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FDCPA Case Law: 2017 in Review

Posted By USFN, Thursday, February 1, 2018
Updated: Monday, January 29, 2018

February 1, 2018

by Andy Saag
Sirote & Permutt, P.C.
USFN Member (Alabama)

and William H. Meyer
Martin Leigh PC
USFN Member (Kansas)

The Fair Debt Collection Practices Act (FDCPA) continues to be actively argued and litigated around the country. This article highlights case law from 2017 (and some from late 2016) related to the scope of the FDCPA, standing, overshadowing, and collection of time-barred debt.

Who Is A Debt Collector?
The FDCPA defines a “debt collector” as one who “regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692a(6).

In Henson v. Santander Consumer USA Inc., the U.S. Supreme Court analyzed the exceptions under §1692a(6)(F), recognizing that, “under the definition at issue before us you have to attempt to collect debts owed another before you can ever qualify as a debt collector.” 137 S. Ct. 1718, 1721-22 (2017) (emphasis in original). The Court held that “a debt purchaser ... may indeed collect debts for its own account without triggering the [FDCPA].”

Additionally, the definition of “debt collector” excludes any person “collecting ... a debt which was not in default at the time it was obtained.” 15 U.S.C. § 1692a(6)(F)(iii); see also Kurtzman v. Nationstar Mortgage LLC, 2017 WL 4511361, *3 (11th Cir. Oct. 10, 2017), quoting Davidson v. Capital One Bank (USA), N.A., 797 F.3d 1309, 1316 (11th Cir. 2015) (“a non-originating debt holder [does not qualify as] a ‘debt collector’ for purposes of the FDCPA solely because the debt was in default at the time it was acquired”).

The Fourth Circuit and Ninth Circuit have adopted divergent views as to whether foreclosure-related activities constitute “debt collection.” In McCray v. Federal Home Loan Mortgage Corp., 839 F.3d 354 (4th Cir. 2016), the Fourth Circuit observed that “[t]he FDCPA’s definition of debt collector … does not include any requirement that a debt collector be engaged in an activity by which it makes a ‘demand for payment.’” Thus, “to be actionable under the FDCPA, a debt collector needs only to have used a prohibited practice ‘in connection with the collection of any debt’ or in an ‘attempt to collect any debt’” (emphasis added). Id., citing Powell v. Palisades Acquisition XVI, LLC, 782 F.3d 119, 123 (4th Cir. 2014). In McCray, the Court found “all of the defendants’ activities were taken in connection with the collection of a debt or in an attempt to collect a debt” (emphasis added).

By contrast, the Ninth Circuit has decided that “[a]n entity does not become a general ‘debt collector’ if its ‘only role in the debt collection process is the enforcement of a security interest.’” Ho v. ReconTrust Co., N.A., 858 F.3d 568, 573 (9th Cir. 2016). Nonetheless, the Ninth Circuit identified a limited definition of “debt collector” in the foreclosure context to include security interest enforcers, who are regulated only through §1692f(6).

In Dowers v. Nationstar Mortgage, 852 F.3d 964 (9th Cir. 2017), the Ninth Circuit cited to Ho and affirmed the dismissal of claims against a loan servicer in all respects except as to an alleged violation of § 1692f(6). The Ninth Circuit then reached the same conclusion in Mashiri v. Epsten Grinnell & Howell, 845 F.3d 984 (9th Cir. 2017). Relying on Ho, Mashiri states, “where an entity is engaged solely in the enforcement of a security interest and not in debt collection, like the trustee and unlike Epsten, it is subject only to § 1692f(6) rather than the full scope of the FDCPA.” Id. at 990.

The analyses in both Dowers and Mashiri, however, overlook the parties’ posture in the Ho litigation. Ho “affirms the leading case of Hulse v. Ocwen Federal Bank, 195 F. Supp. 2d 1188, 1204 (D. Or. 2002), which held that ‘foreclosing on a trust deed is an entirely different path’ than ‘collecting funds from a debtor.’” See Ho, 858 F.3d at 572; see also id. at note 3 (“… Hulse is indeed the leading case for what other courts have recognized as the majority position”).

Notably, the defendants in Mashiri made the same concession as the parties in Ho; i.e., that the foreclosure trustee defendant was a “debt collector.” Mashiri, 845 F.3d at 989 (“For the first time in its answering brief, Epsten argues that it is subject only to § 1692f(6)”); Ho, 858 F.3d at 573 (“All parties agree that ReconTrust is a debt collector under the narrow definition [that would implicate § 1692f(6)]”). Moreover, in Ho, the trustee was not even accused of a § 1692f(6) violation. 858 F.3d at 573; see also Park v. Lehman Brothers Bank, FSB, 694 Fed. Appx. 602 (9th Cir. Aug. 3, 2017), citing Ho at 572-573 (“Quality [Loan Service Corporation] … may be a debt collector for the limited purpose of section 1692f(6), but [the plaintiffs] didn’t allege that Quality violated this section”).

