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  • District Court: State law right-to-cure provisions preempted by National Bank Act

    Courts

    On August 4, the U.S. District Court for the Western District of Wisconsin granted defendants’ motion for partial summary judgment in an action alleging claims under the FDCPA and the Wisconsin Consumer Act (WCA). The defendants were a debt-purchasing company and a law firm hired by the company to recover outstanding debt and purported late fees on the plaintiff’s account in a separate state-court action. After the plaintiff failed to make payments on his outstanding balance, the original creditor (a national bank) charged late fees and mailed him a “right to cure” letter advising him of the minimum payment due and the deadline to make the payment. The account was eventually sold to the debt-purchasing company after the plaintiff failed to make any minimum payments. The law firm sent the plaintiff two letters on behalf of the debt-purchasing company, one which outlined his right to dispute the debt and one which provided a “notice of right to cure default.” A small claims action was filed against the plaintiff in state court, in which the plaintiff argued for dismissal, contending in part that the notice of default failed to itemize delinquency charges as required under Wisconsin law. The plaintiff then filed this suit in federal court alleging violations of the FDCPA and the WCA, claiming that the defendants “falsely represented the status of his debt in violation of § 1692e by purporting to have properly accelerated his debt and filed suit against him despite [the plaintiff] never being provided an adequate right to cure letter pursuant to Wisconsin law.”

    First, in reviewing whether the plaintiff had standing to sue, the court determined that the “costs, time, and energy” incurred by the plaintiff to defend himself in the state-court action amounted to a “concrete injury in fact” that established his standing in the federal-court action. However, upon reviewing the WCA’s right-to-cure provisions as the basis for the plaintiff’s claims that the defendants violated federal and state laws by allegedly falsely representing that they could accelerate the plaintiff’s debt and sue him, the court examined whether the state law’s notice and right-to-cure provisions were federally preempted by the National Bank Act (NBA), as the original creditor’s rights and duties were assigned to the debt-purchasing company when the account was sold. The court determined that while the WCA right-to-cure provisions “do relate in part to debt collection,” they also “go beyond that by imposing conditions on the terms of credit within the lending relationship.” The court ultimately concluded that the WCA provisions “are inapplicable to national banks by reason of federal preemption,” and, as such, the court found “that a debt collector assigned a debt from a national bank is likewise exempt from those requirements” and was not required to send the plaintiff a right-to-cure letter “as a precondition to accelerating his debt or filing suit against him.”

    Courts Debt Collection FDCPA State Issues Consumer Finance National Bank Act

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  • CFPB takes action against Maryland debt collectors

    Federal Issues

    On August 16, the CFPB entered into a preliminary settlement with a debt collection entity, its subsidiaries, and their owner (collectively, “defendants”) for allegedly violating the FCRA, FDCPA, and the CFPA, resolving a case filed in the U.S. District Court for the District of Maryland. As previously covered by InfoBytes, the complaint alleges that the defendants violated the FCRA and its implementing Regulation V by, among other things, failing to (i) establish or implement reasonable written policies and procedures to ensure accurate reporting to consumer-reporting agencies; (ii) incorporate appropriate guidelines for the handling of indirect disputes in its policies and procedures; (iii) conduct reasonable investigations and review relevant information when handling indirect disputes; and (iv) furnish information about accounts after receiving identity theft reports about such accounts without conducting an investigation into the accuracy of the information. The Bureau separately alleges that the violations of the FCRA and Regulation V constitute violations of the CFPA. Additionally, the Bureau alleges that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts. Under the terms of the proposed stipulated final judgment and order, the defendants are required to, among other things: (i) establish, modify, update, and implement policies and procedures on the accuracy of information furnished to consumer reporting agencies; (ii) establish internal controls to identify activities that may compromise the accuracy or integrity of information; (iii) establish an identity theft report review program; and (iv) retain an independent consultant to review the defendant’s furnishing of consumer information and debt collection activities in addition to provide recommendations. The proposed order also imposes a civil money penalty of $850,000.

