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Recent Cases Help to Interpret the Fair Debt Collection Practices Act

Posted By USFN, Wednesday, May 8, 2019

by William H. Meyer
Martin Leigh PC 
USFN Member (KS, MO) 

Property Preservation is Not Debt Collection Under FDCPA —
Schlaf v. Safeguard Prop., LLC, 899 F.3d459 (7th Cir. 2018)

In Schlaf v. Safeguard Prop., LLC, a property preservation company was sued by a borrower under the Fair Debt Collection Practices Act (“FDCPA”). After the borrower had been in default, the property preservation company was directed by the lender to inspect the property and to leave a door hanger that requested the borrower to contact the lender. On these facts, the borrower sued the preservation company. The borrower claimed that the inspection was abusive and that the door hanger did not make disclosures required by 15 USC § 1692g and §1692e (11) (i.e. creditor name, amount of debt, the debtor’s right to dispute the debt, mini-Miranda statement).

The 7th Circuit disagreed with the borrower, ruling that the preservation company was not a debt collector and therefore not subject to the FDCPA. In reaching that conclusion, the 7th Circuit relied on the door hanger’s text which contained no payment demand, no settlement offer, no payment options, no reference to the borrower’s debt, and listed only the lender’s name and telephone number. The 7th Circuit also found it persuasive that the preservation company made no attempt to collect payments and instructed its employees not to discuss the reason for the inspection.

The Federal Circuits Split on if the FDCPA Applied to Nonjudicial Foreclosures — Obduskey v. Wells Fargo, 879 F.3d 1216 (10th Cir. 2018)

In Obduskey v. Wells Fargo, a law firm nonjudicially foreclosed on the borrower’s home. The law firm initiated the foreclosure by sending the borrower a notice stating its intent to foreclose, details about the debt and a disclosure that the law firm may be considered a debt collector attempting to collect a debt.

The borrower responded and disputed the debt. The law firm did not respond and proceeded to foreclose. The borrower sued the law firm asserting that the law firm violated the FDCPA by failing to respond to the borrower’s debt validation request. Recognizing a split among the federal circuits, the 10th Circuit ruled that nonjudicial foreclosures are not covered by the FDCPA and that the law firm was not obligated to respond to the borrower’s debt validation request.

Additionally, the 10th Circuit reasoned that if the FDCPA applied to nonjudicial foreclosures, then a trustee foreclosing a deed of trust would essentially always breach the FDCPA in order to comply with Colorado’s statutory scheme for conducting nonjudicial foreclosures.

In reaching its conclusion, the 10th Circuit limited its opinion to nonjudicial foreclosures. The Court found that judicial foreclosures do contain an element of debt collection because such a lawsuit could result in deficiency judgment and presumably the FDCPA would be held to apply to judicial foreclosures.

On March 20, 2019, the Supreme Court affirmed Obduskey v. Wells Fargo and resolved the circuit split regarding the FDCPA’s application to nonjudicial foreclosures. The Supreme Court’s decision is discussed in this feature article.

Safe Harbor Language in a Debt Collector’s Notice to a Borrower Does Not Protect the Debt Collector from Misleading Information Also Contained in the Notice - Boucher v. Fin. Sys. of Green Bay, 880 F.3d 362 (7th Cir. 2018)

In Boucher v. Fin. Sys. of Green Bay, a debt collector sent a Wisconsin borrower a notice that closely tracked safe harbor language that 7th Circuit had previously ruled to comply with the FDCPA—except for one thing. The debt collector’s notice indicated that the Wisconsin borrower may be liable for “late charges and other charges.” The borrower sued the debt collector under the FDCPA asserting that the “late charges and other charges” language in the notice violated the statute. The debt collector countered that its notice tracked the safer harbor language and the notice could not violate the FDCPA as a matter of law.

Basing its decision in part on Wisconsin law, the 7th Circuit found the debt collector’s notice was misleading to an unsophisticated consumer particularly given that Wisconsin law does not allow a debt collector to recover late charges and other charges. Accordingly, the 7th Circuit agreed with the borrower that the notice was confusing to the unsophisticated consumer.

In addition to limiting the value of “safe harbor” language, the 7th Circuit cautioned lower courts against dismissing FDCPA claims based upon deceptive notices. That is because the 7th Circuit suggests that “district court judges are not good proxies for the ‘unsophisticated consumer’ whose interest the [FDCPA] protects.”

A Technical Violation of the FDCPA’s Mini-Miranda Requirement is Not Always Actionable – Hagy v. Demers & Adams, 882 F.3d 616 (6th Cir. 2018)

In Hagy v. Demers & Adams, the lender and borrower settled a dispute pursuant to which the borrower quit claimed secured property to the lender and the lender waived its right to pursue a deficiency. The lender’s lawyer sent a confirmation letter to the borrower’s attorney confirming the settlement. However, that letter did not contain the obligatory § 1692e (11) disclosure (i.e. this is a communication from a debt collector).

Despite the completed settlement, the lender continued to attempt to collect the deficiency against the borrower. That resulted in the borrower suing the lender’s law firm and asserting a § 1692e (11) violation. Reasoning that even if the law firm’s letter constituted a procedural violation of the FDCPA, the 6th Circuit rejected the borrower’s claim because the letter was true (the dispute had been settled and the lender had agreed to waive the borrower’s deficiency) and because the borrower could not articulate how the borrower was harmed by the letter. Furthermore, the borrower used the law firm’s letter to defend itself from the lender’s attempt to collect on a settled debt.

