Source: https://consumerfinancewatch.com/tag/pennsylvania/
Timestamp: 2019-04-18 21:12:58+00:00

Document:
The Pennsylvania Supreme Court, in Glover v. Udren Law Offices, P.C., recently determined that a law firm, representing a residential mortgage lender in connection with foreclosure proceeding, can be liable to a borrower for three times the amount of attorneys’ fees charged by the mortgage lender if said fees are in violation of the Pennsylvania Loan Interest and Protection Law, commonly known as “Act 6”. Section 406 of Act 6 limits the attorneys’ fees that a “residential mortgage lender” can contract for or receive from a borrower. Section 502 of Act 6 provides for recovery of treble damages against a “person” who has collected such excess interest or charges. “Person” is defined in Section 101 as “an individual, corporation, business trust, estate trust, partnership or association or any other legal entity, and shall include but not be limited to residential mortgage lenders.” Traditionally, law firms employed by residential mortgage lenders have been excluded from liability by the specific language of Section 406 as it applies only to “residential mortgage lenders.” The Glover decision could expose such law firms to new claims by mortgage debtors because the Court has, for the first time, held that law firms are included for liability purposes under Section 502 if they have collected excessive attorneys’ fees in connection with the foreclosure in violation of Section 406.
Mary E. Glover entered into a residential mortgage in 2002 with Washington Mutual Bank (later assigned to Wells Fargo Bank). Following Glover’s unsuccessful attempts to obtain a loan modification due to financial difficulty, the bank initiated foreclosure proceedings by hiring Udren Law Offices, P.C. (“Udren”). Udren took several actions on the bank’s behalf, including advising Glover of her unpaid debt and demanding missed payments and fees. Eventually, the parties entered into a loan modification agreement that increased Glover’s principal balance, monthly payment and repayment period. The increased principal included an amount of approximately $1,600 for escrow, attorney’s fees, and other charges. Glover then filed a putative class action law suit against Udren in the Court of Common Pleas of Allegheny County, alleging that Udren had violated Act 6 by charging unearned and excessive attorney’s fees. Because Udren was undisputedly not a residential mortgage lender under Act 6 (as the term is defined in Section 101), Udren filed preliminary objections asserting that Glover had failed to state an actionable claim and the Common Pleas Court agreed, finding that section 406 of Act 6 refers only to residential mortgage lenders and therefore, any violation of that provision did not give rise to a remedy against Udren under section 502.
Glover’s appeal to the Superior Court argued that, because Act 6 permits a borrower to recover treble damages from a “person” who collects excess fees in connection with the mortgage foreclosure process, and defines “person” broadly to “include but not be limited to” residential mortgage lenders, the lower court had improperly narrowed the scope of the statute’s protections. A divided panel of the Superior Court affirmed, holding that, because Section 406’s plain language regulates only the conduct of residential mortgage lenders, Section 502 does not authorize an action against a lender’s counsel for a Section 406 violation. The majority rejected Glover’s contention that “person,” in Section 502, evidenced a legislative intent to make a broad set of actors liable for Section 406 violations, because the term was necessary to address, throughout Act 6’s various provisions, conduct by actors other than residential mortgage lenders.
The Supreme Court analyzed Act 6 with the objective purpose of ascertaining the Legislature’s intent in enacting the statute. The Supreme Court read Sections 101, 406 and 502 together and determined that the plain and explicit terms permit a person who has paid charges prohibited or in excess of those allowed by Section 406 to recover treble damages in a suit at law against the person who has collected such excess charges. The Supreme Court further reasoned that the Legislature expressly defined “person” to “include but not be limited to residential mortgage lenders” and under a straightforward application of the statute, Section 406 restricts the circumstances under which residential mortgage lenders may contract for or receive fees, while Section 502 provides a broad remedy against anyone who has collected such fees.
