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  • District Court says “state of confusion” not an injury under the FDCPA

    Courts

    On April 26, the U.S. District Court for the Northern District of Illinois granted a defendant debt collector’s request for summary judgment and vacated a class certification order following recent decisions issued by the U.S. Court of Appeals for the Seventh Circuit, in which the appellate court held that “the state of confusion is not itself an injury.” The court’s order reversed an earlier ruling that granted class certification and partial summary judgment in favor of a class of Illinois consumers who alleged that the defendant sent misleading or confusing dunning letters that violated the FDCPA by incorrectly identifying the name of the creditor. However, after reconsidering several 7th Circuit holdings (see InfoBytes coverage of Pennell v. Global Trust Management, LLC here), the court concluded that in the absence of any evidence showing that the plaintiff suffered a concrete injury, the plaintiff lacked standing to bring his FDCPA claims. Specifically, the court held that the plaintiff failed to claim that his confusion led him to take any actions to his detriment. Being merely confused is not a concrete injury, the court ruled, emphasizing that the plaintiff “needed to do more than demonstrate a threat that he would fail to exercise his rights because he deemed the letter a scam—he must have actually failed to exercise those rights and suffered some tangible adverse consequence as a result.”

    Courts Class Action Debt Collection Appellate Seventh Circuit

  • CFPB alleges deceptive advertising by NJ reverse-mortgage company

    Federal Issues

    On April 27, the CFPB announced a consent order against a nationwide, New Jersey-based mortgage broker and direct lender for allegedly sending deceptive loan advertisements to hundreds of thousands of older borrowers. According to the CFPB, the respondent’s advertisements and letters violated the Mortgage Acts and Practices Advertising Rule (MAP Rule), TILA, and the CFPA, by, among other things; (i) misrepresenting the costs of reverse mortgages, including fees, associated taxes, and insurance; (ii) failing to inform borrowers that if they did not continue to pay taxes or insurance they were at risk of losing their homes; (iii) creating the impression that consumers had a preexisting relationship with the lender; and (iv) informing consumers that they were preapproved for specific loan amounts and likely to obtain particular terms or refinancing. Under the terms of the consent order, the respondent is required to pay a $140,000 civil money penalty. Additionally, an advertising compliance official must review the respondent’s mortgage advertisement template before it is put into use in an advertisement “to ensure that it is compliant with the MAP Rule, Regulation Z, TILA, the CFPA,” as well as the consent order. The respondent must also develop and provide the CFPB a “comprehensive compliance plan designed to ensure that Respondent’s mortgage advertising complies with all applicable Federal consumer financial laws and the terms of this Order.”

    Federal Issues CFPB Deceptive TILA CFPA MAP Rule ECOA Enforcement Debt Collection Dodd-Frank

  • DFPI issues proposal on debt collector licensing applications

    Recently, the California Department of Financial Protection and Innovation (DFPI) issued a notice of proposed rulemaking (NPRM) to adopt new requirements for debt collectors seeking to obtain a license to operate in the state. As previously covered by InfoBytes last September, California enacted the “Debt Collection Licensing Act” (the Act), which requires a person engaging in the business of debt collecting in the state, as defined by the Act, to be licensed and provides for the regulation and oversight of debt collectors by DFPI. Under the Act, debt collection licenses will be required starting January 1, 2022; however, debt collectors who submit applications before January 1, 2022 will be allowed to operate while their applications are pending.

    Among other things, the NPRM seeks to:

    • Include new sections for definitions of key terms, such as affiliate, debt buyer and debt collector.
    • Adopt several licensing application forms and require applicants to apply for a license through the Nationwide Multistate Licensing System & Registry (NMLS).
    • Provide requirements for obtaining a debt collector license, including for affiliates applying for a single license.
    • Add other licensure requirements, including requiring applications to (i) identify all direct owners, executive officers, and indirect owners; (ii) include the principal place of business, in addition to all branch locations; (iii) submit background checks and fingerprints; (iv) submit to a credit report check; and (v) post surety bonds of at least $25,000.
    • Specify the information required to enable the Commissioner of Financial Protection and Innovation to investigate applicants to determine whether they meet the standards for licensure.
    • Outline the process for challenging information entered in NMLS, as well as the grounds for which the Commissioner may deny an application.

