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New York continues to postpone collection on certain debts
On February 1, the attorney general of New York announced an extension of its previous order to halt the collection efforts on certain debts through February 28, 2021. Consumers with student loan debt and medical debt owed to the state will receive an additional 28-day hiatus on payments including a freeze on the accrual of interest on the debts—in order to allow them to deal with the effects of Covid-19. Specifically, the moratorium on collection applies to: (i) “[p]atients that owe medical debt due to the five state hospitals and the five state veterans' home[s]”; (ii) “[s]tudents that owe student debt due to State University of New York (SUNY) campuses”; and (iii) “[i]ndividual debtors, sole-proprietors, small business owners, and certain homeowners that owe debt relating to oil spill cleanup and removal costs, property damage, and breach of contract, as well as other fees owed to state agencies.” New Yorkers who have other types of debt that are owed to the state and who are referred to the Office of the Attorney General may apply for a temporary freeze on collection by submitting an application which can be found here.
11th Circuit: Debt owner not vicariously liable for affiliate’s actions
On January 27, the U.S. Court of Appeals for the Eleventh Circuit held that a debt owner (defendant) cannot be held liable under the FDCPA or Florida Consumer Collection Practices Act (FCCPA) for the allegedly false representations made by another entity acting on its behalf. According to the opinion, after a consumer defaulted on three credit cards, the debts were sold to the defendant, and its affiliate began collection efforts in Florida state court against the consumer. The lawsuits were filed under the defendant’s name, “but [the affiliate] was ‘responsible for reviewing, processing, and entering all hearing results.’” The parties agreed to a settlement agreement and the consumer made his first payment. However, on each subsequent occasion the consumer visited the affiliates’ website, the website displayed a balance over three times as high as the settlement amount. The consumer filed suit against the defendant, alleging multiple violations of the FDCPA and FCCPA. The district court granted summary judgment in favor of the defendant, concluding that the defendant could not be liable under the FDCPA or the FCCPA, notwithstanding the fact that it qualifies as a debt collector.
On appeal, the 11th Circuit agreed with the district court, affirming summary judgment in favor of the defendant. Specifically, the appellate court rejected the consumer’s arguments that the defendant should be held indirectly liable for the affiliate’s representations made on their website. The appellate court noted that if the defendant qualified as a debt collector under the “principle purposes” clause of the FDCPA, “it cannot be held liable based on the use of ‘indirectly’ in the separate and inapplicable ‘regularly collects’ definition.” Moreover, the appellate court rejected the consumer’s argument that the definition of “communication” under the FDCPA supports indirect liability, concluding it is similarly “irrelevant to [the consumer]’s false representation claims under Section 1692e.” Lastly, because the district court properly granted summary judgment on the consumer’s FDCPA claim, “it correctly granted summary judgment on his FCCPA claim as well.”
7th Circuit affirms dismissal of FDCPA claims for lack of standing
On January 21, the U.S. Court of Appeals for the Seventh Circuit affirmed a lower court’s ruling dismissing a plaintiff’s FDCPA lawsuit for lack of standing. According to the opinion, the plaintiff claimed a debt collector violated the FDCPA when it sent her a collection letter including the following statement: “If you dispute this balance or the validity of this debt, please let us know in writing. If you do not dispute this debt in writing within 30 days after you receive this letter, we will assume this debt is valid.” The plaintiff argued that section 1692g(a)(3) of FDCPA does not specify how a consumer may dispute the validity of a debt, claiming that consumers should be allowed to dispute debts in whatever manner they choose. Instead of determining whether the debt collector violated section 1692g(a)(3) by requiring consumers to dispute debts in writing, the 7th Circuit determined that the plaintiff lacked standing to sue in the first place. The appellate court referenced an observation made by the district court that the plaintiff “‘did not allege she had any doubt that she owed the creditor the stated amount of money,” and that “she failed to allege any injury that flowed from her failure to dispute the debt.” Noting, however, that not all alleged section 1692g(a)(3) violations lack standing, the appellate court stated that in this case, the plaintiff “did not allege injury, because she did not try to show what good a dispute would have done her. She is no worse off than if the letter had told her that she could dispute the debt orally.”
