Friday, January 29, 2016

Guest Post: 1928 Louisiana Bankers Association Code of Ethics and NARCA - The National Creditors Bar Association – Timely and Relevant

By:  Mark Dobosz

Robert Taylor in his January 15, 2016 article in American Banker Magazine (Banks Can Use 'Code of Ethics' to Strengthen Public Trust) points out

…an advantage of developing an ethics code is that, unlike bank regulatory policy that must be adjusted constantly depending on the jurisdiction and interpretation, ethical standards are basically timeless. In fact, the Code of Ethics crafted by community bankers at the 1928 convention of the Louisiana Bankers Association is still relevant today.” He adds, “None of us can escape the inevitable ethical dilemma. But having high expectations for your bank’s culture, and your own ethical behavior, is its own reward. It will also help restore public confidence in this profession.

Since 1993 – NARCA, The National Creditors Bar Association has had as a foundational cornerstone of all its members  - The NARCA Code of Professional Conduct and Ethics. All NARCA member firms are committed to fairness in the collection process for everyone. In addition to local, state, and federal laws and State Bar Association licensing and certification, attorney members are required to adhere to the Code.

While the debt collection industry has had its share of “bad players” who have tarnished the industry. Creditors rights attorneys, in particular members of NARCA – The National Creditors Bar Association, represent the highest and finest examples of ethics in practice.

 The CFPB continually reminds the financial services and debt collection sector that “self-policing” is integral to providing consumers with the confidence and knowledge that the industry is operating in an ethical manner in their interactions with individuals. NARCA demonstrates this process by also utilizing a Grievance Process for its members and clients with a forum in which to investigate and sanction (where necessary) violations of their Code of Ethics.

 Additionally, the fundamental regulation of creditors rights attorneys by the state bar associations, judiciary, state legislatures and attorneys general has a foundational layer of ethical oversight, which if violated, could lead to the loss of an attorney’s license to practice law. A consequence not possible through any other regulatory body at the federal level.

The 1928 Louisiana Bankers Association Code of Ethics may be a historical reference among banks that saw “self-policing as very important to their profession. The 1993, the NARCA – The National Creditors Bar Association Code of Professional Conduct and Ethics stands as a hallmark and legal profession example for creditors rights attorneys. Timely and a strong example of “self policing”? Yes, one which consumers should take comfort in during these times.

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

Tuesday, January 26, 2016

The Telephone Message Conundrum Continues for Debt Collectors in New York

Ten years after the Southern District of New York entered into its infamous decision in Foti v. NCO Financial Systems, Inc., 424 F. Supp. 2d 643 (S.D.N.Y. 2006) and just two weeks after it begrudgingly ruled in Nicaisse v. Stephens and Michaels Assocs, Inc., 2015 U.S. Dist. LEXIS 172073 (E.D.N.Y. Dec. 28, 2015), the Eastern District of New York has joined the debate of how to properly leave telephone messages.

The Eastern District’s answer is simple: don’t do it.  In Halberstam v. Global Credit and Collection Corp., 2016 U.S. Dist. LEXIS 3567 (S.D.N.Y. Jan. 11, 2016), the debt collector’s call was answered by a third party who asked if he could take a message.  The debt collector responded as follows:

Name is Eric Panganiban.  Callback number is 1-866-277-1877…direct extension is 6929.  Regarding a personal business matter.

The issue as couched by the court was whether under the Fair Debt Collection Practices Act, a debt collector, whose telephone call to a debtor is answered by a third party, may leave his name and number for the debtor to return the call, without disclosing that he is a debt collector, or whether the debt collector must refrain from leaving callback information and attempt the call at a later time.  The court held that the debt collector must refrain from leaving any callback information.  In so holding, the court determined that soliciting a call back is a “communication in connection with the collection of a debt.”  “In our case…the only purpose of…[the] call was quite obviously to collect the debt, and anyone, regardless of their level of sophistication, who knew that the call came from a collection firm would understand that purpose.” Halberstam at *9-10. 

The opinion is troublesome and illustrates how problematic telephone messaging is for debt collectors.  In this case, the information provided in the message was less than the information provided by the telephone device’s caller id.  The collector did not identify the company name; however, the collection agency’s name most likely was disclosed by the caller identification on the telephone device itself.   To date, the majority of courts have not been persuaded by the Hobson’s choice illustrated in these cases- specifically, that debt collectors disclosing their identity as a debt collector to comply with §1692e(11)’s requirements run afoul of §1692c(b)’s prohibition on communications to third parties.  The safe but impractical solution is to never leave a message. 


