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8th Circuit affirms decision in FDCPA case
On September 6, the U.S. Court of Appeals for the Eighth Circuit affirmed a district court’s order to grant a defendant’s motion for judgment on the pleadings in an FDCPA suit. According to the opinion, the defendant sent the plaintiff a debt collection letter identifying the plaintiff as the attorney for a consumer named in the letter. The consumer was not the plaintiff’s client, the consumer had never identified the plaintiff as her attorney to anyone, and the plaintiff had never identified himself as the consumer’s attorney. When the plaintiff was unable to recognize the consumer’s name, he engaged in an extensive search of his files and records to determine if he had ever represented the consumer, and “found nothing to indicate that she was a past or present client.” The plaintiff filed suit, asserting that the defendant violated § 1692c(b) of the FDCPA when it contacted him regarding the debt of a consumer whom he did not represent and without the consumer’s consent. The plaintiff alleged that he suffered injury as a result of the violation, because his search for the consumer’s records cost him “valuable time and resources that he could have spent working on matters for actual clients.” The district court ruled that the defendant’s letter violated § 1692c(b) but said that the plaintiff lacked standing to sue under the statute and entered judgment on the pleadings against the plaintiff.
On appeal, the 8th Circuit agreed with the district court that the defendant violated the FDCPA when it sent the letter to the attorney, but also agreed with other circuit courts that non-consumers cannot bring § 1692c(b) claims. The appellate court noted that “[b]ecause the purpose of § 1692c(b) is to protect consumers alone, we conclude that [the plaintiff] falls outside § 1692c(b)’s ‘zone of interests’ and thus cannot invoke the protection afforded by it.” The 8th Circuit rejected the plaintiff’s argument that the proper course of action was to remand the case back to state court, where it was originally filed, and affirmed that the decision “was a ruling on the merits of [the plaintiff’s] claim, not on the district court’s jurisdiction.”
District Court rules non-judicial foreclosure claims fail
On August 30, the U.S. District Court for the District of Oregon granted defendants’ motion for summary judgment in an action concerning an allegedly unlawful non-judicial foreclosure. Plaintiffs obtained a cash-out loan in 2005 and modified their mortgage terms. The plaintiffs stopped making payments after one of the defendant loan servicer’s agents allegedly informed them that “help was only available if they were in default,” and the defendant loan servicer threatened foreclosure. Following several years of bankruptcy proceedings and foreclosure mediation, plaintiffs sued to stop the foreclosure proceedings, claiming “that the deed of trust was void and that defendants committed fraud in attempting to foreclos[e] on the debt.” The initial non-judicial foreclosure proceedings were rescinded after the suit was dismissed with prejudice, and the defendant loan servicer was eventually allowed to proceed with a second non-judicial foreclosure under Oregon law. Plaintiffs sent a dispute letter demanding that the foreclosure be rescinded because the order in which several notices of default showing the amounts due and the amounts necessary to reinstate were sent did not comply with state law. After the notice was rescinded and a new notice of default was issued and recorded, plaintiffs sued again, seeking to enjoin the defendant trustee’s sale and filing several claims, including breach of contract and violations of the Oregon Unfair Trade Practices Act (OUTPA), RESPA, and FDCPA.
In granting summary judgment to the defendants on each of the claims, the court determined that the breach of contract claim fails because plaintiffs acknowledged that because “they have not substantially performed under the relevant contract,” they are precluded from seeking damages. The FDCPA claim against the defendant trustee also fails “because it is based on a perceived lack of authority under the relevant contract, but as explained in the breach of contract claim, that authority was not lacking.” Finally, the OUTPA and RESPA claims both fail “because there is no evidence that they incurred damages arising out of either claim”—a required element under both statutes, the court said. According to the court, plaintiffs failed “to support their drastic allegations with relevant evidence” and failed to “point to specific evidence supporting valid legal claims.”
