New Cases Illustrate the Boundaries of the TCPA

Two recently decided cases serve as a reminder of the reach of the TCPA on the one hand and its limitations on the other.


VICARIOUS LIABILITY IS ALIVE AND WELL UNDER THE TCPA
The first of these cases, Harrington v. Roundpoint Mortgage Servicing Corp., serves as a reminder that the notion of vicarious liability for calls made by third parties is alive and well under the TCPA. See Harrington v. Roundpoint Mortgage Servicing Corp. 2:15-cv-322-FtM-38MRM (M.D. Fl. Feb. 18, 2016). In Harrington, the plaintiff alleged that calls made by the mortgage servicer to collect past due mortgage payments violated the TCPA because they were made without his prior express consent to his cellular phone. The plaintiff contended that because the mortgage servicer made those calls on behalf of the creditor, the creditor was also liable for those calls. The creditor moved to dismiss. Relying in part on dicta from the Eleventh Circuit’s decision in Mais v. Gulf Coast Collection Bureau, 768 F. 3d 110, 119 (11th Cir. 2014) (stating that the 2008 FCC Ruling has the force of law), the court deferred to the 2008 FCC Ruling which provides that “a creditor on whose behalf an autodialed or prerecorded message call is made to a wireless number bears the responsibility for any violation of the Commission’s rules. Calls placed by a third party collector on behalf of that creditor are treated as if the creditor itself placed the call.” In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 23 FCC Rcd 559, 565 (2008). The court therefore concluded based upon the FCC Ruling and existing case law that the creditor may be held vicariously liable for the calls made by its mortgage servicer. Going further, the court also ruled that the creditor may also be directly liable for the same calls, again relying upon the FCC 2008 Ruling which states that “all calls placed by a third party collector on behalf of that creditor are treated as if the creditor itself placed the call.” Id. The court therefore denied the motion to dismiss.

TECHNOLOGY PROVIDERS ARE NOT LIABLE UNDER THE TCPA FOR THE USE OF THEIR TECHNOLOGY

 Meanwhile, a Michigan another court also recently addressed the boundaries of the TCPA. This time, the consumer sought to hold LiveVox, a provider of automated dialer software, liable for calls made using its software. In Selou v. Integrity Solution Services, the court granted LiveVox’s motion to dismiss a TCPA action brought against it. Selou v. Integrity Solution Services, Case No. 15-1097 (E.D. Mich. Feb. 16, 2016). In its complaint, the consumer alleged that the debt collector used LiveVox’s software to make calls and that LiveVox provided technology to enable others to engage in their dialing campaigns, it was liable under the TCPA for those calls to the extent they violated the TCPA. LiveVox filed a motion to dismiss asserting it functions as a common carrier with no liability because it only provides technological services through which its customers can make calls.

As identified by the court, the issue was whether the utilization of LiveVox’s technology can render it liable under the TCPA. In granting LiveVox’s motion to dismiss, the court first noted that the legislative history of the TCPA indicates that Congress only intended for the statute to apply “to the persons initiating the telephone call or sending the message and … not the common carrier or other entity that transmits the call or message and the is not the originator or controller of the content of the call or message.” S. Rep. No. 102-178 (1991). The court then concluded that based upon the case law and the July 2015 FCC Ruling, LiveVox is not considered the maker or initiator of the calls. See In the matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 30 FCC Rcd. 7961, 7978-7984 (July 10, 2015) (stating that entities that merley make technology vailable are not the makers of calls and do not have liability under the TCPA). Moreover, the court was also dismissive of any theory of vicarious liability noting that the complaint did not allege facts that suggested that LiveVox manifested asset for the debt collectors to act on LiveVox’s behalf or subject to its control.

 

 

Guest Post: Labels Require Introspection

By: Mark Dobosz
February 25, 2016

…we are not your enemy….

 CFPB Director Richard Cordray in a February 23, 2016 address to the National Credit Union Association

One of Merriam Webster’s definitions of the word enemy is as follows:

enemy - noun en·e·my \ˈe-nə-mē\: one that is antagonistic to another; especially: one seeking to injure, overthrow, or confound an opponent

In a day and age when communication is vitally important in any relationship - personal, professional, business or other - recognition by all parties that the other parties’ opinions and intents are sincere and genuine, is integral to successful interactions.

