Archive for FDCPA

5th Cir. Holds Threat of Lawsuit to Collect Partially Time-Barred Debt Did Not Violate FDCPA

In a split decision, the U.S. Court of Appeals for the Fifth Circuit recently decided that attorneys representing a condominium association did not violate the federal Fair Debt Collection Practices Act by threatening non-judicial foreclosure on debt that was partially but not fully time barred.

A copy of the opinion in Mahmoud v. De Moss Owners Ass’n Inc. is available at:  Link to Opinion.

The plaintiffs owned a condominium in Houston, Texas. They sued the condominium ownership, its management company and its collection lawyers concerning their efforts to collect assessments and other charges under the association’s declaration and related documents.

At the trial court level, the plaintiffs alleged common law claims of breach of contract, wrongful foreclosure, negligent misrepresentation, breach of fiduciary duty and violations of the FDCPA, the Texas Fair Debt Collection Practices Act and the Texas Deceptive Trade Practices Act. The district court granted the defendants’ motion for summary judgment and the plaintiffs appealed.  The Fifth Circuit affirmed the lower court ruling.

By way of background, the assessments stretched back several years. Arguably, some but not all of the debt was beyond the Texas four-year statute of limitations.

The Court was not swayed by the collection law firm’s argument that it was exempt from liability under section 1692f(6) of the FDCPA because it was merely enforcing security interests. The Court relied on its earlier decision in Kaltenbach v. Richards, which held that once a party satisfies the general definition of debt collector, it satisfies the definition for all purposes even when attempting to foreclose on security interests. Here, the Court concluded, there was “no serious contention” that the law firm was not a debt collector.

Turning to the 1692g claim, the collection law firm had sent a two-page letter referencing the debt. The plaintiffs claimed the validation letter “overshadowed” their FDCPA rights because it demanded that the defendants “needed to pay ‘on or before the expiration of thirty (30) days from and after” the date of the letter “or nonjudicial foreclosure would occur.”  However, section 1692g provides that a debtor has 30 days from receipt of a validation letter to make a written dispute which freezes collection activity until the debt collector provides verification. The plaintiffs alleged that the law firm’s demand for payment within 30 days of the date of the verification letter “overshadowed” the longer period provided by section 1692g, which is focused on the date the debtor receives the validation letter.

The Court disagreed, concluding that a “fair interpretation” of the letter demonstrates the plaintiffs were not deprived of their validation rights because the longer 30-day validation language was listed not once, but three times, and in bold type.

Next, the Court addressed the plaintiffs’ claim that the law firm threatened a lawsuit on time-barred debt.  Examining the Texas Property Code, the Court found that condominium assessments were “covenants running with the land” and that the unpaid assessments and other charges constituted a real property lien. The Court noted there was no Texas case law to answer what limitations period covered such real property liens, but assumed, to resolve this case, that the four-year general statute would bar a small portion of the overall debt.

Whether the letter violated the FDCPA for threatening a suit on a time-barred debt provided a more compelling argument. Just last year in Daugherty v. Convergent Outsourcing, Inc., the Fifth Circuit ruled the FDCPA was violated when a letter merely offered to “settle” a time-barred debt, but did not otherwise threaten a lawsuit.

The Court found the facts here contained important distinctions from Daugherty. First, unlike Daugherty, only a portion of the debt was alleged to be time-barred, less than 25 percent. Second, in Daugherty there was no dispute that the limitations period applicable to the entire debt had expired, but here it was uncertain whether the limitations period had run. Finally, because the letter in Daugherty did not disclose that a payment made after the debt was time barred could restart the limitations period, the letter arguably would mislead consumers in taking an action adverse to their interests.

Here, however, the plaintiffs were not misled because the condominium was ultimately foreclosed for the amount that was demanded.

In reaching its conclusion, the Court went to great lengths to stress the nature of the debt (i.e. real estate debt) and hinted that it might not rule favorably if the debt were of another type, like a credit card.

ED NY Holds ‘Door Knocker’ Notice Did Not Violate FDCPA, But ‘Hello Letter’ May Have

The U.S. District Court for the Eastern District of New York recently granted in part and denied in part a mortgage servicer’s motion to dismiss a borrower’s claim that the servicing transfer notice supposedly violated the federal Fair Debt Collection Practices Act (FDCPA) because it allegedly did not disclose that the debt was increasing due to interest, and that a “door knocker” notice posted on the borrower’s door failed to state that it was from a debt collector.

The Court held that under Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016), a debt collector must disclose that a debt is increasing due to interest and fees, and accordingly denied the servicer’s motion to dismiss on that issue.

However, the Court granted the servicer’s motion to dismiss as to the claim that the “door knocker” notice failed to state that it was a communication from a debt collector because the least sophisticated consumer would understand that the letter was from a debt collector.

A copy of the opinion in Baptiste v. Carrington Mortgage Services, LLC is available at:  Link to Opinion.

The mortgage loan servicer began servicing the mortgage when it was in default.  The servicer sent a servicing transfer notice to the borrower and advised him that “going forward, all mortgage payments should be sent to [the servicer], but that ‘[n]othing else about [the] mortgage loan will change.”

The letter also stated “[t]his notice is to remind you that you owe a debt.  As of the date of this Notice, the amount of debt you owe is $412,078.34.”  Id. The notice further stated that the servicer was “deemed to be a debt collector attempting to collect a debt and any information obtained will be used for that purpose.” Id. at *3.

Later, the servicer posted a notice on the door of the debtor’s home stating: “Date 02/23/17 Dear Borrower: Rego Baptiste URGENT NOTICE: Please contact your mortgage servicer immediately at: (800) 561-4567. Thank you.”

The borrower filed suit against the servicer asserting violations of 15 U.S.C. §1692e(10) for failing to disclose in the letter that the balance on his debt was increasing due to interest and of §1692e(11) for failing to state in the notice that it was from a debt collector.

The servicer moved to dismiss.

The Court rejected the servicer’s argument that the notice was not a collection attempt and thus not subject to § 1692e. Instead, the Court found that under Hart v. FCI Lender Servs., Inc., 797 F.3d 219 (2nd Cir. 2015), the notice was a collection attempt because it referenced the debt and directed that payments be sent to the servicer, it referenced the FDCPA and included the required § 1692g notice, and included a statement that it is an attempt to collect a debt.

The Court held that under Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2nd Cir. 2016), when a debt collector notified a debtor of an account balance, it must disclose that the “balance may increase due to interest and fees.” Avila, 817 F.3d at 76.

