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District judge denies law firm’s motion to compel arbitration
On February 12, a judge for the U.S. District Court for the Western District of Wisconsin held that a debt collection law firm could not compel a plaintiff to settle claims in arbitration because the law firm was not a party to the arbitration agreement it sought to enforce. According to the opinion, the plaintiff filed a proposed class action suit against the law firm and a credit card issuer for allegedly violating the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA) by publishing the plaintiff’s credit score on a complaint to obtain payment filed with a local country circuit court. The plaintiff subsequently dismissed the claims against the credit card issuer after resolving the issues outside of the court. The law firm filed a motion to compel arbitration, arguing that it is a third party co-defendant of a claim subject to an arbitration provision, which covered the credit card issuer, cardholders, and third party co-defendants. In denying the motion to compel, the judge held that the law firm is not a co-defendant “at the only time that matters, which is when the court is deciding the motion to compel arbitration” because the credit card issuer is no longer a party to the lawsuit. The judge also noted that if the credit card issuer wanted an associated law firm to be covered by the arbitration provision, it could have used broader language in the agreement.
Maine amends Fair Debt Collection Practices Act to clarify licensing requirements
On February 6, Maine Governor Paul LePage signed updates to a provision of the state’s Fair Debt Collection Practices Act (Maine FDCPA), which clarify licensing requirements for persons engaged in the business of collecting debts in the state. S.P. 613, “An Act to Improve the Regulation of Debt Collectors,” includes the following: (i) removes the licensing condition that requires a debt collector to be “face to face” when soliciting business from Maine creditors; and (ii) requires a debt collector to be licensed in the state before collecting a debt from a consumer in the state, regardless of the debt collector’s actual location. The law will take effect 90 days following the adjournment of the legislative session.
Mortgage debt collection class survives dismissal motion
On February 8, a federal judge for the U.S. District Court of the Western District of Pennsylvania denied a debt collector’s motion to dismiss, concluding that the plaintiffs are not precluded from bringing the claims against the debt collector even though the plaintiffs previously settled similar claims with the lender and loan servicer for their maximum recovery amounts under the Fair Debt Collection Practices Act (FDCPA). According to the third amended complaint, a pair of named plaintiff homeowners, defaulted on their mortgages in 2010 and worked out a new payment plan with their lender; however, they continued to receive conflicting foreclosure communications from their lender, servicer, and an associated debt collector, which resulted in the payment of allegedly unauthorized fees and expenses. In 2011, the two homeowners filed class action claims against all three entities and in 2016, they settled one claim with the lender and three claims with the servicer.
In response to the third amended complaint, the debt collector filed a motion to dismiss the remaining class claim, which includes “all former or current homeowners” who received communications from the debt collector demanding foreclosure fees and costs that had not yet been incurred. The debt collector argued, among other things, in its dismissal motion that the plaintiffs are not entitled to any further damages for the alleged FDCPA violations because they previously exhausted the $1,000 maximum penalty per borrower permitted by the FDCPA by settling with the mortgage servicer. In denying the motion, the judge disagreed with the debt collector’s argument, noting that it cannot be assumed the settlement with the mortgage servicer was an admission of liability under the FDCPA; therefore, the judge reasoned, the court cannot credit the debt collector “with the full impact of the [servicer’s] settlement funds that maybe were (or maybe were not) allocated to that specific FDCPA claim.” The judge also noted that there is a “major split” on this issue among U.S. district courts.
FTC releases report on military consumer finance
On February 2, the FTC released a new Staff Perspective (perspective) which highlights takeaways from a July 2017 FTC workshop focused on examining the array of financial issues that may affect military consumers (defined as servicemembers, veterans, and their families). The perspective notes, among other things, that servicemembers may struggle during auto financing transactions because of a lack of time to shop and lack of credit history, which may result in disadvantageous credit terms. Additionally, the perspective highlights that debt collection problems may result in a servicemember not qualifying for a security clearance and that debt collectors may threaten to contact servicemembers’ commanding officers. The perspective also summarized the additional legal rights that may apply to military consumers, such as the Military Lending Act (MLA) and the Servicemembers Civil Relief Act (SCRA), and emphasized the FTC’s focus on financial education for servicemembers throughout the various stages of their military career.
District court grants motion to compel arbitration, cites failure to dispute scope of clause
On January 29, the U.S. District Court for the Western District of Pennsylvania granted a motion to compel arbitration, finding that an arbitration clause set forth under extension agreements with an automobile finance company to refinance and extend the plaintiff’s loan obligation is “valid and enforceable.” Additionally, the court ruled that alternative motions to dismiss filed by other defendants were moot, and then stayed and administratively closed the matter pending the resolution of the claims subject to arbitration. The plaintiff alleged violations of her Fourth and Fourteenth Amendment rights, the Fair Debt Collections Practices Act, and several other state and federal credit statutes, when defendants—including the automobile finance company—repossessed her vehicle despite having signed extension agreements. In response to the defendants’ assertion that her claims were subject to the arbitration clause, the plaintiff argued that the extension agreements were unenforceable due to the unavailability of the “designated arbitrators,” and that defendants were barred from trying to obtain “alternative relief” by relying on additional terms outlined in a second extension agreement that released defendants from liability. However, the court ruled that the plaintiff’s failure to dispute the scope of the arbitration clause meant that the defendants were “entitled to enforcement of the arbitration clause with respect to all claims and defenses asserted,” so long as the designated arbitrators are available.
