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Financial Services Law Insights and Observations


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  • Wyoming to regulate debt buyers as collection agencies

    On February 27, the Wyoming governor signed HB 284, which requires debt buyers to be licensed as “collection agencies” beginning July 1. Under the act, a collection agency now includes any person who operates as a debt buyer, defined as “any person that is regularly engaged in the business of purchasing charged-off consumer debt for collection purposes, whether the person collects the debt, hires a third party for collection of the debt or hires an attorney for collection litigation[.]” As a result, debt buyers will be regulated by the Collection Agency Board. Importantly, the act protects the validity of any civil action or arbitration filed or commenced by a debt buyer, or any judgment entered for a debt buyer, prior to the effective date.

    Licensing State Issues Wyoming State Legislation Debt Buyer Debt Collection

  • DC passes debt collection bill

    State Issues

    On September 23, the District of Columbia mayor signed B24-0357, which updates the District’s collection laws by expanding protections to cover most consumer debt, in addition to strengthening existing protections for DC consumers. Among other things, the bill: (i) prohibits deceptive behavior from debt collectors, such as making threats; (ii) clarifies that no one can be jailed for failing to pay a debt; (iii) prohibits debt collectors from communicating any information regarding a person’s debt to employers or family members; and (vi) clarifies that debt buyers are required to follow all laws applicable to debt collectors. The law is currently effective.

    State Issues State Legislation District of Columbia Debt Collection Debt Buyer Consumer Finance

  • 3rd Circuit: Debt buyer not required to be licensed under Pennsylvania law


    On September 19, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s ruling in an FDCPA suit, finding that a defendant debt buyer was not required to be licensed under Pennsylvania law when it attempted to collect interest that had accrued at a rate of more than 6 percent under the original credit card agreement. According to the opinion, the plaintiff opened a credit card with a bank, which had an interest rate of 22.9 percent. The plaintiff defaulted on a debt he accrued on the card, and the debt was subsequently charged-off and sold by the bank to the defendant. The plaintiff argued that the defendant violated the FDCPA since the interest rate was limited by the Pennsylvania Consumer Discount Company Act (CDCA), which states that an unlicensed firm “in the business of negotiating or making loans or advances of money on credit [less than $25,000]” may not collect interest at an annual interest rate over 6 percent. The district court granted the defendant’s motion to dismiss, ruling that the defendant was entitled to collect interest above 6 percent because it held a license under a different state law.

    On the appeal, the 3rd Circuit found that the CDCA applies to companies that arrange for or negotiate loans with certain parameters, and that there is nothing in the plaintiff’s amended complaint to suggest that the defendant is in the business of negotiating loans. The appellate court noted that the plaintiff’s allegations “indicate that [the defendant] purchases debt, such as [plaintiff’s] credit card account that [the bank had] charged off. But even with that allegation as a starting point, it is not reasonable to infer that an entity that purchases charged-off debt would also be in the business of negotiating or bargaining for the initial terms of loans or advances.” The appellate court further noted that “the amended complaint cuts against such an inference: it alleges that [the bank], not [the defendant], set the annual interest rate for [plaintiff’s] use of the credit card for loans and advances at 22.90%. Thus, with the understanding that negotiate means ‘to bargain’ and not ‘to transfer,’ [the plaintiff’s] allegations do not support an inference that [defendant] is in the business of negotiating loans or advances.”

    Courts Licensing FDCPA Debt Collection Debt Buyer Appellate Third Circuit Consumer Finance Pennsylvania

  • 5th Circuit reverses decision that a portion of a contract was indefinite and unenforceable


    On May 18, the U.S. Court of Appeals for the 5th Circuit reversed a district court’s decision to dismiss a suit against a creditor that sold portfolios of delinquent and defaulted debt, ruling that the disputed portion of the contract between the two parties was enforceable.

    According to the opinion, the defendant sold portfolios of delinquent accounts to the plaintiff. The plaintiff and the defendant entered a “forward flow” agreement, where the defendant agreed to continue to send the plaintiff accounts during a specific timeline. Under the agreement, the defendant agreed to deliver “additional accounts,” which would be the same quality as the other accounts that had been sold. The parties could not settle on an agreement regarding the pricing for accounts that were submitted under the forward flow agreement, and the defendant sued the plaintiff for breach of contract. A district court granted the defendant’s motion to dismiss, which the plaintiff appealed.

    The appellate court found that the district court erred on its decision that the term “additional accounts” was indefinite and therefore unenforceable. The court stated that “[t]aken together, the plain meaning of the word ‘additional,’ the contract’s clear architecture, and various settled principles of interpretation reveal that ‘additional accounts’ refers to all qualifying accounts that accrue quarterly.” The appellate court also noted that it “cannot ignore that this argument was not presented to the district court,” and that it will not speculate on why [the defendant-appellee did not] reached for this low-hanging factual fruit.”

