Thursday, February 26, 2015

FTC Announces Two Enforcement Actions Against Collection Agencies

The FTC announced today that it has joined with the New York Attorney General in filing complaints against two debt collection operations in Buffalo, New York.  The complaints were filed February 9, 2015 and temporary restraining orders have been entered in both matters. 

In Federal Trade Commission v. 4 Star Resolution, C.A. No. 1:15-cv-00112-WMS (W.D.N.Y.), the FTC alleges that 4 Star Resolution and the related entities violated the FTC Act and the FDCPA by engaging in false and deceptive debt collection practices.  Particularly, the FTC alleges that the defendants’ core practice involves misrepresenting to consumers that they have committed bank fraud, check fraud or some other unlawful act related to the debts.  The complaint goes on to allege that the defendants then advise the consumers that they will suffer dire consequences (including arrest and imprisonment) unless they make immediate payment of the debt.  The complaints alleges that the defendants also fail to provide the FDCPA required notices and disclosures. The complaint seeks injunctive relief, an order freezing assets, immediate appointment of a receiver, disgorgement of monies paid by consumers, and civil penalties.  A temporary restraining order has been entered which, among other things: freezes assets and appoints a receiver, and requires a cease and desist of the practices in question.

In Federal Trade Commission v. Vantage Point Services, LLC, C.A. No. 1:15-cv-00006 (W.D.N.Y.), the FTC alleges that Vantage Point Services and the related entities violated the FTC Act  and the FDCPA by engaging in false and deceptive debt collection practices.  Particularly, the FTC alleges that the defendants: (a) made false representations regarding their identities, addresses and business purposes; (b) false or unsubstantiated threats of arrest and other dire consequences; (c) unlawful contacts to third parties, often including representations that the consumers committed a crime and will be arrested; (d) failing to make the required statutory disclosures; and (e) charging illegal processing fees. Similar to the 4 Star Complaint, the complaint seeks injunctive relief, an order freezing assets, immediate appointment of a receiver, disgorgement of monies paid by consumers, and civil penalties.  A temporary restraining order has been entered which, among other things: freezes assets and appoints a receiver, and requires a cease and desist of the practices in question.

Cordray Addresses National Association of Attorneys General

For the fourth consecutive year, CFPB Director Richard Cordray addressed the National Association of Attorneys General.  Cordray’s remarks focused on his “Four Ds” – deceptive marketing, debt traps, dead ends and discrimination.  His remarks touched on imminent rulemaking in several areas including pay day lending, debt collection, and credit reporting.  Highlights of the remarks are as follows:

Deceptive Marketing:  Cordray noted that financial contracts often create confusion by their “density and their sheer length”.  Cordray highlighted the Bureau’s “Know Before You Owe” initiatives.  Cordray went on to note the Bureau's focus on the for-profit college industry and the Bureau’s enforcement action against Corinthian Colleges.

Debt Traps: Cordray’s comments on this “D” focused on pay day lending.  The CFPB is the first federal agency to supervise pay day lenders for compliance with federal consumer finance laws.  Key to his remarks was confirmation that the CFPB takes the position that ownership or affiliation with Indian tribes does not exempt lenders from compliance with state laws.  More importantly, Cordray confirmed the Bureau is in the latter stages of formulating new rules to reform the market.  Cordray acknowledged that states have been regulating pay day lending since before the inception of the CFPB and his remarks suggest that the federal rules are likely to reflect the state approaches to regulating pay day lending.

Dead Ends:  Cordray’s remarks focused on credit reporting and debt collection.  As to credit reporting, Cordray touted the Bureau’s work with the three major credit reporting agencies in making modifications to E-Oscar (the electronic dispute system) and indicated that the Bureau is “establishing clear and regular oversight by supervising the larger credit reporting companies and many of their largest furnishers. " As to debt collection, no time table was provided for rule making, but Cordray did state that the Bureau is “hard at work analyzing and preparing the details of proposed policy measures, which could lead to the most significant changes in federal law in this area in almost forty years.” 

Discrimination:  Cordray’s comments focused on two industries: the mortgage industry and the auto lending industry (both direct and indirect).  Cordray indicated that the Bureau is moving forward with a proposed rule to begin exercising supervisory oversight over the larger non bank auto finance companies, as well as the Bureau’s focus of resources on the indirect auto lending market.

