Category Archives: Government News

District Court Holds Letter Notifying Debtor of Change in Debt Ownership Can Fall Under FDCPA

On October 5, 2020, the U.S. District Court for the Middle District of Florida denied a debt collector’s motion for summary judgment, holding that a letter which provides notice of a change in debt ownership and requests payments be remitted to the new owner qualifies as a communication related to a debt under the Fair Debt Collection Practices Act (“FDCPA”), which restricts how debt collectors can collect from debtors.

Axiom Acquisition Ventures, LLC (“Axiom”) bought Robert Valenzuela’s consumer debt from a bank after he allegedly defaulted on his personal loan payments. Axiom sent Valenzuela a letter informing him that his debt had been reassigned and instructing him to remit future payments to Axiom.

Valenzuela brought suit, alleging that the letter violated the FDCPA because it (1) did not inform him of his right to dispute the debt; (2) misled him as to the chain of ownership of the debt; and (3) concealed Axiom’s status as a debt collector. Axiom moved for summary judgment, arguing that the letter was not a communication “in connection with the collection of a debt” subject to the FDCPA, only notice of the change in his debt’s ownership.

The District Court denied Axiom’s motion, applying precedent from the U.S. Court of Appeals for the Eleventh Circuit, that a communication from a debt collector can have dual purposes, such as giving notice and demanding payment. The Court found that true here, concluding that the letter was a communication in connection with the collection of a debt because in addition to notifying Valenzuela about the change in ownership, it “also includes specific language urging Plaintiff to immediately remit future payments” to Axiom. The Court noted that had this language not been included, the outcome may have been different.

 

Hopefully the End of the Debt Itemization Circus? 7th Cir. and CFPB Side with Debt Collector

We’ve seen a lot of court decisions on the interest disclosure claim over the past couple of years, but it’s always noteworthy when a Circuit Court of Appeals and the Consumer Financial Protection Bureau (CFPB) speak on the issue. We’ve had many appellate decisions, including several out of the Second Circuit, denying almost every iteration of the interest disclosure claim that plaintiffs and their attorneys have cooked up. Examples include TaylorDeRosaKlobasyukGissendanner, and Dow. The Seventh Circuit has generally held that so long as the Miller safe harbor language is used when appropriate, the claims fail. A recent Seventh Circuit decision—Degroot v. Client Servs.sides with the industry in yet another meaningful way. This time, with the CFPB filing an amici brief that, in impact, sides with the debt collector.

Factual and Procedural Background

In DeGroot, the plaintiff defaulted on a debt owed to Capital One. Through the account’s lifetime, it was placed with two separate debt collection agencies. The first agency sent the plaintiff a letter that stated:

The amount of your debt is $425.86. Please keep in mind, interest and fees are no longer being added to your account. This means every dollar you pay goes towards paying off your balance.

Subsequently, the bank reassigned the account to a second collection agency—the defendant-appellee in this case—that sent the plaintiff a letter that listed the same amount due but included an itemization of the debt that stated:

  • Balance Due At Charge-Off: $425.86
  • Interest: $0.00
  • Other Charges: $0.00
  • Payments Made: $0.00
  • Current Balance: $425.86

The letter also stated:

[N]o interest will be added to your account balance through the course of Client Services, Inc. collection efforts concerning your account.

The plaintiff, through counsel, filed an FDCPA class action lawsuit against the second collection agency for allegedly failing to state the amount owed in a clear and meaningful way. According to the plaintiff, the inclusion of interest and other charges in the debt itemization—even though the amounts were listed as $0.00—could mislead a consumer to think that such items can still accrue on the account. This, allegedly, is at odds with the statement that interest will not accrue while with the second agency.

The district court dismissed the lawsuit, and the plaintiff appealed.

Seventh Circuit Decision

This is a decision that is best summarized in the court’s own words.

Since the collection letter is true on its face—the debt was not accruing interest and charges and the amount accrued since charge-off was $0.00—the appellate court focused its analysis on whether the unsophisticated consumer would read the letter to imply what the plaintiff alleges. “If, and only if, we conclude that an unsophisticated consumer would make such an inference, then we move to analyze whether the inference is false or misleading.”

Poignantly, the court looks to and agrees with the CFPB’s amicus brief:

As the CFPB points out, the itemization of a debt is a record of what has already happened. It “discloses the interest or other charges that have been assessed between a date in the past (in this case, the date that the debt was charged-off) and the date of the notice.” For that reason, the Bureau argues, such a breakdown cannot be construed as forward looking and therefore misleading. We agree.

