Sixth Circuit Clarifies TCPA’s Prior Express Consent

The Sixth Circuit has clarified what constitutes “prior express consent” in connection with debt collection.  In Hill v. Homeward Residential, Inc.,  File No. 15a0201p.06, 2015 U.S. App. LEXIS 14703 (6^th Cir. Aug. 21, 2015) the consumer sued its mortgage company under the TCPA for calls made to his cell phone.  The question presented to the court was whether Hill provided Homeward Residential with prior express consent.  The debt at issue was originated by another mortgage company and in connection with obtaining the mortgage, Hill provided a home number and a work number.  Ultimately, the home line was cancelled and the mortgage was transferred to Homeward Residential.  Over the course of his dealings with Homeward Residential, Hill provided his cell number on a number of occasions, including: (1) by notifying Homeward Residential that his primary phone number had changed and providing his cell number; (2) by listing his cell number on the loan modification documents; and (3) by listing his cell number on a number of loss mitigation documents.

The court determined that Hill provided prior express consent.  The court additionally endorsed the FCC’s clarification of prior express consent in the debt context and the trial court’s jury instruction on the same which read as follows:

“’Prior express consent’ means that before Defendant made a call to Plaintiff’s cellular telephone number, Plaintiff had given an invitation or permission receive calls to that number.

Autodialed and prerecorded message calls to wireless numbers that are provided by the called party to a creditor in connection with an existing debt are permissible as calls made with the ‘prior express consent’ of the called party.”

In doing so, the court noted consent does not have to be given at the outset of the transaction, but can be provided during the transaction.  Therefore, any “autodialed and prerecorded message calls to wireless numbers provided by the called party in connection with an existing debt are made with the ‘prior express consent’ of the called party.” Slip Op. at 7 (internal citations omitted).  Importantly, the court also held that the debtor does not have to give his consent to automated calls specifically and general consent to being called on the cell phone will suffice.

North Carolina Provides Some Clarification and Relief on Debt Collection

In a move which provides clarification and more consistency with the FDCPA but widens the gap as to the treatment of collection agencies and non-collection agency debt collectors, North Carolina has modified its Debt Collection Act (the “NCDCA”) to conform more closely to the FDCPA regarding third party communications. 

North Carolina has a bifurcated statutory scheme with respect to its collection statutes.  Chapter 58 of the North Carolina General Statutes regulates the collection efforts of collection agencies and debt buyers.  Chapter 75 of the General Statutes regulates all others engaged in debt collection, including original creditors.  The modifications to the statute, which were enacted on August 5, 2015 and took effect immediately, are with respect to Chapter 75 only and provide clarification primarily as to what contact with third parties is appropriate.  No similar amendment has been provided to Chapter 58 as of this date.

As things stand now, third party communication rules in North Carolina are as follows:

FOR COLLECTION AGENCIES/DEBT BUYERS:

The third party contact rules are codified in the North Carolina Collection Agency Act (the “NCCAA”) at N.C.G.S. §58-70-105 and prohibit communication with any person other than the debtor or his attorney except:

• With the permission of the debtor or his attorney;

• To persons employed by the collection agency, to a credit reporting agency, to a person or business employed to collect the debt on behalf of the creditor, or to a person who makes a legitimate request for the information;
• To the spouse (or one who stands in place of the spouse) of the debtor, or to the parent or guardian of the debtor if the debtor is a minor;

• For the sole purpose of locating the debtor, if no indication of indebtedness is made; and
• Through legal process.

Collection agencies and debt buyers operating in North Carolina should be aware that the NCCAA applies not only to the collection of consumer debt but also to the collection of commercial debt.

FOR OTHERS INCLUDING ORIGINAL CREDITORS:

Unlike the NCCAA, the NCDCA only applies to consumer debt which is defined as being any debt incurred for personal, family, household, or agricultural purposes. The third party contact rules are codified at N.C.G.S. §75-53.  As amended, debt collectors (which include original creditors) are prohibited from communicating with any person other than the debtor or his attorney except:

• To designated third parties with written permission of the debtor or his attorney;
• To persons employed by the debt collector, to a credit reporting agency, to a third party employed to collect the debt on behalf of the creditor or a person who makes a legitimate request for the information;
• To the spouse (or one who stands in place of the spouse), or to the parent or guardian of the debtor if the debtor is a minor and lives in the same household with the parent;
• For the purposes of location information about the debt as long as no indication of the indebtedness is made.

There are three key amendments to the statute as to third party communications:

• Contact to third parties is permissible where the debtor or his attorney provides written permission.  Written permission can now be provided prior to default.
   
