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


    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


    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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  • CFPB denies debt collector’s petition to set aside CID

    Federal Issues

    On July 23, the CFPB denied a petition by a debt collector to modify or set aside a civil investigative demand (CID) issued by the Bureau in September 2017. The CID requested information from the debt collector “to determine whether debt collectors, depository institutions, or other persons have engaged or are engaging in unlawful acts and practices in connection with the collection of debt. . . .” The debt collector petitioned the Bureau to set aside or modify the CID, which requests were denied. The Bureau rejected the company’s argument that the CID should be set aside because the purported violations of the Fair Debt Collection Practices Act are not actionable under the “bona fide error rule.” The order emphasizes that the Bureau is not required to establish there was a violation of law in order to issue a CID, and the debt collector’s arguments “prematurely assert substantive defenses to claims the Bureau has not yet asserted.” The order also rejects the company’s argument that the CID be modified because certain requests are “disproportionate” and would impose an undue burden on the company, requiring the manual review of numerous audio files, which the Bureau denies because “[c]onclusory allegations of burdensomeness are insufficient.” The Bureau did allow for some of the information in the petition to be redacted because it could constitute confidential supervisory information but denied the request for confidential treatment of the rest of the materials.

    Federal Issues CFPB CIDs Debt Collection FDCPA

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  • 6th Circuit cites Spokeo, but holds plaintiffs alleged sufficient harm from deficient debt collection letters


    On July 30, the U.S. Court of Appeals for the 6th Circuit held that consumers had standing to sue a debt collector whose letters allegedly failed to instruct them that the Fair Debt Collection Practices Act (FDCPA) makes certain debt verification information available only if the debt is disputed “in writing.” The court found that these alleged violations of the FDCPA presented sufficiently concrete harm to satisfy the “injury-in-fact” required for standing under Article III of the Constitution.

    The debt collector had filed a motion to dismiss in the lower court, arguing that the putative class action plaintiffs lacked Article III standing under the Supreme Court’s 2016 ruling in Spokeo, Inc. v. Robins (covered by a Buckley Sandler Special Alert). The district court denied the motion, determining that the letters “created a ‘substantial’ risk that consumers would waive important protections afforded to them by the FDCPA” due to the insufficient instructions. The 6th Circuit affirmed. After analyzing Spokeo, the court agreed that the “purported FDCPA violations created a material risk of harm to the interests recognized by Congress in enacting the FDCPA,” namely the risk of unintentionally waiving the verification and suspension rights afforded by the FDCPA when a debt is disputed.

    Courts Appellate Sixth Circuit Spokeo Debt Collection Debt Verification FDCPA

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  • 2nd Circuit reverses district court, holds fair debt collection claim can proceed when dispute notice is included


    On July 27, the U.S. Court of Appeals for the 2nd Circuit held that a lower court erred when it concluded that a consumer was prevented from alleging violations of the Fair Debt Collection Practices Act where a debt collector sought payment on a previously settled debt because the debt collector had included a notice of the right to dispute the debt, which the consumer did not exercise. According to the 2nd Circuit panel, the consumer plausibly argued that consumers could be misled by collection notices that misstate debts whether or not there is an option to dispute the debt, especially because the debt collector told her it might report her account information to credit bureaus. “A least sophisticated consumer who was so advised might understand her right to dispute the misstated debt but, nevertheless, pay the debt out of fear that there was already an adverse effect on her credit that would continue as long as the obligation remained outstanding,” the panel opined. Moreover, a debt dispute notice does not preclude claims for misrepresenting the debt. The appellate court vacated the lower court’s judgment and remanded for further proceedings.

    Courts Debt Collection FDCPA Appellate Second Circuit

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  • District court dismisses CFPB suit against law firm over debt collection letters


    On July 25, the U.S. District Court for the Northern District of Ohio entered judgment against the CFPB in its lawsuit against a law firm that had previously collected debts for the State of Ohio under the direction of former Ohio Attorney General and Bureau Director Richard Cordray. The Bureau’s claims focused on whether demand letters sent on firm letterhead were misleading if attorneys were not meaningfully involved in preparing those letters. As previously covered in InfoBytes, the CFPB sought a permanent injunction and fines against the law firm for violating the Fair Debt Collection Practices Act and the Consumer Financial Protection Act. However, according to the court’s memorandum opinion and order following a May 2018 trial, the Bureau did not meet its burden of supporting its claims by a preponderance of the evidence because, even if attorneys did not review every account before a demand letter was sent, attorneys were “meaningfully and substantially involved in the debt collection process both before and after the issuance of demand letters.” The court also concluded that the Bureau’s expert witness “did not present credible evidence from which the finder of fact could infer that any consumer’s [sic] were misled by [the firm’s] demand letter,” and therefore there was “no evidence that any consumer’s decision on when and whether to pay a debt was influenced by the inclusion of the attorney identifiers in [the firm’s] demand letters.” Instead, in the court’s words, “[t]he demand letters accurately describe the identity and legal description of the entity sending the letter. As such, it cannot be described as false or misleading simply for correctly identifying [itself] as a law firm.”  The court entered judgment against the Bureau on all counts and assessed all the costs of the action to the Bureau.

    Courts CFPB Debt Collection FDCPA CFPA

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  • FTC and New York Attorney General reach deal with debt collection firm


    On July 20, the U.S. District Court for the Western District of New York issued a judgment to resolve a suit brought by the FTC and the New York Attorney General against a debt collection firm and an affiliated officer (defendants) accused of allegedly engaging in deceptive and abusive practices, including unlawfully threatening to arrest consumers if debts were not paid. (See previous InfoBytes coverage here.) Under the stipulated final order for permanent injunction and settlement of claims pursuant to the FTC Act and the Fair Debt Collection Practices Act, the defendants—who have not admitted to the allegations—are held jointly and severally liable for paying the more than $22.5 million under a suspended judgment should it ever be determined that the financial disclosures provided to the state and the FTC were not completely truthful, accurate, or complete. The defendants are also banned from the debt collection industry and required to file compliance reports with the FTC. The judgment further authorizes the receiver to liquidate the debt collection firm’s assets.

