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District Court remands debt collection class action to state court for lack of standing
On October 12, the U.S. District Court for the Northern District of Illinois granted plaintiff’s motion to remand a debt collection class action lawsuit back to state court. The plaintiff claimed the defendants violated the Illinois Collection Agency Act and FDCPA Section 1692c(b) by using a third-party mailing vendor to print and mail collection letters to class members. According to the plaintiff’s complaint filed in state court, conveying the information to the vendor—an allegedly unauthorized party—served as a communication under the FDCPA. The defendants removed the case to federal court, but on review, the court determined the plaintiff did not have Article III standing to sue because Congress did not intend to prevent debt collectors from using mail vendors when the FDCPA was enacted. Specifically, the court disagreed with the U.S. Court of Appeals for the Eleventh Circuit’s decision in Hunstein v. Preferred Collection & Management Services, which held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” (Covered by InfoBytes here.) In this case, the court stated it “is difficult to imagine Congress intended for the FDCPA to extend so far as to prevent debt collectors from enlisting the assistance of mailing vendors to perform ministerial duties, such as printing and stuffing the debt collectors’ letters, in effectuating the task entrusted to them by the creditors—especially when so much of the process is presumably automated in this day and age.” According to the court, “such a scenario runs afoul of the FDCPA’s intended purpose to prevent debt collectors from utilizing truly offensive means to collect a debt.”
CFPB releases debt collection FAQs
On October 1, the CFPB released a set of FAQs discussing limited-content messages and the call frequency provisions under the Debt Collection Rule in Regulation F. As previously covered by InfoBytes, in October 2020 the CFPB issued its final rule amending Regulation F, which implements the Fair Debt Collection Practices Act, addressing debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. Among other things, the FAQs clarify: (i) the qualifications of a “limited-content message”; (ii) that debt collectors can utilize a pre-recorded voice message for limited-content messages; (iii) that the final rule “establishes a presumption of a violation of, and a presumption of compliance with, the prohibition against harassing, oppressive, or abusive conduct, based on the frequency of a debt collector’s telephone calls and conversations”; (iii) that the final rule “does not preempt a state law that affords greater protection to consumers, including, for example, by imposing limits or more restrictive presumptions related to telephone call frequency”; (iv) that seven days is the maximum time a consumer’s direct prior consent applies to additional telephone calls; and (v) the factors that may rebut the presumption of a violation.
FTC settles with debt collector
On September 27, the FTC announced a settlement with a Georgia-based debt collection company and its owners (collectively, “defendants”) for allegedly engaging in fraudulent debt collection practices. As previously covered by InfoBytes, the FTC filed a complaint against the defendants alleging that they violated the FTC Act and the FDCPA by, among other things: (i) posing as law enforcement officers, prosecutors, attorneys, mediators, investigators, or process servers when calling consumers to collect debts; (ii) using profane language and threatening consumers with arrest or serious legal consequences if debts were not immediately paid; (iii) threatening to garnish wages, suspend Social Security payments, revoke drivers’ licenses, or lower credit scores; (iv) attempting to collect debts that were either never owed or were no longer owed; (v) unlawfully contacting third parties, such as family members or employers; and (vi) adding unauthorized or impermissible charges or fees to consumers’ debts. The U.S. District Court for the Northern District of Georgia granted a temporary restraining order against the defendants in September 2020. Under the terms of the stipulated final order, the FTC ordered that the defendants are banned from the debt collection industry, prohibited from misrepresenting that they are attorneys or affiliated with a law firm or whether a consumer owes any kind of debt, and are prohibited from making misleading claims while selling a product or service. The order also requires the defendants to pay more than $266,000 to the Commission. A $3 million monetary judgment will be partially suspended upon completion of asset transfers from all financial institutions holding accounts in the defendants’ names.
DFPI fines debt collector $375k in first action under the CCFPL
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.