    Federal Issues FDCPA Enforcement CFPB Act CFPB Credit Reporting Agency Debt Collection FCRA Credit Furnishing Consumer Reporting Agency

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  • District Court grants summary judgment for defendant in FDCPA vicarious liability case

    Courts

    On July 30, the U.S. District Court for the Northern District of Alabama granted a motion for summary judgment in favor of a debt collector (defendant) with respect to a plaintiff’s FDCPA allegations. The plaintiff alleged that the defendant, among other things, violated the FDCPA by engaging in abusive, deceptive, and unfair debt collection practices when the defendant allegedly filed a false proof of service in a collection action, which allowed the defendant to obtain a default judgment and garnish the plaintiff’s wages. The defendant, through a law firm, allegedly purchased a debt that the plaintiff had maintained. Subsequently, a collection lawsuit against the plaintiff was filed and a process server delivered the summons and complaint to the plaintiff. The plaintiff filed suit against the defendant, alleging the defendant violated the FDCPA by falsely claiming that it served the summons and complaint. After finding that the defendant itself did not falsify the service return form or have knowledge that a falsified service return form was filed, the court examined if the defendant is vicariously liable for the alleged violations undertaken by the collection law firm or the process server. According to the opinion, “a plaintiff may press an FDCPA claim pursuant to a theory of vicarious liability only if the pertinent parties both constitute “debt collectors” and they enjoy an agency relationship,” however, “the evidence fails to permit a reasonable determination that either may expose [the defendant] to vicarious liability.”

    As previously covered by InfoBytes, in June, 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.” However, in the U.S. District Court for the Northern District of Alabama case, the court found that that any alleged issues regarding summons and complaints in an underlying collection case do not qualify as the responsibility of the defendant.

    Courts FDCPA Debt Collection Vicarious Liability

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  • CFPB confirms final debt collection rules still set to take effect November 30

    Federal Issues

    On July 30, the CFPB officially announced that the agency’s two final debt collection rules, which implement the FDCPA, will take effect as scheduled on November 30. Earlier 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 (covered by InfoBytes here). 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. According to the Bureau, “public comments generally did not support an extension. Most industry commenters stated that they would be prepared to comply with the final rules by November 30, 2021.” The Bureau pointed out that while “consumer advocate commenters generally supported extending the effective date, they did not focus on whether additional time is needed to implement the rules.” Rather, the “alternative basis for an extension that many commenters urged, a reconsideration of the rules, was beyond the scope of the NPRM and could raise concerns under the Administrative Procedure Act,” the Bureau stated, adding that the decision does not preclude the Bureau from reconsidering the debt collection rules at a later date.

    As previously covered by InfoBytes, the first debt collection rule, issued in October 2020, addressed debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The second debt collection rule, issued in December 2020, clarified the information debt collectors must provide to consumers at the outset of collection communications and provided a model validation notice containing such information (covered by InfoBytes here).

    Federal Issues CFPB Debt Collection Agency Rule-Making & Guidance FDCPA

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  • District Court approves $35 million settlement in student debt-relief action

    Courts

    On July 14, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against the named defendant in a 2019 action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney, which had alleged a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint asserted that the defendants violated the CFPA, the Telemarketing Sales Rule, and various state laws. A second amended complaint also included claims for avoidance of fraudulent transfers under the FDCPA and California’s Uniform Voidable Transactions Act.

    In 2019, the named defendant filed a voluntary petition for Chapter 11 relief, which was later converted to a Chapter 7 case. As the defendant is a Chapter 7 debtor and no longer conducting business, the Bureau did not seek its standard compliance and reporting requirements. Instead, the finalized settlement prohibits the defendant from resuming operations, disclosing or using customer information obtained during the course of offering or providing debt relief services, or attempting “to collect, sell, assign, or otherwise transfer any right to collect payment” from any consumers who purchased or agreed to purchase debt relief services. The defendant is also required to pay more than $35 million in redress to affected consumers, a $1 civil money penalty to the Bureau, and $5,000 in civil money penalties to each of the three states.

    The court previously entered final judgments against several of the defendants, as well as a default judgment and order against two other defendants (covered by InfoBytes here, here, here, and here).