The Court also rejected the servicer’s argument that Avila should not apply because even a least sophisticated debtor knows that interest continuously accrues on an unpaid mortgage balance and that fees will be incurred if the mortgage is not timely paid. The Court pointed out that because the mortgage was in default at the time the servicer began servicing it, it was subject to the FDCPA and that there was no authority holding that servicers collecting on defaulted mortgages are treated differently than any other debt collectors under the FDCPA.

The Court found that the notice did not meet Avila’s safe harbor requirements and that such a violation would be material because it “could impede a consumer’s ability to respond to . . . collection.”  Id. at *12. Accordingly, the Court denied the motion to dismiss as to the servicing transfer notice.

As for the “door knocker” notice, the Court found that a least sophisticated consumer would “surmise” that it was from the servicer “whom he would know as a debt collector.”  Id. at *12. The Court found this sufficient because the FDCPA “requires no magic words or specific phrases to be used” but only requires that the least sophisticated consumer understand. The Court concluded that “even the least sophisticated consumer would know that a mortgage servicer is a debt collector.”

Accordingly, the Court granted the motion to dismiss as to the “door knocker” notice, but denied the motion as to the servicing transfer notice.

7th Cir. Divided Panel Holds Debt Collector Liable Under FDCPA Despite Changes in Underlying Law at Issue

In a deeply divided opinion, the U.S. Court of Appeals for the Seventh Circuit, in an en banc review, reversed its previous opinion, Oliva v. Blatt, Hasenmiller, Leibsker & Moore, LLC, 825 F.3d 788, 791 (7th Cir. 2016), holding this time that a debt collector that relied upon circuit precedent interpreting the federal Fair Debt Collection Practices Act (FDCPA) venue provision was not protected by the bona fide error defense.

In so ruling, the Court also held that for purposes of compliance with the FDCPA, reliance on court precedent is permitted, but only if there can be no doubt whatsoever as to the accuracy of the prior court’s interpretation of the law.

A link to the opinion is available at:  Link to Opinion.

As you may recall, the FDCPA requires that a debt collector who sues to collect a consumer debt must sue in the “judicial district or similar legal entity” where the debtor lives or signed the contract in question. 15 U.S.C. § 1692i.  In 1996, the Seventh Circuit interpreted “judicial district” to mean a county court, such that when debt collectors were filing suit in Cook County, they could file suit in any of the county’s six municipal districts as long as the debtor resided in Cook County or had signed the underlying contract there. Newsom v. Friedman, 76 F.3d 813, 819 (7th Cir. 1996).

In 2013, relying on Newsom, a debt collection law firm filed suit against a debtor in the First Municipal District of Cook County in downtown Chicago. The debtor did not reside in that district at the time the lawsuit was filed, although he had been a student there when he opened the account and had worked in downtown Chicago.

While the lawsuit was pending, the Seventh Circuit issued a new ruling in Suesz v. Med-1 Solutions, LLC, 757 F.3d 636, 638 (7th Cir. 2014) (en banc), in which it held that the “judicial district or similar legal entity” in § 1692i is “the smallest geographic area that is relevant for determining venue in the court system in which the suit is filed,” which can be smaller than a county if the court system there uses smaller districts. The Suesz Court explained that § 1692i “should prevent debt collectors from choosing venues that are inconvenient for the debtor and/or particularly friendly to the debt collector,” and noted that the “venue provision applies even where the debt collector’s venue selection is permissible as a matter of state law.”  The Suesz Court further explained that “§ 1692i must be understood not as a venue rule but as a penalty on debt collectors who use state venue rules in a way that Congress considers unfair or abusive.”

Thus, Suesz overruled NewsomEight days later the debt collector dismissed the pending lawsuit against the debtor.

The debtor then sued the debt collector under the FDCPA alleging that the debt collector had violated the venue provision in  § 1692i. The parties filed cross-motions for summary judgment and the trial court ruled in favor of the debt collector reasoning that it had shown that its violation of the venue provision was the result of a bona fide error in relying on incorrect circuit precedent. The trial court rejected the debtor’s argument that Suesz should apply retroactively.

The debtor appealed and the Seventh Circuit affirmed, concluding that the safe harbor of the bona fide error defense prevented retroactive application of Suesz. That original holding by the Seventh Circuit would have overruled a string of trial court cases in the U.S. District Court for the Northern District of Illinois in which Suesz was held to retroactively apply to venue under § 1692i. The debtor requested an en banc review asserting that the ruling conflicted with Suesz and the Supreme Court’s ruling in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 576 (2010), which held that the bona fide error defense does not apply to mistakes of law.

The debt collector argued that the FDCPA’s bona fide error defense protected it from liability when it relied in good faith on Newsom in choosing the venue for the collection lawsuit. In addressing that argument, the appellate court read Jerman to mean that a debt collector’s own mistaken interpretation of the law prevented application of the bona fide error defense. The panel, however, read Jerman more broadly, concluding that the bona fide error defense does not apply where a debt collector relies in good faith on a court’s reasonable but mistaken interpretation of the law.

The Seventh Circuit panel explained that Jerman offered no indication that some mistakes of law were protected and others were not. In doing so, the panel removed the Jerman holding from its context and applied it more broadly to decide that the bona fide error defense does not apply where a debt collector relies in good faith on reasonable court precedent where the precedent is later overruled.  The panel adopted the reasoning in Jerman that because there can be different interpretations of the FDCPA, a “broad exception for good-faith legal errors…would allow debt collectors to resolve all legal uncertainty in their own favor…” which runs against the purpose of the FDCPA. The panel concluded that the FDCPA puts “the risk of legal uncertainty on debt collectors, giving them incentives to stay well within legal boundaries.”

The panel further justified its holding by explaining that, although court precedent may be considered “the law,” the statute itself is the controlling law even where judges mistakenly interpret it, which is why an overruling of precedent can be retroactive. The panel explained that Suesz was applied retroactively because, while civil rulings are permitted to have a prospective-only effect “to avoid injustice or hardship to civil litigants who have justifiably relied on prior law,” it was not persuaded to give Suesz a prospective-only effect because doing so “would be impermissible unless the law had been so well settled before the overruling that it had been unquestionably prudent for the community to rely on the previous legal understanding.”

Essentially, the Seventh Circuit reasoned that reliance on court precedent is permitted but only if there can be no doubt whatsoever as to the accuracy of the court’s interpretation of the law.

The debt collector also argued that the debtor had signed the underlying contract in the First District such that venue there was proper, but the trial court did not address that argument in its ruling, and therefore the appellate court did not address it either.

The Seventh Circuit panel attempted to mitigate the harsh consequences of its ruling by pointing out that the FDCPA permits a court, when determining damages, to consider the extent to which the non-compliance was intentional. 15 U.S.C. § 1692(b)(1).

