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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.
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.
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.
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.”
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.
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.
On May 3, 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. As previously covered by InfoBytes, 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. Under the IFR, failure to provide notice is considered a violation of the FDCPA. The plaintiffs argue that the moratorium, however, has been challenged and invalidated by several federal courts, including the U.S. Court of Appeals for the Sixth Circuit. As such, the plaintiffs contend that the IFR compels “false speech” and “requir[es p]laintiffs to lie about the lawfulness and availability” of consumers’ rights under the moratorium. The complaint asks the court to “enjoin this CFPB policy, declare it unlawful, and set it aside.”
District Court: Identity theft alone is not enough to remove allegedly fraudulent debt from credit report
On April 20, the U.S. District Court for the Southern District of California granted a defendant debt collector’s motion for summary judgment, ruling that claiming to be a victim of identity theft alone is not enough to have a collection item removed from a credit report, or to give rise to an FDCPA violation. In 2014, the plaintiff purportedly obtained a payday loan from a lender who ultimately assigned the loan to the defendant for collection. In 2019, the plaintiff called the defendant to verbally dispute the debt as fraudulent after seeing the loan on her credit report. The defendant continued to report the loan to the consumer reporting agencies (CRAs), but marked the account as disputed, and informed the plaintiff of measures she needed to take to have the item removed from her credit report, including instructions for filing an identity theft affidavit. After an attorney representing the plaintiff submitted a formal written dispute of the debt, the defendant responded with the required verification and continued reporting the debt until the account was recalled by the lender. At this point the loan record was deleted and the defendant stopped reporting the loan account to the CRAs. The plaintiff filed suit alleging the defendant violated FDCPA Sections 1692e and 1692f and various state laws by continuing to report the debt after it was notified of the potential fraud. The court disagreed, stating, “there was nothing about [the defendant’s] statements that would confuse or mislead even the least sophisticated debtor’s attempt to remove the fraudulent account from their credit report,” the court wrote, adding that none of the defendant’s communications were false, deceptive, or misleading, nor did they undermine the plaintiff’s “ability to intelligently choose her action concerning the loan account.”
On April 22, the CFPB and the New York attorney general filed a complaint against the owner of a now-defunct debt-collection firm for allegedly transferring ownership of his $1.6 million home to his wife and daughter for $1 shortly after he received a civil investigative demand and learned that the Bureau and the AG were conducting an investigation into his debt-collection activities. As previously covered by InfoBytes, the Bureau and the AG reached settlements in 2019 with the debt collection operation to resolve allegations that the defendants established and operated a network of companies that harassed and/or deceived consumers into paying inflated debts or amounts they may not have owed. The terms of the settlements imposed civil money penalties and consumer redress and permanently banned the defendants from acting as debt collectors. According to the complaint, the owner defendant has paid nothing toward satisfying the 2019 settlement, nor has he cooperated with the Bureau and the AG’s efforts to obtain relevant financial information. The complaint further claims that the transfer of the property was a fraudulent transfer under the Federal Debt Collection Procedures Act and made with the intent to defraud (a violation of the New York Debtor and Creditor Law), and alleges that the owner defendant “removed and concealed assets in an effort to render the Judgment obtained by the Government Plaintiffs uncollectable.” Moreover, because the property was allegedly “transferred with intent to hinder, delay, or defraud a creditor,” the complaint contends that the owner defendant is “not entitled to claim any homestead exemption.” The complaint asks the court to void the property transfer and to allow seizure of the property. Additionally, the Bureau and the AG request that the house be sold with all proceeds going towards the owner defendant’s 2019 settlement, and seek a monetary judgment against the owner defendant’s wife and daughter for the value of the property as transferees of the fraudulent conveyance of the property.
On April 16, the CFPB updated its small entity compliance guide to incorporate amendments in the December 2020 debt collection rule (covered by InfoBytes here). Updates to the guide, originally issued in January (covered by InfoBytes here), include: (i) a new section discussing the prohibition against legal action and threats of legal action to collect time-barred debt; (ii) a new section discussing the prohibition on passive collection; (iii) the incorporation of requirements and guidance on providing validation information; (iv) an updated discussion of the prohibition against overshadowing consumer rights to incorporate reference to the safe harbor; (v) an updated discussion of requests for original-creditor information to include reference to applicable requirements if the current creditor and the original creditor are the same; and (vi) a new annotated version of the model validation notice in Appendix B of the December 2020 Rule. Miscellaneous administrative changes have been made throughout the guide as well.
- Buckley Webcast: Best practices for incident-response planning in a dangerous and regulated world
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- APPROVED Webcast: California debt collection license requirement: Overview and analysis
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- Jeffrey P. Naimon to discuss “Regulators are gearing up: Are you ready?” at HousingWire Annual
- Amanda R. Lawrence and Elizabeth E. McGinn discuss “U.S. state privacy legislation – Are you compliant?” at the Privacy+Security Forum
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jeffrey P. Naimon to discuss "Truth in lending” at the American Bar Association National Institute on Consumer Financial Services Basics
- John R. Coleman and Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek