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Bank to pay $2 million in collection call suit
On December 14, a Superior Court of California granted a stipulated final judgment resolving claims that a national bank (defendant) violated the Rosenthal Fair Debt Collection Practices Act (RDCPA) and the FDCPA by making “harassing and annoying” debt collection calls to its customers. According to the stipulated final judgment, since at least March 2015, the defendant allegedly violated California and federal law by making phone calls with “unreasonably excessive frequency,” while also persisting in calling wrong numbers in attempts to collect on unpaid debts. The defendant, which did not admit any liability or wrongdoing, agreed to, among other things: (i) adopt or maintain policies and procedures to avoid such harassing calls; (ii) limit the number of calls it will make as part of its future debt collection efforts; and (iii) cease calling those who ask orally or in writing that they not be contacted. Under the terms of the stipulated final judgment, the defendant must pay $1.45 million in civil penalties, $300,000 in investigative costs, and $250,000 in restitution.
District Court says debtor bears the burden of asserting a garnishment exemption
On December 15, the U.S. District Court for the Eastern District of Pennsylvania granted a defendant’s motion for judgment on the pleadings in a debt collection garnishment suit. One of the plaintiffs was referred to collections after he defaulted on his credit card debt, and a judgment was entered against him by the original creditor. The defendant filed for a writ of execution, seeking to garnish funds that were in a joint bank account maintained by both plaintiffs. The writ outlined major exemptions under Pennsylvania and federal law, noting that the plaintiff may also be able to rely on other exemptions, and instructed him to complete a claim for exemption. Plaintiffs sued for violations of the FDCPA, claiming, among other things, that the defendant should have known that the account was a joint account, and therefore exempt, before seeking the writ of execution. According to the plaintiffs, the defendant should have known or reasonably known “that the funds in the joint account were immune from execution because it ‘performed its own private asset search to discover’ the account.” The court disagreed, holding, that under Pennsylvania’s garnishment procedures, the debtor bears the burden of asserting an exemption. This assertion, the court said, must be more than a “self-serving statement that an exemption applies.”
The court cited a ruling issued by the U.S. District Court for the Southern District of California, in which the court determined that “[t]he bottom line here is that, right or wrong, a judgment creditor has no duty under either California or federal law to investigate, much less confirm, that a judgment debtor’s bank accounts contain only non-exempt funds prior to authorizing a levy on those accounts. It is unreasonable to conclude that a judgment creditor’s failure to conduct a pre-levy debtor’s exam, when there is no legal obligation or requirement to do so, constitutes unfair or unconscionable action.”
10th Circuit: Vendor knowledge of consumer debt is not a public disclosure
On December 16, the U.S. Court of Appeals for the Tenth Circuit affirmed a lower court’s dismissal of an FDCPA suit. According to the opinion, the plaintiff, who had student loan debt, received a collection letter from the defendant that listed the assigned balance as $184,580.73 and the debt balance as $217,657.60 without explaining the difference or that the debt could increase due to interest, fees, and other charges. The defendant, who used an outside mailer to compose and send the letters, sent her two more letters without providing an explanation for the balances. The plaintiff sued, alleging the defendant violated the FDCPA by communicating information about the debt to a vendor that printed and mailed the letters. According to the plaintiff, communicating this information violated FDCPA provisions that prohibit debt collectors from communicating with, in connection with the collection of any debt, any person without the consumer’s consent or court permission. The plaintiff also claimed that the defendant violated the FDCPA by misrepresenting the amount of the debt because it did not indicate that the amount of the debt may increase.
On the appeal, the appellate court affirmed dismissal after it found that the plaintiff lacked standing since neither of the plaintiff’s claims caused a concrete injury. First, the appellate court found that one private entity knowing about the plaintiff’s debt is not a public disclosure of private facts, which does not rise to the level of sustaining a concrete injury needed to sue in federal court. Second, regarding the substance of the letters, the appellate court noted that the plaintiff simply claimed that the letters she received caused her to be confused and to believe the debt was not accruing interest. However, the appellate court found that “confusion and misunderstanding are insufficient to confer standing.”
