CFPB Monthly Complaint Report Confirms Increased Scrutiny on Depository Accounts

The CFPB issued its MonthlyReport last week. The report is a high level snapshot of trends in consumer complaints and provides a summary of the volume of complaints by product category, by company and by state.  The Report breaks down complaint volume by product looking at a three month average and comparing the same to the prior year.  As has been the case in prior months, the Report continues to indicate that the three products yielding the highest volume of complaints are debt collection, mortgage and credit reporting.

This month’s report highlights bank account or service complaints and re-emphasizes the increased scrutiny that banks are likely to see from their regulators concerning information furnished to consumer reporting agencies concerning deposit accounts.  The Report notes that bank account or service complaints comprise approximately 10% of the total complaints received by the CFPB.  Consistent with the Fall SupervisoryHighlights, the Report notes that:

• The most common complaint involved account management and many of the complaints both with respect to account openings and closings involved potential for credit reporting issues. Account management issues comprise about 44% of all complaint received. Specifically: 

• Consumers complained they were unable to open accounts and often uncertain as to why a company refused to open an account. 
• Consumers also complained that their inability to open accounts was often related to inaccurate credit reporting.
• Consumers also complained about companies’ decisions to close deposit accounts, noting that no reason was provided for the action.    

• Another issue highlighted by the Report involved deposit and withdrawal issues.  Consumers complained about restricted access to funds, early cut off times for same day deposits, holds placed on deposits and holds placed on checks.  Complaints involved deposits and withdrawals comprised 25% of the complaint in this category.

The significance of this month’s Complaint Report, coupled with the attention provided to credit reporting in the Fall Supervisory Highlights, is that depository banks should be on notice that their handling of adverse actions credit reporting disputes with respect to depository accounts is likely to be a point of emphasis in upcoming examinations.

CFPB Pushes Back its Timetable for Debt Collection Rulemaking

Last week, the CFPB published its Fall 2015 Rulemaking Agenda.  While very few definitive dates were provided, the Agenda does give some insight as to an expected time frame for several hot button issues:


 Arbitration:  In the spring, the CFPB has not committed to rule making only indicating that they were reviewing feedback that they have received and “considering whether rules governing arbitration clauses may be warranted.”  It now appears that rulemaking is imminent as the CFPB acknowledges that it is “beginning a rulemaking process to address concerns related to the use of arbitration agreements in connection with credit cards, deposit accounts, payday loans, and various other consumer financial products or services.  The CFPB recently convened a Small Business Advisory Review Panel to discuss potential rulemaking and indicates that the prerule activities are expected to be completed by the end of the year.


 Payday Lending:   The CFPB remains on target to release a proposed rule soon and indicates that it will issue a Notice of Proposed Rulemaking in early 2016 and has provided a target date of February 2016.


Prepaid Financial Products:  The CFPB remains on target to issue a final rule in early 2016.


 Overdrafts:  In the spring, the CFPB indicated that they were continuing to conduct additional research to assess whether rulemaking is warranted and did not issue a time table for rulemaking.  The CFPB ow anticipates continuing its prerule activities through at least the first part of 2016.

Debt Collection:  One of the bigger stories that remains is when a proposed rule as to debt collection will be issued in 2015.  The CFPB has not committed to a time line. Prerule activities are now anticipated to continue into the first quarter of 2016. The CFPB indicates that they are engaged in consumer testing initiatives to “determine what information would be useful to consumers to have about debt collection and their debts and how that information should be provided to them.”

Women owned, Minority owned and Small Business Data Collection: The CFPB is in the early stages of developing rules to require financial institutions to report information about their lending to women-owned, minority owned and small businesses.  The CFPB has indicated a desire to model any data collection after their recently released HMDA Rules.  Prerule activities are in the initial stage and expected to continue through the third quarter of 2016.


 





 

Guest Post: Tilting at Windmills

By: Mark J. Dobosz

November 24, 2015

 

The behavior of literary character Don Quixote is a great example of what the U.S. House of Representatives voted this week to curb at the CFPB – quixotism and idealism.

 

The dictionary defines quixotism as – “a tendency to absurdly chivalric, visionary, or romantically impractical conduct; and idealism as “ the tendency to represent things in their ideal forms, rather than as they are.”

