Thursday, March 15, 2018

Sixth Circuit Holds Consumer Has No Standing to Bring FDCPA Claim

The Sixth Circuit recently made clear its position that “Congress cannot override the baseline requirement[s] of Article III of the U.S. Constitution by labeling the violation of any requirements of a statute a cognizable injury.”  In Hagy v. Demers & Adams, 2018 U.S. App. LEXIS 3710, 882 F.3d 616 (6th Cir. 2018), a letter from a law firm advising the consumer that the creditor would not seek recovery of the deficiency balance resulted in an FDCPA claim.  The alleged violation? The letter violated the 15 U.S.C. §1692e(11) because it did not disclose the communication was from a debt collector.

The letter read as follows:

This letter is in follow up to our conversation of Monday, June 28, 2010 wherein we discussed the above referenced matter.

Pursuant to our conversation, I informed you that we have received the executed Warranty Deed in Lieu of Foreclosure signed by the Hagy[s]. Furthermore, you inquired as to should a deficiency balance be realized after the sale of the collateral would Green Tree pursue Mr. & Mrs. Hagy for the amount of the deficiency. I have been informed by my client that in return for Mr. & Mrs. Hagy executing the Warranty Deed in Lieu of Foreclosure Green Tree will not attempt to collect any deficiency balance which may be due and owing after the sale of the collateral.

I believe this letter satisfies any and all of your concerns.

Should you have any questions with respect to this matter, please do not hesitate to contact me.

Hagy at *7-8. 

As acknowledged by the consumers, the letter was accurate and, “[f]ar from causing the Hagys any injury, tangible or intangible, the… letter gave them peace of mind…”  Importantly, there were no allegations that the consumers suffered actual injury or damages from the letter.

The issue on appeal was whether Congress’ creation of a statutory injury and damages pursuant to 15 U.S.C. §1692e(11) satisfied Article III’s requirement of an injury in fact.  The court held that it did not.  In doing so, the court refused to endorse an “anything-hurts-so-long-as-Congress-says-it-hurts theory” of Article III and further rejected the Eleventh Circuit’s rationale in Church v. Accretive Health, Inc.-  that a bare violation of section 1692e(11) is sufficient to create standing.  Looking to the legislative record and the FDCPA, the court found no finding by Congress that the failure to disclose the communication was from a debt collector always creates injury.  The court concluded that “[a]lthough Congress may ‘elevate’ harms that ‘exist’ in the real world before Congress recognized them to actionable legal status, it may not simply enact an injury into existence, using something that is not remotely harmful into something that is.”  Hagy at *11.  The court’s opinion emphasizes the limitations of statutory violations and the importance for defense counsel to continue to analyze bare statutory violations against the Article III minimum standing requirements.  At a minimum, the court’s opinion should provide debt collectors with some solace against the absurd. 

Thursday, March 8, 2018

District Court Holds that a Debt Collector May Not Rely on Information Provided by Creditor, Rejects Bona Fide Error Defense Claim

By: Zachary K. Dunn


A District Court in the Seventh Circuit has held that a debt collector may not avail itself of the § 1692k(c) bona fide error defense if it “intentionally chose to present conflicting information,” even if that conflicting information was provided to it by the creditor.


In Garcia v. Miramed Revenue Group, LLC, 2018 U.S. Dist. LEXIS 17818 (N.D. Ill. Jan. 30, 2018), the debtor, Garcia, defaulted on a debt to Community First Medical Center (“Community First”). Community First placed the account with Miramed Revenue Group (“Miramed”), and Miramed sent a collection letter to Garcia. The letter stated that the “amount due” was $100.00 in three different places, but also contained the following information:


Following is an accounting of the patient portion now due from you:

            Total Charges:                                 $3665.00

            Insurance Payments:                     $-1759.18

            Adjustments                                     $0.00

            Patient Payments:                          $0.00

            Remaining Patient Balance:        $100.00


Garcia filed suit, alleging the letter violated the FDCPA because it communicated varying amounts owed by Garcia; the stated $100.00, and the difference between the total charges and the stated insurance payments, $1,905.82. The District Court agreed and, in granting her motion for summary judgment, held that “a reasonable consumer would not be certain whether the consumer owed $100.00 or $1,905.82.”


Miramed contended that even if the letter was misleading, it was entitled to the bona fide error defense, 15 U.S.C. § 1692k(c), because it was permitted to rely upon information sent to it by the owner of the debt – here, Community First.  Miramed pointed out that it had a contract with Community First requiring them to send accurate information for each account. Unpersuaded, the District Court found that “whether or not [Community First] gave information concerning payments made, is irrelevant.” While Miramed “may not have intentionally and willfully violated the FDCPA,” it “intentionally chose to present the conflicting information concerning the amount of the debt believing it to be compliant with the law.”


Implications of Garcia 

The Garcia court’s holding that information relayed to a debt collector by a creditor is irrelevant to the determination of whether the collector can rely on a bona fide error defense is novel. Even if a collection letter clearly and repeatedly states the amount owed, debt collectors should take care to ensure that no other information in the letter could be read as suggesting a different amount is owed.    


