Thursday, October 3, 2019

SCOTUS Set to Decide whether FDCPA’s Statute of Limitations is Tolled by “Discovery Rule”


By: Zachary K. Dunn


The FDCPA requires that any lawsuit must be brought, if at all, “within one year from the date on which the violation” of the act occurs. 15 U.S.C. § 1692k(d). The US Supreme Court will hear argument this month in Rotkiske v. Klemm to decide whether this statute of limitations is paused until a plaintiff discovers the basis for his or her lawsuit.



The facts underlying the case are straightforward. Kevin Rotkiske accumulated credit card debt between 2003 and 2005, which was then referred to Klemm & Associates for collection. Klem sued Rotkiske in 2008 and attempted service at an address where Rotkiske no longer lived. The lawsuit was withdrawn, but Klemm tried again in 2009 and someone at the former residence accepted service on his behalf. Klemm obtained a default judgment for around $1,500.00.



Rotkiske did not discover the judgment until 2014 when he applied for a mortgage. In 2015, Rotkiske sued Klemm arguing that the collection efforts violated the FDCPA. Klemm moved to dismiss the suit, arguing that the suit was time-barred, as the alleged violations took place in 2008 and 2009. The district court agreed and dismissed the suit.  



In doing so, the district court rejected Rotkiske’s assertion that § 1692k(d) incorporates a discovery rule which “delays the beginning of a limitations period until the plaintiff knew of or should have known of his injury.” Rotkiske appealed the decision to the Third Circuit, which affirmed. Parsing the statutory text, the Third Circuit found that Congress did not include a discovery rule in the FDCPA, and that the remedial purposes underlying the act does not demand that courts interpret the FDCPA to include one. The court held that when drafting the FDCPA, Congress was most concerned about the “repetitive contacts” that debt collectors may make with debtors, not that debt collectors will conceal their actions to unscrupulously obtain judgments against unknowing consumers.



The Third Circuit’s en banc opinion created a split in the federal circuit courts of appeal, with the Third Circuit holding that § 1692k(d) does not contain a discovery rule, and the Fourth and Ninth Circuits holding that it does. Briefing is complete, and the case is set for oral argument at the court on October 16, 2019. Expect oral argument to encompass topics such as whether the FDCPA’s text clearly and unambiguously excludes a discovery rule, whether Congress presumed that a common law principle such as the discovery rule would be incorporated into the FDCPA, and whether an implied discovery rule fits with the act’s remedial purpose.



We will have a blog post after oral argument, and when an ultimate decision is made by the Court.  



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

Tuesday, August 27, 2019

First Circuit Affirms Bankruptcy Court’s Judgment in Favor of Mortgage Company


By Caren D. Enloe


A First Circuit Bankruptcy Appellate Panel (the “Panel”) recently held that a mortgage company’s communications did not violate the discharge injunction when viewed under an objective standard and considering the facts and circumstances surrounding the communications. Kirby v. 21st Mortg. Corp., 599 B.R. 427 (2019). 


In Kirby, the consumers filed Chapter 7 while engaged in a state sponsored Foreclosure Diversion Program.  After the Kirbys received their discharge, the parties continued with the diversion program, including mediation. Post discharge, but within the context of the mediation and other loss mitigation efforts, the mortgage company sent a series of communications to the Kirbys in care of their counsel.  All but one of the documents contained a bankruptcy disclaimer informing the Kirbys that


To the extent your original obligation was discharged, or is subject to an automatic stay of bankruptcy under Title 11 of the United States Code, this notice is for compliance and/or informational purposes only and does not constitute an attempt to collect a debt or to impose personal liability for such obligation. However, a secured party retains rights under its security instrument, including the right to foreclose its lien.



Id. at 434.  After all attempts at loss mitigation failed, the Kirbys’ counsel sent a cease and desist notice to the mortgage company.  After receipt of the cease and desist, the mortgage company sent an annual escrow account disclosure statement, a letter regarding a possible short sale as an alternative to foreclosure and a PMI Disclosure, all of which were addressed to the Kirbys in care of their counsel.  The mortgage company additionally sent a Right to Cure directly to the Kirbys which contained a bankruptcy disclaimer. In total, the mortgage company sent 24 written communications to the Kirbys or their counsel in the 26 month period following the discharge.



Post foreclosure, the Kirbys reopened their bankruptcy and initiated an adversary proceeding alleging, in part, that the mortgage company’s post-discharge communications were coercive attempts to collect a debt in violation of the discharge injunction.  The bankruptcy court disagreed and granted summary judgment in favor of the mortgage company.



On appeal, the issue before the court was whether the post-discharge communications improperly coerced or harassed the Kirbys into paying the discharged debt.  While the Kirbys argued that the sheer volume of the communications amounted to coercion, even if the individual communications did not, the Panel did not agree and concluded that the surrounding circumstances and context in which the communications were sent eliminated any coercive or harassing effect of the post-discharge communications. Id. at 444.



