Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • CFPB: Debt collectors must provide written notice for evictions

    Federal Issues

    On April 19, the CFPB issued an interim final rule (IFR) to amend Regulation F, which implements the FDCPA, that will require debt collectors to provide tenants written notice alerting them of their rights under the CDC’s moratorium on evictions in response to the Covid-19 pandemic. Failure to provide notice will be considered a violation of the FDCPA, which may result in a private right of action as well as actual damages, statutory damages, and attorney’s fees. The Bureau noted in its press release that the IFR does not preempt more protective state laws. Additionally, debt collectors are prohibited from misrepresenting renters’ eligibility for temporary protection under the CDC’s moratorium. Sample disclosure language and a summary of the IFR have been provided by the Bureau as well.

    The IFR will take effect May 3. Comments are due 15 days after publication in the Federal Register.

    Federal Issues CFPB Debt Collection Covid-19 Agency Rule-Making & Guidance CDC FDCPA State Attorney General

  • 3rd Circuit says collector itemizing zero-balance interest and fees did not mislead

    Courts

    On April 12,  the U.S. Court of Appeals for the Third Circuit affirmed dismissal of an FDCPA action, concluding that itemized breakdowns in collection letters that include zero balances for interest and other fees would not confuse or mislead the reasonable “unsophisticated consumer” to believe that future interest or other charges would be incurred if the debt is not settled. The defendant management company sent a letter to the plaintiff claiming he owed amount $1,088.34 and offered to “resolve this debt in full” with a payment of $761.84. The plaintiff filed a putative class action against the defendant alleging that by itemizing interest and collection fees for his “static debt,” and by assigning “$0.00” interest, the letter falsely implied—in violation of § 1692e and § 1692f of the FDCPA—that “interest and fees could accrue and thereby increase the amount of his debt over time.” The defendants moved to dismiss for failure to state a claim. The district court dismissed the complaint with prejudice, declining “to require assurances by debt collectors that itemized amounts ‘will not change in the future,’ reasoning that doing so would lead to ‘complex and verbose debt collection letters’ that would confuse consumers.”

    On appeal, the 3rd Circuit agreed with the district court. Specifically, the appellate court concluded that the “complaint fails to state a claim, whether our court’s ‘least sophisticated debtor’ standard is functionally the same as the ‘unsophisticated debtor’ standard applied by other Circuits or is instead an independent and less demanding framework.” Moreover, the appellate court noted even the least sophisticated debtor understands that “collection letters—as reflected by their fonts, formatting, content, and fields—often derive from templates and may contain information not relevant to his or her particular situation.” According to the 3rd Circuit, “FDCPA case law does not support attributing to the least sophisticated debtor simultaneous naïveté and heightened discernment. Were we for some reason constrained to consider only the law of Circuits that employ the word “least” in their FDCPA standards, we would still affirm.”

    Courts FDCPA Appellate Third Circuit Debt Collection Consumer Finance

  • CFPB settles with California-based company for debt collection violations

    Federal Issues

    On April 6, the CFPB announced a consent order against a California-based debt collector and its former owner for allegedly harassing consumers and threatening to take legal action if they did not pay their debts. According to the CFPB, the respondents violated the FDCPA and the CFPA’s prohibition against deceptive acts or practices by mailing letters to consumers printed with “Litigation Notice” that threatened recipients with legal action if they did not repay their debts. However, the Bureau stated that the respondents did not file lawsuits against the consumers, nor did they hire law firms or lawyers to obtain any judgments or collect on any such judgments. Under the terms of the consent order, the respondents are permanently banned from the debt collection industry and are ordered to pay $860,000 in redress to its victims, which has been suspended due to an inability to pay, as well as a $2,200 civil money penalty. This is the CFPB’s latest action taken against debt collectors that have used false threats to collect debts. As previously covered in InfoBytes, in 2019 the CFPB and New York attorney general announced proposed settlements with a network of New York-based debt collectors to resolve allegations that the defendants engaged in improper debt collection tactics in violation of the CFPA, the FDCPA, and various New York laws. Also, in 2018, the CFPB announced a settlement with a Kansas-based company and its former CEO and part-owner that allegedly engaged in improper debt collection tactics in violation of the CFPB’s prohibitions on engaging in unfair, deceptive, or abusive acts or practices (covered by InfoBytes here).