• A bona fide error defense is now available with respect to communications to parents, guardians and spouses.  As amended, the statute provides that if the debt collector has a good faith belief that the communication to the spouse, parent or guardian is within the exception set forth above, the communication shall not be in violation of the exception.  Where this is likely to come into play are instances where the contact information provided by the debtor is the phone number, address of the spouse or parent but the debtor is no longer married to the spouse or the debtor has moved out of the family home.  Creditors should be aware, however, that if the debtor is no longer a minor, the good faith exception as to parental contact is not likely to apply.
   
• The amendment also sets forth the acceptable scope and frequency of location information communications.  The amendments:
  • Prohibit disclosure of the debt;
  • Require the debt collection to “identify himself or herself, state that he or she is attempting to confirm or correct location information about the debtor, and, only if expressly requested to do so, identify his or her employer;
  • Prohibit stating that the debtor owes a debt;
  • Prohibit communication with any particular person more than once a week or a total of three times during any 30 day period unless requested to do so by the person.

The statute additionally provides clarification that under the NCCAA, creditors and other non-collection agency/debt buyer debt collectors are allowed to collect their filing fees and other court costs.

Eleventh Circuit Limits Application of FDCPA

In a divergence from the majority, the Eleventh Circuit held last week that an entity is not a debt collector subject to the FDCPA when it seeks to collect purchased delinquent debt. In Davidson v. Capital One Bank (USA), N.A., 2015 U.S. App. LEXIS 14714 (11^th Cir. Aug. 21, 2015), the court held that an entity is not a debt collector when it attempts to collect a debt that was acquired after default if either the entity’s principal purpose is not the collection of debts or the entity does not regularly collect debts owed to others. 

In Davidson, Capital One purchased a portfolio of delinquent credit card debt from HSBC Bank Nevada and then proceeded to attempt to collect on it.  Davidson filed a putative class action against Capital one alleging various FDCPA violations.  Capital One responded by moving to dismiss alleging that it was not a debt collector subject to the FDCPA.

Under the FDCPA, in order to be a debt collector subject to the Act, a person must “use any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of debts or who regularly collects or attempts to collect…debts owed or due or asserted to be owed or due another.” 15 U.S.C. §1692a(6) (emphasis supplied).  The Act also provides that “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity…concerns a debt which was not in default at the time it was obtained by such person.”  15 U.S.C. §1692a(6)(F)(iii).  The Act also defines who is a creditor and excludes “any person to the extent that he receives assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.  Davidson contended that the distinction between creditor and debt collector is drawn by whether or not the debt is in default.  Davidson contended that Capital One was a debt collector because it was seeking to collect an account which was in default when it was acquired.

The court debunked that notion, focusing on the two substantive elements of the debt collector definition which require that the entity either: (a) have a principal business purpose of collecting debts; or (b) regularly collect debts owed or asserted to be owed or due to another.  The court reasoned that the exceptions to the definition cannot come into play unless the entity first meets one of the two substantive elements of the definition.  The court noted that neither of these substantive elements are conditioned upon whether or not a debt is in default and supported the district court’s conclusion that “to qualify as a debt collector under the FDCPA, Capital One has to “regularly” collect or attempt to collect on debts “owed or due another” or the principal purpose of Capital One’s business has to be “the collection of any debts.” Davidson, 2015 U.S. App. LEXIS 14714, *5-6.    The court therefore concluded that Davidson could not rely on the exceptions provided in section 1692a(6)(F) “to bring entities that do not otherwise meet the definition of “debt collector” within the ambit of the FDCPA solely because the debt on which they seek to collect was in default at the time they acquired it.  Section 1692a(6)(F)(iii) is an exclusion; it is not a trap door.” Id. at *14. 

The implication of the decision is that, at least in the Eleventh Circuit, financial entities purchasing debt portfolios will not come within the ambit of the FDCPA so long as their principal business purpose is not debt collection and they do not regularly collect debts on behalf of third parties.

CFPB Issues Monthy Complaint Report

Today,  the CFPB issued its monthly report of consumer complaints.  The report is a high level snapshot of trends in consumer complaints. The Report provides a summary of the volume of complaints by product category, by company and by state.  Additionally, it highlights a product type and a geographic area.  This month’s report highlights credit reporting.  Here are the highlights:

• Complaint Volume by Product
  • The Report breaks down complaint volume by product looking at a three month average and comparing the same to 2014. 
  • Surprisingly, debt collection (while still having the largest volume of complaints) continued to show a decrease in complaint volume for May-July 2015 compared to the same period of 2014;
  • Consumer loan and credit reporting showed the largest increase in complaints for May-July 2015 when compared to April-June 2014;
  • Not surprisingly, the three products which yielded the highest volume of complaints for April-June 2015 were debt collection, mortgage and credit reporting;
  • When reviewing products on a month over month basis, credit reporting complaints showed the greatest month over month increase while mortgage complaints showed the greatest month over month decrease;
  • Debt collection complaints represented approximately 1/3 of the complaints submitted in July; and
  • The states showing the highest rate of increase for May-July 2015 over the same period of 2014 are Hawaii, Maine, Georgia and North Carolina, all showing an increase of at least 33%.
     