In reaching its decision, the Panel noted that the discharge injunction does not prohibit every communication between a creditor and debtor—only those designed to collect, recover or offset any discharged debt as a personal liability of the debtor. The court then examined the individual communications sent by the mortgage company.  Regarding the letters sent during mediation period, the Panel first observed that each of the communications was sent to the Kirbys’ counsel and not directly to the Kirbys.  Moreover, all but one of those communications included “unambiguous bankruptcy disclaimers informing Mr. Kirby that if he had received a bankruptcy discharge, 21st Mortgage was not attempting to collect a debt from him personally and the correspondence was for informational purposes only.” Id. at 444.  The communication which did not include the bankruptcy disclaimer was an ARM Notice which merely informed the Kirbys of a change in interest rate.  With respect to the ARM Notice, the lack of a bankruptcy disclaimer did not concern the Panel and was not a per se violation of the discharge injunction because it was evident from the circumstances that there was no coercion or harassment.  Id.  Moreover, the Panel noted, when debtors initiate contact with a creditor to negotiate alternatives to foreclosure after post-discharge, certain communications from the creditor are logical and will not violate the discharge injunction. Id. at 445.  The Panel also concluded that the post mediation communications were either sent for informational purposes or to enforce the Defendant’s mortgage foreclosure rights and therefore did not violate the discharge injunction.



Based on the totality of the circumstances surrounding the post-discharge communications, together with the substance of those communications, the Court concluded that the correspondence in question, whether viewed individually or cumulatively, was not coercive or harassing and did not violate the discharge injunction.  Id. at 448.



Caren Enloe is a partner with Raleigh, NC’s Smith Debnam and leads the firm’s Consumer Financial Services Litigation and Compliance Group. 

Monday, August 26, 2019

Letters Demanding Payment Did Not Overshadow Validation Period


By: Zachary K. Dunn


A debt collection agency did not violate § 1692g(b)’s 30-day validation period by sending two letters demanding payment and offering settlement terms during that period, a district court in Illinois has ruled. In Moreno v. AFNI, Inc., 2019 U.S. Dist. LEXIS 107654 (N.D. Ill June 27, 2019), Mr. Moreno’s past due account with DirectTV was placed with the defendant, AFNI, Inc., for collection.  AFNI sent Moreno two letters – one in January and a second in February of 2019.



In the first letter, Afni notified Moreno that his past due DIRECTV account had been referred to them, and that he should “take this opportunity” to pay the $283.03 account balance in full. In the second letter, AFNI stated that it was “making another attempt” to contact Moreno about the past due account, and offered to settle the account for $183.97, or 65%, of the past due balance. If Moreno paid that amount, the letter informed him, the account “will be closed and marked as settled in full with Afni, Inc. and DIRECTV.” According to Moreno, Afni also “frequently” called him about the account.



Moreno filed suit against Afni for its collection activities, alleging it violated §1692g(b) because, when considering Afni’s collection activity “as a whole,” it created an impression that payment of the debt was immediately due and owing and overshadowed Moreno’s validation rights under § 1692g.



Afni filed a motion to dismiss arguing that the letters and phone calls did not violate the FDCPA, and the court agreed. The court noted that neither letter contained language that is “confusing, threatening, or creates an impression of urgency such that they 30-day validation period would be negated.” The court went on to state that “the simple act of demanding payment in a collection letter during the validation period does not automatically create an unacceptable level of confusion” such that the least sophisticated consumer would feel as if his or her validation rights were overshadowed. Further, the court noted that Moreno had not alleged he had actually talked with anyone associated with Afni during the January phone calls he allegedly received, so “no threatening or confusing statements” during those phone calls were at issue. Therefore, the court dismissed the complaint for failure to state a claim.



Key Takeaway: Key to the disposition of this matter was the failure of the consumer to allege that the debt collector made any statements, either in its letters or telephone conversations, which created a false sense of urgency or either negated or overshadowed the thirty day validation period.  The court’s dismissal was without prejudice and allowed for the filing of an amended complaint addressing the deficiencies of his original pleading; however, no amended complaint was ever filed and the case was ultimately dismissed with prejudice.



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

Wednesday, April 24, 2019

Spring is Here and a Proposed Debt Collection Rule is Imminent


More than five years after it issued its Advanced Notice of Proposed Rulemaking, the CFPB appears poised to issue its proposed debt collection rules. The first hint that this was imminent came in the fall of 2018 when the CFPB announced it anticipated issuing a Notice of Public Rule Making in the spring of 2019.  Since then, there have been several other public statements concerning the highly anticipated rule making.

In March, the CFPB issued its annual report to Congress regarding its administration of the FDCPA and its other consumer protection-related debt collection responsibilities. In that report, the Bureau reiterated its intention to issue a Notice of proposed Rulemaking which would address such issues as communication practices and consumer disclosures. 