Industries and government regulatory agencies have been communicating for decades in attempting to meet the needs of both consumers and business alike – financial services being no exception. Through several Administrations and Congresses the pendulum has swung back and forth with some common ground of moderation always being found. Both have been alternately perceived allies and enemies. 

As the Washington chasm and divide has increased after the world economic collapse, sincere and genuine communication seems to have taken a back seat in the financial services regulatory environment. “Confounding an opponent” seems to have become a more acceptable one-sided way of building relationships. This method of relationship building is often promoted as portraying one side an “enemy” and the other a “friend and ally.”

In the past five years, The National Creditors Bar Association (NARCA) has been offering genuine and sincere communication with regulatory agencies, such as the CFPB, in order to proactively reduce or eliminate the opportunity for either side to be confounded – perceptually or in reality. Participation in roundtables, panels, inter-organizational meetings, presentations at conferences, volunteer member involvement on Advisory Boards all speak to the desire by NARCA to be a friend and an ally in the same way the regulatory agencies desire to be perceived.

NARCA has been, and continues to be, committed to providing the information, data, experience and understanding to a conversation that can be beneficial for all in the credit ecosystem. Creditors rights attorneys seek to collaboratively work on developing the fairest set of rules and regulations for consumers and for business – a level playing field. But this can only happen when open and honest discussion occurs together and the definitions of the relationship communicated to the public is equal. As the rules and regulations are promulgated, and not in a unilateral confounding way, then and only then will both consumers, creditors and small business be the beneficiaries. 

Not all players are enemies and bad players – on either side of the fence or aisle. This is a chance to bridge the divide that has paralyzed the federal government decision-making process in some small way.

Maybe 2016 can be a year when we reduce the numbers of perceived enemies in our world and focus more on the real enemies.“Know thy enemy and you may find that they are not your enemy after all.”

Colin Wright

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

FTC Releases Annual Report on its Debt Collection Enforcement

On February 17, 2016, the FTC provided the CFPB with its annual update of its activities in the debt collection field. The update was provided to assist the CFPB in preparing its annual report to Congress and makes clear that debt collection is a point of emphasis for the FTC and emphasizes its close collaboration with the CFPB and law enforcement.  Highlighted within the report was the FTC’s first initiative involving all three levels of law enforcement to crack down on illegal debt collection practices.  The initiative has included over 70 different law enforcement agencies and led to the commencement of more than 130 enforcement actions.  The FTC also filed 12 new FDCPA cases in 2015, which is the most in its history, and resolved nine cases, resulting in $94 million in judgments.  The report also proudly touts the Debt Collector’s Black List published by the FTC which includes every company and individual banned from debt collection.  Additionally, the FTC Report highlights the three debt collection dialogues conducted by the FTC this past year which brought together actors from all sectors, including debt collectors, collection attorneys, law enforcement agencies, and consumers.  Finally, the report confirms the close collaboration which is ongoing between the CFPB and FTC as to the impending debt collection rules. 

TILA’s Rescission Remedy Reigned in by Tennessee District Court

In a pair of decisions by the Eastern District of Tennessee, the court reminded consumers that there are limitations to the right of rescission provided by the Truth in Lending Act. See Jones v. Select Portfolio Servicing, Inc., C.A. No. 2:15-cv-02495, 2016 US Dist. LEXIS 16658 (W.D. Tenn. Feb. 10, 2016); Bowles v. Mass Mutual Life Ins. Co., C.A. No. 2:15-cv-02677, 2016 U.S. DIST. LEXIS 16660 (W.D. Tenn. Feb. 10, 2016).  In both cases, the consumer’s loans were assigned to third parties several years after the consumer executed the note and deed of trust.   In both cases, the consumer took issue with whether or not the loans were properly assigned and whether proper notice of the assignment was provided to the consumer.  Both consumers contended that the transfer of the loan was a material fact and that the defendants’ breach of their statutory duty under the Truth in Lending Act in failing to disclose the transfer of the note and deed of trust entitled them to rescission.  The court in each instance disagreed and granted the lenders’ and servicers’ motion to dismiss.

Under the Truth in Lending Act, a consumer is provided with a limited right to rescind the transaction.  The right to rescission must be exercised by midnight of the third business day following the consummation of the transaction or the delivery of the “information and rescission forms” together with the material disclosures required.  The right of rescission expires in any event three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first.  The right of rescission is not available in purchase money transactions for residential mortgages or certain other transactions. See 15 U.S.C. §1635(e)(1).