    Courts CFPB Enforcement State Attorney General State Issues CFPA UDAAP Telemarketing Sales Rule FDCPA Student Lending Debt Relief Consumer Finance Settlement

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  • 8th Circuit affirms summary judgment for mortgage servicer

    Courts

    On July 9, the U.S. Court of Appeals for the Eighth Circuit affirmed summary judgment in favor of a mortgage loan servicer (defendant), concluding that the defendant’s communications were not in connection with an attempt to collect a debt. The plaintiff had alleged that the defendant violated the FDCPA by engaging in misrepresentations and unfair conduct when processing the plaintiff’s application for loss mitigation assistance and selling the plaintiff’s home through a foreclosure sale. According to the 8th Circuit, “the district court applied the ‘animating purpose’ test, which considers the content of each communication individually, and determined that they were not made in connection with the collection of a debt.”

    In affirming the district court’s recent order, the 8th Circuit agreed with the district court’s decision that the defendant did not violate the FDCPA because the substance of each of the communications indicates that none were made in connection with an attempt to collect on the underlying mortgage debt.

    Courts Eighth Circuit Mortgages FDCPA Appellate

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  • 3rd Circuit overturns FDCPA ruling in plaintiff’s favor

    Courts

    On July 6, the U.S. Court of Appeals for the Third Circuit overturned a district court’s decision, holding that a debt collector that sent an envelope with a quick reference (QR) code that when scanned, revealed an Internal Reference Number (IRN) with the first 10 characters of the plaintiff’s street address violated the FDCPA’s prohibition in 15 U.S.C. § 1692f(8) on “[u]sing any language or symbol, other than the debt collector’s address, on any envelope.” The district court, relying on the 3rd Circuit’s 2019 decision in DiNaples v. MRS BPO, dismissed the case, holding the plaintiff lacked standing under the FDCPA because the barcode on the envelope did not reveal enough protected information to rise to the level of a concrete injury, since numerous individuals could have an identical IRN.

    The 3rd Circuit reversed and remanded, explaining that the plaintiff had standing to bring a claim because the envelope’s QR code made protected information available to the public. The court rejected the defendant’s arguments that the envelope did not violate the FDCPA because it did not reveal the account number, the plaintiff did not know how to use the bar code to unlock the private information, and that there was no material risk of harm. The appellate court explained that “[a]ccount numbers are but one type of protected information” and that the plaintiff “did not need to know how to use IRNs to access accounts” nor “did he need to show an increased risk of harm.”

    Courts Appellate Third Circuit FDCPA Debt Collection

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  • District Court grants CFPB’s motion to strike affirmative defenses in FCRA, FDCPA action

    Courts

    On June 30, the U.S. District Court for the District of Maryland issued a memorandum opinion granting the CFPB’s motion to strike four out of five affirmative defenses presented by defendants in an action alleging FCRA and FDCPA violations. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants (a debt collection entity, its subsidiaries, and their owner) for allegedly violating the FCRA, FDCPA, and the CFPA. The alleged violations include, among other things, the defendants’ failure to ensure accurate reporting to consumer-reporting agencies, failure to conduct reasonable investigations and review relevant information when handling indirect disputes, and failure to conduct investigations into the accuracy of information after receiving identity theft reports before furnishing such information to consumer-reporting agencies. The Bureau separately alleged that the FCRA violations constitute violations of the CFPA, and that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts.

    After the court denied the defendants’ motion to dismiss on the basis that the CFPB was unconstitutional and therefore lacked standing, the defendants filed an amended affirmative defense asserting the following: (i) the alleged FDCPA violation was a bona fide error; (ii) the Bureau was “barred from seeking equitable relief by the doctrine of unclean hands”; (iii) the Bureau’s leadership structure was unconstitutional under Article II at the time the complaint was filed, thus the actions taken at the time were invalid; (iv) the Bureau structure is unconstitutional under Article I and therefore the Bureau lacked standing because “it is not accountable to Congress through the appropriations process”; and (v) the statute of limitations on the alleged violations had expired. The Bureau asked the court to strike all but the statute of limitations defense. Concerning the bona fide error defense, the defendants contended the alleged violations were not intentional and resulted from a bona fide error notwithstanding the maintenance of “detail[ed] policies and procedures for furnishing accurate information to the consumer reporting agencies,” but the court ruled this defense insufficient because the defendants failed to identify “specific errors [and] specific policies that were maintained to avoid such errors” and failed to explain their procedures. With respect to the unclean hands defense, the court ruled to strike the defense because it found that the defendants had not “alleged ‘egregious’ conduct or shown how the prejudice from that conduct ‘rose to a constitutional level’” when claiming the Bureau engaged in “duplicitous conduct” by allegedly disregarding its own NORA process or by serving multiple civil investigative demands. Finally, the court further decided to strike the two constitutional defenses because it found that allowing those defenses to proceed “could ‘unnecessarily consume the Court’s resources.’” The court granted the defendants 14 days to file an amended affirmative defense curing the identified defects.