More recently, Kraninger offered further information on the proposed rulemaking noting the tension between the FDCPA, a 1977 statute, and the advances in technology that have occurred in the forty years since its inception.  In her prepared remarks to the Bipartisan Policy Center last week, Kraninger provided a preview of the proposed rule, noting that it will:

  • Provide a clear bright-line limits on call frequency;
  • Provide clarity on communications through email and text messages; and
  • Require debt collectors to “provide consumers with more and better information at the outset of collection to help them identify the debts and understand their options, including their rights in disputing debts or paying them.”

WHAT CAN WE EXPECT? Juxtaposing Kraninger’s comments against the Outline of Proposals for Third Party Rules which was circulated in 2016 just prior to the third party SBREFA, it is likely the proposed rule will address:

  • Information Integrity.  The 2016 proposal required debt collectors have certain information in hand before collection, such as statements of account, account histories, credit applications, chains of custody and disputes.  Kraninger’s comments suggest the proposed rule may closely track this proposal.
  • Dispute Resolution. The 2016 proposal included model disclosures and a “tear off” dispute notice.  This proposal met with significant push back from stakeholders.  Based upon Kraninger’s recent comments, it is likely the proposed rule will include additional or model disclosures but it is unclear whether the “tear off” dispute notice will be included. 
  • Communications.  Based upon Kraninger’s comments as to modernization, the rules are likely to provide some welcome clarification as to messaging, whether by email, text or voice mail.

Monday, April 15, 2019

District Court Rules “Informational Injury” Sufficient to Confer Article III Standing



By: Zachary K. Dunn

Attempting to collect on time-barred debt without informing the consumer that a payment may renew the applicable statute of limitations creates an “informational injury” sufficient to confer Article III standing, a district court in Illinois has ruled. In Navarroli v. Midland Funding LLC, 2019 U.S. Dist. LEXIS 34704 (N.D. Ill. Mar. 5, 2019), the defendants Midland Funding, LLC, Midland Credit Management, Inc. and Encore Capital Group, Inc. (collectively, “Midland”) sent Navarroli a letter offering him various payment options to settle an alleged consumer debt. The letter also informed Navarroli that the law limited how long he could be sued for the debt and how long a debt can be reported to a credit bureau, and went on to state that due to the age of the debt at issue, Midland would “not sue [Navarroli] for it or report payment or non-payment of it to a credit bureau.”

 

Despite including these statements, Midland did not include a warning that any payment “could restart the statute of limitations and revive an otherwise legally unenforceable debt.” After receiving the letter, Navarroli filed a class action lawsuit alleging that by failing to include such a warning, Midland’s letter contained false, deceptive, or misleading representations in violation of the FDCPA. Midland countered with a motion to dismiss, arguing that Navarroli’s claims amount to a bare statutory violation rather than a concrete injury in fact, thereby failing to confer Article III standing on the court.

 

The district court found that Navarroli had standing to pursue his FDCPA claims. The court recognized that even though it is Congress’ role to identify and elevate intangible harms (such as the intangible harm at issue here), just because Congress has passed a statute purporting to authorize a person to sue to vindicate a particular right does not automatically mean that person has standing. A litigant must still allege a “particularized injury” he or she has suffered before the court can hear the case.

 

The court found that Navarroli had done so here because he alleged that Midland’s letter failed to give him information – that any payment on the time-barred debt would restart the statute of limitations – that he was entitled to and the omission of which made the letter false and misleading. Relying on the Seventh Circuit’s landmark opinion in Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679 (7th Cir. 2017), the district court found that this type of intangible injury was exactly the type of injury that the FDCPA was passed to protect: “We begin with the danger that a debtor who accepts the offered terms of settlement will, by doing so, waive his otherwise absolute defense under the statute of limitations. Only the rarest consumer-debtor will recognize this danger.”

 

The injury, according to the court, was clear; Navarroli received a letter asking him to pay a debt that he was not legally obligated to pay due to its age, and the letter omitted the “crucial information” that paying any amount towards the time-barred debt would restart the statute of limitations. This created an “informational injury” that was concrete and particularized, even though Navarroli did not make any payments on the debt.

 

Especially in the Seventh Circuit, dunning letters on time-barred debt should include a warning that any payment made on the debt may restart the applicable statute of limitations. Navarroli reminds us that failing to do may be construed as an “informational injury” which confers standing on the consumer to pursue an FDCPA claim, even if he or she did not make any payments on the time-barred debt.

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

Monday, April 8, 2019

Back to Basics: District Court Opinion Serves as a Reminder that Minimum Pleading Standards Must be Met to Stave off Dismissal



By  Caren Enloe and Anna Claire Turpin

A recent District Court decision serves as a reminder to both Plaintiffs and Defendants to properly scrutinize a complaint for well-pleaded factual allegations.  In Walker v. Lyons, Doughty & Veldhuis, P.C., et. al, No. 1:18-cv-513, 2019 U.S. Dist. LEXIS 42180 (S.D. Ohio Mar. 15, 2019), the Southern District Court in Ohio held that the Plaintiff did not include well-pleaded factual allegations in her Complaint and therefore granted the Defendants’ 12(b)(6) Motion to Dismiss. 


