Source: http://updates.mwbllp.com/2020_03_29_archive.html
Timestamp: 2020-05-31 21:10:49
Document Index: 703746145

Matched Legal Cases: ['§ 1692', '§ 1692', '§ 1692', '§ 1692', '§ 302', '§ 1692', '§ 1692']

Financial Services Law Developments: 3/29/20 - 4/5/20
FYI: 3rd Cir Resolves Circuit Split on FDCPA by Reversing Itself
Nearly 30 years after authoring an opinion that has been rejected by the Second, Fourth and Ninth Circuits and ignored by the First, Fifth, Sixth and Seventh Circuits, the Third Circuit finally acknowledged that its original interpretation of the Fair Debt Collection Practices Act was wrong.
Maurice Wutscher's team of seasoned FDCPA defense attorneys will present a webinar examining the issue, "Riccio: The Good, the Bad and the Ugly" on April 16. Click here to register
One of the basics that gets covered in every "FDCPA 101" course is what is commonly known as the "validation notice" of 1692g(a). The validation notice requires a debt collector to provide the consumer a notice containing:
- the amount of the debt;
- the name of the creditor to whom the debt is owed;
- a statement that unless the consumer, within 30 days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
- a statement that if the consumer notifies the debt collector in writing within the 30-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
- a statement that, upon the consumer's written request within the 30-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
See 15 U.S.C. 1692g(a).
Long before the growth of the cottage industry of litigation under the FDCPA, the Third Circuit considered 1692g(a)(3) in a case where a collector sent a letter advising a consumer that his dispute must be in writing.
In Graziano v. Harrison, the Third Circuit held that "given the entire structure of section 1692g, subsection (a)(3) must be read to require that a dispute, to be effective, must be in writing." The Court reasoned that:
Adopting [a contrary] reading of the statute would thus create a situation in which, upon the debtor's non-written dispute, the debt collector would be without any statutory ground for assuming that the debt was valid, but nevertheless would not be required to verify the debt or to advise the debtor of the identity of the original creditor and would be permitted to continue debt collection efforts. We see no reason to attribute to Congress an intent to create so incoherent a system. We also note that there are strong reasons to prefer that a dispute of a debt collection be in writing: a writing creates a lasting record of the fact that the debt has been disputed, and thus avoids a source of potential conflicts.
Notwithstanding this reasoning, most courts outside of the Third Circuit simply read the statute as it was written and did not require a debtor to dispute a debt in writing under 1692g(a)(3).
Moreover, so long as a collector copied and pasted the text of 1692g(a) into their letters, courts within the Third Circuit were not concerned with the notice itself but rather other language within letters overshadowing the requirement that disputes be in writing. In the Third Circuit, this led to the decision in Caprio v. Healthcare Revenue Recovery Group where language in the letter inviting a debtor to call the collector if it had any disputes triggered a violation of the FDCPA. Based on the reasoning from Graziano, Caprio held that inviting a debtor to call a collector to make a dispute contradicted the requirement that all disputes had to be in writing. The Caprio letter was specific in that it invited a debtor to call if she had a dispute which was a no-no according to the Third Circuit.
Things deteriorated quickly within the Third Circuit under Graziano/Caprio much like they did in the Second Circuit under Avilla. In the beginning, the cases were confined to the Caprio overshadowing type claims but eventually the plaintiff's bar reasoned it might just be possible to claim that a letter sent to a consumer quoted verbatim the language of the FDCPA, actually violated the FDCPA. This is exactly what happened in Riccio. The collector's letter included that express notice required by 1692g(a) and Riccio filed suit arguing that the letter did not explicitly require disputes to be in writing.
Finally, the Third Circuit decided to revisit Graziano when Riccio was presented on appeal. Interestingly, the court succinctly explained that the plain reading of 1692g(a)(3) confirmed that disputes did not have to be in writing unlike 1692(g)(4) and (5) which specifically have "in writing" requirements. The court noted that the Second, Fourth and Ninth Circuits previously split with the Third Circuit and its holding in Graziano in finding that there was no requirement for disputes to be in writing and also that the First, Fifth, Sixth and Seventh Circuits did not require a written dispute either.
From there though, the Third Circuit thrilled law school professors and scholars with an in-depth discussion of stare decisis and whether it could or should overturn Graziano before ultimately deciding to end the Circuit split. And the fun did not stop there. Realizing that the gravy train was coming to an end, plaintiff's counsel at oral argument asked the court for a prospective ruling so that the Graziano reasoning would apply to Riccio's claim and all of the other countless claims still pending or stayed in district courts below. The Third Circuit declined to do so noting that "our holding today is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate our announcement of the rule."
