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District Court: Debt collectors may rely on information supplied by credit card issuer
On December 2, the U.S. District Court for the District of Oregon granted defendants’ motion for summary judgment in an FDCPA action over an alleged disputed debt, ruling that defendants are allowed to rely on information supplied by a credit card issuer that a “debt owned has been verified and is owed.” The plaintiff opened a credit card in 2015 and stopped making payments on the card in June 2018. After she stopped making payments, the plaintiff sent notices of dispute to the credit card issuer contesting, among other things, whether the issuer owned the account, and received correspondence back from the issuer with information about where disputes about the debt should be directed. The issuer also explained that based on an investigation into her account, the issuer believed the account to be valid. Several months later, the defendants sent a demand letter on behalf of the issuer to the plaintiff using the address associated with the account, and later filed a collection lawsuit in state court seeking judgment to recover the unpaid balance.
The plaintiff sued, accusing the defendants of violating Sections 1692e(2)(A), 1692e(5), and 1692e(10) of the FDCPA when they initiated the collections action. Among other claims, the plaintiff argued that she never received the demand letter. She also contended that the defendants should have known about the disputes. The court, however, agreed with the magistrate judge’s final orders and judgment, which ruled that it is not a requirement of the FDCPA for the defendants to confirm that a notice was received as a condition of filing the state court action. According to the court, the plaintiff identified no evidence that mail sent to the address used by the defendants was returned as undeliverable. The court also agreed that the plaintiff’s notices of dispute “did not challenge that she opened the account or was responsible for the charges,” and that the defendants submitted bank statements showing that the plaintiff made payments on the account.
DFPI reminds debt collectors and buyers of December 31 application deadline
Recently, the California Department of Financial Protection and Innovation (DFPI) reminded debt buyers and debt collectors operating in the state of California that applications must be submitted on or before December 31, 2021 through the Nationwide Multistate Licensing System & Registry (NMLS). The Debt Collection Licensing Act, which takes effect January 1, 2022, requires all persons engaging in the business of debt collection to be licensed by DFPI. Debt collectors that have submitted applications may continue operating in the state while the applications are pending. However, debt collectors that miss the December 31 deadline will be required to wait for the issuance of a license before operating in the state. Application materials and a checklist of requirements are available on NMLS. DFPI noted it will review applications and issue licenses in 2022 and 2023, and stated that once a debt collector is licensed it will not need to register under the California Consumer Financial Protection Law.
CFPB supervisory highlights cover wide range of violations
On December 8, the CFPB released its fall 2021 Supervisory Highlights, which details its supervisory and enforcement actions in the areas of credit card account management, debt collection, deposits, fair lending, mortgage servicing, payday lending, prepaid accounts, and remittance transfers. The report’s findings cover examinations that were completed between January and June of 2021 in addition to prior supervisory findings that led to public enforcement actions in the first half of 2021. Highlights of the examination findings include:
- Credit Card Account Management. Bureau examiners identified violations of Regulation Z related to billing error resolution, including instances where creditors failed to (i) resolve disputes within two complete billing cycles after receiving a billing error notice; (ii) reimburse late fees after determining a missed payment was not credited to a consumer’s account; and (iii) conduct reasonable investigations into billing error notices concerning missed payments and unauthorized transactions. Examiners also identified deceptive acts or practices related to credit card issuers’ advertising practices.
- Debt Collection. The Bureau found instances of FDCPA violations where debt collectors represented to consumers that their creditworthiness would improve upon final payment under a repayment plan and the deletion of the tradeline. Because credit worthiness is impacted by numerous factors, examiners found “that such representations could lead the least sophisticated consumer to conclude that deleting derogatory information would result in improved creditworthiness, thereby creating the risk of a false representation or deceptive means to collect or attempt to collect a debt in violation of Section 807(10).”
- Deposits. The Bureau discussed violations related to Regulation E, including error resolution violations related to misdirected payment transfers and failure to investigate error notices where consumers alleged funds were sent via a person-to-person payment network but the intended recipient did not receive the funds.
- Fair Lending. The report noted instances where examiners cited violations of ECOA and Regulation B by lenders "discriminating against African American and female borrowers in the granting of pricing exceptions based upon competitive offers from other institutions,” which led to observed pricing disparities, specifically as compared to similarly situated non-Hispanic white and male borrowers. Among other things, examiners also observed that lenders’ policies and procedures contributed to pricing discrimination, and that lenders improperly inquired about small business applicants’ religion and considered religion in the credit decision process.