Zachary Dunn is an attorney practicing in Smith Debnam's Consumer Financial Services Litigation and Compliance Group

Tuesday, March 6, 2018

Second Circuit Remains Firm That Flu Shot Reminders are Health Care Messages Under the TCPA

Following up on its decision in Latner v. Mount Sinai Health System, Inc., 2018 U.S. App. LEXIS 114 (2nd Cir. Jan. 3, 2018), the Second Circuit has again held that a flu shot reminder was a health care message under the TCPA. Zani v. Rite Aid Hdqtrs. Corp., 2018 U.S. App. LEXIS 4354 (2nd Cir. Feb. 21, 2018).

In Zani, the consumer filled a prescription at a Rite Aid pharmacy, provided his phone number and signed a Notice of Privacy Practices which provided that Rite Aid “may contact [Zani] to provide refill reminders or information about treatment alternatives or other health related benefits and services that may be of interest.” Zani at *2. Sometime later, Zani received a pre-recorded message from Rite-Aid’s vendor which stated:

Get your flu shot at Rite Aid today and shield yourself from this season's strains of the flu. Rite Aid now offers patients sixty five and over the Fluzone High Dose vaccine designed for older patients and covered by Medicare Part B. Because our immune systems may need more help as we get older, the Fluzone High Dose vaccine available at Rite Aid may deliver a stronger immune response. Come in today and shield yourself. No appointment necessary and most insurance plans accepted. Vaccines available while supplies last. See your Rite Aid pharmacist for details. Goodbye.

Zani at *3. Zani filed suit contending the message violated the TCPA. Rite Aid moved for summary judgment, contending the message was a health care message provided with the consumer’s prior express consent. The district court granted Rite Aid’s motion for summary judgment.

On appeal, both parties agreed that Zani had provided his prior express consent when he provided his cell number previously. Zani contended, however, because the message did not convey a health care message, express written consent was required and he had not provided it. The court disagreed, noting that its recent decision in Latner involved virtually identical issues. The court reiterated its decision in Latner holding that the message was a “health care” message exempt from the written consent requirements of the TCPA.

Monday, March 5, 2018

Madden Fix Bill Passes House, Faces Uncertain Fate in Senate

By: Zachary K. Dunn

The United States House of Representatives passed H.R. 3299, commonly known as the “Madden fix” bill, by a vote of 245-171 on February 14, 2018. The bill, which is officially entitled “Protecting Consumers’ Access to Credit Act of 2017,” is a response to the Second Circuit’s decision in Madden v. Midland Funding, LLC, 786 F.3d 246 (2nd Cir. 2015), cert denied, ___ U.S. ___, 136 S.Ct. 2505 (2016).

Under the National Bank Act, 12 U.S.C. § 85, nationally chartered banks are permitted to charge interest at the rate allowed by the laws of the State where the bank is located. In Madden, the Second Circuit held that a third-party debt buyer, after purchasing the loan from a national bank, is not permitted to charge the same rate of interest on the loan that the nationally chartered bank is permitted to charge. The Court ruled that allowing third-party debt buyers to charge the same amount of interest would be an “overly broad application” of the Act. This decision, and the Supreme Court’s refusal to weigh in on the issue, lead to uncertainties in the secondary loan market.

Seeking to ameliorate this problem, H.R. 3299 would add the following language to 12 U.S.C. § 85:

A loan that is valid when made as to its maximum rate of interest in accordance with this section shall remain valid with respect to such rate regardless of whether the loan is subsequently sold, assigned, or otherwise transferred to a third party, and may be enforced by such third party notwithstanding any State law to the contrary.

If enacted, this measure would eliminate the uncertainties created by Madden and make clear that a third-party debt buyer may charge the same rate of interest that the nationally chartered bank may charge. The House passed H.R. 3299 mostly along partisan lines, which raises the question of whether it can reach the 60 vote threshold in the Senate. After being passed by the House, the bill was received by the Senate and referred to the Senate Banking, Housing, and Urban Affairs Committee. We will keep you updated as this important piece of legislation moves its way through Congress.

Zachary Dunn is an attorney practicing in Smith Debnam's Consumer Financial Services Litigation and Compliance Group

Sunday, March 4, 2018

CFPB Report Reveals Impact Removal of Public Records Has on Credit Reporting: Did it Make a Difference?

The CFPB recently issued its second Quarterly Consumer Credit Trends Report which examines the impact of changes to credit reporting regarding the reporting of civil public records.  In 2015, the three major credit reporting agencies (“CRAs”) entered into settlements with over thirty states.  The settlements required the three CRAs to implement minimum personal identifying information (“PII”) standards and data collection frequency requirements for civil public records appearing on consumer reports.  The settlements also resulted in the CRAs discontinuing their reporting of civil judgments.

The Report breaks civil public records into three broad categories: bankruptcies, judgments and tax liens. 

Bankruptcies:  The Report spends little, if any, time discussing bankruptcies because the number of bankruptcies being reported remained virtually unchanged after the new standards took effect.  The Report concludes this is an indication that bankruptcies were being reported with sufficient PII prior to July 1, 2017. 

