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New York college to cancel $20 million in unpaid loans
On March 2, the New York City mayor announced an agreement with a for-profit college resolving allegations that it violated various provisions of New York consumer protection laws. According to the press release, the New York City Department of Consumer and Worker Protection filed the lawsuit against the defendant in 2018, claiming that it, among other things: (i) collected debts that were not owed; (ii) concealed its identity from former students when collecting debts; and (iii) falsely misrepresented when debts were accrued on official documents. Under the terms of the settlement agreement, the defendant is required to cease collecting outstanding student loans incurred prior to January 2019, which are estimated to be valued at approximately $20 million. The defendant must also pay $350,000 in restitution, establish polices related to communicating with students about debt owed to the college, and ensure that the statutes of limitation on debt collection are observed.
CFPB looks at removing medical debt from credit reports
On March 1, the CFPB announced plans to review whether data on unpaid medical bills should be included in consumer credit reports. The Bureau stated in its report, Medical Debt Burden in the United States, that research found $88 billion in medical debt on consumer credit reports, accounting for 58 percent of all uncollected debt tradelines reported to credit reporting agencies (CRAs). “Our credit reporting system is too often used as a tool to coerce and extort patients into paying medical bills they may not even owe,” CFPB Director Rohit Chopra said in a statement.
The Bureau noted that medical debt is often less transparent than other types of debt, due to opaque pricing, complicated insurance, charity care coverage, and pricing rules, reporting that in many instances, consumers may not even sign a billing agreement until after receiving treatment. Medical debts often end up in collections, the Bureau added, which can cause far-ranging repercussions even if the bill itself is inaccurate or erroneous. The report noted additional challenges for uninsured consumers, as well as for Black and Latino families, consumers with low incomes, veterans, older adults, and young adults of all races and ethnicities. The report further stated that the Covid-19 pandemic has exacerbated the situation, with costs and medical debt expected to increase post-pandemic, and found that medical debt weakens underwriting accuracy, as it is less predictive of future repayment than reporting on traditional credit obligations. The Bureau pointed out that it has seen dramatic effects when newer credit scoring models weigh medical collections tradelines less heavily, but noted that there has been very little adoption of this approach so far.
The Bureau stated it intends to examine CRAs to ensure they are collecting accurate information from medical debt collectors and expects CRAs to take action against furnishers who routinely report inaccurate information, including cutting off their access to the system. The Bureau also plans to work with the Department of Health and Human Services to make sure consumers are not forced to pay more than the amount due for medical debt. A January compliance bulletin reminded debt collectors and CRAs of their legal obligations under the FDCPA and the FCRA when collecting, furnishing information about, and reporting medical debts covered by the No Surprises Act. The Bureau also recently supported changes by the Department of Veterans Affairs to amend its regulations related to the conditions by which VA benefit debts or medical debts are reported to CRAs. (Covered by InfoBytes here and here.)
Massachusetts settles with auto lender
On February 18, the Massachusetts attorney general announced that a national auto lender entered into a settlement with the Commonwealth resolving allegations that the lender did not provide sufficient disclosures to consumers related to its debt collection practices, with over 1,000 borrowers expected to be eligible for relief. According to the Assurance of Discontinuance (AOD), the lender allegedly failed to provide certain consumers with sufficient information about the calculation methods for any deficiencies remaining on their auto loans after their cars were repossessed. The AOD requires the auto lender to pay $5.6 million in restitution to eligible borrowers, and cover administration and investigation costs associated with the matter. According to Massachusetts Attorney General Laura Healey, the “settlement, which combines cash payments with debt relief and credit repair, will help many subprime borrowers in need.”
District Court rules transmitting debtor information to third-party violates FDCPA
On February 2, the U.S. District Court for the Eastern District of Pennsylvania denied a defendant’s motion for judgment on the pleadings, ruling that transmitting a debtor’s personal information to a third-party mail vendor for the purposes of sending a debt collection letter constitutes a communication “in connection with the collection of any debt” under the FDCPA. As previously covered by InfoBytes, in Hunstein v. Preferred Collection & Management Services, the U.S. Court of Appeals for the Eleventh Circuit held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” The district court found this reasoning “persuasive,” ruling that the plain text of the statute encompasses communications with a third party mail vendor. The district court also rejected the defendant’s arguments that the CFPB and FTC had tacitly endorsed third-party mailers by not pursuing enforcement actions against them: “[B]ecause the agencies tasked with regulating and enforcing the FDCPA have not addressed the use of letter vendors by debt collectors in any legally significant way, and because the statutory language is not subject to a different reading, the Court will afford no deference to the indeterminate actions of the CFPB and FTC.”
