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District court rejects motions for summary judgement on FDCPA claims filed by CFPB, debt collection law firm
On April 9, the U.S. District Court for the Northern District of Ohio rejected motions for partial summary judgment and summary judgment filed respectively by the CFPB and a law firm accused of making false representations regarding attorney involvement in debt collection calls in violation of the Fair Debt Collection Practices Act (FDCPA) and Dodd-Frank. As previously discussed in InfoBytes, the CFPB alleged in its complaint that the law firm sent demand letters and made collection calls to consumers that falsely implied that the consumer’s account files had been meaningfully reviewed by an attorney, when, in most cases, no attorney had reviewed the account file. Among other things, the law firm countered that, because its communications truthfully identified it as a law firm and it was acting as a debt collector, these communications were not misleading to the “least sophisticated consumer”—a factor of measurement for analyzing FDCPA violations. The court ruled that “whether the communications at issue are misleading is a question of fact that must be determined by a jury.” The jury trial is set for May 1.
District Court finds that combination of litigation documents is misleading and violates FDCPA
On March 30, the U.S. District Court for the Southern District of Indiana found that serving a request for admission in connection with a complaint and a summons on a debtor in a debt collection case constituted misleading communications in violation of the Fair Debt Collection Practices Act (FDCPA). According to the order, an attorney served a debtor with a request for admission along with a summons to appear in court and a complaint seeking collection of an alleged debt. The request for admission sought acknowledgment that the allegations in the debt collector’s complaint were true. The court found that, as a matter of law, the combination of the documents would confuse an unsophisticated debtor because a debtor would conclude that filing an answer to the complaint was the necessary step to avoid judgment, and not realize that he or she had to do essentially the same thing separately by serving plaintiff’s counsel within thirty days or else admit the underlying allegations. While not at issue in this case, the court noted that it would be inclined to hold that “in order to avoid a violation of the FDCPA, requests for admission should always advise of the consequences of a failure to make a timely response.”
2nd Circuit: debt collectors do not need to state interest is not accruing
On March 29, the U.S. Court of Appeals for the 2nd Circuit held that a debt collection letter, which does not disclose that the balance due is not accruing interest or fees is not misleading under the Fair Debt Collection Practices Act (FDCPA). The decision results from a 2016 lawsuit filed by two debtors who alleged that the debt collection notices they received from the defendants were “false, deceptive, or misleading” under Section 1692e of the FDCPA because the notices did not state whether the balances were accruing interest or fees. The district court awarded summary judgment in favor of the defendants after unrebutted evidence was produced to show that the debtor’s balances did not accrue interest or fees during the collection period. In affirming the district court’s decision, the 2nd Circuit applied the “least sophisticated consumer” standard and found that even if a consumer interpreted the debt collection notice to believe the balance due was accruing interest or fees, the only harm that would exist is “being led to think that there is a financial benefit to making repayment sooner rather than later.” The panel also noted that the notice was consistent with Section 1692g of the FDCPA because interest and fees were not accruing, the balance due stated the accurate amount of the debt.
7th Circuit affirms debt collector verification of debt satisfies FDCPA and FCRA
On March 21, the U.S. Court of Appeals for the 7th Circuit held that a debt collector does not need to contact an original creditor directly in order to satisfy the verification of debt requirement under the FDCPA. According to the opinion, a consumer filed a lawsuit against a debt collection company for, among other things, allegedly violating Section 1692 of the FDCPA, which requires that a debt collector obtain verification of a debt. The debt collector had sent multiple notices to the consumer regarding a telecommunications debt, but certain digits of the original account number were incorrect. The consumer argued that the debt collector was obligated to contact the telecommunications company to confirm the account number was accurate. The district court granted summary judgment in favor of the debt collector, agreeing that the debt collector’s responsibility under Section 1692 was satisfied when the notices sent to the consumer matched the telecommunications company’s description of the debt amount and debtor’s name. In affirming the lower court’s decision, the 7th Circuit stated “[i]t would be both burdensome and significantly beyond the [FDCPA]’s purpose” to “require[e] a debt collector to undertake an investigation into whether the creditor is actually entitled to the money it seeks.”
