InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
6th Circuit: Each alleged FDCPA violation carries its own statute of limitations
On March 1, the U.S. Court of Appeals for the Sixth Circuit reversed the dismissal of a debt collection action, holding that every alleged violation of the FDCPA has its own statute of limitations. According to the opinion, the plaintiff financed a furniture purchase through a retail installment contract. While making payments on the contract, the company purportedly sold the debt to a third party. After the plaintiff defaulted on the debt, the third party—through the defendant attorney—sued the plaintiff in state court to recover the unpaid debt and attorney’s fees. After the third party eventually voluntarily dismissed the suit due to questions of whether the debt transfer was valid, the plaintiff sued the attorney for violating the FDCPA, alleging the defendant doctored the retail installment contract (RIC) to make it appear as if the debt assignment was legal. The defendant moved to dismiss the complaint as time-barred by the FDCPA’s one-year statute of limitations. The district court dismissed the case citing the complaint was filed more than a year after the third party filed the state court complaint and later denied both the plaintiff’s motion for reconsideration and the defendant’s motion for attorney’s fees. Both parties appealed.
On appeal, the 6th Circuit agreed that the plaintiff made a timely claim. Plaintiff argued that at least one of her claims fell within the one-year statute of limitations—the attorney’s filing of the updated RIC that allegedly showed the “contrived transfer” of debt—and maintained that she filed within one year of that alleged violation. The defendant countered, among other things, that the plaintiff’s claim was time-barred because it was a continuing effect of the third party’s initial filing of the state court complaint. The 6th Circuit reviewed caselaw on the “continuing-violation doctrine” and determined that the doctrine was not relevant to the case, stating that the plaintiff never invoked it because she was not “trying to sweep in acts that would otherwise be outside of the filing period,” but rather sought “redress for a single claim that is not time-barred.” The 6th Circuit emphasized that the plaintiff’s “single claim is independent of [the third party’s] initial filing of the lawsuit—not a continuing effect of it—because it is a standalone FDCPA violation.” The opinion further stated that the only date considered for the statute of limitations is the date a lawsuit is filed when subsequent FDCPA violations within that lawsuit occurred, and wrote that “[i]f we were to only consider the date [the third party] filed suit . . . we would create a rule that disregards the fact that §1629k(d) creates an independent statute of limitations for each violation of the FDCPA . . . . And if we adopted [the defendant’s] approach, we’d be saying that ‘so long as a debtor does not initiate suit within one year of the first violation, a debt collector [is] permitted to violate the FDCPA with regard to that debt indefinitely and with impunity.’”
8th Circuit reverses debt collection action for lack of standing
On February 24, the U.S. Court of Appeals for the Eighth Circuit vacated and remanded the dismissal of a class action lawsuit concerning a medical collection letter that listed amounts due but did not distinguish between the principal and the interest that the debt collectors were attempting to charge. Plaintiff, who never paid any part of the interest or principal, filed a class action against the defendant debt collectors alleging violations of the FDCPA and the Nebraska Consumer Practices Act (NCPA). The defendants moved for summary judgment, arguing that the plaintiff lacked Article III standing. The district court denied the motion and the jury found for the defendants on all counts except for the NCPA claim, which was not tried before a jury. After trial, the district court determined it had provided improper jury instructions, and sua sponte, entered judgment for the plaintiff as a matter of law on both the NCPA and FDCPA claims. The district court specifically ruled that the NCPA does not allow collection of prejudgment interest by a debt collector without an actual judgment. The defendants appealed.
On appeal, the 8th Circuit focused on whether the plaintiff had standing. The appellate court held that the collection letter did not cause the plaintiff concrete harm, and concluded (quoting TransUnion LLC v. Ramirez, citing Spokeo, Inc. v. Robins) that without a concrete injury in fact, she “is ‘not seeking to remedy any harm to herself but instead is merely seeking to ensure a defendant’s compliance with regulatory law (and, of course, to obtain some money via the statutory damages).’” Without suffering a tangible harm, the appellate court said it could only recognize injuries with “a ‘close relationship’ to harm ‘traditionally’ recognized as providing a basis for a lawsuit in American courts.” The plaintiff pointed to fraudulent misrepresentation and conversion as analogous to her alleged injury, but the appellate court disagreed and determined that the consumer could not establish injury sufficient to satisfy Article III standing. In vacating and remanding the district court’s ruling, the 8th Circuit pointed out that, absent standing, it lacked jurisdiction to decide any other issues raised on appeal.