District Court grants summary judgment for defendant in FDCPA case
On September 1, the U.S. District Court for the Northern District of Illinois granted a defendant debt collector’s motion for summary judgment resolving FDCPA allegations. The defendant allegedly sent the plaintiff a debt collection letter, which the plaintiff disputed. Then, the plaintiff allegedly received another letter that included language regarding how to dispute the debt. Again, the plaintiff disputed the debt, requested validation of the debt, and filed a second dispute, which allegedly caused the plaintiff “stress and confusion” and “led her to unnecessarily expend time and money, as she went to the library to type and print the letter and spent money to mail it.” After the defendant filed a motion to dismiss, the court certified a class in the case. Since both sides had engaged in discovery, the court treated the defendants’ motion as one for summary judgment and concluded that the plaintiff did not demonstrate a concrete harm. The judge granted the defendant’s motion to dismiss, noting that the plaintiff’s “injury—spending time and money in an attempt to clear up her confusion concerning whether she had validly disputed the debt—is analogous to injuries arising from consultations with lawyers or filing suit, which the Seventh Circuit has held do not amount to concrete harm.”
As previously covered by Infobytes, the Seventh Circuit earlier this year held that a consumer’s alleged “stress and confusion” did not constitute a concrete and particularized injury under the FDCPA after the plaintiff alleged that the defendant debt collector violated the FDCPA when it directly communicated with her by sending a dunning letter related to unpaid debt even though she had previously notified the original lender that she was represented by counsel and requested that all debt communications cease. In that case, the Seventh Circuit held that the consumer’s allegations—that the dunning letter caused her “stress and confusion” and “made her think that ‘her demand had been futile’”—did not amount to a concrete and particularized “injury in fact” necessary to establish Article III standing under the FDCPA. The court further noted that “the state of confusion is not itself an injury”—rather, for the alleged confusion to be concrete, “a plaintiff must have acted ‘to her detriment, on that confusion.’”
CFPB denies debt collection company’s petition to set aside CID
On August 18, the CFPB denied a petition by a debt collection company to set aside a civil investigative demand (CID) issued by the Bureau in May. The CID requested information regarding whether debt buyers, debt collectors or persons associated with selling or collecting debt, have “made false or misleading representations to consumers or third parties in a manner that is unfair, deceptive, or abusive,” in violation of the CFPA, among other things. The company petitioned the Bureau on May 26 to set aside the CID, arguing, among other things, that the CID (i) “fails to identify sufficiently the nature of the conduct under investigation”; (ii) “fails to provide [the company] with any notice whatsoever of any potential witnesses or participants who may be necessary to respond to the CID”; and (iii) is overbroad and unduly burdensome.
In rejecting the company’s arguments described above, the Bureau found that: (i) “the Bureau’s notification of purpose identifies the nature of the conduct under investigation and is therefore not ‘too indefinite’”; (ii) it is not required that the Bureau provide any notice any potential witnesses or participants who may be necessary to respond to the CID; and (iii) the CFPB holds “broad authority to seek information which may be relevant to its investigations.”
District Court notes distinction between definition of “accounts” and “receivables”
On August 25, the U.S. District Court for the District of New Jersey denied a defendant debt collector’s motion to compel arbitration in an FDCPA action, ruling that the defendant never purchased the rights to enforce arbitration. In so holding, the Court stated that the words “accounts” and “receivables” mean different things and that purchasing a receivable does not guarantee all the rights assigned to the account. The court originally denied the defendant’s motion to compel arbitration to allow for limited discovery to determine whether a valid arbitration agreement existed between the parties. The defendant argued that the agreements governing the accounts require that all claims be subject to arbitration on an individual basis and that it is entitled to arbitration since it is an agent of the purchasing creditor and the purchasing creditor purchased the rights to enforce arbitration from the original creditor. The plaintiffs countered that the right to compel arbitration was not transferred because the purchase agreements only transferred the rights under the “receivables” and not the “accounts.” The court agreed, noting that under the plain meaning of the purchase agreements, the purchasing creditor did not purchase, and was not assigned, the right to compel arbitration.