As the Ninth Circuit observed in Ho, to impose debt collection liability in connection with state foreclosure law would produce an impermissible conflict. Ho, supra at 576; see also Tyson v. TD Services Co., 690 Fed. Appx. 530, 531 (9th Cir. 2017) (“the practices that T.D. Service engaged in were strictly in accordance with the law of California regarding the nonjudicial foreclosure duties of a trustee under a deed of trust”). Consequently, it is important to take a nuanced view of what factors led to the Ho, Dowers, and Mashiri appellate rulings.

In sum, although Santander is clear that collecting one’s own debts does not trigger FDCPA liability, with the Ho decision denied a certiorari petition on December 4, 2017, the law among circuit courts remains unclear on the subject of whether foreclosure activities bring lenders and trustees under the scope of § 1692a(6).

The U.S. Supreme Court established in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), that a plaintiff must show an injury-in-fact in order to establish standing. Further, the Spokeo case stated that an injury-in-fact is present if the borrower can show an invasion of a legally protected interest that is concrete and particularized. Below are a few cases dealing with “Spokeo Standing” over the past year. As you will see, there is very little consistency as to what does or does not constitute an injury-in-fact.

In Estate of Caruso v. Financial Recoveries, 2017 WL 2704088 (D.N.J. June 22, 2017), a debt collector mailed a collection letter to the debtor’s estate in an envelope with a visible barcode and nine-digit number, which the plaintiff alleged was a violation of the FDCPA. The debt collector moved for summary judgment and asserted that the estate lacked standing. The court agreed, noting that the estate failed to provide evidence that the barcode and nine-digit number disclosed any private information on its face or when read by a barcode scanner. Accordingly, the Court held that the estate did not prove it suffered an injury sufficient for Article III standing and granted the motion in favor of the debt collector.

In Yeager v. Ocwen Loan Servicing, 2017 WL 701387 (M.D. Ala. Feb. 22, 2017), a borrower sued for violations of the FDCPA after the servicer allegedly failed to send the validation notice within five days of its initial communication to them. The court found that the borrowers were unable to show that they “suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’” Therefore, the court held that the borrowers were unable to show actual harm and lacked standing.

In Ben-Davies v. Blibaum & Associates, P.A., 2017 WL 2378920 (4th Cir. (D. Md.) June 1, 2017), a borrower filed suit against her debt collector under the FDCPA for allegedly demanding payment of an incorrect sum based on the calculation of an interest rate not authorized by law. The trial court dismissed the borrower’s claims and held that she failed to sufficiently allege an injury-in-fact to establish standing. However, on appeal, the Fourth Circuit reasoned that since the borrower alleged that she suffered actual, existing, intangible harm (i.e., “emotional distress, anger, and frustration”) as a “direct consequence” of the alleged violations, she met the requirements set out in Spokeo. Accordingly, the court remanded the case for further proceedings.

In May v. Consumer Adjustment Company, Inc., 2017 WL 227964 (E.D. Mo. Jan. 19, 2017), a borrower filed suit against a debt collector under the FDCPA because its collection letter included the amount of the debt without informing her that the amount owed included interest that would continue to accrue. In considering the debt collector’s motion to dismiss for lack of standing, the district court noted that a debt collector’s violation of the FDCPA disclosure requirements may result in concrete injury. However, in this case, the court ruled that the borrower failed to allege any actual harm from the collection letter’s lack of disclosure regarding accruing interest. Thus, without proof of any actual or imminent concrete harm, the court found that the allegations did not amount to an injury-in-fact, and the complaint was dismissed.

In Benali v. AFNI, Inc., 2017 WL 39558 (D.N.J. Jan. 4, 2017), a debt collector sent collection letters on behalf of a lender to the plaintiff, charging a processing fee for payments that were made electronically. It was undisputed that the plaintiff never had an account with the lender and that the applicable state law neither expressly permits nor prohibits a processing fee for credit card payments. The district court concluded that the plaintiff alleged bare statutory violations but did not establish a concrete harm sufficient to support standing. The court held that merely receiving the collection letter, without more, was not sufficient to confer standing because the alleged debt did not belong to the plaintiff. Additionally, there was no risk that the plaintiff would pay the processing fee because he immediately realized that he did not have an account with the lender. Because the plaintiff failed to show any actual or threatened harm, the court held that he lacked standing and granted summary judgment in the debt collector’s favor.