District Court grants summary judgment for defendant in FDCPA suit
On August 25, the U.S. District Court for the Southern District of Indiana granted a defendant’s motion for summary judgment in an FDCPA case, finding that the plaintiff did not suffer a concrete injury after receiving two collection letters from the defendant’s attorneys on the same day. According to the order, the plaintiff had a medical debt that was placed with the defendant for collection. The defendant sent a bill to the plaintiff, but because the plaintiff was unemployed when she received it, she did not make a payment, and “planned on setting up a payment plan once she obtained a ‘steady income.’” A month after sending the bill, the defendant called the plaintiff, and during the call, the plaintiff noted that she was considering filing for bankruptcy. The plaintiff subsequently retained an attorney to assist with a bankruptcy filing. Later that year, the plaintiff received two letters on the same day from the defendant, from two separate attorneys, both requesting that she pay the bill. The plaintiff sued the defendant, alleging that the collection letters violated the FDCPA because they falsely implied that the defendant’s attorneys were personally involved in the collection of her debt. The plaintiff claimed that she experienced concrete harm after receiving the letters in the form of emotional stress and confusion, which affected her decision whether to repay the debt or file for bankruptcy protection. The court granted the defendant summary judgment, deciding that the plaintiff lacked standing because she did not provide “evidence of specific facts showing that the collection letters caused her to take any action to her detriment, including making a payment on the debt or filing bankruptcy.” The court also found that “’[p]sychological states induced by a debt collector’s letter’—including emotional distress and confusion—are not concrete injuries.”
California appellate court overturns ruling for collector that stapled note to summons
On August 23, the California Sixth Appellate District overturned summary judgment in favor of a collector (defendant) that was sued for FDCPA and the Rosenthal Fair Debt Collection Practices Act violations. According to the court, the plaintiff incurred an unpaid medical debt, which was referred to the defendant for collection. The defendant sent the plaintiff eight letters; however, the plaintiff was allegedly not aware that the hospital assigned the debt to a debt collector and did not pay the debt. The defendant filed a collection suit against the plaintiff, seeking to recover the unpaid medical debt. The defendant stapled a typewritten note to the summons, which read, “If you have any questions regarding this matter, please contact: []” in English and Spanish. The plaintiff filed a complaint, accusing the defendant of violating the FDCPA and the Rosenthal Act, alleging that “it was unlawful for [the defendant] to send the attachment with the summons and the complaint because the attachment appeared to be a message from the court and did not contain language disclosing that it was sent by a debt collector.” The trial court granted the defendant’s motion for summary judgment, ruling that the communication was lawful, and denied the plaintiff’s cross-request for summary judgment.
On the appeal, the defendant argued that "the attachment is not a ‘communication’ within the meaning of either statute, on the theory that the attachment itself says nothing about the debt." However, the appellate court wrote that the note was not sent “in a vacuum: The attachment, summons, and complaint comprised a collection of documents delivered by a process server—personally to [the plaintiff’s] girlfriend and then by mail to [the plaintiff].” The appellate court further noted that the reference to “this matter” in the note “unmistakably signified the litigation initiated by the accompanying complaint pleading [the plaintiff’s] indebtedness and the amount and source of indebtedness in a common count cause of action.” With regard to whether the note was a communication in connection with the collection of a debt, the appellate court noted that it “fail[ed] to conceive of any subject other than debt collection [the defendant] might think the communication was in connection with. The message in the attachment refers to the existence of a debt, conveys information regarding the debt, and serves the purpose of debt collection by enticing the recipient to contact the debt collector.” The appellate court concluded that “[b]y omitting the mandatory disclosure that this attachment was from [the defendant], a debt collector, [the defendant] made it reasonably likely that the least sophisticated consumer would believe the suggestion to call [the defendant] was from the court that issued the summons to which the suggestion was affixed. [The defendant’s] communication was therefore deceptive.”
District Court rules use of “obligation” in collection letter carries “litigious connotations”
On August 11, the U.S. District Court for the District of New Jersey denied a defendant debt collector’s motion for judgment on the pleadings, ruling that using the word “obligation” in a letter suggested that a time-barred debt was legally enforceable. The plaintiff received a letter in 2022 seeking to recover unpaid debt that had been in default since August 2017 (the statute of limitations for collecting the debt had expired in August 2021). The letter included language stating: “We recognize that a possible hardship or pitfall may have prevented you from satisfying your obligation. We are presenting three options to resolve your balance. We are not obligated to renew this offer.” The letter also stated that it was an attempt to collect a debt and that “any information obtained will be used for that purpose.” The plaintiff sued for violations of Sections 1692e(2)(A), 1692e(5), and 1692e(10) of the FDCPA, claiming the defendant’s letter offered payment options for time-barred debt. The defendant moved for judgment on the pleadings, arguing that that the claims fail because the letter did not include language that could lead the plaintiff to believe that the time-barred debt could be legally enforced.