Other Comments of Note: The CFPB is providing state agencies with access to its complaint data and encouraging them to take advantage of this access.  To date, 22 attorneys general and 28 state banking regulators have signed up for access.  Additionally, Cordray announced that the CFPB’s public enforcement actions have thus far resulted in $5.3 billion in relief and over $200 million in civil penalties.

Tuesday, February 24, 2015

CFPB: CFPB Proposes One Year Suspension of CARD Act Required Submission of Credit Card Agreements

The CFPB has proposed a  temporary suspension of card issuers' obligations to submit their credit card agreements quarterly to the CFPB.  The proposal is intended to reduce the burden on the CFPB while it works to develop a more efficient electronic submission system.  Other requirements under the CARD Act, including card issuers' obligation to post their currently offered agreement on their own websites would be unaffected.  The proposed rule was published today and the comment period expires March 13, 2015. 

The provision of the CARD Act in question, 12 C.F.R. 1026.58(c), currently requires card issuers to post agreements for open end consumer credit cards on their website and to submit them quarterly to the CFPB.    Currently, the agreements are manually submitted to the CFPB via email on a quarterly basis.  The disclosed purpose of the proposed suspension is to allow the CFPB time to work on a more streamlined and automated electronic submission system.  The CFPB proposes to suspend the requirement beginning with the April 30, 2015 submission. 

The proposed suspension would not affect the required annual submission of collect credit card agreements and related data, the biannual submission of credit card pricing and availability information, or the requirement that card issuers post agreements on their website.  The CFPB proposes  the modification take effect immediately upon publication of the final rule in the Federal Register.

Monday, February 23, 2015

Petition for Writ of Certiorari Has Been Filed Seeking to Overturn Crawford v. LVNV Funding, LLC

A petition for writ of certiorari has been filed seeking to overturn the Eleventh Circuit’s decision in Crawford v. LVNV Funding, LLC.  The petition, if granted, may have wider implications than simply determining whether filing a proof of claim on time barred debt violates the FDCPA. In Crawford, the debtor commenced an adversary proceeding against a debt buyer, alleging that the filing of a time barred proof of claim violated the automatic stay and the FDCPA.  The debt buyer ultimately withdrew the proof of claim; however, the adversary proceeding proceeded forward.  The Bankruptcy Court granted LVNV’s motion to dismiss holding that the filing of a proof of claim, even one on time barred debt, did not constitute a violation of the FDCPA.  The district court affirmed. On appeal, the Eleventh Circuit reversed, holding that the filing of a proof of claim was an attempt to collect a debt and that the filing of a proof of claim for time barred debt violated the FDCPA.  In so holding, the court seemed to take issue with the fact that an otherwise uncollectible debt would result in some recovery under the Chapter 13 plan. “Such a distribution of funds to debt collectors with time-barred claims then necessarily reduces the payments to other legitimate creditors with enforceable claims.”  Crawford, 758 F.3d at 1261.   Additionally, the court premised its reversal on the notion that “a debt collector’s filing of a time-barred proof of claim creates the misleading impression to the debtor that the debt collector can legally enforce the debt.”  Id.  Moreover, the court applied the least sophisticated consumer standard even though Crawford was represented by counsel.
The well written petition calls the court’s attention to the numerous problems presented by the Eleventh Circuit’s opinion in Crawford:

1.        It is inconsistent with the uniform prior case law which held that a proof of claim in bankruptcy cannot serve as the basis for an FDCPA claim.  The petition points to the fact that the Eleventh Circuit’s opinion is in direct conflict with the three other circuits that have reviewed this issue.

2.       Crawford created a further divide amongst the circuits as to whether FDCPA liability can be premised upon actions in bankruptcy.  The petition points to the Supreme Court’s prior decision in Kokoszka v. Belford, in which the Supreme Court established the interpretative framework for assessing the scope of the Consumer Credit Protection Act (out of which the FDCPA was passed as an amendment to the CCPA) in the context of a bankruptcy.  “In enacting the CCPA, the Court concluded, there was “no indication” that “Congress intended drastically to alter the delicate balance of a debtor’s protections and obligations during the bankruptcy procedure.””  The petition, while noting the current split in decisions amongst the circuits as to Kokoszka’s application, underscores the need for clarity from the Supreme Court. The petition goes to great lengths to point out that the Eleventh Circuit’s extension of the FDCPA into the bankruptcy context is inconsistent with the stated purpose and text of the FDCPA. The petition points out that the filing of a proof of claim cannot be debt collection regulated by the FDCPA because the FDCPA applies only to attempts to collect an obligation from a natural person.  Proofs of claim, on the other hand, are vehicles for making claims against the bankruptcy estate, which is a separate and distinct entity from the debtor.