    Federal Issues Consumer Finance CFPB Settlement Enforcement Debt Collection CFPA FDCPA UDAAP Deceptive

  • Court rules debt purchaser qualifies as a “debt collector” and “collector” under federal and state law

    Courts

    On April 2, the U.S. District Court for the District of Maryland denied a defendant debt purchaser’s motion for summary judgment, ruling that the company qualifies as a “debt collector” and “collector” under the FDCPA, the Maryland Consumer Debt Collection Act (MCDCA), and the Maryland Consumer Protection Act (MCPA). The plaintiff had filed suit against three entities, including the defendant, alleging the entities violated the FDCPA, MCDCA, and MCPA by (i) threatening to file criminal charges; (ii) falsely implying that she committed a crime for which charges could be filed; and (iii) revealing information about the debts to her daughter and on voice mails with her employer. The defendant, who relied on the two other entities to conduct the actual debt collection, argued that it does not qualify as a debt collector under the FDCPA, and that it is not a “collector” under the MCDCA, and therefore cannot be held liable under the MCPA. The defendant further argued that, “regardless of whether it meets one these statutory definitions,” it cannot be held vicariously liable for actions taken by the other two entities.

    The district court disagreed, ruling that the defendant qualifies as a debt collector under the “principal purpose” prong of the FDCPA and cannot evade liability “simply by outsourcing the specific collection activities to third parties.” With respect to whether it qualifies as a “collector” under the MCDCA and MCPA, the court noted that while the defendant argued that “it [did] not itself, or through in-house debt collectors, undertake any actions to collect [the plaintiff’s] debts, the definition of ‘collector’ is not limited only to persons or entities that directly engage with consumers to collect the debt.” As such, because the defendant qualifies as a debt collector and collector under federal and state law, it could be held vicariously liable. Moreover, the court stated there is “genuine dispute of material fact” regarding whether the defendant had a “principal-agent relationship” with the other two entities that subjects it to vicarious liability. In particular, contracts entered between the three entities allowed the defendant to, among other things, “exercise a great degree of control over consumer complaints” regarding collection actions.

    Courts State Issues Debt Collection FDCPA Consumer Finance

  • 5th Circuit: Law firm may send debt dispute letters on behalf of clients

    Courts

    On April 1, the U.S. Court of Appeals for the Fifth Circuit upheld a district court’s ruling in favor of defendant credit repair organizations (including a law firm), holding that plaintiff data furnishers failed to provide sufficient evidence supporting their claims of fraud and fraud by nondisclosure. The plaintiffs filed suit, alleging that the defendants were sending dispute letters that appeared to have come directly from the defendants’ debtor clients. Under the FCRA and the FDCPA, the plaintiffs are obligated to investigate disputed debts that come directly from debtors. Letters from law firms, the plaintiffs argued, do not trigger such requirements. According to the plaintiffs, the disputes they were receiving were costing them money to investigate, which they would not have spent if had they known the letters were coming from a law firm. A jury returned a verdict in favor of the plaintiffs on their claims of fraud and fraud by non-disclosure and awarded them roughly $2.5 million. The district court ultimately vacated the jury’s verdict, however, explaining that the evidence failed to show that the defendants made any false misrepresentations, material or otherwise, when they signed their clients’ names on letters mailed to the plaintiffs. The law firm defendant “had the legal right to sign its clients’ names on the correspondence it sent on their behalf to data furnishers who reported inaccurate information about the clients’ credit,” the district court wrote.

    On appeal, the 5th Circuit determined, among other things, that the plaintiffs did “not provide any precedential support or explanation for their assertion that these facts demonstrate Defendants committed fraud and fraud by non-disclosure beyond the observation that the jury found for them on those claims.” Moreover, the appellate court disagreed with the plaintiffs’ argument that the engagement agreements that clients signed with the defendant law firm, which allowed it to send dispute letters on a client’s behalf, were fraudulent because the defendant law firm did not discuss the letters with the consumers first. According to the appellate court, the existence of any such discussion was immaterial because the engagement agreements allowed the defendant law firm to send letters on a client’s behalf. However, the appellate court noted that “[w]hile we do not hold today that there are no situations in which a third party may act fraudulently when it mails dispute letters (and leave for another day what those situations may be), we can safely say that this is not one of them.”

