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  • Utah Court of Appeals affirms ruling for debt buyer engaged in unlicensed collection efforts

    Courts

    The Utah Court of Appeals affirmed a lower court’s ruling against a debt buyer that acquired a portfolio of bad debts from borrowers all over the country, including residents of Utah. The debt buyer collected on the portfolio of debts by retaining third-party debt collectors or, in some instances, attorneys to recover such debts by filing lawsuits. The debt buyer was not licensed under the Utah Collection Agency Act (UCAA). As such, the plaintiffs argued that the debt buyer’s collection efforts were “deceptive” and “unconscionable” under the Utah Consumer Sales Practices Act.

    The lower court ruled for the debt buyer on the grounds that failure to obtain a license, without more, did not rise to the level of “deceptive” or “unconscionable” conduct. Further, the UCAA does not have a private right of action.

    Utah recently repealed the collection agency’s license, effective May 3, 2023 (covered by InfoBytes here).

    Courts Licensing Appellate Utah Debt Buying Consumer Finance Consumer Protection

  • 7th Circuit affirms dismissal of FDCPA case

    Courts

    On August 11, the U.S. Court of Appeals for the Seventh Circuit affirmed a lower court’s decision to grant defendants’ motion to dismiss, ruling that the plaintiff lacked standing. Plaintiff defaulted on a credit card debt that was purchased by one of the defendants and hired another defendant to collect said debt. The debt collector defendant sued plaintiff for the outstanding debt along with "statutory attorney fees,” but also appended an affidavit to the complaint asserting that no additional amounts were being pursued beyond the charge-off date, including attorney's fees. Plaintiff sued under the Fair Debt Collection Practices Act (FDCPA) in federal district court, claiming that the two declarations were in conflict and amounted to false, misleading, and deceptive communications.

    The U.S. District Court for the Northern District of Illinois held that plaintiff did not show concrete harm for Article III standing, adding that plaintiff did not raise an FDCPA claim in the amended complaint regarding the underlying debt, and that plaintiff made conflicting statements. The court granted defendants’ motions to dismiss for failure to state a claim.

    On appeal, the 7th Circuit affirmed the district court ruling, holding that plaintiff did not demonstrate harm to establish Article III standing, and that the complaint was properly dismissed for lack of subject matter jurisdiction in the district court. In doing so, the 7th Circuit noted that plaintiff’s decision to hire an attorney was insufficient to establish standing and that plaintiff made contradictory statements when he denied owing the debt during discovery, but on appeal contended he would have paid the debt but for defendants’ contradictory statements. 

    Courts Seventh Circuit FDCPA Appellate Debt Cancellation Debt Buying

  • CFPB alleges debt collection, debt buying companies violated 2015 consent order

    Federal Issues

    On September 8, the CFPB filed a complaint against the largest U.S. debt collector and debt buyer and its subsidiaries (collectively, “defendants”) for allegedly violating the terms of a 2015 consent order related to their debt collection practices. As previously covered by InfoBytes, the defendants allegedly engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other illegal collection practices in violation of the Consumer Financial Protection Act (CFPA), FDCPA, and FCRA. According to the complaint, filed in the U.S. District Court for the Southern District of California, the defendants have collected more than $300 million from consumers using practices that did not comply with the 2015 consent order. Among other things, the complaint alleges that the defendants violated the terms of the consent order—and again violated the FDCPA and CFPA—by (i) filing lawsuits without possessing certain original account-level documentation (OALD) or first providing required disclosures; (ii) failing to provide consumers with OALD within 30 days of the consumer’s request; (iii) filing lawsuits to collect on time-barred debt; and (iv) failing to disclose that consumers 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 Bureau seeks injunctive relief, damages, consumer redress, disgorgement, and civil money penalties. In addition, the Bureau asks the court to permanently enjoin the defendants from committing future violations of the CFPA or FDCPA.

