Monday, November 13, 2017

District Court Clarifies FDCPA Bar Date in Letter Cases

By Caren D. Enloe

When does the statute of limitations begin to run for a letter that runs afoul of the FDCPA?  That is the issue which was presented in a recent case before the Eastern District of New York.  In Gil v. Allied Interstate, LLC, 2017 U.S. Dist. LEXIS 182824 (E.D.N.Y. Nov. 3, 2017), the consumers filed suit June 5, 2017 seeking damages under 15 U.S.C. §1692g for a letter dated June 1, 2016.  The defendant contended that the claims were time barred under the FDCPA’s one year statute of limitations and argued that the violation occurred on the date the letter was sent and that that letter was send on June 1, 2016.  The plaintiff, on the other hand, contended that the statute began to run on the date the letter was received.

The court agreed with the plaintiff and ruled that the one year statute of limitations begins to run on the date that the consumer receives the debt collection letter.  In doing so, the court noted that additional facts might have rendered a different result.  First, the court noted that the complaint did not include the date the letter was received.  Secondly, and more importantly for the defense, the defendant didn’t provide any indicia as to when the letter was mailed.  Had there been evidence that the person who mailed the letter followed “regular office practice and procedure” or had actual knowledge of having mailed the document, the presumption that a mailed document is received three days after the date on which it was sent might have rendered the claims time barred. Id. at *9-10. 


Thursday, October 26, 2017

Congress Votes to Repeal CFPB’s Arbitration Rule

By Zachary Dunn
October 26, 2017

The Senate voted on Tuesday, October 24, to repeal the CFPB’s Arbitration Rule first proposed in May of 2016 and issued in its final form in July. The rule would have imposed limitations on the use of pre-dispute arbitration agreements by covered providers of consumer financial products and services. 

Under the Congressional Review Act, 5 U.S.C. § 801 et seq, Congress had 60 legislative days from the date of final rule enactment to pass a joint resolution of disapproval to block the rule from taking effect.  The House of Representatives passed its resolution of disapproval on July 25, 2017 by a vote of 231-190, and the Senate passed its resolution on Tuesday by a vote of 51-50.  Senators Lindsay Graham of South Carolina and John Kennedy of Louisiana broke away from their Republican colleagues to vote against the measure, and Vice President Mike Pence cast the deciding vote in favor of the resolution.

Due to this vote, the Rule may not be reissued in the substantially same form, and a new rule that is substantially the same may not be issued.  See 5 U.S.C. § 801(b)(2).

Zachary Dunn is an attorney practicing in Smith Debnam's Consumer Financial Services Litigation and Compliance Group. 

CFPB Issues “Principles” for the Protection of Consumer Authorized Data Sharing and Aggregation

By Caren Enloe
October 26, 2017

With the growth of technology and the development of the fintech market, an unprecedented amount of consumer financial data has become available.  While protections through the FTC Safeguard Rule and EFTA provide certain consumer protections, there are coverage gaps as the regulatory scheme has struggled to keep up with technological advancements. 

In recognition of these competing forces and this growing market of consumer services, the CFPB issued a Request for Information in November of 2016 inquiring as to market practices related to consumer access to financial information and related data aggregation services.  Last week, the CFPB published their findings, as well as their Consumer Protection Principles which are designed to “reiterate the importance of consumer interests to all stakeholders in the developing market for services based on the consumer-authorized use of financial data.”  While the Principles are “not intended to alter, interpret, or otherwise provide guidance on the scope” of existing consumer protections under existing statutes and regulations or establish binding requirements or obligations relevant to the Bureau’s exercise of its rulemaking, supervisory or enforcement authority”, they appear to be the first step in filling some of the current regulatory gaps.

The CFPB Principles address nine general areas of concern:

  • Access.  The Principles recognize the right of consumers to be “able, upon request, to obtain information about their ownership or use of a financial product or service” from the product or service provider.  The Principles also support the consumer’s right to “authorize trusted third parties to obtain such information from account providers to use on behalf of consumers, for consumers benefit, and in a safe manner.”   
  • Data Scope and Usability.  The Principles set forth that the scope of data that may be made available should be broad; however, the data available to “third parties with authorized access” should be limited to that which is “necessary to provides the product(s) or service(s) selected by the consumer and only maintain such data as long as necessary.”
  • Control and Informed Consent.  The Principles emphasize the consumer’s right to control data access and the need for terms as to access, storage, use and disposal to be clearly communicated and understood by the consumer.  The Principles additionally emphasize the importance that the consumer understand and be provided with data sharing revocation terms that can readily and simply be invoked as to access, use and storage of data.
  • Authorizing Payments.  The Principles advocate for separate and distinct authorizations for data access and payment authorization.
  • Security.  The Principles recognize the gaps that potentially exist in the FTC Safeguard Rules and whether or not certain data aggregation providers are required to comply (as they may fall into a gap between covered financial service providers and vendors).  With regard to security, the Principles recognize the need for market participants to securely access, store, use, and distribute data in formats and manners which protect against security breaches.  The Principles further advocate for secure access credentials and effective processes that “mitigate the risks of, detect, promptly respond to, and resolve and remedy data breaches, transmission errors, unauthorized access, and fraud, and transmit data only to third parties that also have such protections and processes” in place.
  • Access Transparency.  Consumers should be informed of or able to readily ascertain “which third parties that they have authorized are accessing or using information regarding the consumers’ accounts or other consumer use of financial services.”  The Principles emphasize the ability of consumers to ascertain the “identity and security of each such party, the data they access, their use of such data, and the frequency at which they access the data.”
  • Accuracy.  The Principles express the expectation that data that consumers access or authorize others to access is current.
  • Ability to Dispute and Resolve Unauthorized Access.  The Principles set forth the expectation that consumers “have reasonable and practical means to dispute and resolve instances of unauthorized access and data sharing, unauthorized payments conducted in connection with or as a result of either authorized or unauthorized data share access, and failures to comply with other obligations , including the terms of consumer authorizations.”
  • Efficient and Effective Accountability Mechanisms.  Commercial participants are held accountable for “the risks, harms and costs they introduce to consumers” and are “incentivized and empowered effectively to prevent, detect and resolve unauthorized access and data sharing, unauthorized payments” and “failures to comply with other obligations, including terms of consumer authorizations.