The issue before the court in both instances was whether the failure to disclose an assignment of a residential mortgage as required by 15 U.S.C. §1641(g) constitutes a material disclosure allowing for a rescission.  The court held that it was not.  “An assignment is not one of the material disclosures listed or identified in TILA.”  Jones at *37.  Going into more depth, the court in Bowles reminded the consumer that the right of rescission only applied to the required disclosures about the consumer credit transaction.  As defined by TILA, those disclosures are expressly limited to: “the disclosure…of the annual percentage rate, the method of determining the finance charge and the balance upon which a finance charge will be imposed, the amount of the finance charge, the amount to be financed, the total of payments, the number and amount of payments, the due dates or periods of payments scheduled to repay the indebtedness, and the disclosures required by section 1639(a).  Section 1639(a) goes on to require other disclosures for certain mortgages; however, the assignment or transfer of the mortgage is not among them.”  Bowles at *13.

The cases provide the following reminders to the consumer’s bar:

·        Rescission is not available for every residential mortgage transaction;

·        Rescission rights have a fairly short shelf life;

·        Rescission is not available for every violation of the Truth in Lending Act; and

·        Rescission may not be an effective means to thwart foreclosure.

Missouri FDCPA Case Presents More Questions than Answers

A recent opinion from a federal district court in Missouri presents more questions than answers regarding debt collection within the thirty day validation period. In Schuller v. AllianceOne Receivables, Management, Inc., Case No. 4:15 CV 298 CDP, 2016 U.S. Dist. Lexis 13388 (D. Mo. Feb. 4, 2016), the consumer sued the debt collector focusing in on two recorded conversations which occurred within the thirty day validation period. The first call was initiated by the debt collector, but the second call was initiated by the consumer. During the first call, which was made just a few days after the initial demand letter was sent containing the requiring debt validation language, the debt collector indicated that the call was to collect the debt and the objective was to “see if we can work something out” with the account.  Schuller at *3-4.  During the course of the conversation, the consumer indicated he could only afford ten dollars a month and the funds would not be available until the first of the following month.  The second call was initiated by the consumer and occurred a few days later still during the thirty day validation and dispute period.  During that call, the consumer continually asked “when do I have to take care of this debt?”  Id. at *5.  In response, the collection agency indicated that it was looking for payment on the account “as soon as possible.”  Id. In response, the consumer asked if they wanted it paid immediately and the collection agency responded in the affirmative.  The consumer closed the call by informing the agency that he had retained counsel and provided his counsel’s information.

The consumer filed an FDCPA suit asserting, in part, that the collection agency’s collection efforts overshadowed his dispute, validation, and verification rights under 15 U.S.C. §1692g.  On summary judgment, the court ruled in the debt collector’s favor on all claims except for the §1692g claim.  With respect to that claim, the court found that the telephone conversations constituted a demand for payment which overshadowed the consumer’s §1692g(a) rights to request validation of the debt.  In doing so, the court pointed out that debt collectors are allowed to continue debt collection activity within the thirty day dispute period if they have not received a notice of dispute from the consumer. Whether the debt collection activity that occurs during this time violates §1692g is determined using the unsophisticated consumer standard. The court then went on to examine whether or not the communications overshadowed or were inconsistent with the 30 day validation period.  In reviewing the initial call, the court determined that even though the language used by the collector did not “overtly request a payment by a date certain within the dispute period,… it certainly indicates that a payment should be made within that time and failure to do so would be to risk some undefined negative consequence.” Id. at *16.  This, combined with the second collector’s indication that payment should be made in full as soon as possible, influenced the court’s decision.  “It seems clear that… [the collectors] were attempting to toe the line between permissible and impermissible collection efforts. But "the FDCPA is a broad remedial statute" whose terms "are to be applied in a liberal manner," and with this in mind, I conclude that defendant's representatives went too far.”  Id. at *17.

Most interestingly for debt collectors, the court in a footnote discussed the collection agency’s claim that the consumer baited the collector in the second call into violating the FDCPA and was not confused about his rights at that time. “The unsophisticated consumer is an objective standard, and the fact that the FDCPA may have been used as a sword instead of a shield in this instance does not change that analysis.” Id. at footnote 3.

