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  • 3rd Circuit says IRS reporting language may violate FDCPA

    Courts

    On September 24, the U.S. Court of Appeals for the 3rd Circuit reversed the district court’s dismissal of a putative class action alleging a debt collector violated the FDCPA by including a statement noting that debt forgiveness may be reported to the IRS. The case was centered on the plaintiffs’ claim that letters sent to collect on debts that were less than $600, which contained the language “[w]e are not obligated to renew this offer. We will report forgiveness of debt as required by IRS regulations. Reporting is not required every time a debt is canceled or settled, and might not be required in your case,” were “false, deceptive and misleading” under the FDCPA because only discharged debts over $600 are required to be reported to the IRS. The district court dismissed the action, concluding the letters were not deceptive and the least sophisticated consumer would interpret the statement to mean in certain circumstances some discharges are reportable but not all are reportable.

    Upon appeal, the 3rd Circuit disagreed with the district court, finding “the least sophisticated debtor could be left with the impression that reporting could occur,” notwithstanding the letter’s qualifying statement that reporting is not required every time a debt is canceled or settled, and therefore, the language could signal a potential FDCPA violation. Recognizing the industry’s regular use of form letters, the appeals court noted, “we must reinforce that convenience does not excuse a potential violation of the FDCPA.”

    Courts Third Circuit Appellate IRS FDCPA Debt Collection Class Action

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  • District Court partially dismisses student loan co-signer claims alleging violations of federal and D.C. debt-collection laws

    Courts

    On September 10, the U.S. District Court for the District of Columbia partially granted a student loan administrator’s and a law firm’s joint motion to dismiss, and granted a lender’s motion for judgment on the pleadings, in a case involving a student loan co-signer’s claims brought under the Fair Debt Collection Practices Act (FDCPA), D.C. debt collection statute, and state law. The court rejected the plaintiff’s argument that her claims were tolled and dismissed the FDCPA claims against the loan administrator and firm because they were time-barred. The court also dismissed the plaintiff’s claim that the firm and the lender violated several provisions of the D.C. debt collection statute, concluding that the plaintiff failed to allege sufficient facts to support an allegation that the defendants willfully violated the statute. However, the court found that the plaintiff included sufficient facts to support a claim under the D.C. statute against the loan administrator based on allegations that the administrator, among other things, (i) concealed its “lack of authorization to sue”; (ii) concealed the fact that it was acting as a collector without the authority to enforce the terms of the loan; and (iii) has a “long, well-documented history of filing debt collection lawsuits falsely claiming to be the lender and/or real party in interest.” Finally, the court held that plaintiff’s abuse of process and malicious prosecution actions failed to state a claim against any of the defendants.

    Courts Student Lending Debt Collection FDCPA State Issues

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  • Court finds no ECOA violation with credit union’s dispute-free credit report requirement

    Courts

    On August 28, the U.S. District Court for the Eastern District of Wisconsin dismissed an action against a credit union, holding that the credit union’s decision to consider only dispute-free credit reports of all applicants does not amount to a “prohibited basis” under the Equal Credit Opportunity Act (ECOA). According to the opinion, the credit union required the consumer to remove his disputed debts from his credit report in order for his application for a home equity loan to move forward. After the disputes were removed, the consumer’s credit score dropped below the minimum required by the credit union, and his application was denied. In December 2017, the consumer brought an action against the credit union, alleging that he was discriminated against in violation of ECOA for exercising his dispute rights under the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA). The court rejected the consumer’s arguments, concluding that the FDCPA and the FCRA do not give a consumer a right to dispute debts, but rather a right to ensure that disputed debts are accurately reported as such. The court also rejected the consumer’s theory of recovery under ECOA, finding that his arguments were inconsistent with ECOA’s implementing regulation, Regulation B. The court determined that Regulation B allows a creditor to restrict the types of credit history that it will consider if the restrictions are applied to all applicants without regard to a prohibited basis. Because the dispute-free restriction was applied to all applicants of the credit union equally, the consumer’s claim failed.