 

According to the Wall Street Journal, “By a vote of 332-96, lawmakers voted to roll back the bureau’s campaign to prevent car dealers from negotiating rates on auto loans. The feds have been justifying their power grab—and extracting settlements from the banks that provide auto financing—by claiming that dealers are discriminating against minority borrowers. But the bureau isn’t presenting actual victims who have suffered harm. The regulators are simply guessing the race of borrowers based on their last names and addresses in the loan files and then claiming racism if the people they guessed were minorities seemed to be paying higher rates.”

 

Once again, the CFPB’s research that leads to broad actions is often based on flawed data or having “the tendency to represent things in their ideal forms rather than as they are.”

 

Democrats and Republicans were in agreement that this was another example of an agency enforcing an action that ultimately harms the consumers the CFPB has vowed to protect.

 

Working with a regulatory body is meant to be a collaborative process where all sides can trust in the third-party data and research used to develop a level-playing field for consumers and creditors. That is very difficult to accomplish when one-side provides data that is reflective of both quixotism and idealism.

About the Author:  Mark Dobosz currently serves as the Executive Director for NARCA – The National Creditors Bar Association. Mark is a one of NARCA’s speakers on many of the creditors rights issues impacting NARCA members. 

The National Creditors Bar Association (NARCA) is a trade association dedicated to creditors rights attorneys. NARCA's values are: Professional, Ethical, Responsible

Guest Post: NARCA Supports Eliminating “Bad Players”

By: Mark Dobosz, Executive Director - NARCA
November 24, 2015


The Federal Trade Commission’s announcement of its coordinated efforts with other law enforcement agencies against deceptive and unscrupulous debt collectors is hailed by NARCA as a positive move to rid the industry of the “bad apples” that tarnish reputable and legal debt collection businesses.

 NARCA supports the efforts of both industry entities and other agencies to root out the businesses that harm consumers through truly deceptive practices. The industry and consumers are much better off by collaborative and complementary practices to insure that “bad players” are eliminated from practicing debt collection.

 NARCA has been at the forefront of insuring that its members abide by a Code of Ethics and Professional Conduct that is separate and in addition to the rules in their respective states which govern their law licenses. .  Harvey Moore, NARCA Board President commented, “Collaboration, communication and cooperation between industry groups and the regulatory bodies which enforce laws to eliminate those who consciously harm consumers through deceptive practices is key to keeping the credit eco-system for this country strong.”

About the Author:  Mark Dobosz currently serves as the Executive Director for NARCA – The National Creditors Bar Association. Mark is a one of NARCA’s speakers on many of the creditors rights issues impacting NARCA members. 

The National Creditors Bar Association (NARCA) is a trade association dedicated to creditors rights attorneys. NARCA's values are: Professional, Ethical, Responsible

Collection of Subrogration Claims is Not Subject to the FDCPA

A district court in Florida has held that an insurance company’s efforts to collect subrogation claims are not subject to the FDCPA.  Relying upon the Eleventh Circuit’s recent decision in Davidson v. Capital One Bank, the district court granted summary judgment in favor of the insurance company.  Arencibia v. Mortgage Guaranty Insurance Corporation, 2:15-cv-00248, 2015 U.S. Dist. LEXIS 153851 (M.D. Fl., Nov. 13, 2015). 

The insurance company in question, Mortgage Guaranty Insurance Corporation, issues insurance policies to insure lenders from losses due to defaulted mortgage loans. After Arencibia defaulted on her mortgage, Mortgage Guaranty paid the lenders’ claims and then proceeded to seek collection from Arencibia.  The borrowers contended that the insurance company’s efforts violated the FDCPA. On summary judgment, Mortgage Guaranty contended that it was not a debt collector and sought dismissal of the claims.

More specifically, Mortgage Guaranty contended that it was not a debt collector because it was not seeking to collect a debt owed or due another.  Instead Mortgage Guaranty was seeking to collect on debts it owned.  The Court relied on the Eleventh Circuit’s decision in Davidson in which the court concluded that the appropriate inquiry as to whether a party is a debt collector is whether the party regularly collects on debts owed or due another at the time of collection.  In this case, Mortgage Guaranty was seeking to recoup money owed to it pursuant to subrogation law.  “Because Defendant stepped into the shoes of the lenders under subrogation law, Defendant’s collection efforts in this case relate only to debts owed to it – and not “to another.” Arencibia at *11-12.

Arencibia is consistent with other cases in which insurers seeking to collect on tort claims via subrogation have not been held subject to the FDCPA and provides the defense bar with an additional grounds to dismiss such cases.

