Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On June 19, the OCC issued Bulletin 2019-28, which highlights “core lending principles” for banks offering higher loan-to-value (LTV) loans. The Bulletin rescinds 2017 guidance from the OCC—Bulletin 2017-28, “Mortgage Lending: Risk Management Guidance for Higher-Loan-to-Value Lending Programs in Communities Targeted for Revitalization”— noting that “banks have engaged in responsible, innovative lending strategies that are different from [the previous bulletin’s] specific program parameters while being consistent with its goals.” The new guidance instead covers core lending principles that banks should consider when offering higher-LTV loans in an effort revitalize communities. Among other things, the OCC states that higher-LTV loans (i) should be consistent with safe and sound banking and comply with applicable laws and regulations; (ii) performance is effectively monitored, tracked, and managed; (iii) should be underwritten consistent with the Interagency Guidelines for Real Estate Lending and the bank’s standards for review and approval of exception loans. The Bulletin notes examples of sound policies and processes for higher-LTV loans, including underwriting standards and portfolio limits for the aggregate amount of higher-LTV loans. Lastly, the Bulletin emphasizes that marketing and consumer disclosures should describe the potential financial impacts and marketability of a higher-LTV loan where the value of the property is and could remain less than the loan amount.
On June 6, the U.S. Court of Appeals for the 7th Circuit, in a consolidated appeal, affirmed summary judgment in favor of a debt collector in actions alleging that the debt collector violated the FDCPA by naming the “original creditor” and the “client” in its collection letters, but declining to identify the current owner of the debt. According to the opinion, two consumers received collection letters naming an online payment processor as the “client” and a bank as the “original creditor,” and stating that, “upon the debtor’s request, [the collector] will provide ‘the name and address of the original creditor, if different from the current creditor.’” The consumers filed class actions against the debt collector, alleging that it violated, among other things, Section 1692g(a)(2) of the FDCPA by failing to disclose the current creditor or owner of the debt in the initial collection letters. In both cases, the respective district court granted summary judgment for the debt collector, concluding that the letter not only includes the original creditor—the bank—but also provides additional information for the unsophisticated consumer by including the online payment processor so that the consumer could better recognize the debt.
On appeal, the 7th Circuit agreed with the lower courts and concluded that the letters did not violate the FDCPA. The appellate court noted that “the letter identifies a single ‘creditor,’ as well as the commercial name to which the debtors had been exposed, allowing the debtors to easily recognize the nature of the debt.” The appellate court rejected the consumers’ argument that calling the bank the “original creditor” instead of the “current creditor” creates confusion, because the letter contained language that notified consumers that the original and current creditors may be one and the same. Because the letter “provides a whole picture of the debt for the consumer,” the court concluded it is not abusive or unfair and does not violate Section 1692g(a)(2) of the FDCPA.
Splitting from the 6th Circuit, 7th Circuit holds mere procedural violation of FDCPA not sufficient harm for standing
On June 4, the U.S. Court of Appeals for the 7th Circuit held that the receipt of an incomplete debt collection letter is not a sufficient harm to satisfy Article III standing requirements to bring a FDCPA claim against a debt collector. According to the opinion, a consumer received a collection letter which described the process for verifying a debt but did not specify that she had to communicate with the collector in writing to trigger the protections under the FDCPA. The consumer filed a class action against the debt collector alleging the omission “‘constitute[d] a material/concrete breach of her rights’” under the FDCPA. In the complaint, the consumer did “not allege that she tried—or even planned to try—to dispute the debt or verify that [the stated creditor] was actually her creditor.” The district court dismissed the action, concluding that the consumer had not alleged that the FDCPA violation “caused her harm or put her at an appreciable risk of harm” and therefore, the consumer lacked standing to sue.
On appeal, the 7th Circuit affirmed the district court’s decision, concluding that because the consumer did not allege that she tried to dispute or verify the debt orally, leaving her statutory protections at risk, she suffered no harm to her statutory rights under the FDCPA. The appellate court emphasized that “procedural injuries under consumer‐protection statutes are insufficiently concrete to confer standing.” The court acknowledged that its opinion creates a conflict with a July 2018 decision by the U.S. Court of Appeals for the 6th Circuit, which held that consumers had standing to sue a debt collector whose letters allegedly failed to instruct them that the FDCPA makes certain debt verification information available only if the debt is disputed “in writing.” (Covered by InfoBytes here.) The appellate court also agreed with the district court’s decision to deny the consumer’s request for leave to file an amended complaint, noting that she did not indicate what facts she would allege to cure the jurisdictional defect.