Monday, January 25, 2016

CFPB Enters Consent Order with Buy Here Pay Here Auto Dealer

In its first enforcement order of the year, the CFPB took aim at the financing practices of a buy here pay here auto dealer.  “Buy here pay here dealers” sell the car and originate the auto loan without selling it to a third party.

The CFPB in its press release noted the dealer engaged in abusive financing schemes, hid auto finance charges and misled consumers.  The consent order requires the dealer pay $700,000.00 in restitution to consumers and levies a civil monetary penalty of $100,000.00 on the dealer.  The civil penalty has been suspended based upon the dealer’s inability to pay.  Additionally, the CFPB once again sets forth specific remediation requirements which should be reviewed carefully and considered by the auto finance industry.

According to the findings, which are set forth in the Consent Order and are neither admitted nor denied by the dealer, the dealer sold used cars and provided onsite financing to consumers.  According to the Consent Order, 98% of all purchases were financed onsite and over a two year period, the dealer offered approximately 1000 people financing/year.  The dealers’ practices were such that consumers filled out credit applications prior to being shown any cars.  Once the dealer determined the monthly payment the consumer could afford, the consumer was shown a car in the dealer’s inventory which met the monthly payment ability of the consumer.  None of the cars on the lot displayed purchase prices and the purchase price was not disclosed to the consumer until after the consumer had test driven the car and was ready to purchase the car.  Additionally, the dealer required that, as a condition to providing financing, the consumers agree to purchase a $1,600.00 service contract and a $100.00 GPS payment reminder device.  It was additionally the dealer’s practice to not negotiate the price of the car with finance customers; however, the dealer did negotiate purchase prices with cash customers.  Put simply, customers who obtained financing were treated differently by being required to pay full price, purchase a service contract and a GPS reminder device. 

Pursuant to the Consent Order, the dealer violated the Truth in Lending Act, as well as the Dodd Frank UDAAP provision as follows:

  • The amounts charged for the service contract and GPS payment reminder device were finance charges because they were charges payable directly or indirectly by the consumer and imposed by the creditor as an incident or condition of the extension of credit. By requiring credit consumers to purchase the same but not cash consumers, the dealer imposed a finance charge and therefore needed to disclose the same as a cost of credit.  By failing to do so, the dealer’s inaccurately disclosed the finance charges and APR;
  • The CFPB additionally considered the fact that credit customers were required to pay the full price of the car but cash customers were often provided with discount purchase prices to mean credit customers essentially paid a markup and the same should have been disclosed as a finance charge and APR;
  • The dealer’s advertised APR was inaccurate as a result of its failure to take into account the costs of the required service contract, payment reminder device and “markup”; and
  • The dealer’s failure to post sticker prices or disclose the asking price until the consumer indicated it would purchase the car, coupled with the TILA disclosure violations set forth above, resulted in an unfair and deceptive practice because it “lured consumers with misleading advertising and then kept them in the dark about the true cost of financing the cars they were purchasing.”

Auto dealers should review the Consent Order and take note of several points:

  • The relative scope of the violation was minimal: 2,000 loans over a two year period and yet, the Consent Order requires $700,000.00 in restitution.  The clear indication is that the CFPB is not limiting its focus to large players but also is focused on particular practices;
  • Required charges are finance charges for purpose of the Truth in Lending Act and should be disclosed as such;
  • The remediation provisions of the Consent Order should be considered as a likely expectation of the CFPB moving forward and require:
    • Purchase prices be clearly and prominently displayed on all vehicles available for for sale; and
    • The dealer provide an initial disclosure and receive a written acknowledgement of the disclosures prior or simultaneous with offering a car to the consumer or soliciting a commitment from the consumer to purchase:
      • The make, model and VIN of the vehicle;
      • The duration of the retail installment contract
      • The timing, number and dollar amount of periodic payments;
      • The total number of payments required before the consumer acquires full ownership of the vehicle;
      • The purchase price;
      • The finance charge;
      • An itemization of any additional products to be included in the financing transaction; and
      • The APR

Buy here pay here dealers are encouraged to review their current policies and procedures in light of the Consent Order and adjust their practices accordingly.