    Federal Issues CFPB Enforcement Debt Collection Debt Buying CFPA FDCPA

  • CFPB announces settlement with companies that allegedly delayed transfer of consumer payments to debt buyers

    Consumer Finance

    On October 4, the CFPB announced a settlement with a group of Minnesota-based companies that allegedly violated the Consumer Financial Protection Act when consumers made payments on debts that the companies had already sold to third parties, and the companies improperly delayed the forwarding of some of those payments to debt buyers. According to the consent order, the companies—whose practices include the purchasing, servicing, collection, and furnishing consumer-report information on consumer loans—partnered with third-party banks to sell merchandise on closed-end or open-end revolving credit. Within a few days, banks originated the loans and sold the receivables to the companies. The companies subsequently serviced the debts and sold the receivables to a third party. For defaulted accounts, the companies charged off the accounts and sold them to third-party debt buyers. According to the Bureau, the companies allegedly failed to notify consumers when their accounts were sold, failed to inform them who now owned the debt, and continued to accept direct pays from consumers. The Bureau contends that between 2013 and 2016, the companies delayed forwarding direct pays for more than 31 days in 18,000 instances, and in 3,500 of those instances, the companies did not forward the payments for more than a year. Moreover, the Bureau asserts that these delays led to misleading collection efforts, including collection activity on accounts consumers had completely paid off. The order requires the companies to pay a civil money penalty of $200,000, and improve their policies and procedures to prevent further violations.

    Consumer Finance CFPB Enforcement Third-Party Debt Buying CFPA Settlement

  • Colorado Extends Fair Debt Collection Practices Act Through 2028

    State Issues

    On June 1, Colorado Governor John Hickenlooper enacted legislation (SB 17-216) executing recommendations from the Department of Regulatory Agencies’ 2016 Sunset Report, and extending the Colorado Fair Debt Collection Practices Act (Act) an additional 11 years through September 1, 2028. The Act was originally set to be repealed on July 1, 2017. Specifically, the legislation will implement the following points:

    • defines a “debt buyer” as an individual who “engages in the business of purchasing delinquent or defaulted debt for collection purposes,” regardless of whether the debt is collected by the debt buyer, a third-party, or through litigation. The Act applies to debt buyers who purchase consumer debts sold or resold on or after January 1, 2018;
    • states that debt collectors or collection agencies that bring legal actions on debts must follow outlined requirements;
    • defines collection agency expectations for the purchase, sale or attempted collection of a purchased debt;
    • sets the statute of limitations for public actions brought by the administrator of the Act to two years and sets the limit to one year for private actions;
    • requires the administrator to prepare a biannual report to address enforcement actions, complaint processing statistics, and significant legal filings, among other things, in addition to hosting biannual meetings to disseminate the findings.

    SB 17-216 went into effect June 1, 2017 with the exception of certain provisions governing debt buyers, documentation for legal actions, and Uniform Consumer Credit Code Administrator reporting requirements that take effect January 1, 2018.

    State Issues Debt Collection FDCPA State Legislation Debt Buying

  • Massachusetts AG and Division of Banks Seek Input on Debt Collection and Industry Regulation

    Consumer Finance

    On September 22, the Massachusetts Division of Banks (the Division) and AG Healey’s office will host an informational session to discuss the current state of debt collection and industry regulation in Massachusetts. The Division and AG Healey seek responses to questions regarding how the debt collection industry has changed in recent years; the industry’s organizational structure; licensing requirements for debt collectors and debt buyers; law firm involvement in debt collection activities; notification requirements regarding whether a debt has been sold; debt collection issues, including litigation-related problems, that consumers and industry members face; and how changes in federal laws and regulations governing debt collection practices should be reflected in Massachusetts’s regulations. Written responses and comments to the Division are due by October 21, 2016.

    State Attorney General Debt Collection Debt Buying

  • Eleventh Circuit Reverses District Court Ruling in FCRA Case

    Consumer Finance

    On July 11, the U.S. Court of Appeals for the Eleventh Circuit reversed and remanded a decision from the District Court for the Southern District of Georgia, concluding that the district court had erred in dismissing the plaintiff’s claims under Section 1681s-2(b) of the FCRA. Hinkle v. Midland Credit Mgmt., Inc. et al., No. 15-10398 (11th Cir. July 11, 2016). Pursuant to 15 U.S.C. § 1681s-2(b), after receiving notice of a dispute, furnishers of information are required to either verify disputed information via investigation or to notify the credit reporting agencies (CRAs) that the disputed information cannot be verified. At issue in Hinkle was whether the debt buyer’s search of its internal records was a reasonable investigation to verify debt accounts when the plaintiff disputed their validity. The debt buyer argued that, “once it compared the information the CRAs possessed with its own internal records and confirmed a match, it was entitled to report the accounts as having been ‘verified.’” The plaintiff maintained that, without obtaining account-level information beyond its internal records, the debt buyer should have reported the results of its reinvestigation to the CRAs as “cannot be verified.” The court agreed with the plaintiff, determining that a reasonable jury could find that the debt buyer’s failure to attempt to consult account-level documentation to confirm that it was seeking to collect the debts from the right person, was an unreasonable investigation on the facts of this case.

