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Wyoming to regulate debt buyers as collection agencies
On February 27, the Wyoming governor signed HB 284, which requires debt buyers to be licensed as “collection agencies” beginning July 1. Under the act, a collection agency now includes any person who operates as a debt buyer, defined as “any person that is regularly engaged in the business of purchasing charged-off consumer debt for collection purposes, whether the person collects the debt, hires a third party for collection of the debt or hires an attorney for collection litigation[.]” As a result, debt buyers will be regulated by the Collection Agency Board. Importantly, the act protects the validity of any civil action or arbitration filed or commenced by a debt buyer, or any judgment entered for a debt buyer, prior to the effective date.
CFPB receives FCRA rulemaking petition on debt collection
On March 3, the CFPB received a rulemaking petition from the National Consumer Law Center (NCLC) in response to forthcoming FCRA rulemaking announced in the Bureau’s Fall 2022 regulatory agenda. As previously covered by InfoBytes, the Bureau announced it is considering pre-rulemaking activity in November to amend Regulation V, which implements the FCRA. In January, the Bureau issued its annual report covering information gathered by the Bureau regarding certain consumer complaints on the three largest nationwide consumer reporting agencies (CRAs). At the time, CFPB Director Rohit Chopra said that the Bureau “will be exploring new rules to ensure that [the CRAs] are following the law, rather than cutting corners to fuel their profit model.” (Covered by InfoBytes here.)
The NCLC presented several issues for consideration in the FCRA rulemaking process, including that the Bureau should (i) “establish strict requirements to regulate the furnishing of information regarding a debt in collections by third-party debt collectors and debt buyers”; (ii) “require translation of consumer reports by the [CRAs] into the eight languages most frequently used by limited English proficient consumers”; and (iii) “establish an Office of Ombudsperson to assist consumers who have been unable to fix errors in their consumer reports from the nationwide CRAs and other CRAs within the CFPB’s supervisory authority.”
“Given the level of errors, problems, and abuses by debt collectors in furnishing and resolving disputes, requiring an original creditor tradeline is a reasonable quality control mechanism,” the NCLC said. “Alternatively, if the CFPB continues to permit the furnishing of debt collection information without a pre-existing tradeline by the original creditor, the Bureau should require that the furnisher of debt collection activity (whether a debt collector, debt buyer, servicer or other) provide a complete account history in the tradeline, including positive payments,” the petition added, stressing that “such reporting must require adequate substantiation[.]”
6th Circuit: Each alleged FDCPA violation carries its own statute of limitations
On March 1, the U.S. Court of Appeals for the Sixth Circuit reversed the dismissal of a debt collection action, holding that every alleged violation of the FDCPA has its own statute of limitations. According to the opinion, the plaintiff financed a furniture purchase through a retail installment contract. While making payments on the contract, the company purportedly sold the debt to a third party. After the plaintiff defaulted on the debt, the third party—through the defendant attorney—sued the plaintiff in state court to recover the unpaid debt and attorney’s fees. After the third party eventually voluntarily dismissed the suit due to questions of whether the debt transfer was valid, the plaintiff sued the attorney for violating the FDCPA, alleging the defendant doctored the retail installment contract (RIC) to make it appear as if the debt assignment was legal. The defendant moved to dismiss the complaint as time-barred by the FDCPA’s one-year statute of limitations. The district court dismissed the case citing the complaint was filed more than a year after the third party filed the state court complaint and later denied both the plaintiff’s motion for reconsideration and the defendant’s motion for attorney’s fees. Both parties appealed.
On appeal, the 6th Circuit agreed that the plaintiff made a timely claim. Plaintiff argued that at least one of her claims fell within the one-year statute of limitations—the attorney’s filing of the updated RIC that allegedly showed the “contrived transfer” of debt—and maintained that she filed within one year of that alleged violation. The defendant countered, among other things, that the plaintiff’s claim was time-barred because it was a continuing effect of the third party’s initial filing of the state court complaint. The 6th Circuit reviewed caselaw on the “continuing-violation doctrine” and determined that the doctrine was not relevant to the case, stating that the plaintiff never invoked it because she was not “trying to sweep in acts that would otherwise be outside of the filing period,” but rather sought “redress for a single claim that is not time-barred.” The 6th Circuit emphasized that the plaintiff’s “single claim is independent of [the third party’s] initial filing of the lawsuit—not a continuing effect of it—because it is a standalone FDCPA violation.” The opinion further stated that the only date considered for the statute of limitations is the date a lawsuit is filed when subsequent FDCPA violations within that lawsuit occurred, and wrote that “[i]f we were to only consider the date [the third party] filed suit . . . we would create a rule that disregards the fact that §1629k(d) creates an independent statute of limitations for each violation of the FDCPA . . . . And if we adopted [the defendant’s] approach, we’d be saying that ‘so long as a debtor does not initiate suit within one year of the first violation, a debt collector [is] permitted to violate the FDCPA with regard to that debt indefinitely and with impunity.’”