    Courts ECOA FCRA FDCPA Regulation B Consumer Finance

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  • 1st Circuit holds homeowners who defaulted on an allegedly unlicensed mortgage loan cannot escape time bars for their claims

    Courts

    On August 23, the U.S. Court of Appeals for the 1st Circuit held that homeowners who defaulted on a refinance loan on their Massachusetts property could not void the transaction or enjoin their property’s foreclosure sale. The appellate court determined that the homeowners’ claims that the lender violated the Fair Debt Collection Practices Act, the Real Estate Settlement Procedures Act, the Truth in Lending Act, and the Massachusetts consumer protection statute were all time-barred. The homeowners argued that the statute of limitations never began to run because the lender was not licensed to lend money in the state, making the original note and mortgage “akin to forgeries and thus ‘void ab initio,’” but the court held that there was “no authority for this unusual proposition.” The court also refused to toll the limitations period under the doctrine of fraudulent concealment, which requires the plaintiff “to make a threshold showing of due diligence,” because the homeowners filed their claims more than five years after they retained counsel and ten years after they granted the mortgage at issue.

    Courts Appellate First Circuit Mortgages Licensing FDCPA RESPA TILA

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  • 7th Circuit holds, without written appearance by attorney, law firm did not violate FDCPA by serving debtor directly

    Courts

    On August 21, the U.S. Court of Appeals for the 7th Circuit held that a law firm did not violate the FDCPA by serving a debtor a default motion because his attorney had not yet become the “attorney of record” under Illinois Supreme Court Rule 11 (Rule 11). According to the opinion, after being sued by the law firm on a creditor’s behalf, the debtor appeared pro se and later retained an attorney to represent her. The law firm moved for summary judgment and served the motion to the debtor and to the debtor’s new attorney, who had not yet filed a written appearance. The debtor alleged the law firm violated the FDCPA by contacting her while represented by counsel. The lower court entered summary judgment in favor of the debtor. Disagreeing with the lower court, the 7th Circuit reversed, finding that Rule 11 gave “‘express’ judicial ‘permission’ to serve the default motion directly on [the debtor]” from “a court of competent jurisdiction” as required by the FDCPA— which prohibits a debt collector from directly contacting a debtor who is represented by counsel absent “express permission” ." The panel noted that Illinois precedent makes it clear that under Rule 11, a lawyer can only become an attorney of record by filing a written appearance or other pleading with the court. Because a written appearance had not yet been made, the panel reasoned, Rule 11 expressly permitted the law firm to serve the debtor directly and therefore, the firm did not violate the FDCPA.

    Courts Seventh Circuit Debt Collection FDCPA

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  • 3rd Circuit reverses dismissal of FDCPA action over voicemail

    Courts

    On August 22, the U.S. Court of Appeals for the 3rd Circuit reversed the dismissal of a putative class action claim alleging a debt collector violated the FDCPA when it used an “alternative business name” in a voicemail. According to the opinion, the consumers allege the debt collector violated three sections of the FDCPA by leaving voicemail messages identifying itself by a different business name than the company’s corporate name. The lower court dismissed all three FDCPA claims for failure to state a claim. The panel affirmed the dismissal as to two counts of the amendment complaint, but reversed as to the third, finding that the consumers stated a plausible claim that the debt collector violated the FDCPA’s “true name” provision. The panel cited to FTC interpretive guidance, which notes a company may use a name other than its registered name so long as “it consistently uses the same name when dealing with a particular consumer.” The court found that the alternative name used in the voicemails is “neither [the company]’s full business name, the name under which it usually transacts business, nor a commonly used acronym of its registered name” and the name used is actually associated with other debt collection companies. Therefore, the consumers stated a plausible claim under the “true name” provision of the FDCPA. 

    Courts Third Circuit FDCPA Debt Collection

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  • 9th Circuit holds plaintiff must establish defendant’s net worth to seek damages under FDCPA

    Courts

    On August 20, the U.S. Court of Appeals for the 9th Circuit held that the plaintiff bears the burden of establishing a defendant’s net worth when seeking an award of class statutory damages in an FDCPA action. The appeals court affirmed the lower court’s dismissal of the plaintiff’s class action, which alleged a law firm’s letters violated the FDCPA by using “false, deceptive, or misleading representation[s].”  The panel found that the language of the FDCPA’s class statutory damages provision—"not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector"— makes it clear that a defendant’s net worth is a prerequisite to establishing statutory damages. The court noted that the FDCPA is silent as to which party bears the burden, but the “ordinary default rule” establishes the burden upon the party seeking relief and there is no reason to believe Congress intended otherwise under the FDCPA. The court rejected the plaintiff’s argument that because the defendant has “superior access” to the evidence of net worth, it must bear the burden because it is “not uniquely difficult for consumer plaintiffs to acquire the debt collector’s financial information.” Because the plaintiff failed to present evidence of the law firm’s net worth, the 9th Circuit concluded the lower court was correct in dismissing the action.