    Courts CFPB Enforcement FCRA FDCPA Consumer Reporting Agency Credit Report Debt Collection CFPA Bona Fide Error

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  • District Court grants summary judgment for defendant in identity theft case

    Courts

    On June 30, the U.S. District Court for the Eastern District of Pennsylvania granted a motion for summary judgment in favor of a debt collection agency (defendant) with respect to a plaintiff’s FCRA and FDCPA allegations. The plaintiff alleged that the defendant, among other things, violated the FCRA and the FDCPA by failing to fulfill a reasonable investigation upon receipt of a dispute over an account that was allegedly opened in his name without his consent. According to the opinion, the plaintiff filed a suit against the defendant and three other companies, but “following various settlements,” the debt collection agency remained the sole defendant. The plaintiff was notified by the defendant that additional information was required to further investigate his claim, including a fraud and identity theft affidavit, proof of residence, a police report, and a valid government-issued ID, which was not allegedly provided to the defendant until after the plaintiff had filed the suit. The court dismissed the FCRA claim, finding that there was not enough evidence that the plaintiff submitted the necessary information to make his reported dispute a bona fide dispute, which is necessary to establish an FCRA violation. The court also dismissed the FDCPA claims stating that the plaintiff failed to identify false representation or deceptive means by the defendant in connection with the collection of the relevant debt.

    Courts FDCPA FCRA Identity Theft

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  • District Court partially grants a defendant’s MTD in FCRA, FDCPA case

    Courts

    On June 29, the U.S. District Court for the Eastern District of Missouri granted in part and denied in part a Wisconsin-based debt collection agency’s (defendant) motion for judgment in an FCRA and FDCPA case where the plaintiff alleged the defendant failed to update the information it was furnishing to credit bureaus after the plaintiff notified a credit bureau that she was no longer disputing the debt. Prior to February 2020, the plaintiff disputed the accuracy of a tradeline by the defendant appearing on her credit report with an unspecified party and then notified a credit reporting agency that she was no longer disputing the debt. The credit reporting agency forwarded the plaintiff’s notice to the defendant. After the plaintiff saw that the tradeline was still reported as disputed on her credit report, she filed suit alleging the defendant violated the FCRA by failing to conduct a proper investigation after being notified that the plaintiff was no longer disputing the debt and the FDCPA for reporting information it had knowledge of being false. The defendant argued “that it cannot be liable under the FCRA based on [the plaintiff’s] allegations because it had no new information to ‘reasonably investigate.’” However, the court denied the defendant’s motion for judgment on the pleadings as to the plaintiff’s FCRA claims stating that, “at this stage of the case, the Court cannot determine whether it would have been reasonable for [the defendant] to rely solely on its own files when performing its investigation after receiving [the plaintiff’s] letter stating that she no longer disputed her tradeline.” With respect to the FDCPA claim, the court cited the 8th Circuit’s ruling in Wilhelm v. Credico, Inc., which held that “whether ‘the consumer has disputed a particular debt’ is ‘always material’ and thus a debt collector must disclose that an account is disputed when it ‘elects to communicate ‘credit information[,]’ the fact that an account is no longer disputed would also be material.” In addition, the court found that the plaintiff failed to state a claim pursuant to the alleged FDCPA violation because she did “not allege any facts demonstrating that [the defendant] continued to report false credit information after it received notice from [a reporting agency] that she no longer disputed her [debt].” However, the court granted the plaintiff leave to file an amended complaint.

    Courts FCRA FDCPA Consumer Finance

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