Accordingly, the trial court’s judgment in favor of the debt collector was vacated and the case was remanded for further proceedings.

The dissent vehemently disagreed, pointing out that the panel majority’s ruling had created “an unprecedented new rule—one that punishes debt collectors for doing exactly what the controlling law explicitly authorizes them to do at the time they do it.”

The dissent accused the majority panel of repeatedly misreading the Supreme Court’s and the Seventh Circuit’s prior rulings on multiple issues, including its interpretation and application of Suesz and Jerman, pointing out that the debt collector’s choice of venue was lawful when made based on Newsom. The dissent continued that the debt collector met each of the three elements of the bona fide error defense — its violation was unintentional despite its maintenance of reasonable procedures to avoid the error and resulted from its good faith mistake of complying with the controlling law of Newsom. The dissent noted that while retroactive application of Suesz may have created a cause of action for retroactive violations, it did not “retroactively proscribe the application of the bona fide error defense.”

The dissent further disagreed with the panel majority on its interpretation of Jerman, pointing out that the Jerman Court held that the bona fide error defense does not apply only where a debt collector incorrectly interprets the FDCPA, not where the debt collector follows established precedent interpreting the statute. The dissent reasoned that a court’s mistaken interpretation of the FDCPA cannot be attributed to the debt collector who follows it.

The dissent neatly summed up the panel majority’s dissonant ruling: the debt collector “correctly interpreted (and did not violate) Newsom’s controlling determination of the legal requirements of § 1692i, but incorrectly interpreted (and violated) § 1692i itself,” which doesn’t make any sense and should not prevent the application of the bona fide error defense.

Third Circuit Serves Up Double Fault in FDCPA, TCPA Decision

A recent decision from the Third Circuit Court of Appeals examines both the provision of consent under the federal Telephone Consumer Protection Act (TCPA) and the bona fide error defense for debt collectors under the federal Fair Debt Collection Practices Act (FDCPA).

The decision has dire implications for debt collectors, creditors and any commercial enterprise using telephone technology and QR codes in communicating with customers.

A copy of the decision in Daubert v. NRA Group, LLC is available at: Link to Opinion.

First up is the TCPA. The trial court ruled that the collection agency violated the TCPA when it used an automated dialing system to call the consumer to collect a medical debt without prior consent because the defendant’s deposition witness previously testified that “the dialer does the dialing.”

In an attempt to fix this error, the collector later submitted an affidavit stating that the telephone dialing system used “human intervention” to make the calls. The trial court labeled this a “sham affidavit” and would not consider it. Worse, even though the consumer appears to have provided his cell phone number to the hospital where he incurred the medical debt, the Third Circuit ruled “more is required” than the simple provision of the cell phone number to an intermediary hospital that was not a creditor.

Distinguishing decisions from the Sixth and Eleventh Circuits (Baisden and Mais, respectively), the Third Circuit pointed out that in those cases the hospital intake forms gave permission to release the consumer’s information for payment purposes. Here, there was no evidence that the consumer released his information to be used for payment purposes. The court affirmed an award to the consumer of $34,000 for 69 telephone calls.

Now for the FDCPA ruling — a debt collector cannot rely on a trial court decision to escape FDCPA liability. That’s tough because as new theories develop, companies will often adjust their practices to align with applicable decisions.

In this case, the debt collector had made operational changes to use Quick Response codes in its mail communications to consumers. It did so relying on two trial court decisions that found that the use of QR codes visible on the face of envelopes did not violate the FDCPA. When the debt collector was later sued for using such QR codes, the trial court here found that it did violate the FDCPA, but the debt collector was exempt from liability under the FDCPA’s bona fide error exception because it relied on the earlier trial court decisions.

The Third Circuit reversed, finding that a bona fide error cannot be premised on a mistaken legal interpretation of the FDCPA, even when it is premised on trial court decisions from within the same Circuit.

5th Cir. Holds Debt Collector’s Obligation to Report Debt as Disputed Not Limited By § 1692g

The U.S. Court of Appeals for the Fifth Circuit recently affirmed summary judgment under the Fair Debt Collection Practices Act (FDCPA) in favor of the debtor and against a debt collector, where the debt collector failed to mark the debtor’s account as disputed when it credit reported the account.

The debt collector admitted that it had not marked the account as disputed because it incorrectly believed that credit reporting a debt as disputed was subject to the requirements of 15 U.S.C. § 1692g, which governs validation of a debt and the treatment of disputed debts.

In so ruling, the Fifth Circuit also rejected the debt collector’s Spokeo argument, holding that the alleged violation provided sufficient standing.

A copy of the opinion in Sayles v. Advanced Recovery Systems is available at:  Link to Opinion.

The debt collector sent two letters to the debtor about a debt.  Nearly a year later, the debtor ran his credit report and discovered a debt that he did not recognize.  He sent a letter to the debt collector disputing the validity of the debt but got no response.  The debtor ran his credit report again six weeks later and found that the debt collector had updated the trade line to reflect some of the information from his letter but had failed to mark the account as disputed. The debtor sued the debt collector asserting that it had violated section 1692e(8) of the FDCPA.

As you may recall, section 1692e(8) of the FDCPA (15 U.S.C. § 1692e(8)) prohibits a debt collector from communicating or threatening to communicate false credit information, which includes the failure to communicate that a disputed debt is disputed.

Entirely separate from that prohibition are the requirements in section 1692g of the FDCPA (15 U.S.C. § 1692g) concerning the validation and verification of debts.  Section 1692g(b) requires, among other things, that a consumer must dispute the debt in writing within 30 days after receiving the validation notice from a debt collector.

The debt collection agency admitted that it had not reported the account as disputed to the credit reporting agencies, but argued that it was not required to do so because the debtor had not disputed the debt in writing within 30 days after receiving the validation notice.  The debt collector reasoned that section 1692e(8) incorporates the requirements of section 1692g, perhaps because both address “disputes.”

However, the Fifth Circuit held that is where the debt collector went wrong.

The Court held that the requirements of section 1692g are unique to the validation process in which the debt collector validates the debt and the debtor has the opportunity to get additional information to verify the debt.  The debt validation process does not apply to credit reporting of disputed debts, the Fifth Circuit held.  Under section 1692e(8), disputed debts, no matter how or when they are disputed, must be credit reported as disputed.

The Fifth Circuit held that a debtor can contact a debt collector at any time in any manner to state that the debtor disputes the debt and the debt collector will have to credit report it as disputed.  Thus, the Court held, if the debtor calls the debt collector months or years after the validation letter has gone out and disputes the debt, the debt collector does not have to verify the debt under section 1692g but it does have to mark that debt as disputed in its credit reporting.