District Court denies debt collector’s motion for summary judgment FDCPA action concerning a consumer who filed for bankruptcy
On May 29, the U.S. District Court for the Northern District of Ohio denied a debt collector’s motion for summary judgment in an action alleging the debt collector violated the FDCPA by sending a collection letter three days after the consumer filed for bankruptcy. According to the opinion, the debt collector confirmed that the consumer had not yet filed for bankruptcy following placement of the consumer’s account for collection and, thus, sent an initial communication to the consumer’s attorney. Thereafter, the consumer filed for bankruptcy, but before the collector learned of the bankruptcy, it sent a collection letter to the consumer’s counsel. As a result, the consumer filed a lawsuit claiming that the debt collector violated the FDCPA by sending a collection letter to the consumer’s attorney after the bankruptcy proceeding had been initiated. The debt collector moved for summary judgment, arguing that it could not be held liable under the FDCPA because, at the time it sent the collection letter, it had not yet received notice of the bankruptcy proceeding. The court, however, rejected this argument, citing to the U.S. Court of Appeals for the 6th Circuit in stating that “‘[t]he FDCPA is a strict-liability statute: A plaintiff does not need to prove knowledge or intent . . . and does not have to have suffered actual damages.’” Because the debt collector did present arguments or evidence relating to FDCPA’s bona fide error provision, which provides an affirmative defense for a violation that is not intentional and is the result of a bona fide error, the court said that it was essentially being asked by the debt collector “to read an intent or knowledge requirement into the FDCPA,” something it could not do, and, thus, it denied the motion for summary judgment.
On May 15, the U.S. Court of Appeals for the 7th Circuit held a prevailing consumer’s request for $187,410 in attorney’s fees was unreasonable in a FDCPA action. In 2014, the consumer and a debt collector settled the consumer’s FDCPA related claims for $1,001 plus attorney’s fees of $4,500. Despite the settlement agreement, the debt collector continued to attempt to collect the debt, and the consumer sued a second time alleging violations of the FDCPA and FCRA. The consumer did not respond to multiple settlement offers from the debt collector, including one in March 2015 for $3,051, proceeding to trial on the FDCPA claim, and subsequently rejected a settlement offer from the debt collector of $25,000 and reasonable attorney’s fees. At trial, the jury only awarded the consumer the $1,000 in FDCPA statutory damages, after which he sought to recover $187,410 in attorney’s fees. The district court reduced his request to $10,875, concluding that the consumer’s rejection of “meaningful settlement offers precluded a fee award in such disproportion to his trial recovery.”
On appeal, the appellate court agreed with the district court that the March 2015 settlement offer of $3,051 was reasonable, rejecting the consumer’s argument that the settlement “was not substantial and therefore should have been disregarded by the district court in determining the fee award.” The appellate court also rejected the consumer’s argument that because the settlement offer disclaimed liability for the debt collector, his results at the jury trial were much better than the settlement as it yielded judgment on the merits. The appellate court noted that settlement offers regularly disclaim liability, and by operation, judgment against the debt collector would still have been entered under Rule 68. Therefore, the appellate court concluded the district court did not abuse its discretion when reducing the attorney’s fees to $10,875 based on 29 hours’ worth of work at an hourly rate of $375 prior to the March 2015 settlement offer.
On May 17, the CFPB announced it filed a lawsuit in the U.S. District Court for the Eastern District of New York against a New York debt-collection law firm. According to the Bureau’s complaint, between 2014 and 2016 the law firm allegedly initiated more than 99,000 collection lawsuits in an attempt to collect debts through reliance on “non-attorney support staff, automation, and both a cursory and deficient review of account files,” in violation of both the FDCPA and the Consumer Financial Protection Act. The Bureau alleges the lawsuits contained names and signatures of attorneys despite those attorneys “not being meaningfully involved in reviewing the merits of the lawsuits,” including not reviewing pertinent documentation related to the debts, such as account applications, billing statements, payment histories, and the terms and conditions governing an account. The law firm allegedly did not perform reviews of the contracts related to debt sales, despite filing lawsuits on behalf of debt buyers that have been accused of unlawful debt collection practices. The Bureau is seeking an injunction, damages, redress to consumers, and the imposition of a civil money penalty.
On May 13, the U.S. Court of Appeals for the 2nd Circuit held that the FDCPA’s statute of limitations period starts when the violation occurs, rather than when the plaintiff receives notice of the violation. According to the opinion, a law firm (defendant) seeking to collect a debt against a borrower sent a restraining notice to a national bank, which erroneously referenced the plaintiff’s social security number and address. The bank froze the plaintiff’s accounts on December 13, 2011. The bank lifted the freeze two days later after the plaintiff contacted the bank about the freeze. On December 14, 2012, the plaintiff filed a lawsuit against the debt collector, alleging FDCPA violations. The plaintiff claimed the action was filed within the one-year statute of limitations because he did not learn about the restraining notice until December 14, 2011. In 2016, the district court, however, held that the statute of limitation was triggered when the defendant mailed the restraining notice (December 6), and thus the complaint was time-barred. The plaintiff appealed, and the 2nd Circuit held that an FDCPA violation occurs when an individual is injured by unlawful conduct and not when the notice is mailed. On remand, the parties conducted limited discovery, which confirmed that the bank placed a freeze on the plaintiff’s accounts on December 13, which was also the date that the plaintiff learned about the freeze. The defendant then moved for summary judgment, arguing that the complaint is time barred given that it was filed one year and one day after the date of the account freeze. The district court agreed, and the plaintiff filed a second appeal.
