required in your case,” were “false, deceptive and misleading” under the FDCPA because only discharged debts over $600 are required to be reported to the IRS. The district court dismissed the action, concluding the letters were not deceptive and the least sophisticated consumer would interpret the statement to mean in certain circumstances some discharges are reportable but not all are reportable.
Upon appeal, the 3rd Circuit disagreed with the district court, finding “the least sophisticated debtor could be left with the impression that reporting could occur,” notwithstanding the letter’s qualifying statement that reporting is not required every time a debt is canceled or settled, and therefore, the language could signal a potential FDCPA violation. Recognizing the industry’s regular use of form letters, the appeals court noted, “we must reinforce that convenience does not excuse a potential violation of the FDCPA.”
FTC and NYAG settle with debt collectors who falsely threatened consumers
On September 21, the FTC announced settlements with multiple New York debt collection operations and their principals (defendants) for unlawful debt collection practices. The settlements are a result of 2015 joint lawsuits by the FTC and the New York Attorney General, alleging the defendants unlawfully used threats and abusive language, including false threats that consumers would be arrested, to collect more than $45 million in supposed debts (previously covered by InfoBytes here). The settlement orders ban the defendants from the business of debt collection and prohibit the defendants from (i) misrepresenting information related to financial products and services; (ii) disclosing, using, or benefitting from the consumer information obtained through the course of the debt collection activities; and (iii) failing to disclose of such personal information properly. The two orders (located here and here) impose a $22.5 million judgment against one set of defendants, and a judgment of $4.4 million against other defendants. The judgments are suspended as to some of the defendants due to inability to pay.
District Court partially dismisses student loan co-signer claims alleging violations of federal and D.C. debt-collection laws
On September 10, the U.S. District Court for the District of Columbia partially granted a student loan administrator’s and a law firm’s joint motion to dismiss, and granted a lender’s motion for judgment on the pleadings, in a case involving a student loan co-signer’s claims brought under the Fair Debt Collection Practices Act (FDCPA), D.C. debt collection statute, and state law. The court rejected the plaintiff’s argument that her claims were tolled and dismissed the FDCPA claims against the loan administrator and firm because they were time-barred. The court also dismissed the plaintiff’s claim that the firm and the lender violated several provisions of the D.C. debt collection statute, concluding that the plaintiff failed to allege sufficient facts to support an allegation that the defendants willfully violated the statute. However, the court found that the plaintiff included sufficient facts to support a claim under the D.C. statute against the loan administrator based on allegations that the administrator, among other things, (i) concealed its “lack of authorization to sue”; (ii) concealed the fact that it was acting as a collector without the authority to enforce the terms of the loan; and (iii) has a “long, well-documented history of filing debt collection lawsuits falsely claiming to be the lender and/or real party in interest.” Finally, the court held that plaintiff’s abuse of process and malicious prosecution actions failed to state a claim against any of the defendants.
Florida appeals court finds consumer is entitled to attorney’s fees following debt collection suit
On September 14, a Florida appeals court held that a consumer was entitled to attorney’s fees after a debt collector voluntarily dismissed its “account stated” collection lawsuit for an unpaid credit card balance. Following the debt collector’s voluntary dismissal, the consumer moved for attorney’s fees under a provision in the credit card account agreement that provides for fees to the creditor in any collection action and the reciprocity provision in Section 57.105(7), Florida Statutes (2015). The Florida reciprocity statute permits a court to grant reasonable attorney’s fees to a prevailing party, whether as plaintiff or defendant, with respect to an action to enforce the contract. The appellate court reversed the trial court’s order and found that the consumer was entitled to attorney’s fees. The court concluded that, because the consumer was the prevailing party and the collection action was to enforce the contract, the reciprocity provision in section 57.105(7) applied to the consumer’s request for attorney’s fees under the terms of the agreement. The court remanded the case to the trial court to determine the attorney’s fee award.
California updates notice requirements on time-barred debt collection efforts
On September 5, the California governor signed AB 1526, which, among other things, amends state debt collection law to require certain written notices to be included in the first written communications provided to the debtor after the debt became time-barred and after the date for obsolescence under the FCRA. If the debt is not past the date of obsolescence, the debt collector is required to include specific language in the first written communication to the debtor after the debt has become time-barred that indicates the debtor will not be sued for the debt, but the debt may be reported as unpaid to credit reporting agencies as allowed by law. If the debt is past the date of obsolescence, the debt collector is required to include specific language in the first written communication to the debtor after the date for obsolescence indicating the debtor will not be sued for the debt and the debt will not be reported to credit reporting agencies. The law also incorporates a four-year statute of limitations on the collection of debt by specifically prohibiting a debt collector from initiating a lawsuit, an arbitration, or other legal proceeding to collect the debt after the four-year period in which the action must have been commenced has ended.