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On December 14, the U.S. Court of Appeals for the Eighth Circuit vacated a $4,000 judgment in favor of a consumer in an FDCPA action against a debt buyer (defendant), concluding that while the defendant qualifies as a debt collector, the actions of the subsequent debt collector cannot be imputed to the defendant. According to the opinion, the defendant brought a collection action against a consumer, which was dismissed by the district court after the consumer retained an attorney and the defendant failed to respond to the consumer’s dismissal motion. The defendant subsequently hired a collection agency to collect on the debt but failed to inform the collection agency that the consumer had previous retained an attorney. After the collection agency sent a settlement offer to the consumer, the consumer filed an action against the defendant alleging violations of the FDCPA and the Arkansas Fair Debt Collection Practices Act (AFDCPA) for contacting her directly when she was represented by an attorney. The district court granted partial summary judgment in favor of the consumer, concluding, among other things, that the defendant (i) qualified as a debt collector under federal and state law; (ii) the defendant was acting as an agent of the collection agency; and (ii) the defendant is liable for the violations arising out of the collection agency’s contact with the consumer. The consumer accepted a $4,000 offer of judgment, and the district court entered final judgment.
On appeal, the 8th Circuit agreed that the defendant qualified as a debt collector under the FDCPA and the AFDCPA, but determined that the consumer “did not present sufficient evidence to establish that [the collection agency]’s actions may be imputed to [the defendant] as a matter of law.” Specifically, the appellate court concluded that in order to establish the defendant’s liability under the FDCPA, the consumer needed to show that the defendant was responsible for the collection agency’s action. Because it was established that the collection agency did not know that the consumer was represented by an attorney, the appellate court noted that the consumer “cannot prevail against [the defendant] on a theory of vicarious liability,” and instead, must prove that an agency relationship existed for direct liability. Because the consumer failed to put into evidence an agreement between the defendant and the collection agency and the district court failed to address the agency relationship, the appellate court concluded the district court erred in granting partial summary judgment and vacated the $4,000 judgment and remanded the case.
On November 16, the Maryland attorney general announced that it obtained over $2.6 million in debt relief from a third-party debt buyer for approximately 1,200 former students of a defunct Maryland-based for-profit college. In its press release, the AG alleged that the for-profit college offered “low-quality programs at a price significantly higher than comparable programs at Maryland’s public institutions.” According to the AG, due to the college’s high tuition, students had little choice but to take out loans issued by the college itself. After the college permanently closed, a court-appointed receiver sold the rights to collect the loans to a third-party debt buyer. The AG took the position that, because the college abruptly closed and failed to provide its students with the services promised, the loans should have been canceled rather than sold. To resolve the dispute, the AG and the third-party debt buyer entered into a settlement. Under the terms of the settlement, the third-party debt buyer agreed to cease collection on any of the outstanding loans and to refund approximately 75 percent of the payments collected from the students after it bought the loan portfolio. Furthermore, the debt buyer agreed to remove trade lines relating to the loans from the student’s credit reports.
On October 15, the CFPB announced a proposed settlement with the largest U.S. debt collector and debt buyer and its subsidiaries (collectively, “defendants”), resolving allegations that the defendants violated the terms of a 2015 consent order related to their debt collection practices. As previously covered by InfoBytes, the Bureau filed an action against the defendants in September alleging that they collected more than $300 million from consumers by violating the terms of the 2015 consent order—and again violating the FDCPA and CFPA—by, among other things, (i) filing lawsuits without possessing certain original account-level documentation (OALD) or first providing the required disclosures; (ii) failing to provide debtors with OALD within 30 days of the debtor’s request; (iii) filing lawsuits to collect on time-barred debt; and (iv) failing to disclose that debtors may incur international-transaction fees when making payments to foreign countries, which “effectively den[ied] consumers the opportunity to make informed choices of their preferred payment methods.”
The stipulated final judgment, if entered by the court, would require the defendants to pay nearly $80,000 in consumer redress and a $15 million civil money penalty. Moreover, among other things, the defendants are subject to a five-year extension of certain conduct provisions of the 2015 consent order and must disclose to consumers the potential for international-transaction fees and that the fees can be avoided by using alternative payment methods.
On July 30, the Massachusetts attorney general announced a Nevada-based debt buyer will discharge nearly $300,000 in student loan debt in connection with a for-profit education company that sold allegedly ineffective online study guides and education materials. According to the assurance of discontinuance (AOD), the education company allegedly engaged in unfair and deceptive acts in the marketing and selling of its educational materials and services, which included arranging for consumers to finance equivalency exam fees. The company arranged for consumers to obtain financing from certain credit unions and those credit unions subsequently sold the loans to other entities, including the Nevada-based debt buyer.
The AOD requires the debt buyer to discharge and cease collection of the company’s loans for each of the 76 Massachusetts consumers, amounting to nearly $300,000 in debt. Additionally, the debt buyer is required to pay Massachusetts approximately $70,600 for the attorney general to distribute to consumers who made payments to the debt prior to the action, and is prevented from reporting any negative credit information.