- Mortgage Servicing. The Bureau noted that it is prioritizing mortgage servicing supervision attributed to the increase in borrowers needing loss mitigation assistance due to the Covid-19 pandemic. Examiners found violations of Regulations Z and X, as well as unfair and deceptive acts and practices. Unfair acts or practices included those related to (i) charging delinquency-related fees to borrowers in CARES Act forbearances; (ii) failing to terminate preauthorized EFTs; and (iii) assessing fees for services exceeding the actual cost of the performed services. Deceptive acts or practices found by examiners related to mortgage servicers included incorrectly disclosed transaction and payment information in a borrower’s online mortgage loan account. Mortgage servicers also allegedly failed to evaluate complete loss mitigation applications within 30 days, incorrectly handled partial payments, and failed to automatically terminate PMI in a timely manner. The Bureau noted in its press release that it is “actively working to support an inclusive and equitable economic recovery, which means ensuring all mortgage servicers meet their homeowner protection obligations under applicable consumer protection laws,” and will continue to work with the Federal Reserve Board, FDIC, NCUA, OCC, and state financial regulators to address any compliance failures (covered by InfoBytes here).
- Payday Lending. The report identified unfair and deceptive acts or practices related to payday lenders erroneously debiting consumers’ loan balances after a consumer applied and received confirmation for a loan extension, misrepresenting that consumers would only pay extension fees on the original due dates of their loans, and failing to honor loan extensions. Examiners also found instances where lenders debited or attempted one or more duplicate unauthorized debits from a consumer’s bank account. Lenders also violated Regulation E by failing “to retain, for a period of not less than two years, evidence of compliance with the requirements imposed by EFTA.”
- Prepaid Accounts. Bureau examiners found violations of Regulation E and EFTA related to stop-payment waivers at financial institutions, which, among other things, failed to honor stop-payment requests received at least three business days before the scheduled date of the transfer. Examiners also observed instances where service providers improperly required consumers to contact the merchant before processing a stop-payment request or failed to process stop-payment requests due to system limitations even if a consumer had contacted the merchant. The report cited additional findings where financial institutions failed to properly conduct error investigations.
- Remittance Transfers. Bureau examiners identified violations of Regulation E related to the Remittance Rule, in which providers “received notices of errors alleging that remitted funds had not been made available to the designated recipient by the disclosed date of availability” and then failed to “investigate whether a deduction imposed by a foreign recipient bank constituted a fee that the institutions were required to refund to the sender, and subsequently did not refund that fee to the sender.”
The report also highlights recent supervisory program developments and enforcement actions.
New York reaches $1.2 million settlement with debt collectors
On November 16, the New York attorney general announced a settlement with an illegal debt collection scheme operation and its operator (collectively, “respondents”) to resolve allegations that the respondents used illegal tactics to collect consumer debt, which included false threats of criminal action, wage garnishment, driver’s license suspension, and lawsuits. According to the AG, the operator started his debt collection career collecting debts with a network of New York-based debt collectors that settled with the CFPB and New York AG in 2019 to resolve allegations that the defendants engaged in improper debt collection tactics in violation of the CFPA, the FDCPA, and various New York laws. (Covered by InfoBytes here.) Using different names, the operator allegedly continued to use deceptive and illegal threats to collect on consumer debts. In addition, the AG claimed the operator was a debt broker, “selling debts to and placing debts for collection with other collectors that engaged in egregious violations of the law.”
Under the terms of the settlement agreement, the respondents, among other things, must pay $1.2 million to the office of the AG in restitution and penalties and must dissolve all of the associated debt collection companies. The respondents are also permanently banned from engaging in consumer debt collection, consumer debt brokering, consumer lending, debt settlement, credit repair services, and payment processing.
CFPB issues FDCPA reminder on text messaging
On November 18, the CFPB issued a reminder that “debt collectors who adopt and follow certain procedures can obtain a bona fide error defense from civil liability for unintentional violations of the prohibition against third-party communications when communicating by email or text message,” as determined by the Bureau’s debt collection rule. As previously covered by InfoBytes, in October 2020 the CFPB issued its final rule amending Regulation F, which implements the FDCPA, addressing debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The reminder emphasizes that for text message communications, a provision in the rule includes utilizing a “complete and accurate database” to ensure that a consumer’s telephone number has not been re-assigned. Additionally, the reminder notes that the rule’s commentary identifies the FCC’s Reassigned Numbers Database as a “complete and accurate database,” which the FCC has published.
11th Circuit to rehear Hunstein v. Preferred Collection & Management Services
On November 17, the U.S. Court of Appeals for the Eleventh Circuit vacated an opinion in Hunstein v. Preferred Collection & Management Services, ordering an en banc rehearing of the case. The order vacates an 11th Circuit decision to revive claims that the defendant’s use of a third-party mail vendor to write, print, and send requests for medical debt repayment violated privacy rights established in the FDCPA. As previously covered by InfoBytes, in April, the 11th 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.” According to the order issued sua sponte by the 11th Circuit, an en banc panel of appellate judges will convene at a later date to rehear the case.