Thursday, January 21, 2016

Guest Post: Technology, Automation and the Coming of Age – Can the CFPB and the Credit and Financial Services Sectors Partner?

By: Mark Dobosz
January 21, 2016

Public-Private partnerships have often proven to be some of the best examples of meeting the needs of a variety of infrastructures the US economy and its consumers. An article by Andrew Deye in the June 2015 Kennedy School Review indicates that “In a September 2014 report, Moody’s Investors Service stated, ‘the United States has the potential to become the largest P3 market in the world, given the sheer size of its infrastructure’.”

The data centers of our regulatory agencies are a key infrastructure to consumer information and deserve no less than one that can be best built for the 21st century through a Public Private Partnership (P3).

According to KPMG’s independent audit report of the CFPB, released on January 13, 2016,  

The bureau can be more effective in its mission where trust exists between consumers and the agency that works to protect them... The current process for maintaining the inventory of these data sets is manually intensive. In an effort to improve transparency, the CFPB’s Chief Data Office is transitioning from this manual process of tracking these data sets to an automated tool…The CFPB’s chief data office is in the process of transitioning the manual process to the use of an automated tool.

 KPMG’s findings on the CFPB’s privacy policies and procedures

The CFPB has been highly emphatic in requiring the financial services and the debt collection industry to increase compliance by establishing and maintaining systems and procedures to ensure consumer data privacy in all transactions.  All of which have utilized “automated” systems that have proven to be effective and efficient in the credit ecosystem. Millions have been spent by the industry to meet these demands in the past 5-7 years. The National Creditors Bar Association (NARCA) members report a 300%+ increase in compliance costs from 2011-2014.

The experience of implementing secure data automation of consumer financial and personal information is an asset that is currently underutilized by the CFPB. A Public Private Partnership (P3) between industry and the regulatory agency would bring to market the exact types of automation and systems that the regulatory agency has been requiring industry to implement in their financial services and credit ecosystem operations in the past few years. Why offer consumers two standards and systems of data privacy and security protection when a standardized system that is recognized as best in class could be built through a P3 and provide consumers with the confidence that both government and the private sector are on the same page.

As Deye concludes in his article, at a conceptual level, the primary drivers of infrastructure P3s—new sources of capital, cost savings, risk transfer, and accountability—remain strong. Government officials at all levels (federal, state, and local) continue to operate in an environment of constrained financial resources and citizen expectations for efficient and timely operations.”

If I-595, the Port of Baltimore and the Long Beach Courthouse (all recent successful P3 projects) can provide citizens with safe, secure and efficient infrastructure, then a CFPB-Financial Services P3 should be pursued to provide US consumers with the same level of benefits. This P3 could be a “coming of age” in the regulator’s history.

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

Wednesday, January 20, 2016

Use of Assumed Name Trips up Lender in Debt Collection

In a cautionary tale to banks who use assumed names for their recovery divisions, the District of Rhode Island recently denied a motion to dismiss by Wells Fargo in an FDCPA case, holding that the bank was not exempt from the definition of a debt collector.  Pimental v. Wells Fargo Bank, N.A., 2016 U.S. Dist. LEXIS 1825 (D.R.I. Jan. 6, 2016).  The consumers filed suit alleging that: (a) the bank does business in Rhode Island by collecting mortgage debts using the name America’s Servicing Company (“ASC”); (b) at the time ASC acquired the right to collect, the mortgage and debt were in default; (c) the letters ASC sent to the consumers did not identify the bank as the obligor, did not indicate ASC was collecting on behalf of the bank and did not reference the bank at all; (d) ASC attempted to collect the debt using a name other than the entity to whom it was owed; and (e) ASC’s letters violated sections 1692d and 1692e of the FDCPA.

The FDCPA defines a “debt collector” as “any person who uses any instrumentality of interstate commerce of the mails in the principal purpose of which is the collection of any debts or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”  Under 15 U.S.C. §1692a(6)(F), entities collecting on debts they originate or which were acquired by them prior to default are not debt collectors.  Moreover, banks generally are not considered as debt collectors even when they do obtain accounts which are in the default because their principal business purpose is not the collection of debts. 

