Sunday, February 11, 2018

Seventh Circuit in Boucher: Miller Safe Harbor Language Does Not “Immunize” Debt Collectors from Liability for Violations of § 1692e

By Zachary K. Dunn

Eighteen years ago, the Seventh Circuit crafted “safe harbor” language which, if used, shielded debt collectors from liability under 15 U.S.C. § 1692g. A recent decision, Boucher v. Fin. Sys. of Green Bay, 2018 U.S. App. LEXIS 1094 (7th Cir. 2018), now calls that safe harbor language into question and subjects collectors to liability under another section of the Fair Debt Collection Practices Act (“FDCPA”), § 1692e, for use of the language the court itself drafted.


Section 1692g requires debt collectors to disclose, among other information, the “amount of the debt” a consumer owes. See 15 U.S.C. § 1692g(a)(1). This requirement is particularly onerous, as many debts are subject to fees, interest, and other charges which can increase the amount of the debt owed on a daily basis.  To help deal with this reality, the Seventh Circuit in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, LLC, 214 F.3d 872 (7th Cir. 2000) fashioned safe harbor language which, the Court held, satisfied the debt collector’s duty to state the “amount of the debt.” Commonly known as the Miller safe harbor, the language reads as follows:

As of the date of this letter, you owe $ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1-800-[phone number].

Miller, 214 F.3d at 876.  After Miller, many debt collection companies began including this or similar language in communications with debt collectors. In Boucher v. Fin. Sys. of Green Bay, 2018 U.S. App. LEXIS 1094 (7th Cir. 2018), however, the Seventh Circuit called into question the propriety of relying on the Miller safe harbor language in communications with consumers by holding that such language was misleading under § 1692e, which broadly prohibits the use of any “false, deceptive, or misleading representation or means in connection with the collection of any debt.”


In Boucher, the debt collector, Finance System of Green Bay (“Green Bay”), was collecting upon medical debt and sent a letter to a consumer that included the Miller safe harbor language. The Seventh Circuit held that the safe harbor language – which was included in the letter to satisfy § 1692g and comply with Miller – was “false, deceptive, or misleading” within the meaning of § 1692e.  According to the Court, because Wisconsin law prohibits debt collectors from imposing “late charges or other charges” (beyond interest) on medical debt, the letter “falsely implies a possible outcome—the imposition of ‘late charges and other charges’—that cannot legally come to pass.” Id. at *9. Although the Miller language is not misleading or deceptive on its face, the Court found it may “nevertheless be inaccurate” under certain circumstances.


In reaching this result, the Court held that debt collectors cannot “copy and paste the Miller safe harbor language to avoid liability under § 1692e.” Troublingly, the Court held that “[a]lthough the safe harbor was offered in an attempt both to bring predictability to this area and to conserve judicial resources, it is compliance with the statute, not our suggested language, that counts.” Since “judicial interpretations cannot override the statute itself,” the Court implicitly suggested that debt collectors may need to ignore judicial opinions interpreting the statute, as the Court may interpret the statute differently in the future.


What does Boucher mean for Debt Collectors?


After Boucher, debt collectors cannot simply include Miller’s language to communications with consumers and be protected from liability under § 1692g and § 1692e. Debt collectors must consider all of the circumstances, including the requirements of state law, and determine whether the Miller language is accurate before including it in a communication with a consumer. This includes providing detailed information from which an unsophisticated consumer can determine whether their debt will increase.
Zachary Dunn is an attorney practicing in Smith Debnam's Consumer Financial Services Litigation and Compliance Group

Friday, February 9, 2018

Sharing of Convenience Fees Spells Trouble Under the FDCPA

A recent opinion from a district court in California serves as a reminder to creditors and debt collectors of the limited circumstances upon which convenience fees can be collected.  In Lindblom v. Santander Consumer USA, 2018 U.S. Dist. LEXIS 993313267 (E.D. Cal. Jan. 22, 2018), the consumer was offered a variety of methods for payment.  While some of the options were free, the consumer opted to make several payments using a “speedpay” service through Western Union.  Use of the service cost the consumer $10.95 per use.  Through a fee sharing agreement, Santander and Western Union split the convenience fee. The consumer brought a putative class action asserting that Santander’s collection and retention of the Speedpay fees violated section 1692f(1) of the FDCPA.   Santander filed a motion for summary judgment asserting that plaintiffs expressly authorized the Speedpay fees when they knowingly agreed to use the Speedpay service.