The Bureau’s Report as to the November RFI reflects consensus amongst stakeholders that market participants need to work together to develop data access and use practices that are based upon a shared set of standards and expectations that address consumer protection.  Those engaged in fintech should carefully monitor developments in this area, as well as the CFPB’s developing position as to their role in regulating the same.

Wednesday, October 25, 2017

Debtor’s Actions Immediately After Default Doom Time Barred ECOA Claim

By Zachary Dunn
October 25, 2017

An unpublished opinion from the Sixth Circuit provides a useful application of the statute of limitations to bar a debtor’s claims under the Equal Credit Opportunity Act, 15 U.S.C. § 1691e (“ECOA”).  In Guy v. Mercantile Bank Mortg. Co., 2017 U.S. App. LEXIS 19329 (6th Cir. 2017), the Guys, a married African-American couple, owned and operated separate businesses.  Id. at *1-2.  Each business received a loan from Mercantile Bank Mortgage Company (“Mercantile”) through one loan officer, Pat Julien, in 2000 and 2006, respectively.  Each loan was subsequently refinanced at least once through Julien.  Id. at *2. 


When Julien left Mercantile in 2006, the Guy’s accounts were transferred to a different loan officer.  The Guys alleged that they began receiving different treatment after their loans were transferred, and Paula Guy, one of the plaintiffs, wrote a letter to Mercantile expressing her concern that black clients were “being treated differently” than they had been under Julien.  Id.  Mercantile changed its policies between 2006 and 2009, and began to “aggressively enforce standards it had ignored for years” with the goal, the Guys alleged, of “eliminat[ing] minority business borrowers.”  Id. at *2-3.


In January 2008, Mercantile “pulled the funding” on the Guys’ projects and accelerated the debt, citing alleged payment delinquencies and past-due real-property taxes.  While the bank previously accepted late payments during a “grace period,” Mercantile did not accept any late payments from the Guys after January 2008, and Mercantile eventually seized the Guys’ real property, foreclosed on other collateral, garnished their wages, and obtained a deficiency judgment against them. Id. at *3.


The Guys initially sought legal representation in 2008, but did not retain counsel.  The Guys did not pursue their claims against Mercantile until 2015, when they filed suit alleging Mercantile’s adverse loan actions “were pretextual and that Mercantile terminated its lending relationship with them, at least in part, because of their race.”  Id. at *4.  The district court noted that Mercantile disclosed emails though discovery which “arguably show racial animus,” but dismissed the Guys’ complaint as barred by the statute of limitations.  Id.  The Guys appealed, arguing that the statute of limitations was extended by the discovery rule or by the doctrine of fraudulent concealment.


The Sixth Circuit disagreed with the Guys on each issue, and affirmed the judgment of the district court.  The court began by noting that while the discovery rule will generally toll the running of a statute of limitations until a plaintiff discovers or should have discovered his or her injury, the US Supreme Court has “been at pains to explain that discovery of the injury, not discovery of the other elements of a claim, is what starts the clock.” Rotella v. Wood, 528 U.S. 549, 555, 120 S. Ct. 1075, 145 L. Ed. 2d 1047 (2000).  The Guys were injured, and knew they were injured, when Mercantile took adverse lending actions against them.  Those injuries took place in 2008 and 2009, making the Guys’ claims barred by the statute of limitations.  The court went on to hold that even if the discovery rule applied to the ECOA, the Guys sought legal representation in 2008, shortly after the adverse lending actions occurred, which indicated they “were not only aware of their injuries but also that legal recourse might be available.” Id. at *7.


The court also found that the Guys’ claims could not survive under the doctrine of fraudulent concealment.  In order to toll the statute of limitations based on fraudulent concealment, a plaintiff must prove that: “(1) [the] defendant[] concealed the conduct that constitutes the cause of action; (2) defendant['s] concealment prevented plaintiffs from discovering the cause of action within the limitations period; and (3) until discovery, plaintiffs exercised due diligence in trying to find out about the cause of action.”  Id. at *7 (citations omitted).  While false statements that conceal facts respecting the merits of a plaintiff’s claims may serve as a basis for equitable tolling, “such relief is warranted only when the defendant's allegedly fraudulent statements constituted a plausible explanation that lulled the plaintiffs into not filing their claims sooner.”  Id. at *8.  Here, the Guys admitted in their complaint that they immediately doubted the veracity of Mercantile’s stated reasons for calling their loans, which demonstrated that they were not “lulled” into not filling their complaint sooner.


As this case makes evident, a debtor’s actions immediately after an adverse lending decision can have decisive implications for his or her claims.  If a debtor files a lawsuit under ECOA for actions which took place years earlier, seeking discovery into his or her actions immediately after the adverse lending decision may prove useful.

Zachary Dunn is an attorney practicing in Smith Debnam's Consumer Financial Services Litigation and Compliance Group. 