CFPB issues Covid-19 supervisory highlights
On January 19, the CFPB released a special edition of Supervisory Highlights detailing the agency’s Covid-19 prioritized assessment (PA) observations. Since May 2020, the Bureau has conducted PAs in response to the pandemic in order to obtain real-time information from supervised entities operating in markets that pose an elevated risk of pandemic-related consumer harm. According to the Bureau, the PAs are not designed to identify federal consumer financial law violations, but are intended to spot and assess risks in order to prevent consumer harm. Targeted information requests were sent to entities seeking information on, among other things, ways entities are assisting and communicating with consumers, Covid-19-related institutional challenges, compliance management system changes made in response to the pandemic, and service provider data. Highlights of the Bureau’s findings include:
- Mortgage servicing. The CARES Act established certain forbearance protections for homeowners. The Bureau pointed out that many servicers faced significant challenges, including operational constraints, resource burdens, and service interruptions. Consumer risks were also present, with several servicers (i) providing incomplete or inaccurate information regarding CARES Act forbearances, failing to timely process forbearance requests, or enrolling borrowers in unwanted or automatic forbearances; (ii) sending collection and default notices, assessing late fees, and initiating foreclosures for borrowers in forbearance; (iii) inaccurately handling borrowers’ preauthorized electronic funds transfers; and (iv) failing to take appropriate loss mitigation steps.
- Auto loan servicing. The Bureau noted that many auto loan servicers provided insufficient information to borrowers about the impact of interest accrual during deferment periods, while other servicers continued to withdraw funds for monthly payments even after agreeing to deferments. Additionally, certain borrowers received repossession notices even though servicers had suspended repossession operations during this time.
- Student loan servicing. The CARES Act established protections for certain student loan borrowers, including reduced interest rates and suspended monthly payments for most federal loans owned by the Department of Education. Many private student loan holders also offered payment relief options. The Bureau noted however that servicers faced significant challenges in implementing these protections. For certain servicers, these challenges led to issues which raised the risk of consumer harm, including (i) provision of incorrect or incomplete payment relief options; (ii) failing to maintain regular call center hours; (iii) failing to respond to forbearance extension requests; and (iv) allowing certain payment allocation errors and preauthorized electronic funds transfers.
- Small business lending. The Bureau discussed the Small Business Administration’s Paycheck Protection Program (PPP), noting that when “implementing the PPP, multiple lenders adopted a policy that restricted access to PPP loans beyond the eligibility requirements of the CARES Act and rules and orders issued by the SBA.” The Bureau encouraged lenders to consider and address any fair lending risks associated with PPP lending.
The Supervisory Highlights also examined areas related to credit card accounts, consumer reporting and furnishing, debt collection, deposits, prepaid accounts, and small business lending.
DFPI launches debt collection investigation
On January 19, California’s Department of Financial Protection and Innovation (DFPI) announced the issuance of subpoenas to a dozen debt collection companies as part of its investigation into consumer complaints about alleged unlawful, unfair, deceptive, or abusive debt collection practices. This is DFPI’s first significant action since the California Consumer Financial Protection Law—which, among other things, expanded DFPI’s UDAAP authority by adding a prohibition on “abusive” acts or practices to California law—went into effect January 1 (covered by a Buckley Special Alert). According to DFPI, consumers across the country have filed complaints against the companies, alleging the debt collectors make repeated phone calls, fail to validate debts, and threaten to sue consumers for debts they do not owe. DFPI notes that the state’s new Debt Collection Licensing Act (enacted last September and covered by InfoBytes here) requires a person engaging in the business of debt collecting in the state of California to be licensed and provides for the regulation and oversight of debt collectors by the agency.
Colorado enacts bill modifying limits on certain debt collection activity
On January 21, the Colorado governor signed SB 21-002, which modifies certain limitations on debt collection activity enacted in SB 20-211 (previously discussed here). Among other things, the bill extends, through June 1, 2021, the prohibition on a judgment creditor from initiating a new extraordinary collection action (i.e., a garnishment, attachment, levy, or execution to collect or enforce a judgment on a debt) unless and until specified requirements are met. These requirements include providing at least 10 days advance written notice to the debtor of their right to temporarily suspend the collection action if they are facing financial hardship due to the Covid-19 emergency.
