Monday, August 14, 2017

No interest? No Disclosure? No Problem!


The juxtaposition of Sections 1692e and 1692g continues to be a battle ground for the consumer bar and collection industry.  Section 1692e prohibits false, deceptive or misleading representations in connection with the collection of a debt.  Section 1692g(a) requires that within five days of initial communication, the debt collector provide the consumer with a written notice which contains five pieces of information: (a) the amount of the debt; (b) the name of the creditor to whom the debt is owed; (c) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector; (d) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and (e) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor. 

A recent case out of the District Court for Oregon illustrates the extreme positions being taken by the consumer bar and provides some reassurances to the industry.  In Powers v. Capital Management Services, the collection agency sent a single letter which identified the original and current creditor, the account number as “5702” and the amount of the debt as $565.91.  Powers v. Capital Mgmt Servs., 2017 U.S. Dist. LEXIS 121536 (D. Ore. Aug. 2, 2017).  The consumer filed suit, alleging that: (a) by failing to disclose whether interest was or was not accruing on the balance of the debt, the agency violated 15 U.S.C. §1692g(a); and (b) by identifying the account number as being its last four digits, the agency misrepresented the account number in violation of 15 U.S.C. §1692e.

In addressing the first issue, the court quickly drew a distinction between accounts where interest is accruing and those in which it is not.  “Where interest is not accruing on a debt, the debt collector does not need to state that no interest is accruing.  Rather, it is only in instances when interest is accruing on a debt does Section 1692g(a)(1) require a debt collector to disclose that fact and include both principle and interest when stating the amount due.” Id. at *3-4.

Moving to the second issue, the court was dismissive of the consumer’s claim that the collection agency’s use of the last four digits of the account number was misleading.  The court observed that the numbers used were associated with the consumer’s account and the notice reflected the exact amount owing on the account.  Moreover, while there may have been better ways to identify the account – for instance, preceding the last four digits with xxx-xxx-xxx or with the phrase “account ending in”,  a “consumer of below average sophistication or intelligence, but still possessing a basic level of understanding and willingness to read with care, would understand that “5702” identifies their consumer… credit card account number.” Id. at *6.

Friday, July 14, 2017

Fifth Circuit Affirms Debt Collector’s Duty to Report Disputed Debt


A recent opinion from the Fifth Circuit should serve as a reminder to debt collectors that their duties as to disputed debts are not governed solely by section 1692g.  In Sayles v. Advanced Recovery Systems, Advanced Recovery Systems (“ARS”) sent debt validation notices pursuant to section 1692g to the plaintiff regarding two debts.  The notices were sent to the plaintiff’s last known address in June and September of 2013.  Sayles v. Advanced Recovery Sys., 2017 U.S. App. LEXIS 12080, *1 (5th Cir. July 6, 2017). The plaintiff never responded to the notices with a dispute or request for validation and in fact, alleges he did not recall receiving the validation notices.  In February 2014, however, the plaintiff discovered ARS was reporting the debts on his credit report.  In response, plaintiff faxed a letter to ARS on March 5, 2014 disputing the debts and requesting validation.  In April 2014, plaintiff ran his credit report again and discovered ARS was still reporting the debts and had failed to mark the debts as “disputed.”  The plaintiff filed suit against ARS, contending that ARS violated 15 U.S.C. §1692e(8) which provides that a debt collector may not  communicate or threaten to communicate any “credit information which is known or which should be known to be false, including the failure to communicate a disputed debt is disputed.”  15 U.S.C. §1692e(8).

The primary issue before the district court was whether a debt collector may rely upon a consumer’s failure to seek validation within the thirty day validation period as a defense for the debt collector’s failure to report a subsequent dispute as to the debt to the credit reporting agencies. The district court held that it could not.  In doing so, the court stated that the protections provided by section 1692e(8) were separate and apart from those provided by section 1692g.  While ARS was not under an affirmative duty to correct its reporting prior to its receipt of the plaintiff’s fax, once it received the fax, it was under an affirmative duty to communicate in its future reporting that the debt was disputed.  Sayles v. Advanced Recovery Sys., 206 F. Supp. 3d 1210,  1216 (S.D. Miss. 2016).