Tuesday, October 17, 2017

Eleventh Circuit Continues to Explore Definition of Debt Collector

An unpublished opinion from the Eleventh Circuit continues its analysis of the definition of a debt collector and continues to narrow the applicability of the FDCPA.  As many may recall, the Eleventh Circuit’s opinion in Davidson v. Capital One Bank, 797 F.3d 1309 (11th Cir. 2015) was one of the first opinions to parse the definition of a debt collector under 15 U.S.C. §1692a(6).  That decision, of course, was followed up by the Supreme Court’s decision in Henson v. Santander Consumer USA, __ U.S. __, 137 S. Ct. 1718, 171-22 (2017) in which the Supreme Court held that a debt buyer may collect its own accounts under certain circumstances without triggering the FDCPA.


In Kurtzman v. Nationstar Mortgage, LLC, 2017 U.S. App. LEXIS 19750 (11th Cir. Oct. 10, 2017), the consumer filed an action against its mortgage servicer, Nationstar, seeking to stay foreclosure proceedings and recover damages under the FDCPA.   Nationstar filed a motion to dismiss, in part, because it contended the consumer failed to adequately allege Nationstar was a debt collector.  The district court agreed and dismissed the FDCPA claims. 


On appeal, the Eleventh Circuit noted that in order to state a claim under the FDCPA, the consumer must plausibly allege sufficient facts to allow the court to draw a reasonable inference that the defendant is a debt collector under the FDCPA’s definition.  The Court concluded, however, that the consumer had failed to plead sufficient allegations.  “Kurtzman’s complaint totally omits factual content that would enable us to infer that Nationstar qualifies as a debt collector.  The complaint is silent regarding whether the principal purpose of Nationstar’s business is collecting debts, and it only generally asserts that Nationstar ‘regularly attempted to collect debts not owed to [it]” Kurtzman at *5-6.  The Court went on to observe that the only factual allegation in Kurtzman’s complaint that might have supported Nationstar’s status as a debt collector is that the debt collected was in default when Nationstar acquired it.  “But it is the law of this Court that a “non-originating debt holder [does not qualify] as a ‘debt collector’ for purposes of the FDCPA solely because the debt was in default at the time it was acquired.” Id. at *6.


The opinion, while unpublished, is useful in that it continues to judicially narrow the scope of the FDCPA and should serve as a reminder to the consumer bar of the importance of meeting its minimum pleading requirements.

Monday, October 16, 2017

District Court Provides Successful Road Map for Bona Fide Error Defense

By Zachary Dunn
October 16, 2017

The FDCPA, through section 1692d(6), prohibits a debt collector from placing telephone calls to a debtor “without meaningful disclosure of the caller’s identity.”  15 U.S.C. § 1692d(6).  The FDCPA also includes a “bona fide error” defense to violations of its mandates, including violations of Section 1692d(6).  15 U.S.C. § 1692k(c) provides that “[a] debt collector may not be held liable in any action brought under this subchapter[, the FDCPA,] if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.”  Once a violation of the FDCPA has been shown, the debt collector must establish that the violation was (1) unintentional, (2) a bona fide error, and (3) made despite the maintenance of procedures reasonably adapted to avoid the error.  See Johnson v. Riddle, 443 F.3d 723, 727-28 (10th Cir. 2006).

A recent case from the US District Court for the District of Utah provides a useful roadmap for a debt collector attempting to use the bona fide error defense against an alleged violation of 15 U.S.C. § 1692d(6).  In Berry v. Van Ru Credit, 2017 U.S. Dist. LEXIS 164266 (D. Utah Sep. 11 2017), the debtor, Berry, defaulted on student loans he had taken out with the US Department of Education. The loans were placed with Van Ru for collection, and a representative of Van Ru contacted Berry and informed him that the Department of Education had the right to pursue an involuntary wage garnishment or a federal tax offset against him should his loans remain in default.  Id. at *2.  However, the representative failed to state that he was calling from Van Ru during the initial call.  Id. at *18.  That failure, Berry alleged, was a violation of 15 U.S.C. § 1692d(6).

While the court held that the representatives failure to inform Berry that he worked for Van Ru “violated . . . the FDCPA,” id at *19, Van Ru argued that it was entitled to the bona fide error defense because it did not intend to violate the FDCPA.  The court agreed, finding that Van Ru had met each of the three prongs for a successful bona fide error defense.   

As to the first prong, the court found that there was no evidence to support a finding that Van Ru intentionally violated the FDCPA and, in fact, there was evidence that the representative provided meaningful disclosure that he was calling from Van Ru in subsequent calls.  As to the second prong, the court noted that while the Van Ru representative did not identify himself as such, he did identify the Department of Education as the client, which demonstrated that any error was “in good faith, genuine, and bona fide.”  Id. at *20. 

Key to the court’s decision was a review of the policies and procedures implemented and followed by Van Ru representatives during live telephone calls with consumers.  Those procedures included a requirement that each representative disclose: (1) their identity; (2) that the representative is calling from Van Ru; and (3) that the call is being made on behalf of a Van Ru client.  Under Van Ru’s procedures, when a representative contacts a consumer over the phone, the representative is prohibited from making any false or misleading statement to the consumer.  The court noted that these procedures were available online to all Van Ru representatives to serve as a reference throughout their employment with the company, and that all representatives are specifically trained on the policy. 

The court also detailed Van Ru’s training procedures that all representatives must undergo before contacting consumers.  Van Ru provided an initial three week training program for all new hires which detailed both company policy and the laws and regulations governing collection activities; required new hires to pass an exam on the requirements of the FDCPA before making collection calls; and required all representatives to participate in seven additional weeks of ongoing training once released to the floor, including “side-by-side coaching, system navigation, and work effort reviews.” See id. at *6-7.  After the first 10 weeks of training, Van Ru conducted refresher training on a monthly and as needed basis, provided workshops and remedial training sessions, and mandated retraining for all representatives twice per year.  Any representative who failed the mandatory retraining exam three times was automatically terminated, and any representative who violated Van Ru’s policies were subject to disciplinary action, up to and including termination.  Id.