 

CFPB Issues Annual Fiscal Report

The CFPB issued its annual fiscal report yesterday, touting its ability to exceed goals and collect money.  Here are our quick takeaways.  If you want to see all the pie charts and candid color photographs, you'll have to read the 125 page Report for yourself:

GENERAL OBSERVATIONS

• The Bureau continues to increase in size steadily.  In 2011, the Bureau had 663 employees.  In 2015, it had 1529 employees.
• The Bureau met or exceeded each of the 12 measures set forth in its 2013-2017 Strategic Plan.  These measures include:
  • Timely resolving rulemakings
  • Successfully resolving all cases filed either through litigation, default judgment or settlement
  • Expanding its capacity to handle consumer complaints
  • Exceeding its goal as to the number of reports generated about specific consumer financial products or regulations.

FINANCIAL OBSERVATIONS:

• Monetarily, the Bureau also deems 2015 a success:
• Its cash collections more than doubled in 2015.  According to the Report, the Bureau collected over $183 million in cash.
• Its compensation to victims showed a 700% increase from $20.8 million in 2014 to $158.8 million in 2015.
• Similarly, 2015 was a good year for the CFPB is civil penalty fund collections with the Bureau collecting $183.1 million.
• The Report also notes that the net costs of operation for the Bureau increased 29% in 2015 and is attributed to overall growth of the agency and continued activity in each of its strategic goals.

Initial Thoughts on TRID and the Potential Regulatory Traps for Lenders

The Truth in Lending RESPA Integrated Disclosure Rule (TRID) took effect October 3, 2015 and placed the mortgage industry in unchartered waters.  Our office has spent immeasurable hours reviewing the rule, the commentary, the CFPB Guidelines and listening to lenders’ concerns about the Rule.  Here are our initial observations.

Initial Examinations:  All of the relevant regulators have provided assurances to their supervised entities that examiners will “evaluate an institution’s compliance management system and overall efforts to come into compliance, recognizing the scope and scale of changes necessary for each supervised institution to achieve effective compliance.”  So what does this mean?  It means that examiners will likely be focused on the implementation of policies and procedures and due diligence testing of software in initial examinations.  The good news is that most lenders began implementing policies and procedures regarding TRID well ahead of October 3^rd; however, reports from the CFPB and lenders themselves indicate that the software roll out from vendors may not have been as smooth.  Several lenders have indicated that software is still being updated making it difficult for them to do their due diligence in testing the software.  The CFPB has indicated some awareness of the issue, acknowledging that the implementation process "was not as smooth as we would have hoped" and placing the blame largely at the feet of the software vendors.  Our message for lenders, however, remains the same:  make sure you are adequately testing the software and remember, TRID places liability for noncompliance squarely on the lender.

Private Rights of Action/Class Actions:  Simply put, TRID provides more risk for litigation exposure to lenders.  Under TRID, lenders are solely responsible for compliance with the rule.  While RESPA did not provide a private right of action; the TRID Rule relies on the Truth in Lending Act for all disclosure, timing and content requirements.  Truth in Lending does provide a private right of action and thus, it is a foregone conclusion that we will see more litigation under TRID.  Additionally, class actions are likely to become more prevalent.

Loan Estimates:  The timing requirements for Loan Estimates (3 business days from application) places immense pressure on underwriters to perform their analysis of credit worthiness in a very tight time frame.  The ramifications of this are that lenders are going to make loan decisions without adequate time to fully vet credit worthiness.  Additionally, we see the following pitfalls for Loan Estimates:

• Product Description: When it takes 50+ pages for the CFPB to explain how to fill out a three page form, the form does not meet its goal of simplification.  Case in point: TRID requires that products be described in terms of any payment feature that may change the periodic payment and the duration of the relevant payment feature.  For example, the Commentary to the Rule suggests that an adjustable rate where the introductory rate is 5 years and then adjusts every three years– “5/3 Adjustable Rate.”   It is unlikely that the average consumer is going to understand the import of that product description.
• Projected Payment Changes: TRID requires that projected payment changes be disclosed.  TRID expressly requires that lenders include within those changes the automatic termination of Mortgage Insurance.  The CFPB has indicated recently that it is concerned that lenders are not appropriately terminating Mortgage Insurance.  This disclosure on the Loan Estimate is therefore likely to receive a lot of attention in Initial Examinations.
• Overestimating Costs:  Inevitably, there will be an inclination to overestimate costs in order to not run afoul of the Good Faith Estimate Test and tolerance thresholds.  Lenders need to be careful in doing so as a practice of doing so is likely to be scrutinized by examiners for fair lending violations and unfair and deceptive violations.