9th Circuit concludes district attorneys can sue national banks in state court
On February 27, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s decision to abstain from enjoining a state action brought by a California county district attorney (DA) against a national bank, concluding that the enforcement action was not an exercise of “visitorial powers.” According to the opinion, the DA launched an investigation into the bank’s vendor and issued the bank an investigative subpoena seeking records of its banking activities. The bank objected, claiming the request “improperly infringes on the exclusive visitorial powers of the [OCC]” because it sought to inspect the bank’s books and records. The bank subsequently filed a complaint in the U.S. District Court for the Central District of California asking the court to enjoin the state action and requesting injunctive relief to prevent the DA from taking any action to enforce federal and state lending, debt collection, and consumer laws against the bank, or from exercising visitorial powers in violation of the National Bank Act (NBA). The DA withdrew his investigative subpoena and moved to dismiss for lack of subject matter jurisdiction on the ground that the case was now moot. The motion to dismiss was denied on the premise that the DA had not demonstrated that a “renewed investigative subpoena against [the bank] ‘could not be reasonably be expected.’”
The DA then filed a complaint in state court claiming the bank violated California law by hiring a third-party vendor to place “extensive harassing” debt collection phone calls to residents in the state. The complaint alleged violations of California’s Unfair Competition Law, the Rosenthal Fair Debt Collections Practices Act, and the right to privacy under the California Constitution. In federal court, the bank moved for summary judgment, arguing that the state action was an improper exercise of visitorial powers. The district court, however, ruled that the Younger v. Harris abstention (in which a federal court refrains from staying or enjoining pending state criminal prosecutions absent extraordinary circumstances or state civil enforcement actions when certain conditions are met) applied. The bank appealed.
The 9th Circuit considered two questions: (i) whether the Younger abstention was correctly applied, and (ii) whether the DA’s state court action “was an impermissible exercise of visitorial powers vested exclusively with the OCC.” The 9th Circuit held that the district court was correct in applying the Younger abstention doctrine because (i) “the state action qualified as an ‘ongoing’ judicial proceeding because no proceedings of substance on the merits had taken place in the federal action”; (ii) the state court action implicated an important state interest in consumer protection and nothing in federal law bars a DA from suing a national bank; (iii) the bank had the option to raise a federal defense under the NBA in the state court action; and (iv) the injunction the bank requested in the federal action would interfere with the state court proceeding. The 9th Circuit also rejected the bank’s arguments that the state action constituted an illegal exercise of visitorial powers that only belongs to the OCC or state attorneys general. The 9th Circuit cited the U.S. Supreme Court’s decision in Cuomo v. Clearing House Ass’n, L.L.C., in which the high court “held that bringing a civil lawsuit to enforce a non-preempted state law is not an exercise of visitorial powers,” and that “a sovereign’s ‘visitorial powers’ and its power to enforce the law are two different things.” Relying on the Cuomo holding, the 9th Circuit found that accepting the bank’s position “would mean that actions brought against national banks by federal or state agencies or, for that matter, individuals would be forbidden as unlawful exercises of visitorial powers.” “Such a result is wrong. It contradicts established law and is unsupported by any legal authority cited by [the bank]” and would additionally “raise serious anti-commandeering concerns under the Tenth Amendment.”
8th Circuit reverses debt collection action for lack of standing
On February 24, the U.S. Court of Appeals for the Eighth Circuit vacated and remanded the dismissal of a class action lawsuit concerning a medical collection letter that listed amounts due but did not distinguish between the principal and the interest that the debt collectors were attempting to charge. Plaintiff, who never paid any part of the interest or principal, filed a class action against the defendant debt collectors alleging violations of the FDCPA and the Nebraska Consumer Practices Act (NCPA). The defendants moved for summary judgment, arguing that the plaintiff lacked Article III standing. The district court denied the motion and the jury found for the defendants on all counts except for the NCPA claim, which was not tried before a jury. After trial, the district court determined it had provided improper jury instructions, and sua sponte, entered judgment for the plaintiff as a matter of law on both the NCPA and FDCPA claims. The district court specifically ruled that the NCPA does not allow collection of prejudgment interest by a debt collector without an actual judgment. The defendants appealed.