The court reviewed whether the phrase “satisfying your obligation” would confuse the least sophisticated debtor, and eventually determined that the word “obligation” carried “litigious connotations” and therefore was “closer to ‘settlement’ and other impermissible language than it is to permissible language such as ‘satisfy.’” According to the court, “[i]t is more than plausible, and even likely, that the least sophisticated debtor would understand that their ‘obligation’ is a duty to pay that a creditor could enforce in court through the commencement of litigation.” The court also explained that Congress intended “obligation” as used in the FDCPA to mean “a legal duty arising from mutual promises to pay on the one hand and to perform services or provide goods on the other,” including “one susceptible to being ‘reduced to judgement.’” As such, the court concluded that when viewing the letter in its entirety, it appeared to be “carefully crafted to push the envelope of acceptable language under the FDCPA while maximizing the chance of collecting from debtors.”
5th Circuit overturns decision in FDCPA suit
On August 15, the U.S. Court of Appeals for the Fifth Circuit overturned a district court’s grant of class certification in an FDCPA case, ruling that the plaintiff lacked standing. According to the opinion, the plaintiff incurred a debt after failing to pay her utility bills. The city hired a law firm who tried to collect the debt by sending the plaintiff a form letter demanding payment. Her debt had become delinquent four years and one day before the defendant sent its letter, which, under Texas law is “unenforceable.” The plaintiff filed suit against the law firm alleging that it had violated the FDCPA by making a misrepresentation in connection with an attempt to collect her debt. The plaintiff also sought to represent a class of Texas consumers who received the same form letter from the defendant regarding their time-barred debts. The district court rejected the defendant’s claim that the plaintiff lacked standing to bring suit, holding “that the violation of the plaintiff’s statutory rights under the FDCPA constituted a concrete injury-in-fact because those rights were substantive, not procedural.” The district court also “maintained that [the plaintiff’s] confusion qualified as a concrete injury-in-fact.”
On the appeal, the 5th Circuit reversed, finding that the plaintiff did not suffer a concrete injury and therefore lacked standing. The court held that the Supreme Court’s ruling in TransUnion v. Ramirez (covered by InfoBytes here) foreclosed the plaintiff’s theories that a violation of statutory rights under the FDCPA or accidentally paying a time-barred debt are concrete injuries. The appellate court noted that consulting with an attorney and not making a payment is not a concrete injury under Article III, stating that it is “not aware of any tort that makes a person liable for wasting another’s time.”
10th Circuit says materiality is determined through the perspective of the “reasonable consumer”
On August 8, the U.S. Court of Appeals for the Tenth Circuit upheld the dismissal of an FDCPA action, concluding that an alleged false or misleading communication must be material in order to be considered a violation of the statute, and that materiality is determined through the perspective of the “reasonable consumer.” The plaintiff, a student loan debtor, alleged that he received a letter attempting to collect on debt from the defendant. The defaulted debt in question had been sold to a federal student-loan guaranty agency (creditor), which contracted with the defendant to collect the debt. According to the plaintiff, the letter appeared as if it were sent by the creditor, primarily because the letter displayed the guaranty agency’s name and logo instead of the defendant’s own information. According to the plaintiff, the letter violated several sections of the FDCPA, which prohibit the use of false representations or deceptive means to collect a debt or obtain information concerning a consumer and require a debt collector to use their “true name.” The district court dismissed the action for failure to state a claim, ruling that the letter in question was not misleading and that the plaintiff failed to establish that the defendant used materially misleading, unfair, or unconscionable means to collect the debt.
On appeal, the 10th Circuit held that “a reasonable consumer would not be misled,” because the letter (i) identifies the creditor as “the holder of a defaulted federally insured student loan”; (ii) states that the letter “is an attempt, by a debt collector, to collect a debt”; and (iii) clarifies that the defendant “is assisting [the creditor] with administrative activities associated with this administrative wage garnishment.” Moreover, “[e]ven assuming a reasonable consumer would believe [the creditor] and not [the defendant] sent the letter, [the plaintiff] fails to demonstrate how that would frustrate the reasonable consumer’s ability to respond intelligently,” the appellate court wrote.
