InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
DFPI orders deceptive debt collectors to desist and refrain, pay penalties
On October 23, DFPI announced enforcement actions against four debt collectors for engaging in unlicensed debt collection activity, in violation of Debt Collection Licensing Act and unfair, deceptive, or abusive acts or practices, in violation of the California Consumer Financial Protection Law. In its order against two entities, the department alleged that the entities contacted at least one California consumer and made deceptive statements in an attempt to collect a payday loan-related debt, among other things. In its third order against another two entities, DFPI alleged that a consumer was not provided the proper disclosures in a proposed settlement agreement to pay off their debts in a one-time payments. Additionally, DFPI alleged that the entity representatives made a false representation by communicating empty threats of an impending lawsuit.
Under their orders (see here, here, and here), the entities must desist and refrain from engaging in illegal and deceptive practices, including (i) failing to identify as debt collectors; (ii) making false and misleading statements about payment requirements; (iii) threatening unlawful action, such as a lawsuit, because of nonpayment of a debt; (iv) contacting the consumer at a forbidden time of day; (iv) making false claims of pending lawsuits or legal process and the character, amount, or legal status of the debt; (v) failing to provide a “validation notice” ; and (vi) threatening to sue on time-barred debt.
The entities are ordered to pay a combined $87,500 in penalties for each of the illegal and deceptive practices.
CFPB releases education ombudsman’s annual report
On October 20, the CFPB Education Loan Ombudsman published its annual report on consumer complaints submitted between September 1, 2022, and August 31, 2023. The report is based on approximately 9,284 student loan complaints received by CFPB regarding federal and private student loans. Roughly 75 percent of complaints were related to federal student loans while the remaining 25 percent concerned private student loans. Overall, the report found underlying issues in student loan servicing that threaten borrowers’ ability to make payments, achieve loan cancellation, or receive other protections to which they are entitled under federal law. The report indicated that challenges and risks facing federal student loan borrowers include customer service problems, errors related to basic loan administration, and problems accessing loan cancellation programs. Similarly, private borrowers face issues accessing loan cancellation options, misleading origination tactics, and coercive debt collection practices related to private student loans.
The Ombudsman’s report advised policymakers, law enforcement, and industry participants to consider several recommendations: (i) ensuring that federal student loan borrowers can access all protections intended for them under the law; (ii) ensuring that loan holders and servicers of private student loans do not collect debt where it may no longer be legally owed or previously discharged; and (iii) using consumer complaints to develop policies and procedures when they reveal systemic problems.
3rd Circuit Limits furnishers’ labeling authority
On October 2, the U.S. Court of Appeals for the Third Circuit ruled that a collection agency who was acting as a furnisher of credit reporting information could not shirk its duty to investigate a dispute by labeling the dispute “frivolous” when the complaint was referred for investigation by a credit reporting agency (CRA). The decision overturned the lower court’s ruling which had sided with the furnisher.
According the ruling, the plaintiff in this action claimed that a fraudulent account had been opened in his name with a television service provider. Plaintiff was described as having first disputed the account directly with the television service provider, but failed to provide supporting documents which the television service provider had requested. Following the plaintiff’s failure to provide the requested documentation, the television service provider referred the disputed account to the collection agency, who in turn reported the delinquent account to the CRA.
The ruling states that when the disputed account appeared on the plaintiff’s consumer report, the plaintiff made an indirect dispute of the information with the CRA, who in turn forwarded the dispute to the collection agency for investigation. The ruling notes that the collection agency undertook no further investigation in response to the dispute, and instead merely confirmed the account information and updated the plaintiff’s address, which the court noted took only 13 seconds.
The court noted that although the FCRA does allow for the recipient of disputes “to preliminarily vet the dispute for frivolousness or irrelevance before investigating,” once a CRA has referred a dispute to a furnisher, “the furnisher does not have such discretion.” Because in this case the collection agency had been referred to it by a CRA, it “had a duty to investigate [plaintiff’s] indirect dispute when it received notice thereof from [the CRA].”
NY proposes amendments of debt collector rules
On September 30, the New York City Department of Consumer and Worker Protection (Department) published proposed amendments to its rules relating to debt collectors. The proposed amendments to its 2020 rules, which require debt collectors to inform consumers about language access services, come in response to the CFPB’s 2020 updates to the FDCPA, and the Department’s 2022 public hearing, among other things. The proposed rule (i) repeals a section requiring debt collection agencies to give consumers certain disclosures when collecting on time-barred debt; (ii) requires debt collection agencies to maintain an annual report identifying certain actions taken by the agency in any language; (iii) expands the list of required records to cover compliance with relevant laws and rules, as well as a monthly log of all debt collection-related communications by any medium between the agency and the consumer; and (iv) adds definitions relating to communications with consumers, such as “attempted communication,” “clear and conspicuous,” “covered medical entity,” “limited-content message,” “original creditor” and “originating creditor.”