Closing Disclosures and Consummation:

• Lenders and their settlement agents need to be cognizant of their obligations to prevent the impermissible disclosure of Nonpublic Personal Information to third parties. 
• Lenders and their settlement agents need to fully contemplate that Closing Disclosures are likely to need to be revised and have a clear idea as to when an additional three day waiting period is required and when it is not.
• Additionally, we anticipate that initial examinations will scrutinize the timeliness of refunds to consumers for overpayment of costs as a result of inaccurate Closing Disclosures and whether revised charges were impermissibly charged to the consumer rather than being absorbed by the lender (as determined by the Good faith Test and permissible tolerances).

CFPB Supervisory Highlights Reflect Continuing Issues with Mortgage Servicing (Part 3)

The CFPB published its Fall Supervisory Highlights this week, highlighting examinations across various financial products that were conducted between May 2015 and August 2015.  The Report highlights key findings made by the CFPB and provides insight into the current focus of the examiners.  While the CFPB did acknowledge that mortgage servicers have made significant improvements over the last several years, the Report notes that regulators “continue to see that inadequacies of outdated or deficient systems pose considerable compliance risk for mortgage servicers, and that improvements and investments in these systems can be essential to achieving an adequate compliance position.” Supervisory Highlights, p. 15 (Issue 9, Fall 2015).

Specifically, the CFPB noted the following issues worth mention:

• Deficiencies in policies and procedures regarding certain objectives required by Regulation X, particularly:
  • Servicers lacked policies and procedures for identifying and facilitating communication with successors of deceased borrowers with respect to the property secured by the deceased’s loan;
  • Servicers failed to have adequate policies and procedures which allowed for the identifying with specificity all loss mitigation options for which a borrower may be eligible and soliciting loss mitigation applications that are consistent with those options;
  • Servicers failed to have adequate policies and procedures which allowed for properly evaluation loss mitigation applications for all options which the borrower may be eligible for, including all loss mitigation options provided by the lender or the assignee of the lender;
  • Servicer’s policies and procedures were not robust enough which regard to allowing and facilitating the sharing of information regarding the status of any evaluation of borrower’s loss mitigation application and the status of any foreclosure proceeding. The CFPB noted that there were break downs in communications where servicers did not timely communicate that a loss mitigation application had been approved to their foreclosure attorneys.
• The CFPB also noted break downs in issues with sufficient communications with consumers regarding their loss mitigation applications.  For example, the Report notes that:
  • Servicers prematurely denied loss mitigation during the period in which the borrower was given additional time to supplement their applications;
  • Servicers did not effectively communicate rights to appeal denials of the loss mitigation applications.
  • Servicers impermissibly required borrowers to waive defenses, set offs and counterclaims in order to enter into mortgage repayment and loan modification plans.

• The CFPB also made a point of noting that mortgage servicers cannot charge additional fees for payment over phone unless: (a) the mortgage documents expressly authorize the same; and/or (b) the borrower’s state of residence expressly allows the same.

Mortgage servicers should continue to review their compliance management systems to continue to insure their loss mitigation procedures are in compliance with Regulation X and always pay particular attention to issues highlights by regulators in the Supervisory Highlights.

CFPB’s Supervisory Highlights Reveals Continued Problems with the Servicing of Student Loans (Part 2)

The CFPB published its Fall Supervisory Highlights this week, highlighting examinations across various financial products that were conducted between May 2015 and August 2015.  The Report highlights key findings made by the CFPB and provides insight into the current focus of the examiners.  The current edition of Highlights indicates that problems continue with the servicing of student loans.

Aside from the credit reporting issues we highlighted in a prior post, the Report highlighted specific concerns:

• Examiners continue to be concerned with the issue of partial payments.  The Report notes that examined entities are “depriving consumers of an effective choice as to how to allocate” partial payments. Specifically examiners found that:
  • Servicers were allocating partial payments over multiple loans, leaving all loans delinquent, and not communicating the ramifications of this to affected consumers; and
  • Servicers failed to inform consumers that they could specifically direct how payments were to be applied.
• Examiners noted issues with the manner in which servicers’ systems were processing payments including malfunctions where automatically debit payments were being triggered prior to the due date
• Examiners also raised concerns with auto debited payments in instances where the due date fell on a date the bank was closed.  In these instances where the payment is not processed until the next business day, additional interest accrues.  The CFPB contends this gives rise to two unfair and deceptive practices by the servicer:
  • first, the CFPB is imputing upon the servicer a duty to notify consumers that this may occur; and
  • secondly, the CFPB is imputing a duty on the servicer if no notification is provided to the consumer, then the servicer must credit the payment back to the due date.
• Examiners also found that servicers in certain instances are making false representations to consumers in bankruptcy concerning whether or not their student loans will be discharged in bankruptcy.  The CFPB continues to note that student loans may be discharged if the debtor can establish an undue hardship.
   