Georgia reaches settlement with rent-to-own company over deceptive business practices
On February 8, the Georgia attorney general announced a settlement with a rent-to-own company accused of allegedly engaging in deceptive sales and marketing practices and violating the FDCPA. While the company did not admit to the allegations, it agreed to pay $145,590 in civil money penalties, with an additional $170,910 due if the company violates any of the settlement terms. The company is also required to (i) ensure its advertising, sales, and marketing practices comply with the Georgia Fair Business Practices Act and the Georgia Lease-purchase Agreement Act; (ii) refrain from engaging in harassing and unlawful debt collection practices; and (iii) verify debts are accurate before placing them with a third-party collection agency. “Our office takes seriously allegations of deceptive business practices, and companies that take advantage of our citizens will be held accountable,” the AG stated.
VA establishes threshold for reporting VA debts to CRAs
On February 2, the Department of Veterans Affairs published a final rule in the Federal Register amending its regulations around the conditions by which VA benefits debts or medical debts are reported to consumer reporting agencies (CRAs), and creating a methodology for determining a minimum threshold for debts reported to the CRAs. According to the VA, approximately 5,000 delinquent accounts are reported monthly to credit bureaus, and, in many cases, veterans complained about the loss of security clearance or an inability to obtain credit or rental housing. In amending the rule, the VA acknowledged that certain debts, such as medical debts, “are fundamentally different than consumer debt.” Under the new rule, debts are to be reported to a credit bureau if (i) they are considered to be “currently not collectible,” meaning the VA has exhausted available debt collection efforts; (ii) the debt is not owed by someone who has been determined to be catastrophically disabled or has a gross household income below a certain amount; and (iii) the debt owed is over $25. The rule is effective March 4.
On February 7, the CFPB published a blog highlighting the changes that the VA made in its final rule. Among other things, the blog discussed changes to VA’s debt collection practices, protections against surprise medical bills, and getting help with medical bills.
District Court grants summary judgment in favor of debt collector
On January 31, the U.S. District Court for the Middle District of Florida granted summary judgment in favor of a defendant debt collector concerning alleged violations of the FDCPA. The plaintiff alleged that she received six phone calls from the defendant, starting in May of 2020, seeking to collect debt owed by the plaintiff’s granddaughter. The plaintiff allegedly explained to the defendant during the first call that she did not live with her granddaughter and that the defendant would not be able to reach the granddaughter through that number. She also allegedly requested the defendant stop calling. On June 27, 2020 the plaintiff filed suit alleging violations of Sections 1692d, 1692c(a)(1), and 1692e of the FDCPA and the Florida Consumer Collections Practices Act (FCCPA). The court dismissed the state law claim, as well as the plaintiff’s Section 1692d claim, after determining that “neither the volume and frequency nor the content of the calls constituted abusive or harassing conduct under the FDCPA or FCCPA.”
After reviewing the remainder of the FDCPA claims, the court ruled that the plaintiff’s Section 1692c(a)(1) claim failed because the protections afforded by Section 1692c(a)(1) are applicable only to a “consumer” meaning “any natural person obligated or allegedly obligated to pay any debt.” The court explained that because the plaintiff “did not owe the subject debt” the defendant was “entitled to judgment as a matter of law on” the Section 1692c(a)(1) claim. Additionally, the court determined that the plaintiff failed to show evidence that the defendant violated Section 1692e by making false, deceptive, or misleading representations when attempting to collect on the debt, because “[a] reasonable jury could not conclude from this record that the least sophisticated consumer would have been misled to believe that the purpose of the phone calls was to attempt to collect a debt from [the plaintiff].”
CFPB files emergency motion to hold phantom debt scammers in contempt
On January 22, the CFPB filed an emergency motion seeking to hold two individual defendants in contempt of court for allegedly failing to honor the terms of a default judgment and order related to a 2015 enforcement action. The defendants are two of multiple participants that were allegedly involved in an illegal phantom debt collection scheme involving payment processors and a telephone broadcast service provider. As previously covered by InfoBytes, the Bureau claimed that the defendants attempted to collect debt that consumers did not owe or that the collectors were not authorized to collect, used harassing and deceptive techniques in violation of the CFPA and FDCPA, and placed robo-calls through a telephone broadcast service provider to millions of consumers stating that the consumers had engaged in check fraud and threatening them with legal action if they did not provide payment information. At the time, the Bureau obtained a preliminary injunction to halt the debt collection activities and freeze the assets of all defendants named in the lawsuit.
