Source: https://bankbclp.com/tag/debt-collection/
Timestamp: 2019-04-23 05:01:49+00:00

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Our colleagues at The Bankruptcy Cave, Bryan Cave’s Bankruptcy & Restructuring Blog, recently published a blog post on the Supreme Court agreeing to to hear the issue of whether a debt collector that buys old, charged off debt which is beyond the statute of limitations violations the Fair Debt Collection practices Act when it files a proof of claim on that debt in a Chapter 13 bankruptcy (which they all do, as no one has an incentive to object to the claim, and they often collect far more on the debt than what they paid).
[On October 11, 2016,] the Supreme Court granted certiorari on an issue that (a) is pretty important in the world of consumer debt collection, and (b) makes some folks pretty darn furious. The issue is this: if you file a proof of claim in a bankruptcy case, and you know such claim is barred by the applicable statute of limitations, are you committing a “misleading” or “unfair” practice under the Fair Debt Collection Practices Act (FDCPA)?
Read more on The Bankruptcy Cave for further insights on the competing interests at play, and how the Court may ultimately rule. And if you haven’t seen John Oliver’s take on the practice of buying uncollectible medical debt, the post contains a link to the video.
Can a Guarantor Waive his Right to a Foreclosure Confirmation Proceeding in Georgia?
On Monday, February 22, 2016, in a case closely watched by commercial real estate lenders, borrowers and guarantors, the Supreme Court of Georgia issued its opinion in PNC Bank, N.A. v. Smith, et al., S15Q1445. The case was before the Supreme Court on two certified questions from the United States District Court for the Northern District of Georgia. The two Certified Questions were: (1) Is a lender’s compliance with the requirements contained in OCGA § 44-14-161 a condition precedent to the lender’s ability to pursue a borrower and/or guarantor for a deficiency after a foreclosure has been conducted?; and (2) If so, can borrowers or guarantors waive the condition precedent requirements of such statute by virtue of waiver clauses in the loan documents?
Who Is An FDCPA Excluded “Creditor”?
The FTC Seeks to Overturn An 11th Circuit Ruling That A Bank Is.
Banking lawyers whose institutions acquire loans or card accounts may want to watch how this 11th Circuit putative class action case issue plays out. The FTC’s brief supports the plaintiffs’ class action bar, and the outcome of the appeal if reversed could further spur both regulatory enforcement activity and consumer class actions.
The FTC recently filed an amicus brief in a consumer’s appeal pending in the US Court of Appeals for the 11th Circuit, Davidson v. Capital One Bank, NA, Case No 14-14200. In the appeal, the 11th Circuit affirmed the Northern District of Georgia’s dismissal of Davidson’s claims (and those of a putative class) under the Fair Debt Collection Practices Act, 15 USC § 1692. The FTC now seeks en banc review to overturn the ruling. The FTC argues that the 11th Circuit misread the statute, decided contrary to several other circuits (the 3rd, 5th, 6th and 7th Circuits), and is placing consumers at risk. The FTC contends that the defendant bank clearly was a “debt collector” as defined by the statute.
The conundrum essentially turns on two issues: (a) the FDCPA’s exclusion of the “creditors” from the coverage of the statute and (b) whether the defendant bank was principally in the business of collecting debts owed to another. In the case, the defendant bank had acquired Davidson’s credit card account from another banking institution. The credit card debt was in default at the time of the acquisition. Some, including the FTC, would argue that this falls squarely within the definition of debt collector under the statute. However, the defendant Bank argued successfully that in the Davidson matter, the institution’s collection efforts only applied to debt it owned, not to another’s.
The statute uses the key phrase “to whom the debt is owed” in the exclusionary language regarding creditors. 15 USC § 1692a(6). Arguably in this case, once the bank acquired the credit card account, the debt is/was owed to that institution. This is precisely the basis on which both the Northern District of Georgia and 11th Circuit dismissed the claims. The rulings also note that the defendant bank is not principally in the business of collecting the debts of others.
On Monday, September 14, 2015, the Georgia Supreme Court heard oral arguments in the case of PNC Bank, National Assoc. vs. Kenneth D. Smith, et al., Case No. S15Q1445.
As noted in our prior blog post, this case is of great interest to banks operating in Georgia which are involved in real estate lending. At issue is whether a lender may conduct a non-judicial foreclosure on real estate serving as collateral, and then pursue a guarantor without first pursuing a confirmation of the sale. In addition, the Court is being asked to consider whether a guarantor may waive such a requirement. In an earlier case, HWA Properties, Inc. v. Cmty. & S. Bank, 322 Ga. App. 877 (2013), the Court of Appeals held that a confirmation following a foreclosure sale is no longer a prerequisite to suing the guarantor for a deficiency when the guaranty waives such a confirmation. Several other panels of the Court of Appeals have since reached a similar conclusion.
