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Sixth Circuit rules borrowers lack standing under FDCPA
On February 16, the U.S. Court of Appeals for the Sixth Circuit held that a letter sent from an attorney on behalf of a mortgage servicing company to consumers violated the Fair Debt Collection Practices Act (FDCPA), but because the alleged violation did not meet the “injury in fact” requirement for standing, the consumers had no standing to sue. According to the opinion, the letter confirmed receipt of an executed warranty deed in lieu of foreclosure and reaffirmed that the mortgage servicer would “not attempt to collect any deficiency balance.” When the mortgage servicer attempted to collect the debt, the consumers cited the letter and the servicer agreed that nothing was owed. However, the consumers sued the attorney and the mortgage servicer claiming that the letter violated the FDCPA and the Ohio Consumer Sales Practices Act because it did not include a notice that it was from a debt collector. The claims against the servicer were resolved through arbitration, but a district court ruled that the attorney violated Ohio law for failing to include the appropriate disclosures. The attorney appealed, arguing that the consumers did not have standing to assert their federal and state law claims. However, citing the Supreme Court ruling in Spokeo, Inc. v. Robins, the Sixth Circuit held that the consumers must show more than a “bare procedural violation.” Even though the letter lacked the required disclosures required by the FDCPA, this lack of disclosures caused no harm to the consumers, and in fact, the “letter was good news when it arrived, and it became especially good news when [the servicer] persisted in trying to collect a no-longer-collectible debt.” Because the letter created no cognizable injury, the Sixth Circuit reversed the district court’s decision and dismissed the claims brought under the FDCPA and the Ohio Consumer Sales Practice Act for lack of standing.
Supreme Court denies writ challenging data breach standing
On February 20, the U.S. Supreme Court denied without comment a medical insurance company’s petition for writ of certiorari to challenge an August 2017 D.C. Circuit Court of Appeals decision, which reversed the dismissal of a data breach suit filed by the company’s policyholders in 2015. According to the D.C. Circuit opinion, the policyholders sued the medical insurance company after the company announced that an unauthorized party had accessed personal information for 1.1 million members. The lower court dismissed the policyholder’s case, holding that they did not have standing because they could not show an actual injury based on the data breach. In reversing the lower court’s decision, the D.C. Circuit, citing the Supreme Court ruling in Spokeo, Inc. v. Robins, held that it was plausible that the unauthorized party “has both the intent and the ability to use [the] data for ill.” This was sufficient to show that the policyholders had standing to bring the claims because they alleged a plausible risk of future injury.
D.C. Circuit will not rehear False Claims suit against national bank
On February 16, the U.S. Court of Appeals for the D.C. Circuit denied a petition for an en banc rehearing of its December 2017 ruling affirming the dismissal of a False Claims Act suit against a national bank. The petition resulted from a 2013 lawsuit filed by a consumer against the bank, which alleged, among other things, that the bank falsely asserted that it had complied with certain obligations under the 2012 National Mortgage Settlement (the “Settlement”). The district court dismissed the suit, finding that the consumer lacked standing because he did not exhaust the required dispute resolution procedures contained in the Settlement. In December 2017, the D.C. Circuit affirmed the dismissal but disagreed with the lower court’s reasoning. According to the appellate opinion, the circuit court held that the consumer’s second amended complaint did not contain any allegedly false or deceptive statements made by the bank to the government-approved settlement monitor and that ultimately, “the decisive point is that the Monitor was aware of the practices and concluded that [the bank] was in compliance.”