Tax Liens and Civil Judgments:  The Report notes that the number of tax liens being reported dropped off significantly after July 1, 2017 with the reporting of state tax liens declining more than federal tax liens.  The reporting of judgment liens disappeared altogether in July 2017.  The Report then looked at the impact the reporting of tax liens and judgments had on credit scoring.  It should come as no surprise that with the new PII standards and removal of judgment liens, affected consumers’ credit scores increased.  The amount of increase, however, does not appear to be significant (0-15 points) and may be attributable to the fact that many of the consumers in those categories also had other derogatory tradelines.  What is interesting, however, is that the increase in scores did impact a fairly significant number of consumers (17%) and their placement into higher credit bands (for instance, movement from deep subprime to subprime).

As noted by the Report, there remains insufficient data to draw any conclusion as to whether the removal of public records will affect the predictability and accuracy of commercial credit scoring models.   

Thursday, March 1, 2018

District Court Expands on Pantoja, Finds Collection Letter on Stale Debt to Violate FDCPA for Failure to Include Revival Warning

A recent decision from the North District of Illinois has expanded on the Seventh Circuit’s holding in Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679 (7th Cir. 2017) regarding revival warnings in collections letters on time-barred debt.  Pierre v. Midland Credit Management, Inc., 2018 U.S. Dist. LEXIS 18860 (N.D. Ill. Feb. 5, 2018).  The ruling resulted in summary judgment as to liability for a certified class of plaintiffs due to a collection agency failing to include a warning that payment could revive the statute of limitations on time barred debt.


The facts of the case are simple; the plaintiff, Pierre, defaulted on a credit card she took out with Target National Bank (“TNB”), and TNB sold the debt to Midland Funding, LLC for which the defendant, Midland Credit Management, Inc. (“Midland”), was a debt collector. Midland sent a collection letter to Pierre which stated she had been “pre-approved for a discount program” and gave her three “options” to pay off the $7,578.57 balance. The letter also included the following:

The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, we will not report it to any credit reporting agency, and payment or non-payment of this debt will not affect your credit score.

Although the letter included the above warnings, it did not explicitly include any warning that payment could revive the debt and restart the applicable statute of limitations.


Pierre filed a class action arguing that the letter violated the FDCPA. In granting Pierre’s motion for summary judgment, the Court found the letter to be false and deceptive in violation of 15 U.S.C. § 1692e(10) as a matter of law. Applying the least sophisticated consumer standard, the Court found that the letter was misleading because it did not include any warning that a partial payment on the debt “could have revived the statute of limitations and subjected [Pierre] to the debt obligation anew.” Pierre, 2018 U.S. Dist. LEXIS 18860, at *4.


Relying on an earlier Seventh Circuit case, Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679 (7th Cir. 2017), the District Court brushed aside Midland’s argument that such an omission was not a violation of the FDCPA because no revival warning is required. In Pantoja, the Seventh Circuit affirmed summary judgment for a plaintiff where a collection letter “d[id] not even hint, let alone make clear to the recipient, that if he makes partial payment or even just a promise to make a partial payment, he risks loss of the otherwise ironclad protection of the statute of limitations.” Pierre, 2018 U.S. Dist. LEXIS 18860, at *4 (citing Pantoja, 852 F.3d at 684). The Court found this to be the law of the circuit and that any collection letter on time barred debt must contain a revival warning. Although Midland argued that neither the CFPB nor the FTC required revival warnings in the context of letters concerning time barred debt, the Court found that those determinations were not entitled to deference and the Seventh Circuit’s “explicit holding” in Pantoja controlled.


Midland made two other arguments as to why its letter did not violate the FDCPA: (1) Midland’s internal policy is to never restart the statute of limitations, even if a partial payment is made; and (2) state law in the relevant state – Illinois – dictates that a partial payment on otherwise time barred debt does not restart the statute of limitations. The Court was not persuaded. As to Midland’s internal policy, the Court noted that the consumer could face suit if Midland changed its policies, or if Midland sold the debt to another “less principled” collector. On the state law issue, the Court noted that Illinois law was unclear on the point, and that a partial payment “puts [the consumer] in a worse legal position that she would have been in had she done nothing.”


Although Pierre never made any payments as a result of the letter, the Court nevertheless found the lack of a revival warning to be material: “Materiality does not hinge upon whether the plaintiff actually acted in reliance on a confused understanding, but rather whether the misleading letter has the ability to influence a consumer’s decision.” Id. at * 17 (citation omitted). Since a consumer “may well choose” to pay or promise to do so as a result of the letter, the materiality element was met. Id.


Implications of Pierre for Debt Collectors

Pierre makes clear that any letter sent in an attempt to collect on time-barred debt should include a warning that partial payment may “revive” the debt and restart the statute of limitations. This is true even if the collector maintains a policy to never revive a statute of limitations. While a warning may not be required if state law dictates that partial payment on time-barred debt does not revive the statute of limitations, state law must be clear on that point before a warning can be omitted.


This case also serves as a warning that materiality under the FDCPA can be found even if the plaintiff never took any action in response to the letter. As long as the letter “may lead to a real injury,” a court may find it to be materially misleading.