Tuesday, October 17, 2017

Eleventh Circuit Continues to Explore Definition of Debt Collector

An unpublished opinion from the Eleventh Circuit continues its analysis of the definition of a debt collector and continues to narrow the applicability of the FDCPA.  As many may recall, the Eleventh Circuit’s opinion in Davidson v. Capital One Bank, 797 F.3d 1309 (11th Cir. 2015) was one of the first opinions to parse the definition of a debt collector under 15 U.S.C. §1692a(6).  That decision, of course, was followed up by the Supreme Court’s decision in Henson v. Santander Consumer USA, __ U.S. __, 137 S. Ct. 1718, 171-22 (2017) in which the Supreme Court held that a debt buyer may collect its own accounts under certain circumstances without triggering the FDCPA.


In Kurtzman v. Nationstar Mortgage, LLC, 2017 U.S. App. LEXIS 19750 (11th Cir. Oct. 10, 2017), the consumer filed an action against its mortgage servicer, Nationstar, seeking to stay foreclosure proceedings and recover damages under the FDCPA.   Nationstar filed a motion to dismiss, in part, because it contended the consumer failed to adequately allege Nationstar was a debt collector.  The district court agreed and dismissed the FDCPA claims. 


On appeal, the Eleventh Circuit noted that in order to state a claim under the FDCPA, the consumer must plausibly allege sufficient facts to allow the court to draw a reasonable inference that the defendant is a debt collector under the FDCPA’s definition.  The Court concluded, however, that the consumer had failed to plead sufficient allegations.  “Kurtzman’s complaint totally omits factual content that would enable us to infer that Nationstar qualifies as a debt collector.  The complaint is silent regarding whether the principal purpose of Nationstar’s business is collecting debts, and it only generally asserts that Nationstar ‘regularly attempted to collect debts not owed to [it]” Kurtzman at *5-6.  The Court went on to observe that the only factual allegation in Kurtzman’s complaint that might have supported Nationstar’s status as a debt collector is that the debt collected was in default when Nationstar acquired it.  “But it is the law of this Court that a “non-originating debt holder [does not qualify] as a ‘debt collector’ for purposes of the FDCPA solely because the debt was in default at the time it was acquired.” Id. at *6.


The opinion, while unpublished, is useful in that it continues to judicially narrow the scope of the FDCPA and should serve as a reminder to the consumer bar of the importance of meeting its minimum pleading requirements.

Monday, October 16, 2017

District Court Provides Successful Road Map for Bona Fide Error Defense

By Zachary Dunn
October 16, 2017

The FDCPA, through section 1692d(6), prohibits a debt collector from placing telephone calls to a debtor “without meaningful disclosure of the caller’s identity.”  15 U.S.C. § 1692d(6).  The FDCPA also includes a “bona fide error” defense to violations of its mandates, including violations of Section 1692d(6).  15 U.S.C. § 1692k(c) provides that “[a] debt collector may not be held liable in any action brought under this subchapter[, the FDCPA,] if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.”  Once a violation of the FDCPA has been shown, the debt collector must establish that the violation was (1) unintentional, (2) a bona fide error, and (3) made despite the maintenance of procedures reasonably adapted to avoid the error.  See Johnson v. Riddle, 443 F.3d 723, 727-28 (10th Cir. 2006).

A recent case from the US District Court for the District of Utah provides a useful roadmap for a debt collector attempting to use the bona fide error defense against an alleged violation of 15 U.S.C. § 1692d(6).  In Berry v. Van Ru Credit, 2017 U.S. Dist. LEXIS 164266 (D. Utah Sep. 11 2017), the debtor, Berry, defaulted on student loans he had taken out with the US Department of Education. The loans were placed with Van Ru for collection, and a representative of Van Ru contacted Berry and informed him that the Department of Education had the right to pursue an involuntary wage garnishment or a federal tax offset against him should his loans remain in default.  Id. at *2.  However, the representative failed to state that he was calling from Van Ru during the initial call.  Id. at *18.  That failure, Berry alleged, was a violation of 15 U.S.C. § 1692d(6).

While the court held that the representatives failure to inform Berry that he worked for Van Ru “violated . . . the FDCPA,” id at *19, Van Ru argued that it was entitled to the bona fide error defense because it did not intend to violate the FDCPA.  The court agreed, finding that Van Ru had met each of the three prongs for a successful bona fide error defense.   

As to the first prong, the court found that there was no evidence to support a finding that Van Ru intentionally violated the FDCPA and, in fact, there was evidence that the representative provided meaningful disclosure that he was calling from Van Ru in subsequent calls.  As to the second prong, the court noted that while the Van Ru representative did not identify himself as such, he did identify the Department of Education as the client, which demonstrated that any error was “in good faith, genuine, and bona fide.”  Id. at *20. 

Key to the court’s decision was a review of the policies and procedures implemented and followed by Van Ru representatives during live telephone calls with consumers.  Those procedures included a requirement that each representative disclose: (1) their identity; (2) that the representative is calling from Van Ru; and (3) that the call is being made on behalf of a Van Ru client.  Under Van Ru’s procedures, when a representative contacts a consumer over the phone, the representative is prohibited from making any false or misleading statement to the consumer.  The court noted that these procedures were available online to all Van Ru representatives to serve as a reference throughout their employment with the company, and that all representatives are specifically trained on the policy. 