The Court went a step further and explained that the language of section 1692e(8) “requires no notification by the consumer, written or oral” for the requirement to credit report a debt as disputed to kick in.  The Fifth Circuit noted that section 1692e(8) states that a debt collector must report a debt as disputed where it “knows or should know” that the debt is disputed.

The Court explained that this means that if the debt collector has any information or knowledge that a debt is disputed, even if the knowledge did not come from the debtor, the debt collector must report it as disputed.  While it may be difficult to imagine what knowledge a debt collector might have that could independently inform it of a dispute apart from some type of communication from the debtor, this ruling makes clear that it is something debt collectors should be on the lookout for.

The Fifth Circuit also rejected the debt collector’s Spokeo argument finding that the stated violation provided sufficient standing. Accordingly, the Court affirmed summary judgment in favor of the debtor and against the debt collector.

U.S. Supreme Court Offers Some Clarity in Assessing Debt Purchaser FDCPA Liability

With its unanimous ruling yesterday that a debt buyer is not a “debt collector” under at least one reading of the federal Fair Debt Collection Practices Act, the U.S. Supreme Court offered some clarity to the financial services industry seeking to assess debt purchaser FDCPA liability.

It did, however, refuse to address an alternative interpretation that will likely be used in an attempt to end-run the ruling. The decision in Henson v. Santander Consumer USA Inc. is available at: Link to Opinion.

Debt Collector Must Be Collecting for ‘Another’

Santander Consumer USA Inc. acquired defaulted loans from CitiFinancial Auto and then began to collect on those loans. Henson sued Santander in U.S. District Court in Maryland alleging Santander’s efforts to collect the purchased debt violated the FDCPA. The trial court dismissed the complaint finding Santander was not a debt collector subject to the statute. On appeal the Fourth Circuit Court of Appeals affirmed the trial court decision finding that Santander, although a debt purchaser, did not meet the Act’s definition of a debt collector because it was not seeking to collect a debt “owed . . . another.” The Supreme Court affirmed in a unanimous decision and the first opinion to be authored by Justice Neil Gorsuch.

The issue before the Court was whether a purchaser of defaulted debt meets the FDCPA’s definition of a “debt collector” as one who “regularly collects or attempts to collect . . . debts owed or due . . . another.” 15 U. S. C. §1692a(6). The “plain terms” of the definition “seems to focus our attention on third party collection agents working for a debt owner— not on a debt owner seeking to collect debts for itself,” Gorsuch wrote. “All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.’”

Henson argued that the phrase “owed or due . . .another” should be construed to include debts presently owed to Santander but that were once owed another creditor. The Court disagreed finding that the phrase “owed or due . . .  another” should not be read to encompass any debt that was once payable to an entity other than the current owner of the debt. Rather, the plain meaning of the phrase is that the debt collector must be engaged in collecting a debt that is owed to a third party at the time it is being collected.

The Performing Debt Exception Fails

Henson’s other argument concerned the status of the debt at the time it was acquired by Santander.  According to Henson, the FDCPA can be read so that persons purchasing defaulted debt are never creditors, but are always debt collectors. The Court disagreed because Henson’s interpretation conflicted with the very definition at issue, which expressly requires that the debt at issue be collected “for another.” Regardless of whether Santander acquired Henson’s debt pre- or post-default, its activities concerning the debt were always undertaken to collect the debt for itself, taking it outside of the definition at issue before the Court.

Policy Argument Not Persuasive

Henson’s final argument was based on a supposition that Congress intended to cover debt purchasers, but did not foresee the industry when it enacted the FDCPA in 1978. The Court labeled the argument as “a lot of speculation.” It would not “rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done had it faced a question that, on everyone’s account, it never faced.”

As an aside, Henson’s argument does not consider that Congress has amended the FDCPA several times and was quite aware of the practice of purchasing defaulted debt when it made the amendments. After all, it was Congress who in 1989 passed the Financial Institutions Reform Recovery and Enforcement Act (FIRREA) establishing the Resolution Trust Corporation, a federal “bad bank” tasked with acquiring defaulted loans and then selling them, thus creating today’s debt buying industry. Congress has since amended the FDCPA in 1991, 1992, 1995, 1996, 2006 and most recently in 2010 as part of the Dodd-Frank Act.

The ‘Principal Purpose’ Definition Unresolved

The FDCPA also defines a debt collector as a person whose business has as its principal purpose the “collection of any debts.” The Court expressly declined to decide whether Santander would otherwise meet this alternative definition.  Several decisions have found that companies engaging in the purchase and collection of defaulted debts are “debt collectors” under the FDCPA.

Because the decision never reached the alternate, principal purpose definition, Henson should not be read as eliminating FDCPA liability for debt purchasers. Whether the business of purchasing and then collecting the purchased debts qualifies as engaging in a business that has as its principal purpose the “collection of any debts” remains an open question. So too is whether an entity can act both as a creditor and a debt collector for FDCPA purposes. These unanswered questions will serve as potent fuel for FDCPA litigation.

Circuit Court Opinions in Doubt

At least four Circuit Courts of Appeals have concluded that a debt buyer is a “debt collector” when it purchases and then collects defaulted debt. Three of the decisions (from the Third, Fifth and Seventh Circuits) are premised on the argument that the FDCPA’s definition of creditor excludes those who purchase and collect defaulted debts. The Sixth Circuit’s decision pointing to an exception to the FDCPA’s definition of “debt collector” found that “an entity that did not originate the debt in question but acquired it and attempts to collect on it . . .is either a creditor or a debt collector depending on the default status of the debt at the time it was acquired.” Because Henson found that the debt’s default status is not solely determinative of a person’s status as either a debt collector or creditor, it casts some doubt on the viability of these earlier circuit court decisions.

The Eleventh Circuit Court of Appeals departed from its sister circuits a few years ago in Davidson v. Capital One Bank (USA) N.A., and reached a similar conclusion with respect to a debt purchaser for many of the same reasons expressed in Henson. 

An Odd Unanimous Decision

Less than a month ago, Justice Sonia Sotomayor issued a dissent that not only concluded that a purchaser of defaulted debts violated the FDCPA, but vilified the entire industry’s bankruptcy practices. Justices Ruth Bader Ginsburg and Elena Kagan joined the dissent. That case, Midland Funding, LLC v. Johnson, was more about interpretation of bankruptcy law than the FDCPA. Given the vigor of last month’s dissent, it was odd to see a unanimous decision in Henson particularly when several briefs filed in support of Henson, including one from nearly 30 attorneys general, warned that allowing the Fourth Circuit’s decision to stand would permit debt purchasers to escape FDCPA liability.