Whether the sanctity of the right to contract by guarantors and lenders should be recognized in such circumstances.
It was not at all clear from the proceedings which way the Court may rule. Many of the justices did not ask any questions at all, and Justice Nahmias did not tip his hand during his usual intense questioning of both sides. A decision is likely within the next few months.
The recent opinion of Judge Marvin Shoob in the Strickland v. Alexander case has created a great deal of confusion among banks about their duties in responding to a summons of garnishment in Georgia.　In that opinion, Judge Shoob declared the Georgia garnishment statute to be unconstitutional on multiple grounds. Primary among the　grounds cited by Judge Shoob was the absence of any notice to the debtor of the existence of statutory exemptions which shield certain funds from garnishment or the procedures available to assert those exemptions.　It is unclear whether the decision will be appealed, modified, or cured by subsequent legislation.　Numerous esoteric questions have been raised by the legal community about the validity of the opinion, but those questions are beyond the scope of this post.
Whether Judge Shoob’s opinion is appealed, modified or cured by the Georgia General Assembly, banks currently face significant questions in its wake.　The most important of these questions is “should a bank continue to answer summons of garnishment or not.” Many Georgia banks understandably have questions about their potential liability to both creditors and debtors by continuing to participate in the garnishment process.　While banks could choose to litigate the validity of every single summons that they have received or subsequently receive, that is hardly a practical or economical strategy for most of our banking clients.
An initial option available to any bank during this time is to contact the creditor which served the summons and ask that the summons be withdrawn. This may be effective since questions of liability are also being faced by the very creditors who are seeking to use the garnishment process.
If the creditor will not withdraw the summons, and pending a resolution of the constitutional issues by the courts or the General Assembly, the next best option is (1) to continue answering summons of garnishment after performing an appropriate review for the existence of funds covered by statutory exemptions and (2) to pay the non-exempt funds into the registry of the court.　Doing so will eliminate any risk the bank may run to the creditor which served the summons of garnishment through default or otherwise.　Moreover, since a summons is essentially a court order, the bank will have a strong argument that its actions are both justified and in good faith.　We note that even Judge Shoob found that the bank involved in the Strickland v. Alexander case could not be found liable for responding to the summons. See Strickland Order at p. 9.
The Fair Debt Collection Practices Act (“FDCPA”) provides that within five days of any initial communication with a consumer “in connection with the collection of any debt,” a debt collector shall send the consumer a written notice. The notice must contain, among other things, the amount of the debt, the name of the creditor to whom the debt is owed, and a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed valid by the debt collector.
The Real Estate Settlement Procedures Act obligates a new servicer of certain types of mortgage loans timely to notify the borrower of the change in servicer and to provide certain other information regarding the transfer, including the effective date of the servicing transfer.
A recent case from the Second Circuit Court of Appeals (which covers New York and New England) holds that an attempt to comply with the Real Estate Settlement Procedures Act constitutes an “the initial communication with a consumer in connection with the collection of any debt” that requires the consumer be given the Fair Debt Collection Practices Act notice.
The debt collector mailed the consumer a letter entitled “Transfer of Servicing Letter.” An attachment stated it was “an attempt to collect upon a debt” and purported to explain some of the provisions of the Fair Debt Collection Practices Act.
Today, Bryan Cave filed an amicus curiae brief on behalf of the Georgia Bankers Association in a case currently pending before the Georgia Supreme Court styled PNC Bank, National Assoc. vs. Kenneth D. Smith, et al., Case No. S15Q1445. The case is of great interest to banks operating in Georgia because the Supreme Court will be reviewing the reasoning of the HWA Properties, Inc. v. Cmty. & S. Bank, 322 Ga. App. 877 (2013) decision, in which the Georgia Court of Appeals held that a lender was entitled to pursue a guarantor for any deficiency remaining on a debt after a foreclosure, regardless of whether the lender had confirmed the foreclosure sale, if the guaranty included language waiving all defenses to collection of the debt. As articulated in the amicus brief filed by Bryan Cave on behalf of the Georgia Bankers Association, a ruling by the Georgia Supreme Court upholding the HWA decision and its progeny will do much to correct the current abuse of Georgia’s foreclosure confirmation statute, O.C.G.A. § 44-14-16, which commercial borrowers and guarantors have long used to draw out foreclosure proceedings and prevent collection of any deficiency. Oral argument in the case is scheduled for Monday, September 14, 2015. A copy of the brief is available here.

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