District Court says undated collection letter is misleading
On February 9, the U.S. District Court for the Southern District of Florida partially granted a defendant debt collector’s motion to dismiss an action alleging an undated collection letter violated various provisions of the FDCPA. Plaintiff received a collection letter from the defendant providing information on the amount of outstanding debt and instructions on how to dispute the debt, as well as a timeframe for doing so. However, the letter sent to the plaintiff was undated, and the plaintiff asserted that it was impossible for him to determine what “today” meant when the letter said “‘[b]etween December 31, 2021 and today[,]’” or what “now” referred to in the context of “[t]otal amount of the debt now.” He argued that by withholding this necessary information, the letter appeared to be illegitimate and misleading, and ultimately caused him to spend time and money to mitigate the risk of future financial harm. The defendant moved to dismiss for failure to state a claim, maintaining that the letter “fully and accurately stated the amount of the debt and otherwise complied with all requirements of the [statute].” The defendant further argued that the letter “conforms exactly to” the debt collection model form letter provided by the CFPB, and insisted that, because it complied with 12 C.F.R. § 1006.34(d)(2), it fell within the safe harbor provided by Bureau regulations to debt collectors that use the model form letter. The defendant contended that, even if it did not qualify for the safe harbor provision, it is not a violation of the FDCPA for a debt collection letter to be undated. The plaintiff asked the court to ignore the Bureau’s safe harbor provision and find that the undated letter is sufficient to state a plausible FDCPA claims.
In dismissing one of plaintiff’s claims, the court agreed with the defendant that the plaintiff failed to provide any factual or plausible allegations demonstrating “harass[ment], oppress[ion], or abuse” by the defendant (a requirement for alleging a violation of 15 U.S.C. section 1692d). “An undated letter, with little else, is not ‘the type of coercion and delving into the personal lives of debtors that [section] 1692d in particular[] was designed to address,” the court wrote.
However, the court determined that the plaintiff’s other three claims survive the motion to dismiss. First, the court held that the defendant’s reliance on the model form letter “overstates both the meaning and scope of the regulatory safe harbor provided by the CFPB.” Specifically, the plaintiff did not allege that the defendant violated any CFPB regulations—he alleged violations of the FDCPA, and the court explained that nowhere does the Bureau state that using the model form letter “suffices as compliance with the corresponding statutory requirements of [FDCPA] section 1692g.” Moreover, while use of the model form might provide a safe harbor from some of the statute’s requirements, “a safe harbor for the form of provided information is different from a safe harbor for the substance of that information,” the court said, adding that using the model form letter alone does not bar plaintiff’s claims. Additionally, the court determined that under the “least-sophisticated consumer” standard, the plaintiff alleged plausible claims for relief based on the omission of the date in the letter. Among other things, the undated letter could be interpreted as not stating the full amount of the debt, nor does the letter provide a means for plaintiff to assess how the debt might increase in the future if he did not make a prompt payment. With respect to whether the defendant used “unfair or unconscionable means to collect” the debt, the court determined that the undated letter’s misleading nature as to the full amount of the debt might “be ‘unfair or unconscionable’ to the least-sophisticated consumer.”
2nd Circuit says collection letter sent on law firm letterhead did not violate FDCPA
On February 13, the U.S. Court of Appeals for the Second Circuit affirmed summary judgment in favor of a defendant law firm accused of violating the FDCPA when it sent the plaintiff a collection letter on law firm letterhead. The plaintiff claimed both that the letter overshadowed her validation notice by failing to advise her that her validation rights were not overridden because her account had been placed with a law firm and that the letter falsely implied it was a communication from an attorney even though no attorney was meaningfully involved in collecting the debt, which courts have found is prohibited under the FDCPA. The district court granted summary judgment to the defendant on both grounds. The district court held that “because there was meaningful attorney involvement in the collection of plaintiff’s debt,” the letter was not required to include a disclaimer regarding the lack of attorney involvement in the debt collection effort. Additionally, the district court held that because the letter did not refer to any consequences should the plaintiff fail to repay the outstanding debt, “the mere fact that [the] Collection Letter is printed on law firm letterhead does not, by itself, imply an immediate threat of legal action overshadowing a validation notice in violation of the FDCPA.” The plaintiff appealed.
In affirming the grant of summary judgment, the appellate court rejected the plaintiff’s argument that, because several of the steps the attorney supposedly followed were “performed by non-attorneys,” were “automated,” or could have been completed in a minimal amount of time, there was not meaningful attorney involvement. According to the 2nd Circuit, even if these facts were true, they did not refute the attorney’s “statement that he conducted a meaningful legal analysis of [plaintiff’s] account and ‘formed an opinion about how to manage [the] case.’” “We have never established a specific minimum period of review time to qualify as meaningful attorney involvement, and the only function that [plaintiff] has identified that [defendant] did not perform before approving the letter was establishing a specific plan to sue in the event of non-payment.” Consequently, the appellate court concluded that the FDCPA did not require the defendant to provide a disclaimer in its initial collection letter to the plaintiff.