    Courts Appellate Fifth Circuit FDCPA FCRA Credit Repair Consumer Finance

  • CFPB and FTC release 2020 FDCPA report

    Federal Issues

    On March 22, the CFPB and the FTC released their 2020 annual report to Congress on the administration of the FDCPA. Under a memorandum of understanding, the agencies are provided joint FDCPA enforcement responsibility and may share supervisory and consumer complaint information, as well as collaborate on education efforts. Among other things, the report provides a broad overview of the debt collection industry during the Covid-19 pandemic and highlights enforcement actions, education efforts, policy initiatives, and supervisory findings. The report also notes that the Bureau handled roughly 82,700 complaints filed by consumers about first- and third-party debt collectors in 2020, up from the 75,000 complaints it received in 2019, and engaged in four public enforcement actions arising from alleged FDCPA violations. Judgments resulting from these actions yielded nearly $15.2 million in consumer redress and $80,000 in civil money penalties. Additionally, the report discusses the Bureau’s FDCPA-rulemaking actions taken last year, including the issuance of two final rules amending Regulation F, which implements the FDCPA (covered by InfoBytes here and here). The report notes that both final rules are scheduled to take effect on November 30, but also refers to a February statement released by acting Director Dave Uejio, in which he “directed staff to ‘explore options for preserving the status quo’” with respect to the debt collection rules.

    Earlier in the week, the FTC announced it provided the CFPB last month with its annual summary of debt collection-related activities taken in 2020. While the FTC’s debt collection program primarily focuses on enforcement investigations and litigation with respect to violations of the FDCPA and the FTC Act, the summary also highlights Commission efforts to engage in public outreach, as well as partnerships with the Bureau and other government agencies to combat unlawful debt collection practices. Highlights of the summary include:

    • The creation of Operation Corrupt Collector, a nationwide enforcement and outreach effort led by the FTC in coordination with the CFPB and more than 50 federal and state law enforcement partners to target illegal debt collection practices (covered by InfoBytes here).
    • The FTC filed or resolved seven cases against 39 defendants, obtaining $26 million in judgments.
    • The FTC accused a company and three of its officers of allegedly engaging in passive debt collection—a practice known as “debt parking”—in which the defendants placed debts that consumers did not owe or the defendants were not authorized to collect on consumers’ credit reports without first attempting to communicate with the consumers about the debts (covered by InfoBytes here).
    • The FTC and the New York attorney general permanently banned an individual defendant accused of engaging in “serious and repeated violations of law” from participating in debt collection activities (covered by InfoBytes here).
    • The FTC produced educational materials for both consumers and debt collectors covering rights and responsibilities under the FDCPA and FTC Act, including resources specifically for Spanish speakers.

    Federal Issues CFPB FTC FDCPA Debt Collection FTC Act Covid-19 Consumer Complaints

  • 3rd Circuit: ECOA does not preempt NJ’s common-law doctrine of necessaries in FDCPA case

    Courts

    On March 16, the U.S. Court of Appeals for the Third Circuit held that because ECOA does not preempt New Jersey’s common-law doctrine of necessaries (where a spouse is jointly liable for necessary expenses incurred by the other spouse) a defendant debt collector was permitted to send medical debt collection letters to a deceased individual’s spouse without violating the FDCPA. The defendant was retained to collect the deceased spouse’s medical debt and sent collection letters to the plaintiff who maintained she was not responsible for the debt and subsequently filed suit alleging violations of the FDCPA. The defendant moved for dismissal, arguing that the plaintiff owed the debt under New Jersey’s doctrine of necessaries because her deceased spouse incurred the debt for medical treatment. The district court agreed and dismissed the case. The plaintiff appealed, arguing, among other things, that the doctrine of necessaries conflicts with the spousal-signature prohibition found in the ECOA.

    In affirming the district court’s dismissal, the 3rd Circuit concluded that “ECOA does not preempt the doctrine of necessaries because the debt is ‘incidental credit’ exempt from the prohibition.” According to the 3rd Circuit, the Federal Reserve Board determined that incidental credit is exempt from the § 202.7(d) spousal-signature prohibition because it “refers to extensions of consumer credit. . .(i) [t]hat are not made pursuant to the terms of a credit card account; (ii) [t]hat are not subject to a finance charge. . .and (iii) [t]hat are not payable by agreement in more than four installments.” The 3rd Circuit determined that because the medical debt in question satisfied all three criteria, the spousal-signature prohibition did not apply, and therefore ECOA and its regulations did not conflict with the doctrine of necessaries. Further, the 3rd Circuit held that ECOA focuses “on ensuring the availability of credit rather than the allocation of liability between spouses.”