What follows is a complete rejection of the plaintiff’s argument and a rejection of conclusions from a few district courts within the Seventh Circuit’s jurisdiction:

Degroot’s insistence—apparently accepted by several district courts, see, e.g., Duarte v. Client Servs., Inc., No. 18 C 01227, 2019 WL 1425734 (N.D. Ill. Mar. 29, 2019)—that the inclusion of a zero balance for interest and fees naturally implies he could incur future interest or other charges if he did not settle the debt is unpersuasive. In line with Koehn, Degroot’s mere raising of an open question about future assessment of other charges with a speculative answer does not make the breakdown misleading.

The court then concludes:

That interest and fees are no longer being added to one’s account does not guarantee that they never will be, because there is no way—unless the addition is a legal or factual impossibility—to know what may happen in the future. That is why a statement in a dunning letter that relates only to the present reality and is completely silent as to the future generally does not run afoul of the FDCPA. While dunning letters certainly cannot explicitly suggest that certain outcomes may occur when they are impossible,  they need not guarantee the future. For that reason, the itemized breakdown here, which makes no comment whatsoever about the future and does not make an explicit suggestion about future outcomes, does not violate the FDCPA.

(Internal citations omitted.) The court reiterates this conclusion for the sister claim in this suit, which alleges that the interest disclosure in the letter was misleading or confusing.

 

Article by Katie Grzechnik Neill

 

Washington, DC Extends its COVID-19 Collection Ban

For those who were holding their breath until they could restart collecting debts in Washington, DC, it appears they’ll have to hold it a little longer. In response to the COVID-19 pandemic, Washington, DC issued a stringent blanket ban on collections within its jurisdiction to last until 60 days after the emergency order is lifted. That emergency order has now been extended to last through December 31, 2020.

The initial collection ban order went into effect in April. Back in June, Washington, DC entered into “Phase Two” of its reopening plan.  While the plan allows the pilot reopening of places such as entertainment venues, it very clearly states that several public health and emergency orders—including the prohibition on collections—are extended through the end of the year. Of note, the prohibitions would go even longer, as the orders state that the restrictions shall be in place until 60 days after the emergency orders are lifted.

 

Article By  Katie Grzechnik Neill

In the Nick of Time: NYC DCA Releases Glossary and Translations of Commonly-Used Terms

As debt collectors began to wonder whether they’d be able to comply with New York City Department of Consumer Affair’s (DCA) new Limited English Proficiency rule, the regulator has finally posted the final piece of the puzzle just as its enforcement grace period against debt collectors was about to expire. Yesterday, DCA at long last posted the glossary of commonly-used collection terms and their translations.

Among several requirements, the new rule requires debt collectors to provide a link to DCA’s website — www.nyc.gov/dca — and inform consumers that they can find such a glossary there.

The big concern for debt collectors was whether the glossary would be posted at all; and, until it was posted, there was a concern that it was impossible to properly comply with the rule and protect against legal risk. A debt collector could include the link to the website to comply with the rule, but if the glossary was not present, then it provided legal exposure to debt collectors for potentially providing misleading or deceptive communications to consumers.

On the other hand, a debt collector might have decided to forego providing the link, thus not complying with the rule, in order to protect against the legal exposure of misleading or deceptive communications in what is one of the most litigious jurisdictions for FDCPA claims.

Thankfully, debt collectors don’t have to pick and choose. Now that the glossary is available, the loop is closed.

Some things to keep in mind:

1) The regulation doesn’t say to provide the link of the glossary. Per the reg, your New York City letters only need to have the following:

(viii) a statement that a translation and description of commonly-used debt collection terms is available in multiple languages on the Department’s website, www.nyc.gov/dca.

However, it is not immediately apparent, at least to this least sophisticated consumer, where the glossary is from the link above in the regulation. Safety says: follow the regulation as written, because sometimes links change and if you use the glossary link itself, rather than the www.nyc.gov/dca link in the regulation, and then NYC DCA changes that link, you might find yourself in dutch with the City.

2) Per the regulation, you are not required to provide communications in anything other than English; and if you only provide notices and communications in English, that needs to be mentioned in your disclosure on your letters and on your site. If you do offer written and oral communications in other languages, though, those languages need to be listed in the letter. And if you have the ability to translate written documents or handle other languages in a phone call, that needs to be made explicit to consumers, too.

3) Also per the regulation, that link to www.nyc.gov/dca also needs to be on your website. It can be on a consumer-reachable disclosures page. You will also have to list the languages your agency supports on your site, too.

insideARM Perspective

While DCA was likely well-meaning and genuine in its attempt to help consumers who may need language services, the procedure of how this rule came about has been poorly managed and frustrating for collectors.

First, DCA announced the rule and held public hearings in the Spring while all companies—including debt collectors—were in the middle of the COVID-19 pandemic scramble in an unprecedented effort to transition to a remote workforce while at the same time being available to help consumers who were sending inbound phone calls to debt collectors at unprecedented rates. As one would suspect, this rule missed everyone’s radar—there were zero comments received from industry or consumer advocates on the rule.