    Courts Ninth Circuit FDCPA Damages

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  • 7th Circuit reverses district court, holds settlement with debt collector moots claims against law firm

    Courts

    On August 13, the U.S. Court of Appeals for the 7th Circuit vacated a district court’s decision, holding that a consumer who settled with a debt collector is not entitled to pursue Fair Debt Collection Practices Act statutory damages claims against the debt collector’s law firm. Under the single recovery for a single injury principle, a consumer can only obtain one recovery for a single injury “regardless of how many defendants could be liable for that single injury, or how many different theories of recovery could apply to that single injury.” In this instance, the consumer settled the claim with the debt collector for $5,000 plus release of the consumer’s original debt. The consumer later sued the debt collector’s law firm, spending over $69,000 on attorneys’ fees to argue that the law firm filed suit to collect the debt in the wrong court. While the district court ordered the law firm to pay the attorneys’ fees to the consumer, the 7th Circuit reversed, holding that the settlement with the creditor rendered the consumer’s claim against the law firm moot and thus the consumer could not recover attorneys’ fees or costs.

    Courts Seventh Circuit Appellate FDCPA Debt Collection

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  • 3rd Circuit holds unpaid highway tolls are not “debts” under the FDCPA

    Courts

    On August 7, the U.S. Court of Appeals for the 3rd Circuit held that unpaid highway tolls are not “debts” under the FDCPA because they are not transactions primarily for a “personal, family, or household” purpose. According to the amended class action complaint at issue in the case, after a consumer’s electronic toll payment system account became delinquent, a debt collection agency sent notices containing the consumer’s account information in the viewable display of the notice envelope. The consumer filed suit alleging the collection agency violated the FDCPA. While the lower court held that the consumer had standing to bring the claim, it dismissed the action on the ground that the unpaid highway tolls fell outside the FDCPA’s definition of a debt. The 3rd Circuit affirmed the lower court’s decision. On the issue of standing, citing the Supreme Court’s 2016 ruling in Spokeo, Inc. v. Robins (covered by a Buckley Sandler Special Alert), the panel reasoned that the exposed account number “implicates a core concern animating the FDCPA—the invasion of privacy” and is a legally cognizable injury that confers standing. The panel agreed with the consumer that the obligation to pay the highway tolls arose out of a “transaction” for purposes of the FDCPA because he voluntarily chose to drive on the toll roads, but found the purpose of the transaction was “public benefit of highway maintenance and repair”—not the private benefit of a “personal, family, or household” service or good as required by the FDCPA. Moreover, the court concluded that while the consumer chose to drive on the roads for personal purposes, the money being rendered was primarily for public services, as required by the statute to collect tolls “to acquire, construct, maintain, improve, manage, repair and operate transportation projects.”

    Courts Third Circuit Appellate FDCPA Debt Collection Spokeo U.S. Supreme Court

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  • 3rd Circuit says business meets “principal purpose” definition of collector under the FDCPA

    Courts

    On August 7, the U.S. Court of Appeals for the 3rd Circuit held that a company using the mail and wires to collect “any debts” meets the “principal purpose” definition under the FDCPA. According to the opinion, after homeowners defaulted on a home equity line of credit, the debt was sold and the mortgage assigned to a company whose sole business is the purchase of debts entered into by third parties and collecting on those debts. After several attempts to collect the debt, the company filed a foreclosure action in Pennsylvania. The homeowners contacted the company requesting loan statements to resolve the debt but the company refused to provide statements. The homeowners later received a collection email with an even higher amount than previously communicated and filed an action alleging the company violated the FDCPA. The lower court rejected the company’s arguments that it was not a debt collector under the FDCPA’s “principal purpose” definition—any person “who uses any instrumentality of interstate commerce or the mails in any business, the principal purpose of which is the collection of any debts”—and held that the company violated the act.

    The company appealed, challenging the lower court’s determination that it met the definition of debt collector, instead arguing it was a “creditor.” The 3rd Circuit, following the plain text of the FDCPA, held that “an entity whose principal purpose of business is the collection of any debts is a debt collector regardless whether the entity owns the debts it collects.” Affirming the lower court’s determination, the appellate panel disagreed with the company, reasoning that the company admitted its sole business is collecting purchased debts and it uses “mails and wires for its business,” such that it could be “no plainer” that the company fits the “principal purpose” definition under the FDCPA.

    Courts Third Circuit Appellate FDCPA Debt Collection

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