    Courts Appellate Fifth Circuit Debt Buyer Debt Collection

  • District Court grants class certification in FDCPA suit


    On April 27, the U.S. District Court for the Western District of Pennsylvania granted a plaintiff’s motion for class certification in an action against a consumer debt buyer (defendant) for allegedly violating the FDCPA by stating that a judgment may be awarded prior to the expiration of a settlement offer, even though a collection lawsuit was not filed. According to the opinion, the plaintiff received a collection letter from the defendant that offered a “discount program” for his “Legal Collections account without any further legal action,” which had to be accepted within a month. The letter also stated that “[a] judgment could be awarded by the court before the expiration of the discount offer listed in this letter,” despite the fact that at the time the letter was received, there were no pending court cases in which a judgment could be entered against the plaintiff. After receiving the letter, the plaintiff filed suit, alleging that the defendant violated the FDCPA by making false, misleading, and deceptive misrepresentations about the debt. Among other things, the defendant argued that the size of the class would be impossible to ascertain because identifying class members would require individualized inquiries into who received a letter and when. By holding that the FDCPA violation occurred when a letter was sent rather than when it was received, the court rejected the defendant’s argument and ruled instead that individualized inquiry is not necessary. According to the district court, “[r]eviewing this information will, of course, require some level of individualized inquiry. But the need for file-by-file review to identify class members is not fatal to class certification.” The district court further noted that “[c]ourts and parties must be able to determine accrual dates with some degree of certainty,” and “[t[he date of receipt may often be impossible to determine, particularly where the recipient is an individual as opposed to a commercial entity.”

    Courts Class Action Debt Collection FDCPA Debt Buyer

  • North Carolina appellate court affirms district court’s decision in debt collection case


    On March 15, the Court of Appeals of North Carolina affirmed a district court’s grant of summary judgment in favor of a debt buyer plaintiff and rejected the debtor defendant’s argument that the plaintiff failed to comply with a provision of North Carolina’s Consumer Economic Protection Act (CEPA). According to the order, the defendant appealed the district court’s grant of summary judgment to the plaintiff in its 2019 suit to renew a default judgment that was entered in 2010 against the defendant. The defendant argued that the default judgment “is void because it was procured by fraud and the clerk lacked jurisdiction to enter the default judgment for various reasons,” and “that Plaintiff’s interest rates on Defendant’s debt violate North Carolina law.” The appellate court noted that the CEPA “did not apply” because the statute requires that, “[p]rior to entry of a default judgment or summary judgment against a debtor in a complaint initiated by a debt buyer, the plaintiff shall file evidence with the court to establish the amount and nature of the debt.” The appellate court noted that although the plaintiff filed its original complaint against the defendant in August 2009, this CEPA provision did not take effect until October 1, 2009, and therefore only applies to “foreclosures initiated, debt collection activities undertaken, and actions filed on or after that date.” The defendant argued that the plaintiff was still required to comply with the CEPA provision because the plaintiff filed its motion for a default judgment in February 2010—after the effective date of the CEPA provision. But the appellate court determined that the plaintiff’s motion for a default judgment “was part of prosecuting its ‘action filed’ and was not a ‘debt collection activity’ within the meaning of the Act.”

    Courts Appellate Debt Buyer State Issues North Carolina Debt Collection

  • New Jersey Superior Court grants summary judgment in favor of debt buyer


    On January 21, the Superior Court of New Jersey granted a defendant debt buyer’s cross-motion for summary judgment following the Appellate Division’s partial remand. The plaintiff filed a proposed class action lawsuit in 2017, claiming that the defendant violated the New Jersey Consumer Fraud Act (CFA) by unlawfully acquiring defaulted credit card accounts without obtaining a license to engage as a sales finance company or a consumer lender. The case was dismissed, but later partially remanded on appeal. The Superior Court struck the portion of the complaint alleging class claims and focused on the remaining individual claim concerning the plaintiff’s account. The Superior Court ultimately determined that the plaintiff’s CFA claim failed because the alleged conduct did not rise “to the level of deception, fraud, or misrepresentation in connection with the sale of merchandise or services” required for a claim under CFA. According to the Superior Court, the CFA requires that claimants show an ascertainable loss. The plaintiff’s claim that she suffered a loss by paying the defendant rather than the bank that originally extended the credit was not convincing, the Superior Court stated. The plaintiff admitted “that after the [account] was sold to Defendant, [the bank] did not seek payment of the credit card account. Thus, the record establishes that Plaintiff has not suffered any harm. Without an ascertainable loss, Plaintiff’s CFA claim fails,” the decision said. The Superior Court also disagreed with the plaintiff’s assertion that the defendant was required to obtain a consumer lending license under the New Jersey Consumer Finance Licensing Act. Noting that the defendant is a debt buyer and not a consumer lender, the Superior Court held that the defendant was not required to be licensed.

