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9th Circuit reverses ruling in FDCPA case
On June 8, the U.S. Court of Appeals for the Ninth Circuit overturned a district court’s finding that an obligation for a rental property cannot be “primarily consumer in nature” under the FDCPA. The plaintiff and his wife purchased two properties in the same community in Arizona. The plaintiff and his wife claimed that they initially purchased the first property as a retirement home and only decided to use it as a rental property later. The plaintiff also claimed that he and his wife purchased the two properties with the intent of having tenants occupy them until they moved into one of them upon retirement. The defendant homeowner’s association sued the plaintiff in state court for allegedly failing to pay assessments and late fees associated with one of the properties. The plaintiff sued the defendant in federal court, alleging the attempts to collect the money violated the FDCPA. The district court granted summary judgment in favor of the defendant concluding that, “because there is no genuine dispute that the [first property] was a rental property, the obligation associated with the property is commercial, not consumer, in nature.” Consequently, because the obligation was not consumer in nature, the district court determined that it does not qualify as a “debt” subject to the FDCPA.
On appeal, the 9th Circuit reversed the entry of judgment for the defendant and remanded to the district court with instructions that the court, “make a factual determination of the true purpose of the [plaintiff’s] acquisition of [both properties].” The 9th Circuit also noted that, “to determine whether the transaction was primarily consumer or commercial in nature, the court must ‘examine the transaction as a whole, paying particular attention to the purpose for which the credit was extended.’”
District Court: Debt buyer vicariously liable for debt collector's actions
On June 7, the U.S. District Court for the District of Oregon partially granted a plaintiff’s motion for summary judgment, finding that a debt buyer who puts accounts with a debt collector can be held vicariously liable for the actions of the debt collector, since the debt buyer “bear[s] the responsibility of monitoring the activities of those it hires to collect debts on its behalf.” The case is on remand from the U.S. Court of Appeals for the Ninth Circuit, which reversed the district court’s dismissal of the lawsuit and found that a company that purchases consumer debt is defined as a “debt collector” under the FDCPA, even if there is no direct interaction with consumers and the debt collection is outsourced to a third party (covered by InfoBytes here).
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. 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.
On remand, the district court judge found that the debt buyer and debt collector were in a principal-agent relationship “because the undisputed facts demonstrate that [the debt buyer] had a right to control [the debt collector’s] debt collection activities to a significant degree.” According to the opinion, the agreement between the debt buyer and collector allowed the debt buyer to audit the accounts it placed with the debt collector. During an audit, the debt buyer pointed out that the debt collector’s “collection efforts needed much improvement with regard to consumer compliance” and that “simple guidelines were not being followed.” In addition, the audit found that the debt buyer had prior knowledge of phone scripts the debt collector used when contacting debtors on its behalf. The judge concluded that “[b]y its acquiescence, [the debt buyer] ‘impliedly authorized’ [the debt collector’s] use of the script ‘and thus is liable for any violations of law caused by the firm’s use of those practices.”
6th Circuit: “Anxiety and confusion” not an injury under FDCPA
On May 28, the U.S. Court of Appeals for the Sixth Circuit held that a consumer’s alleged “confusion and anxiety” does not constitute a concrete and particularized injury under the FDCPA. The plaintiff alleged that the defendant’s debt collector, an attorney’s office, violated the FDCPA when it communicated with him, on behalf of a bank, by sending a letter stating the plaintiff’s mortgage loan was sent to foreclosure. The letter also informed the plaintiff that the bank “might have already sent a letter about possible alternatives,” further explaining how the plaintiff could contact the bank “to attempt to be reviewed for possible alternatives to foreclosure.” The plaintiff also alleged that the attorney’s office “sent a form of this letter to tens of thousands of homeowners and that it did so without having any attorney provide a meaningful review of the homeowners’ foreclosure files, so the communications deceptively implied they were from an attorney.” The plaintiff alleged the letter confused him because he was unsure if it was from an attorney, and that, moreover, the letter “raised [his] anxiety” by suggesting “that an attorney may have conducted an independent investigation and substantive legal review of the circumstances of his account, such that his prospects for avoiding foreclosure were diminished.”