In support of the action alleging violations of the FDCPA, the Plaintiff alleged that she incurred a debt “for purchasing items for personal, family or household purposes.”  The Defendants filed a 12(b)(6) Motion to Dismiss based in part on the Plaintiff’s failure to properly allege that she actually incurred a consumer debt.  


The court reemphasized the minimum pleading standards and determined that merely reciting the statutory language that the debt was incurred “for personal, family, or household purposes” with no other facts does not meet the minimum pleading standards required by Rule 8 of the Federal Rules of Civil Procedure and set forth in the Supreme Court’s decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009) and in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).  To establish such a claim, the complaint must include more than labels, conclusions, or recitation of the elements and instead must contain sufficient facts to support the reasonable inference that the Defendant is liable for the alleged misconduct. Therefore, the Plaintiff failed to adequately plead any factual circumstances that would support the claim upon which relief could be granted and the Motion to Dismiss was granted. 


The decision serves as a reminder to both the consumer and defense bar that threadbare allegations are insufficient to support claims and more robust pleading is necessary.

           

 Anna Claire Turpin is a third year law student at Campbell University School of Law and is currently clerking with Smith Debnam's Consumer Financial Services Litigation and Compliance group.

Thursday, March 21, 2019

District Court: 1099-C Language May State Claim for FDCPA Violation


By Caren Enloe and Anna Claire Turpin


A recent case from a New York district court serves as a reminder that a single word in a debt collection letter may cause a wave of implications if enough further information is not supplied.  In Leonard v. Capital Management Services, LP, 2019, No. 1:18-cv-90, 2019 U.S. Dist. LEXIS 18336 (W.D.N.Y. Feb. 4, 2019), a debt collection letter offering to settle the debt for less than the full balance included a statement that “[s]ettling a debt for less than the balance owed may have tax consequences and Discover may file a 1099-C form” (emphasis added).  Because the total debt forgiveness would have been less than $600.00 and therefore did not meet the IRS threshold for reporting, the Plaintiff alleged that the language violated 15 U.S.C. §§1692e and 1692f.


The debt collector moved to dismiss, arguing that the letter was not false and that the 1099-C clause was true because it was not cast in mandatory language.  Instead, the debt collector argued that the use of the word “may” in the statement did not imply that Discover or CMS would in fact file a 1099-C or take other actions that would create “tax consequences” with the IRS.  


The court disagreed.  While not concerned with the tax consequence language, the court took issue with the 1099-C clause.  Despite the debt collector’s arguments to the contrary, the court held that the use of the word “may” did not insulate the statement from potential liability.  The court concluded that the 1099-C clause stated a plausible claim because it did not provide any reference to nor clarify that the reporting requirements only applied where the $600.00 threshold was met.  Without that clarification, the court concluded the least sophisticated consumer could reasonably believe that CMS or Discover might report the cancelled debt to the IRS.


The key take-away is that the use of generic conditional language is not a cure-all.  In the case of 1099 language and to the extent conditional language is used, letters should be reviewed to insure they provide enough information as to the tax consequences to make clear the circumstances in which the tax reporting requirements may apply.


Anna Claire Turpin is a third year law student at Campbell University and a graduate of James Madison University.  Turpin is currently a law clerk with Smith Debnam’s Consumer Financial Services Litigation and Compliance group.

Friday, March 15, 2019

Bankruptcy Disclaimer Did Not Violate FDCPA


A district court in Michigan recently dismissed an FDCPA action, holding that a letter which included a bankruptcy disclaimer was for informational purposes only and did not violate the FDCPA.  Tyler v. Fabrizio & Brook, P.C., 2019 U.S. Dist. LEXIS 33450 (E.D. Mich. Mar. 4, 2019).  At first glance, the decision appears to be in conflict with the Sixth Circuit’s prior decisions in Glazer v. Chase Home Fin. LLC, 704 F.3d 453 (6th Cir. 2013) and Scott v. Trott Law, P.C., 2019 U.S. App. LEXIS 1015 (6th Cir. Jan. 11, 2019).  In those cases, the Sixth Circuit concluded that foreclosure proceedings are debt collection.

The case centers around a single letter and a bankruptcy disclaimer.  In 2015, Tyler’s mortgage debt was discharged in bankruptcy.  In 2016, the bank engaged the defendant law firm to foreclose on the underlying real property.  The law firm then sent Ms. Tyler the following letter:

Dear Borrower(s),

BANK OF AMERICA, N.A., successor by merger to LaSalle Bank Midwest, N.A. fka Standard Federal Bank has retained our law firm to begin foreclosure proceedings on the above referenced property. As of the date of this letter, you owe $27,036.78. Because of interest, late charges and other charges that may vary from day to day, the amount due [*8]  on the day you pay may be greater, and an adjustment may be necessary after our client receives your payment.

Unless you notify this office within 30 days after receiving this notice that you dispute the validity of the debt or some portion of it, this office will assume that the debt is valid. If you notify this office in writing within 30 days of receiving this notice, this office will obtain verification of the debt or a copy of a judgment and mail a copy of it to you. If you request in writing within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor if different from the current creditor.