• Highlighted Product: Credit Reporting
  • This month’s report highlights credit reporting complaints;
  • The overwhelming most common credit reporting complaint in July was incorrect information on credit reports (77% of all credit reporting complaints);
  • The CFPB report indicates that these complaints frequently involved accounts in collection for which the consumer complained were not accurately reflecting the status of the collection;
  • The CFPB report also noted consumer frustratinwith access to their credit reports due to "rigorous identity authentication" requirements; and 
  • The majority of credit reporting complaints are against national consumer reporting agencies rather than the furnisher of information.

Court Dismisses FDCPA Envelope Case

In a bit of good news to the collection agency industry, a federal district court has declined to follow the Third Circuit’s lead and has dismissed an FDCPA case based upon the information visible through the envelope’s glassine window.  In Perez v. Global Credit and Collection Corp., the plaintiff brought FDCPA claims alleging that the debt collector violated 15 U.S.C. §1692f(8) by mailing a letter in connection with a debt in a plain white envelope with a glassine window.  Nothing was written on the envelope – not even a return address.  The plaintiff alleged however that the information visible through the glassine window, however, violated the FDCPA because it included the eight digit account number, 20591933.  The offending information is below:

Slip Op. at p. 5. The defendant moved to dismiss.

Section 1692f(8) prohibits the inclusion of “any language or symbol other than the debt collector’s address, on any envelope.”  The current trend is to view violations to include not only information on the envelope, but also any information visible through the glassine window on the envelope.  See Douglass v. Convergent Outsourcing, 763 F.3d 299 (3d. Cir. 2014).  The defendant contended, and the court agreed, that the information visible was benign.  The court noted that the purpose of the FDCPA was to preclude, among other things, the disclosure of consumer’s debts to third parties.  The court found that a “string of eight meaningless digits – falls comfortably within the “benign language” exception to §1692f(8),  As a result, the fact that the number (like a subscription number on the cover of any subscription magazine) is visible through the glassine window of the envelope does not constitute a violation of the FDCPA…Nothing that can be seen through the glassine window in the envelope indicates that the letter insider (sic) the envelope relates to a debt….What is visible through the particular glassine window is the epitome of benign language.”  Id. at 6.

While the case is a bit of good news on the envelope front, it should be viewed with caution as it is in direct contravention with the Third Circuit’s findings in Douglas.  There is no word yet as to whether the plaintiff will appeal the decision to the Second Circuit.

CFPB Issues Compliance Bulletin on Private Mortgage Insurance

Lenders and residential mortgage servicers are being warned by the CFPB to tighten up their compliance with the private mortgage insurance (PMI) cancellation and termination practices.  On August 4, 2015, the CFPB issued Bulletin 2015-03.  While the Bulletin offers nothing new in way of interpretation, it does highlight several practices that violate the Act or create a substantial risk of noncompliance.

Under the Homeowners Protection Act (the “Act”), lenders are required to cancel the PMI requirement once the loan reaches certain thresh holds or upon the borrower’s request, assuming the borrower’s meets certain requirements. 

Borrower Requested Cancellation:

The Act requires lenders/servicers to cancel PMI upon a borrower’s request if the borrower meets certain requirements.  Assuming the borrower meets the requirements, the lender/servicer is required to cancel PMI on either: (a) the date the principal balance is first scheduled to reach 80% of the original value of the property; or (b) the date on which the principal balance reaches 80% of the original value of the property based on actual payments.  In order to qualify, the borrower must have a good pay history, be current on the loan, satisfy the any requirement by the mortgage holder that the property is not subject to a subordinate lien and that the value of the property has not declined below the original value.

With respect to borrower requested cancellation, the CFPB emphasizes that the cancellation date/ 80% loan to value threshold must be based upon the original value and not the current value.  While appraisals may be used and the borrower may be required to pay for the same, they may only be used to ascertain whether the current value has declined below the original value.  Appraised value is not the measuring stick for calculating the cancellation date.    

Automatic Termination:

The Act additionally requires that PMI be automatically cancelled on the date on which the principal balance is first scheduled to reach 78% of the original value of the property securing the loan.  If the borrower is not current on the loan of the termination date, PMI is required to be cancelled on the first day of the first month that the borrower becomes current. 