    According to DFPI’s notice, if adopted, the final rule would take effect on or about November 19, 2021 and permit debt collectors to apply for a license prior to January 1, 2022. Additionally, DFPI announced its intention to adopt additional regulations later in 2022 to specify the requirements for maintaining books and records and set forth the amounts required for a surety bond based on a licensee’s volume of debt collection activity.

    Comments on the NPRM are due by June 8.

    Licensing State Issues State Regulators DFPI Debt Collection NMLS

  • District Court: Identity theft alone is not enough to remove allegedly fraudulent debt from credit report

    Courts

    On April 20, the U.S. District Court for the Southern District of California granted a defendant debt collector’s motion for summary judgment, ruling that claiming to be a victim of identity theft alone is not enough to have a collection item removed from a credit report, or to give rise to an FDCPA violation. In 2014, the plaintiff purportedly obtained a payday loan from a lender who ultimately assigned the loan to the defendant for collection. In 2019, the plaintiff called the defendant to verbally dispute the debt as fraudulent after seeing the loan on her credit report. The defendant continued to report the loan to the consumer reporting agencies (CRAs), but marked the account as disputed, and informed the plaintiff of measures she needed to take to have the item removed from her credit report, including instructions for filing an identity theft affidavit. After an attorney representing the plaintiff submitted a formal written dispute of the debt, the defendant responded with the required verification and continued reporting the debt until the account was recalled by the lender. At this point the loan record was deleted and the defendant stopped reporting the loan account to the CRAs. The plaintiff filed suit alleging the defendant violated FDCPA Sections 1692e and 1692f and various state laws by continuing to report the debt after it was notified of the potential fraud. The court disagreed, stating, “there was nothing about [the defendant’s] statements that would confuse or mislead even the least sophisticated debtor’s attempt to remove the fraudulent account from their credit report,” the court wrote, adding that none of the defendant’s communications were false, deceptive, or misleading, nor did they undermine the plaintiff’s “ability to intelligently choose her action concerning the loan account.”

    Courts Debt Collection FDCPA Consumer Finance Consumer Reporting Agency State Issues

  • 11th Circuit: Outsourcing debt collection letters can violate FDCPA

    Courts

    On April 21, 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.” According to the opinion, the plaintiff’s medical debt was assigned to the defendant debt collector, who, in turn, hired a mail vendor to produce a dunning letter in the course of collecting the outstanding debt. In order to produce the letter, information about the plaintiff was allegedly electronically transmitted from the defendant to the mail vendor, including his status as a debtor, the exact balance of the debt, its origin, and other personal information. The plaintiff filed suit, claiming the disclosure of the information to the mail vendor violated the FDCPA’s third-party disclosure provisions, which the district court dismissed for failure to state a claim.

    On appeal, the 11th Circuit reviewed whether a violation of § 1692c(b) gives rise to a concrete injury under Article III, and whether the defendant’s communication with the mail vendor was “in connection with the collection of any debt.” In reversing the district court’s ruling, the appellate court determined that communicating debt-related personal information with the third-party mail vendor is a concrete injury under Article III. Even though the plaintiff did not allege a tangible injury, the appellate court held, in a matter of first impression, that under the circumstances, the plaintiff alleged a communication “in connection with the collection of any debt” within the meaning of § 1692c(b). In choosing this interpretation over the defendant’s “‘industry practice argument,’” in which the defendant referred to the widespread use of mail vendors and the relative lack of FDCPA suits brought against debt collectors who use these vendors, the 11th Circuit recognized that its interpretation of the statute may require debt collectors to in-source many of the services previously outsourced to third-parties at a potentially great cost. “We recognize, as well, that those costs may not purchase much in the way of ‘real’ consumer privacy, as we doubt that the [mail vendors] of the world routinely read, care about, or abuse the information that debt collectors transmit to them,” the appellate court wrote, adding, “Even so, our obligation is to interpret the law as written, whether or not we think the resulting consequences are particularly sensible or desirable.”