The Supreme Court’s ruling focused solely on whether or not the term “person” as used in Section 502 of Act 6 provides for a remedy against any statutorily defined person collecting statutorily prohibited fees on behalf of residential mortgage lenders. Having determined that it does, the Supreme Court remanded that matter for further proceedings without addressing the meaning of the term “collected” in Section 502.
This ruling is a significant development regarding Act 6 liability as the Supreme Court has issued a warning to mortgage foreclosure firms that they will be held liable to borrowers, with the potential of treble damages, if they are determined to be charging or collecting attorneys’ fees in excess of those allowed under Section 406. Whether or not the remanded matter will address the law firm’s need to actually collect said fees before they can be found liable remains to be seen.
In Kostik v. ARS National Services, 3:14-cv-02466, an opinion issued July 22, 2015, the United States District Court for the Middle District of Pennsylvania refused to enter judgment on the pleadings on a complaint where the sole allegation is that the debt collector violated the federal Fair Debt Collection Practices Act (“FDCPA”) because it had sent a letter with the consumer’s account number embedded in a bar code.
The court noted that the bar code was not physically printed on the envelope, but was visible through a clear plastic envelope window on the front of the envelope that exposed the letter’s return address. When scanned, the bar code would reveal the borrower’s account number. Because smart phones have apps to easily read “QR” (“quick response”) bar codes, the court reasoned that having the bar code visible by scanning made the account visible to the general public, which could make the consumer a victim of identity theft.
The debt collector argued that the bar code was a benign symbol, which would be exempt from FDCPA liability. Further, it noted that anyone who scanned the consumer’s mail would be violating federal criminal statutes that prevent unauthorized access to items placed in the U.S. mail and that the FDCPA does not cover illegal actions by unrelated third parties. In addition to federal criminal statutes, the debt collector noted that the Domestic Mail Manual specifically prohibits postal employees from reading or disclosing the contents of any items placed in the mail.
The Court reasoned that disclosing an account number raises privacy concerns for the consumer and is not benign because it could be used by a third party to harm the consumer. Consequently, while leaving open the possibility that the barcode disclosure could ultimately be shown to be benign at a later stage in the case, the court found that the borrower’s complaint was sufficient to survive a motion for judgment on the pleadings.
In light of this decision, and as discussed in a prior post discussing the Douglass case, entities collecting consumer debt should avoid the use of QR codes on envelopes or within the viewing area of clear plastic envelope windows. Revealing such information on envelopes or through clear plastic envelope windows may expose debt collectors to liability under the FDCPA.
The Third Circuit Court of Appeals recently held that an envelope revealing a consumer’s account number through a clear plastic window constitutes a violation of the Fair Debt Collection Practices Act (“FDCPA”). In doing so, the Third Circuit reversed the District Court of the Eastern District of Pennsylvania’s holding that the disclosure of a consumer’s account number is not a “benign” disclosure and thus constitutes a violation of § 1692f(8) of the FDCPA.
In Douglas v. Convergent, the Third Circuit addressed the issue of whether “the disclosure of a consumer’s account number on the face of a debt collector’s envelope violates § 1692f(8) of the Fair Debt Collection Practices Act.” Douglass v. Convergent Outsourcing, No. 13-3588, 2014 WL 4235570 (3d Cir. Aug. 28, 2014); 15 U.S.C. § 1692 et seq.
Using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business. (Emphasis added).
On May 16, 2011, Plaintiff/Appellant Courtney Douglass (“Plaintiff” or “Douglass”) received a debt collection letter from Convergent Outsourcing (“Convergent”) regarding the collection of a debt that Douglass allegedly owed to T-Mobile USA. The name Convergent, followed by Convergent’s account number for the alleged debt were visible on the letter, and through the clear plastic window of the envelope. In addition, the “quick response” (“QR”) code, which, when scanned, reveals the name Convergent, the account number and the monetary amount of Douglass’s alleged debt, was also visible through the envelope window.