Debt Collector’s Failure to Notify a Borrower that a Debt Dispute Must Be Made in Writing is Actionable Under the FDCPA - Macy v. GC Srvs. L.P., 897 F.3d 747 (6th Cir. 2018)

In Macy v. GC Srvs. L.P., a debt collector notified a borrower that the borrower had 30 days to dispute the debt identified in the notice. However, the debt collector’s notice did not state the borrower’s debt dispute must be made in writing. The borrower sued alleging that the debt collector’s notice violated § 1692g (a)(4) of the FDCPA.

The debt collector moved to dismiss, arguing that the alleged violation (i.e. the notice’s failure to state the borrower must dispute the debt in writing) did not constitute harm sufficiently concrete to satisfy the FDCPA’s injury in fact standing requirement. The district court denied the debt collector’s motion to dismiss. The debt collector then petitioned the 6th Circuit for interlocutory review and the Court granted that request.

On appeal, the 6th Circuit ruled that the debt collector’s notice – which failed to advise the borrower that a debt dispute must be in writing –was potentially actionable and the Court declined to dismiss the case at the motion to dismiss stage of the proceedings. However, the 6th Circuit’s opinion mentioned that, for purposes of its analysis of the debt collector’s motion to dismiss, that the Court was precluded from considering information from outside of the complaint showing that the debt collector treated verbal debt disputes the same as “written” disputes. It is possible that the 6th Circuit may have ruled differently had the case not been at the motion to dismiss stage where the Court was required to assume that all allegations in the complaint were true.

This case’s result is intriguing given that in another 2018 decision (Hagy v. Demers & Adams), the same 6th Circuit Court of Appeals ruled that a minor or procedural violation of the FDCPA was not actionable.

A Debt Collector’s Duty to Verify a Debt is Very Limited - Walton v. EOS CCA, 885 F.3d 1024 (7th Cir. 2018)

In Walton v. EOS CCA, a creditor notified debtor that the debtor owed an outstanding balance on a closed telephone account. The creditor further advised the debtor if the balance was not paid then the account would be turned over to a collection agency. The account was then turned over to a debt collector who sent a notice that incorrectly stated the debtor’s account number but the remaining information in the notice was correct (i.e. debtor’s name, address, amount owed and social security number).The debtor disputed owing the debt.

In response to the debtor’s dispute, the debt collector verified that the debt information that it received from the creditor matched what was in the debt collector’s notice to the debtor. (The debt collector did not separately contact the creditor to verify that the initial information that the creditor initially provided to debt collector was correct.) The debt collector also reported the debt to credit reporting agencies but noted in the report that the debt was disputed.

On these facts, the debtor sued the debt collector under the FDCPA alleging that the debt collector failed to “reasonably” investigate the information the debtor disputed because the debt collector did not separately contact and confirm the account information with the creditor.

The 7th Circuit agreed with the debt collector and concluded that the debt collector’s obligation to verify a debt was very limited. It ruled that it “would be both burdensome and significantly beyond the [FDCPA’s] purpose to interpret § 1692g(b) as requiring a debt collector to undertake an investigation in whether the creditor is actually entitled to the money it seeks.”

The Federal Circuits Are Split on When the FDCPA’s One-Year Statute of Limitations Period Begins to Run -
Rotkiske v. Klemm, 890 F.3d 422 (3rd Cir. 2018)

In Rotkiske v. Klemm, a law firm obtained a default judgment against a borrower for $1,500 in 2009. However, the borrower was never actually served with process because someone other than the borrower accepted service. In 2014, the borrower discovered the judgment while applying for a loan. In 2015, the borrower sued the law firm under the FDCPA for wrongfully taking the judgment.

The law firm moved to dismiss the lawsuit as being time barred by the FDCPA’s one-year statute of limitations period. The law firm argued that the limitations period runs from the date of the alleged FDCPA violation (i.e., the 2009 judgment) and not from the date the violation is alleged to have been discovered (i.e., in 2014). The 3rd Circuit, recognizing a split in authority with the 4th and 9th Circuits, ruled that the FDCPA’s statute of limitations runs from the date the alleged violation occurred. In this case, that was in 2009 when the law firm obtained the default judgment and not in 2014 when the borrower discovered the alleged FDCPA violation.

Tax Collection is Not Debt Collection Under the FDCPA - St. Pierre v. Retrieval-Masters Creditors Bureau, Inc., 898 F.3d 351 (3rd Cir. 2018)

In St. Pierre v. Retrieval-Masters Creditors Bureau, Inc., a motorist failed to timely pay highway tolls. A debt collector mailed the motorist a payment demand. However, the motorist’s account number was visible from outside of the letter’s envelope. Based on that violation, the motorist sued the debt collector under the FDCPA.

On appeal, the 3rd Circuit addressed two issues: 1) the fact the motorist’s account information was visible from outside the envelope actionable given the debt collector’s argument that the motorist could not have been damaged by this act; and 2) is collecting an unpaid highway toll or tax the collection of a debt under the FDCPA?

The 3rd Circuit ruled that revealing a debtor’s account number through an envelope window implicates a core FDCPA concern (protecting a debtor’s privacy), and such violations are always actionable under the FDCPA. However, the 3rd Circuit ruled collecting a highway toll is more akin to tax collection. The 3rd Circuit ruled, following a host of other authorities, that tax collection is not a debt encompassed by the FDCPA. Accordingly, the FDCPA does not apply to tax collection. This result is interesting in that the collection was not handled by the government itself but by anon-governmental debt collector.

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