    Courts Debt Collection Third-Party Disclosures Appellate Eleventh Circuit Vendor Hunstein

  • CFPB, NY AG sue debt collector to seize transferred property

    Federal Issues

    On April 22, the CFPB and the New York attorney general filed a complaint against the owner of a now-defunct debt-collection firm for allegedly transferring ownership of his $1.6 million home to his wife and daughter for $1 shortly after he received a civil investigative demand and learned that the Bureau and the AG were conducting an investigation into his debt-collection activities. As previously covered by InfoBytes, the Bureau and the AG reached settlements in 2019 with the debt collection operation to resolve allegations that the defendants established and operated a network of companies that harassed and/or deceived consumers into paying inflated debts or amounts they may not have owed. The terms of the settlements imposed civil money penalties and consumer redress and permanently banned the defendants from acting as debt collectors. According to the complaint, the owner defendant has paid nothing toward satisfying the 2019 settlement, nor has he cooperated with the Bureau and the AG’s efforts to obtain relevant financial information. The complaint further claims that the transfer of the property was a fraudulent transfer under the Federal Debt Collection Procedures Act and made with the intent to defraud (a violation of the New York Debtor and Creditor Law), and alleges that the owner defendant “removed and concealed assets in an effort to render the Judgment obtained by the Government Plaintiffs uncollectable.” Moreover, because the property was allegedly “transferred with intent to hinder, delay, or defraud a creditor,” the complaint contends that the owner defendant is “not entitled to claim any homestead exemption.” The complaint asks the court to void the property transfer and to allow seizure of the property. Additionally, the Bureau and the AG request that the house be sold with all proceeds going towards the owner defendant’s 2019 settlement, and seek a monetary judgment against the owner defendant’s wife and daughter for the value of the property as transferees of the fraudulent conveyance of the property.

    Federal Issues CFPB State Attorney General State Issues Enforcement Debt Collection FDCPA

  • CFPB updates debt collection small entity compliance guide

    Federal Issues

    On April 16, the CFPB updated its small entity compliance guide to incorporate amendments in the December 2020 debt collection rule (covered by InfoBytes here). Updates to the guide, originally issued in January (covered by InfoBytes here), include: (i) a new section discussing the prohibition against legal action and threats of legal action to collect time-barred debt; (ii) a new section discussing the prohibition on passive collection; (iii) the incorporation of requirements and guidance on providing validation information; (iv) an updated discussion of the prohibition against overshadowing consumer rights to incorporate reference to the safe harbor; (v) an updated discussion of requests for original-creditor information to include reference to applicable requirements if the current creditor and the original creditor are the same; and (vi) a new annotated version of the model validation notice in Appendix B of the December 2020 Rule. Miscellaneous administrative changes have been made throughout the guide as well.  

    Federal Issues CFPB Debt Collection Compliance FDCPA

  • CFPB: Debt collectors must provide written notice for evictions

    Federal Issues

    On April 19, the CFPB issued an interim final rule (IFR) to amend Regulation F, which implements the FDCPA, that will require debt collectors to provide tenants written notice alerting them of their rights under the CDC’s moratorium on evictions in response to the Covid-19 pandemic. Failure to provide notice will be considered a violation of the FDCPA, which may result in a private right of action as well as actual damages, statutory damages, and attorney’s fees. The Bureau noted in its press release that the IFR does not preempt more protective state laws. Additionally, debt collectors are prohibited from misrepresenting renters’ eligibility for temporary protection under the CDC’s moratorium. Sample disclosure language and a summary of the IFR have been provided by the Bureau as well.

