Supreme Court to Hear Oral Argument in ECOA Case

The Supreme Court will hear oral argument in Hawkins v. Community Bank of Raymore October 5, 2015.  In Hawkins, the bank sought to enforce spousal guarantees provided by the wives of the primary applicants.  The wives countered by filing counterclaims under ECOA alleging that the guarantees were unenforceable and in violation of ECOA.  The district court dismissed the ECOA claims, holding that the spouses were not applicants under ECOA and therefore had no standing to sue.  The Eighth Circuit agreed, holding that a guarantor does not directly request credit and therefore does not apply for credit and is not a guarantor under the express definition of applicant provided by ECOA.  In their Petition, the guarantors contended that the Eighth Circuit’s decision did not give proper deference to the Federal Reserve Board’s broad authority to prescribe regulations to effectuate the ECOA’s purpose. 

The issues before the Court for consideration are: “(1) Whether “primarily and unconditionally liable” spousal guarantors are unambiguously excluded from being Equal Credit Opportunity Act (ECOA) “applicants” because they are not integrally part of “any aspect of a credit transaction”; and (2) whether the Federal Reserve Board has authority under the ECOA to include by regulation spousal guarantors as “applicants” to further the purposes of eliminating discrimination against married women.”  

A joint amici brief has been filed in favor of the petitioner by the CFPB and other governmental interests and in favor of the respondent by the American Bankers Association and other trade associations.

FCC Orders $2.96 Million Fine for TCPA Violations

In case a reminder is needed, TCPA violations may be brought by as enforcement actions by the FCC, as well as by private litigants.  The FCC issued a $2.96 million fine against a Florida travel club this week for making unsolicited, prerecorded advertising calls to consumers.  While the size of the fine alone is enough to grab your attention, consider this:  the identified violation was for 185 automated calls -- that's $16,000 per call.  The investigation was precipitated by complaints received by the FCC from Florida consumers complaining about automated calls they received advertising vacations.  In October of 2011, the FCC issued a Notice of Apparent Liability for Forfeiture to Travel Club Marketing, Inc., its related companies and its owner.  None of the parties challenged the finding that they made or initiated the calls at issue and none filed a timely response to the Notice.  As a result, an Order of Forfeiture was entered.  The parties have thirty days to make payment.

Coverage under the FDCPA Continues to be Hot Topic

Whether a debt is a consumer debt continues to be a hot topic under the FDCPA.  In Benbrooks v. Voigt, Rode & Boxeth, LLC, the plaintiff sued a law firm over collection letters directed to the plaintiff.  Benbrooks v. Voigt, Rode & Boxeth, LLC, C.A. No. 15-1896, 2015 U.S. Dist. LEXIS 99294 (D. Minn. Jul. 30, 2015).  The plaintiff’s father was a resident in a senior housing and nursing facility and when the father did not pay for his care, both the father and son received letters demanding payment.  The letter to plaintiff maintained plaintiff was personally liable for his father’s debt.  Plaintiff sent a cease and desist to the law firm and the law firm wrote back reiterating that Plaintiff’s “purposeful actions and inaction while acting as your father’s POA support…claims that you have violated Minnesota law and are personally liable…for payment…”  Plaintiff filed suit alleging that the firm’s second letter violated the cease and desist and that the law firm’s letter contained false, deceptive and misleading representations.

The law firm moved to dismiss the FDCPA litigation for lack of subject matter jurisdiction and the court agreed.  The court determined that the debt was not a consumer debt in that it did not arise from a transaction that is primarily for personal, family or household purposes.  The plaintiff’s debt instead arose from a statutory obligation.  Minnesota’s power of attorney statute provided that as the father’s attorney in fact, plaintiff agreed to apply his father’s assets and income toward his care.  The court determined that the third party liability provided by the statute is not a debt that arises out of a consumer transaction and that plaintiff was likewise not a “consumer” under the FDCPA.

CFPB’s Bulletins Revisited: Representations Concerning Credit Reporting

From time to time, the CFPB issues Bulletins which reflect the CFPB’s expectations regarding covered institutions and covered business products.  When these are issued, they grab our attention for a time but then our focus changes to the next new thing.  We are now five years into the CFPB’s existence and as they say, hind sight is 20/20 vision.  Looking back, we can see the impetus these Bulletins have had on enforcement actions.  I thought it would be fun to revisit some of these Bulletins over the next few several weeks and see how they have been applied. 