    Courts Debt Buyer State Issues New Jersey Debt Collection Licensing

  • DFPI reminds debt collectors and buyers of December 31 application deadline

    Recently, the California Department of Financial Protection and Innovation (DFPI) reminded debt buyers and debt collectors operating in the state of California that applications must be submitted on or before December 31, 2021 through the Nationwide Multistate Licensing System & Registry (NMLS). The Debt Collection Licensing Act, which takes effect January 1, 2022, requires all persons engaging in the business of debt collection to be licensed by DFPI. Debt collectors that have submitted applications may continue operating in the state while the applications are pending. However, debt collectors that miss the December 31 deadline will be required to wait for the issuance of a license before operating in the state. Application materials and a checklist of requirements are available on NMLS. DFPI noted it will review applications and issue licenses in 2022 and 2023, and stated that once a debt collector is licensed it will not need to register under the California Consumer Financial Protection Law.

    Licensing State Issues State Regulators DFPI Debt Collection California NMLS Debt Buyer

  • DFPI fines debt collector $375k in first action under the CCFPL

    State Issues

    On September 22, the California Department of Financial Protection and Innovation (DFPI) announced its first enforcement action against a California-based debt collector and debt buyer for allegedly violating the California Consumer Financial Protection Law (CCFPL) by threatening to sue consumers and furnishing negative information to a credit bureau without first notifying consumers about the alleged debt—a practice commonly known as “debt parking.” According to DFPI, consumers complained that their credit scores dropped significantly as a result. The respondent also, among other things, allegedly left voicemails that did not disclose the caller’s identity, threatened illegal lawsuits and wage garnishment (even though it never actually commenced any legal proceedings), and failed to notify consumers in writing within 30 days of transmitting negative information to the credit bureau. Under the order, the respondent is required to pay a $375,000 fine and must desist and refrain from unlawful acts or practices associated with the FDCPA, the Rosenthal Fair Debt Collection Practices Act, and the Consumer Credit Reporting Agencies Act.

    State Issues State Regulators DFPI Enforcement CCFPL Consumer Finance Debt Collection Debt Buyer FDCPA California

  • Minnesota enacts student loan servicer, debt buyer provisions

    On June 26, the Minnesota governor signed omnibus bill HF 6, which, among other things, creates a Student Loan Bill of Rights and outlines new provisions for student loan servicers. The act provides new definitions and, subject to exemptions, requires entities servicing student loans in the state to be licensed. The act outlines servicer duties and responsibilities, including those related to responding to borrower communications, applying overpayments and partial payments, handling student loan transfers, providing income-driven repayment program options, and maintaining records. Additionally, servicers are prohibited from (i) misleading borrowers; (ii) engaging in any unfair or deceptive practices or misrepresenting or omitting information related to a borrower’s student loan obligations; (iii) misapplying payments; (iv) knowingly or negligently providing inaccurate information; (v) failing to provide both favorable and unfavorable payment history to consumer reporting agencies; (vi) refusing to communicate with a borrower’s authorized representative; (vii) making false statements or omitting material facts connected “with any application, information, or reports filed with the commissioner or any other federal, state, or local government agency”; (viii) violating any federal, state, or local law; (ix) providing incorrect information regarding the availability of student loan forgiveness; and (x) failing to comply with outlined duties and obligations. Furthermore, the state commissioner has authority to conduct examinations; deny, suspend, or revoke licenses; censure servicers; and impose civil penalties.

    Additionally, as part of the omnibus bill, the definition of “collection agency” now includes a “debt buyer,” which is defined as a “business engaged in the purchase of any charged-off account, bill, or other indebtedness for collection purposes, whether the business collects the account, bill, or other indebtedness, hires a third party for collection, or hires an attorney for litigation related to the collection.” The act also defines an “affiliated company” as “a company that: (1) directly or indirectly controls, is controlled by, or is under common control with another company or companies; (2) has the same executive management team or owner that exerts control over the business operations of the company; (3) maintains a uniform network of corporate and compliance policies and procedures; and (4) does not engage in active collection of debts.” The commissioner is also required to allow affiliated companies to operate under a single license and be subject to a single examination provided all of the affiliated company names are listed on the license. Under the act, debt buyers are required to submit license applications no later than January 1, 2022; however, a debt buyer who has filed an application with the commissioner for a collection agency license before January 1, 2022, and has a pending application thereafter, “may continue to operate without a license until the commissioner approves or denies the application.”

    The provisions take effect August 1.

    Licensing State Issues State Legislation Student Loan Servicer Debt Buyer Student Lending


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