In Carney and Gumpper v. Russell P. Goldman, P.C., 2016 WL 7408849 (D.N.J. Dec. 22, 2016), the plaintiffs filed a putative class action against a law firm engaged to collect defaulted student loan debts for purported violations of the FDCPA. The law firm filed a motion to dismiss, contending the debtors lacked Article III standing to bring this case. The district court denied the law firm’s motion and found that the debtors did allege a clear injury-in-fact harm for purposes of Article III standing. The purported injury was that the law firm made false, misleading, and deceptive representations to debtors by listing (in its collection letters) attorneys’ fees and costs that had not yet been incurred. The debtors claimed that because of these alleged misrepresentations, they suffered informational and economic injury. Following the ruling in Spokeo, the court held that the alleged injury was particularized and the harm was concrete enough to satisfy Article III standing requirements. Accordingly, the motion to dismiss was denied.

Finally, in Kaymark v. Udren Law Offices, P.C., 2016 WL 7187840 (W.D. Pa. Dec. 12, 2016), the plaintiff filed a class action lawsuit against a law firm, alleging violations of the FDCPA because a pre-foreclosure letter included an itemized list of the debt and stated that the figures were calculated as of July 12, 2012, when in fact some of the charges had not yet been incurred. The district court, in considering the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), concluded that the borrower had established standing by alleging a concrete injury-in-fact. The district court found that the foreclosure complaint’s demand for alleged estimated or anticipated fees was material and thus actionable under the FDCPA. The district court noted that a statement under the FDCPA is “material” if it is capable of influencing the decision of the least sophisticated debtor. Accordingly, the court did not dismiss the FDCPA claims.

In a February 2017 order, the U.S. District Court of the District of Colorado addressed a debtor’s claim that the creditor’s communications violated the FDCPA’s prohibition against overshadowing (i.e., a notice containing information that contradicts the notice of a debtor’s rights such as the right to dispute the debt within 30 days). In that case, styled Hamilton v. Capio Partners, LLC, 237 F. Supp. 3d 1109 (D. Colo. 2017), the District Court interpreted the FDCPA’s requirement that “a debt collector must inform a consumer that she has the right to dispute the validity of a debt claim within thirty days of receiving notice of a debt collection action . . . [that the notice] ‘may not overshadow or be inconsistent with the disclosure of the consumer’s right to dispute the debt or request the name and address of the original creditor’ . . . [and] ‘[a] notice is overshadowing or contradictory if it would make the least sophisticated consumer uncertain as to her rights.’” Id. at 1113.

The operative language from the notice at issue in Hamilton stated: “We have been authorized to extend to you a special offer of settlement for $180.00. This offer will save you 40%. If you choose to accept this offer, payment must be received in this office on or before 05/21/2015. This settlement offer and the deadline for accepting it do not in any way affect your right to dispute this debt and request validation of this debt during the 30 days following your receipt of this letter as described on the reverse side. If you do not accept this settlement offer you are not giving up any of your rights regarding this debt.” Id. at 1111-12.

In resolving the overshadowing issue, the District Court first addressed the debtor’s claim that overshadowing is a fact issue for the jury, and therefore not appropriate for a determination at summary judgment. The District Court disagreed and cited to supporting opinions from the Sixth, Seventh, and Ninth Circuits, noting that the Tenth Circuit has not yet addressed this issue.

The District Court next addressed the debtor’s argument that a notice that contains both a settlement offer and a notice of the debtor’s rights results in the notice of the debtor’s rights being overshadowed. The District Court disagreed, citing a number of supporting decisions. The District Court explained further that overshadowing has been found in those cases where creditors have stated an intent to take action within 30 days of sending the notice to the creditor and making claims such as “the debt collector would hold the consumer’s account ‘for 10 days ... to give [her] the opportunity to settle this obligation;’” or “if the debt was not paid within ten days then the debt collector would pursue legal action;” and “‘THIS IS A DEMAND FOR IMMEDIATE FULL PAYMENT’ and ‘PHONE US TODAY. IF NOT PAY US—NOW.’” The District Court explained that notices with this type of language “flatly contradicted the [FDCPA’s] thirty-day validation requirement.” Id. at 1114. In short, an overshadowing claim presents a narrow legal issue that can be determined through a dispositive motion.

In an October 2016 order, the U.S. District Court for the Eastern District of Missouri addressed a debtor’s claim that the creditor’s communication violated the FDCPA’s overshadowing provision. In that case, styled Tilatitsky v. Medicredit, Inc., 2016 WL 5906819 (E.D. Mo. 2016), the debtor asserted that the creditor’s 30-day debt validation notice was overshadowed because it was set forth in the letter’s fourth paragraph and after the notice had requested that the debtor pay the debt in full and provided the creditor’s contact information along with various payment options (phone payment, express mail, MoneyGram, check, or credit card).