The 6th Circuit found the plaintiff’s allegations to “come up short” in regard to proving that the statutory violations caused him individualized concrete harm. In addition, the appellate court said that “confusion doesn’t have a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit.”
District Court finds that lender did not waive arbitration clause by filing collection lawsuit
On May 19, the U.S. District Court for the Southern District of Texas granted a lender’s motion to compel arbitration in a putative class action debt collection case, ruling that the lender’s collection lawsuit against an individual did not waive the arbitration clause in the underlying promissory note. After the plaintiff borrower defaulted on a personal loan, she received a collection letter from a law firm hired by the creditor, which contained a warning that if payment was not made within 30 days, a recommendation would be made to the creditor to file a lawsuit to collect on the debt. Six days after sending the letter, the creditor filed suit in small claims court to recover the unpaid debt. The plaintiff then filed a separate lawsuit against the creditor and the law firm, alleging violations of the FDCPA and the Texas Debt Collection Act (TDCA). The plaintiff claimed, among other things, that the letter made “false, deceptive, or misleading representations” because the creditor demanded payment within 30 days even though the FDCPA provides borrowers 30 days to dispute a debt after receiving a collection letter. The plaintiff further sought to hold the creditor “vicariously liable [under the TDCA]” for the law firm’s allegedly unlawful collection activities. The defendants moved to compel arbitration, but the plaintiff argued that the arbitration clause in the underlying promissory note was waived when the defendants sued to collect on the unpaid debt. The plaintiff also argued that the law firm hired by the creditor could not compel arbitration because it was not a party to the promissory note. The court disagreed, finding that the creditor’s decision to file a lawsuit for breach of contract in small claims court “should not prevent it from later enforcing its right to arbitrate a completely separate claim.” The court further concluded that the allegations brought against the law firm are “inextricably enmeshed and have a significant relationship to the terms” of the promissory note, and that, as such, the law firm may compel arbitration even though it is a nonsignatory to the agreement.
District Court denies TRO request to block CFPB’s eviction disclosure rule
On May 14, the U.S. District Court for the Middle District of Tennessee denied a request for a temporary restraining order (TRO) to block a CFPB interim final rule (IFR), which requires all landlords to disclose to tenants certain federal protections put in place as a result of the ongoing Covid-19 pandemic. As previously covered by InfoBytes, the plaintiffs sued the CFPB asserting the IFR violates their First Amendment rights because it “mandates untrue speech and encourages plainly misleading speech” by requiring disclosures about a moratorium that has been challenged or invalidated by several federal courts, including a court in Tennessee where the complaint was filed, as well as the U.S. Court of Appeals for the Sixth Circuit. The Bureau urged the court to deny the temporary injunction, arguing, among other things, that “requiring debt collectors to provide routine, factual notification of rights or legal protections that consumers ‘may’ have, in jurisdictions where the CDC [o]rder applies, does not compel false speech and plainly passes First Amendment muster” (covered by InfoBytes here).
In denying the plaintiffs’ request to block the enactment of the IFR, the court ruled that the IFR does not apply where courts have already blocked the CDC’s eviction order from being enforced. Therefore, “[b]y its very terms, the [IFR] compels nothing at all—including disclosure of false speech—in jurisdictions where the CDC [o]rder does not apply (whether due to a court order declaring the [IFR] invalid, or to something else).” Additionally, the court noted that the plaintiffs’ First Amendment arguments did not suggest that they would suffer irreparable harm without a TRO, as “[p]laintiffs cannot be harmed by a rule where it does not apply.” The court also addressed the plaintiffs’ claim that the rule is unlawful under the Administrative Procedures Act because it requires disclosures not mandated under the FDCPA that could contain false, deceptive, or misleading representations. Because debt collectors in jurisdictions where the CDC order does not apply do not have to make the required disclosures, the IFR cannot be “unlawful on the grounds that it requires false disclosures.”
