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Minnesota fines debt collector for violating earlier consent order
Recently, the Minnesota Department of Commerce issued a consent order assessing $20,000 in fines to a debt collector accused of violating a 2020 consent order. The state previously entered into a consent order with the debt collector, in which it agreed to cease and desist from violating the FDCPA and state law after it was found to have, among other things, commingled funds and allowed agents to work from unlicensed branch locations. The state later found that the debt collector allegedly continued to violate state and federal law by collecting on payday loans from unlicensed lenders and failing to provide meaningful disclosures on telephone calls or register several of its agents as debt collectors in the state. As a result, the state ordered the debt collector to pay the stayed portion of the 2020 fine ($19,000), as well as a $25,000 civil penalty of which $24,000 is stayed. If the stay has not been lifted by December 31, 2025, the remaining portion of the civil penalty will be vacated provided the debt collector does not commit any further violations.
CFPB updates debt collection FAQs
On July 27 the CFPB added a new section to the Debt Collection Rule Frequently Asked Questions (FAQs), which address questions related to the electronic communication and unusual or inconvenient time and place provisions in the Debt Collection Rule.
Creditors release statement on Ukraine
On July 20, the Group of Creditors of Ukraine issued a joint statement regarding coordinated suspension of debt services for Ukraine through 2023, as the Russian invasion continues. According to the statement, the group noted that it would also consider the possibility of deferral for an additional year beyond 2023. The statement granted Ukraine’s request for deferral given the “exceptional circumstances, and acknowledging Ukraine’s exemplary track record of honoring debt service to date,” also “strongly encourage[s] all other official bilateral creditors to swiftly reach agreement with Ukraine on a debt service suspension.”
District court partially grants summary judgment in FDCPA suit
On July 12, the U.S. District Court for the Northern District of Alabama partially granted a plaintiff’s motion for summary judgment in an FDCPA case. According to the memorandum opinion, the plaintiff purchased a home security system, which, after a period of time, she transferred to someone else. The account became delinquent and the plaintiff began receiving collection letters from a debt collection agency regarding the debt owed to the security company. The plaintiff filed for bankruptcy protection. More than two years later, the debt collection agency assigned plaintiff’s account to the defendant for collection. The plaintiff contended that the defendant violated the FDCPA because when it contacted her – via a text message and several alleged telephone calls – to collect a debt on behalf of the debt collection agency, she was a party to Chapter 13 bankruptcy proceedings in which the alleged debt was listed. The defendant argued that the text message was not an attempt to collect on the debt because it made no demand or request for payment. The district court disagreed, based on the “plain language” of the text message, which stated, “This communication is from a debt collector, this is an attempt to collect a debt.” The text message also referenced a specific debt, thus making the text a “false representation” because it asserted that money was due. The defendant also argued that it should be entitled to the FDCPA’s bona fide error defense. The district court found that the defendant’s actions were “not intentional,” stating that “[w]hen it sent the text message, [the defendant] was not aware that [the plaintiff] had filed for bankruptcy or was represented by an attorney in connection with the debt.” The district court continued, “Moreover, [the plaintiff] had not notified [the defendant] in writing that she refused to pay the debt or that she wished communications to cease. Thus, [the defendant] did not deliberately contact a debtor who had filed for bankruptcy, was represented by an attorney, was refusing to pay the debt, or wished communications to cease.” Though the district court found that the defendant’s error was bona fide, it held that the defendant’s procedure of “relying exclusively” on the collection agency that had assigned the debt to defendant, without any “internal controls,” was “not reasonably adapted to avoid” the error at issue—and thus the defendant was not entitled to the bona fide error defense.
DFPI issues proposal on debt collection licensing
On July 15, the California Department of Financial Protection and Innovation (DFPI) issued an invitation for comments on draft text for a proposed second rulemaking (NPRM) related to the scope, annual report, and document retention requirements under the Debt Collection Licensing Act (the Act). As previously covered by InfoBytes, in 2020, California passed and adopted the Act, which requires a person engaging in the business of debt collection in California to be licensed and provides for the regulation and oversight of debt collectors by DFPI. Previously, DFPI issued an NPRM (which was later amended) to adopt new debt collector licensing requirements by regulation (covered by InfoBytes here).
The newest NPRM follows an August 2021 initial request for comments on anticipated rulemaking related to the scope, annual report, and bond amount increase provisions of the Act (covered by InfoBytes here). The NPRM seeks input from stakeholders on topics related to:
- Definitions and terms. Amendments and expansions to certain defined terms, including “employee,” “engage in the business of debt collection,” and “net proceeds generated by California debtor accounts.”