With the "in writing" debate resolved once and for all, the Third Circuit also added a footnote that any collector who had previously sent "Graziano-compliant letters" should not be liable based on today's decision because they had relied upon then-existing case law. The court relied on 1692k(e) reasoning that "Just as collectors who act 'in good faith in conformity with any [agency] advisory opinion' cannot be liable if that 'opinion is amended, rescinded, or' judicially invalidated, § 1692k(e), collectors should not be penalized for good faith compliance with then-governing caselaw."
This begs two questions. First, what is a "Graziano-compliant letter?" Second, did the Third Circuit just create a new Circuit split by acknowledging errors of legal interpretation of the FDCPA can form the basis of a bona fide error defense? In Jerman v. Carlisle, the Supreme Court held that an error of legal interpretation of the FDCPA does not fall within the bona fide error defense. Ironically, the defendant's error in Jerman was that it relied on Graziano in its interpretation of 1692g(a)(3) but found out the hard way that the Sixth Circuit was on the other side of the Circuit split. Because FDCPA case law is constantly evolving in the absence of Circuit level guidance, can a collector in the Third Circuit now reasonably rely on a district court opinion in its favor and avoid future liability until that opinion is "judicially invalidated?" That may be an expensive lesson to learn as it was for the Carlisle firm.
Or, if you are a glass-half-full kind of person it may be a light at the end of the tunnel for some of these oddball plaintiffs' theories. The Third Circuit also noted that district courts are well within their authority to "withhold damages for unintentional errors, § 1692k(b), award no damages for trivial violations, § 1692k(a)(1), and even award attorney's fees to the collector if the debtor's suit 'was brought in bad faith and for the purpose of harassment,' § 1692k(a)(3)." Coming on the heels of opinions from district courts within the Second Circuit referencing "lawyer's cases" and the "cottage industry" maybe the Riccio opinion will be a signal to focus more on the stated purpose of the FDCPA "to eliminate abusive debt collection practices" instead of focusing on minutiae and creative lawyering.
On the other hand, if you are a glass-half-empty kind of person you may wonder what exactly the Third Circuit means when it says that "if the debtor merely disputes the debt orally, the collector can continue attempts to collect the debt. It will, though, eventually have to prove the debt's validity." 1692g(a)(4) and (5) specifically require a collector to send the debtor a response in writing before continuing to collect (or just cease collecting all together). The plain text of 1692g(a)(3) only says "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 to be valid by the debt collector" and does not require any action on the part of the collector and it certainly does not require the collector to "prove the debt's validity."
If, like Michael Scott of Dunder Mifflin fame, the debtor yells at the collector "I DISPUTE" what does that mean for the collector? If the debtor tells the collector "this is not my debt" or "I paid this already" or "the amount is wrong" then the collector has some guidance and can actually investigate the dispute and should no longer assume that it is presumptively valid pending its review. But the concern of course is when and how collectors are to "eventually prove the debt's validity."
Posted by Ralph T. Wutscher at 2:39 PM
FYI: 5th Cir Holds No FDCPA Violation When Collection Letter Stated That Amount Due "May" Increase
The U.S. Court of Appeals for the Fifth Circuit ("Fifth Circuit") recently affirmed entry of summary judgment against a consumer debtor who claimed that a debt collection letter's language implying that interest or other charges, which the debt collector did not collect on debts referred to it by the creditor and were not referenced in the subject credit agreement, could accrue in the event of a default violated the federal Fair Debt Collection Practices Act, 15 U.S.C. 1692, et seq. ("FDCPA").
In so ruling, the Fifth Circuit concluded that the subject language merely communicated that the balance "may" increase "in the event" such charges were accruing were not false, misleading or deceptive in violation of the FDCPA, and did not disagree with the trial court's ruling that the collections letter accurately conveyed that the creditor could elect to charge interest on the defaulted loan under Texas law.
A consumer ("Debtor") obtained a loan from a credit union ("Creditor") for personal, family or household use. The Debtor eventually defaulted, and a debt collection agency ("Debt Collector") mailed a collection letter the Debtor listing the $4629.96 as the "Principal Balance" and "Total Amount Due" on the account, and that "Interest" and "Fee[s]" as $0.00 (the "Collections Letter").
The Collections Letter included a statement that "[i]n the event there is interest or other charges accruing on your account, the amount due may be greater than the amount shown above after the date of this notice."