Section 1692f(1) prohibits the collection of “any amount (including any interest, fee, charge or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”  Relying on provisions of state law which allow a written contract to be modified by an oral agreement, Santander contended that each time the consumer used Speedpay, she and Santander modified the underlying contract to allow that fee.  The court was not persuaded.  Because the parties’ underlying contract did not address the Speedpay fees in any manner, the court concluded that there could be no oral modification.  “An ‘oral modification’ presupposes an existing term or provision in writing.” Lindblom at *17.  Further, because the plaintiff was not informed that Santander was keeping a portion of the Speedpay fee, the plaintiff could not have knowingly agreed to the modification.  The court was further persuaded by the fact that Section 1692f(1)’s purpose is to preclude debt collectors from implementing a method to increase their compensation through the collection of service charges in addition to the underlying debt.

Left unanswered by the court is the question of whether a different result would have been reached had the fee represented the actual cost of the transaction and not been shared with the creditor.  Those facts would likely present a closer question, but creditors and debt collectors should use caution when determining whether to pass along convenience fees to consumers as a number of jurisdictions and the CFPB have raised concerns with the same.

Thursday, February 1, 2018

Tenth Circuit Joins the Fray Regarding Whether Foreclosures Are Debt Collection Activity

The Tenth Circuit has weighed in on whether a non-judicial foreclosure is debt collection activity.  In doing so, the Tenth Circuit has joined a split in the circuits on the issue.  With the Tenth Circuit’s decision the circuits remain split with the Ninth Circuit and now the Tenth Circuit holding that non-judicial foreclosures are not debt collection activity and the Fourth, Fifth and Sixth Circuits holding that they are.

  In Obduskey v. Wells Fargo, 2018 U.S. App. LEXIS 1275 (10th Cir., Jan. 19, 2018), Wells Fargo retained foreclosure counsel who sent the consumer an initial communication which stated that it “MAY BE CONSIDERED A DEBT COLLECTOR ATTEMPTING TO COLLECT A DEBT” and advised Mr. Obduskey that it had been retained to initiate foreclosure proceedings.  The letter referenced the amount owed and identified the current creditor as Wells Fargo.  In response, the consumer requested validation of the debt.  Instead of responding, the law firm initiated a non-judicial foreclosure.  Mr. Obduskey then filed suit alleging the law firm violated 15 U.S.C. §1692g. 

The law firm moved to dismiss the action asserting that it was not a debt collector covered by the FDCPA because a foreclosure proceeding is not a debt collection activity.  The district court agreed and dismissed the complaint.  On appeal, the Tenth Circuit addressed the issue of whether the FDCPA applies to non-judicial foreclosure proceedings.  

In doing so, the court first looked to the plain language of the statute and the nature of a non-judicial foreclosure.  Adopting the rationale of the Ninth Circuit, the court took the position that the FDCPA only imposes liability when an entity is attempting to collect money.  Because a non-judicial foreclosure does not preserve the right to collect a deficiency personally against the mortgagor and would require a separate action to do so, the Court was persuaded that it was not an attempt to collect money and was only the enforcement of a security interest. 

The Court also found that policy considerations supported its decision. The Court took into consideration the provisions of Colorado’s non-judicial foreclosure statutes and noted that they conflicted with the FDCPA.  Specifically, the state provisions required notice to any party that may have acquired an interest in the property.  The state statute therefore conflicted with the third party prohibitions under the FDCPA.  The state provisions also conflicted with the FDCPA by requiring direct notice to the consumer even when represented by counsel. Taking this into account, the court found that there is no ‘clear and manifest’ intention on the part of Congress to supplant state non-judicial foreclosure law. Indeed, many of the conflicts noted above are designed to protect the consumer and preempting them under the FDCPA would seem to undermine their purpose as well as the purpose of the FDCPA.”  Obduskey at *11-12 (internal citations omitted).

It is important to note that the Court’s decision is limited in several respects.  First, it is limited to non-foreclosure proceedings.  Secondly, the holding is limited to the facts of this case.  The court suggested that its holding might have been different had there been evidence of “aggressive collection efforts leveraging the threat of foreclosure into payment of money.” Id. at *12.  The court left that discussion for another day as there were no facts to suggest the law firm had demanded payment or used foreclosure as a threat to elicit payment.