The court found these procedures to be “specific and extensive” and, because Van Ru was able to meet all three prongs of the test, the court concluded Van Ru was entitled to the bona fide error defense.  Id. at *20-21.  This case provides an example of the types of detailed policies and procedures a debt collector should have in place, and vigorously enforce, in order to be entitled to 15 U.S.C. § 1692k(c)’s bona fide error defense.
Zachary Dunn is an attorney practicing in Smith Debnam's Consumer Financial Services Litigation and Compliance Group. 

Monday, October 2, 2017

Eleventh Circuit Holds Voice Mail Message is a Communication

The Eleventh Circuit has held that a voice mail message left for a consumer is a “communication” under the FDCPA.  In Hart v. Credit Control, LLC, 2017 U.S. App. LEXIS 18375 (11th Cir. Sept, 22, 2017), the debt collector left a message which stated:

This is Credit Control calling with a message.  This call is from a debt collector. Please call us at 866-784-1160.  Thank you.

Hart at *2.  The message was the first communication.  The consumer filed suit alleging two violations of the FDCPA. First, the consumer alleged that the message was a “communication” under the FDCPA and violated 15 U.S.C. §1692e(11) because it failed to disclose that “the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.”  Secondly, the consumer alleged the message did not meaningfully disclose the caller’s identity and therefore violated 15 U.S.C. §1692d(6).

The debt collector moved to dismiss relying, in part, on Zortman v, J.C. Christensen & Assocs., Inc. 870 F. Supp. 2d 694 (D. Minn. 2012) and similar cases which had previously rejected the consumer’s argument and noting that the message provided no more information than would be available from a hang-up or missed call.  The District Court agreed and granted the motion to dismiss, concluding that the instant message was not a communication for purposes of the FDCPA.  The District Court further held that the message disclosed enough information so as not to mislead the recipient as to the purpose of the call.  Importantly, the court held that it is the debt collector’s identity not that of the individual caller which is meaningful to a consumer.

Meaningful Involvement.

On appeal, the Eleventh Circuit reversed in part and affirmed in part.  With respect to the meaningful disclosure issue, the appellate court agreed with the district court.  Noting that the FDCPA is silent on what constitutes meaningful disclosure, the court looked to the purpose of the FDCPA.  “The FDCPA provides consumers with recourse following abusive behavior by debt collectors during the course of collecting a debt.  Given this scheme, the debt collection company’s name is plenty to provide ‘meaningful disclosure.’”  Hart at *9-10.

What is a Communication?

The Eleventh Circuit, however, disagreed with the district court as to whether the voice mail message constituted a communication, holding that the voice mail “falls squarely within the FDCPA’s definition of a communication.” Id. at *5.  Looking to the express language of the statute, the FDCPA defines a communication as being “the conveying of information regarding a debt [either] directly or indirectly to any person through any medium.”  15 U.S.C. §1692a(2).  The court concluded that the message fell squarely within the definition.  “The voicemail, although short, conveyed information directly to Hart – by letting her know that a debt collector sought to speak with her and by providing her with instructions and contact information to return the call.  The voicemail also indicated that a debt collector was seeking to speak to her as part of its efforts to collect a debt.”  Id. at 5-6.  The court was dismissive of the debt collector’s assertion that the voice mail message did not disclose any more information than what would have been revealed in a hang up call. Doing so would require that it ignore the plain language of the statute – “[i]n order to be a considered a communication, the only requirement of the information that is to be conveyed is that it must be regarding a debt… There is no requirement in the statute that the information must be specific or thorough in order to be considered a communication.”  Id. at *6.

What's Next?

The court’s opinion leaves debt collectors, at least in the Eleventh Circuit, in peril should they decide to leave messages for consumers.  Once again, they are left with Hobson’s Choice- either include all necessary disclosures and run the risk of violating the third party disclosures prohibitions or leave no message and fail to provide the required disclosures.  The question that needs to be evaluated further is whether debt collectors need consider whether the message is left on a cell phone (where there is a great expectation of privacy and therefore less risk of third party disclosure) or a land line. 

Monday, August 14, 2017

No interest? No Disclosure? No Problem!

The juxtaposition of Sections 1692e and 1692g continues to be a battle ground for the consumer bar and collection industry.  Section 1692e prohibits false, deceptive or misleading representations in connection with the collection of a debt.  Section 1692g(a) requires that within five days of initial communication, the debt collector provide the consumer with a written notice which contains five pieces of information: (a) the amount of the debt; (b) the name of the creditor to whom the debt is owed; (c) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector; (d) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and (e) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor. 

A recent case out of the District Court for Oregon illustrates the extreme positions being taken by the consumer bar and provides some reassurances to the industry.  In Powers v. Capital Management Services, the collection agency sent a single letter which identified the original and current creditor, the account number as “5702” and the amount of the debt as $565.91.  Powers v. Capital Mgmt Servs., 2017 U.S. Dist. LEXIS 121536 (D. Ore. Aug. 2, 2017).  The consumer filed suit, alleging that: (a) by failing to disclose whether interest was or was not accruing on the balance of the debt, the agency violated 15 U.S.C. §1692g(a); and (b) by identifying the account number as being its last four digits, the agency misrepresented the account number in violation of 15 U.S.C. §1692e.

In addressing the first issue, the court quickly drew a distinction between accounts where interest is accruing and those in which it is not.  “Where interest is not accruing on a debt, the debt collector does not need to state that no interest is accruing.  Rather, it is only in instances when interest is accruing on a debt does Section 1692g(a)(1) require a debt collector to disclose that fact and include both principle and interest when stating the amount due.” Id. at *3-4.