District Court rules in defendants’ favor regarding third-party disclosure
On August 25, the U.S. District Court for the Eastern District of Missouri granted a motion for judgment on the pleadings in favor of a defendant debt collector over a plaintiff alleging FDCPA violations. The plaintiff, a bankruptcy attorney who represents consumers in connection with discharging their debts, received a letter from defendant that disclosed a debt for a consumer he did not represent and has never represented. The plaintiff sued under the FDCPA, claiming that the defendant, among other things, engaged in abusive, deceptive, and unfair debt collection practices when defendant disclosed the existence of this third-party debt to the plaintiff by contacting him via letter. The plaintiff alleged that he was injured and suffered damages “due to the time Plaintiff had to spend trying to learn why he was being contacted and whether he had ever represented Plaintiff.” However, the court held that because the plaintiff was not a “consumer” under the FDCPA, he did not have standing to bring the FDCPA case. In so ruling, the court noted that the U.S. Court of Appeals for the Eighth Circuit has not yet ruled on whether the FDCPA “applies to persons other than a consumer[‘]” but agreed “with the greater weight of authority that concludes” only consumers have standing to bring such actions.
CFPB officially withdraws extension of compliance date for debt collection rules
On September 1, the CFPB published a proposal in the Federal Register to withdraw its proposed rule that would have extended the effective date of its final rules amending Regulation F, which implements the FDCPA. As previously covered by InfoBytes, in April, the Bureau proposed delaying the effective date by 60 days to provide affected parties additional time to comply due to the ongoing Covid-19 pandemic. However, the Bureau determined that an extension is unnecessary and will publish a formal notice in the Federal Register, withdrawing the April notice of proposed rulemaking (covered by InfoBytes here). According to the Bureau, industry comments generally did not support an extension, and “[m]ost industry commenters stated that, despite the pandemic, they would be prepared to comply with the Debt Collection Final Rules by November 30, 2021.”
District Court: "Least sophisticated consumer" would not be misled by collection letter disclosures
On August 23, a magistrate judge of the U.S. District Court for the District of Colorado granted a defendant’s motion for summary judgment, ruling pursuant to the “least sophisticated consumer standard” that the debt collection letter accurately conveyed the subject FDCPA rights. The plaintiff alleged the defendant debt collector’s letter violated several sections of the FDCPA by, among other things, making false and misleading representations in violation of Section 1682e by informing the plaintiff that “calling for further information or making a payment is not a substitute for disputing the debt” because it implied that disputing the debt was mandatory instead of optional. Additionally, the plaintiff contended that this language overshadowed and contradicted the required disclosure on the second page of the letter by “suggest[ing] that disputing the debt was mutually exclusive to making a payment”—an alleged violation of Section 1692g. The defendant moved for summary judgment, arguing that the plaintiff lacked standing to sue, or in the alternative, that he lacked sufficient evidence to prove his FDCPA claims.
The court disagreed, ruling that the plaintiff’s alleged injuries (that the FDCPA violation caused him to not pay his debt and that he lost out on the ability to make payments or to, among other things, negotiate a separate payment plan) did not rise to the level of tangible harm necessary to satisfy Article III standing. The court then reviewed the letter’s disclosures under the least sophisticated consumer standard and determined that “it is one thing to say that making a payment and disputing a debt are different, and another entirely to suggest that they are mutually exclusive. The phrase, ‘IS NOT A SUBSTITUTE FOR,’ does not carry any reasonable implication of exclusivity, and in fact demonstrates, when read in full context, that Defendant is informing Plaintiff that making a payment does not take the place of disputing the debt. In other words, both can be pursued without exclusivity.” Moreover, because the language is not misleading or contradictory, the court ruled that it did not overshadow the second-page disclosure, which informed him of his right (but not obligation) to dispute the debt.