Then, DCA provided a grace period for enforcement because, once the dust settled and industry had a chance to review the rule, there were many questions left unanswered about how, exactly, to comply with the rule. In response to this, DCA released an FAQ document and annual report template.

However, even that was not complete, as there was one big piece of the puzzle missing: the glossary of commonly-used collection terms and their translations. DCA announced an extension to their grace period so they could get this up, which we now see was done mere days before debt collectors are expected to fully comply with the new rule. Talk about a nail-biter.

Again, the industry can appreciate DCA’s intent behind the rule. There are many consumers who would greatly benefit from language access services. However well-meaning the intent was, the way this rule came about was a mess and now we wait and see whether it will have any unintended consequences.

Debt collection problems: StepChange call on government to ‘get its house in order’

ACA International Leadership to Discuss its Comments on the Proposed Rule in Press Briefing Today

ACA International’s comprehensive comments in response to the Consumer Financial Protection Bureau’s proposed debt collection rule recommend fair and objective policies that clarify legal obligations for the accounts receivable management (ARM) industry and provide clarity for consumers. As the leading voice of the ARM industry, ACA International submitted more than 150 pages of comments Sept. 17, 2019 on the CFPB’s Notice of Proposed Rulemaking for the Fair Debt Collection Practices Act of 1977. (ACA’s comments are available on its website at www.acainternational.org)

ACA International CEO Mark Neeb released the following statement: “The proposed rule rightfully acknowledges that the Fair Debt Collection Practices Act, which is more than 40 years old, does not account for modern consumer preferences and impedes the free flow of information that allows consumers the ability to continue to access credit and services. ACA, in its comprehensive comments, identifies a significant number of changes that should be made to the proposal to better balance privacy concerns, with the consumer benefits that are derived from engaging in open communication with the ARM industry.

“Our economy is heavily reliant on the creditors ability to collect rightfully owed outstanding debts. In 2016, our industry returned $67.6 billion of funds to U.S. businesses—that’s an average savings of $579 for every American household,” Neeb said.

Here’s a look at some of ACA’s top-level comments:

  • The CFPB’s proposed call cap of no more than seven calls in seven days, and separate requirement that an agency wait seven days before contacting a consumer after a telephone conversation, is not supported by evidence that it provides any consumer benefit. Instead, it will decrease direct contact between consumers and the ARM industry, and cause an increase in alternative contacts such as letters, texts, emails, etc. Ultimately, this will increase costs and the length of time it takes to resolve a debt. This could impact a consumers’ ability to access credit or services. And, the FDCPA already restricts collectors from placing calls to consumers repeatedly or continuously with intent to annoy, abuse or harass any person at the called number. Collectors are legally bound by this reasonableness standard, thus an arbitrary call cap is unnecessary.
  • Consumers indisputably increasingly prefer modern electronic communications—like email and text messages—over antiquated snail mail. Modern technology is more cost-effective and efficient for communicating critical information from the accounts receivable management industry to consumers. The CFPB needs realistic regulations on these communications methods for businesses to follow. (See Infographic)
  • Clear and plain language communication is best for consumers and the industry. Unfortunately, fear of plaintiff’s litigation and the “overshadowing” doctrine force collection agencies to use stiff and confusing statutory language that consumers deem intimidating.
  • Defining the limited content message and attempt to communicate under the FDCPA is important to provide clarity for leaving voicemails. The current statutory catch-22 has impeded the ability to leave voicemail messages, which has increased call volumes, and has warranted regulatory guidance for several decades.
  • Imposing onerous requirements that do not detail what it means to communicate with a consumer prior to furnishing information to credit reporting agencies regarding the consumer’s debt is an impermissible regulatory act. The FDCPA is not meant to govern credit reporting in this manner, and the Fair Credit Reporting Act (FCRA), which sets forth many requirements, does not require this.
  • The CFPB’s current proposal to create a uniform validation notice is important for both consumers and the industry. In its comments, ACA outlines several ambiguities created or not addressed by the model form including itemization, the tear-off form check box, failure to address litigation over interest accrued, among others. The comments outline in detail why new itemization requirements are unworkable for small businesses and for several types of debt, particularly medical, merchant and service debt.

Accounts receivable management industry professionals represent a diverse segment of the population made up of individuals who work hard to earn a day’s living, pay for their children to go to school, and put food on their tables. They want to work to help consumers find a solution to their financial problems. Over 70 percent of debt collection professionals are women; racial and ethnic minority groups account for 40 percent of the of total collection workforce. Industry employees spend more than 520,000 hours per year in volunteer activities.

Join ACA International’s leadership team as they discuss and analyze the industry’s position on the CFPB’s proposed debt collection rule. This media briefing is scheduled for 10 AM EASTERN Wednesday, Sept. 18.