As noted by the magistrate judge in her Report and Recommendation concerning the motion, however, while creditors are not generally covered by the FDCPA, the creditor exemption is lost when the creditor opts to collect under a different name.  “Any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts” is a debt collector under the FDCPA. See 15 U.S.C. 1692a(6).  The court held that the consumers had sufficiently pled facts to support a claim that the bank was a debt collector on this basis.  In accepting the Magistrate Judge’s recommendations and denying the bank’s motion to dismiss, the court rejected the bank’s argument that the plaintiffs were required to plead that they believed a third party was collecting the debt from them.  Instead the court determined that it is enough if a “hypothetical unsophisticated consumer” would have been misled by the bank’s use of the ASC name.

The case serves as a reminder to banks who operate using fictitious names for their recovery divisions to use caution in their outward facing communications with consumers as they may lose their FDCPA exempt status if they do not clearly identify themselves as the creditor.  If there is good news from the case to be had, even though the debt was alleged to be in default at the time it was acquired by the bank, the court did not hold that the bank was a debt collector on that basis. 

Monday, January 18, 2016

Guest Post: Our Government Online – Have The Risks of Online Advertising for Consumers Been Fully Considered?

By: Mark Dobosz
January 15, 2016

In a March 2014 Forbes Magazine article, “5 reasons your Business Should Use Google Ad Words” author John Rampton states, “By using the right keywords for your target audience, you’re already ahead because you’re reaching people who have an interest in your product or service.”

So why would a government regulator feel the need to drum up more business for a service that is clearly and readily available to consumers? Is there not enough interest they (the consumer) have in utilizing the service?  And has the government regulator fully calculated and balanced the risks and hazards of the online advertising environment based on solid research?

An online posting today by Ballard Spahr (“CFPB Using Google Ads To Solicit Consumer Complaints”) points out the following  - “In an effort to publicize its online complaint system and bring in more complaints, the CFPB is now soliciting complaints through Internet advertising.”

In May 2014, the Permanent Subcommittee on Investigations of the U.S. Senate

Homeland Security and Governmental Affairs Committee issued a report – “Online Advertising and Hidden Hazards to Consumer Security and Data Privacy.”

The Sub-Committee’s report cited the following:

“Although consumers are becoming increasingly vigilant about safeguarding the information they share on the Internet, many are less informed about the plethora of information created about them by online companies as they travel the Internet. A consumer may be aware; for example, that a search engine provider may use the search terms the consumer enters in order to select an advertisement targeted to his interests. Consumers are less aware, however, of the true scale of the data being collected about their online activity. A visit to an online news site may trigger interactions with hundreds of other parties that may be collecting information on the consumer as he travels the web. The Subcommittee found, for example, a trip to a popular tabloid news website triggered a user interaction with some 352 other web servers as well. Many of those interactions were benign; some of those third parties, however, may have been using cookies or other technology to compile data on the consumer. The sheer volume of such activity makes it difficult for even the most vigilant consumer to control the data being collected or protect against its malicious use.

Furthermore, the growth of online advertising has brought with it a rise in cybercriminals attempting to seek out and exploit weaknesses in the ecosystem and locate new potential victims. Many consumers are unaware that mainstream websites are becoming frequent avenues for cybercriminals seeking to infect a consumer’s computer with advertisement based malware, or “malvertising.” Some estimates state that malvertising has increased over 200% in 2013 to over 209,000 incidents generating over 12.4 billion malicious ad impressions.4 According to a recent study by the security firm Symantec, more than half of Internet website publishers have suffered a malware attack through a malicious advertisement. The Subcommittee seeks to highlight this specific aspect of online security. The Internet as a whole, as well as all the consumers who visit mainstream websites, is vulnerable to the growing number of malware attacks through online advertising. While there are many other significant vulnerabilities on the Internet, malware attacks delivered through online advertising are a real and growing problem.”


Permanent Subcommittee on Investigations of the U.S. Senate

Homeland Security and Governmental Affairs Committee

All of us know that maintaining effective information security programs — and overseeing cyber security – especially among supervised federal regulators (i.e. the CFPB) who routinely handle personal information of consumers is paramount to their role and integrity of purpose. 

However, it is public knowledge from reports released in October 2015 by the CFPB’s’ inspector general, that cyber security remains one of the agencies top management challenges.

Protecting consumers is the ultimate goal of all players in the credit ecosystem – industry and regulators. Nether side can’t afford to not be hyper-vigilant in protecting consumer data in the world of cyberspace crime through online interactions.
Industry has already been tasked with multiple requirements to insure protection and confidentiality at an extremely high cost – while simultaneously being limited in their communication and data collection methods.
Federal regulators should be held to the same standards and methods of protection of consumer data.  Engaging in practices like online advertising that have been proven to present great risks to consumers – without further in-depth research and the costly prevention systems can be irresponsible. Agencies that have been cited for having challenges to managing their cyber security programs should take note.
An ecosystem only functions optimally when all the components are operating in unison and sync with each other.