The court did not opine as to the “wisdom or fairness” of the IFR or the CDC’s order, or whether the IFR is “likely unlawful for any reason other than the particular ones” put forth by the plaintiffs.
House passes comprehensive debt collection measures
On May 13, the U.S. House passed, by a vote of 215-207, H.R. 2547, which would provide additional financial protections for consumers and place several restrictions on debt collection activities. Known as the “Comprehensive Debt Collection Improvement Act,” H.R. 2547 consolidates 10 separate proposed consumer protection bills into one comprehensive package.
Provisions under the package would cover:
- Confessions of Judgment (COJs). The bill would amend TILA and expand the ban on COJs to cover small business owners and merchant cash advance companies.
- Servicemembers. The bill would amend the FDCPA to prohibit debt collectors from threatening servicemembers, including by representing to servicemembers that failure to cooperate will result in a reduction of rank, revocation of their security clearance, or prosecution. Covered debtors would include active-duty service members, those released from duty in the past year, and certain dependents.
- Student Loans. The bill would amend TILA to require the discharge of private student loans in the case of a borrower’s death or total and permanent disability.
- Medical Debt. The bill would amend the FDCPA by making it an unfair practice to “engag[e] in activities to collect or attempt[] to collect a medical debt before the end of the 2-year period beginning on the date that the first payment with respect to such medical debt is due.” The bill would also amend the FCRA to, among other things, bar entities from collecting medical debt or reporting it to a consumer reporting agency without providing a consumer notice about their rights.
- Electronic Communication. The bill would amend the FDCPA to limit a debt collector from contacting a consumer by email, text message, or direct message on social media without receiving the debtor’s permission to be contacted electronically. It would also prevent debt collectors from sending unlimited electronic communications to consumers.
- Other Debt Provisions. The bill would (i) expand the definition of debt covered under the FDCPA to include money owed to a federal agency, states, or local government; certain personal, family, or household transactions; and court debts; (ii) restrict federal agencies from transferring debt to a collector until at least 90 days after the obligation becomes delinquent or defaults; (iii) require agencies to notify consumers at least three times—with notifications spaced at least 30 days apart—before transferring their debt; and (iv) limit the fees debt collectors can charge.
- Penalties. The bill would require the CFPB to update monetary penalties under the FDCPA for inflation. It would also (i) clarify that courts can award injunctive relief; (ii) cap damages in class actions; and (iii) add protections for consumers affected by national disasters.
- Non-Judicial Foreclosures. The bill would amend the FDCPA to clarify that companies engaged in non-judicial foreclosure proceedings are covered by the statute.
- Legal Actions. The bill would amend the FDCPA to outline requirements for debt collectors taking legal action to collect or attempt to collect a debt, including providing a consumer with written notice, as well as documents showing the consumer agreed to the contract creating the debt, and a sworn affidavit stating the applicable statute of limitations has not expired.
District Court rejects FDCPA claims
On May 7, the U.S. District Court for the Southern District of New York granted a Missouri-based accounts receivable management company’s (defendant) motion for judgment on the pleadings concerning alleged FDCPA violations. The defendant stated in a collection letter that the plaintiff’s account would be placed with an attorney “for possible legal action” if repayment could not be arranged. The letter also listed two addresses—a physical office address at the top left of the letter and a P.O. Box at the top left of a detachable payment coupon at the bottom of the letter. The plaintiff alleged the letter violated Sections 1692e and 1692g of the FDCPA, claiming that the least sophisticated consumer could read the letter and think that legal action was “imminent,” which would ultimately overshadow the 30-day period to dispute the validity of the debt. The court disagreed, however, concluding that even the least sophisticated consumer would not think the use of the words “if” and “possible” in the letter in question meant that legal action was imminent. Moreover, the court ruled that the inclusion of two different addresses in the letter would not confuse anyone about where to send a dispute notification. Specifically, the validation notice in the letter informed the plaintiff that the defendant would assume the debt to be valid unless its office was notified of a dispute and the letter provided only one office address.