On appeal, the 8th Circuit focused on whether the plaintiff had standing. The appellate court held that the collection letter did not cause the plaintiff concrete harm, and concluded (quoting TransUnion LLC v. Ramirez, citing Spokeo, Inc. v. Robins) that without a concrete injury in fact, she “is ‘not seeking to remedy any harm to herself but instead is merely seeking to ensure a defendant’s compliance with regulatory law (and, of course, to obtain some money via the statutory damages).’” Without suffering a tangible harm, the appellate court said it could only recognize injuries with “a ‘close relationship’ to harm ‘traditionally’ recognized as providing a basis for a lawsuit in American courts.” The plaintiff pointed to fraudulent misrepresentation and conversion as analogous to her alleged injury, but the appellate court disagreed and determined that the consumer could not establish injury sufficient to satisfy Article III standing. In vacating and remanding the district court’s ruling, the 8th Circuit pointed out that, absent standing, it lacked jurisdiction to decide any other issues raised on appeal.
District Court says undated collection letter is misleading
On February 9, the U.S. District Court for the Southern District of Florida partially granted a defendant debt collector’s motion to dismiss an action alleging an undated collection letter violated various provisions of the FDCPA. Plaintiff received a collection letter from the defendant providing information on the amount of outstanding debt and instructions on how to dispute the debt, as well as a timeframe for doing so. However, the letter sent to the plaintiff was undated, and the plaintiff asserted that it was impossible for him to determine what “today” meant when the letter said “‘[b]etween December 31, 2021 and today[,]’” or what “now” referred to in the context of “[t]otal amount of the debt now.” He argued that by withholding this necessary information, the letter appeared to be illegitimate and misleading, and ultimately caused him to spend time and money to mitigate the risk of future financial harm. The defendant moved to dismiss for failure to state a claim, maintaining that the letter “fully and accurately stated the amount of the debt and otherwise complied with all requirements of the [statute].” The defendant further argued that the letter “conforms exactly to” the debt collection model form letter provided by the CFPB, and insisted that, because it complied with 12 C.F.R. § 1006.34(d)(2), it fell within the safe harbor provided by Bureau regulations to debt collectors that use the model form letter. The defendant contended that, even if it did not qualify for the safe harbor provision, it is not a violation of the FDCPA for a debt collection letter to be undated. The plaintiff asked the court to ignore the Bureau’s safe harbor provision and find that the undated letter is sufficient to state a plausible FDCPA claims.
In dismissing one of plaintiff’s claims, the court agreed with the defendant that the plaintiff failed to provide any factual or plausible allegations demonstrating “harass[ment], oppress[ion], or abuse” by the defendant (a requirement for alleging a violation of 15 U.S.C. section 1692d). “An undated letter, with little else, is not ‘the type of coercion and delving into the personal lives of debtors that [section] 1692d in particular[] was designed to address,” the court wrote.
However, the court determined that the plaintiff’s other three claims survive the motion to dismiss. First, the court held that the defendant’s reliance on the model form letter “overstates both the meaning and scope of the regulatory safe harbor provided by the CFPB.” Specifically, the plaintiff did not allege that the defendant violated any CFPB regulations—he alleged violations of the FDCPA, and the court explained that nowhere does the Bureau state that using the model form letter “suffices as compliance with the corresponding statutory requirements of [FDCPA] section 1692g.” Moreover, while use of the model form might provide a safe harbor from some of the statute’s requirements, “a safe harbor for the form of provided information is different from a safe harbor for the substance of that information,” the court said, adding that using the model form letter alone does not bar plaintiff’s claims. Additionally, the court determined that under the “least-sophisticated consumer” standard, the plaintiff alleged plausible claims for relief based on the omission of the date in the letter. Among other things, the undated letter could be interpreted as not stating the full amount of the debt, nor does the letter provide a means for plaintiff to assess how the debt might increase in the future if he did not make a prompt payment. With respect to whether the defendant used “unfair or unconscionable means to collect” the debt, the court determined that the undated letter’s misleading nature as to the full amount of the debt might “be ‘unfair or unconscionable’ to the least-sophisticated consumer.”
2nd Circuit says collection letter sent on law firm letterhead did not violate FDCPA
On February 13, the U.S. Court of Appeals for the Second Circuit affirmed summary judgment in favor of a defendant law firm accused of violating the FDCPA when it sent the plaintiff a collection letter on law firm letterhead. The plaintiff claimed both that the letter overshadowed her validation notice by failing to advise her that her validation rights were not overridden because her account had been placed with a law firm and that the letter falsely implied it was a communication from an attorney even though no attorney was meaningfully involved in collecting the debt, which courts have found is prohibited under the FDCPA. The district court granted summary judgment to the defendant on both grounds. The district court held that “because there was meaningful attorney involvement in the collection of plaintiff’s debt,” the letter was not required to include a disclaimer regarding the lack of attorney involvement in the debt collection effort. Additionally, the district court held that because the letter did not refer to any consequences should the plaintiff fail to repay the outstanding debt, “the mere fact that [the] Collection Letter is printed on law firm letterhead does not, by itself, imply an immediate threat of legal action overshadowing a validation notice in violation of the FDCPA.” The plaintiff appealed.