    Courts FTC State Attorney General Debt Collection FTC Act FDCPA

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  • District court dismisses FDCPA suit, rules least sophisticated debtor would not be misled by placement of dispute language


    On July 18, the U.S. District Court for the District of New Jersey dismissed a class action lawsuit alleging a debt collector failed to provide clear instructions that debt disputes must be submitted in writing in order to be valid as required under the Fair Debt Collection Practices Act (FDCPA). According to the opinion, the plaintiff claimed that the debt collection company misled her into believing she could orally dispute her debt by placing phrases such as “Should you have any questions regarding this account, please feel free to call us” on a debt collection notice she received. However, the debt collector argued that instructions in the notice, which provided the consumer with her rights under the FDCPA, could not be overshadowed or contradicted by including a phone number. The court agreed, referencing two 3rd Circuit cases as precedent, and stated that “merely providing contact information and encouraging a telephone call are insufficient standing alone to undermine an otherwise clear validation notice.” In this instance, the notice “only invites her to call if she has general questions regarding the account.” Furthermore, according to the judge, even the least sophisticated debtor would not be misled by a phone number listed separately from dispute instructions.

    Courts FDCPA Debt Collection Class Action

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  • 8th Circuit reverses district court’s decision, rules compound interest not contractually agreed upon violates FDCPA


    On July 16, the U.S. Court of Appeals for the 8th Circuit reversed a district court’s decision, holding that under Minnesota law, compound interest cannot be collected unless specifically agreed to in a contract. The decision results from a suit filed by a consumer alleging that a law firm violated the Fair Debt Collection Practice Act (FDCPA) when it sent a debt collection letter seeking payment of credit card debt while asserting that the consumer owed compound interest. The consumer’s suit alleged that the debt’s owner, debt collector, and law firm (defendants) “used a false, deceptive, or misleading representation or means . . . and an unfair or unconscionable means” when attempting to collect the debt. Specifically, the consumer alleged the principal balance included interest on the contractual interest—which he claimed he did not agree to in the underlying credit card agreement—and that as a result, the defendants misrepresented the amount of debt and attempted to collect interest that was not permitted under Minnesota law. The district court dismissed the consumer’s claim, finding that he failed to state an FDCPA claim because he did not allege a materially false statement in the collection letter. The 8th Circuit reversed however, finding that the consumer stated a claim under the FDCPA because a demand to pay an amount of debt that is unauthorized under state law is actionable as a false statement or unfair collection attempt, and that a false representation of the amount of a debt that overstates what is owed under state law is a material violation of the FDCPA. The appellate court also rejected the law firm’s argument that there was no FDCPA violation because the agreement authorized the total amount of interest stated in the letter, further declining to calculate the interest under the credit-card terms provided by the law firm because the consumer had contested the terms as unauthenticated.

    Courts Appellate Eighth Circuit FDCPA Debt Collection Consumer Finance

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  • 9th Circuit holds that judicial foreclosure proceedings to collect unpaid HOA fees is debt collection under FDCPA


    On June 25, the U.S. Court of Appeals for the 9th Circuit held that judicial foreclosure proceedings to collect delinquent assessments and other charges that were owed to a homeowners association (HOA) represented by a law firm that was also a defendant in the case constitute “debt collection” under the Fair Debt Collection Practices Act (FDCPA). The decision results from unpaid assessments owed to the HOA that had previously been settled in two prior suits. However, the homeowner (plaintiff-appellant) defaulted on both settlement agreements, and foreclosure proceedings commenced due to an acknowledgment contained within the second agreement, which recognized the HOA’s right to collect the debt by foreclosing on and selling her property. According to the order, the 9th Circuit first drew a distinction between judicial foreclosures and nonjudicial foreclosures. Nonjudicial foreclosures, the 9th Circuit opined, are not debt collections under the FDCPA because, under California law, they present no possibility of a deficiency judgment against the homeowner and recover nothing from the homeowner. However, the Court held that in this case, the judicial foreclosure created the possibility for a deficiency judgment against the homeowner and subsequent collection of money. Furthermore, since the law firm regularly collected debts owed to others, it was a debt collector, and the lower court’s contrary decision “cannot be reconciled with the language of the FDCPA.” The 9th Circuit reversed the lower court’s ruling that the defendants were not engaged in “debt collection” as defined by the FDCPA.

    However, because the lower court granted summary judgment to the defendants, it did not assess whether the plaintiff-appellant had suffered any damages from her claim that the defendants “misrepresented the amount of her debt and sought attorneys’ fees to which they were not entitled” during judicial proceedings. The 9th Circuit held that the law firm’s application for a writ of special execution included “accruing attorney fees,” implying that the fees had been approved by a court, as required by state law, when they had not. The 9th Circuit noted that the state trial court’s subsequent approval of the fee request did not mean the representation was accurate when it was made. The 9th Circuit remanded to allow the lower court to determine what damages, if any, were due the homeowner due to this violation.

    In a separate memorandum disposition, the 9th Circuit, however, affirmed in part the lower court’s order granting the defendants’ motion for summary judgment concerning the plaintiff-appellant’s time-barred claims, holding that “even the ‘least sophisticated debtor’ would not likely be misled by the communication—and lack of communication—at issue here, as Plaintiff cannot have reasonably believed that she had paid off the debt in question.”

    Courts Appellate Ninth Circuit Debt Collection Foreclosure FDCPA

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