3rd Circuit rules settlement offer for time-barred debt could violate FDCPA
On February 12, the U.S. Court of Appeals for the 3rd Circuit held that a collection letter offering a settlement on a time-barred debt could violate the prohibition against "any false, deceptive, or misleading representation or means in connection with the collection of any debt” of the Fair Debt Collection Practices Act (FDCPA). According to the opinion, the plaintiff filed a class action complaint against the debt collector after receiving a letter stating that the debt collector would accept a partial “settlement” of the delinquency amount, which was past the New Jersey six-year statute of limitations. The lower court granted the debt collector’s motion to dismiss, finding that the letter did not contain a threat of legal action by the use of the word settlement and therefore, did not violate the FDCPA. In reversing the lower court’s decision, the 3rd Circuit concluded that the “least-sophisticated debtor could be misled into thinking that ‘settlement of the debt’ referred to the creditor’s ability to enforce the debt.” In its conclusion, the appellate court also noted that settlement offers of time-barred debts “do not necessarily constitute deceptive or misleading practices” under the FDCPA and remanded the case back to the lower court for review.
NJ appeals court says consumer should have litigated issues in original foreclosure action
On January 31, the Superior Court of New Jersey Appellate Division affirmed the lower court’s decision that a widower (plaintiff) should have raised improper foreclosure allegations during the final foreclosure action and cannot subsequently litigate the issues in a different forum. According to the opinion, in 2009, the bank initiated a foreclosure complaint against the plaintiff’s husband (borrower) and the borrower raised no defenses to the complaint. The borrower then initiated a modification request, which the bank ultimately denied due to title liens, and a final foreclosure judgment was entered at the end of 2010. The borrower filed an appeal to the foreclosure action but the plaintiff ultimately withdrew it after the borrower died. The current litigation was filed after the final foreclosure judgment was entered and asserted, among other things, that the foreclosure was improper due to the modification curing the default. The lower court dismissed two of the plaintiff’s claims because she was not a party to the original mortgage or modification attempt and granted summary judgment for the bank on the remaining claims because the “issue of the enforceability of the 2010 loan modification agreement is at the heart of plaintiff's claims and was directly related to the foreclosure action and should have been raised as part of that litigation.” The appeals court agreed with the lower court’s reasoning noting that the plaintiff “attempted to litigate the same issue in two forums.”
10th Circuit says FCBA claim ends if credit account is paid
On January 26, the U.S. Court of Appeals for the 10th Circuit affirmed a District Court’s decision dismissing a consumer’s claim that, under the Fair Credit Billing Act (FCBA), two credit card providers (collectively, defendants) must refund his accounts after a merchant failed to deliver goods purchased using credit cards issued by the defendants. The FCBA allows consumers to raise the same claims against credit card issuers that can be raised against merchants, but limits such claims to the “amount of credit outstanding with respect to [the disputed] transaction.” According to the opinion, the consumer ordered nearly $1 million in wine from a merchant and prior to delivery of the complete order, the merchant declared bankruptcy. The consumer filed lawsuits against each credit card provider in the U.S. District Court for the District of Colorado seeking a refund to his credit accounts for the amounts of the undelivered wine. The District Court dismissed the suits against both defendants because the consumer had fully paid the balance on his credit cards. In affirming the District Court’s decision, the 10th Circuit concluded that because “‘the amount of credit outstanding with respect to’ the undelivered wine is $0” the consumer had no claim against the defendants under the FCBA.
10th Circuit reverses lower court decision in mortgage action
On January 23, the U.S. Court of Appeals for the 10th Circuit reversed a District Court’s decision dismissing a borrower’s claims against a lender and mortgage loan servicer (collectively, “defendants”) under the Rooker-Feldman doctrine, which prohibits lower federal courts from reviewing state court civil judgments. Colorado maintains a unique procedure for non-judicial foreclosure. Specifically, under Rule 120 of the Colorado Rules of Civil Procedure (“Rule 120”) a trustee is required to obtain a trial court ruling that a “reasonable probability” of default exists before moving forward with a non-judicial foreclosure. According to the opinion, in 2014, the defendants initiated a non-judicial foreclosure proceeding against the borrower through the Rule 120 process. Prior to completing the sale, however, the borrower filed suit in the U.S. District Court for the District of Colorado seeking, among other things, an injunction against the sale, damages, and cancellation of the promissory note. Relying on the Rooker-Feldman doctrine, the District Court dismissed the borrower’s suit as an attempt to unwind the results of the Rule 120 proceedings. The 10th Circuit reversed this decision based on its finding that the borrower’s suit did not challenge the Rule 120 state court decision, but rather took issue with the defendant’s actions prior to the state court proceedings. In reaching this conclusion, the 10th Circuit noted that even if the borrower had filed suit after the Rule 120 judgment had been entered, unless the borrower was alleging the state court wrongfully entered the judgment, the suit would not be barred by Rooker-Feldman.