CFPB shares concerns and actions regarding medical debt collection
On October 4, Seth Froman, the CFPB’s General Counsel and senior advisor to Director Chopra, delivered remarks at the New Jersey Citizen Action Education Fund’s Financial Justice Summit. He heralded the work and mission of the CFPB, and focused on the impact of medical debt. He emphasized the CFPB’s concerns that families are being “saddled with medical bills they should not – or do not – owe,” and mentioned a recent enforcement action ordering a medical debt collector to pay more than a million dollars in penalties and redress “because the collector continued to collect on debts without verifying that they were valid after consumers disputed them.” He further discussed the impact of medical bills on consumer credit, such that consumers have a “strong incentive to pay the medical bill, even when they think it’s not the right amount or don’t owe it at all.”
Court infers receipt of validation notice to allow pro se plaintiffs’ FDCPA claim to survive
On September 19, the U.S. District Court for the Eastern District of New York granted in part and denied in part a complaint filed by two pro se plaintiffs who alleged that the defendant’s debt collection efforts related a balance due from a timeshare membership program violated the FCRA, TILA, and FDCPA. In reaching its decision, the court explained that complaints filed by pro se pleadings must be construed more liberally than those drafted by lawyers. Notwithstanding this more liberal approach, however, the court still determined that plaintiffs’ TILA and FCRA claims were insufficiently pled. With respect to the TILA claim, the court stated that plaintiffs failed to specify which provisions were allegedly violated and only alleged that “Defendant has computed and imposed an internal alleged account balance on plaintiff including principal balance, interest rates, fees and terms without property consumer transparency of mode of accounting verification methods,” which was insufficient to allege a TILA violation. The court noted that to the extent it could interpret plaintiffs’ complaint to implicate specific provisions of the FCRA, plaintiffs still failed to state claim under any of the potentially relevant provisions, either because there was no private right of action or there were no facts supporting any alleged claims.
By contrast, plaintiffs did allege specific provisions of the FDCPA that defendant’s conduct purportedly breached. While the court still concluded that plaintiffs failed to state a claim with regard to most of the cited FDCPA provisions, it determined that plaintiffs had plausibly stated a claim under 15 U.S.C. § 1692g, which, among other things, requires a debt collector to cease debt collection efforts if, within 30 days of receiving a validation notice from the debt collector, a consumer disputes the debt or any portion thereof.
Although the record did not reflect whether the defendant had sent plaintiffs a validation notice, the court, in liberally construing plaintiffs’ complaint, found it reasonable to “infer” that such notice had been provided to the plaintiffs. Specifically, the court reasoned that plaintiffs’ notarized letter to defendant, titled “Validation of Debt / Claim” was likely sent in response to a validation notice from defendant, and therefore, under Section 1692g, all collection activity should have ceased following receipt of plaintiffs’ letter.
9th Circuit affirms summary judgment finding in favor of debt collector in lawsuit over retail card debt collection
On August 28, the U.S. Court of Appeals for the Ninth Circuit affirmed the decision of a district court to throw out a pair of consolidated punitive class action lawsuits brought against a nationwide debt collector company that alleged the company unlawfully attempted to collect debts incurred on retail-branded credit cards. A three-judge panel held that the debt collector did not “intentionally” violate provisions of the FDCPA when it circulated collection letters that did not disclose the time-barred natures of the debts under Oregon law and rejected the plaintiff’s argument that the district court had erred in granted summary judgment in favor of the company. The 9th Circuit noted that “mistakes about the time-barred status of a debt can be bona fide errors” and that the debt collector company presented evidence indicating that its failure to disclose that certain Oregon debts were time-barred were not intentional. Moreover, the 9th Circuit rejected plaintiff’s claim that a four-year statute of limitations applied to store-branded credit card accounts at the time the collection letters were sent, in part because the debt collector had sound reason to take the position that a six-year statute of limitations applied for an “account stated” under Oregon law. Ultimately, the applicable statute of limitations in this scenario remains “unsettled” under Oregon law. This, along with the fact that the 9th Circuit agreed that the company’s alleged violations were unintentional, resulted in the court’s decision to affirm the summary judgment finding in favor of the debt collector.