In its determination, the 10th Circuit also considered differences related to the “least sophisticated consumer” and a “reasonable consumer” in determining how materiality should be measured. According to the appellate court, even the courts that apply the least sophisticated consumer standard tend to agree that the consumer’s interpretation must be reasonable, thereby incorporating aspects of the reasonable consumer standard. The 10th Circuit pointed out that while many courts have referenced the “least sophisticated consumer” in their rulings, few actually use that perspective. “In applying the least sophisticated consumer standard, courts typically begin by noting the least sophisticated consumer is not an expert but then quickly explain he is not actually the least sophisticated consumer,” the 10th Circuit said, adding that “[i]n reality, the nebulous least sophisticated consumer standard is simply a misnomer. A few circuits, recognizing problems with the least sophisticated consumer standard, instead look to the ‘unsophisticated consumer.’” The appellate court concluded that, assuming “the reasonable consumer would read a communication in its entirety and make sense of a communication by assessing it as a whole and in its context,” no reasonable consumer would have been materially misled.
Minnesota fines debt collector for violating earlier consent order
Recently, the Minnesota Department of Commerce issued a consent order assessing $20,000 in fines to a debt collector accused of violating a 2020 consent order. The state previously entered into a consent order with the debt collector, in which it agreed to cease and desist from violating the FDCPA and state law after it was found to have, among other things, commingled funds and allowed agents to work from unlicensed branch locations. The state later found that the debt collector allegedly continued to violate state and federal law by collecting on payday loans from unlicensed lenders and failing to provide meaningful disclosures on telephone calls or register several of its agents as debt collectors in the state. As a result, the state ordered the debt collector to pay the stayed portion of the 2020 fine ($19,000), as well as a $25,000 civil penalty of which $24,000 is stayed. If the stay has not been lifted by December 31, 2025, the remaining portion of the civil penalty will be vacated provided the debt collector does not commit any further violations.
District Court rules nonsignatory to credit card agreement cannot compel arbitration in debt collection case
On July 11, the U.S. District Court for the Central District of California denied a law firm defendant’s motion to compel arbitration in an FDCPA case. According to the order, the plaintiff’s credit card, opened with a South Dakota-based bank, was stolen and charged more than $8,500. The plaintiff claimed that the original creditor did not investigate, refused to remove the charges, and attempted to collect on the debt. The creditor filed suit against the plaintiff to collect, and the plaintiff sought to move the case to arbitration. The creditor placed the account with the defendant, a debt collection law firm, whom the plaintiff then sued in federal court alleging unlawful collection attempts. The defendant sought to compel arbitration, based on the arbitration clause in the original agreement between the plaintiff and the creditor. The district court held that South Dakota law governed the card agreement, and a court ruling from that state’s Supreme Court held that nonsignatories to an arbitration agreement can compel arbitration only where (i) the plaintiff alleged “substantially interdependent and concerted misconduct” between the signatory and nonsignatory; or (ii) the plaintiff’s claims against the nonsignatory arises out of the agreement. The district court stated that the plaintiff did not allege, nor could the district court infer, that the defendant worked “in concert” with the creditor to unlawfully collect the debt, but rather that it did not follow reasonable procedures under the FDCPA. Additionally, the district court held that the plaintiff’s claims did not arise out of the arbitration provision. Therefore, the nonsignatory defendant could not rely on the provision to compel arbitration.
District Court grants TRO and preliminary injunction in FDCPA case
On July 7, the U.S. District Court for the Central District of Illinois granted a motion for a temporary restraining order and preliminary injunction against a defendant in an FDCPA case. In the motion, two individual plaintiffs claimed that the defendant called them 20 times in a three-day period and said he will continue calling “family, friends, and business interests until the [plaintiffs’] adult son’s debts are paid.” The plaintiffs’ attorney sent a notice to the defendant indicating that the plaintiffs were being represented and to not contact them directly. The defendant allegedly responded that he “does not intend to cease or desist.” After communicating with the plaintiffs’ attorney, the defendant allegedly called the plaintiffs’ business associates and employees over 40 times over a six-day period. The plaintiffs filed suit, claiming the defendant violated the FDCPA by, among other things, “using obscene language, and repeatedly and continuously calling Plaintiffs with the intent to abuse, annoy or harass,” and “threaten[ing] to sue them for debts that they do not owe.” According to the order, the defendant argued that the underlying debt is a business debt and thus not subject to the FDCPA. The district court found that the defendant “declined to present any evidence and refused the opportunity to testify under oath.” Ultimately, the district court stated that the plaintiffs “seek an injunction that only goes so far as to require Defendants’ compliance with the law.” Further, the district court noted that the defendant “will suffer no harm in that they are only being ordered to do that which is already legally required of them.”