Fifth Circuit rules that loan-modification discussions resulting in foreclosure do not violate TDCA
On January 22, the U.S. Court of Appeals for the Fifth Circuit affirmed a lower court’s decision that a loan-modification discussion between two borrowers and a mortgage servicer did not constitute a debt collection activity under the Texas Debt Collection Act (TDCA). After two borrowers defaulted on their home equity loan, they were encouraged by their mortgage servicer to apply for a modification under the Home Affordable Modification Program (HAMP). When the borrowers learned that they were, in fact, ineligible for a HAMP modification, due to state law restrictions, the borrowers filed suit against the creditor and the mortgage servicer (the “creditors”). Specifically, the borrowers alleged that the creditors violated the TDCA’s prohibition against using false representations or deceptive means to collect a debt by suggesting that the borrowers apply for a HAMP modification for which they did not qualify. The three-judge panel rejected this argument for two reasons. First, the court found that the borrower and creditors conversation about a modification did not “concern the collection of a debt” and thus the conduct was not subject to the TDCA. Second, even if the conduct were covered, the court found that the creditor had not affirmatively represented that the borrowers would qualify for a HAMP modification and, thus, under the TDCA’s prohibition against using false representations and deceptive means to collect a debt, no liability could ensue.
FSOC agrees to dismiss SIFI designation appeal
On January 23, the U.S. Court of Appeals for the D.C. Circuit dismissed an appeal by the Financial Stability Oversight Council (FSOC) after both parties filed a joint stipulated motion to voluntarily dismiss the case. The litigation began in 2015 when a national insurance firm sued FSOC over its designation of the firm as a nonbank systemically important financial institution (SIFI). In March 2016, the district court issued its opinion agreeing with the insurance firm and finding the FSOC determination arbitrary and capricious because it failed to consider the financial impact the SIFI designation would have on the firm. FSOC appealed the court’s ruling but after a change in FSOC leadership, agreed to jointly dismiss the appeal with the insurance firm.
For more InfoBytes coverage on SIFIs, click here.
11th Circuit denies revival of TCPA suit
On January 22, the U.S. Court of Appeals for the Eleventh Circuit denied an Ohio-based bank’s request for a rehearing en banc. Last August, the three-judge panel reinstated a suit accusing the bank of violating the Telephone Consumer Protection Act (TCPA) when it allegedly made “over 200 automated calls” to the consumer plaintiff who claimed to have partially revoked her consent by telling the bank to stop calling at certain times. As previously covered in InfoBytes, the appellate court’s August 2017 decision to remand the case for trial concluded that “the TCPA allows a consumer to provide limited, i.e., restricted, consent for the receipt of automated calls,” and that “unlimited consent, once given, can also be partially revoked as to future automated calls under the TCPA.” Furthermore, the decision made clear that the lower court erred in its decision to grant summary judgment in favor of the bank “because a reasonable jury could find that [the consumer plaintiff] partially revoked her consent to be called in ‘the morning’ and ‘during the workday’” during a phone call with a bank employee.
However, in its en banc rehearing petition, the bank argued that the “ruling is likely to create ambiguity amongst both consumers and callers regarding the ability of consumers to impose arbitrary limits on communications . . . despite the FCC’s consistent and unwavering proclamation that in order to revoke consent, consumers must clearly request no further communications.” The appellate court’s decision to deny the petition provides no explanation aside from noting that none of its active judges requested that the court be polled on a rehearing en banc.