In affirming the grant of summary judgment, the appellate court rejected the plaintiff’s argument that, because several of the steps the attorney supposedly followed were “performed by non-attorneys,” were “automated,” or could have been completed in a minimal amount of time, there was not meaningful attorney involvement. According to the 2nd Circuit, even if these facts were true, they did not refute the attorney’s “statement that he conducted a meaningful legal analysis of [plaintiff’s] account and ‘formed an opinion about how to manage [the] case.’” “We have never established a specific minimum period of review time to qualify as meaningful attorney involvement, and the only function that [plaintiff] has identified that [defendant] did not perform before approving the letter was establishing a specific plan to sue in the event of non-payment.” Consequently, the appellate court concluded that the FDCPA did not require the defendant to provide a disclaimer in its initial collection letter to the plaintiff.
Massachusetts AG reaches $6.5M settlement over deceptive auto-renewal and collection practices
The Massachusetts attorney general recently reached a $6.5 million settlement with a home security services company, its sister companies, and its CEO to resolve allegations that the defendants violated Massachusetts consumer protection laws by trapping customers in auto renewal contracts and engaging in illegal debt collection practices. The final judgment by consent, filed in Suffolk County Superior Court, resolves a 2019 lawsuit alleging the defendants engaged in unfair and deceptive tactics to prevent customers from canceling their contracts, charged for services during system outages or for services that were never provided, steered customers into contract renewal instead of cancellation, and engaged in aggressive and illegal debt collection practices. Under the terms of the settlement, the defendants are required to pay $1.8 million and waive and forgive $4.7 million of outstanding customer debt. Although they denied the allegations, the defendants have agreed to implement changes to their business practices, including taking measures to come into compliance with the attorney general’s debt collection regulations, offering credits to customers who purchased non-functional systems that cannot be repaired, implementing new complaint procedures, and permitting existing customers to cancel their contracts by telephone, email, and web portal. Additionally, the defendants will make several revisions to the terms of their contracts relating to auto-renewal practices, monitoring charges, cancellation policies and procedures, late fees and other costs.
CFPB finds 33 percent decline in collections tradelines on credit reports
On February 14, the CFPB released a report examining debt collection credit reporting trends from 2018 to 2022. The Bureau’s report, Market Snapshot: An Update on Third-Party Debt Collections Tradelines Reporting, is based on data from the agency’s Consumer Credit Panel—a nationally representative sample of roughly five million de-identified credit records maintained by one of the three nationwide credit reporting companies. According to the report, from Q1 2018 to Q1 2022, the total number of collections tradelines on credit reports declined by 33 percent, from 261 million tradelines in 2018 to 175 million tradelines in 2022. The Bureau determined that this decline was driven by contingency-fee-based debt collectors (responsible for primarily furnishing medical collections tradelines), who furnished 38 percent fewer tradelines during this time period. The total number of unique contingency-fee-based debt collectors also declined by 18 percent (from 815 to 672).
In a related blog post, the Bureau estimated that while medical collections tradelines declined by 37 percent between 2018 and 2022, these tradelines still constitute a majority (57 percent) of all collections on consumer credit reports. The Bureau explained that the “decline may be partly explained by structural dysfunctions in medical billing and collections, which increase the risk that debt collectors will not meet their legal obligations” and can result in false and inaccurate information. The Bureau said it will continue to closely examine medical billing and collection practices and highlighted a bulletin published in January 2022, which reminded debt collectors and credit reporting agencies 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. (Covered by InfoBytes here.)
District Court approves $1.95 million TCPA settlement
On February 7, the U.S. District Court for the Eastern District of Missouri granted final approval to a $1.95 million settlement in a class action TCPA suit concerning allegations that a defendant debt collection company placed calls to consumers’ cell phones through the use of an artificial or prerecorded voice without first obtaining consumers’ prior express consent. The plaintiff also claimed that the defendant allegedly repeatedly delivered artificial or prerecorded voice messages to wrong or reassigned cell phone numbers that did not belong to the intended recipient. According to the plaintiff, the defendant continued to place calls to his cell phone even after he informed a company representative that it had the wrong number and that he did not know the individual the defendant was attempting to reach. The plaintiff sued alleging violations of Section 227(b)(1)(A)(iii) of the TCPA. While denying all liability alleged in the lawsuit, the defendant agreed to the terms of the settlement agreement, which defines class members as “[a]ll persons in the United States who (a) received a call from [the defendant] between December 16, 2017 and July 7, 2022 on their cellular telephone, (b) with an artificial or prerecorded voice, (c) for which [the defendant’s] records contain a ‘WN’ designation and an ‘MC’ and/or ‘MD’ notation.” The defendant is required to establish a $1.95 million settlement fund, pay $650,00 in attorneys’ fees and $10,477 in costs and expenses, and pay a $10,000 incentive award to the named plaintiff.