Debt Purchasing Industry Urges Caution

Yesterday, Receivables Management Association International, a trade association representing the debt purchasing industry, issued a press release urging its members to proceed with caution. While welcoming the decision, RMA noted that the Court left open whether a debt buyer’s business falls within the FDCPA’s “principal purpose” definition of a debt collector. RMA also reminded its members that the requirements imposed by the association’s certification program meet or exceed the consumer protections of the FDCPA. “In the end, RMA does not see the Santander decision as lessening the consumer protections required of its membership,” said the association.

Two Webinars Will Examine Henson

Join me on June 14 at 12 p.m. ET for a webinar presented by the American Bar Association’s Consumer Financial Services Committee and RMA International. Our panel will include defense, compliance and plaintiff attorneys. To call in to the webinar, click here.

On June 14 at 1 p.m. ET AccountsRecovery.net will present a webinar where I will join a panel of defense attorneys to discuss the ruling, what it means for the accounts receivable management industry and what its participants should consider as part of their operations. Register for the webinar here.

U.S. Supreme Court Holds Debt Purchaser Collecting Its Own Debt Is Not Subject to FDCPA

A purchaser of a defaulted debt who then seeks to collect the debt for itself is not a “debt collector” subject to the federal Fair Debt Collection Practices Act under an opinion delivered today by the U.S. Supreme Court.

The issue before the Court was whether a purchaser of defaulted debt meets the FDCPA’s definition of a “debt collector” as one who “regularly collects or attempts to collect . . . debts owed or due . . . another.” 15 U. S. C. §1692a(6).

Here, Santander Consumer USA Inc. acquired defaulted loans from CitiFinancial Auto and then began to collect on those loans. The petitioners argued this activity made Santander a debt collector subject to the FDCPA.  The Fourth Circuit Court of Appeals disagreed because the debt purchaser was not seeking to collect a debt “owed . . . another.” The Supreme Court affirmed in a unanimous decision.

The opinion did not consider whether a purchaser of defaulted debt is engaged “in any business the principal purpose of which is the collection of any debts.” §1692a(6).

A copy of the decision in Henson v. Santander Consumer USA Inc. is available here.

11th Cir. Adopts ‘Claim Splitting’ Doctrine, Upholds Dismissal of Duplicative Litigation

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed the dismissal of a complaint alleging violations of the federal Telephone Consumer Protection Act, the federal Fair Debt Collection Practices Act (FDCPA) and its analogue under Florida state law, because the plaintiff previously filed a separate lawsuit against the same defendant alleging violations of the TCPA based on the same conduct.

Because the Eleventh Circuit concluded that the claims asserted in the second action were based on the same nucleus of operative facts, the plaintiff was barred from splitting her claims among the lawsuits.

A copy of the opinion in Vanover v. NCO Financial Services, Inc. is available at:  Link to Opinion.

In April 2014, the plaintiff filed a complaint alleging that the defendant violated the TCPA, 47 U.S.C. § 227, et seq., when it used an automatic telephone dialing system to call her cell phone, without her prior express consent, in an attempt to collect medical debts (“first TCPA action”).

Nearly one year after the first TCPA action was filed, the plaintiff sued the defendant again in Florida state court alleging violations of the TCPA, FDCPA, 15 U.S.C. § 1692, et seq., and the Florida Consumer Collection Practices Act (FCCPA), Fla. Stat. § 595.55, et seq., (“second TCPA action”).  The complaint in the second TCPA action named the same plaintiff and defendant named in the first TCPA action, and alleged that the defendant was attempting to collect medical debts from the plaintiff.

Notably, the complaint in the second TCPA action did not allege that the debts at issue were different from the debts at issue in the first TCPA action.

The defendant removed the second TCPA action to federal court and filed a motion to dismiss for improper claim splitting.  The federal trial court granted the defendant’s motion to dismiss and denied the plaintiff’s motion to join additional parties.  The plaintiff appealed.

The appeal involved two issues.  First, the plaintiff argued that the trial court erred by denying her motion to join additional parties.  Second, the plaintiff argued that the trial court erred in dismissing the second TCPA action for improper claim splitting.

In an attempt to defeat the defendant’s motion to dismiss for improper claim splitting, the plaintiff moved to join the defendant’s vendors in a proposed amended complaint in the second TCPA action.  The plaintiff alleged that these vendors violated state and federal law when they attempted to collect medical debts after the defendant advised them she did not owe the alleged debts.  The proposed amended complaint alleged the same attempted collection of debts that were subject of the alleged unlawful collection efforts in the first TCPA action.  The plaintiff sought to join the vendors on the basis that the court could not accord complete relief without them.

As you may recall, Federal Rule of Civil Procedure 19 governs the mandatory joinder of parties.  First, the court must determine whether the absent party is a required party under Rule 19(a).  See, e.g., Molino Valle Del Cibao, C. por A. v. Lama, 633 F.3d 1330, 1344 (11th Cir. 2011).  Second, if the absent party is a required party, but joinder is not feasible (i.e., joinder would deprive the court of subject matter jurisdiction), the court must consider “a list of factors to ‘determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed.’”  Id. (quoting Fed. R. Civ. P. 19(b)).

Here, the Eleventh Circuit noted that the plaintiff’s proposed amended complaint failed to allege anything about the relationship between the defendant and the vendors that would prevent the plaintiff from obtaining full relief for any allegedly unlawful communications from the defendant.

Because the plaintiff failed to demonstrate that she could not obtain full relief from the defendant without joining the vendors, the Eleventh Circuit held that joining the vendors would not have defeated subject matter jurisdiction and the trial court did not err in denying the joinder of the vendors pursuant to Rule 19(a).

The plaintiff alternatively sought to join the vendors pursuant to Rule 20(a), which governs permissive joinder of parties.

As you may recall, Rule 20(a) requires a plaintiff to demonstrate two prerequisites in order to permissibly join a party:  first, the claims against the party to be joined must “aris[e] out of the same transaction or occurrence, or series of transactions or occurrences,” and second, there must be some question of law or fact common to all parties to be joined.  See, e.g., Alexander v. Fulton Cty., 207 F.3d 1303, 1323 (11th Cir. 2000).

The trial court concluded that the defendant faced duplicative litigation in the first TCPA action and the second TCPA action – specifically finding that both lawsuits arose out of the same underlying conduct, i.e., the collection of medical debts allegedly owed by the plaintiff.  The trial court also rejected the plaintiff’s argument that she had just become aware that the vendors should be joined because by her own admission, the vendors’ alleged involvement in attempting to collect the medical debts was confirmed from her cell phone before she filed the first TCPA action.

