Source: https://rmaintl.org/rmai-update/rmai-update-october-2019/
Timestamp: 2020-02-20 00:08:02
Document Index: 177803437

Matched Legal Cases: ['§ 524', '§ 524', '§ 105', 'art, 139', '§ 1692', '§ 1692', '§ 1692', '§ 1681', '§ 1681']

﻿ RMAI Update October 2019 | Receivables Management Association International
RMAI Update October 2019
Home/RMAI Update October 2019
Ohio HB 251 – This bill would decrease the statute of limitations from 8 years to 6 years on a written contract and 4 years on an oral contract. [This bill is in active negotiations and subject to amendment.]
Roth v. Nationstar Mortg., LLC (In re Roth), 935 F.3d 1270 (11th Cir. 2019)
The borrower on a mortgage loan filed a voluntary petition for bankruptcy under Chapter 13. Her bankruptcy schedules listed the mortgage on non-homestead property, which she indicated she would surrender. Her Chapter 13 plan provided that “[s]ecured creditors, whether or not dealt with under the Plan, shall retain the liens securing such claims.” Prior to the borrower’s completion of payments under her Chapter 13 plan and discharge of the debt, the mortgage was transferred to a new loan servicer.
The informational statement also contained a lengthy disclaimer that “[the] statement is sent for informational purposes only and is not intended as an attempt to collect, assess, or recover a discharged debt from you, or as a demand for payment from any individual protected by the United States Bankruptcy Code. If this account is active or has been discharged in a bankruptcy proceeding, be advised this communication is for informational purposes only and is not an attempt to collect a debt. Please note, however [servicer] reserves the right to exercise its legal rights, including but not limited to foreclosure of its lien interest, only against the property securing the original obligation.”
In response to the informational statement, the borrower: (i) filed suit against the servicer in federal trial court alleging a violation of the FDCPA; and (ii) filed a second motion for sanctions against the servicer in the bankruptcy proceedings, again alleging violations of the discharge injunction under section 11 U.S.C. § 524 of the bankruptcy code. The federal trial court case settled, while the bankruptcy court denied the borrower’s motion for sanctions holding that the informational statement was not an attempt to collect the discharged mortgage loan debt, and therefore did not violate the discharge injunction.
The borrower appealed the denial of the motion for sanctions to the trial court, which affirmed the bankruptcy court’s opinion and rejected her request to apply the “least sophisticated consumer” standard to section 524. The borrower next appealed the trial court’s affirmation of the bankruptcy court’s denial of her motion for sanctions, and separately, its decision to dispose of the motion without an evidentiary hearing.
On appeal, the Eleventh Circuit first noted that Section 524(a)(2) provides that a discharge of debt in a bankruptcy proceeding “operates as an injunction against the commencement or continuation of . . . an act . . . to collect . . . any such [discharged] debt.” 11 U.S.C. § 524(a)(2). This injunction is enforced through section 105, whereby the bankruptcy court “may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a).
The Court held that together, the sections authorize the bankruptcy court to impose civil contempt sanctions “when there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order” or “no fair ground of doubt as to whether the order barred the creditor’s conduct.” Taggart v. Lorenzen, 139 S. Ct. 1795, 1799, 1801 (2019). Thus, the Eleventh Circuit was first tasked with determining whether the informational statement’s objective was to pressure the borrower to repay a discharged debt, and if so, to evaluate whether it was sanctionable under section 105. In re McLean, 794 F.3d 1313, 1322 (11th Cir. 2015); Taggart, 139 S. Ct. at 1799.
The borrower argued that the Eleventh Circuit should adopt the “least sophisticated consumer” standard, but the Eleventh Circuit declined, noting that what is considered “debt collection” may vary between statutory schemes. Here, the Court noted, the statutory scheme under section 524 of the Bankruptcy Code allows for creditors, such as the servicer, to send potentially helpful informational statements to debtors, such as the borrower, without simultaneously casting those statements as debt collection.
Accordingly, the Eleventh Circuit concluded that the informational statement was not designed to have the “objective effect” of “pressur[ing] the debtor to pay a discharged debt.”
Lastly, the Court declined to accept the borrower’s argument that she was improperly denied an evidentiary hearing on her motion for sanctions, noting that it was not requested by either party, and the bankruptcy court needed only to review the informational statement to determine whether its objective effect was to pressure a debtor to repay a discharged debt, and that the borrower’s subjective belief was irrelevant.
DiNaples v. MRS BPO, LLC, 934 F.3d 275 (3d Cir. 2019)
Upon being scanned, the QR code reader would reveal a sequence of letters, symbols and numbers, part of which was the internal reference number associated with the consumer’s account at the debt collection agency.