Thank you for your attention to this matter.

Very truly yours,

Devara Walton

Real Estate Default Team

FABRIZIO & BROOK, P.C.

FABRIZIO & BROOK, P.C. IS THE CREDITOR'S ATTORNEY AND IS ATTEMPTING TO COLLECT A DEBT ON ITS BEHALF. ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE. HOWEVER. IF YOU ARE IN BANKRUPTCY OR HAVE BEEN DISCHARGED IN BANKRUPTCY, THIS LETTER IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS AN ATTEMPT TO COLLECTA DEBT OR AS AN ACT TO COLLECT, ASSESS, OR RECOVER ALL OR ANY PORTION OF THE DEBT FROM YOU PERSONALLY

Tyler at *7-9.

Tyler sued the law firm, claiming the letter violated 15 U.S.C. §1692e and asserted that the language “you owe $27,036.78” was misleading since the debt had been discharged in her bankruptcy. The law firm moved to dismiss, alleging that the letter was not an attempt to collect a debt, but instead for informational purposes only.

The court determined that the letter’s primary purpose was informational and to notify Tyler that foreclosure proceedings were about to start.  The court noted that the letter did not explicitly ask for payment, did not provide a due date for payment, did not provide a payment coupon and did not provide an address to mail payment.  Moreover, the court noted the letter contained a bankruptcy disclaimer which was on the same page as the remainder of the letter and “arguably the most conspicuous thing on the letter.”  Id. at *6.

The court’s decision is difficult to reconcile with its Circuit’s recent holding in Scott v. Trott Law, P.C.  in which the Sixth Circuit confirmed its view that foreclosure proceedings are debt collection.  The district court attempted to reconcile its decision by noting that the letter was not a required step in the foreclosure or actual foreclosure activity.  Instead, the court noted that “the letter was a courtesy to Tyler letting her know that foreclosure proceedings were about to start.  Its primary purpose to inform.” Id. at *5. 

Foreclosure law firms should continue to monitor developments in this area closely.  A split in the circuits as to whether non-judicial foreclosure constitutes debt collection may be resolved shortly by the Supreme Court.  Oral arguments were heard in January regarding this issue and a decision is expected this Spring.

Tuesday, March 12, 2019

District Court Rules That a Telemarketer’s Single Unanswered Call Creates Article III Standing


By: Zachary K. Dunn


A single missed call from a telemarketer constitutes a concrete injury that gives rise to standing, a federal district court in California has ruled. In Shuckett v. DialAmerica Marketing, Inc., 2019 U.S. Dist. LEXIS 29598 (S.D. Cal. Feb. 22, 2019), the defendant DialAmerica was hired by another company, American Standard, to conduct telemarketing calls. Ms. Shuckett, the plaintiff, alleged in her complaint that she had received a series of telemarketing phone calls on behalf of American Standard, each of which violated the Telephone Consumer Protection Act (“TCPA”). Both DialAmerica’s and Shuckett’s phone records indicate that DialAmerica only made one phone call to Schuckett (the other telemarketing calls Shuckett received emanated from another company), and that the single call contained 0 minutes of “talk time,” meaning that Shuckett did not answer it.



While DialAmerica conceded that a single call can give rise to a concrete injury, it contended that because the call went unanswered Shuckett could not have been harmed and therefore did not have standing to pursue a TCPA claim. For her part, Shuckett alleged that the call caused her nuisance and invaded her privacy, thereby injuring her.



The district court sided with Shuckett and found that she had standing to pursue her TCPA claim against DialAmerica. Under the landmark Supreme Court case Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 194 L. Ed. 2d 635 (2016), a federal statute is insufficient by itself to confer standing. Instead, a plaintiff must show that he or she suffered an actual, concrete injury that is traceable to the conduct of the defendant. The district court noted that other courts have held that a text message gave rise to standing under the TCPA, and found no meaningful difference between a text message and an unanswered phone call. Both, according to the district court, “invade the privacy and disturb the solicitude” of the recipient and thereby create an injury.



Interestingly, the court left open the possibility that “[h]ad the call gone entirely unnoticed, perhaps this would be a different case” because the plaintiff would not have sustained an injury. That was not the case here, though: “While it appears undisputed that Shuckett did not pick up the call, there is no evidence that she was entirely unaware of it.” Therefore, the court ruled that Shuckett had standing to pursue her TCPA claim against DialAmerica.  



Takeaways from Shuckett

Shuckett reminds us that even a single phone call can lead to liability under the TCPA, and informs us that a plaintiff may have standing even if he or she did not pick up the call. However, this case does leave a small amount of hope for telemarketers; if the plaintiff admits to not noticing the phone call, then he or she may not have standing to pursue TCPA claims.  


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

Friday, March 1, 2019

CFPB Issues Semi Annual Report to Congress

The CFPB has issued its Semi-Annual Report to Congress for the time period beginning April 1, 2018 and ending September 30, 2018. The Report is the first issued by newly confirmed Director Kathy Kraninger and outlines the actions taken by her predecessor in the April-September 2018 time period.