3.       Bringing even wider implications, the petition seeks a ruling on the standard for evaluating communications to attorneys under the FDCPA.  The petition points to the Eleventh Circuit’s holding that a least sophisticated consumer standard governs FDCPA claims arising from the filing of a proof of claim in bankruptcy.  The petition points to the fact that the circuits are widely split as to the proper standard to be applied to communications to attorneys under the FDCPA.

4.     The petition further points to the practical problems presented by the Eleventh Circuit’s opinion.  Included among the many pointed out by the petition, if proofs of claim are by their very nature debt collection activities, then the very filing of a proof of claim violates the automatic stay.  Additionally, if the filing of a proof of claim is debt collection, then all the other provisions of the FDCPA must also apply, including the notice and debt validation procedures of the FDCPA.

The petition is well worth the read and can be found here:  Amicus briefs have been filed by at least three other interested organizations.  The consumer’s response brief is due March 23, 2015. 



Sunday, February 22, 2015

District Courts Dismiss FDCPA Claims as Time Barred

Two district courts have dismissed FDCPA claims based upon underlying collection lawsuits as being time barred.

In Komisar v. Blatt, Hasenmiller, Leibsker & Moore, C.A. No. 14-c-17950 (N.D. Ill. Jan. 29, 2015), the plaintiff alleged that the defendant law firm violated 15 U.S.C. §1692i by filling suit against the consumer in the wrong municipal district.  A default judgment was entered against the consumer on October 10, 2013.  The FDCPA suit was filed October 10, 2014.  The law firm moved to dismiss contending that the suit was time barred. The court agreed, holding that the statute of limitations began to run when the collection action was allegedly filed in the improper venue and not when the resulting judgment was entered.  The court further rejected the plaintiff’s argument that the violation was a continuing violation and thus, the action was timely.  “The FDCPA prohibits “bringing” a legal action in an improper forum.  Thus, the violation and injury occurs as soon as the debt collector brings the lawsuit in the improper forum, in other words the moment the complaint is filed.”

Similarly, in Wies v. Cavalry SPV, L.L.C., C.A. No. 1:14-cv-187 (Feb. 11, 2015), the plaintiff alleged that the debt buyer and its collection lawyers violated the FDCPA by seeking to collect post charge off interest in the collection suit.  The plaintiff alleged in his complaint that the debt was originally owed to Bank of America/FIA Card Services and was charged off.  The plaintiff contended that Bank of America/FIA Card Services waived any interest from that point forward.  The plaintiff further contended that after purchasing the debt, Cavalry filed a collection law suit seeking to recover the debt, "plus interest and court costs."  The collection suit was filed January 2, 2013.  Cavalry  subsequently filed a motion for summary judgment on May 13, 2013 supported by an affidavit attesting to the balance owed and including post charge off interest at the rate of 24.99% per annum.  Plaintiff contended that the motion for summary judgment in the collection action violated the FDCPA and that since the FDCPA litigation was filed within one year of the motion for summary judgment, it was timely.  The court disagreed and granted the defendants' motion to dismiss, holding that defendants' attempt to collect interest that was waived by the original creditor began to run when the collections action was filed and that the motion for summary judgment in that action did not create a separate and discrete violation of the FDCPA.

District Court Grants Summary Judgment in Favor of Collection Agency on TCPA Claim

The Southern District of Florida granted summary judgment in favor of a collection agency regarding plaintiff’s TCPA claims.  In Jones v. Stellar Recovery, Inc., C.A. No. 1:14-cv-21056-KMM (S.D. Fl. Feb. 20, 2015), the consumer alleged that the collection agency violated the TCPA by making at least forty six (46) calls to his cell phone and leaving automated messages in an effort to collect a Comcast account. The Southern District of Florida determined that prior express consent existed where the consumer provided his cell phone number to the original creditor on a prior account and granted summary judgment in favor of the collection agency. 

In September 2012, Jones opened an account with Comcast which he subsequently closed when he moved.  In opening that account (Account 1), Jones provided his cell phone number to Comcast.  After moving, Jones opened a second account with Comcast (Account 2) which he eventually defaulted on.  It was with regard to Account 2, that Stellar Recovery (“Stellar”) made collection calls.