On the second appeal, the 2nd Circuit affirmed the district court’s decision. The appellate court reminded the plaintiff that a violation of the FDCPA occurs when an individual is injured by unlawful conduct—which in this case was the date the accounts were frozen—and emphasized that the panel’s earlier holding was not intended to “expand the FDCPA’s statute of limitations by requiring that individuals also receive ‘notice of the FDCPA violation.’” Because the plaintiff’s suit was filed one year and one day after the bank froze his accounts, his claim was time-barred.
On May 13, the U.S. District Court for the District of New Jersey denied a debt collector’s motion to compel arbitration in an FDCPA action, concluding that the existence of an arbitration agreement was not yet apparent based on the amended complaint. According to the opinion, a consumer brought a putative class action against a debt collector alleging the three collection letters it sent were “deceptive and misleading” under the FDCPA because the letters contained language regarding the possibility of IRS reporting, even though the debt was under the $600 threshold required for reporting. As previously covered by InfoBytes, the district court dismissed the action on its merits, without reaching the defendant’s motion to compel arbitration. The U.S. Court of Appeals for the 3rd Circuit reversed, finding “the least sophisticated debtor could be left with the impression that reporting could occur” and therefore the language could signal a potential FDCPA violation, notwithstanding the letter’s qualifying statement that reporting is not required every time a debt is canceled or settled.
On remand, the debt collector moved to compel arbitration of the claims arising from the three letters on an individual basis, arguing that the credit agreement between the consumer and the original creditor contained an arbitration provision and providing an example of the original creditor’s credit card agreement. The plaintiff rejected the example agreement, arguing that it was merely a generic exemplar that did not “demonstrate its applicability” to the consumer. In denying the debt collector’s motion, the court directed the parties to conduct limited discovery on the existence of an enforceable arbitration agreement between the parties. The court also denied the debt collector’s motion to dismiss new claims added to the amended complaint as time-barred because they “relate back” to the original complaint.
On May 8, the U.S. Court of Appeals for the 11th Circuit affirmed in part and reversed in part the dismissal of a consumer’s putative class action against her reverse mortgage servicer for the alleged improper placement of flood insurance on her home. The consumer claimed violations of the FDCPA and multiple Florida laws, including the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), based on allegations that the mortgage servicer improperly executed lender-placed flood insurance on her property, even though the condo association had flood insurance covering the property. The lender-placed flood insurance resulted in $5,200 in premiums added to the balance of the loan, and an increase in financing costs on the mortgage. The district court dismissed the action, concluding the mortgage servicer was required by federal law to purchase the flood insurance and the monthly account statements were not collection letters under the FDCPA or state law.
On appeal, the 11th Circuit agreed with the district court that the monthly account statements of the reverse mortgage, which prominently stated “this is not a bill” in bold, uppercase letters, and did not request or demand payment, were not an attempt to collect a debt under the FDCPA. Additionally, the appellate court concluded that the consumer failed to allege the mortgage servicer was a debt collector within the meaning of the FDCPA because the complaint does not allege that the debt was in default. The appellate court also affirmed the district court’s dismissal of the state debt collection claims for similar reasons. However, the appellate court reversed the district court’s dismissal of the consumer’s FDUTPA claims, noting that the mortgage servicer failed to cite to a state or federal law requiring it to purchase flood insurance “when it has reason to know that the borrower is maintaining adequate coverage” in the form a condo association insurance.
On May 7, the CFPB issued its Notice of Proposed Rulemaking (NPRM) amending Regulation F, to implement the Fair Debt Collection Practices Act (FDCPA) (the “Proposed Rule”). The Bureau also released a Fact Sheet on the Proposed Rule. The proposed effective date is one year after the final rule is published in the Federal Register, with comments on the Proposed Rule due 90 days after publication. Generally, the Proposed Rule covers debt collection communications and disclosures and addresses related practices by debt collectors. Highlights of the Proposed Rule include:
- Coverage. The Proposed Rule incorporates many existing provisions of the FDCPA into Regulation F including existing definitions of “debt collector” and “debt,” with only minor wording and organizational changes. The Proposed Rule would generally only cover third-party debt collectors, not the first-party efforts of the original creditor or its servicer, and specifically excludes in-house collectors of creditors (“[a]ny officer or employee of a creditor while the officer or employee is collecting debts for the creditor in the creditor’s name.”). The Proposed Rule restates the FDCPA’s definition of “consumer” but interprets the term to include “a deceased natural person who is obligated or allegedly obligated to pay a debt.” Additionally, with respect to the special definition of “consumer” for the section on communications in connection with debt collection, the Proposed Rule interprets that to include a confirmed successor in interest as well as the personal representative of a deceased consumer’s estate.