The takeaway for debt collectors from this case is threefold. First, an intentional baiting by a consumer does not provide the debt collector with a defense to a §1692g claim. Second, the case emphasizes the importance of training collectors to understand how to handle phone calls with consumer, especially during the thirty day window for debt verification. Finally, the case emphasizes that the FDCPA presents many a Hobson ’s choice for debt collectors. Particular to this case, what can a debt collector do where they have sent the 15 USC §1692g(a) letter and the consumer calls the debt collector in the thirty day period:  can the debt collector discuss collection of the underlying account without running afoul of overshadowing? 

 

CFPB Testimony Concerning Payday Lending Offers No New Insight

Acting Deputy Director David Silberman appeared before the House Committee on Financial Services’ Subcommittee on Financial Institutions and Consumer Credit this week to testify concern payday lending.  Silberman, who also serves as the Associate Director of Research, Markets and Regulations for the CFPB, provided a lengthy history to the subcommittee regarding the status of the CFPB regulation of payday lending.  The majority of Silberman’s prepared remarks recounted the CFPB research, field hearings, and concerns with payday lending. Silberman’s comments indicated there had been no softening of the CFPB’s stance concerning payday lending since it issued its proposal to end “payday debt traps” in April of last year.  It did, however, confirm that the CFPB continues to meet with the stakeholders, including state policy makers and tribal governments.  

Most notably, Silberman’s prepared remarks outlined the concerns which have been raised by various stakeholders.  Silberman noted that consumer advocates are pushing for an across the board ability to repay standard. He also noted that industry stakeholders have raised concerns that the proposal is too restrictive, particularly as to the limitation on the number of consecutive loans.  With regard to state policy makers, Silberman’s remarks indicate concerns with conflicts which may arise between current state laws and any impending CFPB rules.  While not stated, it is likely that these concerns are coming from states which have statutes in place which entirely preclude the making of payday or short term loans.  Finally, Silberman noted that tribal governments are concerned with the effect any regulation will have on the revenues they receive from these products.  Silberman concluded his comments by noting that the next step will be the formal issuance of a proposed rule.  While Silberman did not indicate a time table for doing so, the CFPB’s most recent Rulemaking Agenda suggests that a proposed rule is imminent and likely to be some time in the next thirty days.

FTC Continues to Focus on Fair Lending Issues in Auto Finance

Earlier this week, the FTC provided the CFPB with its annual update of FTC enforcement activities related to compliance with the Equal Credit Opportunity Act.  The update was provided to assist the CFPB in preparing its annual report to Congress.  The update makes clear that fair lending in the auto finance sector remains a high priority for the FTC. 

Since 2015, the FTC has brought more than 25 cases regarding auto finance transactions.  On December 29, 2015, the FTC announced that it was seeking public comment on a proposed survey to consumers regarding their experiences buying and financing automobiles at dealerships.    The annual report explains that the survey is intended to provide useful insights about current consumer protection issues that exist and could be addressed through enforcement initiatives.  The annual update reinforces this focus also pointing toward a conference cohosted by the FTC and NAACP in 2015 which included a discussion of key consumer issues including auto finance.  The update notes that “some conference participants provided information about auto loan fraud, and about the denial of mortgages to African Americans at a higher rate than other groups.”

District Court Serves Up a Cautionary Tale for Use of the Bona Fide Error Defense

A recent case out of the Eleventh Circuit serves as a cautionary tale for both consumers and collection agencies in FDCPA cases, reminding defendants to carefully check the pleading standards of the court and reminding plaintiffs to timely bring forth motions to strike pleadings. . The issues in Arnold v. Bayview Loan Servicing focus on the pleading of the mortgage servicer’s bona fide error defense.                                                    

The Bona Fide Error Defense

                While the Federal Debt Collection Practices Act is a strict liability statute, it provides debt collectors with a bona fide error defense where their violation was not intentional and that they have policies and procedures in place to prevent such violations from occurring. 15 USC § 1692k(c). The debt collector must show by a preponderance of the evidence: (1) that the error was unintentional; (2) that the FDCPA violation arose because of a bona fide error; and (3) the violation occurred even though the debt collector had procedures in place to avoid the error. Owen v. I.C. Systems, Inc., 629 F.3d 1263, 1271 (11th Cir. 2011).