Stellar moved for summary judgment, arguing that the prior express consent exception to the TCPA precluded liability.  The issue before the court was whether plaintiff consented to debt collection calls regarding Account 2 by giving Comcast his cellphone number when opening Account 1 which never became delinquent.  The court noted that there were no cases on point and that the FCC rulings interpreting 47 U.S.C. §227 were written under the assumption that an individual only had one account with a given creditor.  “It is clear that the 2008 FCC Declaratory Order fails to contemplate the facts of this case, where a plaintiff gave his number when opening one account with a creditor, but then received debt collection calls regarding a second account with the same creditor.”  The court determined, however, that the 2008 FCC Declaratory Order’s rationale offered guidance:

The FCC stated that the prior express consent exceptions allows debt-collectors to calls individuals’ cellphones because “persons who knowingly release their phone number have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary.”

See FCC Declaratory Order at 560, 564.  Therefore, there is an exception when the called party has provided the telephone number…for use in normal business communications.”  Id. 

The court therefore determined that the FCC’s focus is on whether a consumer has consented to phone calls to a particular number for a particular creditor.  When Jones gave his cellphone number to Comcast while opening Account 1, therefore, he gave Comcast permission to call that number for normal business communications, absent instructions to the contrary.  “Normal business communications” included communications from Comcast concerning Account 2, as well.  “In sum, because Plaintiff knowingly gave Comcast his cellphone number, he gave Comcast (and thereby defendant) permission to call him at that number for normal business communications.”  Plaintiff, therefore, consented to debt-collection calls regarding Comcast Account 2 when he provided his cellphone number while opening Comcast Account 1 and never expressed instructions to the contrary.


Friday, February 20, 2015

District Court Grants Summary Judgment in Favor of Debt Buyer on FDCPA and North Carolina Debt Collection Claims

            The Eastern District of North Carolina has granted summary judgment in favor of debt buyer on both federal and state debt collection claims, but ruled in favor of the consumer on his TCPA claims.  In Wallace v. Optimum Outcomes, Inc., C.A. No. 5:13-cv-277 (E.D.N.C. Feb. 12, 2015), Wallace asserted violations of the FDCPA, the North Carolina Collection Agency Act (the “NCCAA”) and the TCPA regarding wrong number calls made by Optimum Outcomes, Inc. (“Optimum”).  Prior to this suit being filed, Wallace settled wrong number claims with Optimum’s assignor, Absolute Collection Services (“ACS”) who then added Wallace’s cell phone number to a “do not call” list.  After settling with ACS, Wallace’s cellular telephone number changed. Optimum then took assignment of certain portions of ACS’ business, including the “do not call” list. Optimum subsequently received a new account for collection against a third party which included Wallace’s new cellular telephone number.  Optimum made two calls to Wallace’s cellular telephone number in its attempt to collect the new account.

            Wallace’s NCCAA claim was premised upon Section 58-70-100’s prohibition against conduct whose natural consequence is to oppress, harass or abuse any person in connection with the attempt to collect any debt and specifically, it’s prohibition against causing a telephone to ring or engaging any person in telephone conversation with such frequency as to be unreasonable or to constitute harassment under the circumstances.  (emphasis supplied).  The NCCAA is expansive in its definition of a consumer, including any “individual, aggregation of individuals, corporation, company, association, or partnership that has incurred a debt or alleged debt.”  Debt is defined as being any obligation owed or due or alleged to be owed or due from a consumer.  However, the court keyed in on the enforcement provision of the NCCAA which provides that “[a]ny collection agency which violates Part 3 of this Article with respect to any debtor shall be liable to that debtor in an amount equal to the sum of any actual damages sustained by the debtor as a result of the violation.” N.C.G.S. §58-70-130(a).  The court concluded that there was no violation of the NCCAA because of subsection 130’s limitation of remedies to a “debtor” bars his claim under the NCCAA. Thus, it appears that at least in the Eastern District, there may be some traction that wrong number calls are not actionable under the NCCAA.

            The court also found in favor of Optimum with respect to the FDCPA claim which was brought pursuant to 15 U.S.C. §1692d (prohibiting causing a phone to ring or engaging in telephone conversation repeatedly or continuously with intent to annoy, abuse or harass any person at the called number”).  The court perfunctorily held that a “showing of a mere two calls to plaintiff’s cell phone number, made weeks apart” was not sufficient to establish a claim.