CFPB issues debt collection small entity compliance guide
On January 15, the CFPB issued a small entity compliance guide summarizing the Bureau’s debt collection rule. As previously covered by InfoBytes, the Bureau issued a final rule last October amending Regulation F, which implements the Fair Debt Collection Practices Act (FDCPA), to address debt collection communications and prohibitions on harassment or abuse, false or misleading representations, and unfair practices. The guide provides a detailed summary of the October final rule’s substantive prohibitions and requirements, as well as a summary of key interpretations and clarifications of the FDCPA. The Bureau noted, however, that the current small entity compliance guide does not discuss (unless specifically noted otherwise) the CFPB’s final rule issued in December (covered by InfoBytes here), which clarified consumer disclosure requirements, provided a model validation notice, and addressed required actions prior to furnishing and prohibitions concerning the collection of time-barred debt. Updates will be made to the small entity compliance guide at a later date to include provisions related to the December final rule.
Illinois reissues and extends several Covid-19 executive orders
On January 8, the governor of Illinois issued Executive Order 2021-01 extending numerous executive orders through February 6, 2021 (previously covered here, here, here, here, and here). Among other things, the order extends: (i) Executive Order 2020-07 regarding in-person meeting requirements, (ii) Executive Order 2020-23 regarding actions by individuals licensed by the Illinois Department of Financial and Professional Regulation engaged in disaster response, (iii) Executive Order 2020-25 regarding garnishment and wage deductions (previously covered here), (iv) Executive Order 2020-30 regarding residential evictions (previously covered here and here).
Washington extends garnishment protection to federal stimulus payments
On January 4, Washington Governor Jay Inslee issued a proclamation, extending the state’s moratorium on garnishments related to consumer debts (previously covered here, here, here and here,) and adding federal stimulus payments to the list of funds that are protected from garnishment. Protected funds already included state and federal unemployment payments. These protections were set to expire by January 19 until the governor issued an additional proclamation, extending the moratorium “until the termination of the Covid-19 State of Emergency or until rescinded.”
CFPB finalizes debt collection disclosure rules
On December 18, the CFPB issued a final rule amending Regulation F, which implements the Fair Debt Collection Practices Act, clarifying the information debt collectors must provide to consumers at the outset of collection communications and providing a model validation notice containing such information. (See also the Bureau’s Executive Summary.) The final rule also prohibits debt collectors from bringing or threatening to bring legal action against a consumer to collect time-barred debt, and requires debt collectors to take certain actions before furnishing information about a consumer’s debt to a consumer reporting agencies (CRA). Among other things, the final rule addresses the following:
- Validation notice. The final rule clarifies that debt collectors may provide “clear and conspicuous” debt validation notices in writing or electronically when commencing debt collection communications. Validation notices must include a statement indicating that the communication is from a debt collector, along with additional information such as itemization-related information, the current amount of debt, consumer protection information, and information for consumers who may choose to dispute the debt or take other actions. The final rule also outlines optional content that debt collectors may choose to include while retaining the safe harbor for using the model notice, provided that “the optional content is no more prominent than the required content.” The final rule also revises the definition of “consumer” used in a separate final rule issued by the Bureau at the end of October (covered by InfoBytes here). The December final rule’s definition now includes both living and deceased consumers.
- Safe harbor for model validation notices. Debt collectors who choose to use the model validation notice are in compliance with the final rule’s content requirements. Additionally, the use of a model validation notice would not be considered a violation of the prohibition on conduct that “overshadows” a consumer’s rights during the validation period. The final rule outlines additional safe harbors, and provides examples where a safe harbor generally will not apply. Notably, the safe harbor does not cover validation notice delivery methods and timing requirements.
- Translations. Debt collectors who choose to provide validation notices in other languages must also include an English-language notice in the same communication.
- Credit reporting. The final rule requires debt collectors to either speak to a consumer in person, send an email or letter, or try to speak with a consumer by telephone before furnishing any information to a CRA. Communications sent via email or letter will require a 14 day waiting period to allow for a “reasonable period of time” to receive a notice of undeliverability.
- Time-barred debt. The final rule prohibits debt collectors from suing or threatening to sue consumers when attempting to collect time-barred debt. Proofs of claim filed in connection with a bankruptcy proceeding are not included in this prohibition.
The final rule takes effect November 30, 2021.
More information from Buckley on the details of the newest debt collection final rule will be available soon.