CFPB finds 33 percent decline in collections tradelines on credit reports
On February 14, the CFPB released a report examining debt collection credit reporting trends from 2018 to 2022. The Bureau’s report, Market Snapshot: An Update on Third-Party Debt Collections Tradelines Reporting, is based on data from the agency’s Consumer Credit Panel—a nationally representative sample of roughly five million de-identified credit records maintained by one of the three nationwide credit reporting companies. According to the report, from Q1 2018 to Q1 2022, the total number of collections tradelines on credit reports declined by 33 percent, from 261 million tradelines in 2018 to 175 million tradelines in 2022. The Bureau determined that this decline was driven by contingency-fee-based debt collectors (responsible for primarily furnishing medical collections tradelines), who furnished 38 percent fewer tradelines during this time period. The total number of unique contingency-fee-based debt collectors also declined by 18 percent (from 815 to 672).
In a related blog post, the Bureau estimated that while medical collections tradelines declined by 37 percent between 2018 and 2022, these tradelines still constitute a majority (57 percent) of all collections on consumer credit reports. The Bureau explained that the “decline may be partly explained by structural dysfunctions in medical billing and collections, which increase the risk that debt collectors will not meet their legal obligations” and can result in false and inaccurate information. The Bureau said it will continue to closely examine medical billing and collection practices and highlighted a bulletin published in January 2022, which reminded debt collectors and credit reporting agencies of their legal obligations under the FDCPA and the FCRA when collecting, furnishing information about, and reporting medical debts covered by the No Surprises Act. (Covered by InfoBytes here.)
District Court denies certification and defendants’ motion for summary judgment in FDCPA class action
On January 26, the U.S. District Court for the Western District of Washington denied a plaintiff’s motion for class certification and denied motions for summary judgment from defendants in an FDCPA case stemming from a consent order between one of the defendants and the CFPB. As previously covered by InfoBytes, in September 2017, the CFPB announced it had filed a complaint in the U.S. District Court for the District of Delaware against a collection of 15 Delaware statutory trusts and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations. According to the consent judgment, the trusts were required to pay at least $3.5 million in restitution to more than 2,000 consumers who made payments resulting from the improper collection suits, to pay $7.8 million in disgorgement to the Treasury Department, and to pay an additional $7.8 million civil money penalty to the CFPB. In addition, the trusts were required to: (i) hire an independent auditor, subject to the Bureau’s approval, to audit all 800,000 student loans in the portfolio to determine if collection efforts must be stopped on additional accounts; (ii) cease collection attempts on loans that lack proper documentation or that are time-barred; and (iii) ensure false or misleading documents are not filed and that documents requiring notarization are handled properly. A separate consent order issued against the debt collector orders the company to pay a $2.5 million civil money penalty to the CFPB.
According to the district court’s order, the plaintiffs, who were sued by the defendants for failing to pay their student loans, alleged that the defendants filed fraudulent, deceptive, and misleading affidavits in order to obtain default judgments. The plaintiffs sought to include a class of those residing in Washington for which the defendants sought to collect a debt allegedly owned by one of the trusts. The district court, however, was “unconvinced” that any of the questions would generate common answers on a class-wide basis. For example, the question of whether the defendants’ employees filed false or misleading affidavits “cannot be resolved in one stroke,” the district court said, because the plaintiffs “cannot show by a preponderance of the evidence that the documents Defendants used in every debt collection action suffered from the same alleged deficiencies.” With respect to the defendants’ summary judgment motion, the district court determined there were genuine issues of material fact regarding the alleged violations of the FDCPA and state law in Washington. The district court denied the defendants’ motion for summary judgment, noting noted that “[a]ttempts to collect debts with false affidavits and without the necessary documentation to prove the claims is unfair or unconscionable and involves false, deceptive, and/or misleading representations in violation of the FDCPA.”
2nd Circuit affirms dismissal of FDCPA, FCRA, RICO action
On January 19, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of a debt collection action related to alleged violations of the FCRA, FDCPA, and the Racketeer and Influenced and Corrupt Organizations (RICO) Act. Plaintiff filed a complaint against a telecommunications company and related entities concerning a disputed past-due charge and subsequent debt collection proceeding. The district court dismissed the action and denied the plaintiff’s motion for sanctions. In affirming the dismissal, the appellate court concluded that the district court correctly determined that the plaintiff failed to state a claim under the FCRA on the basis that (i) the plaintiff failed to allege cognizable damages caused by the alleged violations; and (ii) the credit reporting agencies corrected the allegedly inaccurate information within 30 days of being notified. The 2nd Circuit held that the plaintiff’s FDCPA claims also failed, pointing to the U.S. Supreme Court’s decision in Henson v. Santander Consumer USA Inc., which found that “you have to attempt to collect debts owed another before you can ever qualify as a debt collector” under the FDCPA. According to the appellate court, the plaintiff claimed that the relevant defendants are or were creditors seeking to collect on debts owed to them, and that, as such, they do not qualify as debt collectors under the statute. Finally, the 2nd Circuit concluded that the district court correctly determined that the plaintiff failed to demonstrate how the communications he received from the defendant qualified as mail or wire fraud under RICO.