            As to the TCPA claim, Optimum raised equitable estoppel and failure to mitigate defenses which the court did not accept.  Optimum asserted that Wallace was equitably estopped from bringing his TCPA claims because he did not provide the new cell number to Optimum’s assignor.  Had Wallace done so, the number would have been added to the “do not call” file.  Likewise, Optimum argued that Wallace had failed to mitigate his damages by failing to provide the new cell number.  The court dismissed these arguments and noted that the TCPA places no affirmative duty on telephone subscribers to notify companies that the subscriber does not wish to be called.  The court did, however, find that the calls amounted to a negligent violation of the statute and thus, the treble damage provision was not called into play. 


Thursday, February 19, 2015

CFPB Issues Focus Group Report on Credit Reports and Scores

The CFPB has issued a report on credit reports and scores based on its focus group results.  We summarize it in 300 words or less:

Findings Based Upon the Focus Group Sessions:

  • Many consumers do not take advantage of free annual credit reports
  • Many consumers are confused and frustrated by consumer reports and scores
  • Many consumers do not understand the difference between soft and hard inquiries or pulls and the impact they may or may not have on their credit scores
  • Many consumers are confused by the trade line names found on their credit reports
  • Many consumers pull their credit report out of a concern with identity theft and fraud
  • Consumers who are more engaged in the financial system tend to check their credit reports and scores more often
  • Many consumers believe their credit reports are difficult to understand

The CFPB Identified Several General Messages that Need to Be Conveyed to Consumers:

  • Checking credit reports on a regular schedule can be a valuable financial management tool
  • provides consumers with access to free credit reports once a year as mandated by federal law
  • Checking credit reports once a year through will not hurt your credit score
  • There are multiple credit scoring systems created by companies
  • Lenders may use different credit scoring systems than what consumers typically can access
  • Consumer’s financial actions play a major role in their credit scores
  • Checking credit reports on a regular schedule can help identify potential fraud and identity theft

Deputy Director Provides Insight to CFPB Enforcement Philosophy

In his prepared remarks to the Washington D.C. Exchequer Club, CFPB Deputy Director Steven Antonakes provided insight into the CFPB’s enforcement philosophy.  Antonakes, a career regulator, leads the CFPB’s Division of Supervision, Enforcement, and Fair Lending.  Antonakes acknowledged that the CFPB focuses on risks to consumers rather than risks to institutions and that the CFPB conducts its examinations by product line rather than taking an institution-centric approach.  Here are the key take-aways:

·         Product lines are evaluated based on:

o   The potential for consumer harm related to a particular market

o   The size of the product market

o   The entity’s market share; and

o   Risks inherent to the entity’s operations and offering of consumer financial products within that market.

·         Risk is assessed on two levels:

o   The market level – particularly, when the consumer cannot choose their provider of financial products;

o   The institution level – particularly, considering the institution’s market share

·         Debt collection and credit reporting were two markets singled out as high risk.  Antonakes noted that with respect to debt collection, it is the single largest category of complaints received by the CFPB’s Consumer Response Office. 

·         As to the institution level analysis, the assessment of relative risks to the consumer takes into account a number of factors, including:

o   The institution’s market share within an individual product line;

o   Strength of compliance management systems; and

o   Prior regulatory actions.

·         Antonakes acknowledged that the CFPB prioritizes relatively large players with a more dominant presence in the market.

·         When reviewing violations, the CFPB takes into account the following:

o   Violation Focused Factors-

§  The number of consumers affected

§  Magnitude of harm

§  Nature of the violation

§  Whether the violation is ongoing or has ceased

§  The value of deterrence – Antonakes noted that “[i]f we suspect a troubling practice is widespread, we may want to put the entire industry on notice through public enforcement actions.”

o   Institution Focused Factors –

§  The entity’s level of cooperation with the CFPB

§  Whether the entity has self-corrected

o   Policy Focused Factors-

§  Historical treatment of similar violations

§  Other CFPB activity related to the conduct

§  Consistency with the CFPB’s priorities and goals

The Exchequer Club of Washington, D.C. is an association of senior level professionals with a primary interest in national economic and financial policy.  The full content of Antonakes’ prepared remarks can be found here:



Tuesday, February 17, 2015

FDCPA: Judge Enters Show Cause Order Against Consumer and Counsel

In a scathing opinion, an Eastern District of New York judge has sent fair warning to the FDCPA plaintiff’s bar, leaving no doubt as to his thoughts concerning  how the FDCPA’s use has deteriorated in recent years.  In Huebner v. Midland Credit Management, C.A. No. 14-cv-6046 (E.D.N.Y. Feb. 11, 2015), the court entered an Order requiring plaintiff and his counsel to show cause why the complaint should not be dismissed with fees awarded pursuant to 15 U.S.C. 1692k and sanctions awarded pursuant to Rule 11. 