- Exemptions. Under the NPRM, employees of debt collectors will not be required to be licensed under the Act “when acting within the scope of their employment” with a licensed debt collector. Additionally, the Act’s listed exemptions apply only to the underlying applicant or licensee—the exemption is not applicable to parent entities, subsidiaries, or to affiliates. The NPRM further provides that creditors collecting consumer debts in their own names are not considered to be debt collectors for licensing purposes, unless they meet certain criteria. The NPRM also lists other exemptions for persons solely servicing non-defaulted debts on behalf of an original creditor, healthcare providers, local, state, or federal government bodies, or public utilities acting under the supervision of the California Public Utilities Commission.
- Consumer credit transactions. The NPRM specifies that the following types of debt are not considered “consumer debt” to be regulated under the Act: most residential rental debt, debt owed to an HOA or other equivalent written agreement, deferred debt from a consumer’s acquisition of healthcare or medical services, and failed personal checks.
- Annual reports. The NPRM’s reporting requirements state, with respect to annual reporting requirements, that the “total number of California debtor accounts should be counted by transaction, not by debtor” (i.e., should a single debtor have multiple accounts, each account should be counted separately). The NPRM also outlines criteria for reporting the total number of accounts and dollar amounts.
- Record retention. With respect to document retention, licensees will be obliged to follow specific criteria for preserving the records “of any contact with, or attempt to contact, anyone associated with a debtor account, regardless of who initiated the contact and whether the attempt at contact is successful.” Licensees will be required to retain this information, as well as additional documents, for at least seven years after the account is settled, returned to the creditor, sold, or collection attempts have stopped.
Comments to the NPRM are due August 29.
District Court rules nonsignatory to credit card agreement cannot compel arbitration in debt collection case
On July 11, the U.S. District Court for the Central District of California denied a law firm defendant’s motion to compel arbitration in an FDCPA case. According to the order, the plaintiff’s credit card, opened with a South Dakota-based bank, was stolen and charged more than $8,500. The plaintiff claimed that the original creditor did not investigate, refused to remove the charges, and attempted to collect on the debt. The creditor filed suit against the plaintiff to collect, and the plaintiff sought to move the case to arbitration. The creditor placed the account with the defendant, a debt collection law firm, whom the plaintiff then sued in federal court alleging unlawful collection attempts. The defendant sought to compel arbitration, based on the arbitration clause in the original agreement between the plaintiff and the creditor. The district court held that South Dakota law governed the card agreement, and a court ruling from that state’s Supreme Court held that nonsignatories to an arbitration agreement can compel arbitration only where (i) the plaintiff alleged “substantially interdependent and concerted misconduct” between the signatory and nonsignatory; or (ii) the plaintiff’s claims against the nonsignatory arises out of the agreement. The district court stated that the plaintiff did not allege, nor could the district court infer, that the defendant worked “in concert” with the creditor to unlawfully collect the debt, but rather that it did not follow reasonable procedures under the FDCPA. Additionally, the district court held that the plaintiff’s claims did not arise out of the arbitration provision. Therefore, the nonsignatory defendant could not rely on the provision to compel arbitration.
District Court grants TRO and preliminary injunction in FDCPA case
On July 7, the U.S. District Court for the Central District of Illinois granted a motion for a temporary restraining order and preliminary injunction against a defendant in an FDCPA case. In the motion, two individual plaintiffs claimed that the defendant called them 20 times in a three-day period and said he will continue calling “family, friends, and business interests until the [plaintiffs’] adult son’s debts are paid.” The plaintiffs’ attorney sent a notice to the defendant indicating that the plaintiffs were being represented and to not contact them directly. The defendant allegedly responded that he “does not intend to cease or desist.” After communicating with the plaintiffs’ attorney, the defendant allegedly called the plaintiffs’ business associates and employees over 40 times over a six-day period. The plaintiffs filed suit, claiming the defendant violated the FDCPA by, among other things, “using obscene language, and repeatedly and continuously calling Plaintiffs with the intent to abuse, annoy or harass,” and “threaten[ing] to sue them for debts that they do not owe.” According to the order, the defendant argued that the underlying debt is a business debt and thus not subject to the FDCPA. The district court found that the defendant “declined to present any evidence and refused the opportunity to testify under oath.” Ultimately, the district court stated that the plaintiffs “seek an injunction that only goes so far as to require Defendants’ compliance with the law.” Further, the district court noted that the defendant “will suffer no harm in that they are only being ordered to do that which is already legally required of them.”