California appeals court reverses dismissal of Rosenthal Act class action
On August 30, a California Appeals Court (Appeals Court) reversed a lower court’s ruling that a mere alleged debt, whether or not actually due or owing – as opposed to a debt that is, in fact, actually due or owing – is insufficient to state a claim under the Rosenthal Fair Debt Collection Practices Act (Rosenthal Act). Enacted in 1977, the Rosenthal Act aims “to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts.” Plaintiff purchased a home with a previously-installed solar energy system. The previous homeowner and plaintiff reached an agreement whereby the prior homeowner would purchase the energy produced through the system through monthly payments. However, the defendant, the provider of the solar energy system, sent late payment notices to plaintiff demanding that he make monthly payments. Although plaintiff did not engage in a “consumer credit transaction” with the defendant, the Appeals Court found that the plaintiff’s receipt of statements and notices from the defendant constituted money “alleged to be due or owing,” as required to state a claim under the Rosenthal Act. In holding that the plaintiff’s claim “has merit,” the Appeals Court emphasized that the Rosenthal Act was specifically designed to “eliminate the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid,” and “[i]t is difficult to conceive of a more unfair debt collection practice than dunning the wrong person”.
District Court denied motion to dismiss CFPA and FDCPA claims against debt buyers
On August 22, the U.S. District Court for the Western District of New York refused to dismiss CFPA and FDCPA claims brought by the CFPB that alleged violations related to misrepresentations made to debtors by debt collectors. The CFPB’s complaint alleged that defendants purchased defaulted consumer debt and then placed it for collection with, or sold it to, a network of debt collectors who consistently violated consumer protection laws by making false statements to debtors. These false statements included informing consumers that (i) they would be sued for failing to pay the debts; (ii) that their credit score would be impacted by paying or not paying the debt; and (iii) that they could face criminal charges for failing to pay the debt. The complaint additionally alleged that defendants were aware of the allegedly unlawful acts by the debt collectors they used through monitoring of the debt collectors and consumer complaints made to defendants.
The CFPB’s complaint alleged violations against a variety of corporate entities responsible for the alleged debt collection practices, as well as individual executives at those entities. Defendants moved to dismiss the complaint on several grounds. The defendants argued that they are not “covered persons” under the CFPA, because they do not actually collect debts themselves. The district court held that the defendants were “covered persons” under the CFPA since they were engaged in the collection of consumer debt, writing that it would “strain ordinary understanding to say that a company is not engaged in collecting debt when it purchases defaulted debt, places that debt with other companies for collection, and then receives some of the money recovered by those debt collectors.” Similarly, the defendants argued that they are not “debt collectors” under the FDCPA. The court also rejected this argument, reasoning that defendants’ principal purpose was debt collection making them a “debt collector” for FDCPA purposes, because they purchased portfolios of debts and derived most of their revenue from collecting those debts.
The district court also rejected defendants’ arguments that they could not be held vicariously liable for the conduct of the third-party debt collectors under the CFPA or FDCPA, reasoning that parties can be found vicariously liable for the acts of their agents under both statutes. The court held that because the CFPB’s complaint alleged that the defendants exercised authority over the debt collectors, vicarious liability for the violations by the debt collectors was appropriate.
The district court further held that the complaint adequately alleged violations of the CFPA by the individual defendants. The court held that the individual defendants enabled violations of the CFPA, relying on the fact that the individual defendants had both knowledge of the violations and the ability to control the violations, by either providing instructions to the debt collectors or by refusing to place debts with those collectors. Further, the court held that the individual defendants could be liable for “substantially assisting” violations of the CFPA, because the complaint alleged that the individual defendants recklessly disregarded unlawful behavior by the debt collectors and continued to place or sell debts to those collectors.
Finally, defendants also argued that both the CFPA and the FDCPA claims are time barred by the statute of limitations. The court rejected the defendants’ argument that the CFPB’s FDCPA claims were barred by the FDCPA’s one-year statute of limitations, holding that this provision applies only to private plaintiffs. The court held that FDCPA claims brought by the CFPB are subject to the CPFA’s statute of limitations, which bars claims brought more than three years after the CFPB’s discovery of the violations. The court further rejected the defendants’ argument that the claims were barred by this three-year statute of limitations, holding that it is unclear from the complaint when the CFPB became aware of facts constituting the violation and that the receipt of a consumer complaint by the CFPB will not necessarily constitute the date that the CFPB discovered or should have discovered the facts constituting the violation.
CFPB reports on New Mexican consumers’ complaints
On August 10, the CFPB posted a blog entry sharing insights into medical debt and junk fees in New Mexico in advance of CFPB Director Rohit Chopra’s scheduled meeting with New Mexico elected officials this week. The blog entry noted that the CFPB’s public consumer complaint database contains more than 11,600 complaints from New Mexicans, primarily focused on issues with credit products, consumer reporting, and debt collection. The CFPB indicated that almost 18 percent of New Mexico’s population had medical debt (totaling ~$881 million) and the average amount owed per individual is $2,692. Building on the CFPB’s recent hearing on medical billing and collections (covered by InfoBytes here), the CFPB stated that “along with several other states, New Mexico has alerted the CFPB to its concern about fees that consumers are routinely compelled to pay to access consumer financial services or forced to pay for services they do not want.”