The complaint centers around one phone call between the consumer and the collection agency which was initiated by the consumer.  The complaint alleges that defendant "wrongfully stated to the Plaintiff that he could not orally dispute the debt" and that "he must have a reason to dispute a debt." The complaint asserts that defendant "made the above false statements in violation of 15 U.S.C. §§ 1692e(8) and 1692e(10)."  The call transcript, which was produced to the court at its own behest, however, told another story.  As noted by the court the consumer repeatedly attempted to bait the defendant’s representative:

At one point, he asks her, "I don't understand, I can't take it off my credit card, my account without paying it?" The representative declined the bait: "That's not what I said, sir, I need to know what your dispute is before I can just delete it for you. So you're saying you want to dispute it, why is it that you want to dispute it?" Plaintiff then reverted to his refrain that the debt is "nonexistent." For the third time, the representative asked, "Did you ever have Verizon, sir?" And plaintiff would only answer "I don't understand the question you ask me, this is a non-existent debt." She responds, "[i]t's a very straightforward question. Did you ever have Verizon service?" Plaintiff again evaded the question: "Okay, but I told you, you ask me, I told you, if you tell me, you're not going to take my dispute, that's fine. I'm just going to try to see if I can get more information." The substantive discussion in the call ended with the representative saying, "I'm trying to help you with your dispute, sir, but you're not really helping me help you."

It is notable that despite the representation in the complaint that plaintiff was told he could only dispute the debt in writing, which was reaffirmed by plaintiff's counsel at the Initial Status Conference, the word "writing" is never mentioned in the call. Again, it is undisputed that following this call, defendant immediately dispatched a cessation letter and no effort was made at collection.

Moreover, the court noted that:

[t]his case has all the earmarks of a setup. Plaintiff and his lawyer decided they were going to outsmart the collection company and make a little money while at it. But this statute is not a game, and its purpose is not to provide a business opportunity. There are still consumers who are in fact harassed by debt collectors, albeit less often than prior to the statute's enactment. Those genuinely aggrieved parties are entitled to the protection of the statute. It should not be diluted to become a plaything for fast talking plaintiffs and their lawyers.

The court in concluding that a show cause order should be entered observed that

[f]requently, these cases are brought on behalf of the same debtor-plaintiffs, who seize on the most technical alleged defects in collection notices or telephone communications, often raising claims of "confusion" or "deception" regarding practices as to which no one, not even the least sophisticated consumer, could reasonably be confused or misled. These cases are often brought for the non-salutary purpose of squeezing a nuisance settlement and a pittance of attorneys' fees out of a collection company, which it will often find cheaper to pay than to litigate.

Plaintiff and his counsel have until February 18th to comply with the show cause order. A transcript of the call is attached to the court's order.,34&as_ylo=2015

Monday, February 16, 2015

FDCPA and RESPA: District Court Dismisses Claims Against Banks

A United States District Court has dismissed both FDCPA and RESPA claims brought against a bank and its servicer.  In Fleming v. U.S. Bank, C.A. No. 14-3446 (D. Minn. Feb. 6, 2015), the consumers sent the servicer a Qualified Written Request which the servicer timely responded to.  The Flemings eventually defaulted on the mortgage and the bank commenced foreclosure proceedings.  The Flemings filed suit asserting violations of both the FDCPA and RESPA.

Regarding the FDCPA claim, the plaintiffs argued that defendants violated the FDCPA by attempting to foreclose on the property and engaging in conduct that was unfair and deceptive in its efforts to foreclose.  The defendants argued that they were exempt from the FDCPA because foreclosure activities undertaken by mortgagors and mortgage servicing companies are not debt collection under the FDCPA. While noting a split in the circuits (the Fourth and Sixth Circuit have held that foreclosure is debt collection), the court concurred with the defendants, holding that foreclosure activities do not constitute debt collection under the FDCPA.