The 7th Circuit also affirmed summary judgment for the debt collector with respect to allegations that it violated the FCRA by inadequately investigating the disputed debt. The court, noting that the debt collector’s “investigation was unquestionably reasonable,” concluded that the debt collector satisfied the requirements of the FCRA when it (i) verified the consumer’s information with her debt collection file; and (ii) after learning that the consumer disputed the accuracy of the account number associated with the debt, asked the credit reporting agencies to delete the adverse credit report.
CFPB and FTC issue annual report on 2017 debt collection activities
On March 20, the CFPB and the FTC issued an annual report to Congress on the agencies’ collective actions to combat illegal debt collection practices based on their shared enforcement responsibilities under the FDCPA. The report was released pursuant to a 2012 Memorandum of Understanding between the CFPB and the FTC that provides for coordination in enforcement, supervision, and consumer education. According to the report, the agencies’ actions against debt collectors include:
- CFPB. In addition to handling approximately 84,500 debt collection complaints in 2017, the CFPB reports it resolved one FDCPA enforcement case (previously covered by InfoBytes here) and filed two other complaints alleging FDCPA violations (previously covered by InfoBytes here and here). The Bureau also notes it uncovered a number of actions that the agency’s examiners deemed to be violations of the FDCPA, such as impermissible communications with third parties and implying authorized users are responsible for debt on the account. As for the Bureau’s pending FDCPA rulemaking, the report notes that the CFPB is still considering feedback from stakeholders regarding the July 2016 outline of proposals under consideration.
- FTC. The agency reports it obtained more than $64 million in judgments based on alleged violations of the FDCPA or the FTC Act and emphasized the FTC’s specific focus on phantom debt actions. In addition to working to educate consumers about their rights with regard to debt collection, the FTC emphasized multiple permanent injunctions, which prevent companies and individuals from working in the debt collection field again. As for research, the agency highlighted its July 2017 Military Consumer Financial Workshop, which covered debt collection as an issue faced by the military community (previously covered by InfoBytes here).
FTC and New York Attorney General announce orders banning debt collection operations from related activities
On March 22, the New York Attorney General’s office and the FTC announced settlements with the operators of an allegedly abusive debt collection scheme, resolving lawsuits filed in 2015. (See previous InfoBytes coverage here.) According to the FTC, the operators and associated companies allegedly violated the FTC Act, the Fair Debt Collection Practices Act, and New York state laws prohibiting deceptive acts and practices by using abusive language and making false threats that consumers would be arrested or sued in order to collect the supposed debts. The stipulated final orders impose combined judgments of over $48.7 million to be partially suspended upon the surrender of certain assets, including more than $1 million in corporate and individual assets. In addition to barring the operators from the debt collection business and from buying or selling debt, the orders further prohibit them from misrepresenting financial products and services or benefiting from consumers’ personal information collected in connection with the challenged practices.
FTC announces resolution of an action against the final defendant in a debt collection operation
On March 5, the FTC announced that the U.S. District Court for the Middle District of Florida entered a default judgment against the final defendant of a debt collection operation accused of violating the FTC Act and Fair Debt Collections Practices Act by allegedly posing as lawyers and threating individuals with lawsuits or prison time if they failed to pay debt they did not actually owe. (See InfoBytes coverage here on previously issued order against three other co-defendants.) Under the terms of the January 23 order, the defendant is prohibited from, among other things, (i) engaging in debt collection activities; (ii) buying or selling consumer or commercial debt; (iii) misrepresenting material facts regarding financial-related products or services; (iv) misrepresenting an affiliation with an attorney or law firm; (v) disclosing, using, or benefiting from consumers’ personal information; and (vi) improperly disposing of consumers’ information. In addition, the court assessed a $702,059 fine, jointly and severally with the co-defendants.