In July 2013, the CFPB issued two Bulletins on Debt Collection, suggesting their expansive approach to debt collection.  CFPB Bulletin 2013-08 provides guidance to creditors, debt buyers, and third party collectors regarding their compliance with the FDCPA and the Dodd Frank prohibition on unfair practices when making representations about the impact on payment of debts on credit reports and credit scores.  The Bulletin makes clear that the supervised entities and service providers will be held responsible for deceptive representations made concerning the impact payment of debts may have on credit reports and scores.

The Bulletin set forth a number of nonexclusive missteps:

• Effects on Credit Reports: The CFPB has cautioned those involved with collecting debts from making representations concerning the effect of payments on credit reporting. The CFPB points out that -
   
  • It is potentially deceptive to make representations that payment of an obsolete debt (a debt that is more than seven years old) will impact a credit report.  As pointed out by the CFPB, obsolete debts are not reported and therefore information concerning payment of that debt will not likely appear on a credit report;
  • It is also potentially deceptive to make representations that payment of non-obsolete debts will change credit reports if the debt owner or collector does not furnish payment information to credit reporting agencies.
     
• Effects on Credit Scores:  The CFPB also issued a warning regarding making representations on the impact payment may have on credit scoring.  The CFPB Bulletin points out the many factors which may influence a credit score and the uncertainty that a payment may impact on the score.
   
• Effects on Creditworthiness: The CFPB finally issued a warning regarding representations on the impact payment may have on a consumer’s ability to receive subsequent credit from a lender.  Again, the CFPB issued caution, pointing to the number of factors that may impact credit worthiness.
   

The CFPB did not begin conducting supervisory examinations of larger participants in debt collection under 2013.  Since then, misrepresentations concerning credit reporting and credit scoring have been brought to light in a number of examinations and the CFPB continues to highlight the issue.  For example, in its Winter 2015 Supervisory Highlights the CFPB noted issues with collection agents overstating the benefits a student loan rehabilitation program may have on a consumer credit reports and credit scores. Winter 2015 Supervisory Highlights, p. 6-7.  Entities collecting debt should be hyper aware of scripts and letters which may purport to reference the impact payment may have on credit reporting and scoring and refrain from making any qualitative representations regarding the same.

 

Sixth Circuit Expands Standing under the FDCPA

In a 2-1 decision, the Sixth Circuit recently held that the definition of “person” under the FDCPA includes business entities, including corporations and limited liability companies for purposes of 15 U.S.C. §1692k.  Anarion Investments LLC v. Carrington Mortgage Services, LLC, C.A. Nos. 14-5781, 14-5993, 2015 U.S. App. LEXIS 12670, 2015 fed App. 0159P (6^th Cir. 2015). The underlying litigation arose out of a foreclosure.  Anarion Investments, the  assignee of a lessee with an option to purchase the foreclosed residential real estate, brought sued alleging that the mortgage company made certain misrepresentations in the foreclosure notices and that the foreclosure notices did not provide sufficient notices to interested parties, including Anarion as the assignee of the lessee.  Anarion alleged that these misrepresentations gave rise to the FDCPA claim. 

The district court dismissed Anarion’s suit, holding that Anarion did not have standing under the FDCPA.  In doing so, the district court focused on three provision of the FDCPA: (a) 15 USC §1692a; (b) 15 U.S.C. §1692d; and (c) 15 U.S.C. §1692k.  The district court noted that a “consumer” is defined as being “any natural person obligated or allegedly obligated to pay any debt”; meanwhile, a “debt” is defined as being “any obligation or alleged obligation of a consumer” incurred for personal, family, or household purposes.”  Section 1692d prohibits a debt collection from engaging in “any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.” (emphasis supplied).  Section 1692k, which provides the private right of action, in turn states that “[e]xcept as otherwise provided by this section, any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person…” Anarion Invs., LLC v. Carrington Mortg. Servs., 33 F. Supp. 3d 927, 932 (M.D. Tenn. 2014).  The district court held that the meaning of “person” within Sections 1692d and 1692k did not extend to corporate plaintiffs and therefore, held than Anarion lacked statutory standing to sue under 15 U.S.C. §1692k.

