On March 30, the CFPB announced an enforcement action against a nationwide debt collection operation and its CEO for allegedly violating the FDCPA. The Bureau’s complaint alleges that the debt collection operation (i) posed as state or district attorneys by sending communication letters on prosecutors’ letterheads; (ii) threatened consumers with criminal prosecution for bounced checks before a state or district attorney had determined if a violation had occurred; and (iii) deceived consumers into believing that they must enroll in and pay for a financial education class to avoid potential criminal prosecution for bad checks. In addition to the $50,000 civil money penalty the company will pay, the proposed consent order requires that the debt collection operation: (i) end its deceptive communication practices; (ii) stop threatening customers with imprisonment; (iii) no longer use district attorney letterhead; and (iv) increase its supervision – to include state and district attorneys – of communicating with consumers about diversion programs.
CFPB Files Suit and Obtains Injunction Against Participants of Alleged Illegal Debt Collection Scheme
On April 8, the CFPB announced that it filed a lawsuit in the United States District Court for the Northern District of Georgia on March 26 against participants in an allegedly illegal debt collection operation, involving certain payment processors and a telephone broadcast service provider. The complaint alleges that several individuals and the companies they formed, based in New York and Georgia, attempted to collect debt that consumers did not owe or that the collectors were not authorized to collect. The complaint further alleges uses of harassing and deceptive techniques in violation of the CFPA and FDCPA. Specifically, the collectors allegedly placed robo-calls through a telephone broadcast service provider, also named in the complaint, to millions of consumers stating that the consumers had engaged in check fraud and threatening them with legal action if they did not provide payment information. The CFPB asserts that as a result, the debt collectors received millions of dollars in profits from the targeted consumers. The complaint also names certain payment processors used by the collectors to process payments from consumers. The CFPB obtained a preliminary injunction to halt the debt collection activities and freeze the assets of all defendants named in the lawsuit. Consistent with prior enforcement actions and guidance, the CFPB’s complaint in this matter underscores the importance of exercising thorough due diligence and ongoing oversight of third parties engaged to provide material services in connection with the offering or provision of a consumer financial product or service. For an in-depth analysis of the CFPB’s expanding scrutiny in this area, please see the recently published article Regulatory Blue Pencil: CFPB Guidance, Enforcement Actions Signal Expanding Focus on Vendor Management, authored by BuckleySandler Partner Elizabeth McGinn and Counsel Moorari Shah.
On March 31, U.S. Court of Appeals in the 11th Circuit concluded that the district court properly dismissed plaintiff’s FDCPA complaint, using the concept of judicial estoppel. Ward v. AMS Servicing, LLC, 2015 WL 1432982 (11th Cir. Mar.31, 2015). In this case, the court addressed whether the Defendant was incorrect in charging the Plaintiff a monthly mortgage amount agreed to in a consent order, rather than the amount stipulated in the Note. In November 2013, the Plaintiff filed suit in the district court, alleging that Defendant violated the FDCPA by falsely representing the amount of her monthly mortgage payments. In June 2009, the Plaintiff and the original servicer of her loan entered into a loan modification for her home where she agreed that her monthly payment would be $1,182.89. Thereafter, the loan was sold with the Defendant acting as the new servicer. Subsequently, the Plaintiff fell behind on her loan and sought Chapter 13 bankruptcy protection. Read more…
On December 4, the U.S. Court of Appeals for the Eighth Circuit held that a debt collector did not violate the FDCPA by informing a consumer reporting agency (CRA) that a consumer owed a debt without also expressly indicating that the consumer had disputed it. McIvor v. Credit Control Services, Inc., No. 14-1164 (8th Cir. Dec. 4, 2014). According to the opinion, the plaintiff brought a claim under § 1692e(8) of the FDCPA, which prohibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt,” and deems as a violation the conduct of “[c]ommunicating . . . to any person credit information which is known . . . to be false, including the failure to communicate that a disputed debt is disputed.” The court reasoned that no violation occurred here because (i) the CRA already knew that the debt was disputed, and (ii) the debt collector communicated with the CRA “with the purpose of complying with the FCRA, not as an elective report of credit information.”