Significant Problems Facing Consumers.


The Report identifies two “significant problems” facing consumers shopping for or obtaining consumer financial service products: (a) credit invisibility and (b) mortgage shopping. “Credit invisibility” is not a new concern and was identified as an issue during Cordray’s tenure. The Report highlights a study released by the CFPB which examines the relationship of geography to credit invisibility. It is significant that there appears to be consensus from CFPB leaders (both liberal and conservative) that credit invisibility is an issue. The Report also identified “mortgage shopping” as an issue, pointing to studies indicating that consumers do not shop for the lowest interest rates when applying for a mortgage.

Consumer Complaints Reflect a Status Quo.


The Report also summarizes the consumer complaints received by the Bureau from consumers for the past year. There were no surprises here – the three front runners for complaints filed with the CFPB were credit reporting, debt collection and mortgage. 

Debt Collection Rules Are Coming!


Perhaps the most significant news in the Report was confirmation that debt collection rules are coming. For those that have followed the rulemaking, an advanced notice of proposed rulemaking was issued in late 2013. In the summer of 2016, the CFPB issued an Outline of Proposals for Third Party Rules and indicated that “[a]s part of its overhaul of the debt collection marketplace, the CFPB plans to address consumer protection issues involving first-party debt collectors and creditors on a separate track.” Later that summer, a third party SBREFA was held.

For two years, there was no further action. In October, however, the CFPB announced that it anticipated a Notice of Public Rulemaking in March of 2019. The Report confirms that a proposed rule is coming, but that it is likely to be a more narrowed version that what was suggested by Cordray’s CFPB in 2016. According to the Report, “the Bureau will work towards releasing a proposed rules concerning FDCPA collectors’ communications practices and consumer disclosures.”

What's Next?


Kraninger is expected to testify before the House Financial Services Committee on March 7th and the hearing is highly anticipated as it will be the first opportunity to see her interactions with the Democratic led committee. No doubt, the committee will have a number of questions concerning the Bureau’s decision to walk back the Payday Lending Rules.

Monday, February 18, 2019

CFPB Issues First Complaint Snapshot Under Kraninger




For the first time in over a year, the CFPB has issued a Complaint Snapshot. A practice started by Cordray in 2015, the report is a high level snapshot of trends in consumer complaints and provides a summary of the volume of complaints by product category and by state. While the Complaint Snapshot issued by Kraninger’s office differs slightly in content from the reports issued under Cordray and does not promise to be a regular occurrence, it provides excellent content that will allow financial services to identify risks within their organization structure. The January 2019 report focuses on mortgage products and looks at the three month period of August 2018-October 2018.


Here’s what you need to know:

  • The Snapshot provides a high level overview of trends in consumer reports over the last 24 months;
  • The Snapshot continues to use the three-month rolling average, comparing the current average to the same period in the previous year;
  • Since the last Report issued by Cordray, not much has changed. Credit reporting and debt collection continue to be the leading sources of complaints.
  • Mortgage complaints appear to have fallen off and are no longer in the top three sources of consumer complaints, having been surpassed narrowly by credit card complaints.

NATIONAL OUTLOOK. 

While credit reporting and debt collection continue to provide the most significant volume of complaints, credit reporting is showing a significant decrease when compared to its complaint average for the same period in 2017 – a 14% decrease. Similarly, mortgage products, which used to always be in the top three products for complaints, have shown a 15% decrease for the same period. Picking up the slack, prepaid card complaints have increased 26% for the same period and depository and credit card products have shown 14% and 8% increases, respectively. Debt collection remains relatively flat with a 3% decrease compared to the same period in 2017. 

FEATURED PRODUCT OR SERVICE. 

This Snapshot highlights mortgage products.  The most common issue identified by consumers between August and October 2018 was trouble during the payment process. Breaking that down further, the Snapshot indicates the majority of issues involved periodic statements, applications of payment, escrow accounts and payoff requests. Specifically,
  • Periodic Payments. According to the Snapshot, the complaints centered on consumers not receiving statements on time and periodic statements which contained inaccurate information such as late fees being assessed despite payments made on or before the due date. 
  • Application of Payment. According to the Snapshot, consumers complained of payments not being properly applied as directed. 
  • Escrow Accounts. According to the Snapshot, consumers complained of inaccurate shortages being assessed on their escrow accounts as a result of misinformation as to increases in taxes or increases in insurance premiums. 
  • Payoff Requests. Consumers also complained of payoff requests which were either ignored or delayed, resulting in inaccurate payoff information.
We hope this signals a return of the Complaint Snapshots which, if presented even handedly, provide financial service providers with an excellent tool to identify and mitigate risks within their organizations.