On appeal, the sole issue was “whether Anarion is a “person” under 15 U.S.C. §1692k” and therefore had standing to assert an FDCPA claim.  Anarion, 2015 U.S. App. LEXIS 12670, *1.  The appellate court in reversing the district court relied upon the federal Dictionary Act which provides that the presumptive meaning of the word “person” includes artificial entities unless the context indicates otherwise.  In reviewing the FDCPA (and apparently ignoring the statutory’ s purpose), the appellate court relied upon the fact that several places within the FDCPA included artificial entities within its definition of person – for example, “creditor” and “debt collector” routinely include artificial entities.  Based upon these observations, the court held that the term “person” in 15 U.S.C. §1692k was broad enough to include corporate entities.

The opinion is troublesome and runs counter to the FDCPA’s purpose; however, it has limited application.   While the court clearly missed the mark in not noting that the references to artificial entities were all outward facing and did not involve parties protected by the Act and ignored the FDCPA’s purpose and history, the opinion is likely to be an outlier because the FDCPA only applies to consumer debts.  So how was the debt in this case considered a consumer debt when Anarion so clearly did not meet the definition of a consumer? Because the underlying debt was a mortgage of residential real property incurred by an individual who ultimately leased the property to Anarion’s assignor, the underlying debt was a “debt” as defined by the Act.   Again, a fairly unusual situation which is not likely to occur.   Moreover, while the court expanded the definition of “person” under 15 U.S.C. §1692k to include artificial entities, it was quick to point out that its opinion was limited solely to the narrow issue of who was a person for purposes of section 1692k.  “Left unanswered, among other questions, is the question whether any of defendants’ representations were made “with respect to” Anarion, as required for relief under §1692k(a) of the Act.”  Anarion, 2015 U.S. App. LEXIS 12670, *6.  Despite all of the limitations on the opinion’s application, the court’s decision is, as described the dissent, “cavalier” in response to a very real concern and “potentially opens the door to a new class of plaintiffs under the FDCPA and effectively provides a new cause of action in foreclosure appeals.” Id. at *16.

 

CFPB’s Bulletins Revisited: Oversight of Service Providers

From time to time, the CFPB issues Bulletins which reflect the CFPB’s expectations regarding covered institutions and covered business products.  When these are issued, they grab our attention for a time but then our focus changes to the next new thing.  We are now five years into the CFPB’s existence and as they say, hind sight is 20/20 vision.  Looking back, we can see the impetus these Bulletins have had on enforcement actions.  I thought it would be fun to revisit some of these Bulletins over the next few several weeks and see how they have been applied. 

In April of 2012, the CFPB issued a Bulletin on Service Providers.  CFPB Bulletin 2012-03 set forth the expectation that supervised entities oversee their business relationships with service providers in a manner which ensures their compliance with federal consumer financial laws.  The Bulletin makes clear that the supervised entity will be held responsible with its service providers for their service providers’ compliance with federal consumer financial laws.  Its expectations include not only specific statutory compliance, but also prohibits unfair, deceptive or abusive acts or practices. 

The Bulletin set forth a number of nonexclusive steps it expects covered institutions to take in managing their service providers:

• Doing due diligence to insure their service providers understand and are capable of complying with applicable consumer financial laws;
• Requesting and reviewing their service providers’ policies, procedures, internal controls, and training materials to insure their service providers are providing adequate training and oversight to insure compliance with applicable consumer financial laws;
• Providing contractual provisions in their vendor agreements that provide clear expectations of compliance, as well as appropriate and enforceable consequences for any failure to comply;
• Insuring that service providers are prohibited from unfair, deceptive or abusive acts or practices, as well as violations of specific federal consumer financial laws;
• Establishing internal controls and on-going audits and examinations of service providers to insure their continued compliance; and
• Taking prompt action to address problems identified through the monitoring process, including termination of relationships, if appropriate.

The CFPB has put this guidance to use in several of its bank enforcement actions and includes within its examination procedures requirements that their examiners include a review of examined entities’ policies and procedures to ensure the entity’s service providers are compliant.  It is likely that the CFPB will continue to use this approach and its general “unfair and deceptive” jurisdiction to expand enforcement actions to include entities which are not otherwise covered by the CFPB.