OCC rescinds FDCPA section of booklet
On December 15, the OCC announced that the Federal Financial Institutions Examination Council’s Task Force on Consumer Compliance adopted revised examination procedures for the FDCPA and its implementing regulation, Regulation F. Among other things, the revised interagency examination procedures incorporate the CFPB's 2020 and 2021 FDCPA that went into effect in November 2021. The announcement noted that the agency is rescinding the “Fair Debt Collection Practices Act” section of the “Other Consumer Protection Laws and Regulations” booklet of the Comptroller's Handbook. The revised interagency examination procedures address, among other things: (i) determinations of whether a bank is a debt collector under the FDCPA and Regulation F; (ii) prohibitions on certain communications with consumers in connection with debt collection; and (iii) requirements for a reasonable and simple method that consumers can use to opt out of additional communications and attempts to communicate.
Collection firm to pay $100,000 for operating without a license
On December 1, the Connecticut Department of Banking (Department) fined a collection law firm $100,000 and ordered it to cease and desist from collection activity for operating without a valid license. According to the order, in August, the Department issued a temporary order to cease and desist, a notice of intent to issue order to cease and desist, a notice of intent to impose a civil penalty, and a notice of a right to a hearing, which provided the firm 14 days to respond to request a hearing. Furthermore, the firm was warned that if a request for hearing was not made, a cease and desist order would likely be forthcoming. During its investigation, the state discovered that in 2019, the firm was conducting unlicensed collection agency activity for about 10,000 Connecticut accounts with a total balance of about $1.4 million. The firm allegedly collected approximately $81,000 of that amount. In late 2019, the state sent the firm a certified letter regarding its collection activity and asked for a response, which was never provided. In the August order, the firm was asked to supply the state with a list of all the creditors with whom the firm has entered into agreements for consumer collection services since July 2018, including copies of all the agreements with those creditors, and an itemized list of each Connecticut debtor account that the firm had attempted collections on for the same time period.
DFPI issues reminder to debt collection licensing applicants
Recently, the California Department of Financial Protection and Innovation (DFPI) issued a reminder that starting January 1, 2023, the agency will begin approving applications under the Debt Collection Licensing Act. As previously covered by InfoBytes, the California governor signed AB 156 in September to allow any debt collector that submits an application to the DFPI commissioner by January 1, 2023, to operate pending the approval or denial of the application. DFPI reminded applicants that background checks will be performed at a later date. The period for individuals to provide fingerprints upon request from DFPI is extended from 60 to 90 days. Written notification will be sent to applicants through the Nationwide Multi-State Licensing System 90 days prior to fingerprinting being due. Additionally, DFPI stated that due to the delay in the application process, final approvals may be delayed. Further announcements will be issued in the coming weeks concerning conditional approvals, DFPI said, noting that it will provide at least 30 days' notice before implementing any changes to existing processes.
DOE releases post-moratorium collection guidance for guaranty agencies
On December 2, the Department of Education’s Office of Federal Student Aid published guidance informing guaranty agencies (GAs) of their obligations related to Federal Family Education Loan (FFEL) Program loans that are in default. In August, the DOE implemented its Fresh Start initiative, which establishes guarantor obligations for a one-year period following the pandemic payment pause. As previously covered by InfoBytes, the current pause on student loan repayments, interest, and collection was extended last month as the U.S. Supreme Court reviews the Biden administration’s appeal of an injunction entered by the U.S. Court of Appeals for the Eighth Circuit that temporarily prohibits the Secretary of Education from discharging any federal loans under the agency’s student debt relief plan.