Because the plaintiff had nine months to amend her complaint in the first TCPA action, but failed to do so, the Eleventh Circuit held that the trial court did not abuse its discretion in denying the permissive joinder of the vendors.

Next, the Eleventh Circuit turned to the defendant’s motion to dismiss in the second TCPA action for improper claim splitting.  This was an issue of first impression in the Eleventh Circuit.  But, other federal circuit courts have comprehensively analyzed the claim splitting doctrine.

For example, the U.S. Court of Appeals for the Tenth Circuit confronted the issue of “whether a plaintiff can split potential legal claims against a defendant by bringing them in two different lawsuits” and held that “related claims must be brought in a single cause of action.”  Katz v. Gerardi, 655 F.3d 1212, 1214 (10th Cir. 2011).

The Eleventh Circuit determined that the district court in this case properly applied a two-factor test whereby the court “analyzes (1) whether the case involves the same parties and their privies, and (2) whether separate causes arise from the same transaction or series of transactions.”  Khan v. H & R Block E. Enters., Inc., 2011 WL 3269440, at *6 (S.D. Fla. July 29, 2011).

The plaintiff argued that the operative or transactional nucleus of fact related to her TCPA claims in the first TCPA action were limited to whether the defendant placed calls to her cell phone in violation of the TCPA.  The plaintiff also argued that the claims asserted in the second TCPA action were distinct and related to abusive and harassing communications in the collection of consumer debts prohibited by the FDCPA and FCCPA.

Additionally, the plaintiff averred that the calls in the second TCPA action allegedly began earlier than the date alleged in the first TCPA action, and unlike the first TCPA action where the defendant was alleged to have called only the plaintiff’s cell phone, the second TCPA action involved calls the defendant made to her residential phone and to third parties.

Notwithstanding the plaintiff’s attempt to distinguish the two cases, the Appellate Court concluded that the claims in the second TCPA action were still based upon the same collection efforts set forth in the first TCPA action.  Specifically, the Court noted that the factual basis for both lawsuits were “related in time, origin, and motivation, and they form[ed] a convenient trial unit, thereby precluding [the plaintiff] from splitting her claims among the lawsuits.”

Moreover, the Eleventh Circuit held that claim splitting was not defeated by the plaintiff’s additional causes of action.  The two additional causes of action for violations of the FDCPA and FCCPA arose out of the same transactional nucleus of facts and would involve substantially the same evidence.  Thus, the Appellate Court concluded that the trial court did not err in dismissing the second TCPA action for improper claim splitting.

Accordingly, the Eleventh Circuit affirmed the trial court’s dismissal of the second TCPA action.

9th Cir. Amends, Reinforces Its Ruling that Foreclosure Trustees Are Not FDCPA ‘Debt Collectors’

The U.S. Court of Appeals for the Ninth Circuit recently amended its opinion in Ho v. ReconTrust Co., maintaining and affirming its prior ruling that the trustee in a California non-judicial foreclosure did not qualify as a debt collector under the federal Fair Debt Collection Practices Act (FDCPA).

The amendments to the prior ruling among other things add that a California mortgage foreclosure trustee meets the FDCPA’s exclusion from the term “debt collector” for entities whose activities are “incidental to … a bona fide escrow arrangement” at 15 U.S.C. § 1692a(6)(F).

The Ninth Circuit also removed its prior discussion of Sheriff v. Gillie, 136 S. Ct. 1594 (2016), replacing it with a discussion of foreclosure being a “traditional area of state concern” not to be superseded by federal law without “clear and manifest purpose of Congress,” which the Court found lacking here.

Splitting from the Fourth and Sixth Circuits and ruling against the position argued by the CFPB in an amicus curiae brief, the Ninth Circuit explained that the California foreclosure trustee defendant was not attempting to collect money from the plaintiff when it sent her a notice of default and notice of sale so that its activities did not qualify as debt collection.

This holding affirms the leading case of Hulse v. Owen Federal Bank, 195 F. Supp. 2d 1188 (D. Or. 2002), which has been the subject of much debate concerning whether non-judicial foreclosure constitutes debt collection.

The Ninth Circuit also vacated the trial court’s dismissal of the TILA rescission claim based on its recent ruling that a claim for rescission under the Truth in Lending Act does not require that a plaintiff allege the ability to repay the loan.

A link to the amended opinion is available at:  Link to Opinion.

The plaintiff took out a loan to buy a house and the loan was secured by a deed of trust. There are three parties to a deed of trust: (i) the lender, who is the trust beneficiary, (ii) the borrower, who as the trustor holds equitable title to the property, and (iii) the trustee, who is an agent for the lender and the borrower, holds legal title to the property, and is authorized to sell the property if the borrower fails to pay the loan.

The plaintiff missed payments on her mortgage and the trustee initiated a non-judicial foreclosure under California law. As required by the statute, the trustee mailed the plaintiff a notice of default stating how much she owed on the loan, that she had the right to bring the account into good standing, and that it could be sold without any court action.

When the plaintiff didn’t pay, the trustee mailed a notice of sale informing the plaintiff that the house would be sold if she did not pay.  The sale never took place because the plaintiff received a loan modification.

However, she sued the trustee anyway claiming that it had violated the FDCPA by misrepresenting the amount of the debt and sought to rescind the mortgage transaction under TILA for purported fraud.

The trial court granted the trustee’s motion to dismiss, and the plaintiff appealed arguing that the notice of default and notice of sale were attempts to collect a debt because both threatened foreclosure unless the plaintiff paid the mortgage.

As you may recall, the FDCPA defines the term “debt” to mean “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” 15 U.S.C. § 1692a(5).

The Ninth Circuit interpreted this to be “synonymous” with the word “money” such that the trustee would only be liable if it attempted to collect money, directly or indirectly, from the plaintiff.  The Court found that the trustee did not do so because the “object of a non-judicial foreclosure is to retake and resell the security, not to collect money from the borrower” as California’s non-judicial foreclosure law does not permit deficiency judgments following the foreclosure.  Thus, the non-judicial foreclosure extinguishes the debt, and any action taken to advance the non-judicial foreclosure is not an attempt to collect a debt as defined by the FDCPA.