    FCRA Debt Buying

  • SCOTUS Denies Petition for Certiorari in Securitization Case Involving State Usury Law

    Consumer Finance

    On June 27, the United State Supreme Court denied a debt buyer’s petition for certiorari in a Second Circuit case that raises the issue of whether New York’s state usury law is preempted by the National Bank Act (NBA) when a national bank-originated debt is purchased by a nonbank. Midland v. Madden, No. 15-610 (U.S. June 27, 2017). As previously covered in InfoBytes, the nonbank debt buyer was assigned debt owed by a New York consumer. The debt carried an interest rate in excess of that permitted by New York law but which was permitted by the law of the bank’s home state, which the bank lawfully “exported.” Facing a usury challenge, the debt buyer argued that it was able to continue charging the valid rate made by the national bank and that it did not have to abide by the consumer debtor’s state usury laws. The Second Circuit rejected the debt buyer’s argument, reasoning that the NBA did not apply to the debt buyer because it was not acting on the national bank’s behalf. The Supreme Court did not grant the debt buyer’s petition for certiorari, leaving the Second Circuit ruling in effect. Notably, at the request of the Supreme Court, the Solicitor General and the OCC filed a brief stating the position of the United States as to whether the Supreme Court should grant the petition for certiorari. Although the brief advised that the Court not grant certiorari, the Government’s brief sharply criticized the Second Circuit’s decision.

    U.S. Supreme Court OCC National Bank Act Debt Buying Usury Madden

  • NYDFS Announces First Settlements to Provide Restitution to Consumers Affected by Alleged Unlawful Payday Lending Practices

    Consumer Finance

    The NYDFS recently announced that it entered into consent orders with two debt buyers, one based out of Kansas and the other out of Virginia. According to the Department, the debt buyers “improperly purchased and collected on illegal payday loans from New York consumers,” with the Kansas-based debt buyer allegedly attempting to collect on more than 7,000 payday loan debts of New York consumers and collecting payments on more than 4,000 of those debts between 2007 and 2014. The NYDFS’s press statement further alleges that the Kansas-based debt buyer repeatedly called New York consumers at work and at home, threatened to call consumers’ employers, and called family members to pressure consumers into paying their alleged payday loan debts. Pursuant to the consent order with the Kansas company, the debt buyer will (i) discharge more than $2.26 million in consumers’ payday loan debts; (ii) contact credit reporting bureaus and request that they remove any negative information that it previously provided associated with New Yorkers’ payday loan accounts; (iii) move to vacate judgments it obtained on New Yorkers’ payday loan accounts; and (iv) release pending garnishments, levies, liens, restraining notices, or attachments associated with judgments on New York consumers’ payday loan accounts. The Kansas debt buyer will issue almost $725,000 in refunds to more than 3,000 New Yorkers. The Virginia-based debt buyer will provide refunds totaling more than $66,000 to 52 New Yorkers allegedly affected by its lending practices, and discharge almost $53,000 in payday loan debts to 106 New Yorkers. The two settlements are the first NYDFS settlements to provide consumer restitution to New Yorkers affected by payday loans.

    Payday Lending Debt Buying NYDFS

  • CFPB Issues Consent Orders Regarding Debt Collection Practices

    Consumer Finance

    On September 9, the CFPB ordered the two largest U.S. debt buyers and collectors to pay a combined total of nearly $80 million in civil penalties and consumer restitution related to their debt collection practices. The CFPB alleged that both companies, among other things, engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other illegal collection practices. In particular, the CFPB criticized the practice of purchasing debts without obtaining important documentation or information about the debt, or verifying to ensure the debts were accurate and enforceable before commencing collection activities. Under the consent orders, one company agreed to provide up to $42 million in consumer refunds, pay a $10 million civil money penalty, and cease collecting on a portfolio of consumer debt with a face value of over $125 million. The other company agreed to provide $19 million in restitution, pay an $8 million civil money penalty, and cease collecting on a consumer debt portfolio with a face value of over $3 million. In addition, both companies are also generally prohibited from reselling consumer debt. In prepared remarks announcing the enforcement action, CFPB Director Richard Cordray noted, “the terms of the orders will help reform and improve the tactics and approaches” within the debt collection market. The CFPB’s action comes as the industry anticipates the CFPB’s issuance of new debt collection rules.

    CFPB FDCPA UDAAP Debt Collection Enforcement Debt Buying

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