CFPB sues payday lender over debt collection practices
On July 12, the CFPB filed a complaint against a Texas-based payday lender (defendant) for allegedly engaging in illegal debt-collection practices and allegedly generating $240 million in reborrowing fees from borrowers who were eligible for free repayment plans in violation of the CFPA. As previously covered by InfoBytes, in 2014, the Bureau ordered the defendant to, among other things, pay $10 million for allegedly using false claims and threats to coerce delinquent payday loan borrowers into taking out an additional payday loan to cover their debt. The Bureau stated that after the CFPB’s 2014 enforcement action, the defendant “used different tactics to make consumers re-borrow.” The complaint alleges that the defendant “engaged in unfair, deceptive, and abusive acts or practices by concealing the option of a free repayment plan to consumers who indicated that they could not repay their short term, high-cost loans originated by the defendant.” The Bureau also alleges that the defendant attempted to collect payments by unfairly making unauthorized electronic withdrawals from over 3,000 consumers’ bank accounts. The Bureau seeks permanent injunctive relief, restitution, disgorgement, damages, civil money penalties, and other relief.
11th Circuit: Statements indicating accrual of debt balance following settlement are enough to state a claim
On July 1, the U.S. Court of Appeals for the Eleventh Circuit overturned a district court’s dismissal of an FDCPA case, holding that statements sent to plaintiffs indicating that a debt balance was accruing after a settlement had been reached is enough to state a claim. According to the opinion, the plaintiffs defaulted on a mortgage and a servicer sued for foreclosure. While the foreclosure suit was pending, the defendant took over servicing of the loan. A “disagreement” arose, which led the plaintiffs to sue the defendant. A settlement was reached and it was agreed that the plaintiffs owed $85,790.99, which was to be paid in one year. However, four months later, the defendant sent a mortgage statement notifying the plaintiffs that their loan had “been accelerated” because they were “late on [their] monthly payments.” On the defendant’s “fast-tracked timetable,” the plaintiff owed $92,789.55 to be paid in a month, and if they did not pay, the defendant’s statement stated that they risked more fees and “the loss of [their] home to a foreclosure sale.” The plaintiffs continued to receive statements and the amount due increased monthly. The plaintiffs sued, saying the defendant violated the FDCPA by sending statements with incorrect balances. A district court ruled the periodic statements were unrelated to debt collection because the defendant was required to send monthly updates under TILA. The district court further determined that the plaintiffs failed to state an FDCPA claim, declined to exercise supplemental jurisdiction over the Florida law claims, and dismissed the complaint.
On appeal, the 11th Circuit ruled that statements must comply with the FDCPA, even if they are not required to be sent under the statute. The 11th Circuit reiterated that the respective requirements of TILA and the FDCPA can be approached in a “harmonized” fashion, stating that “a periodic statement mandated by [TILA] can also be a debt-collection communication covered by the FDCPA.” The appellate court reversed the district court’s dismissal because “the complaint here plausibly alleges that the periodic statements sent to the plaintiffs aimed to collect their debt.”
N.J. appeals court says debt collector may file suit during the pandemic
On June 29, the Superior Court of New Jersey, Appellate Division affirmed a lower court’s granting of summary judgment in favor of a plaintiff debt collector in an action over whether a suit could be filed during the Covid-19 pandemic despite a clause in an agreement with the original creditor that barred collection actions in a disaster area. According to the opinion, the plaintiff purchased a portfolio of debts, including two credit card debts owned by the individual defendant. The plaintiff sued the defendant after attempts to collect on the debts were unsuccessful. The defendant filed a third-party complaint against the plaintiff asserting counterclaims accusing the plaintiff of violating the FDCPA, and stating that collection agencies were barred by an executive order that allegedly prohibited the initiation and adjudication of debt collection matters during the pandemic. A lower court granted the plaintiff’s motion for summary judgment, after finding no genuine issue of material fact which would prevent summary judgment in favor of the plaintiff. Specifically, the lower court “found that plaintiff provided sufficient, credible evidence in the record that established the nexus between the accounts and defendant,” and “also found the executive order and FDCPA argument meritless,” as “no directive existed that prevented agencies from initiating debt collection matters during the COVID-19 pandemic.” The defendant appealed.
On appeal, the defendant argued, among other things, that the lower court had “improperly relied on inadmissible hearsay documents” and erred in finding the executive order and FDCPA inapplicable. The defendant referred to a clause in an agreement she had with the original creditor, which said: “Without limiting the foregoing, [plaintiff] further represents and warrants that it shall: . . . (x) upon declaration by [the Federal Emergency Management Agency] or any appropriate local, state or federal agency that a location is a disaster area, [plaintiff] agrees to temporarily suspend its collection activities within said area until such time as is reasonable and practicable.” The appeals court agreed with the lower court’s reasoning, and called the defendant’s argument “baseless.” According to the appeals court, the defendant “failed to present evidence that an executive order prohibited the commencement and adjudication of debt collection matters during a state emergency related to the COVID-19 pandemic” and failed to establish “that there is a contractual bar to plaintiff filing a debt collection suit in a disaster area.”