In considering the overshadowing claim, the district court noted that although it must utilize the “unsophisticated-consumer standard” it must maintain “an objective element of reasonableness to protect debt collectors from liability for peculiar interpretations of collection letters.” “[S]tatements that are merely susceptible of an ingenious misreading do not violate the FDCPA.” Id. at 3-4. “[W]hen the letter itself does not plainly reveal that it would be confusing to a significant fraction of the population, the plaintiff must come forward with evidence beyond the letter and his own self-serving assertions that the letter is confusing in order to create a genuine issue of material fact for trial.”

The debtor in Tilatitsky intended to use an expert witness to explain why the creditor’s notice was confusing and overshadowing. However, the debtor failed to disclose the expert witness and the district court excluded the expert’s testimony.

The district court then granted summary judgment in favor of the creditor because the debtor could not rely on his self-serving claims that the creditor’s notice “confused him, and he has failed to timely present extrinsic evidence showing that the Collection Letter would reasonably confuse or deceive an ‘unsophisticated consumer’ as to his or her dispute, validation, and verification rights.”

Time-Barred Debt

In a May 2017 opinion, the U.S. Supreme Court ruled that a creditor did not violate the FDCPA in the context of a Chapter 13 bankruptcy proceeding when the creditor filed a proof of claim on a facially time-barred debt. The FDCPA claim from that case, styled Midland Funding, LLC v. Johnson, 137 S. Ct. 1407, 1412 (2017), was asserted in a lawsuit filed by the debtor after the creditor’s proof of claim was disallowed in the bankruptcy proceeding. The Court’s opinion in Johnson is factually limited and could be considered to only apply in the context of bankruptcy proofs of claim. In short, the decision should not be viewed as a safe harbor regarding any attempts to collect time-barred debts.

In an October 2017 order, the U.S. District Court for the Eastern District of Missouri addressed the FDCPA on a time-barred debt issue and ruled for the tenant/debtor and against the landlord/creditor and its attorneys. That case, styled Morgan v. Vogler Law Firm, P.C., 2017 WL 4387351 (E.D. Mo. 2017), evolved from the creditor evicting the debtor, a subsequent collection lawsuit filed by the creditor’s attorneys, the debtor’s bankruptcy, and a violation of the automatic stay by the creditor’s attorneys. Of several FDCPA issues raised in the case, one was the debtor’s claim that the debt was time-barred. The district court’s order, without hesitation, found for the debtor on the time-barred debt issue — ruling that “[Missouri’s] five-year statute of limitations applied to plaintiff’s landlord’s claim for unpaid rent. [#38 at 9 (citing § 516.120 RSMo).] Thus, plaintiff’s landlord could not recover for payments that had been due more than five years before the lawsuit was initiated. (Id.) Because § 1692e prohibits debt collectors from filing a time-barred lawsuit to collect a debt, defendants violated § 1692e.”

In a December 2016 order, the U.S. District Court for the District of Kansas addressed the FDCPA time-barred debt issue in the context of a notice sent by the creditor to the debtor. That case, styled Boedicker v. Midland Credit Management, Inc. (D. Kan. 2016), addressed whether a notice sent by the creditor (which was modeled on a FTC-approved safe harbor example) violated the FDCPA. The creditor’s notice stated, in part, that the “law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it.” The debtor contended that this notice failed to satisfy the FDCPA because the notice did not also warn the debtor of a potential revival of a time-barred claim. The district court rejected that argument and ruled for the creditor, noting that the creditor’s notice exactly matched the FTC-approved language, and because no case has ruled that a debt collector must warn the debtor of the risk of reviving a time-barred claim.

In a September 2016 order, the U.S. District Court for the Eastern District of Missouri addressed the FDCPA time-barred debt issue based upon a creditor’s notice to a debtor. That case, styled Young v. Ditech Financial, LLC, 2016 WL 4944102 (E.D. Mo. 2016), was filed by a debtor seeking relief from an old derogatory credit report. The debtor alleged that the creditor violated the FDCPA by failing to disclose that it was a debt collector and by attempting to collect a time-barred debt.

The district court rejected the FDCPA claim based upon the creditor’s alleged failure to disclose its status as a debt collector because the creditor’s billing statements specifically disclosed that the creditor was a debt collector. Further, the district court rejected the FDCPA claim based on the creditor’s attempt to collect on a time-barred debt because in “the Eighth Circuit, ‘no violation of the FDCPA has occurred when a debt collector attempts to collect on a potentially time-barred debt that is otherwise valid’” without “a threat of litigation or actual litigation.” Id. citing Freyermuth v. Credit Bureau Services, Inc., 248 F.3d 767, 771 (8th Cir. 2001) (“[A] statute of limitations does not eliminate the debt; it merely limits the judicial remedies available”). Because the debtor did not allege that the creditor threatened to bring suit, or actually sued, in order to collect on the debt, the district court dismissed this FDCPA claim.

Editor’s Note: A special thank you to Joshua Schaer, formerly with RCO Legal (and now with Perkins Coie, LLP), who contributed greatly to this article.


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