Sixth Circuit rules borrowers lack standing under FDCPA
On February 16, the U.S. Court of Appeals for the Sixth Circuit held that a letter sent from an attorney on behalf of a mortgage servicing company to consumers violated the Fair Debt Collection Practices Act (FDCPA), but because the alleged violation did not meet the “injury in fact” requirement for standing, the consumers had no standing to sue. According to the opinion, the letter confirmed receipt of an executed warranty deed in lieu of foreclosure and reaffirmed that the mortgage servicer would “not attempt to collect any deficiency balance.” When the mortgage servicer attempted to collect the debt, the consumers cited the letter and the servicer agreed that nothing was owed. However, the consumers sued the attorney and the mortgage servicer claiming that the letter violated the FDCPA and the Ohio Consumer Sales Practices Act because it did not include a notice that it was from a debt collector. The claims against the servicer were resolved through arbitration, but a district court ruled that the attorney violated Ohio law for failing to include the appropriate disclosures. The attorney appealed, arguing that the consumers did not have standing to assert their federal and state law claims. However, citing the Supreme Court ruling in Spokeo, Inc. v. Robins, the Sixth Circuit held that the consumers must show more than a “bare procedural violation.” Even though the letter lacked the required disclosures required by the FDCPA, this lack of disclosures caused no harm to the consumers, and in fact, the “letter was good news when it arrived, and it became especially good news when [the servicer] persisted in trying to collect a no-longer-collectible debt.” Because the letter created no cognizable injury, the Sixth Circuit reversed the district court’s decision and dismissed the claims brought under the FDCPA and the Ohio Consumer Sales Practice Act for lack of standing.
3rd Circuit rules settlement offer for time-barred debt could violate FDCPA
On February 12, the U.S. Court of Appeals for the 3rd Circuit held that a collection letter offering a settlement on a time-barred debt could violate the prohibition against "any false, deceptive, or misleading representation or means in connection with the collection of any debt” of the Fair Debt Collection Practices Act (FDCPA). According to the opinion, the plaintiff filed a class action complaint against the debt collector after receiving a letter stating that the debt collector would accept a partial “settlement” of the delinquency amount, which was past the New Jersey six-year statute of limitations. The lower court granted the debt collector’s motion to dismiss, finding that the letter did not contain a threat of legal action by the use of the word settlement and therefore, did not violate the FDCPA. In reversing the lower court’s decision, the 3rd Circuit concluded that the “least-sophisticated debtor could be misled into thinking that ‘settlement of the debt’ referred to the creditor’s ability to enforce the debt.” In its conclusion, the appellate court also noted that settlement offers of time-barred debts “do not necessarily constitute deceptive or misleading practices” under the FDCPA and remanded the case back to the lower court for review.
District judge denies law firm’s motion to compel arbitration
On February 12, a judge for the U.S. District Court for the Western District of Wisconsin held that a debt collection law firm could not compel a plaintiff to settle claims in arbitration because the law firm was not a party to the arbitration agreement it sought to enforce. According to the opinion, the plaintiff filed a proposed class action suit against the law firm and a credit card issuer for allegedly violating the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA) by publishing the plaintiff’s credit score on a complaint to obtain payment filed with a local country circuit court. The plaintiff subsequently dismissed the claims against the credit card issuer after resolving the issues outside of the court. The law firm filed a motion to compel arbitration, arguing that it is a third party co-defendant of a claim subject to an arbitration provision, which covered the credit card issuer, cardholders, and third party co-defendants. In denying the motion to compel, the judge held that the law firm is not a co-defendant “at the only time that matters, which is when the court is deciding the motion to compel arbitration” because the credit card issuer is no longer a party to the lawsuit. The judge also noted that if the credit card issuer wanted an associated law firm to be covered by the arbitration provision, it could have used broader language in the agreement.