District Court Denies Motion to Dismiss Class Action Against Debt Collection Firm Over “Misleading” Collection Letters
On December 15, the U.S. District Court for the District of New Jersey denied a motion to dismiss a class action suit against a fund and law firm specializing in debt collection. Marucci et al v. Cawley & Bergmann, LLP et al, No. 13-cv-4884 (D.N.J. Dec. 15, 2014). The suit claims that the firm violated the FDCPA by not informing consumers that interest was accruing on the amount specified in their collection letters. According to the complaint, the debt collection letters used by the firm “would lead the least sophisticated consumer to believe that payment of the amount stated in the letter would satisfy the Debt, when in fact interest is accruing and the consumer may still owe additional accrued interest.” The court found that the plaintiff’s interpretation of the letter was sufficiently reasonable to state a claim.
On November 20, the CFPB announced the issuance of a proposed rule to amend RESPA (Reg. X) and TILA (Reg.Z). The proposed rule changes primarily focus on clarifying, revising or amending (i) Regulation X’s servicing provisions regarding force-placed insurance, early intervention, and loss mitigation requirements; and (ii) periodic statement requirements under Regulation Z’s servicing provisions. In addition, the proposed amendments also revise certain servicing requirements that apply when a consumer is a potential or confirmed successor in interest, is in bankruptcy, or sends a cease communication request under the Fair Debt Collection Practices Act. Further, the proposed rule makes technical corrections to several provisions of Regulations X and Z. The public comment period will be open for 90 days upon publication in the Federal Register.
Special Alert: CFPB Takes Enforcement Action Against “Buy-Here, Pay-Here” Auto Dealer for Alleged Unfair Collection and Credit Reporting Tactics
On November 19, the CFPB announced an enforcement action against a ‘buy-here, pay-here’ auto dealer alleging unfair debt collection practices and the furnishing of inaccurate information about customers to credit reporting agencies. ‘Buy-here, pay-here’ auto dealers typically do not assign their retail installment sale contracts (RISCs) to unaffiliated finance companies or banks, and therefore are subject to the CFPB’s enforcement authority. Consistent with the position it staked out in CFPB Bulletin 2013-07, in this enforcement action the CFPB appears to have applied specific requirements of the Fair Debt Collection Practices Act (FDCPA) to the dealer in its capacity as a creditor based on the CFPB’s broader authority over unfair, deceptive, or abusive acts practices.
The CFPB charges that the auto dealer violated the Consumer Financial Protection Act, 12 U.S.C. §§ 5531, 5536, which prohibits unfair, deceptive, or abusive acts or practices, by (i) repeatedly calling customers at work, despite being asked to stop; (ii) repeatedly calling the references of customers, despite being asked to stop; and (iii) making excessive, repeated calls to wrong numbers in efforts to reach customers who fell behind on their auto loan payments. Specifically, the CFPB alleges that the auto dealer used a third-party database to “skip trace” for new phone numbers of its customers. As a result, numerous wrong parties were contacted who asked to stop receiving calls. Despite their requests, the auto dealer allegedly failed to prevent calls to these wrong parties or did not remove their contact information from its system.