Arnold v. Bayview Loan Servicing, LLC

    In Arnold v. Bayview Loan Servicing, LLC. Case No. 14-0543-WS-C, 2016 U.S. Dist. LEXIS 10509 (S.D. Ala. Jan. 29, 2016), issues arose when the mortgage servicer sent two billing statements to the consumer after the debt was discharged in bankruptcy and post foreclosure. Arnold filed suit against the mortgage servicer alleging that the two billing statements violated the FDCPA because the statements implied money was owed on a discharged debt and the amounts the mortgage servicer sought to collect exceeded the actual balance owed.  The mortgage servicer answered and generally pled the bona fide error defense.  After extensive discovery, the mortgage servicer moved for summary judgment in reliance upon its bona fide error defense.  Plaintiff objected to the court considering the bona fide error defense because it was not pled with sufficient particularity.

The court agreed with the plaintiff’s contention  that bona fide error defenses should be specifically pled, noting that “because the bona fide error defense rests upon mistake, the circumstances surrounding the mistake must be stated with particularity…[T]o satisfy Rule 9(b), the defense must articulate ‘who, what, when, where and how’ the bona fide error occurred.” Arnold at *24. The court, however, was not inclined to allow the plaintiff sit on a technical objection where the defense had been properly vetted and detailed through discovery.  “The upshot is that plaintiff cannot raise this technical pleading defect for the first time on summary judgment as a means of derailing the Rule 56 Motion and excising that defense from the case.” Id.

                Proceeding to the merits of the case, the court held that the mortgage servicer met its burden of proof as to the bona fide error defense.  Specifically, the court held that: (a) the mortgage servicer established that its violation was unintentional; (b) that the transmission of the billing statements was a mistake that occurred in good faith; and (c) the error occurred despite the fact that the mortgage servicer has regular processes in place to avoid errors like clerical or factual mistakes.

        Key Take Aways

• FOR THE DEFENSE: This case reminds defense counsel to be aware of the pleading standard established by the court with regard to pleading generally (has the Court adopted a Twombley/Iqbal standard as to responsive pleadings in general) and specifically, as to bona fide error. The case also serves as a good refresher as to the evidentiary standard necessary to sustain the bona fide error defense. The court must be able to point to specific policies and practices the debt collector has in place that would normally have kept the error from occurring. IN this case, the mortgage servicer was able to point to a number of internal documents demonstrating the steps the company takes to follow the FDCPA.
• FOR THE CONSUMER: The case serves as a reminder that motions to strike should be made within 21 days of service of the pleading, and that failure to do so can be a costly mistake.

 

Virginia District Court Reminds Parties that Class Certification is Not Automatic for Collection Letter Issues

A district court in Virginia recently served the reminder that letter language does not automatically lead to class certification. Davis v. Segan, Mason & Mason, C.A. No. 1:15-cv-1091-GBL-IDD, 2016 U.S. Dist. LEXIS 7016 (E.D. Va. Jan. 19, 2016). In Davis, the consumer took issue with the law firm’s collection letter which sought to collect homeowner association assessment and provided:

Your account has been referred to our office for collection. The enclosed statement of account represents the amount owed for the referenced period only.  

Please note that unless the amounts detailed on the enclosed statement of account are paid on or before May 26, 2015, the following action will result… [a] lawsuit will be filed against you in General District Court seeking a personal judgment.

Davis at * 4.  The letter include an attached “Schedule of Account” which showed the dates of assessments and late fees, the date plaintiff made payment and the total amount owed. Davis at *5.


The consumer filed suit asserting that the letter violation 15 U.S.C. §1692g because it failed to disclose the amount of the debt and included the “for the referenced period only” language which the consumer contended was confusing. The consumer also sought to certify a class alleging that the language indicating defendant intended to file suit violated 15 U.S.C. §1692e when defendant did not actually intend to file suit. The Defendant moved to dismiss the complaint.

 As to the first issue, the court held that the language of the letter was not confusing to the least sophisticated consumer because it clearly referenced in the attached statement of account. Reading Defendant’s collection letter and the attached “Schedule of Account” together as a whole, the court found that the letter adequately communicated the debt owed even to the least sophisticated consumer. The court noted that a collection letter which either states the amount due as of the date of the letter or as of a specific date is in compliance with Section 1692g. Moreover, the “for the referenced period only” language clearly referenced the Schedule of Account attachment and was not, as a matter of law, confusing.