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

Wednesday, January 13, 2016

Pauses, Clicks and Dead Air Do Not a TCPA Claim Make

In a nonprecedential opinion, the Seventh Circuit recently reminded TCPA plaintiffs that they carry the burden of proof as to whether calls were made with an automated telephone dialing system (“ATDS”).  The TCPA restricts the use of ATDS equipment when calling cellular telephones.  Calls cannot be made with an ATDS without the prior express consent of the consumer.  See generally 47 U.S.C. 227.  In Norman v. AllianceOne Receivables Management, Inc., No. 15-1780 (7th Cir. Dec. 22, 2015), the plaintiff alleged seven calls were made to his cell phone without his prior express consent.  The plaintiff contended the calls were made with an ATDS because he heard a “pause,” “clicking,” and “dead air”.  The plaintiff went on to cite as further support of the nature of the calls, a guide published by the Federal Trade Commission which indicates that autodialed calls often result in hang ups and dead air.  By contrast, AllianceOne provided the court with an affidavit by its custodian of records which included an authenticated log of all calls made to the plaintiff.  The affidavit additionally indicated the calls were manually made, that the system used to make the calls did not have the capacity to make automated calls, and that the system required the collector enter all phone numbers by hand. 

In considering AllianceOne’s motion for summary judgment, the district court determined that the affidavit brought forward by AllianceOne was admissible and properly laid the foundation for the admission of the telephone log as a business record.  By contrast, the court determined that the plaintiff’s evidence of pauses, clicks and dead air was not persuasive and moreover, the FTC guide relied upon by the plaintiff was inadmissible hearsay. On appeal, the Seventh Circuit affirmed, holding that: (a) call logs are admissible business records when properly authenticated; and (b) the FTC guide cited to by the plaintiff was properly excluded as hearsay.  The case, while not ground breaking, should serve as a reminder to plaintiffs, and a comfort to defendants, that plaintiffs must bring forth competent evidence to support the use of an ATDS in order to prevail on their TCPA claims.

Saturday, January 9, 2016

Tensions Continue to Mount Between the FDCPA and the Bankruptcy Code

The issue of whether the Bankruptcy Code precludes claims under the FDCPA took another twist in an opinion issued by the Second Circuit last week. In a pro consumer opinion, the Second Circuit seemingly changed direction by reversing the Southern District of New York’s dismissal of FDCPA claims which arose in part as a result of violations of the discharge injunction. See Garfield v. Ocwen Loan Servicing, LLC, 2016 U.S. App. LEXIS 3 (2ND Cir. Jan. 4, 2016). In Garfield, the consumer brought suit in the district court seeking damages for violations of the FDCPA, contending the loan servicer was attempting to collect on a discharged obligation. The district court dismissed the claims holding that the Bankruptcy Code precluded all claims under the FDCPA for conduct that violates the discharge injunction. The Second Circuit reversed, holding that none of the debtor’s FDCPA claims conflicted with the discharge injunction provisions of the Bankruptcy Code and therefore the claims were not precluded and should proceed forward.

The Court’s decision further complicates a split in authority among the circuits. Prior to the Second Circuit’s decision in Garfield, four circuits (including the Second Circuit) had addressed to some degree the issue of whether the Bankruptcy Code to any extent precludes claims under the FDCPA. In 2002, the Ninth Circuit held that the Bankruptcy Code precluded the debtor’s FDCPA claims. Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 511 (9th Cir. 2002). In that case, as in Garfield, the debtor sought to enforce a violation of the discharge injunction through the FDCPA. There, the court noted that
[t]he Bankruptcy Code provides its own remedy for violating § 524, civil contempt under § 105. To permit a simultaneous claim under the FDCPA would allow through the back door what Walls cannot accomplish through the front door -- a private right of action. This would circumvent the remedial scheme of the Code under which Congress struck a balance between the interests of debtors and creditors by permitting (and limiting) debtors' remedies for violating the discharge injunction to contempt.

Id.  at 510. 