Moving to the second issue, the court was dismissive of the consumer’s claim that the collection agency’s use of the last four digits of the account number was misleading.  The court observed that the numbers used were associated with the consumer’s account and the notice reflected the exact amount owing on the account.  Moreover, while there may have been better ways to identify the account – for instance, preceding the last four digits with xxx-xxx-xxx or with the phrase “account ending in”,  a “consumer of below average sophistication or intelligence, but still possessing a basic level of understanding and willingness to read with care, would understand that “5702” identifies their consumer… credit card account number.” Id. at *6.

Friday, July 14, 2017

Fifth Circuit Affirms Debt Collector’s Duty to Report Disputed Debt

A recent opinion from the Fifth Circuit should serve as a reminder to debt collectors that their duties as to disputed debts are not governed solely by section 1692g.  In Sayles v. Advanced Recovery Systems, Advanced Recovery Systems (“ARS”) sent debt validation notices pursuant to section 1692g to the plaintiff regarding two debts.  The notices were sent to the plaintiff’s last known address in June and September of 2013.  Sayles v. Advanced Recovery Sys., 2017 U.S. App. LEXIS 12080, *1 (5th Cir. July 6, 2017). The plaintiff never responded to the notices with a dispute or request for validation and in fact, alleges he did not recall receiving the validation notices.  In February 2014, however, the plaintiff discovered ARS was reporting the debts on his credit report.  In response, plaintiff faxed a letter to ARS on March 5, 2014 disputing the debts and requesting validation.  In April 2014, plaintiff ran his credit report again and discovered ARS was still reporting the debts and had failed to mark the debts as “disputed.”  The plaintiff filed suit against ARS, contending that ARS violated 15 U.S.C. §1692e(8) which provides that a debt collector may not  communicate or threaten to communicate any “credit information which is known or which should be known to be false, including the failure to communicate a disputed debt is disputed.”  15 U.S.C. §1692e(8).

The primary issue before the district court was whether a debt collector may rely upon a consumer’s failure to seek validation within the thirty day validation period as a defense for the debt collector’s failure to report a subsequent dispute as to the debt to the credit reporting agencies. The district court held that it could not.  In doing so, the court stated that the protections provided by section 1692e(8) were separate and apart from those provided by section 1692g.  While ARS was not under an affirmative duty to correct its reporting prior to its receipt of the plaintiff’s fax, once it received the fax, it was under an affirmative duty to communicate in its future reporting that the debt was disputed.  Sayles v. Advanced Recovery Sys., 206 F. Supp. 3d 1210,  1216 (S.D. Miss. 2016).

On appeal, the Fifth Circuit agreed with the district court.  In doing so, the Fifth Circuit focused on the specific language of section 1692e(8) and,  particularly, the “knows or should know” language.  “This “knows or should know” standard requires no notification by the consumer, written or oral, and instead, depends solely on the debt collector’s knowledge that a debt is disputed, regarding less of how or when that knowledge is acquired.  Applying the meaning of “disputed debt” as used in {1692g(b)] to [1692e(8)] would thus render the provision’s “knows or should know” language impermissibly superfluous.” .  Sayles v. Advanced Recovery Sys., 2017 U.S. App. LEXIS 12080 at *5-6 (internal citations omitted).

Wednesday, July 12, 2017

Mortgage Servicer’s Transfer Notice Violates FDCPA

Mortgage servicers need to carefully review their Transfer Notices when the debt is in default at the time of transfer.  In an unpublished decision, the Eastern District of New York recently held that a “Notice of Servicing Transfer” violated 15 U.S.C. §1692e(10).  In Baptiste v. Carrington Mortgage Services, LLLC, 2017 U.S. Dist. LEXIS 103609 (E.D.N.Y. July 5, 2017), Carrington sent a “Notice of Servicing transfer” to the plaintiff alerting him that his mortgage servicing was being transferred to Carrington.  The letter went on to advise the plaintiff that “going forward, all mortgage payments should be sent to Carrington, but that ‘[n]othing else about [the] mortgage loan will change.”  Baptiste at *2.  The letter additionally included an FDCPA notice that stated that “[t]his notice is to remind you that you owe a debt.  As of the date of this Notice, the amount of debt you owe is $412,078.34.”  Id..  The attached FDCPA notice also noted that “[Carrington} is deemed to be a debt collector attempting to collect a debt and any information obtained will be used for that purpose.” Id. at *3.  At the time of the servicing transfer, the mortgage was in default.  The plaintiff contended the letter violated 15 U.S.C. §1692e(10) by failing to disclose that the balance on his debt was increasing due to interest.  Carrington moved to dismiss.

In denying Carrington’s motion to dismiss, the court relied upon the Second Circuit’s recent decision in Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2nd Cir. 2016).  In Avila, the Second Circuit held “that the FDCPA requires debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees.” Avila, 817 F.3d at 76. 

In support of its motion to dismiss, Carrington argued that Avila was not applicable because the Transfer Notice was not a collection attempt and therefore not subject to section 1692e.  The court, however, rejected that argument relying on another Second Circuit decision, Hart v. FCI Lender Servs., Inc., 797 F.3d 219 (2nd Cir. 2015).  In doing so, the court considered the following factors when reviewing the notice: (a) the Notice’s reference to the debt and direction that payments be sent to Carrington; (b) the reference to the FDCPA and inclusion of the section 1692g notice; and (c) the inclusion of a statement that the Notice is an attempt to collect a debt.  These factors, according to the court, indicated that the Notice of Transfer was sent in connection with the collection of a debt.