The Debtor characterized the statement as an improper attempt to induce payment because the Debt Collector was not permitted to collect interest or other charges on debts owed to the Creditor and the loan agreement "does not allow" for interest or other charges to be added.
On this basis, the Debtor filed a putative class action complaint in federal court alleging that the Collection Letter's language was false, deceptive and misleading in violation of section 1692e of the FDCPA, and seeking certification of a class of "[a]ll consumers within the State of Texas that have received collection letters from [the Debt Collector] concerning debts from [Creditor] within one year prior to filing of this complaint which falsely represent to the consumer that interest or other charges may accrue."
The Debt Collector moved for summary judgment on the basis that the Collections Letter "clearly and unambiguously state[d] the amount of the debt" in compliance with the FDCPA and that the "plain statement" that the total amount due is $4629.96 and interest and fees are $0.00 "is not undercut by the contingent (but obviously inapplicable rather than 'applicable') language of the [challenged] sentence."
The trial court granted summary judgment in the Debt Collector's favor on different grounds, reasoning that that the letter was not false, misleading, or deceptive because the Creditor could have elected to charge interest on the defaulted loan under the Texas Finance Code section 302.002, and the letter was "not confusing on its face." Salinas v. R.A. Rogers, Inc., No. SA-18-CV-733-XR, 2019 WL 2465325, at *5 (W.D. Tex. June 13, 2019) citing TEX. FIN. CODE ANN. § 302.002 ("Texas law stipulates that a six percent interest rate may be applied to the principal balance of the loan starting thirty days after payment is due when the obligor has not agreed on an interest rate."). The Debtor appealed.
On appeal, the Debtor argued that reversal was warranted because (i) the Collection Letter's "utterly false" conditional statement violated the FDCPA, and (ii) the trial court improperly drew one or more inferences in the Debt Collector's favor by inferring that the Debt Collector would collect interest based on the fact that it could under Texas law, and improperly required evidence of "subjective confusion" on the part of the Debtor.
Addressing these arguments in order, the Fifth Circuit first turned to the plain language of section 1692e of the FDCPA, which prohibits (i) "[t]he false representation of (A) the character, amount, or legal status of any debt; or (B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt" § 1692e(2), and; (ii) "any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer." § 1692(e)(10).
To the extent the Debtor claimed that the Collection Letter's language was "false," the Fifth Circuit rejected this argument as "downright frivolous," (see Taylor v. Cavalry Inv., L.L.C., 365 F.3d 572, 575 (7th Cir. 2004)), reasoning that the use of the term "in the event" merely expressed a truism the equivalent of "if," and does not state that the Lender or Debt Collector would or could collect interest.
Turning to whether the Collections Letter was "deceptive" or "misleading," the Fifth Circuit concluded that reading the letter as a whole, even the 'unsophisticated' or 'least sophisticated' consumer (see Daugherty v. Convergent Outsourcing, Inc., 836 F.3d 507, 511 (5th Cir. 2016)) would not conclude that interest or other charges would accrue absent prompt payment, and instead merely warned of a possible outcome — an increase in the amount due — "in the event" interest or other charges are accruing.
Moreover, the Fifth Circuit held, adopting the Debtor's argument "would lead to absurd results," as even the mere mention of "interest" and "fees," even if listed at $0.00 could suggest that these amounts may be accrued in the future and "force collection agencies to sift through applicable statutes and loan contracts to determine with absolute certainty, for each and every account, whether interest or other charges might possibly accrue, insofar as some debt collectors have been exposed to FDCPA liability for omitting statements similar to the one at issue here."
Thus, the Court concluded that because the Collection Letters' language at issue "expresse[d] a common-sense truism" about borrowing and lending, it was not false, misleading or deceptive under the FDCPA.
Lastly, the Fifth Circuit declined to address the Debtor's argument that the trial court applied the wrong summary judgment standard by drawing inferences in the Debt Collector's favor because its holding did not depend on either point raised by the Debtor.
FYI: 5th Cir Holds "Minor Defect" in Notice of Default Not Enough for Wrongful Foreclosure
The U.S. Court of Appeals for the Fifth Circuit ("Fifth Circuit") recently affirmed entry of summary judgment against a homeowner borrower's wrongful foreclosure claims premised upon receipt of a defective pre-foreclosure notice that erroneously provided a 30-day deadline to cure from the date the notice of default letter was printed, rather than the day the letter was mailed as required under the terms of the deed of trust.
