Supreme Court: Special Counsel Using State AG Letterhead Not in Violation of FDCPA

On May 16, the Supreme Court reversed the Sixth Circuit’s ruling that special counsel using Ohio AG letterhead to collect debts owed to the state is false or misleading in violation of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §1692. Sheriff v. Gillie, No. 15-338 (U.S. May 16, 2016). In a unanimous 8-0 opinion delivered by Justice Ginsburg, the Court opined that its “conclusion is bolstered by the character of the relationship between special counsel and the [AG].” Specifically, the Court determined that, because special counsel acts on behalf of the AG to provide legal services to state clients, a “debtor’s impression that a letter from special counsel is a letter from the [AG’s] Office is scarcely inaccurate.” The Court further opined that, being required by the AG’s office to send debt collection communications, special counsel “create no false impression in doing just what they have been instructed to do.” The Court rejects the Sixth Circuit’s argument that consumers may have concern regarding the letters’ authenticity: “[t]o the extent that consumers may be concerned that the letters are a ‘scam,’ the solution is for special counsel to say more, not less, about their role as agents of the [AG]. Special counsel’s use of the [AG’s] letterhead, furthermore, encourages consumers to use official channels to ensure the legitimacy of the letters, assuaging the very concern the Sixth Circuit identified.” The Court concludes by emphasizing the AG’s authority, as the top law enforcement official, to take punitive action against consumers who owe debts, commenting that §1692e of the FDCPA prohibits collectors from deceiving or misleading consumers, but “it does not protect consumers from fearing the actual consequences of their debts.” Read more…

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Fourth Circuit: Default Status of Debt Is Not Determining Factor of “Debt Collector” Under FDCPA

Recently, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s decision that a consumer finance company collecting debts on its own behalf, which it purchased from the original creditor, is still a creditor and is not subject to the FDCPA. Henson v. Santander, No. 15-1187 (4th Cir. Mar. 23, 2016). The plaintiffs in the case each signed a retail installment sales contract with a financial services provider, and when “the plaintiffs were unable to make the payments required by the contracts and thereby defaulted, [the financial services provider] repossessed and sold their vehicles and subsequently informed each plaintiff that he or she owed a deficiency balance.” In 2011, the defendant bought the defaulted loans from the financial services provider and, thereafter, sought to collect on the debts the plaintiffs owed. In their complaint, plaintiffs argued that because the terms “debt collectors” and “creditors” as used in the FDCPA are “mutually exclusive,” any person that “receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another” (which is excluded from the definition of creditor in 15 U.S.C. § 1692a(4)) must be a debt collector. However, the court emphasized that the material distinction between a debt collector and a creditor is “whether a person’s regular collection activity is only for itself (a creditor) or whether it regularly collects for others (a debt collector).” Read more…

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CFPB Takes Action Against Law Firm, its Partners, and Debt Buyer for Alleged FDCPA Violations

On April 25, the CFPB issued separate consent orders to a New Jersey-based law firm and two of the firm’s partners and a New Jersey-based debt buyer for alleged violations of the FDCPA and the Dodd-Frank Act. According to the CFPB, between 2009 and 2014, the law firm, which specializes in retail debt collection litigation, filed lawsuits on behalf of the debt buyer without having “sufficient documentation” to support “the original contracts underlying the alleged debts, documentation of the consumer’s alleged obligation, or the chain of title evidencing that the debt buyer actually owned the debt and thus had standing to sue the consumer.” The CFPB alleges that, among other things, (i) the law firm relied on an automated system and non-attorney staff to complete the initial review of data submitted by the debt buyer regarding consumers’ debt accounts; (ii) the debt buyer failed to require that the law firm complete an account-level review of the documents it submitted prior to filing suit; (iii) neither the debt buyer nor law firm obtained sufficient documentation evidencing the alleged debt and its transactional history; and (iv) the debt buyer and law firm collected debts and filed suits based on unreliable data. The CFPB further contends that the named partners had “managerial responsibility for the Firm and materially participated in the conduct of its debt-collection litigation practices.” In addition to the $1 million civil money penalty imposed on the law firm and the two partners and the $1.5 million civil money penalty imposed on the debt buyer, the consent orders prohibit the firm, the two named partners, and the debt buyer from filing suits or threatening to file suits without substantial evidence that the debt is accurate and enforceable and from using deceptive affidavits, including those that misrepresent the type of documentation reviewed and that the review was conducted by the actual person signing the affidavit.

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CFPB Releases Supervisory Highlights, Winter 2016 Issue

On March 8, the CFPB released its tenth edition of Supervisory Highlights, summarizing supervisory observations in the areas of consumer reporting, debt collection, mortgage origination, remittances, student loan servicing, and fair lending. The report covers the CFPB’s supervision work in the last quarter of 2015, generally between September 2015 and December 2015. Noteworthy findings in the report include: (i) violations of the Dodd-Frank Act’s unfair practice provisions by student loan servicers who would automatically default borrowers and co-signers on a private loan if either declared bankruptcy; (ii) violations of the October 2013 Remittance Rule, including providers failing to give complete and accurate disclosures to consumers, failing to cancel transactions within the required timeframe, failing to promptly credit a consumer’s account when an error occurred, and either not communicating the results of error investigations within the required timeframe or at all, or communicating them to an unauthorized party; (iii) inaccuracies in checking account information reported to NSCRAs by banks and credit unions; and (iv) violations of the FDCPA, with debt collectors failing to honor consumers’ requests to stop making contact with them and threatening garnishment against student loan borrowers who were not eligible for garnishment under the Department of Education guidelines. In addition to summarizing supervisory observations, the report provides an overview of the public enforcement actions taken between September and December 2015. Regarding non-public supervisory actions in the areas of deposits, debt collection, and mortgage origination, the report states that the CFPB collected more than $14 million in restitution to approximately 228,000 consumers in the fourth quarter of 2015.

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FTC Reports to CFPB on 2015 Activities to Combat Illegal Debt Collection Practices

On February 17, the FTC sent the CFPB a letter summarizing its 2015 efforts to stop allegedly illegal debt collection practices. According to the letter, in 2015, the FTC’s FDCPA activities included “aggressive law enforcement activities and public outreach to address new and troubling issues in debt collection,” such as (i) coordinating the first federal-state-local enforcement initiative, Operation Collection Protection, that targets deceptive and abusive debt collection practices; (ii) prosecuting various cases involving the use of purportedly unlawful text messages to collect debts; (iii) publishing a list of every company and individual that has been banned from engaging in debt collection activities because of the FTC’s work; and (iv) hosting three Debt Collection Dialogues “to promote a more robust exchange of information between the debt collection industry and the state and federal governmental agencies that regulate their conduct.” The letter highlights various actions against debt collectors taken jointly by the FTC and the CFPB, and the offices of the New York and Illinois Attorneys General. Under the FDCPA, the FTC shares enforcement responsibilities with the CFPB. The FTC’s recent letter is intended to assist the CFPB in preparing its annual report to Congress about its administration of the FDCPA, as required by Dodd-Frank.

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