Mortgage servicers need to pay careful attention to each and every communication with consumers beginning with their Notice of Transfer. While mortgage servicers are not covered by the FDCPA when servicing current accounts, those mortgage servicers accepting transfers of defaulted portfolios or mixed portfolios should review each and every communication provided to a consumer to ensure its compliance with the FDCPA.



Tuesday, June 27, 2017

CFPB's Monthly Complaint Report Takes a New Approach

The CFPB has issued its monthly complaint report. The report is a high level snapshot of trends in consumer complaints. The report traditionally provides a summary of the volume of complaints by product category, by company and by state. This month, however, the Report has taken a new view- one based upon a state by state analysis and new national statistics. Here are the major takeaways on the national front:
  • The Report rather succinctly notes the following
    • Complaint volume rose 7% between 2015 and 2016.
    • Debt collection and mortgage product types account for approximately half of all complaints filed. 
    • Over half of all consumers submitting complaints want their narratives published.

Wednesday, June 7, 2017

Fourth Circuit Weighs in on Article III Standing

The Fourth Circuit recently examined the issue of Article III standing in the context of the FDCPA.  In Ben-Davies v. Blibaum & Associates, P.A., 2017 U.S. App. LEXIS 9667 (4th Cir. June 1, 2017), the consumer sought to assert an FDCPA claim against a law firm, contending that the law firm attempted to collect a debt arising out of a state court judgment by demanding payment of an incorrect sum based on the calculation of an interest rate not authorized by law.  The consumer alleged that as a “direct consequence” she “suffered and continues to suffer” “emotional distress, anger and frustration.”  Id. at *6.  The district court dismissed the FDCPA claim for lack of standing under Article IIII, concluding that Ben-Davies had not established an injury in fact.

In an unpublished opinion, the Fourth Circuit reversed.  In examining the “injury in fact” component of standing, the court noted that “injury in fact” is not limited to financial or economic losses but can be shown when the plaintiff shows that she suffered an invasion of a legally protected interest that is concrete and particularized and actual or imminent.  In this case, the court was influenced by the fact that “[t]his was not a case where the plaintiff simply alleged a bare procedural violation [of the FDCPA], divorced from any concrete harm.”  Id.  Instead, the court took the position that the allegations of actual existing harms that affected here personally and specifically, the allegations of “emotional distress, anger and frustration: were sufficient to establish the existence of injury in fact.

A point of concern for the ARM industry is the fact that the court did not limit its review of the matters to the pleading (the motion before the court was a motion based upon Rule 12(b)(1)) but instead included “documents explicitly incorporated into the complaint” as well as additional documents submitted by Ben-Davies which “do not conflict with the allegations and that are integral to the complaint and authentic.”  Id. at *3-4.

Thursday, June 1, 2017

Guest Post: District Court Rejects Vicarious Liability Claims under the TCPA

By Alexa Cannon

A Michigan district court recently weighed in on the availability of vicarious liability for violations of the Telephone Consumer Protection Act (the “TCPA”). In Kern v. VIP Travel Servs., the plaintiffs received several dozen telephone calls from United Shuttle Alliance Transportation Corp. (“USA”). Kern v. VIP Travel Servs., 2017 U.S. Dist. LEXIS 71139 (W.D. Mich. 2017). The calls were made over a three month span to cell phones which were registered on the national do-not-call registry. When answering the calls, plaintiffs heard an automated voice telling them, “Pack your bags! You’ve won a Disney Vacation!” Id. at *3. The voice directed the plaintiffs to press 1 to reach a representative in order to reserve a date at various vacation resorts of their choosing. After plaintiffs spoke to a representative, they were directed to a website in order to purchase the packages at a discounted rate. Plaintiffs made reservations to stay at three resorts and received emails from the resorts confirming their reservations.

Plaintiffs contended that the telephone calls made by USA violated the TCPA, and that the resorts were vicariously liable for the calls. Examining the vicarious liability of the resorts, the court first noted that “[a]n entity may be vicariously liable for TCPA violations ‘under a broad range of agency principals.”  Id. at *16.  The court then went on to examine the claims against the resorts under principles of actual authority, apparent authority, and ratification.

Actual Authority

In reviewing the plaintiffs’ claims as to actual authority, the court focused its analysis on the resorts’ rights to control the agent’s actions. Id at *17. When analyzing the facts here, the court determined there was nothing in the complaint that created a reasonable inference that the resorts had the right to control USA. The court noted that even if the resorts contracted with USA to solicit customers, this was not enough to establish that the resorts had the right to control USA. Id. at *19. The court therefore concluded there was no supporting evidence to prove that USA reasonably believed that the resorts had given it authority to make calls which violated the TCPA, thus actual authority was nonexistent.

Apparent Authority

The court next turned its attention to the plaintiffs’ assertion that USA had apparent authority on behalf of the resorts to make calls which violated the TCPA. Here, the court focused on whether the resorts had held USA out to third parties as possessing sufficient authority to commit the particular act in question. Id. at *19. The court ruled that there were no well-pleaded allegations to suggest the resorts gave USA access to detailed information about their vacation packages, or gave USA to authority to enter customer information into Resort’s database. The court reasoned that although USA knew the price of the vacation packages, the duty rested on the Plaintiffs to confirm their reservations because USA could not finalize the transaction. In short, the court concluded that the plaintiffs’ apparent authority argument failed because the resorts never “held out” USA as possessing sufficient authority to make the violative calls.


Lastly, the court examined the plaintiffs’ argument that the resorts should be held vicariously liable due to their ratification of USA’s actions. The court took issue with plaintiffs’ ratification argument and noted that the complaint did not provide the court with any reasonable inference that the resorts were aware of USA’s unlawful calls. Therefore, the resorts never affirmed USA’s actions.