Sunday, January 21, 2018

Mulvaney Reigns in the CFPB

On November 24, 2017, the White House appointed Mick Mulvaney as acting director of the CFPB, effective November 27, 2017.  Since then, concerns have been raised that Mulvaney might ‘gut” the agency.  Here is a quick look at the actions of the agency since Mulvaney’s appointment:

  • December 2017: The CFPB has changed its mission statement.  Previously the mission statement read: “The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives”  The mission statement now reads: “The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.” (emphasis supplied).
  • December 2017:  Various actions of the CFPB indicate debt collection rulemaking is on hold.  Specifically, the CFPB withdrew its request to the OMB to conduct an online survey of consumers as part of its debt collection disclosures.
  • January 16, 2018: The CFPB announced its intentions to reconsider the final payday rule which took effect January 16, 2018.
  • January 17, 2018: Director Mulvaney informed the Fed that the CFPB will forego any funding for the Second Quarter of 2018, stating its intent to spend down the CFPB’s reserve fund prior to requesting any additional funding. In his letter to Fed Chair Janet Yellen, Mulvaney states as follows:
    I have determined that no additional funds are necessary to carry out the authorities of the Bureau for FY 2018, Q2.  Simply put, I have been assured that the funds currently in the Bureau Fund are sufficient for the Bureau to carry out the statutory mandates for the next fiscal quarter while striving to be efficient, effective, and accountable.”
  • January 17, 2018: The CFPB stated its intent to publish in the Federal Register a series of Requests for Information seeking comment on its enforcement, supervision, rulemaking, market monitoring and education activities. The Release quotes Mulvaney as stating that “[i]n this New year, under new leadership, it is natural for the Bureau to critically examine its policies and practices to ensure they align with the Bureau’s statutory mandate.” The first of those RFIs will review the Bureau’s Civil Investigative Demand processes and procedures.

The actions of Mulvaney thus far indicate the Trump administration, at a minimum, will significantly reign in the CFPB.  The question becomes: will they go too far?

Monday, January 15, 2018

Second Circuit Holds Flu Shot Reminder Did Not Violate the TCPA

The Second Circuit has affirmed a lower court decision that a flu shot reminder sent by text message by a medical provider did not violate the Telephone Consumer Protection Act (the “TCPA”).  The decision is important because it interprets the 2012 FCC Healthcare Exemption as providing an exemption as to prior written consent rather than a wholesale exemption from consent.  Latner v. Mount Sinai Health System, Inc., 2018 U.S. App. LEXIS 114 (2nd Cir. Jan. 3, 2018).

The limited record indicates that Mr. Latner visited Mt. Sinai in 2003 for a routine health examination.  At that time, he filled out new patient forms including a “New Patient Health Form” which contained his contact information, as well as an “Ambulatory Patient Notification Record” granting the hospital and its facilities consent to use his health information “for payment, treatment and hospital operations purposes.”  In 2011, Mr. Latner visited Mt. Sinai again and declined any immunizations.  In 2014, Mt. Sinai, through a third-party vendor, sent Mr. Latner the following text message: “Its flu season again.  Your PCP at WPMG is thinking of you! Please call us at 212-247-8100 to schedule an appointment for a flu shot…”  Latner at *3.  The message was sent to all active patients, including Mr. Latner, that had visited the office in the three years prior to the date of the text.

Mr. Latner filed a putative class action, alleging that the text message violated the TCPA.  The hospital moved for judgment on the pleadings and asserted, as an affirmative defense, Mr. Latner’s prior express consent. Latner, 1:16-cv-00683 (S.D.N.Y.), Dkt. No. 42. 

In affirming the district court’s ruling, the Second Circuit did a two-step analysis.  It first determined whether the communication was covered by the 2012 FCC Healthcare Exemption and secondly, determining whether Mr. Latner had provided effective consent. 