 Moving to the class allegations, the court also granted the defendant’s motion to dismiss holding that “plaintiffs fail to set forth a recognizable basis for class certification where an individualized inquiry into the intent of Defendant to initiate a lawsuit should be necessary in each case in which Defendant sent a collection letter.” Davis at *10. The court noted that while section 1692e prohibits debt collectors from creating a false sense of urgency, threatening a lawsuit if a debt is not paid by a certain date is not a violation of the statute if the debt collector intends to file the suit. In this case, the court held that the claim would necessarily require a determination of whether Defendant intended to file a lawsuit in each instance that it sent a collection letter to a potential member of the class. “Accordingly, Defendant’s liability to the members of the class cannot be proved unless each individual class member independently can prove that Defendant mailed a letter threating to sue without having the intention to sue in each case.” Davis at *11. The plaintiff therefore could not satisfy the commonality requirement under Rule 23(a).

CFPB Takes Aim at Deposit Accounts and Credit Reporting

In last fall’s SupervisoryHighlights, the CFPB expressed concerns 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.  This week it became clear that this issue is part of a more global concern of the CFPB – the millions of households that the CFPB contends are currently “unbanked.”  In a three pronged attack, the CFPB has made clear that it believes that banks are underserving a portion of the banking population who either do not want accounts that provide overdraft protection or are being rejected from the banking system because they have a poor depository account history. In his prepared remarks, Cordray was critical of the use of overdraft protection, stating that “overdraft programs have become a significant source of industry revenues, and a significant reason why may consumers incur negative balances.”  Cordray’s comments went on to make clear that the Bureau believes credit reporting inaccuracies and a lack of nonoverdraft products are at the root of the problem.

LETTER TO FINANCIAL INSTITUTIONS

Cordray announced that as part of the CFPB initiative to attack this problem he sent a letter to leading retail banks imploring them to: (a) create depository products that are “lower risk” (b) to the extent they already have such products, that they better market them by featuring them among their standard offerings. While the letter is “not being sent in reference to any sort of regulatory requirement”, it is a strongly worded “suggestion.”

 CFPB COMPLIANCE BULLETIN 2016-01

At the same time, the CFPB issued a Bulletin warning “banks and credit unions that they must have systems in place regarding accuracy when they pass on information, such as negative accounts histories, to checking account reporting or other credit reporting companies.”  See ConsumerFinancial Protection Bureau Takes Steps to Improve Checking Account Access. Echoing the issues identified in the fall Supervisory Highlights, the Bulletin reminds banks and credit unions that as furnishers of information under the FCRA:

• They are required to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information relating to consumers that they furnish to consumer reporting agencies, including specialized consumer reporting agencies;
• The policies and procedures should be appropriate to the nature, size, complexity and scope of the furnisher’s activities;
• The policies and procedures should insure the accuracy and integrity of all furnished information; and
• This obligation applies to all furnishings, including the furnishing of deposit account information.

In his prepared remarks, Cordray also made it clear that the CFPB intended to scrutinize the consumer reporting agencies, including those that track deposit accounts, to insure they are accurately reporting information and dealing effectively with consumer disputes.

CONSUMER GUIDES

Finally, the CFPB issued three consumer guides: (a) “Consumer Guide to Being Denied a Checking Account”; (b) “Consumer Guide to Managing Your CheckingAccount”; and (c) “Consumer Guide toSelecting a Lower-Risk Account”.  Significantly, the first is focused on consumer’s rights under the FCRA and reminds consumers that if they are denied an account, they should make sure the bank or credit union provides the name of the consumer reporting agency who provided the information.  The Guide additionally provides consumers with information as to how to dispute any inaccurate information.

TAKE AWAYS FOR BANKS AND CREDIT UNIONS

Banks and credit unions should take this opportunity to review their policies and procedures regarding both overdraft products and their credit reporting as to depository accounts.  The CFPB has made very clear that they do not like overdraft products and it is likely that they will continue to receive regulatory scrutiny for the foreseeable future.  Secondly, the regulators are now focused on credit reporting policies and procedures across all products.  A one size fits all policy is likely to receive particular scrutiny from regulators.  Banks and credit unions should review their credit reporting and credit denial policies to insure they are appropriate based upon each product they are credit reporting and tailor them accordingly.

 

A Tale of Two Courts: Florida and Illinois Courts Use Different Rationales to Shoot Down Crawford Claims

Two decisions issued within a day of each other highlight the continuing debate over whether a time barred proof of claim violates the FDCPA and more importantly, whether the Bankruptcy Code  preempts the FDCPA.  As copycat cases continue to be filed, courts continue to resoundingly reject the rationale of Crawford v. LVNV Funding, LLC, a decision out of the Eleventh Circuit. 