Rejecting the Plaintiffs’ vicarious liability argument, the court rendered a dismissal for both resorts. The opinion should be welcomed by defense counsel defending TCPA violations as it provides guidance to the extent at which vicarious liability can hold a party liable under federal common law agency principles for a TCPA violation by a third  party telemarketer.

About the Author.  Alexa Cannon is a rising third year law student at Campbell University and is a summer law clerk with Smith Debnam Narron Drake Saintsing & Myers, LLP.

Tuesday, May 30, 2017

Guest Post: CFPB Issues Request for Information Regarding Small Business Lending

By Vanessa Garrido

The CFPB has issued a Request for Information (RFI) to collect data that will shed light on how small businesses engage with financial institutions, with a particular focus on women-owned and minority-owned small businesses. Of the estimated 27.6 million small businesses in the United States, over 7 million of these businesses are minority-owned and over 8.4 million are women-owned. In order to learn more about how to encourage and promote small businesses, “it is vitally important to fill in the blanks on how small businesses are able to engage with the credit markets.”  Prepared Remarks of CFPB Director Richard Cordray at the Small Business Lending Field Hearing, CFPB (May 10, 2017),The RFI was issued pursuant to Section 1071’s business lending data collection rule under the Dodd-Frank Act which modifies the Equal Credit Opportunity Act to require financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses.

The purpose of the business lending data collection rule is to:
  • Fill existing gaps in the general understanding of the small business lending environment;
  • Identify potential fair lending concerns regarding small business, including women-owned and minority-owned small business;
  • Facilitate enforcement of fair lending laws; and
  • Identify the needs and opportunities for both business and community development.

In an effort to collect and report on small business lending data, the CFPB seeks comment on:
  • How the lending industry defines small business and how that affects their credit application processes;
  • The particular data points that financial institutions are compiling and maintaining in the ordinary course of business concerning their small business lending, the sources of information that financial institutions rely on in obtaining this data, and any challenges financial institutions foresee in collecting and reporting this data;
  • How financial institutions integrate data collection into their application process;
  • The ability to measure accurately the prevalence of lenders and the products they offer;
  • Roles that marketplace lenders, brokers, dealers and other third parties may play in the application process for loans;
  • Whether certain classes of financial institutions should be exempt from the requirement to collect and submit data on small business lending;
  • Any financial products that finance small business, in addition to term loans, lines of credit, and credit card products; and
  • Ways to protect the privacy of applicants and borrowers, as well as the confidentiality interest of financial institutions that are engaged in the lending process.

Comments are due on or before July 14, 2017.

 Vanessa Garrido is a rising third year law student at Wake Forest University and is clerking with Smith Debnam Narron Drake Saintsing & Myers, LLP.

Tuesday, May 16, 2017

Supreme Court Reverses Bankruptcy Proof of Claim Case

“The law has long treated unenforceability of a claim (due to the expiration of the limitations period) as an affirmative defense … And we see nothing misleading or deceptive in the filing of a proof of claim that, in effect, follows the Code’s similar system.”

Midland Funding, LLC v. Johnson, (May 15, 2017).

Yesterday, the Supreme Court reversed the Eleventh Circuit’s holding in Midland Funding v. Johnson in a 5-3 split. Their decision resolves a circuit split as to whether the filing of a time barred proof of claim violates the FDCPA. For those familiar with the oral arguments in this matter, it should come as no surprise that the dissent was written by Justice Sotomayor and joined by Justices Ginsburg and Kagan. The majority opinion was authored by Justice Breyer.

 Johnson in the Lower Courts

Aleida Johnson filed her Chapter 13 bankruptcy petition in 2014. Midland Funding, LLC, a debt buyer, filed a proof of claim which disclosed on its face that the claim was barred by the applicable statute of limitations, listing the date of last transaction as May 2003. Johnson sued Midland in federal court, alleging that Midland had violated sections 1692e and 1692f of the federal Fair Debt Collection Practices Act by filing a time barred proof of claim.  

Midland moved to dismiss asserting that Johnson’s FDCPA claims were precluded by the Bankruptcy Code. The district court concluded that that the Bankruptcy Code expressly provided for the filing of a claim irrespective of whether it is time barred so long as the creditor has a right to payment that has not been extinguished by state law while the FDCPA prohibited debt collectors from doing so. The district court further concluded that the Bankruptcy Code and FDCPA were in irreconcilable conflict and that the later statute, the Bankruptcy Code, impliedly repealed the earlier statute, the FDCPA. Johnson v. Midland Funding, LLC, 528 B.R. 462, 470 (S.D. Ala. 2015). 

On appeal, the Eleventh Circuit reversed, holding that the Bankruptcy Code and FDCPA were not in irreconcilable conflict. Instead, “[t]he FDCPA easily lies over the top of the Code’s regime, so as to provide an additional layer of protection against a particular kind of creditor.” Johnson, 823 F.3d at 1341. The court concluded that the two statutes could be reconciled because “they provide different protections and reach different actors.” Id. at 1340. While the Bankruptcy Code allows creditors to file proofs of claim even with respect to time barred debt, it does not require that they do so and they “are not free from all consequences of filing these claims.” Id. at. 1339. 

Supreme Court

The significance and divisiveness of the issues led both the petitioner and respondent to agree that the issues merited review. The parties’ consensus fast tracked the courts’ consideration of the petition and the following issues were certified for appeal in October: (a) whether the filing of an accurate proof of claim for an unextinguished time barred debt in a bankruptcy proceeding violates the FDCPA; and (b) whether the Bankruptcy Code, which governs the filing of proofs of claim in bankruptcy, precludes the application of the FDCPA to the filing of an accurate proof of claim on an unextinguished time-barred debt. 

