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CFPB Files Suit Against Nation's Largest Student Loan Company
On January 18, the CFPB initiated an enforcement action against the nation’s largest student loan servicer based upon alleged violations of the CFPA, FCRA, and FDCPA. In a complaint filed with the Middle District of Pennsylvania, the Bureau charged that the student lender “systematically and illegally” created “obstacles to repayment” and “cheated” many borrowers out of their rights to lower repayments, causing them to pay much more than they had to for their loans. The CFPB “seeks to obtain permanent injunctive relief, restitution, refunds, damages, civil money penalties, and other relief.”
Later that day, the lender issued a statement categorically rejecting the CFPB's charges, explaining: “[T]he suit improperly seeks to impose penalties [] based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student loan borrowers, including through higher defaults.” The company also noted that “the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations.”
CFPB Orders Medical Debt Collection Law Firms to Refund $577,135 to Consumers
On January 9, the CFPB entered into a Consent Order and Stipulation against two medical debt-collection law firms and their president for alleged violations of the FDCPA and FCRA. Based on these allegations, the CFPB ordered the Respondents to provide $577,135 in relief to affected consumers, correct their business practices, and pay a $78,800 civil money penalty. According to the allegations set forth in the consent order, between January 2012 and August 2016, debt collectors working for the firms violated the FDCPA by giving the false impression that the firm’s “Demand Letters were from an attorney or that the firm’s attorneys were meaningfully involved in reviewing the consumer’s case or had reached a professional judgment that sending a Demand Letter or making a collection call was warranted.” The Bureau also found that the firms notarized consumer affidavits for use in debt-collection lawsuits without properly verifying the truth of the signature. The CFPB also alleged that the firms violated FCRA’s Regulation V by failing to establish, implement, and periodically review and update reasonable written policies and procedures regarding the accuracy and integrity of consumer information furnished to consumer reporting agencies.
The Ninth Circuit Holds that Enforcing a Security Interest is Not Necessarily Debt Collection
On October 19, the Ninth Circuit, in an opinion by Judge Kozinski, held that merely enforcing a security interest is not “debt collection” under the federal Fair Debt Collection Practices Act (“FDCPA”). Ho v. ReconTrust Co., Case: 10-56884 (Oct. 20, 2016). In so holding, the Ninth Circuit disagreed with earlier decisions by the Fourth and Sixth Circuits, creating a split that might eventually be resolved by the U.S. Supreme Court. See e.g. Piper v. Portnoff Law Associates Ltd., 396 F.3d 227, 235-36 (3d Cir. 2005); Wilson v. Draper & Goldberg PLLC, 443 F.3d 373, 378-79 (4th Cir. 2006); Glazer v. Chase Home Finance LLC, 704 F.3d 453, 461 (6th Cir. 2013).
In Ho, a borrower sued several foreclosure firms after she defaulted on her mortgage loan, alleging that the defendant-companies had violated the FDCPA by sending her default notices stating the amounts owed. The district court dismissed that claim, finding the trustee was not a debt collector engaged in debt collection under the FDCPA. On appeal, the Ninth Circuit affirmed the dismissal. The Court observed that a notice of default and a notice of sale may state the amounts due, but they do not in fact demand payment. Moreover, in California, deficiency judgments are not permitted after a non-judicial foreclosure sale, so no money can be collected from the homeowner. Notably, the notices complained of in Ho are required by California law prior to exercising the right to non-judicial foreclosure.
CFPB Mortgage Servicing Rule Published in Federal Register
Last week, the CFPB’s final rule amending the mortgage servicing provisions of Regulations X and Z was published in the Federal Register. The amendments were previously covered in BuckleySandler’s August 9 Special Alert. The majority of the final rule will take effect on October 19, 2017, exactly one year after its Federal Register publication date. Certain provisions related to successors in interest and bankruptcy periodic statements will become effective on April 19, 2018. The CFPB’s interpretive rule under the FDCPA addressing industry concerns and conflicts with the servicing rules in Regulations X and Z was simultaneously published in the Federal Register on October 19, 2016.
FTC and DOJ Settle With Texas Debt Collector
On September 21, the DOJ and FTC entered into an agreement with the former vice president of a Texas-based debt collection company, to resolve allegations that that he violated Section 5 of the FTC Act and Section 807 of the FDCPA. The stipulated order enters a civil penalty of $496,000, but suspends the majority of the judgment based on certain conditions, including cooperation in the ongoing lawsuit against his former company.
Credit Union National Association: Credit Unions Remain Exempt from the FDCPA
On September 9, the Credit Union National Association (CUNA) sent a letter to the CFPB regarding the CFPB’s initial outline of the proposed rule for third party debt collectors. The letter asserts that, since the Fair Debt Collection Practices Act (FDCPA) was enacted, credit unions have been exempt from the statute’s rules and that to extend any rulemaking pursuant to the statute to include credit unions would be “unlawful.” The CUNA distinguishes credit unions from for-profit debt collectors subject to the FDCPA, claiming that credit unions’ collection approach is more holistic: “They are not just interested in short-term efforts of collecting a debt; instead, they try to find out the specific cause of their member’s financial challenge.” The CUNA is concerned that certain aspects of the CFPB’s proposal as outlined, including the “highlight technical substantiation and oversight requirements,” would negatively impact credit unions. The CUNA reminded the CFPB that pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA), it is required to consider the recommendations in its letter before finalizing any rule.