The Ninth Circuit rejected the plaintiff’s argument that the possibility of repossession of the property may induce the debtor to pay off the debt explaining that such an “inducement exists by virtue of the lien, regardless of whether foreclosure proceedings actually commence.”  This is contrary to the Sixth Circuit’s ruling in Glazer v. Chase Home Fin. LLC, 704 F.3d 453 (6h Cir. 2013) (holding that all “mortgage foreclosure is debt collection” under the FDCPA), and the Fourth Circuit’s ruling in Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373 (4th Cir. 2006) (similar).

The Ninth Circuit noted that the Fourth Circuit “was more concerned with avoiding what it as viewed a ‘loophole in the [FDCPA]’ than with following the [FDCPA’s] text,” and that the Sixth Circuit’s ruling “rests entirely on the premise that ‘the ultimate purpose of foreclosure is the payment of money.’”

The Ninth Circuit distinguished its reasoning by pointing out that the FDCPA defines “debt” as an “obligation of the consumer to pay money,” whereas a trustee in a California non-judicial foreclosure collects money from the purchaser, not the consumer, so that the money is not “debt” as defined by the FDCPA.

Rather, the Court held, sending notices of default and sale under California’s non-judicial foreclosure law fits into the FDCPA’s exception of enforcement of a security interest, at 15 U.S.C. § 1692a(6)(F). The Ninth Circuit explained that entities whose principal purpose is the enforcement of security interests can be debt collectors under the FDCPA but that “the enforcement of security interests is not always debt collection.” This is consistent with the Fourth and Sixth Circuits’ premise that an entity does not become a “debt collector” where its “only role in the debt collection process is the enforcement of a security interest.”

The Ninth Circuit also differentiated its reasoning by pointing out that the trustee’s right to enforce the security interest as a non-debt collector under the 1692a(6)(F) exception necessarily implied that the trustee must also be able to take the statutorily-required steps leading up to the sale as a non-debt collector, including sending the notice of default and notice of sale.  Such communications are necessary to effect the enforcement of the security interest and do not convert it into debt collection.

The Court further held that a trustee’s role under California law as the holder of legal title means that the trustee functions as an escrow, which further satisfies the 1692a(6)(F) exclusion from “debt collector” of an entity whose activities are “incidental to …a bona fide escrow arrangement.” The Ninth Circuit also pointed out that the notices of default and sale protect the debtor by informing her of her rights and of the impending foreclosure and are not for the purpose of harassing the debtor into paying a debt she might not otherwise pay.

Concerning the TILA claim, the Court held that after the plaintiff’s TILA claims had been dismissed, it had ruled that a mortgagor did not need to allege her ability to repay the loan in order to state a rescission claim under TILA. Thus, the plaintiff’s TILA claims were reinstated.

The Ninth Circuit’s holding distinguishes debt collection from the actions taken to initiate and facilitate a non-judicial foreclosure by pointing out that those actions do not constitute an attempt to collect money from the consumer because the purpose of a non-judicial foreclosure in California is to retake and resell the security on the loan resulting in collection of money from the purchaser of the property.

Thus, non-judicial foreclosure under California law falls under the FDCPA’s 1692a(6)(F) exclusion from the definition of “debt collector.”

MD Ala. Holds Servicer Did Not Violate Discharge By Sending Periodic Statements, NOI, Delinquency Notices, Hazard Insurance Notices

The U.S. Bankruptcy Court for the Middle District of Alabama recently held that a mortgage servicer did not violate the discharge injunction in 11 U.S.C. § 524 by sending the discharged borrowers monthly mortgage statements, delinquency notices, notices concerning hazard insurance, and a notice of intent to foreclose.

Moreover, because the borrowers based their claims for violation of the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq., on the violation of the discharge injunction, the Court also dismissed their FDCPA claims with prejudice.

A copy of the opinion in Golden et al v. Carrington Mortgage Services, LLC is available at: Link to Opinion.

In August 2010, the borrowers filed a petition in bankruptcy pursuant to Chapter 7 of the Bankruptcy Code.  In their petition, the borrowers reported a foreclosure action in their Statement of Financial Affairs but inaccurately stated its status as having been disposed of by way of a judgment.  In fact, a foreclosure action was filed against the borrowers in state court but it was still pending at the time they filed their Chapter 7 petition.

Moreover, the borrowers made no mention of the property in their Statement of Intention.  Essentially, the borrowers’ petition indicated that they were no longer the owners of the mortgaged property, which was inaccurate.

In October 2010, the prior servicer filed a motion for relief from automatic stay.  The Court granted the motion in November 2010.  Subsequently, the borrowers received a discharge in December 2010.

In December 2016, the borrowers filed a complaint alleging that their new mortgage servicer violated the discharge injunction and the FDCPA, when it mailed them monthly mortgage statements, delinquency notices, notices of lender placed hazard insurance, and a Notice of Intent to Foreclose.  The borrowers alleged that the servicer “had absolutely no legitimate reason to correspond with [them] regarding the Property” because they allegedly vacated the property before filing bankruptcy.

In rejecting the borrowers’ arguments, the Court held “that acts reasonably taken to service a mortgage or to foreclose a mortgage [did] not violate the discharge injunction, even if the debtor discharged his personal liability on the indebtedness secured by the mortgage.”

According to the Court, the servicer’s communications did not violate the discharge injunction because a creditor has a right to foreclose a mortgage after discharge.  Because the servicer was required to give the debtor certain notices either under the terms of the mortgage or applicable law, “it necessarily follows that the giving of such notices [did] not violate the discharge injunction.”

Moreover, the Court noted, until the time the mortgage is foreclosed, and for a period thereafter, a debtor has a right to redeem the property from the creditor upon the payment of the amount due.  Therefore, the Court held that a creditor who did not advise the debtor as to how much is due on the mortgage impinged upon the debtor’s right of redemption.

Additionally, the Court stated that debtors should not be permitted to “game the system” where the creditors are found to violate the discharge injunction if they gave various notices, but violate state and federal law if they do not.

Therefore, the Court concluded that “[a] creditor who acts reasonably and in good faith should not be placed in the horns of a dilemma.”  As the Court explained, “[i]f the act of providing required notices is unlawful, the mortgagee’s right to foreclose is destroyed and, by extension, the mortgage itself is destroyed as well.”

However, the Court was careful to note that a servicer can violate the discharge injunction if it did something in addition to routine mortgage servicing or foreclosure processing to prove that it “intended” to violate the discharge injunction.  But here, according to the Court, the borrowers failed to allege that the servicer did anything beyond routine mortgage loan servicing.

In addition, the fact that the borrowers allegedly moved out of the property before filing bankruptcy, the Court noted, “did not effect a transfer of title to the mortgagee, nor did it change the status of their obligation under the mortgage.”  Thus, the Court held that the servicer had a “legitimate reason” to contact the borrowers about the mortgage servicing and foreclosure.