On appeal, the Fifth Circuit agreed with the district court.  In doing so, the Fifth Circuit focused on the specific language of section 1692e(8) and,  particularly, the “knows or should know” language.  “This “knows or should know” standard requires no notification by the consumer, written or oral, and instead, depends solely on the debt collector’s knowledge that a debt is disputed, regarding less of how or when that knowledge is acquired.  Applying the meaning of “disputed debt” as used in {1692g(b)] to [1692e(8)] would thus render the provision’s “knows or should know” language impermissibly superfluous.” .  Sayles v. Advanced Recovery Sys., 2017 U.S. App. LEXIS 12080 at *5-6 (internal citations omitted).

Wednesday, July 12, 2017

Mortgage Servicer’s Transfer Notice Violates FDCPA


Mortgage servicers need to carefully review their Transfer Notices when the debt is in default at the time of transfer.  In an unpublished decision, the Eastern District of New York recently held that a “Notice of Servicing Transfer” violated 15 U.S.C. §1692e(10).  In Baptiste v. Carrington Mortgage Services, LLLC, 2017 U.S. Dist. LEXIS 103609 (E.D.N.Y. July 5, 2017), Carrington sent a “Notice of Servicing transfer” to the plaintiff alerting him that his mortgage servicing was being transferred to Carrington.  The letter went on to advise the plaintiff that “going forward, all mortgage payments should be sent to Carrington, but that ‘[n]othing else about [the] mortgage loan will change.”  Baptiste at *2.  The letter additionally included an FDCPA notice that stated that “[t]his notice is to remind you that you owe a debt.  As of the date of this Notice, the amount of debt you owe is $412,078.34.”  Id..  The attached FDCPA notice also noted that “[Carrington} is deemed to be a debt collector attempting to collect a debt and any information obtained will be used for that purpose.” Id. at *3.  At the time of the servicing transfer, the mortgage was in default.  The plaintiff contended the letter violated 15 U.S.C. §1692e(10) by failing to disclose that the balance on his debt was increasing due to interest.  Carrington moved to dismiss.

In denying Carrington’s motion to dismiss, the court relied upon the Second Circuit’s recent decision in Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2nd Cir. 2016).  In Avila, the Second Circuit held “that the FDCPA requires debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees.” Avila, 817 F.3d at 76. 

In support of its motion to dismiss, Carrington argued that Avila was not applicable because the Transfer Notice was not a collection attempt and therefore not subject to section 1692e.  The court, however, rejected that argument relying on another Second Circuit decision, Hart v. FCI Lender Servs., Inc., 797 F.3d 219 (2nd Cir. 2015).  In doing so, the court considered the following factors when reviewing the notice: (a) the Notice’s reference to the debt and direction that payments be sent to Carrington; (b) the reference to the FDCPA and inclusion of the section 1692g notice; and (c) the inclusion of a statement that the Notice is an attempt to collect a debt.  These factors, according to the court, indicated that the Notice of Transfer was sent in connection with the collection of a debt.

Mortgage servicers need to pay careful attention to each and every communication with consumers beginning with their Notice of Transfer. While mortgage servicers are not covered by the FDCPA when servicing current accounts, those mortgage servicers accepting transfers of defaulted portfolios or mixed portfolios should review each and every communication provided to a consumer to ensure its compliance with the FDCPA.

 

 

Tuesday, June 27, 2017

CFPB's Monthly Complaint Report Takes a New Approach

The CFPB has issued its monthly complaint report. The report is a high level snapshot of trends in consumer complaints. The report traditionally provides a summary of the volume of complaints by product category, by company and by state. This month, however, the Report has taken a new view- one based upon a state by state analysis and new national statistics. Here are the major takeaways on the national front:
  • The Report rather succinctly notes the following
    • Complaint volume rose 7% between 2015 and 2016.
    • Debt collection and mortgage product types account for approximately half of all complaints filed. 
    • Over half of all consumers submitting complaints want their narratives published.

Wednesday, June 7, 2017

Fourth Circuit Weighs in on Article III Standing


The Fourth Circuit recently examined the issue of Article III standing in the context of the FDCPA.  In Ben-Davies v. Blibaum & Associates, P.A., 2017 U.S. App. LEXIS 9667 (4th Cir. June 1, 2017), the consumer sought to assert an FDCPA claim against a law firm, contending that the law firm attempted to collect a debt arising out of a state court judgment by demanding payment of an incorrect sum based on the calculation of an interest rate not authorized by law.  The consumer alleged that as a “direct consequence” she “suffered and continues to suffer” “emotional distress, anger and frustration.”  Id. at *6.  The district court dismissed the FDCPA claim for lack of standing under Article IIII, concluding that Ben-Davies had not established an injury in fact.