    The IFR will take effect May 3. Comments are due 15 days after publication in the Federal Register.

    Federal Issues CFPB Debt Collection Covid-19 Agency Rule-Making & Guidance CDC FDCPA State Attorney General

  • PA AG settles with collector over payday loan scheme

    State Issues

    On April 9, the Pennsylvania attorney general announced settlements with the former CEO of a since-dissolved lender and a debt collector to resolve claims that the collector charged borrowers interest rates as high as 448 percent on loans and lines of credit. The AG alleged that the former CEO “participated in, directed and controlled” business activities related to the allegedly illegal online payday lending scheme, while the debt collector collected more than $4 million related to Pennsylvania consumers’ loan accounts. The terms of the settlement require the individual defendant to comply with relevant consumer protection laws and limits the individual defendant’s ability to work in the consumer lending industry in Pennsylvania for the next nine years. Additionally, the individual defendant is required to pay the Commonwealth $3 million.

    The AG’s office noted that the U.S. District Court for the Eastern District of Pennsylvania also approved a settlement with the debt collector, which requires the company to comply with relevant consumer protection laws and, among other things, undertake the following actions: (i) ensure that all acquired debts, for which it attempts to collect, comply with applicable laws and regulations; (ii) cancel all balances on applicable accounts, take no further action to collect debts allegedly owed by Pennsylvania consumers on these accounts, and notify consumers of the cancellations; (iii) “refrain from engaging in [c]ollections on any [d]ebts involving loans made over the internet by [n]on-bank lenders that violate Pennsylvania laws,” including its usury laws; and (iv) will not sell, re-sell, or assign debt related to applicable accounts, including accounts subject to a previously-negotiated nationwide class action settlement agreement and Chapter 11 bankruptcy plan. Previous InfoBytes coverage related to the payday lending scheme can be found here, here, and here.

    State Issues Courts State Attorney General Interest Rate Usury Consumer Finance Settlement Enforcement Debt Collection Payday Lending

  • 3rd Circuit says collector itemizing zero-balance interest and fees did not mislead

    Courts

    On April 12,  the U.S. Court of Appeals for the Third Circuit affirmed dismissal of an FDCPA action, concluding that itemized breakdowns in collection letters that include zero balances for interest and other fees would not confuse or mislead the reasonable “unsophisticated consumer” to believe that future interest or other charges would be incurred if the debt is not settled. The defendant management company sent a letter to the plaintiff claiming he owed amount $1,088.34 and offered to “resolve this debt in full” with a payment of $761.84. The plaintiff filed a putative class action against the defendant alleging that by itemizing interest and collection fees for his “static debt,” and by assigning “$0.00” interest, the letter falsely implied—in violation of § 1692e and § 1692f of the FDCPA—that “interest and fees could accrue and thereby increase the amount of his debt over time.” The defendants moved to dismiss for failure to state a claim. The district court dismissed the complaint with prejudice, declining “to require assurances by debt collectors that itemized amounts ‘will not change in the future,’ reasoning that doing so would lead to ‘complex and verbose debt collection letters’ that would confuse consumers.”

    On appeal, the 3rd Circuit agreed with the district court. Specifically, the appellate court concluded that the “complaint fails to state a claim, whether our court’s ‘least sophisticated debtor’ standard is functionally the same as the ‘unsophisticated debtor’ standard applied by other Circuits or is instead an independent and less demanding framework.” Moreover, the appellate court noted even the least sophisticated debtor understands that “collection letters—as reflected by their fonts, formatting, content, and fields—often derive from templates and may contain information not relevant to his or her particular situation.” According to the 3rd Circuit, “FDCPA case law does not support attributing to the least sophisticated debtor simultaneous naïveté and heightened discernment. Were we for some reason constrained to consider only the law of Circuits that employ the word “least” in their FDCPA standards, we would still affirm.”

    Courts FDCPA Appellate Third Circuit Debt Collection Consumer Finance

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