Douglass filed a lawsuit in the United Stated District Court for the Eastern District of Pennsylvania, alleging that Convergent violated the FDCPA by including a QR code and account number in a location visible through the clear plastic window of a collection letter sent to Douglass. Convergent moved for summary judgment, arguing that displaying such information in the window of the envelope was benign. The District Court granted summary judgment in favor of Defendant Convergent under a “benign language” exception. Douglass v. Convergent Outsourcing, 963 F. Supp. 2d 440 (E.D. Pa., 2013). The “benign language” exception to Section 1692f(8) is a judicially created exception to Section 1692f(8), which allows a court to forgive a technical violation of Section 1692f(8) if the violation is benign in nature. The District Court reasoned that although Convergent may have technically violated § 1692f(8), a strict interpretation of the statute would contradict Congress’ true intent.
To reach this conclusion, the District Court cited to Waldron v. Professional Medical Management, which held that a literal application of § 1692(8) “would produce absurd results.” No. 12-1863, 2013 WL 978933 (E.D. Pa., March 13, 2013). The District Court and the Waldron court relied on similar applications of the “benign language” exception to Section 1692f(8) in the Fifth Circuit, Eighth Circuit, District of Connecticut and the Central District of California. Ultimately, the District Court held that “the mere presence of an account number does not show that the communication is related to a debt collection and “[i]t also could not reasonably be said to ‘humiliate, threaten, or manipulate’ the debtor.” Douglass v. Convergent Outsourcing, 963 F. Supp. 2d at 446. Further, the District Court found that “[s]ince the ‘random series of letters and numbers’ revealed through the QR code does not ‘clearly refer to a debt,’ or ‘tend to humiliate, threaten, or manipulate’” the consumer, Convergent did not violate the FDCPA. Id. at 448. Accordingly, the District Court granted summary judgment in favor of Convergent.
Douglass appealed the order granting summary judgment. On appeal, Douglass argued that an unambiguous reading of § 1692(8) explicitly bars the disclosure of account numbers. Douglass v. Convergent Outsourcing, 13-3588, 2014 WL 4235570 (3d Cir. Aug. 28, 2014). Convergent maintained that a plain reading of § 1692(8) would lead to absurd results and thus its disclosure of Douglass’ account number is allowed under a “benign language” exception. Id. at *3. In response, Douglass argued that, even if a “benign language” exception applies, the disclosure of an account number is never benign. Id.
The Third Circuit found that “the plain language of § 1692f(8) does not permit Convergent’s envelope to display an account number” but declined to evaluate whether Section 1692f(8) allows for a “benign language” exception. Instead, the Third Circuit determined that a debt collector’s account number is never benign. Id. at *4. Specifically, the Third Circuit held that “[t]he account number is a core piece of information pertaining to Douglass’s status as a debtor and Convergent’s debt collection effort. Disclosed to the public, it could be used to expose her financial predicament. Because Convergent’s disclosure implicates core privacy concerns, it cannot be deemed benign.” Id. Based on these considerations, the Third Circuit found that “Douglass’s account number is impermissible language or symbols under § 1692f(8)” in violation of the FDCPA. Id. at *6.
On September 10, 2014, Convergent filed a Petition for Rehearing En Banc or Panel Rehearing.
In light of this decision, entities collecting consumer debt should avoid the use of account numbers and/or QR codes on envelopes or within the viewing area of clear plastic envelope windows. Revealing such information on envelopes or through clear plastic envelope windows may expose debt collectors to liability under the FDCPA.
 A “QR” Code is a barcode like image which can be read from a Cell Phone.
 Strand v. Diversified Collection Serv., Inc., 380 F.3d 316, 318–19 (8th Cir. 2008); Goswami v. Am. Collections Enter., Inc., 377 F.3d 488, 494 (5th Cir. 2004); Lindbergh v. Transworld Sys., Inc., 846 F. Supp. 175, 180 & n. 27 (D. Conn. 1994); Masuda v. Thomas Richards & Co., 759 F. Supp. 1456, 1466 (C.D. Cal. 1991).

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