The Report serves as a continued reminder that that CFPB is imposing additional duties toward consumers by servicers under the “guise” of unfair and deceptive practices.  The application of payments continues to be a focus for regulators and servicers should carefully examine their policies and procedures to ensure that a robust compliance management system is in place.

CFPB’s Fall Supervisory Highlights Reveal a Focus on Credit Reporting (Part 1)

The CFPB published its Fall Supervisory Highlights this week, highlighting examinations across various financial products that were conducted between May 2015 and August 2015.  The Report highlights key findings made by the CFPB and provides insight into the current focus of the examiners.  The current edition of Highlights reveals a heavy focus on credit reporting, and particularly the duties of furnishers of information under the Fair Credit Reporting Act. Today’s post will focus on the credit reporting findings with future posts to focus on the findings with respect to debt collection, student lending, mortgage servicing and fair credit.

With regard to credit reporting, examinations across all products focused on the obligations of furnishers and their struggle to maintain effective compliance management systems. Examiners are still concerned with the adequacy of the policies and procedures adopted by furnishers to insure the accuracy and integrity of the information there are furnishing.  The Report highlights specific concerns particularly with the furnishing of information on deposit accounts, debt collection and student loans.

Key takeaways from the May through August examinations:

• Furnishers are not periodically reviewing and updating their policies and procedures as necessary.  The Report reminds covered entities of their obligations under Regulation V to conduct periodic evaluations of their own practices, consumer reporting agency practices of which they are aware, investigations of disputed information, corrections of inaccurate information, means of communications and other factors that may affect the accuracy or integrity of information furnished.

• The Report notes that examinations revealed issues with depository institutions who furnish information on deposit accounts, noting that while they had policies and procedures in place to insure accuracy of their reporting on credit accounts, many did not have similar policies and procedures in place to address furnishing information on deposit accounts.

• The Report indicates that furnishers are struggling with Regulation V’s requirements that consumers be provided with the notice of results of investigations of direct disputes.

• The Report indicates that furnishers are failing to correctly notify consumers of adverse action based in whole or in part on information contained in a consumer report.  Most notably, the Report indicates that furnishers are not providing the name, address and telephone number of the credit reporting agency that provided the information relied upon.

• Over multiple products the CFPB identified issues with the processes, policies and procedures for ensuring the proper handling of disputes. 

  • Particularly, with respect to deposit information, the CFPB noted that entities were not always distinguishing between FCRA disputes (either direct or indirect disputes as to credit reporting) and other complaints they receive.

  • The Report also noted that debt collectors were also struggling in this area and again emphasized that debt collectors are obligated to investigate disputes instead of simply, deleting the trade line.

  • As to debt collection, the Report also noted that examined entities were struggling with adopting adequate policies and procedures that distinguish between credit reporting disputes and disputes made under the FDCPA and the respective obligations required by each.

• The CFPB Report was perhaps harshest in the area of credit reporting when examining student loan servicers, noting a number of deficiencies with policies and procedures, and particularly:

  • Insufficient policies and procedures as to handle consumer dispute investigations

  • A lack of policies and procedures addressing internal controls regarding the accuracy and integrity of information reported and particularly,

    • a failure to implement procedures for verifying random samples of information provided to consumer reporting agencies; and

    • a failure to implement periodic reviews of certain practices, including investigations of disputed information and corrections of inaccurate information.

 The Report should be a wakeup call to depository institutions furnishing information to consumer reporting agencies concerning deposit accounts.  According to the Report, this may be an area that has not been a focal point for compliance officers previously but should be reviewed in light of the Report.   The Report also makes clear that all furnishers need to establish meaningful internal controls to continue to test the accuracy of the data furnished and its handling of disputes to insure they are being handled within the perimeters of Regulation V and its Interagency Guidelines regarding the accuracy and integrity of information furnished.  Additionally, furnishers should revisit their dispute policies and insure they are distinguishing between credit report disputes and other disputes and then implementing proper procedures for addressing each.