The consumer filed a putative class action lawsuit against the debt collection agency, alleging that it violated subsection 1692f(8) of the FDCPA which prohibits debt collectors from “[u]sing any language or symbol other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails.”
On appeal, the Third Circuit first addressed whether the plaintiff had standing to sue, the first step in determining whether it had subject matter jurisdiction over the case. The Court explained that in order to satisfy the “case or controversy” required for a federal court to hear a case under Article III of the Constitution, the plaintiff must “have standing to sue. “Standing has three elements: ‘[t]he plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” “An ‘injury in fact’ is one that is ‘concrete and particularized’ and ‘must actually exist . . . It must be ‘real,’ not ‘abstract.’”
The Court reasoned that it had previously applied the principles set forth in Spokeo in its 2018 decision in St. Pierre v. Retrieval-Masters Creditors Bureau, which “held that a debtor suffered a concrete injury when a debt collector . . . sent him a collection letter in an envelope displaying his account number with the debt collector.”
The Third Circuit went on to explain that “[i]n Douglass, we had held that displaying a consumer’s account number on an envelope was not ‘benign,’ explaining that such conduct ‘implicates a core concern animating the FDCPA—the invasion of privacy . . . Thus, in St. Pierre, we concluded that the harm inflicted by exposing the debtor’s account number was ‘a legally cognizable injury.’”
The Court concluded that even though it did not expressly address the QR code issue in Douglass and St. Pierre, “the reasoning of those two cases inevitably dictates that [the plaintiff] has suffered a concrete injury. . . Whether disclosed directly on the envelope or less directly through a QR code, the protected information has been made accessible to the public.” Accordingly, the plaintiff did not have to show “that someone had actually intercepted her mail, scanned the barcode, read the unlabeled string of numbers and determined the contents related to debt collection—or it was imminent someone might do so.”
The Court next considered whether the trial court correctly held that “[plaintiff] had a successful claim under the FDCPA,” and concluded that “[t]here is no dispute that that [§ 1692f(8)] plainly prohibits the QR code.”
The Court rejected the debt collector’s argument “to read a benign language exception into § 1692f(8)” because a literal reading “would seemingly prohibit including ‘a debtor’s address and an envelope’s pre-printed postage,’ as well as ‘any innocuous mark related to the post, such as ‘overnight mail’ and ‘forwarding and address correction requested.’” The Third Circuit reasoned that the disclosure of the account number itself was an invasion of privacy. “As explained above with respect to standing, the harm here is still the same — the unauthorized disclosure of confidential information. And if such disclosure was not benign, disclosure via an easily readable QR code is not either. Protected information has still been compromised.”
The Third Circuit also rejected the debt collector’s bona fide error defense because “the bona fide error defense in § 1692k(c) does not apply to a violation of the FDCPA resulting from a debt collector’s incorrect interpretation of the requirements of that statute.’
Scott v. First S. Nat’l Bank, 936 F.3d 509 (6th Cir. 2019)
The U.S. Court of Appeals for the Sixth Circuit recently held that the FCRA’s preemption provisions apply to state common law claims concerning a furnisher’s reporting obligations, joining similar rulings by the Seventh and Second Circuits.
Plaintiffs executed a commercial loan agreement through which a bank extended a loan for a renovation project. The loan agreement did not contain any promise that the bank would extend additional loans to the plaintiffs, but the plaintiffs believed that the bank would loan any extra funds needed to complete the renovation because they discussed the possibility of cost overruns before entering into the contract and received a verbal assurance from the bank.
The plaintiffs subsequently informed the bank that they may need an additional funds to complete the renovation and submitted a revised estimated cost substantially higher than the original estimate. The bank did not approve the request after discovering that the plaintiffs had incurred additional debt since the first loan.
The plaintiffs’ credit line was scheduled to mature on June 24, 2014. On June 17, 2014, the bank notified the plaintiffs that because their request to renew the credit line was still pending, the bank would not require them to repay the balance and they would only require the plaintiffs to continue to make interest payments until the bank rendered a determination about whether to renew the credit line. Unlike the previous years, the bank failed to extend the credit line’s maturity date during the review period, and its computer system transmitted delinquency reports to the credit bureaus in July and August 2014 that allegedly damaged the plaintiffs’ credit score.
The plaintiffs obtained financing from a different lender and used the proceeds to pay off their loans with the bank and to complete the renovation project. However, the bank’s automated computer system continued to report the plaintiffs’ entire prior payment history, including the fact that they had previously been delinquent on the loans. The bank told the plaintiffs it would resolve the issue.