The court also dismissed the RESPA claim.  Under RESPA, servicers are required to provide a written response to a Qualified Written Request within 30 days of receipt.  The court determined that the QWR served by the Flemings was not proper and even assuming for the sake of argument that the QWR was proper, the servicer had adequately responded to the same.  Moreover, the court determined that the plaintiffs failed to properly plead the RESPA claim because they failed to allege that they suffered some actual damage as a result of the alleged violation.  The court noted that “[A] RESPA plaintiff must plead and prove, as an element of the claim, that he or she suffered some actual damage as a result of the alleged RESPA violation.  In the case of the Flemings, they only sought damages “if any be proven”, thus failing to properly allege harm.   


FDCPA: Consumer Lacked Standing to Bring Pre-petition Consumer Claim.

Barris v. Midland Funding LLC, C.A. No. 14-cv-6469 (D.N.J. Fe. 9, 2015) serves as a reminder that bankruptcy can divest a consumer of its standing to bring an FDCPA claim.  In Barris, the consumer discovered Midland had re-reported a disputed debt on her consumer report without notating the dispute.  The plaintiff the filed a Chapter 7 bankruptcy and failed to list the claim as an asset.  After receiving her discharge, plaintiff brought suit alleging that Midland’s credit reporting violated the FDCPA.  Midland filed a motion to dismiss, challenging the plaintiff’s standing to sue.  In Chapter 7s, the pre-petition claim becomes property of the estate and the trustee has standing- not the debtor- to pursue it unless the trustee has abandoned the claim.  The court agreed with Midland, holding that the debtor lacked standing to bring a cause of action for a pre-petition claim that was not disclosed in the bankruptcy because pre-petition claims belong to the bankruptcy trustee.  The court pointed out that “[u]nscheduled property…can never be abandoned without…notice and hearing” and concluded that “[t]he Trustee has exclusive authority to dispose of or control property of the bankruptcy estate” including Barris’ claim against Midland.  The case serves as a great reminder that defense counsel should always be aware of whether or not the consumer has filed bankruptcy and if so, whether or not the claim (if prepetition) was disclosed in the consumer’s schedules.

Wednesday, February 11, 2015

North Carolina Car Dealers Settle with Department of Justice Regarding Predatory Lending Complaint

In a settlement still subject to court approval, the Department of Justice and the State of North Carolina have settled a predatory lending lawsuit with two North Carolina "buy here, pay here" car dealerships.  “Buy here, pay here” dealerships typically provide the financing in house, allowing the purchaser to defer payment for a set time and to make periodic payments often on a more frequent basis than a traditional financing arrangement. 

In United States v. Auto Fare, Inc., the government alleged that the dealerships violated the Equal Credit Opportunity Act (“ECOA”) and the North Carolina Unfair and Deceptive Trade Practices Act by targeting African American consumers for inflationary pricing and interest rates without meaningfully assessing their credit worthiness. The government contended that the pricing increased the likelihood of defaults.  The government further alleged that the dealerships engaged in repossession and remarketing practices that violated Article 9 of the North Carolina Commercial Code, and that the dealers installed GPS devices on cars without the consumer's knowledge to assist the dealerships in their repossession efforts.   See United States v. Auto Fare, Inc., C.A. No. 3:14-cv-00008-RJC-DSC (W.D.N.C.). 

The proposed consent order, among other things:

·         Requires the dealerships to develop and implement written policies and procedure for collection applications and financial documents for all credit applicants sufficient to allow the dealerships to assess meaningfully the applicants’ income and ability to meet the payments on any vehicle purchased;

·         Prohibits the dealerships from entering into credit transactions where the total monthly payments (excluding any pick up payments, tax, tags or title fees) exceed 25% of the total documented monthly net income of the customer;

·         Requires the dealerships to develop retention policies and computerized systems for maintaining documentation of all transactions, insuring proper application of payments and correctly determining instances of a customer’s default;

·         Requires disclosures to customers of GPS systems affixed to vehicles to inform the dealership of the location, disclosures of price, etc. on the windshield of each car, and disclosures that the dealership will provide Carfax or similar reports to each customer at the customer’s expense;

·         Requires the dealership to allow test drives and seek independent inspection of vehicles selected for purchase;

·         Establishes the maximum interest rate to be charged customers;

·         Establishes that guidelines for the sales price of vehicles (in general, the sales price may not exceed the published NADA by more than 15% of vehicles in similar condition, body type, year and model);

·         Provides conditions and procedures for repossession of vehicles where the loan is in default;

·         Provides strict reporting requirements for the duration of the decree (at least four years);

·         Requires annual training of employees regarding ECOA and the North Carolina Commercial Code procedures for consumer installment contracts and secured transactions; and

·         Requires the dealerships to establish a $225,000.00 fund to compensate aggrieved consumers.