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. 

 

Two courts recently tackled the preemption issue and while they reached different conclusions as to preemption, they reached the same ultimate conclusion: that filing a proof of claim on a time barred debt is not a per se violation of the FDCPA.  The decisions highlight the real story: the debate as to preemption.  While the majority of courts ultimately agree that the holding of Crawford was wrong, they are not as united on the preemption issue and we are likely to continue to see preemption debated until it is ultimately addressed by the Supreme Court.

Castellanos v. Midland Funding LLC (Middle District of Florida).   In Castellanos v. Midland Funding LLC, the district court rather summarily granted summary judgment in favor of the debtor buyer, holding that the Bankruptcy Code precludes an FDCPA claim for filing a time barred claim.  Castellanos v. Midland Funding LLC, 2016 U.S. Dist. LEXIS 165 (M.D. Fl. Jan. 4, 2016).  In its opinion, the Court noted that while the Bankruptcy Code allows debt collectors to submit proofs of claim without regard to the statute of limitations on the debt, the FDCPA prohibits filing suit on a time barred claim. Thus, the Court found the two statutes were in direct conflict and as such, one must preclude the other. In these instances, the Court noted that the Bankruptcy Code provides debtors a remedy to object to proofs of claim the debtor disagrees with. Thus, the later statute (in this case the FDCPA) should not implicitly repeal the Bankruptcy Code, and must actually give way to the Bankruptcy Code as it already provides a remedy for debtors. In dicta, the Court took a practical view of the situation: allowing debtors to file these claims in District Court when they have a perfectly good defense to them under the Bankruptcy Code is inefficient and undermines Bankruptcy Code.

Glenn v. Cavalry Investments LLC (Eastern District of Illinois Bankruptcy Court). Taking a different tact, a Bankruptcy Court in the Northern District of Illinois disagreed and held that neither the Bankruptcy Code nor the FDCPA preempted the other and that “mere noncompliance with the Bankruptcy Code or Bankruptcy Rules is not enough to give shelter from FDCPA claims “. Glenn v. Cavalry Investments LLC, Case No. 14bk31070 (Bkrptcy E. D. Ill. Jan. 5, 2016), Slip Op. at 8. In doing so, the court relied upon prior Seventh Circuit precedence holding that the Bankruptcy Code can be read in conjunction with the FDCPA.  See Randolph v. IMBS, Inc., 368 F.3d 726, 732 (7th Cir. 2004).

The Court, however, refused to hold that the filing of a proof of claim on a time barred debt constituted a per se violation of the FDCPA.  Id. at p. 13.  In doing so, the court noted that “bankruptcy is a collective process, designed to gather together the assets and debts of the debtor and to effect an equitable distribution of those assets on account of debts…While it would be unfair to allow the creditor to do whatever it pleases as a result of the debtor’s actions, it would be more unfair to say that the creditor may do nothing at all in response [to the debtor’s bankruptcy filing].” Id. at 9-10.  The court concluded that the mere submission of a proof of claim of a time barred debt with no other factual allegations of misconduct on the part of the debt collector does not rise to the level of a violation under the FDCPA.  Facts matter, and in this case the facts alleged were not deceptive, false, or misleading nor were they unfair or unconscionable.

CFPB Issues Fact Sheet Clarifying TRID Implementation and Construction Loans

The CFPB has issued a Fact Sheet clarifying that, in most cases, construction loans are subject to the Loan Estimate and Closing Disclosure requirements of TRID.  The exceptions to the rule are open ended transactions and commercial loans. There are two points of interest for lenders:

Construction to Permanent Financing:  The Fact Sheet reminds lenders that they have the option to treat the construction phase and permanent phase as either one transaction or more than one transaction for purposes of the required disclosures.  The lender has the option to provide a combined disclosure or separate disclosures.  This election exists regardless of whether the construction and permanent phases are closed at the same time or whether there are separate closings.

Multiple Advance Loans:  The Fact Sheet also reminds lenders that Appendix D to RegulationZ provides a procedure to estimate and disclose the terms of construction loans with multiple advances.  The Fact Sheet calls special attention to Comment 7 which “provides guidance for making the projected payments disclosures for construction loans in the Loan Estimate and Closing Disclosure.”