The Second Circuit concluded that the communication was covered by the 2012 FCC Healthcare Exemption.  Under the 2012 FCC Telemarketing Rule, prior written consent is required for autodialed or prerecorded telemarketing calls.  The Rule, however, contains an exemption for covered healthcare providers in certain instances.  The court determined that the Healthcare Exemption exempts from written consent “calls to wireless cell numbers if the call ‘delivers a ‘health care’ message made by, or on behalf of, a ‘covered entity’ or its ‘business associate’ as those are defined in the HIPPA Privacy Rule.”  “HIPPA defines health care to include ‘care, services, or supplies related to the health of an individual’… and exempts from its definition of marketing all communications made ‘[f]or treatment of an individual by a health care provider… or to direct or recommend alternative treatments’ to the individual.” Id. at *5.  Both the district court and the Second Circuit concluded that the text message qualified for the FCC’s Healthcare Exemption.

The Second Circuit then moved to the issue of prior express consent and reviewed the terms of the consent provided by Mr. Latner in his 2003 consent forms.  Of particular importance to the court, the forms provided consent to use Latner’s information “to recommend possible treatment alternatives or health-related benefits and services.” Id. at *6-7.    The court concluded that the language of the forms therefore provided prior express consent to receive text messages concerning a “health related benefit” such as a flu shot.

The opinion is important for a few reasons.  First, it clarifies that the Healthcare Exemption only exempts covered communications from written consent and is not a wholesale exemption as to consent. Secondly, the opinion emphasizes the importance of carefully worded consent provisions.  All business verticals which use automated messaging, calls or text messages should review their intake documents to ensure that consent is properly addressed as to the scope of any contemplated telecommunications and then should again review any contemplated mass communications prior to being made in light of their consent documents.  Finally, the opinion notes by footnote that the text message (which was sent in 2014) was not covered by the FCC’s 2015 Healthcare Treatment Exception because “there is no language in the 2015 FCC order suggesting any intent to make the Exception retroactive, much less justification for any asserted retroactivity, precluding its application in this instance.” Id. at FN 2.

Thursday, January 11, 2018

Debt Collection Letter's Inclusion of Court Costs Was Not Deceptive

Any opinion that starts out by stating “[t]his case is about $82.00” is not likely to go well for one party and in this instance, that was the case for Nestor Saroza.  A New Jersey district court recently held that a debt collection letter was not false or deceptive when it included court costs in its demand for the balance.  In Saroza v. Lyons, Doughty & Veldhuis, 2017 U.S. Dist. LEXIS 208913 (D.N.J. Dec. 19, 2017), the collection law firm filed a collection suit seeking recovery of the balance due ($9,971.55), plus court costs.  Its subsequent collection letter demanded a balance of $10,053.55.  The difference, $82.00, was comprised of court costs.  The consumer filed suit asserting that the demand letter violated the FDCPA because the $82.00 was not part of the debt.  The demand letter in question read as follows:


Re: Capitol One Bank (USA), N.A. v. NESTOR SAROZA

Docket No. DC-00065-16

Amount Due: $10,053.55


We have filed suit to recover the balance due in the above matter. However, our goal is to resolve the debt in a way that is manageable for you. We encourage you to contact us. If you would rather not call us, you can ask questions and/or make a settlement offer or payment arrangement proposal via our website: . . . .


In support of dismissal, the law firm presented the credit card agreement which provided for the recovery of the creditor’s collection expenses, attorneys’ fees and court costs and pointed to the collection suit to support its argument that the letter was accurate.  The consumer meanwhile argued that the letter did not explain the filing fees were included and thus, was false, deceptive or misleading.  According to the court, “[i]n essence, the line Saroza wants this Court to draw seems to be that collection notices which say ‘with costs’ are permissible under the FDCPA but those that add the costs into the requested sum are not.”  Saroza at *7-8.  The court declined to do so.  Instead, the court determined that this was a distinction without a difference - particularly where the costs are accurate and the consumer was on notice from the Customer Agreement that this could happen.

The court also rejected the consumer’s argument that the omission of the court costs from the summons issued by the state court, coupled with the letter, was misleading.  In doing so, the court noted that the summons was issued by the court not the defendant and placed the burden on Saroza to read the complaint served with the summons.

In dismissing the law suit, the Court made clear that certain basic responsibilities fall upon a consumer – to read the documents provided to him by the creditor and debt collector.  The Court further emphasized a theme that we are seeing more and more: that the FDCPA will not allow liability for bizarre or idiosyncratic interpretations of collection notices and preserves a quotient of reasonableness and presumes a basic level of understanding and willingness to read with care.  See Wilson v. Quadramed Corp., 225 F.3d 350, 354-55 (3rd Cir. 2000)