In addition, the CFPB alleges that the auto dealer violated the Fair Credit Reporting Act by (i) providing inaccurate information to credit reporting agencies; (ii) improperly handling consumer disputes regarding furnished information; and (iii) not establishing and implementing “reasonable written policies and procedures regarding the accuracy and integrity of the information relating to [customers] that it furnishes to a consumer reporting agency.” Specifically, the CFPB alleges that, since 2010, the auto dealer did not review or update its written furnishing policies, despite knowing that conversion to its third-party servicing platform had led to widespread inaccuracies in furnished information. Also, the consent order alleges that the auto dealer received more than 22,000 credit disputes per year, including disputes regarding the timing of repossessions and dates of first delinquency for charged-off accounts, but nevertheless furnished inaccurate information. Read more…
On October 28, the CFPB released the fifth edition of its Supervisory Highlights report. The report highlighted the CFPB’s recent supervisory findings of regulatory violations and UDAAP violations relating to consumer reporting, debt collection, deposits, mortgage servicing and student loan servicing. The report also provided updated supervisory guidance regarding HMDA reporting relating to HMDA data resubmission standards. With respect to consumer reporting, the report identified a variety of violations of FCRA Section 611 regarding dispute resolution. The report noted findings of several FDCPA and UDAAP violations in connection with debt collection, including: (i) unlawful imposition of convenience fees; (ii) false threats of litigation; (iii) improper disclosures to third parties; and (iv) unfair practices with respect to debt sales. For deposits, the report identified several Regulation E violations found, including: (i) error resolution violations; (ii) liability for unauthorized transfers; and (iii) notice deficiencies. The report outlines four main compliance issues identified in the mortgage servicing industry: (i) new mortgage servicing rules regarding oversight of service providers; (ii) delays in finalizing permanent loan modifications; (iii) misleading borrowers about the status of permanent loan modifications; and (iv) inaccurate communications regarding short sales. Finally, the report outlines six practices at student loan servicers that could constitute UDAAP violations: (i) allocating the payments borrowers make to each loan, which results in minimum late fees on all loans and inevitable delinquent statuses; (ii) inflating the minimum payment due on periodic and online account statements; (iii) charging late fees when payments were received during the grace period; (iv) failing to give borrowers accurate information needed to deduct loan interest payments on tax filings; (v) providing false information regarding the “dischargeable” status of a loan in bankruptcy; and (vi) making debt collection calls to borrowers outside appropriate hours.
Third Circuit Reverses Lower Court Decision, Rules Envelope Revealing Consumer’s Account Number Violates the FDCPA
Recently, the U.S. Court of Appeals for the Third Circuit reversed a lower court’s holding that the disclosure of a consumer’s account is not a “benign” disclosure and, therefore, violates the FDCPA. Douglass v. Convergent Outsourcing, No. 13-3588, 2014 WL 4235570 (3d Cir. Aug. 28, 2014). In this case, a debt collector sent a consumer a dunning letter in a window envelope, and the consumer’s account number was visible through the window. The consumer brought a claim under § 1692f(8) of the FDCPA, which bars debt collectors from using any language or symbol other than the collector’s address on any envelope sent to the consumer. The debt collector contended that the claim must fail because the account number was “benign language” that was not prohibited by § 1692f(8) of the FDCPA. The Third Circuit held that even if “benign language” was exempt from § 1692f(8)’s prohibition (a question that the court declined to decide), the consumer’s account number was not benign. In particular, the court noted that the disclosure of the account number threatened the consumer’s privacy because it was a “core piece of information pertaining to the status as a debtor and the debt collection effort.”
On September 23, the Federal Trade Commission released a statement announcing the settlement of claims and a default judgment against a debt collection operation based out of Atlanta and Cleveland and its principals, barring them from debt collection activities and subjecting the defendants to a judgment of over $9.3 million. According to the release, the defendants violated FDCPA by threatening consumers with legal action unless they rendered payment on debts that the consumer, in many cases, did not actually owe. The defendants were alleged to use fictitious business names that implied affiliation with a law firm to harass consumers, through robocalls and voicemails, to make payments on these non-existent debts.