- Validation Notice. The Proposed Rule requires a debt collector to provide a consumer with a validation notice that includes certain information about the debt and the consumer’s rights with respect to the debt including: (i) the debt collector’s name and mailing address; (ii) the name of the creditor to whom the debt is currently owed and, for consumer financial product or service debt as defined in the Proposed Rule, the name of the creditor to whom the debt was owed on the itemization date; (iii) the itemization date and the amount of debt owed on that date; (iv) itemization of the current amount of the debt in a tabular format reflecting interest, fees, payments, and credits since the itemization date; (v) the current amount of the debt; (vi) if the debt is a credit card debt, the merchant brand, if any, associated with the debt, to the extent available to the debt collector; (vii) information about consumer protections; and (viii) consumer response information, including dispute prompts. The validation notice must also include the “debt collector communication disclosure” indicating the communication is for the purposes of collecting a debt.
- Disclosure Safe Harbor. Under the Proposed Rule, if a debt collector delivers in writing the Bureau’s Model Form B-3 validation notice, provided in appendix B to the Proposed Rule (available on pg. 491), it is considered to be in compliance with the validation notice requirements, though use of the model form is not required.
- Electronic Disclosures. The Proposed Rule would require debt collectors who provide required disclosures electronically to obtain the consumer’s affirmative consent directly to comply with Section 101(c) of the Electronic Signatures in Global and National Commerce Act (E-SIGN Act). In the alternative, debt collectors can send the electronic disclosures to a particular email address or phone number (in the case of text messages), that the creditor or prior debt collector could have with regard to that debt in accordance with the E-SIGN Act. Additionally, the Bureau released a flow chart to clarify how a debt collector would provide certain required disclosures electronically.
- Conduct Provisions.
- Time and Place Restrictions. The Proposed Rule clarifies that calls to mobile telephones and electronic communications, such as emails and text messages, are subject to the FDCPA’s prohibition on communicating at times or places that the debt collector knows or should know are inconvenient to the consumer, subject to certain exceptions.
- Restriction on Number of Telephone Calls. With exceptions for certain types of calls (such as those responding to a consumer request for information or made with prior consent by the consumer given directly to the debt collector), the Proposed Rule prohibits a debt collector from calling a consumer about a particular debt more than seven times within a seven-day-period. The Proposed Rule also prohibits a debt collector from calling a consumer for seven consecutive days after having had a telephone conversation with the consumer regarding the debt, beginning with the date of the conversation. A debt collector who does not exceed the frequency limits is deemed in compliance with the FDCPA’s prohibition on harassment and the Dodd-Frank Act’s prohibition on unfair acts or practices as it relates to telephone calls.
- Text and Email Communications. The Proposed Rule does not contain a restriction on the frequency or number of communications a debt collector can make via email or text message. However, the Proposed Rule requires a debt collector to include—in emails, text messages and other electronic communications—an option for the consumer to unsubscribe from future such communications and would prohibit a debt collector from attempting to communication through a medium the consumer has requested the collector not use, including a particular phone number or email address. The Proposed Rule would prohibit a debt collector from contacting a consumer through a workplace email address (absent prior consent by the consumer or receipt by the debt collector of an email sent from the consumer’s work email account) or through a public-facing social media platform, except through the platform’s private message function.
- Limited-Content Messages. The Proposed Rule specifies certain content parameters for a “Limited-Content Message” that a debt collector could send by voicemail or text that would not be considered a “communication” and therefore, would not need to include the required disclosures. Additionally, if the limited-content message was heard or observed by a third party, it would not constitute a prohibited third-party disclosure.
- Other prohibitions. The Proposed Rule prohibits a debt collector from, among other things, (i) suing or threatening to sue on a time-barred debt; (ii) reporting debts to credit reporting agencies prior to initiating communications with the consumer; and (iii) selling, transferring or placing for collection a debt to another debt collector that the collector knows or should know has been paid or settled, discharged in bankruptcy, or relates to a filed identity theft report.
- Buckley Webcast: Hot topics in debt collection — An analysis of recent federal FDCPA litigation
- Jonice Gray Tucker to discuss "How to succeed in law school" at the SEO Law DC Panel Discussions
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Summer Regulatory Compliance School
- Warren W. Traiger to discuss "CRA modernization" at the National Association of Industrial Bankers and the Utah Association of Financial Services Annual Convention
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Henry Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates an Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference