Last week, the CFPB’s final rule amending the mortgage servicing provisions of Regulations X and Z was published in the Federal Register. The amendments were previously covered in BuckleySandler’s August 9 Special Alert. The majority of the final rule will take effect on October 19, 2017, exactly one year after its Federal Register publication date. Certain provisions related to successors in interest and bankruptcy periodic statements will become effective on April 19, 2018. The CFPB’s interpretive rule under the FDCPA addressing industry concerns and conflicts with the servicing rules in Regulations X and Z was simultaneously published in the Federal Register on October 19, 2016.
On October 19, the Ninth Circuit, in an opinion by Judge Kozinski, held that merely enforcing a security interest is not “debt collection” under the federal Fair Debt Collection Practices Act (“FDCPA”). Ho v. ReconTrust Co., Case: 10-56884 (Oct. 20, 2016). In so holding, the Ninth Circuit disagreed with earlier decisions by the Fourth and Sixth Circuits, creating a split that might eventually be resolved by the U.S. Supreme Court. See e.g. Piper v. Portnoff Law Associates Ltd., 396 F.3d 227, 235-36 (3d Cir. 2005); Wilson v. Draper & Goldberg PLLC, 443 F.3d 373, 378-79 (4th Cir. 2006); Glazer v. Chase Home Finance LLC, 704 F.3d 453, 461 (6th Cir. 2013).
In Ho, a borrower sued several foreclosure firms after she defaulted on her mortgage loan, alleging that the defendant-companies had violated the FDCPA by sending her default notices stating the amounts owed. The district court dismissed that claim, finding the trustee was not a debt collector engaged in debt collection under the FDCPA. On appeal, the Ninth Circuit affirmed the dismissal. The Court observed that a notice of default and a notice of sale may state the amounts due, but they do not in fact demand payment. Moreover, in California, deficiency judgments are not permitted after a non-judicial foreclosure sale, so no money can be collected from the homeowner. Notably, the notices complained of in Ho are required by California law prior to exercising the right to non-judicial foreclosure.
On September 21, the DOJ and FTC entered into an agreement with the former vice president of a Texas-based debt collection company, to resolve allegations that that he violated Section 5 of the FTC Act and Section 807 of the FDCPA. The stipulated order enters a civil penalty of $496,000, but suspends the majority of the judgment based on certain conditions, including cooperation in the ongoing lawsuit against his former company.
On September 9, the Credit Union National Association (CUNA) sent a letter to the CFPB regarding the CFPB’s initial outline of the proposed rule for third party debt collectors. The letter asserts that, since the Fair Debt Collection Practices Act (FDCPA) was enacted, credit unions have been exempt from the statute’s rules and that to extend any rulemaking pursuant to the statute to include credit unions would be “unlawful.” The CUNA distinguishes credit unions from for-profit debt collectors subject to the FDCPA, claiming that credit unions’ collection approach is more holistic: “They are not just interested in short-term efforts of collecting a debt; instead, they try to find out the specific cause of their member’s financial challenge.” The CUNA is concerned that certain aspects of the CFPB’s proposal as outlined, including the “highlight technical substantiation and oversight requirements,” would negatively impact credit unions. The CUNA reminded the CFPB that pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA), it is required to consider the recommendations in its letter before finalizing any rule.
FTC Resolves “Operation Collection Protection” Charges; Bans Companies from Debt Collection Business
On September 7, the FTC announced separate stipulated orders (here and here) against two groups of debt collectors to resolve November 2015 charges that their debt collection practices were deceptive, abusive, and unfair in violation of the FTC Act and the Fair Debt Collection Practices Act (FDCPA). According to the FTC, the first group of debt collectors (i) attempted to collect on debts consumers claimed they did not owe; (ii) failed to verify the debts; and (iii) impersonated law enforcement, threatened non-compliant consumers with arrests and lawsuits, and made accusations of bank fraud. In addition to barring the defendants from debt collection activities and from “misrepresenting material facts about any financial-related products or services,” the order imposes a judgment of more than $4.47 million. Regarding the second group of debt collectors, the FTC alleged that, in addition to threatening consumers with arrest if purported debts went unpaid and harassing friends, family members, and employees in an attempt to collect debts, they sent “alarming and deceptive text messages to trick consumers into contacting them, without identifying themselves as debt collectors.” Pursuant to the final judgment, the defendants must pay a judgment of approximately $27 million. The order imposes a separate judgment of $11,000 on the individually named defendant.
Filed in federal district court of New York, the actions were part of the FTC’s Operation Collection Protection, a federal-state-local initiative that has brought a total of 148 debt collection-related actions to date.