According to the guidance, GAs are required to suspend collection efforts (including involuntary collections) against borrowers who are eligible for the Fresh Start initiative for one year after the pandemic moratorium ends. During this period, GAs may counsel borrowers about the processing of voluntary payments as well as their loan terms and what repayment plans may be available should their loan be removed from default. Loan rehabilitations occurring during the moratorium will not count toward a borrower’s single opportunity to rehabilitate a loan, the guidance explained, adding that beginning February 1, 2023, “GAs will report all defaulted borrowers as current unless their first date of delinquency (FDD) – which is not the same as their default date – is more than seven years ago. If the FDD is more than seven years ago, GAs must delete the borrower’s tradeline.” However, GAs will not be expected to perform retroactive tradeline updates. Following the end of the moratorium, GAs may resume interest rate accruals for all loans provided it is done in accordance with the law and the borrower’s promissory note, in addition to any loan modifications agreed upon by the GA. GAs must also obtain consent under the TCPA when communicating with borrowers, and gather information related to borrowers’ income-driven repayment plans and bankruptcy account details, if applicable.
California appellate court upholds judgment in RFDCPA suit
On November 23, the California Court of Appeal for the Fourth Appellate District upheld a summary judgment ruling for a creditor over allegations that it violated the Rosenthal Fair Debt Collection Practices Act (RFDCPA). The plaintiff, the widow of a former patient of the defendant doctor, asserted claims against the doctor and his professional corporation (collectively, “defendants”) alleging that they were debt collectors within the meaning of the RFDCPA. The plaintiff alleged that the defendants violated the RFDCPA by sending “multiple bills and making incessant” phone calls seeking payment for services provided to her husband before he died. The plaintiff requested that the defendants stop contacting her and seek payment through insurance and the hospital. The defendants used two different companies for its third-party billing services, and those companies sent invoices to the plaintiff, who responded that payment inquiries for her deceased husband should only be submitted to the insurance company and the medical center. The trial court granted the defendants’ motion for summary judgment, ruling they did not meet the statute’s definition of a debt collector.
The appellate court affirmed, finding that “a medical service provider that exclusively uses an unaffiliated, third-party billing service to collect payment for services rendered to patients” is not a “debt collector” within the meaning of the RFDCPA. The court found that although the RFDCPA “applies to those who collect debts on behalf of themselves,” the law still requires that a defendant “must regularly and in the ordinary course of business ‘engage in’ debt collection” for liability to attach. The appellate court emphasized that it was not holding that “a creditor may never be vicariously liable for the actions of a debt collector on an agency theory.” Instead, the plaintiff carried “the burden to demonstrate a triable issue of material fact on the existence of such an agency relationship, and she failed to do so on this record.”
Arizona establishes new limits on consumer debt collection
Recently, the Arizona governor approved Proposition 209, which decreases the maximum lawful annual interest rate on “medical debt” from 10 percent to three percent. Among other things, the proposition defines “medical debt” as “a loan, indebtedness, or other obligation arising directly from the receipt of health care services or of medical products or devices.” Accordingly, in addition to judgments on medical debt, the three percent annual rate limit applies to loans or other financing for health care services or medical products or devices. The proposition also decreases the share of borrowers’ wages that lenders can garnish. The current limit is 25 percent, but that percentage will decrease to 10 percent for many consumers, and to five percent for consumers dealing with extreme economic hardship. Additionally, the proposition increases various exemption amounts, including: (i) $400,000 (up from $150,000) for the homestead exemption; and (ii) $15,000 (up from $6,000) for household furniture, furnishing, goods, and appliances. The proposition is effective immediately.
On December 7, a state court granted a temporary restraining order, which stopped the enactment of the approved measure. An evidentiary hearing is set to happen in December where the plaintiffs are seeking to have the proposition nullified.
New York enacts protections for consumers with medical debt
On November 23, the New York governor signed S6522A/A7363A to prohibit certain hospitals and healthcare providers from placing liens on the primary residences of individuals with unpaid medical debts or garnishing wages to collect on unpaid bills or satisfy judgments arising from a medical debt lawsuit. “No one should face the threat of losing their home or falling into further debt after seeking medical care,” Governor Kathy Hochul said in an announcement. “I’m proud to sign legislation today that will end this harmful and predatory collection practice to help protect New Yorkers from these unfair penalties. The bill is effective immediately.