Because the borrowers based their FDCPA claims on a violation of the discharge injunction, the Court held that the borrowers failed to allege any violation of the FDCPA.

Accordingly, the Court granted the servicer’s motion to dismiss the borrowers’ allegations with prejudice.

U.S. Supreme Court Holds FDCPA Not Violated By Proof of Claim on Time-Barred Debt

In a 5-3 decision handed down on May 15, the Supreme Court of the United States held that the federal Fair Debt Collection Practices Act (FDCPA) is not violated when a debt collector files a proof of claim for a debt subject to the bar of an expired limitations period. The decision:

  • held that the filing of such a proof of claim is not false, misleading, deceptive or unconscionable in violation of sections 1692e or f of the FDCPA;
  • found that claims under the bankruptcy code need not be capable of being “enforceable” in a civil lawsuit; and,
  • does not preclude application of the FDCPA to bankruptcy litigation.

The opinion was authored by Justice Stephen Breyer, and joined by Chief Justice John Roberts and Justices Clarence Thomas, Anthony Kennedy and Samuel Alito.

The decision involved Midland Funding, LLC. The company sought review by the Supreme Court of an adverse decision it had received from the Eleventh Circuit Court of Appeals. A copy of the decision in Midland Funding, LLC v. Johnson is available here.

As outside counsel to RMA International, I led a team of attorneys who authored a friend of the court brief on behalf of RMA (formerly DBA International) in support of Midland. A copy of the brief is available here. The Supreme Court’s opinion cites to two earlier decisions that were obtained by me and discussed in RMA’s friend of the court brief. RMA’s briefing argued that claims need not be “enforceable” to allow creditors to file a proof of claim, as the Supreme Court held in its decision.

The Federal Trade Commission and the Consumer Financial Protection Bureau, in their joint friend of the court brief mentioned RMA, its certification program and its standards concerning collection of “time-barred” debt.

Many cases were stayed across the country (including cases before the Third and Fifth Circuit Courts of Appeals) awaiting today’s decision. This decision should resolve many of them.

11th Cir. Holds Post-Discharge Monthly Mortgage Statements Not Prohibited

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed the dismissal of a mortgage loan borrower’s federal Fair Debt Collection Practices Act and related state law claims because the defendant mortgagee was not a “debt collector” as defined by the FDCPA.

In so ruling, the Court also rejected the borrower’s allegations that the monthly statements the mortgagee sent to the borrower after her bankruptcy discharge were impermissible implied assertions of a right to collect against her personally.

A copy of the opinion in Helman v. Bank of America is available at: Link to Opinion.

The borrower obtained a mortgage loan and home equity line of credit from a lender, both of which were secured by her primary residence. Five years later, the borrower filed for Chapter 7 bankruptcy and received a discharge.

After the borrower’s discharge, the lender continued to send the borrower monthly statements concerning the status of the loans.

The borrower filed a putative class action lawsuit alleging violations of the FDCPA, the Florida Consumer Collection Practices Act (FCCPA), the Florida Deceptive and Unfair Trade Practices Act, and for common law conversion, fraudulent inducement, and negligent misrepresentation.

The lender filed a motion to dismiss arguing that it did not meet the FDCPA’s definition of “debt collector” and that the borrower had failed to state claims under state law. The lender filed a second motion to refer the case to the bankruptcy court because the borrower’s claims rested on a purported underlying violation of the bankruptcy injunction emanating from the bankruptcy discharge and that the Bankruptcy Code pre-empted the state law claims.

The trial court granted the motion to dismiss the FDCPA claim and found the state law claims pre-empted. The trial court also granted the motion to refer the matter of the purported bankruptcy injunction violation to the bankruptcy court. The borrower appealed, but this first appeal was dismissed as not appealable.

The parties appeared before the bankruptcy court, but because neither party was actually arguing that a violation of the bankruptcy injunction had occurred, the case was returned to the trial court where the state law claims were dismissed for failure to state a claim. The borrower then appealed.

On appeal, the Eleventh Circuit found that the lender did not qualify as a “debt collector” as defined by the FDCPA because it had originated the loans and thus was a “creditor” under the FDCPA and that the FDCPA did not apply to it.

However, as you may recall, and unlike the FDCPA, the FCCPA applies to anyone who attempts to collect a consumer debt such that the lender ostensibly fell under the FCCPA’s prohibition against threatening to enforce a debt when that person knows it is not legitimate or to assert the existence of a legal right when the person knows that right does not exist.

Even an implied threat can be a violation of the FCCPA, although it is considered from the perspective of the “least sophisticated consumer” who “possess[es] a rudimentary amount of information about the word and willingness to read a collection notice with some care.”

The borrower based her state law FCCPA claim on the assertion that the lender’s monthly statements sent to her after her bankruptcy discharge were implied assertions of a right to collect against her personally and that the lender knew it had no such right because of the discharge.  The lender countered that the monthly statements were sent under its right under 11 U.S.C. § 524(j)(3) to seek “periodic payments associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien” and that a least sophisticated consumer would not be misled by the monthly statements.

The Eleventh Circuit held that even the least sophisticated consumer would not believe that the lender was seeking to collect against the borrower personally based on receipt of the monthly statements because the borrower’s bankruptcy discharge plainly stated that collection of her debt was prohibited but that a creditor may have the right to enforce a valid lien such as a mortgage if it had not been eliminated or avoided. The Court noted that this discharge statement is consistent with a mortgage creditor’s right to seek payment under 11 U.S.C. § 524(j).

The Eleventh Circuit also pointed out that the lender’s monthly statements plainly informed the borrower, and would also have informed the least sophisticated consumer, that she was not personally liable for the debt but that the lender could foreclose if the monthly payments were not made.

The Court pointed out that under some circumstances an insufficient bankruptcy disclaimer in monthly statements could allow the monthly statements to be considered an attempt to collect a debt, but here it was not.

The Eleventh Circuit refused to engage in a strained reading of the bankruptcy disclaimer language and pointed out that the borrower’s basic knowledge that she had been through the bankruptcy process, had received a discharge, had no personal liability on the mortgage, and that the lender could still foreclose on the property, provided enough information for her to understand the meaning of the bankruptcy disclaimer.

The Appellate Court thus rejected as “bizarre or idiosyncratic” the borrower’s interpretation of the bankruptcy disclaimer in the lender’s monthly statement as ambiguous and unable to “override a series of clear and unambiguous communications to the contrary.”

Accordingly, the Eleventh Circuit affirmed the dismissal of the FCCPA and other state law claims, as well as the dismissal of the FDCPA claim.