District Court grants defendant’s motion in FCRA, FDCPA case
On November 10, the U.S. District Court for the Western District of New York granted a defendant debt agency’s motion for judgment resolving FCRA and FDCPA allegations. A father allegedly co-signed an apartment lease for his daughter (collectively, “plaintiffs”), which included a provision that allowed the plaintiffs to terminate the lease if another individual took over the lease. The plaintiffs allegedly did not move in but identified two replacement tenants to take over the lease. The owner of the apartment allegedly signed separate leases with the identified replacement tenants and “thwarted [plaintiffs’] efforts to have someone take over [the] [l]ease.” The owner placed the debt with the defendant for collection, who reported the debt to three credit reporting agencies. The plaintiffs disputed the debt, but the defendant confirmed the accuracy of the information. The plaintiffs sued, alleging the defendant violated the FCRA for not conducting a proper investigation of the dispute, and the FDCPA for attempting to collect the allegedly invalid debt, which allegedly negatively impacted the plaintiffs’ credit scores, their ability to obtain a car loan, and efforts to apply for an apartment.
With respect to the FCRA claim, the district court found that the plaintiffs’ allegation regarding an inaccurate debt “turns on an unresolved legal question, a section 1681s-2(b) claim that a furnisher failed to conduct a reasonable investigation of disputed credit information cannot stand.” Additionally, since the claim was “tethered to a legal dispute,” the district court found that it cannot form the basis of an FCRA claim. With respect to the FDCPA allegations, the district court dismissed the claim finding that the plaintiffs did not adequately state a claim because the plaintiffs’ claim was based on “nothing more than their conclusory and self-serving allegations that they do not owe the [d]ebt.”
Bank to pay $3.5 million to settle debt collection call suit
On November 15, a statewide team of California district attorneys announced a $3.5 million settlement to resolve allegations concerning a Utah-based bank’s debt collection activities. The California Debt Collection Task Force handled the investigation and charged the bank and its agents with allegedly placing harassing and unreasonably excessive collection calls, sometimes even after consumers informed the bank they no longer wished to receive the calls. While the bank did not admit to wrongdoing, it agreed to pay $3.5 million, including $2 million in civil penalties and $975,000 in investigation costs. The bank will also pay $525,000 to a charitable trust fund to go towards additional consumer protection efforts. Additionally, the judgment requires the bank to “implement and maintain policies and procedures to prevent unreasonable and harassing debt collection calls to California consumers, including limiting the total number of calls to each debtor and honoring consumer requests for calls to stop.”
DFPI proposes additional changes to definitions under Debt Collection Licensing Act
On November 15, the California Department of Financial Protection and Innovation (DFPI) issued a second draft of proposed regulations under the Debt Collection Licensing Act (the Act). As previously covered by InfoBytes, California enacted the Act in 2020 to require a person engaging in the business of debt collecting in the state, as defined by the Act, to be licensed. The Act also provides for the regulation and oversight of debt collectors by DFPI. In April 2021, DFPI issued a notice of proposed rulemaking (NPRM) and proposed regulations to adopt new requirements for debt collectors seeking to obtain a license to operate in the state, and issued a notice of modifications to the NPRM in June to incorporate changes to its debt collection license requirements and application. (Covered by InfoBytes here and here.) Among other things, the proposed modifications:
- Amend the definition of “branch office” to include any location other than an applicant’s or licensee’s principal place of business “if activity related to debt collection occurs at the location and the location is held out to the public as a business location or money is received at the location or held at the location.” The definition of “holding a location out to the public” includes receiving postal correspondence, meeting with the public, including the location on correspondence, letterhead, or business cards, and including signage at the location, or making any other representation that the location is a business location.
- Amend the definition of “debt collector” to align with the Act, which defines “debt collector” as “any person who, in the ordinary course of business, regularly, on the person’s own behalf or on behalf of others, engages in debt collection. The term includes any person who composes and sells, or offers to compose and sell, forms, letters and other collection media used or intended to be used for debt collection. The term ‘debt collector’ includes ‘debt buyer’ as defined in Section 1788.50 of the Civil Code.”
Comments on the second draft of modifications must be received by December 2.
New York expands consumer protections
On November 8, the New York governor signed several pieces of legislation relating to consumer protection. Among those, S.153 enacts The Consumer Credit Fairness Act, which expands consumer protections against abusive debt collection by, as explained by NYDFS acting Superintendent Adrienne A. Harris, “address[ing] known predatory debt collection practices, barring an abusive common tactic engaged by predatory debt collectors which is to sue on time-barred consumer debts for which they lack even the most basic of documentation.” Certain parts of the Consumer Credit Fairness Act are effective immediately. S.4823, effective 30 days after being signed into law, prohibits utility companies from engaging in harassment, oppression, or abuse when coordinating with a residential customer. According to the press release, this legislation responds “to various unscrupulous practices that utility corporations engage in, such as creating a ‘payment agreement’ with customers that encourage customers to take large down payments in exchange for utilities such as energy not being shut down.” S.1199 requires the Public Service Commission to have at least one member who is an expert in consumer advocacy. It will also go into effect 30 days after being signed into law.