Sixth Circuit Doubles Down Despite Impending U.S. Supreme Court Decision


By Caren Enloe and Anna Claire Turpin



Just four days after the U.S. Supreme Court heard oral arguments in Obduskey v. McCarthy & Holthus LLP regarding whether non-judicial foreclosures qualify as debt collection under the FDCPA, the Sixth Circuit doubled down on its position that non-judicial foreclosures are debt collection.  Building on its 2013 decision in Glazer v. Chase Home Finance LLC., 704 F.3d 453 (6th Cir. 2013), which joined the Fourth and Fifth Circuits in holding that non-judicial foreclosures are “debt collection” under the FDCPA, the Sixth Circuit held on January 11 that a law firm has an affirmative duty to “stop the clock” on an initiated foreclosure once it receives a §1692g(b) dispute from the debtor.



In Scott v. Trott Law, P.C., 2019 U.S. App. LEXIS 1015* (6th Cir., Jan. 11, 2019), the consumer alleged that Trott Law violated the FDCPA by failing to cease debt collection activities after receiving his dispute and request for validation.  After being retained by Bank of America to begin non-judicial foreclosure proceedings, the law firm sent the consumer a debt validation letter. The law firm then proceeded forward with arranging a sheriff’s sale for Foreclosure of Mortgage by Advertisement, preparing a Notice of Mortgage Foreclosure Sale to post on the premises and to publish in the local newspaper for four consecutive weeks, and mailing a copy of the Notice to the consumer. Three days after the law firm initiated these actions, and still within the thirty day debt dispute and validation period, the consumer disputed the debt and requested validation of the debt.  Although the law firm took no further affirmative actions, the notice was posted on the premises and published in the newspaper after the law firm received the dispute and debt validation request. Within days of sending his dispute and request for validation, the consumer then filed its suit against the law firm alleging a violation of the FDCPA and seeking to enjoin the impending sale and then filed Chapter 13 thereby stopping the sale.



The district court granted summary judgment in favor of the law firm based on its determination that the debt collector was not required to validate the debt and had ceased collection of the debt because third-parties, not the debt collector, posted and published the Notice.  On appeal, the Sixth Circuit addressed the issue of whether the actions taken after the consumer’s dispute and request for validation qualified as debt collection activity, and whether the FDCPA required Trott to take affirmative action to “stop the clock.”



The Sixth Circuit reversed. Because the FDCPA does not provide a precise definition of "debt collection" or what it means to cease debt collection, the Sixth Circuit analyzed the relationship between Michigan law on non-judicial foreclosures, debt collection under the FDCPA, and Congress’ intent and policy behind the requirement that a debt collector cease collection when it receives a dispute letter. 15 U.S.C. §1692g(b). Because Michigan law requires notice and publication before a non-judicial foreclosure, the Court concluded that such activities are continued debt collection activity under the FDCPA.  The Court then reasoned that those activities remain the debt collector’s responsibility.  Otherwise, according to the Court, dispute letters would not achieve Congress’ intended effect of “ceasing debt collection” if debt collection activities may continue solely because they are not performed by the debt collector.



The Court held that instead, a debt collector is responsible for the activities it sets in motion as required by state law in the non-judicial foreclosure process.  The debt collector must “stop the clock” on all debt collection activities until the debt collector obtains verification. Scott at *13.  Because the sale, posting, and publication (performed by the sheriff and newspaper, respectively) were required under state law in the non-judicial foreclosure process, those actions constituted debt collection and the law firm was responsible for intervening and stopping the entire process.



It is important to note that after hearing oral arguments in Obduskey, the Supreme Court may render the Sixth Circuit’s recent decision moot.  Should the Supreme Court hold that non-judicial foreclosure is not debt collection, then Scott will have been wrongly decided.  Until the Supreme Court weighs in, however, the circuit split continues.



Anna Claire Turpin is a third year law student at Campbell University and a graduate of James Madison University.  Turpin is currently a law clerk with Smith Debnam’s Consumer Financial Services Litigation and Compliance group.

Friday, January 25, 2019

TCPA, FDCPA Complaints Show Decrease in 2018

According to WebRecon's December 2018 Report, TCPA and FDCPA complaints showed a substantial decrease in 2018.  WebRecon reports that, in comparison to 2017, FDCPA suits decreased 7.8% in 2018 and TCPA suits decreased 13.2% in 2018.  According to WebRecon, "FDCPA complaints are at their lowest point since 2008."  Picking up the slack were FCRA suits which increased 4.3%.  Interestingly, complaints to the  CFPB increased 5.9% in 2018 despite a more business friendly CFPB regime.  For further analysis, please check out WebRecon's blog which provides monthly analysis for the industry at WebRecon.