On September 16, the CFPB filed a civil action against a for-profit college for allegedly engaging in an “illegal predatory lending scheme.” Specifically, the CFPB alleges that the school engaged in unfair and deceptive practices by: (i) inducing enrollment through false and misleading representations about job placement and career opportunities; (ii) inflating tuition to require students to obtain private loans in addition to Title IV aid; (iii) persuading students to incur significant debt through private loans that had substantially high interest rates (as compared to federal loans) and required repayment while students attended school; (iv) misleading students to believe that the school did not have an interest in the private loans offered; and (v) knowing its students were likely to default on the private loans made. In addition, the CFPB alleges that the school violated the FDCPA by taking aggressive and unfair action, including pulling students out of class, blocking computer access, preventing class registration, and withholding participation in graduation, to collect payments on the private loans as soon as they became past due. The CFPB is seeking to permanently enjoin the school from engaging in the alleged activity, restitution and damages to consumers, disgorgement, rescission of all private loans originated since July 21, 2011, civil money penalties, and costs and other monetary relief. Read more…
Fourth Circuit Holds That Debtors Are Not Required To Dispute Debt In Writing To State A Claim Under FDCPA
On August 15, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s denial of a debt collector’s motion for judgment as a matter of law because, under the FDCPA, debtors are not required to dispute debts in writing pursuant to Section 1692g in order to seek relief under Section 1692e. Russell v. Absolute Collection Services, No. 12-2357, 2014 WL 3973729 (4th Cir. Aug. 15, 2014). Within thirty days of receiving the initial debt collection letter, the debtor paid the entire amount due directly to her husband’s medical provider. However, the debt collector continued to make calls and send collection letters thereafter. During the calls, the debtor told the collector that the debt had been paid, but she never advised the collector in writing that she was disputing the debt, nor did she send proof of payment. The debt collector argued that Section 1692g debt validation procedures required the debtor to dispute the debt in writing. The court disagreed, stating that such an interpretation “would thwart the statute’s objective of curtailing abusive and deceptive collection practices and would contravene the FDCPA’s express command that debt collectors be liable for violations of ‘any provision’ of the statute.”
On July 14, the CFPB sued a Georgia-based law firm and its three principal partners for allegedly using high-volume litigation tactics to collect millions of dollars from consumers who may not actually have owed the debts or may not have owed the debts in the amounts claimed. The suit relates to the firm’s attempts to collect, directly or indirectly, consumer credit-card debts on behalf of both credit-card issuers and debt buyers that purchase portfolios of defaulted credit-card debts. The CFPB alleges the defendants violated the FDCPA and engaged in unfair and deceptive practices by: (i) serving consumers with deceptive court filings generated by automated processes and the work of non-attorney staff, without any meaningful involvement of attorneys; and (ii) introducing faulty or unsubstantiated evidence through sworn statements even though some signers could not have known the details they were attesting to. The CFPB is seeking to permanently enjoin the firm from engaging in the alleged activity, restitution to borrowers, disgorgement, civil money penalties, and damages and other monetary relief.
On July 8, the CFPB released guidance designed to ensure equal treatment for legally married same-sex couples in response to the Supreme Court’s decision in United States v. Windsor, 133 S. Ct. 2675 (2013). Windsor held unconstitutional section 3 of the Defense of Marriage Act, which defined the word “marriage” as “a legal union between one man and one woman as husband and wife” and the word “spouse” as referring “only to a person of the opposite sex who is a husband or a wife.”
The CFPB’s guidance, which took the form of a memorandum to CFPB staff, states that regardless of a person’s state of residency, the CFPB will consider a person who is married under the laws of any jurisdiction to be married nationwide for purposes of enforcing, administering, or interpreting the statutes, regulations, and policies under the Bureau’s jurisdiction. The Bureau adds that it “will not regard a person to be married by virtue of being in a domestic partnership, civil union, or other relationship not denominated by law as a marriage.”
The guidance adds that the Bureau will use and interpret the terms “spouse,” “marriage,” “married,” “husband,” “wife,” and any other similar terms related to family or marital status in all statutes, regulations, and policies administered, enforced or interpreted by the Bureau (including ECOA and Regulation B, FDCPA, TILA, RESPA) to include same-sex marriages and married same-sex spouses. The Bureau’s stated policy on same-sex marriage follows HUD’s Equal Access Rule, which became effective March 5, 2012, which ensures access to HUD-assisted or HUD-insured housing for LGBT persons.
This afternoon, the CFPB announced that a nonbank consumer lender will pay $10 million to resolve allegations that it engaged in certain unfair, deceptive, and abusive practices in the collection of payday loans. This action comes exactly one year after the CFPB issued guidance that it would hold supervised creditors accountable for engaging in acts or practices the CFPB considers to be unfair, deceptive, and/or abusive when collecting their own debts, in much the same way third-party debt collectors are held accountable for violations of the FDCPA. Read more…