The CFPB Bulletin notes the following cautions:

• Where a loan is subject to automatic termination, current value plays no role and therefore, servicers cannot require as a condition of termination that the borrower provide evidence of the property’s current value; and
• Borrowers cannot advance the termination date by prepayment.

Final Termination:

The Act provides that if the PMI is not terminated either by borrower request or automatic termination, it terminates at the midpoint of the amortization period, provided the borrower is current. The Bulletin points out that since the Act only applies to mortgages consummated after July 29, 1999, the final termination provisions have only impacted the typical thirty year mortgage since August 2014.  The Bulletin reminds servicers and lenders to make sure policies, procedures and processes are in place to ensure PMI coverage is being properly and timely terminated.

Other Issues:

The Bulletin highlights other areas of concern, as well:

• PMI Refunds: The CFPB noted that PMI refund issues have been observed in examinations and notes the following:
  • Policies, procedures and processes need to be in place to insure that PMI termination is done within the time periods set forth in the Act;
  • To the extent unearned premiums are collected, likewise, policies, procedures and processes need to be in place to insure they are refunded within the time periods set forth in the Act; and
  • Moreover, refunds must be returned directly to the borrower and cannot be placed indefinitely in escrow accounts.
• Annual Disclosures: Servicers are also reminded that:
  • The Act requires annual disclosures be made to inform borrowers of their right to PMI cancellation and termination; and
  • That the Notice must include contact information for the servicers regarding PMI cancellation and termination.
• Investor Guidelines: The Bulletin also serves as a reminder that investor guidelines cannot restrict the PMI cancellation and termination rights that the Act provides to borrowers.

While the Bulletin does not contain anything new, it serves as an indicator that the CFPB will make PMI a point of emphasis in future examinations.

 

Federal Regulators and the CFPB Fine Bank and Order Remediation as to Deposit Discrepancies

In a joint enforcement action, the CFPB, OCC and FDIC have entered into consent orders with Citizens Bank N.A., Citizens Bank of Pennsylvania and their parent company, Citizens Financial Group, Inc.  (the “Banks”). The consent orders allege the Banks engaged in unfair and deceptive practices between 2008 and 2013 with respect to their handling of deposit discrepancies.  In total, the Banks are being ordered to refund any deposit discrepancies which were not properly credited to customer accounts (estimated to be in excess of $16 million dollars) and pay over $20 million in penalties.  Additionally, the Banks are being ordered to remediate their practices and put compliance management programs and audit procedures in place to prevent further issues.

The consent orders allege that between January of 2008 and November of 2013, the banks violated §5 of the FTC Act and §1036 of Dodd Frank by engaging in unfair and deceptive practices regarding their deposit discrepancy policies.  The consent orders allege that the Banks’ violations were two fold.  The Consent Orders allege that the Banks told customers that deposits were subject to verification, suggesting that the banks would take steps to ensure deposits were accurately credited when a discrepancy arose between the deposit slip and the actual amount of the deposit.  Second, the Banks made no adjustments to the deposit amounts where deposit discrepancies were under a certain threshold ($50 from January 2008-September 2012 and $25 from September 2012 through November 2013). In other words, the deposits were credited for the amount on the deposit slip irregardless of the discrepancy.  The net effect was that if a customer miscalculated its deposit and the discrepancy was under the thresh hold, the deposit was never credited to reflect the discrepancy. 

The Orders require the Banks to:

• Provide proper vendor management to ensure their service providers and affiliates properly and accurately resolve deposit discrepancies;
• Establish a Compliance Committee to monitor and coordinate the Banks’ adherence with the consent orders;
• Develop a written Consumer Compliance Internal Audit Program for the processing of deposits and deposit discrepancies which includes written policies and procedures for conducting audits to insure deposits and deposit discrepancies are accurately handled, including the frequency, scope and depth of said audits;
• Submit a Compliance Plan which:
  • Puts in place compliance measures, as well as policies, procedures and practices, to ensure accurate processing of deposits and deposit discrepancies;
  • Incorporates sufficient monitoring and oversight of the processing of deposits and deposit discrepancies;
  • Incorporates training of personnel to insure accurate resolution of deposit discrepancies; and
  • Enhance or incorporate complaint procedures and processing to ensure despot discrepancy complaints are identified, tracked and resolved in accordance with the Banks’ policies and procedures.

The Orders additionally require the Banks to reimburse affected account holders for the amount of any funds not properly credited to their account as a result of the discrepancy, plus any bank charges resulting from the under-crediting (for instance, overdraft) and interest.  Additionally, the Orders require the following civil penalties: $7.5 million to the CFPB, $3 million to the FDIC and $10 million to the OCC.