Tuesday, January 22, 2019

Text messages to a Gym Member Did Not Require Express Written Consent Under the TCPA

By: Caren Enloe and Zachary Dunn
Text messages from a gym to its member were informational in nature and therefore did not violate the TCPA, a district court in Louisiana ruled late last month. The case, Suriano v. French Riviera Health, Spa, Inc., 2018 U.S. Dist. LEXIS 216018 (E.D. La. Dec. 20, 2018), centered on five text messages sent by French Riviera Health Spa (the “Gym”) to Suriano. The five text messages read as follows:
  1. Dear member, Welcome to Riviera Fitness! Where your fitness is our strength. We’re excited to have you as a member. Have a great workout!
  2. Dear member, We offer a variety of classes and small group training. Click here (http://tinyurl.com/yag8aohah), for class schedules.
  3. Dear member, Become your best self with.our Personal Trainers. Ask us for info on our PT program. (http://tinyurl.com/yc8zaep8).
  4. Follow us on social media! Facebook (http://tinyurl.com/Y8m7okwe) Instagram (http://tinyurl.com/y77ocpjh).
  5. Dear member, Did you know that we have a blog? Each month we post workout tips, testimonials and much more!
Suriano had recently joined the Gym and, in doing so, provided his phone number in multiple places on his application. However, Suriano had not provided prior express written consent to receive advertising or telemarketing messages.
The issue before the court was whether the five text messages were telemarketing or advertising messages requiring prior express written consent to receive such messages. In 2012, the FCC issued new regulations requiring prior express written consent for messages contained telemarketing and advertising content. The 2012 regulation defined advertisement as “any material advertising the commercial availability or quality of any property, goods, or services,” and telemarketing as “the initiation of a telephone call or message for the purpose of encouraging the purchase or rental of, or investment in, property, goods, or services.” While advertising and telemarketing messages require express written consent to comply with the TCPA, messages that are informational in nature only require a lesser threshold of prior consent which may be obtained by simply providing the number at issue in the application process.
In Suriano, the consumer provided prior consent by providing his cell number in multiple places on the Gym application; however, he did not provide prior express written consent to receive telemarketing and advertising messages.  After examining each of the messages to determine if they were telemarketing or advertising messages, the court concluded that all five messages were informational. Messages one, two, and five, the court held, were “plainly informational in nature,” as they were a welcoming message, a link to classes and training schedules, and a link to a blog containing workout tips, respectively.
The other two messages – messages three and four – were a closer call. The court considered the third message (encouraging Suriano to sign up for personal trainers) and noted that, under some circumstances, it could be considered an advertisement for its personal training services. However, since Suriano had already paid for six months of personal training sessions from the Gym, the court reasoned that message three “merely encouraged [Suriano] to take advantage of the personal training services for which he already paid.” Finally, the fifth message was informational because it simply encouraged Suriano to follow the Gym on social media. While the court noted that the Gym’s social media pages “in all likelihood do have a promotional aspect,” message five was not advertising or telemarketing under the relevant 2012 regulatory definitions of those terms. Finding all five messages to be informational, the court dismissed Suriano’s complaint.
Takeaways from Suriano
Suriano serves as a reminder that service providers must be careful in crafting text messages to their customers. Whether messages are considered advertising or promotional can be highly fact specific and will focus on the facts and circumstances regarding the individual consumer involved. Messages should be crafted such that they are informational in nature unless the service provider obtains express written consent to send advertising and telemarketing material.

Wednesday, January 9, 2019

Fifth Circuit: Mortgage Servicing Rules Apply to Servicers Only


In a case of first impression, the Fifth Circuit has held that the CFPB’s Mortgage Servicing Rules only apply to servicers and do not impute liability to the lender.  In Christiana Trust v. Riddle, the consumer alleged that the prior and current servicers of her mortgage violated the Mortgage Servicing Rules by failing to evaluate her loss mitigation application as required by 12 C.F.R. 1024.41(c)(1).  Riddle contended that the original lender, Bank of America, was vicariously liable for its servicer’s violation.  The Fifth Circuit affirmed the dismissal of the claims against Bank of America in part because it held that “Bank of America, as a matter of law, is not vicariously liable for the alleged RESPA violations of its servicers.”  Christiana Trust v. Riddle, 2018 U.S. App. LEXIS 36217, *7 (5th Cir. Dec. 21, 2018).

In reaching its conclusion, the Fifth Circuit looked at the express language of both the Mortgage Servicing Rules and the source statute, RESPA.  The Court noted that the regulation only imposes duties on servicers.  See 12 C.F.R. 1024.41(c)(1) (if a servicer receives a complete loss mitigation application… a servicer shall…”) (emphasis added).  Likewise, a servicer’s obligation to comply with the Mortgage Servicing Rules derives from RESPA which provides that only “a servicer of a federally related mortgage shall not… fail to comply with another obligation found by the Bureau of Consumer Financial Protection, by regulation, to be appropriate to carry out the consumer protection purposes of this chapter.”  12 U.S.C. §2605(k)(1)(E) (emphasis added).  The Court was further persuaded by the fact that 12 U.S.C. §2605 imposes liability on “whoever fails to comply with this section” rather than a more broad class of interested parties.  The Court concluded that “[b]ecause only ‘servicers’ can ‘fail to comply’ with 12 U.S.C. §2605(k)(1)(E), only servicers can be “liable to the borrower’ for those failures.”  Id. at *8.

The opinion is a good news for lenders as there is now some precedent that lenders cannot be held vicariously liable for their servicers’ violations of the Mortgage Servicing Rules.  At least in the Fifth Circuit, lenders are provided with some insulation from liability.