Recent Opinions Bring Sharper Focus to the Time Barred Proof of Claim Dilemma

Courts continuing to deal with Crawford copycat claims are bringing a sharper focus to the issue and looking closely at the conflict presented by the FDCPA and Bankruptcy Code.  Three courts who have recently reviewed Crawford claims have dismissed them, concluding in all three cases that the filing of an otherwise accurate time barred proof of claim does not give rise to an FDCPA claim.

 Recapping Crawford v. LVNV Funding LLC.  In Crawford, the debtor filed an adversary proceeding against several debt buyers, alleging that the filing of a time barred proof of claim violated the automatic stay and the FDCPA.  The adversary proceeding was commenced almost four years after the suspect proof of claim was filed.  The debt buyer ultimately withdrew the proof of claim; however, the adversary proceeding proceeded forward.  The Bankruptcy Court granted the debt buyers’ 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 agreed and affirmed the bankruptcy court. 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.  Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11^th Cir. 2014).  In so holding, the court took 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. In April of this year, the Supreme Court refused to grant review of the decision.  More recently, the bankruptcy court dismissed the adversary proceeding on remand because the debt failed to file its adversary proceeding within the applicable statute of limitations. Crawford v. LVNV Funding, LLC, Case No. 08-30192-DHW, Adv. Pro. No. 12-030333-DHW (Sep. 29, 2015).   

Left unaddressed by the Crawford parties was whether the Bankruptcy Code’s claim procedures precluded an FDCPA violation. In a footnote which ultimately has had more value than the actual opinion, the Eleventh Circuit declined “to weigh in on a topic the district court artfully dodged whether the Code “preempts” the FDCPA when creditors misbehave in bankruptcy.” Crawford, 758 F.3d at 1262, n.7.  The Crawford decision, therefore, has limited precedential value because the court specifically declined to consider whether the Bankruptcy Code precludes the FDCPA in the bankruptcy context. 

Defendants in the copycat cases spawned by Crawford have taken note and raised preemption as a defense in the overwhelming majority of the cases brought since then.  Three recent opinions reflect the sharper focus being placed on this issue. The issues, as couched by these cases, are twofold: (a) whether the Bankruptcy Code preempts the FDCPA; and (b) whether the Bankruptcy Code’s claim filing, allowance and objection procedures preclude damages under the FDCPA for time barred proofs of claim.  Jenkins v. Midland Credit Management, 2015 Bankr. LEXIS 3143, *5, 538 B.R. 129,  (N.D. Ala. Sept. 17, 2015); see also Martin v. Quantum3 Grp., (N.D. Miss. Oct. 9, 2015); Martel v. LVNV Funding, LLC, 2015 Bankr. LEXIS 3465 (D. Maine Oct. 13, 2015). 

In addressing the issue of wholesale preclusion, each court declined to hold that the Bankruptcy Code preempts the FDCPA.  By the same token, each court concluded that the filing of an otherwise accurate, but time barred proof of claim does not give rise to an FDCPA claim. In reaching their conclusion, all three courts agreed that the issue is more nuanced than a wholesale preemption and instead chose to focus on the more narrow issue.  

Interestingly, the courts came to the conclusion differently.  In so holding, the Martin court noted the narrowness of its decision acknowledging that while it may be possible for the FDCPA to apply within a bankruptcy case, and perhaps to the filing of a proof of claim, it does not prohibit the filing of accurate but time barred claims.  Id. at *14.  The court gave deference to the Bankruptcy claims procedures by noting that the claims procedures were adopted after the FDCPA and where two acts are in irreconcilable conflict, the latter act (the Bankruptcy Code) to the extent of a conflict impliedly repeals the earlier Act (the FDCPA).  Id. at *16.  Similarly, the Jenkins court concluded that the notion that the FDCPA prohibits, and therefore penalizes, a debt collector for attempting to collect a time barred debt by filing a proof of claim simply loses traction when considered in light of the claims -filing, objection, allowance, and disallowance procedures prescribed in Code §§501 and 502 and Rules 3001-3008… [and] the Code’s broad definition of “claim” in §101(5)(A).”  Jenkins at *6.   In also concluding the statutes were not irreconcilably in conflict, the Martel court noted that the FDCPA does not prohibit all debt collection practices – just those that are false, misleading, deceptive, unfair or unconscionable.  The court concluded that the filing of an accurate but time barred proof of claim therefore did not violate the FDCPA.

As courts continue to address these copycat claims, it is becoming abundantly clear that the preemption issue will be viewed narrowly.  The vast majority of courts addressing the issue to date have concluded that the filing of an accurate but time barred proof of claim does not give rise to a viable FDCPA claim.