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.

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

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.