In an unpublished opinion, the Fourth Circuit reversed.  In examining the “injury in fact” component of standing, the court noted that “injury in fact” is not limited to financial or economic losses but can be shown when the plaintiff shows that she suffered an invasion of a legally protected interest that is concrete and particularized and actual or imminent.  In this case, the court was influenced by the fact that “[t]his was not a case where the plaintiff simply alleged a bare procedural violation [of the FDCPA], divorced from any concrete harm.”  Id.  Instead, the court took the position that the allegations of actual existing harms that affected here personally and specifically, the allegations of “emotional distress, anger and frustration: were sufficient to establish the existence of injury in fact.

A point of concern for the ARM industry is the fact that the court did not limit its review of the matters to the pleading (the motion before the court was a motion based upon Rule 12(b)(1)) but instead included “documents explicitly incorporated into the complaint” as well as additional documents submitted by Ben-Davies which “do not conflict with the allegations and that are integral to the complaint and authentic.”  Id. at *3-4.

Thursday, June 1, 2017

Guest Post: District Court Rejects Vicarious Liability Claims under the TCPA


By Alexa Cannon

A Michigan district court recently weighed in on the availability of vicarious liability for violations of the Telephone Consumer Protection Act (the “TCPA”). In Kern v. VIP Travel Servs., the plaintiffs received several dozen telephone calls from United Shuttle Alliance Transportation Corp. (“USA”). Kern v. VIP Travel Servs., 2017 U.S. Dist. LEXIS 71139 (W.D. Mich. 2017). The calls were made over a three month span to cell phones which were registered on the national do-not-call registry. When answering the calls, plaintiffs heard an automated voice telling them, “Pack your bags! You’ve won a Disney Vacation!” Id. at *3. The voice directed the plaintiffs to press 1 to reach a representative in order to reserve a date at various vacation resorts of their choosing. After plaintiffs spoke to a representative, they were directed to a website in order to purchase the packages at a discounted rate. Plaintiffs made reservations to stay at three resorts and received emails from the resorts confirming their reservations.

Plaintiffs contended that the telephone calls made by USA violated the TCPA, and that the resorts were vicariously liable for the calls. Examining the vicarious liability of the resorts, the court first noted that “[a]n entity may be vicariously liable for TCPA violations ‘under a broad range of agency principals.”  Id. at *16.  The court then went on to examine the claims against the resorts under principles of actual authority, apparent authority, and ratification.

Actual Authority

In reviewing the plaintiffs’ claims as to actual authority, the court focused its analysis on the resorts’ rights to control the agent’s actions. Id at *17. When analyzing the facts here, the court determined there was nothing in the complaint that created a reasonable inference that the resorts had the right to control USA. The court noted that even if the resorts contracted with USA to solicit customers, this was not enough to establish that the resorts had the right to control USA. Id. at *19. The court therefore concluded there was no supporting evidence to prove that USA reasonably believed that the resorts had given it authority to make calls which violated the TCPA, thus actual authority was nonexistent.

Apparent Authority

The court next turned its attention to the plaintiffs’ assertion that USA had apparent authority on behalf of the resorts to make calls which violated the TCPA. Here, the court focused on whether the resorts had held USA out to third parties as possessing sufficient authority to commit the particular act in question. Id. at *19. The court ruled that there were no well-pleaded allegations to suggest the resorts gave USA access to detailed information about their vacation packages, or gave USA to authority to enter customer information into Resort’s database. The court reasoned that although USA knew the price of the vacation packages, the duty rested on the Plaintiffs to confirm their reservations because USA could not finalize the transaction. In short, the court concluded that the plaintiffs’ apparent authority argument failed because the resorts never “held out” USA as possessing sufficient authority to make the violative calls.

Ratification

Lastly, the court examined the plaintiffs’ argument that the resorts should be held vicariously liable due to their ratification of USA’s actions. The court took issue with plaintiffs’ ratification argument and noted that the complaint did not provide the court with any reasonable inference that the resorts were aware of USA’s unlawful calls. Therefore, the resorts never affirmed USA’s actions.

Rejecting the Plaintiffs’ vicarious liability argument, the court rendered a dismissal for both resorts. The opinion should be welcomed by defense counsel defending TCPA violations as it provides guidance to the extent at which vicarious liability can hold a party liable under federal common law agency principles for a TCPA violation by a third  party telemarketer.

 
About the Author.  Alexa Cannon is a rising third year law student at Campbell University and is a summer law clerk with Smith Debnam Narron Drake Saintsing & Myers, LLP.