Fifth Circuit rules that loan-modification discussions resulting in foreclosure do not violate TDCA
On January 22, the U.S. Court of Appeals for the Fifth Circuit affirmed a lower court’s decision that a loan-modification discussion between two borrowers and a mortgage servicer did not constitute a debt collection activity under the Texas Debt Collection Act (TDCA). After two borrowers defaulted on their home equity loan, they were encouraged by their mortgage servicer to apply for a modification under the Home Affordable Modification Program (HAMP). When the borrowers learned that they were, in fact, ineligible for a HAMP modification, due to state law restrictions, the borrowers filed suit against the creditor and the mortgage servicer (the “creditors”). Specifically, the borrowers alleged that the creditors violated the TDCA’s prohibition against using false representations or deceptive means to collect a debt by suggesting that the borrowers apply for a HAMP modification for which they did not qualify. The three-judge panel rejected this argument for two reasons. First, the court found that the borrower and creditors conversation about a modification did not “concern the collection of a debt” and thus the conduct was not subject to the TDCA. Second, even if the conduct were covered, the court found that the creditor had not affirmatively represented that the borrowers would qualify for a HAMP modification and, thus, under the TDCA’s prohibition against using false representations and deceptive means to collect a debt, no liability could ensue.
Utah District Court says FDCPA does not bar state law claims
On January 23, the U.S. District Court for the District of Utah denied a debt collector’s motion to dismiss a plaintiff’s claim that the debt collector’s practices violated the Utah Consumer Sales Protection Act (UCSPA). After the plaintiff sued the debt collector for allegedly collecting amounts in excess of what was actually owed in violation of the FDCPA and the UCSPA, the debt collector moved to dismiss the claim under UCSPA because a more specific statute, the FDCPA, controls. In denying the motion, the court found that the plaintiff should not be denied remedies under UCSPA simply because a more specific federal law exists. The court noted that the UCSPA claim would only be barred if there were a more specific state statute that regulated debt collection and the debt collector did not identify one.
10th Circuit says FDCPA does not cover non-judicial foreclosures
On January 19, the U.S. Court of Appeals for the 10th Circuit affirmed a lower court decision that the Fair Debt Collection Practices Act (FDCPA) does not cover non-judicial foreclosures in Colorado. In affirming the District Court’s dismissal of the case, the 10th Circuit reasoned that non-judicial foreclosures in Colorado do not constitute an attempt to collect money from a debtor because the state only allows the trustee to obtain payment from the sale of the foreclosed property and a deficiency judgment must be sought through a separate action. According to the opinion, in 2014, a mortgage servicer hired a law firm to initiate a non-judicial foreclosure and the law firm sent the homeowner a letter indicating that it “may be considered to be a debt collector attempting to collect a debt.” The homeowner then filed a complaint in District Court against the firm and the mortgage servicer for FDCPA violations, which was subsequently dismissed. The 10th Circuit reasoned that the mortgage servicer was not considered a debt collector under the law because servicing initiated prior to the loan’s default and the law firm’s communications with the homeowner never attempted to induce payment. The opinion acknowledges that many courts are split on this topic and emphasizes that the holding does not apply to judicial foreclosures.
7th Circuit says debt collectors cannot simply copy and paste safe harbor language
On January 17, the U.S. Court of Appeals for the 7th Circuit reversed a decision by the U.S. District Court for the Eastern District of Wisconsin dismissing the plaintiffs’ claims that the defendant debt collection agency violated the Fair Debt Collection Practices Act (FDCPA) by falsely stating balances owed might increase “due to interest, late charges and other charges” in its dunning letters to the plaintiffs. In 2016, the defendant sent collection letters for overdue medical bills; according to the plaintiffs, the collection letters falsely suggested that the debt would continue to increase every day due to “late charges and other charges” that the defendant could not legally impose. In granting the motion to dismiss, the District Court had agreed with the defendant that the language used in their dunning letters was nearly identical to the safe harbor language upheld by the 7th Circuit in 2000, and that the letters were not “false, deceptive, or misleading.” By reversing the District Court’s decision, the 7th Circuit determined that the defendant’s use of the safe harbor language in their letters was inaccurate, because the defendant could not lawfully impose “late charges and other charges.” In doing so, the 7th Circuit rejected the defendant’s attempt to copy and paste the safe harbor language, and instead concluded that debt collectors are required to tailor boilerplate language to avoid ambiguity and ensure their statements are accurate under the circumstances.
CFPB succession update: CFPB requests zero funding; seeks public comment regarding Bureau’s activities; & more
On January 17, in a letter to Federal Reserve Chair Janet Yellen, acting CFPB Director Mick Mulvaney requested zero dollars for the Bureau’s quarterly operating funds. Each fiscal quarter, as required by law, the CFPB formally requests that the Federal Reserve transfer a specified amount of money to the Bureau so it can perform the functions outlined in its budget. In his letter, Mulvaney stated that the prior Director maintained a “reserve fund” for the CFPB, and the money in this fund is sufficient to cover the CFPB’s expenses for the second quarter. This will be the first time in the history of the CFPB that its Director has requested no additional amount to fund quarterly operations. The CFPB also announced its plan to publish a series of Requests for Information (RFIs) in the Federal Register seeking public input on the way the Bureau is performing its statutory obligations. These RFIs will request “comment on enforcement, supervision, rulemaking, market monitoring, and education activities.” The first RFI will seek information regarding the Bureau’s Civil Investigative Demand processes and procedures.
On January 18, the CFPB voluntarily dismissed its case against four online installment lenders for allegedly deceiving customers by collecting debts that were not legally owed, previously covered by InfoBytes here. The complaint, filed in the United States District Court for the Northern District of Illinois, alleged, among other things, that the lenders engaged in unfair, abusive, and deceptive acts—a violation of the Dodd-Frank Act—by collecting on installment loans that are partially or wholly void under state law. In September 2017, the case was transferred to Kansas, where the Bureau’s notice of dismissal was filed. The notice does not specify a reason for the dismissal.