In 2010, the Second Circuit seemingly agreed with the Ninth Circuit, holding that the FDCPA does not authorize suit during the pendency of bankruptcy proceedings. Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2nd Cir. 2010). The court’s rationale for so holding was that "[t]he FDCPA is designed to protect defenseless debtors" and "there is no need to protect debtors who are already under the protection of the bankruptcy court." Id. at 96.

Two circuits have reached the opposite conclusion. Both the Seventh and Third Circuits have concluded that the operational differences between the provisions of the FDCPA and Bankruptcy Code do not create irreconcilable differences and that a debt collector can comply with the provisions of both simultaneously. See Randolph v., IMBS, Inc., 368 F.3d 726 (7th Cir. 2004); Simons v. FIA Card Services, N.A., 732 F.3d 259 (3rd Cir. 2013). Notably, in each of those cases, the alleged FDCPA violations occurred during the pendency of the bankruptcy.

In seeking to distinguish its holding from its prior precedent, the Garfield court focused on the fact that this case involved a post discharge violation while the violation in Simmons involved a predischarge violation. The court rationalized its decision on the premise that a debtor has no protection from the bankruptcy court after discharge. In doing so, the court ignored the fact that the debtor is provided an express remedy under section 524 of the Bankruptcy Code and, as was so aptly noted by the Wall Court, allowing the debtor to premise FDCPA claims upon a violation of the discharge injunction essentially creates an end run around the express remedy provided by the Bankruptcy Code. The Garfield court’s decision will likely invite copycat actions as FDCPA claims provide more favorable remedies than those found under the Bankruptcy Code, particularly where there are violations of the automatic stay and discharge injunctions.

Wednesday, January 6, 2016

Foti Revisited: When Does a Telephone Message Violate the FDCPA?

Ten years after the Southern District of New York entered its infamous decision in Foti v. NCO Financial Systems, Inc., 424 F. Supp. 2d 643 (S.D.N.Y. 2006), the debate of how to properly leave telephone messages continues to rage. 
In Foti, the debt collector left a message stating:
Good day, we are calling from NCO Financial Systems regarding a personal business matter that requires your immediate attention.  Please call back 1-866-701-1275 once again please call back, toll-free, 1-866-701-1275, this is not a solicitation.

Foti, 424 F. Supp. 2d 643, 648 (S.D.N.Y. 2006). The court held that the message was a communication subject to the FDCPA and additionally held that the message must comply with Section 1692e(11) of the FDCPA which requires that in all communications with the consumer, the debt collector identify itself as a debt collector.  Id. at 657.  The court went on to famously reject NCO’s argument that this interpretation placed debt collectors “in a virtual “Hobson’s choice” – debt collectors must disclose their identity as a debt collector to comply with §1692e(11)’s requirements, but are prohibited from leaving a message identifying themselves as such by §1692c(b)’s prohibition on communications to third parties.” Id. at 658. 
Since then, the debate has raged on: what constitutes a communication and is there a way to effectively leave a message for a debtor which complies with both §§1692e(11) and 1692c(b)? A new case out of the Eastern District of New York reminds us of the difficulties of complying with Foti and courts’ growing dissatisfaction with the FDCPA’s antiquated provisions. 
In Nicaisse v. Stephens and Michaels Assocs, Inc., 2015 U.S. Dist. LEXIS 172073 (E.D.N.Y. Dec. 28, 2015), the collection agency left a message that stated:
This is a private message for Inez Nicaisse.  Inez Nicaisse, do not listen to this message in the presence of others.  By continuing to listen to this message, you acknowledge this message is not being heard by others.  This is a communication from a debt collector attempting to collect a debt.  Any information obtained will be used for that purpose.  Please contact Stephens and Michaels regarding the personal matter at (866)679-9649.