FTC Resolves "Operation Collection Protection" Charges; Bans Companies from Debt Collection Business
On September 7, the FTC announced separate stipulated orders (here and here) against two groups of debt collectors to resolve November 2015 charges that their debt collection practices were deceptive, abusive, and unfair in violation of the FTC Act and the Fair Debt Collection Practices Act (FDCPA). According to the FTC, the first group of debt collectors (i) attempted to collect on debts consumers claimed they did not owe; (ii) failed to verify the debts; and (iii) impersonated law enforcement, threatened non-compliant consumers with arrests and lawsuits, and made accusations of bank fraud. In addition to barring the defendants from debt collection activities and from “misrepresenting material[] facts about any financial-related products or services,” the order imposes a judgment of more than $4.47 million. Regarding the second group of debt collectors, the FTC alleged that, in addition to threatening consumers with arrest if purported debts went unpaid and harassing friends, family members, and employees in an attempt to collect debts, they sent “alarming and deceptive text messages to trick consumers into contacting them, without identifying themselves as debt collectors.” Pursuant to the final judgment, the defendants must pay a judgment of approximately $27 million. The order imposes a separate judgment of $11,000 on the individually named defendant.
Filed in federal district court of New York, the actions were part of the FTC’s Operation Collection Protection, a federal-state-local initiative that has brought a total of 148 debt collection-related actions to date.
FTC Bans New York Debt Collector; Resolves 2015 "Operation Collection Protection" Action
On August 24, the FTC, in coordination with New York AG Schneiderman, announced that it issued a final order banning a debt collector and his four companies from the debt collection business. According to the order, the defendants engaged in deceptive and abusive debt collection practices in violation of the FTC Act, the Fair Debt Collection Practices Act, and New York General Business Law. The final order resolves a 2015 Operation Collection Protection action alleging, among other things, that the defendants “regularly threatened, pressured, and harassed consumers into paying debts [they] did not owe,” continuing to “collect on these fake debts even after the supposed creditor notified them that the debts were bogus.” The final order imposes a judgment of more than $18.4 million, which will be partially suspended due to the defendants’ inability to pay. AG Schneiderman and the FTC issued a separate order to the owner’s ex-wife, imposing a $418,000 judgment, which also will be partially suspended.
FTC Continues Operation Collection Protection Efforts
On July 14, the FTC announced that two debt collectors and three companies (collectively, Defendants) previously charged with using false threats and other illegal collection tactics in violation of the FTC Act and the FDCPA have agreed to a stipulated final order. According to the FTC, the Defendants purchased consumer debts and then collected payment by intimidating consumers with false threat of lawsuits, wage garnishment and arrest, and by impersonating attorneys or process servers. In addition, the FTC alleged that the Defendants (i) failed to disclose to consumers their right to receive verification of a debt; (ii) did not identify themselves as debt collectors; and (iii) disclosed debts to third parties. The final order imposes a $4,802,646 judgment, which the FTC partially suspended upon the surrender of certain assets, and requires that the two individual debt collectors separately pay $59,207 and $50,562. The action is part of the FTC’s Operation Collection Protection, a nationwide initiative designed to combat alleged abusive and deceptive debt collection practices.
Ninth Circuit: Discovery Rule Applies in FDCPA Actions
On June 8, the Ninth Circuit reversed the district court’s dismissal of a plaintiff’s complaint alleging that the debt collector defendants’ collection action against her violated the Fair Debt Collection Practices Act (FDCPA), finding that the plaintiff’s complaint was filed within one year of the date on which she first learned of the collection action and was thus timely. Lyons v. Michael & Associates, No. 13-56657 (9th Cir. June 8, 2016). On December 7, 2011, the defendants filed a debt collection action against the plaintiff in Monterey, California, despite the fact that the plaintiff resided in San Diego at the time she incurred the debt. On January 3, 2013, the plaintiff initiated a separate action alleging that the defendants violated the FDCPA by bringing their collection action against her in the wrong judicial district. The district court dismissed the plaintiff’s complaint as time-barred, finding that it was filed more than one year after the defendants filed their collection action against plaintiff. The Ninth Circuit reversed, opining that the “discovery rule” applies in FDCPA actions and, therefore, the statute of limitations on the plaintiff’s FDCPA claim did not begin to run until the plaintiff “kn[ew] or ha[d] reason to know of the injury which is the basis of the action.” Because the plaintiff did not have knowledge of the defendants’ collection action until she was served with process—which was less than one year before she filed her action—her FDCPA complaint was timely.