According to the Bureau, the two defendants named in the emergency motion failed to comply with any of the required terms under the default judgment entered last October, which required, among other things, the payment of civil money penalties ranging from $100,000 to $500,000, and permanently banned the defendants from attempting collections on any consumer financial product or service and from selling any debt-relief service. (Covered by InfoBytes here.) The defendants’ disregard for court orders “has been a recurring theme of this case,” the Bureau wrote in its the motion, claiming that the defendants, among other things, failed to show up for scheduled depositions or produce requested documents, and violated the preliminary injunction by transferring assets and concealing properties that they owned. After both defendants were found to be in contempt for not complying with the preliminary injunction, a receiver was appointed to conserve the assets for the benefit of affected consumers, which one of the defendants “promptly” violated. After the defendants failed to respond to additional requests, the Bureau filed the motion to have them both found in contempt. The defendants have “provided no cause for comfort that they will respect rulings of the Court or that they will comply with the law unless the Permanent Injunction Order is enforced,” the Bureau stated in its motion.
New Jersey Superior Court grants summary judgment in favor of debt buyer
On January 21, the Superior Court of New Jersey granted a defendant debt buyer’s cross-motion for summary judgment following the Appellate Division’s partial remand. The plaintiff filed a proposed class action lawsuit in 2017, claiming that the defendant violated the New Jersey Consumer Fraud Act (CFA) by unlawfully acquiring defaulted credit card accounts without obtaining a license to engage as a sales finance company or a consumer lender. The case was dismissed, but later partially remanded on appeal. The Superior Court struck the portion of the complaint alleging class claims and focused on the remaining individual claim concerning the plaintiff’s account. The Superior Court ultimately determined that the plaintiff’s CFA claim failed because the alleged conduct did not rise “to the level of deception, fraud, or misrepresentation in connection with the sale of merchandise or services” required for a claim under CFA. According to the Superior Court, the CFA requires that claimants show an ascertainable loss. The plaintiff’s claim that she suffered a loss by paying the defendant rather than the bank that originally extended the credit was not convincing, the Superior Court stated. The plaintiff admitted “that after the [account] was sold to Defendant, [the bank] did not seek payment of the credit card account. Thus, the record establishes that Plaintiff has not suffered any harm. Without an ascertainable loss, Plaintiff’s CFA claim fails,” the decision said. The Superior Court also disagreed with the plaintiff’s assertion that the defendant was required to obtain a consumer lending license under the New Jersey Consumer Finance Licensing Act. Noting that the defendant is a debt buyer and not a consumer lender, the Superior Court held that the defendant was not required to be licensed.
9th Circuit partially reverses FDCPA ruling
On January 24, the U.S. Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a district court’s summary judgment for a collection law firm (defendant) that “expressly” informed an individual in a collection letter that any dispute must be filed in writing. The plaintiff sued after receiving a collection letter from the defendant that noted, “[u]nder the federal Fair Debt Collection Practices Act, if you dispute this debt, or any portion thereof, you must notify this office in writing within thirty (30) days of receipt of this letter. After notifying this office of a dispute, all debt collection activities will cease until this office obtains verification of the debt and a copy of such verification is mailed to you. If you do not dispute the validity of this debt or any portion thereof within thirty (30) days of receipt of this letter, the debt will be assumed valid. You may request in writing, within thirty (30) days of receipt of this letter, the name and address of the original creditor, if different from the current creditor, which is the homeowners association named above, and we will provide you with the information.” The district court granted summary judgment in favor of the defendant, ruling that the passage did not violate the FDCPA because the third sentence of the disclosure did not mention that the dispute had to be filed in writing.
On appeal, the 9th Circuit noted that “the court must view the letter ‘through the eyes of the least sophisticated debtor,’” stating that “… the least sophisticated debtor would not extract each sentence of the challenged paragraph, line them up against the disclosures the FDCPA requires, and analyze whether each sentence, in isolation, accurately conveys the required warnings.” The 9th Circuit also noted that, “[i]nstead, the least sophisticated debtor would examine the letter as a whole and would conclude based on the bold text expressly stating that he must dispute the debt in writing that he was required to dispute the debt in writing.” The 9th Circuit also upheld the ruling in favor of the defendant over its assessment of a prelien fee as a reasonable attorney’s fee and “that any implication that the fee was an ‘attorney’s fee’ was true.” The case was remanded back to the district court to address remaining arguments and the plaintiff’s summary judgment motion.