The court also detailed Van Ru’s training procedures that all representatives must undergo before contacting consumers.  Van Ru provided an initial three week training program for all new hires which detailed both company policy and the laws and regulations governing collection activities; required new hires to pass an exam on the requirements of the FDCPA before making collection calls; and required all representatives to participate in seven additional weeks of ongoing training once released to the floor, including “side-by-side coaching, system navigation, and work effort reviews.” See id. at *6-7.  After the first 10 weeks of training, Van Ru conducted refresher training on a monthly and as needed basis, provided workshops and remedial training sessions, and mandated retraining for all representatives twice per year.  Any representative who failed the mandatory retraining exam three times was automatically terminated, and any representative who violated Van Ru’s policies were subject to disciplinary action, up to and including termination.  Id.

The court found these procedures to be “specific and extensive” and, because Van Ru was able to meet all three prongs of the test, the court concluded Van Ru was entitled to the bona fide error defense.  Id. at *20-21.  This case provides an example of the types of detailed policies and procedures a debt collector should have in place, and vigorously enforce, in order to be entitled to 15 U.S.C. § 1692k(c)’s bona fide error defense.
Zachary Dunn is an attorney practicing in Smith Debnam's Consumer Financial Services Litigation and Compliance Group. 

Monday, October 2, 2017

Eleventh Circuit Holds Voice Mail Message is a Communication

The Eleventh Circuit has held that a voice mail message left for a consumer is a “communication” under the FDCPA.  In Hart v. Credit Control, LLC, 2017 U.S. App. LEXIS 18375 (11th Cir. Sept, 22, 2017), the debt collector left a message which stated:

This is Credit Control calling with a message.  This call is from a debt collector. Please call us at 866-784-1160.  Thank you.

Hart at *2.  The message was the first communication.  The consumer filed suit alleging two violations of the FDCPA. First, the consumer alleged that the message was a “communication” under the FDCPA and violated 15 U.S.C. §1692e(11) because it failed to disclose that “the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.”  Secondly, the consumer alleged the message did not meaningfully disclose the caller’s identity and therefore violated 15 U.S.C. §1692d(6).

The debt collector moved to dismiss relying, in part, on Zortman v, J.C. Christensen & Assocs., Inc. 870 F. Supp. 2d 694 (D. Minn. 2012) and similar cases which had previously rejected the consumer’s argument and noting that the message provided no more information than would be available from a hang-up or missed call.  The District Court agreed and granted the motion to dismiss, concluding that the instant message was not a communication for purposes of the FDCPA.  The District Court further held that the message disclosed enough information so as not to mislead the recipient as to the purpose of the call.  Importantly, the court held that it is the debt collector’s identity not that of the individual caller which is meaningful to a consumer.

Meaningful Involvement.

On appeal, the Eleventh Circuit reversed in part and affirmed in part.  With respect to the meaningful disclosure issue, the appellate court agreed with the district court.  Noting that the FDCPA is silent on what constitutes meaningful disclosure, the court looked to the purpose of the FDCPA.  “The FDCPA provides consumers with recourse following abusive behavior by debt collectors during the course of collecting a debt.  Given this scheme, the debt collection company’s name is plenty to provide ‘meaningful disclosure.’”  Hart at *9-10.

What is a Communication?

The Eleventh Circuit, however, disagreed with the district court as to whether the voice mail message constituted a communication, holding that the voice mail “falls squarely within the FDCPA’s definition of a communication.” Id. at *5.  Looking to the express language of the statute, the FDCPA defines a communication as being “the conveying of information regarding a debt [either] directly or indirectly to any person through any medium.”  15 U.S.C. §1692a(2).  The court concluded that the message fell squarely within the definition.  “The voicemail, although short, conveyed information directly to Hart – by letting her know that a debt collector sought to speak with her and by providing her with instructions and contact information to return the call.  The voicemail also indicated that a debt collector was seeking to speak to her as part of its efforts to collect a debt.”  Id. at 5-6.  The court was dismissive of the debt collector’s assertion that the voice mail message did not disclose any more information than what would have been revealed in a hang up call. Doing so would require that it ignore the plain language of the statute – “[i]n order to be a considered a communication, the only requirement of the information that is to be conveyed is that it must be regarding a debt… There is no requirement in the statute that the information must be specific or thorough in order to be considered a communication.”  Id. at *6.

What's Next?

The court’s opinion leaves debt collectors, at least in the Eleventh Circuit, in peril should they decide to leave messages for consumers.  Once again, they are left with Hobson’s Choice- either include all necessary disclosures and run the risk of violating the third party disclosures prohibitions or leave no message and fail to provide the required disclosures.  The question that needs to be evaluated further is whether debt collectors need consider whether the message is left on a cell phone (where there is a great expectation of privacy and therefore less risk of third party disclosure) or a land line. 

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.