Like the majority of the circuits that had previously examined the issue, the court held that the filing of a proof of claim, which on its face indicates the limitations period has run, does not fall within the scope of the FDCPA. Specifically, the Court determined that the filing of the proof of claim did not fall within the “five relevant words” of the FDCPA: false, deceptive, misleading, unfair or unconscionable. 

False, Deceptive or Misleading

In concluding that Midland’s proof of claim was not false, deceptive or misleading, the Court explored the issue of whether the Bankruptcy Code’s definition of a claim requires the claim be enforceable, as well as the respective burdens imposed upon the parties by the statute of limitations. Regarding enforceability, the Court held that the Bankruptcy Code does not contain a requirement that a claim be enforceable. In fact, the Court observed that “[t]he word enforceable does not appear in the Code’s definition of ‘claim’”. Instead, Section 101(5) (A) states that a claim is a right to payment, “whether or not such right is … fixed, contingent, … [or] disputed.” Midland Funding, LLC v. Johnson, slip op. at 4.

The Court also addressed one of the issues which troubled several justices during oral argument: reconciliation of the statute of limitations as an affirmative defense rather than as a condition precedent to filing a claim. At oral argument, Justice Kennedy posed a number of questions to Johnson’s counsel and the Department of Justice (appearing as amicus curiae) raising concerns with Johnson’s assertion that a debt collector can violate the FDCPA by filing a time barred proof of claim. Justice Kennedy’s questions seemed to reflect a two fold concern. First, that by its inherent nature, the statute of limitations is an affirmative defense and secondly, that, in a majority of states, the running of the statute of limitations does not extinguish the debt. Both Justices Kennedy and Alito seemed to share a concern with reconciling those concepts with the position of Johnson which would place an affirmative duty on the claim filer not to file the time barred proof of claim in the first place rather than upon the trustee or other interested party to object. In addressing those concerns, the Court noted that under relevant state law (Alabama), the creditor has a right to payment even after the statute of limitations has expired, meeting the definition of a claim. Additionally, the Court determined that the Bankruptcy Code’s provisions make clear that the running of a limitations period is an affirmative defense, “a defense that the debtor is to assert after a creditor makes a “claim.”

The Court went on to conclude that “[t]he law has long treated unenforceability of a claim (due to the expiration of the limitations period) as an affirmative defense … And we see nothing misleading or deceptive in the filing of a proof of claim that, in effect, follows the Code’s similar system.” Id. at 5.  

Unfair or Unconscionable

Whether the filing of a proof of claim on “obviously” time barred debt is unfair or unconscionable presented a closer question. Like many of the lower courts which had examined the issue, the Court immediately noted the differences between the context of a civil suit and a Chapter 13 bankruptcy proceeding. In a Chapter 13 bankruptcy proceeding, the claims procedure makes it “considerably more likely that an effort to collect upon a stale claim … will be met with resistance, objection, and disallowance” and minimize the risk to the debtor. Id. at 7.  

In its examination under the lens of unfair or unconscionable, the Court returned to its concerns with the debtor’s proposition that the initial burden is on the creditor to insure it files proofs of claim only on debts which are not time barred. The Court noted the practical issues of carving out and defining the boundaries of an exception if it were to change the simple affirmative defense approach. “Does it apply only where … a claim’s staleness appears “on [the] face” of the proof of claim? Does it apply to other affirmative defenses or only to the running of a limitations period?” Id. at 8. The Court concluded that finding the FDCPA applicable to such proofs of claim would ultimately add to the complexity of the claims process and shift the burden from the debtor to the creditor to investigate the staleness of any claim. The Court ultimately concluded that the practice of filing proofs of claim on time barred debt is neither “unfair” or “unconscionable” within the terms of the FDCPA.

Limitations on the Court’s Decision

The Court’s decision is a major win for the industry and is a continued reflection of the Court’s practical approach to claims under the FDCPA. Having said that, it is important to note that the Court’s decision is limited to claims which are otherwise accurate and on their face indicate the limitations period has run. It is important to note that the Court’s opinion does not expressly address the broader issue of whether the Bankruptcy Code precludes the application of the FDCPA. In fact, the opinion may suggest otherwise. By applying the FDCPA’s “five relevant words” to the claim at issue, the Court’s opinion suggests that the FDCPA may, under different circumstances, have some application to the claims process.

Monday, May 15, 2017

CFPB Seeks Comment on Effectiveness of the RESPA Mortgage Servicing Rule

As required by the Dodd-Frank Act, the CFPB is conducting an assessment of its RESPA Mortgage Servicing Final Rule, which took effect on January 10, 2014. The assessment will seek to compare servicer and consumer activities and outcomes to a baseline that would exist if the Rule has not been implemented.
  Specifically, the CFPB’s assessment plan will examine how well the Servicing Rule has met its purpose of:
  • Providing borrowers with timely and understandable information;
  • Protecting borrowers from unfair, deceptive, or abusive acts and practices;
  • Helping borrowers avoid unwarranted or unnecessary costs and fees; and
  • Facilitating review for foreclosure avoidance options.
The CFPB is requesting comments on the assessment plan and is inviting stakeholders to comment on:
  • The feasibility and effectiveness of the assessment plan and its proposed metrics and analytical methods for assessing the effectiveness;
  • Data and other factual information that may be useful for executing the plan;
  • Recommendations, data, factual information and sources of data to improve the plan;
  • Data and other factual information about the benefits and costs of the rule for stakeholders, and the effects of the rule on transparency, efficient access and innovation in the mortgage market; Data and other factual information about the rule’s effectiveness in meeting the purposes and objectives of Dodd Frank; and
  • Recommendations for modifying, expanding or eliminating the Mortgage Servicing Rule.
Comments are due on or before July 10, 2017. A report of the assessment will be issued by January 2019.