CFPB argues eviction disclosure rule does not require false speech
On May 11, the CFPB urged the U.S. District Court for the Middle District of Tennessee to deny a request for a temporary injunction of a CFPB rule that would require all landlords to disclose to tenants federal protections put in place as a result of the ongoing Covid-19 pandemic, arguing that the rule does not require false speech and is justified by the First Amendment. As previously covered by InfoBytes, the plaintiffs, including members of the National Association of Residential Property Managers, sued the CFPB asserting the Bureau’s recently issued interim final rule (IFR) violates their First Amendment rights. The IFR amended Regulation F to require debt collectors to provide tenants clear and conspicuous written notice alerting them of their rights under the CDC’s moratorium on evictions in response to the Covid-19 pandemic (covered by InfoBytes here). The plaintiffs alleged that the IFR violates the First Amendment because it “mandates untrue speech and encourages plainly misleading speech” by requiring disclosures about a moratorium that has been challenged or invalidated by several federal courts, including the U.S. Court of Appeals for the Sixth Circuit. The CFPB asked the court not to grant the plaintiffs’ request for the temporary injunction, pointing out that the “plaintiffs fail to demonstrate that they are entitled to the extraordinary relief they seek.” The brief also notes that “requiring debt collectors to provide routine, factual notification of rights or legal protections that consumers ‘may’ have, in jurisdictions where the CDC Order applies, does not compel false speech and plainly passes First Amendment muster.”
District Court allows FDCPA debt dispute to proceed
On April 26, the U.S. District Court for the Northern District of Alabama partially granted a defendant debt collector’s motion for summary judgment concerning alleged FCRA and FDCPA violations. According to the opinion, the defendant sent a dunning letter to the plaintiff’s son seeking to recover unpaid debt. The plaintiff disputed the amount of debt owed and asked that the debt not be reported to the CRAs. However, two years later the son noticed the debt was included on his credit report and wrote to a CRA to dispute the debt. The defendant conducted an investigation to verify the debt and asserted that it told the CRAs that the son continued to dispute the debt. The credit reports the son obtained after the investigation, however, did not include a notation on his credit report showing the debt as disputed. The plaintiff brought suit on behalf of his son alleging the defendant violated the FCRA by failing to investigate the disputed debt, and the FDCPA by failing to communicate with the CRAs and misrepresenting the amount of the debt. The court granted summary judgment on the FCRA claim, finding that the dispute as to the debt owed was based on a legal defense not a factual inaccuracy, and that “the FCRA makes a furnisher liable for failing to report a dispute only if the dispute is meritorious.” The court, however, permitted the FDCPA claim predicated on the alleged failure to communicate with the CRA to proceed to trial because there is no analogous requirement that the dispute be meritorious to state a claim. The court dismissed the FDCPA claim predicated on the dunning letter for lack of standing.
CFPB, FTC remind landlords of tenant pandemic protections
On May 3, the CFPB acting Director Dave Uejio and FTC acting Chairwoman Rebecca Kelly Slaughter released a joint notification letter to the nation’s largest apartment landlords that together own over 2 million units. The letter serves as a reminder of federal protections put in place to keep tenants in their homes throughout the Covid-19 pandemic, including an eviction moratorium recently extended by the CDC to June 30, and an interim final rule issued by CFPB last month (covered by InfoBytes here), effective May 3, that established new notice requirements under the FDCPA. The letter also encourages the landlords to “notify debt collectors working on your behalf, which may include attorneys, of the CDC Moratorium, applicable state or local moratoria, and those parties’ obligations under the FTC Act and the FDCPA, including under the CFPB’s interim final rule.” Furthermore, the letter asks landlords to examine their practices in light of the CDC moratorium to ensure that they “comply with the FTC Act and the [FDCPA]” and “remediate any harm to consumers stemming from any law violations.” As previously covered in InfoBytes, in March, the CFPB and FTC issued a joint statement indicating staff at both agencies will be monitoring and investigating eviction practices to ensure that they comply with the law.