Id. at *2.  Nicaisse filed suit, alleging that as the message was being left on her answering machine, her adult daughter overheard the message. Nicaisse asserted violations of Section 1692c(b) of the FDCPA. 
On summary judgment, the court drew a distinction between messages that contained confidential information and/or note that the call is an attempt to collect a debt, and debt collector phone messages that “convey[ed] no more information than a “hang-up call” would via caller id information.” Nicaisse, *14.  Because the message left indicated it was an attempt to collect a debt, the court was left with no choice but to consider it a communication under the FDCPA.  
The court’s frustration with the situation was thinly veiled:
As set forth below, the Court need not need reach the question of whether debt collector messages that do not reference an attempt to collect a debt violate the FDCPA because the subject message specifically indicated that Defendant was attempting to collect a debt.  However, the Court notes that while the FDCPA’s definition of “communication” has been broadly construed, it requires that a debt collector convey information regarding a debt. 
Id. at *16 (citations omitted). 
In reluctantly ruling in favor of the plaintiff, the court noted that the FDCPA is a strict liability statute and that instructions that a third party stop listening before the content of the message is revealed does not obviate liability. 
The court expressed its concerns for “the potential of placing undue restrictions on ethical debt collectors by holding that the FDCPA is violated when a third party inadvertently overhears a phone message that contains minimal information.” Id. at 18 (citations omitted).  However, because the message stated that “[t]his is a communication from a debt collector attempting to collect a debt,” the court was left with little choice.  “The Message constitutes a third-party communication in violation of Section 1692c(b) because it expressly indicates that Defendant, a debt collector, is seeking to collect a debt from Plaintiff.” Id. at *18-19.
While stuck with the conclusion that the defendant violated the FDCPA, the court did not award the maximum statutory penalty.  Instead, the court awarded the plaintiff $250.00 in statutory damages (no actual damages were sought) noting that “defendant’s actions are limited to one phone message that was inadvertently overheard by a third party and was neither abusive nor threatening.” Id. at *20-21.

Friday, January 1, 2016

CFPB Clarifies Liability Standard for TRID

 Since TRID was introduced, a debate has raged on as to whether the Truth in Lending Act’s (TILA) liability rules or RESPA’s would govern TRID violations. The debate has key ramifications: under TILA, there is a private right of action. Under RESPA, there is not. In a letter to the Mortgage Bankers Association, the CFPB has provided some answers to the debate while attempting to provide some assurances to the mortgage industry. The results are a mixed bag.

The letter comes in response to concerns raised by the Mortgage Bankers Association as to secondary market rejection of mortgages which may contain technical TRID violations. As to the secondary market, the CFPB assured that the Federal Housing Finance Agency, government sponsored entities, and the Federal Housing Administration will not conduct routine post purchase loan file reviews for technical compliance and do not intend to exercise contractual remedies, including repurchase, for noncompliance with TRID’s disclosure rules where the lender is making good faith efforts to comply. The CFPB also reiterated that initial examinations by regulators for compliance with TRID will focus on “whether companies have made good faith efforts come into compliance with the rule.” Examinations with be “corrective and diagnostic, rather than punitive.”

More importantly, the letter provided some helpful clarification of the CFPB’s interpretation of TRID liability and suggests that TILA’s provisions will control:

Cure Provisions:
  • TRID provides for curing of certain errors post-closing by issuing a correct Closing Disclosure. The letter reminds that “consistent with existing Truth in Lending Act (TILA) principles, liability for statutory and class action damages would be assessed with reference to the final closing disclosure issued, not to the loan estimate, meaning that a corrected closing disclosure could, in many cases, forestall any such private liability”; and
  • TILA provides a safe harbor to lenders for correction of errors and that provisions applies to TRID. Under 15 U.S.C. 1640(b), lenders may cure violations provided the creditor notifies the borrower of the error and makes appropriate adjustments to the account before the creditor receives notice of the violation from the borrower.
Assignee Liability:
  • For non high-cost mortgages, there is no general TILA liability unless the violation is apparent on the face of the disclosure documents and the assignment is voluntary.
Limitations on Liability:
  • “TILA limits statutory damages for mortgage disclosures, in both individual and class actions to failure to provide a closed-set of disclosures”;
  • “Formatting errors and the like are unlikely to give rise to private liability unless the formatting interferes with the clear and conspicuous disclosure of one of the TILA disclosures listed as giving rise to statutory and class actions damages in 15 U.S.C. 1640(a); and
  • “The listed disclosures in 15 U.S.C. 1640(a) that give rise to statutory and class action damages do not include either the RESPA disclosures or the new Dodd-Frank Act disclosures, including the Total Cash to Close and Total Interest Percentage.”
Bona Fide Errors:
  • TILA’s provisions for unintentional, bona fide errors applies to TRID.
While there has been significant debate as to whether RESPA or TILA would control the liability functions of TRID, Cordray’s letter suggests that the answer is TILA. While that is not entirely good news for the mortgage industry (as RESPA contains no private right action), the CFPB has at least provided some indication of their intentions and with a path in front of it, the mortgage industry can now better assess and manage risk.