District Court grants motion to set aside default judgment in FDCPA, FCRA suit
On January 19, the U.S. District Court for the District of South Dakota granted a defendant “buy now, pay later” service’s motion to set aside the default judgment in an FDCPA and FCRA suit originally entered in a small claims court. According to the order, the plaintiff filed suit in small claims court alleging violations of the FDCPA and FCRA, but the defendant did not receive notice of the suit and, as such, did not respond to the claim. A default was entered against the defendant thereafter. Upon receiving notice of the default, the defendant removed the case to federal court and moved to set aside the default. With respect to removal, the court held that removal was timely because it was made within 30 days of receiving the notice of default and held that removal was proper based on federal question jurisdiction. With respect to the motion to set aside, the court set aside the judgment, finding that there was no evidence of bad faith on the defendant’s part, that there was no prejudice to the plaintiff, and that the defendant did have “meritorious defenses” to the plaintiff’s claims.
3rd Circuit: Now-invalid default judgment still in effect when debt collection attempts were made
On January 11, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s decision to grant summary judgment in favor of defendants accused of violating the FDCPA when attempting to collect on a judgment that was later vacated. According to the opinion, the plaintiff was sued in state court for an unpaid debt. Contradictory orders were entered by the Superior Court, one which dismissed the action due to one of the defendant’s failure to attend trial, and another that entered default judgment against the plaintiff (which was confirmed two years later by the state court).
A few years later, an attempt was made to collect on the debt. The plaintiff disputed the debt and later sued, claiming the defendants “knew or should have known” that the debt was unenforceable. The plaintiff later filed a motion in state court to vacate the default judgment and declare it “void ab initio,” which was eventually granted by the state court after it determined that the judgment was erroneously entered by the clerk after the court had already dismissed the case due to the debt collector’s failure to appear for trial. The plaintiff filed a cross-motion for summary judgment in the district court.
The district court, however, found that the defendants’ alleged efforts to collect the debt were not false or misleading because the now-invalid default judgment at issue was technically still valid and existed when the collection attempts were made. The plaintiff appealed, arguing that the summary judgment violated the Rooker-Feldman doctrine because the district court “‘could not have reached the decision that it did without necessarily supplanting’ the Superior Court’s order vacating the judgment against her.” The plaintiff also argued that the district court erred when it found the Superior Court judgment against the plaintiff to be “in effect . . . until such time as it was vacated, . . . rather than ‘per se not valid’” when the defendants engaged in their efforts to collect the debt.
On appeal, the 3rd Circuit disagreed with the plaintiff’s assertions. According to the appellate court, the plaintiff satisfied none of the four requirements to trigger the Rooker-Feldman doctrine, adding that regardless of whether the state court declared the judgment “void ab initio,” it was in effect when the defendant attempted to collect on the debt. Moreover, the appellate court noted that the plaintiff “failed to present a triable issue that any communication from Defendants to [the plaintiff] regarding the collection of the default judgment was made unlawful retroactively upon the Superior Court vacating its default judgment order.”
District Court issues judgment against debt-collection law firm
On January 11, the U.S. District Court for the Southern District of New York entered a proposed stipulated final judgment and order against a defendant New York debt-collection law firm. As previously covered by InfoBytes, the Bureau’s complaint alleged that between 2014 and 2016 the defendant initiated over 99,000 collection lawsuits in an attempt to collect debts by relying on “non-attorney support staff, automation, and both a cursory and deficient review of account files,” in violation of both the FDCPA and the Consumer Financial Protection Act. The Bureau alleged the lawsuits contained names and signatures of attorneys despite those attorneys “not being meaningfully involved in reviewing the merits of the lawsuits,” including not reviewing pertinent documentation related to the debts, such as account applications, billing statements, payment histories, and the terms and conditions governing an account. Moreover, the defendant allegedly did not perform reviews of the contracts related to debt sales, despite filing lawsuits on behalf of debt buyers that have been accused of unlawful debt collection practices.
In order to continue with debt-collection litigation, for each collection suit, the settlement requires the defendant to possess documents with specific information about the debt, including the name of the original creditor, evidence that the consumer authorized the debt, the chain of assignment supporting any sale of the debt, and a break-down of how the debt amount was calculated. The defendant must also certify that the attorney whose name appears on the complaint reviewed the supporting documentation and ensure the complaint is consistent with that documentation. Any pending lawsuit in which the defendant does not certify its compliance with the specific information and meaningful attorney review requirements must be voluntarily dismissed. The also order requires the defendant to pay a $100,000 penalty to the Bureau.