    Courts Appellate Third Circuit Debt Collection FDCPA ECOA State Issues

  • 3rd Circuit: Debt collection letter with invitation to call does not violate FDCPA

    Courts

    On March 16, the U.S. Court of Appeals for the Third Circuit affirmed a district court order granting summary judgment in favor of a defendant debt collection agency after concluding that a letter inviting recipients to call to “eliminate further collection action” did not deceive debtors. The plaintiff brought the putative class action lawsuit under the FDCPA claiming the defendant’s letter deceived debtors by making them think a phone call is a “legally effective” way of ending collection activity. The plaintiff also argued that the letter raised uncertainty about a debtor’s right to dispute a debt in writing. According to the plaintiff, because the letter placed the invitation to call above an acknowledgment that recipients can also respond in writing, debtors were left uncertain about which format to use. The district court disagreed and granted summary judgment to the defendant.

    On appeal, the 3rd Circuit reasoned that the letter was not deceptive. According to the appellate court, the defendant never said “explicitly or implicitly[] that the phone call would, by law” end collection efforts. Further the letter did not create any confusion about whether a debtor should call or write to exercise their rights. Finally, the court rejected the argument that the order of paragraphs in the letter created confusion.

    Courts Appellate Third Circuit Debt Collection FDCPA Class Action

  • 7th Circuit: “Stress and confusion” not an injury under the FDCPA

    Courts

    On March 11, the U.S. Court of Appeals for the Seventh Circuit held that a consumer’s alleged “stress and confusion” did not constitute a concrete and particularized injury under the FDCPA. 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. The district court granted the defendant’s summary judgment motion on the grounds that the debt collector could not have violated the FDCPA “without having actual knowledge of [the consumer’s] cease-communication request.”

    On appeal, the 7th Circuit concluded that the complaint should be dismissed for lack of subject-matter jurisdiction because the plaintiff lacked standing. The 7th 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.’” Here, the consumer pointed only to a statutory violation and “failed to show that receiving [the debt collector’s] dunning letter led her to change her course of action or put her in harm’s way.” Additionally, the appellate court found the consumer’s argument that the dunning letter also “invaded her privacy,” raised for the first time on appeal, unpersuasive because she did not allege that injury in the complaint.

    Courts Appellate Seventh Circuit Debt Collection FDCPA Standing

  • 9th Circuit: Debt collector can invoke bona fide effort defense in time-barred suit

    Courts

    On March 9, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of an FDCPA lawsuit, holding that while “strict liability” under the statute applies when a debt collector threatens litigation or files a lawsuit seeking to collect time-barred debt, the debt collector can avoid liability by invoking the bona fide error defense. In the case that gave rise to the plaintiff’s FDCPA claim, the plaintiff contested the debt collector’s state court lawsuit, arguing that it was filed outside the four-year statute of limitations applicable to sale-of-goods contract claims. The debt collector countered that Oregon’s six-year statute of limitations for other contract claims applied. After the state court ruled for the plaintiff, the plaintiff filed a putative class action lawsuit in the U.S. District Court for the District of Oregon against the defendants alleging violations of Sections 1692e and 1692f of the FDCPA. The district court granted the defendants’ motion to dismiss ruling that the plaintiff failed to state a claim because the state statute of limitations was unclear when the defendants attempted to collect the debt.

    On appeal, the 9th Circuit disagreed with the district court, concluding that because the “FDCPA takes a strict liability approach to prohibiting misleading and unfair debt collection practices, [] a plaintiff need not plead or prove that a debt collector knew or should have known that the lawsuit was time barred to demonstrate that the debt collector engaged in prohibited conduct.” However, the 9th Circuit held that the defendants may be able to avoid liability through the FDCPA’s affirmative defense for bona fide errors. The appellate court distinguished its holding from a 2010 U.S. Supreme Court case, Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, which held that mistakes about the FDCPA’s meaning are excluded from the bona fide error defense. Instead, the 9th Circuit found that “a mistake about the time-barred status of a debt under state law could qualify as a bona fide error within the meaning of the FDCPA” because it is a mistake of fact and not of law.

    Courts Appellate Ninth Circuit Debt Collection FDCPA

Pages

Upcoming Events