On April 30, the Oregon Department of Consumer and Business Services, Division of Financial Regulations issued Bulletin No. DFR 2020-14 to provide guidance to state-regulated debt buyers and collection agencies on reasonable measures they could take consistent with the governor’s April 17 executive order preventing garnishment of CARES Act stimulus checks (covered here). The guidance encourages entities to take active measures to help debtors affected by Covid-19, including: (i) offering payment accommodations like deferrals; (ii) waiving certain fees; (iii) temporarily suspending collection activities for debtors with significant hardships; and (iv) stopping collection activity for debts whose only income source is exempt.
Illinois Department of Financial and Professional Regulation issues guidance to debt collection agencies and debt buyers
On March 30, the Illinois Department of Financial and Professional Regulation (Department) issued guidance to Illinois-licensed debt collection agencies and debt buyers regarding Covid-19. The guidance reminds debt collection agencies that the Illinois Collection Agency Act does not contemplate collectors’ ability to conduct business at any place other than the address of record with the Department. Debt collection agencies seeking to work at a location other than their address of record, including remotely, are directed to provide notice to the Department within 14 days of any address changes. Debt collection agencies and debt buyers are encouraged to work with consumers to modify payment schedules or suspend all collection activity for a period of no less than 60 days. The Department also notes that it will closely monitor adherence to the prohibitions on communications at times and places that should be known to be inconvenient to the debtor under the Federal Debt Collection Practices Act and the Illinois Collection Agency Act.
On March 18, the Washington governor signed Substitute HB 2476, which clarifies the definition of a debt buyer and outlines prohibited activities. Among other activities, debt buyers are now (i) prohibited from bringing legal actions without providing evidence that the original debt contains the debtor’s signature, or for claims based on a credit card debt for which a signature does not exist, “a copy of the most recent monthly statement recording a purchase transaction, payment, or other extension of credit” (requirements related to breaches of contracts and electronic transactions are also provided); (ii) prohibited from seeking default judgments without providing evidence of the original debt; and (iii) required to provide certain disclosures when bringing legal action, including “[t]hat the action is being brought by, or for the benefit of, a person or entity engaged in the business of purchasing” debts for collection purposes, the date the claim was purchased, the identity of the debt purchaser, and “[t]hat the action is being commenced within, and is not barred by an applicable statute of limitations.” The amendments take effect 90 days after the adjournment of the session, and are applicable to “delinquent or charged off claims purchased for collection purposes by a debt buyer on or after the effective date of this section.”
On March 9, the U.S. Court of Appeals for the Ninth Circuit held that an entity that purchases consumer debts, but outsources the collection activity to a third party still qualifies as a debt collector under the FDCPA. According to the opinion, the plaintiff sued the debt buyer (defendant) claiming it was “vicariously and jointly liable” for alleged FDCPA violations by the third party collector. The district court granted the defendant’s motion to dismiss, ruling that the plaintiff failed to state a claim because debt purchasing companies like the defendant “who have no interactions with debtors and merely contract with third parties to collect on the debts they have purchased simply do not have the principal purpose of collecting debts.” The district court reasoned that Congress intended the FDCPA to apply only to those who directly interact with customers, based on the court’s interpretation of the language used in the substantive provisions of the law.
On appeal, the 9th Circuit reversed the dismissal, determining that the FDCPA does not solely regulate entities that directly interact with consumers. As applied to the defendant, the court found that the purpose of the FDCPA would be “entirely circumvented” if the law’s restrictions did not apply to companies like the defendant. Accordingly, the appellate court concluded that an entity that otherwise meets the “principal purpose” definition of debt collector—“any business the principal purpose of which is the collection of any debts”—cannot avoid liability under the FDCPA merely by hiring a third party to perform debt collection activities on its behalf. The appellate court stressed that Congress’s intent in enacting the FDCPA was to eliminate abusive, deceptive, and unfair collection practices, and that its interpretation of the principal purpose prong of the debt collector definition furthers the FDCPA’s purpose. The 9th Circuit joined the 3rd Circuit, which issued an order last year (covered by InfoBytes here) concluding that “[a]s long as a business’s raison d’etre is obtaining payment on the debts that it acquires, it is a debt collector. Who actually obtains the payment or how they do so is of no moment.”
On November 27, the Superior Court of New Jersey, Appellate Division, affirmed an order requiring arbitration between a consumer and the buyer of the consumer’s debt (debt collector) in a lawsuit filed by the consumer claiming that the debt collector was not licensed to collect debts in New Jersey. According to the decision, the consumer had opened a credit card account with a bank, which included an arbitration agreement, then defaulted on the account. The debt collector then bought the debt and collected the consumer’s debt. The consumer subsequently sued the debt collector for its purported unlicensed collection of debts, but the trial court dismissed the complaint and compelled arbitration between the parties. The consumer appealed, arguing in part that the trial court erred by allowing an arbitrator to decide the validity of the assignment to the debt collector, and, therefore, the enforceability of the arbitration agreement. The appellate division court sided with the trial court that the arbitration clause “clearly and expressly stated claims relating to the ‘application, enforceability or interpretation of this Agreement, including this arbitration provision’ are subject to arbitration.” Moreover, the court concurred that the agreement did not violate the state’s plain language statute. However, the appellate division remanded the case to the trial court for issuance of an order to stay—rather than dismiss—the matter pending arbitration.
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.
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