Key take aways for those in the “Buy Here, Pay Here” business:

1.       Document the credit worthiness assessment of each applicant;

2.       Make sure car pricing is in line with the NADA pricing and/or other similar dealerships in the area;

3.      Make sure interest rates are applied consistently, do not exceed the maximum rates established by North Carolina law, and bear a reasonable relationship to the credit worthiness of the applicant;

4.      Engage in proper accounting of loan payments and defaults;

5.      Insure that periodic payments are in line with the total documented monthly net income of the customer; and

6.      Insure the exercise of any rights upon default are in accordance with North Carolina law.



A Glimpse into the FTC: FTC Submits Annual Summary to the CFPB

Under Dodd-Frank, the CFPB, rather than the FTC, is responsible for submitting to Congress annual reports concerning the FDCPA.  The FTC announced Monday that it has submitted to the CFPB its annual summary of its work on debt collection issues the past year.  
The eighteen page letter offers a glimpse into the agency’s approach and priorities as to debt collection issues. Touting itself as primarily a law enforcement agency, the FTC continues to be aggressive in enforcement actions.  Its letter noted that in recent years, it has focused on bringing a greater number of cases and obtaining stronger monetary and injunctive remedies against debt collectors.  These are the key take aways and trends to watch in 2015:

                Aggressive Enforcement.

·         The FTC filed 10 new debt collection cases in 2014, a record number.

·         The FTC resolved nine cases, obtaining nearly $140 million in judgments, including FTC v. Asset & Capital Management Group, which netted a record $90.5 million judgment.

 ·         The FTC has permanently banned 47 companies and individuals from ever working in debt collection again.  The FTC‘s message regarding this issue has been a focal point in recent weeks.  Its blog last week announced a published list of banned companies (

Certain Practices Targeted.

·         Deceptive, Unfair or Abusive Collector Conduct. The letter shines a spotlight on the agency’s efforts to pursue debt collectors that secure payments from consumers by falsely threatening litigation or arrest or otherwise falsely implying they are involved in law enforcement.  See, e.g., FTC v. Asset & Capital Management Group; FTC v. Federal Check Processing, Inc.; FTC v. Payday Financial, LLC; FTC v. Goldman Schwartz, Inc.;  FTC v. National Check Registry, LLC; United States v. Credit Smart, LLC.

·         Phantom Debt Collection.  In 2014, “phantom debt collection” was another focus of the FTC.  The FTC pursued debt collectors that attempted to collect debts that either did not exist or were not owed to the phantom debt collector. The FTC noted that all of these were related to fraudulent payday loan related operations and reiterated its focus on the payday loan market.  See e.g., FTC v. Centro Natural Corp.; FTC v, Williams, Scott & Associates, LLC; FTC v. Pinnacle Payment Services, LLC

·         Consumer Data Breaches.  The FTC continues to pursue two cases involved data breaches where debt sellers impermissibly posted personal identifying information of consumers on public websites.  See, e.g., FTC v. Bayview Solutions, LLC; FTC v. Cornerstone and Company.

·         Protection of Limited English Proficient Consumers from Illegal Debt Collection Practices. The FTC noted it commitment to pursuing agencies who target Spanish speaking consumers with abusive debt collection practices.  The FTC brought three cases which illustrate this commitment: FTC v. Rincon Management Services, LLC; FTC v. RTB Enterprises, Inc.; FTC v. Centro Natural Corp.

 Partnership with the CFPB.

·         Joint Amicus Curiae Briefs.  The FTC filed joint briefs with the CFPB in two appellate cases in 2014 reflecting the agencies’ commitment to working together and similar view as to certain issues – time barred debt and initial communications.

·         Rulemaking.  The FTC acknowledged that it is working with the CFPB concerning proposed rulemaking concerning debt collection.  The proposed Regulation F is widely expected to be published in 2015.