In October 2014, the bank updated its reporting to indicate the plaintiffs had paid off their loans and were no longer delinquent. Despite the update, the bank reported that the plaintiffs were delinquent in September, October, and November of 2014, even though the plaintiffs had paid off the entire balance of their loans in early September, and in September 2015, the bank sent a second update to the credit bureaus indicating the plaintiffs had paid off the loans. The bank told the plaintiffs it had resolved the issue.
The borrowers filed a complaint alleging that the bank: 1) violated the FCRA, 15 U.S.C. § 1681, et seq., by willfully and/or negligently failing to investigate their complaints and to correct its reporting; 2) breached its duty of good faith and fair dealing; 3) tortiously interfered with the plaintiffs’ business relationships by deliberately reporting false information; and 4) made fraudulent misrepresentations that it would loan additional funds to complete the renovation.
The bank removed the case to federal court. After discovery, the bank moved for summary judgment on all claims. The plaintiffs filed a motion for partial summary judgment on their claim that the bank breached its duty of good faith and fair dealing. The trial court granted the bank’s motion for summary judgment and denied the plaintiffs’ motion for partial summary judgment and this appeal followed.
Section 1681s-2(b) of the FCRA imposes two obligations on furnishers of information: “(1) to provide accurate information, and (2) to undertake an investigation upon receipt of a notice of dispute regarding credit information that is furnished.” Downs v. Clayton Homes, Inc., 88 Fed. Appx 851, 853 (6th Cir. 2004). The FCRA creates a private right of action for consumers to enforce the requirements under section 1681s-2(b) only if the consumer files a dispute with a consumer reporting agency to trigger the furnisher’s duty to investigate. Merritt v. Experian, 560 Fed. Appx. 525, 528-29 (6th Cir. 2014).
The plaintiffs never filed a dispute with a consumer reporting agency. Instead, they argued that by dismissing their FCRA claims despite the bank’s representation that it would remedy the problem, the trial court undermined the pro-consumer purposes of the FCRA. The Sixth Circuit disagreed, finding that “the FCRA protects both consumers and furnishers” by requiring that a consumer file a dispute with a consumer reporting agency. The consumer reporting agency can then screen the complaint and provide notice of the dispute to a furnisher if warranted.
The plaintiffs asserted that the bank breached the duty of good faith and fair dealing and tortiously interfered with their business relationships because the bank deliberately harmed their credit score and argued that the trial court erred in ruling that the FCRA preempted their state common law claims. In support, the plaintiffs cited Miller v. Wells Fargo & Co., 2008 WL 793676 (W.D. Ky. Mar. 24, 2008), for the proposition that the FCRA preempts state statutory claims but not state common law claims.
The FCRA provides that “[n]o requirement or prohibition may be imposed under the laws of any State with respect to any subject matter regulated under [section 1681s-2 of this title], relating to the responsibilities of persons who furnish information to consumer reporting agencies.” 15 U.S.C. § 1681t(b)(1)(F).
The Sixth Circuit observed that, although a handful of trial courts have followed this “statutory approach,” two Courts of Appeals that have addressed the issue both explicitly rejected the “statutory approach”, and held that FCRA also preempts state common law claims. Purcell v. Bank of Am., 659 F.3d 622 (7th Cir. 2011); Macpherson v. JPMorgan Chase Bank, N.A., 665 F.3d 45 (2nd Cir. 2011). Agreeing, the Sixth Circuit concluded that the FCRA preempts state statutory and common law causes of action concerning a furnisher’s reporting of consumer credit information.
Getting Your Ducks in a Row for the California Consumer Privacy Act – Wednesday, October 23, 2019 at 9:00am PT/12:00pm ET
Managing A Risk Event – October 22, 2019 at 9:00am PT/12:00pm ET
Gregory Goetz- Fusion Financial
LaDonna Bohling- Receivable Solutions, Inc.
Shannon Parod- RMAI
Brett Soldevila- Security Credit Services, LLC
Charles Riter Jr.- Emergent Business Group
Richard Weissman- O & L Law Group, P.L.
Aristotle Sangalang- The Bureaus, Inc.
Mark Naiman- Absolute Resolutions Corp.
David Reid- RMAI
AGS Law, Associate Law Firm – CT
Attorneys On Demand, Associate Debt Buyer – CA
Guglielmo & Associates, PLLC, Associate Law Firm – AZ
Robinson Hoover & Fudge, PLLC, Associate Law Firm – OK
Spring Oaks Capital, LLC, Associate Debt Buyer – VA
Time Investment Company, Inc., Originating Creditor – WI
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Cheryl Nelson2019-10-16T09:39:03+00:00October 15, 2019|RMAI Update|