In so ruling, the Fifth Circuit concurred that the borrower's claims could not survive summary judgment because the minor non-compliance with the terms of the deed of trust failed to result in prejudice to the borrower who did not possess adequate funds to cure the default within 30 days' receipt of the notice, and the lender did not accelerate for nearly nine months after mailing the notice of default letter.
In August 2016, a homeowner borrower ("Borrower") fell behind on his payments and defaulted on his mortgage loan. After missing two consecutive payments his mortgage lender ("Lender") generated a form letter notice of default letter (the "Notice of Default") dated September 5, 2016, informing the Borrower: (i) that further delinquency would result in acceleration; (ii) that Borrower could prevent acceleration by paying the past-due balance within 30 days; and (iii) that after acceleration he would retain the right to reinstate the loan by making missed payments and retained rights to assert defenses to acceleration and foreclosure.
The subject deed of trust that secured the mortgage loan provided that the Lender shall provide notice to Borrower prior to acceleration specifying "(a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to [Borrower], by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice will result in acceleration of the sums secured by [the deed of trust] and [a] sale of [Borrower] [p]roperty."
Here, the Lender's automated system calculated a thirty-day cure window from the printing date of September 5, 2016 -- instead the September 12, 2016 day it was mailed -- and erroneously instructed Borrower to deliver "a cashier's check or certified funds for the total [past-due] amount . . . by noon on 10/05/16."
Although the Borrower remained delinquent after the October 5, 2016, the Lender chose not to immediately accelerate and even provided the Borrower with loan modification proposals in November 2016 and March 2017 which he declined to accept, eventually leading the Lender to accelerate the loan on June 12, 2017 and advise the Borrower that a foreclosure sale was scheduled for the following month. Thereafter, on July 4, 2017, the property was sold to a buyer ("Buyer") which took title and initiated eviction proceedings in state court, which the Borrower vigorously and successfully resisted, maintaining possession of the property while remaining delinquent on the Loan.
The Borrower filed suit in Texas state court against the Lender and Buyer seeking a declaratory judgment voiding the foreclosure sale, damages for an alleged breach of the deed of trust, and an injunction barring the Buyer from pursuing eviction on the basis that the Notice of Default failed to comply with the 30-day notice provision under the deed of trust. The Lender and Buyer removed the case to federal court.
The federal trial court granted summary judgment in their favor and dismissed the Borrower's suit with prejudice. The instant appeal ensued.
The sole issue on appeal was whether the Notice of Default's "minor, technical" deviations from the deed of trust's requirements justified setting aside the foreclosure sale.
The Borrower argued that because the deed of trust entitled him to a "date, not less than 30 days from the date the notice [of default was] given," the Lender's failure to provide a deadline thirty days from the day that the notice of default was mailed triggers the longstanding Texas rule that non-judicial foreclosure sales are void when they fail to conform to the terms of a deed of trust. See, e.g., Slaughter v. Qualls, 162 S.W.2d 671, 675 (Tex. 1942).
However, despite the Borrower's conclusory claim that he was "damaged" by the defect in the Notice of Default, the Fifth Circuit noted that the record conclusively demonstrated that the Notice of Default's incorrect deadline was insignificant, as it was undisputed that the Lender did not accelerate the Loan thirty days after printing the Notice of Default nor thirty days after it was received by the Borrower, but provided nearly nine months' opportunity for the Borrower to cure the default before accelerating the loan.
Moreover, the Borrower conceded that he did not have adequate funds to make the missed payments at any point between the incorrect 30-day deadline set forth in the Notice of Default letter (October 5, 2016) and the applicable 30-day deadline after the Borrower's receipt of same (October 12, 2016).
Acknowledging that there is some support under Texas law for the Borrower's position that non-compliance with a deed of trust's provisions is a mistake that cannot be excused or mooted by any later developments, the Texas Supreme Court has repeatedly moderated its rule that the "terms of a deed of trust must be strictly followed," since the 1980s, and most recently in Hemyari v. Stephens, clarified that harmless mistakes do not void otherwise-valid foreclosure sales. See University Savings Association v. Springwoods Shopping Center, 644 S.W.2d 705 (Tex. 1983) (no wrongful foreclosure where failure to record a notice of appointment until two days after the trustee's sale did not result in any prejudice or harm); Jasper Federal Savings & Loan Association v. Reddell, 730 S.W.2d at 672 (Tex. 1987) (actual notice can preclude wrongful foreclosure liability when a lender fails to provide notice required by a deed of trust but not otherwise required by law); Hemyari v. Stephens, 355 S.W.3d 623, 628 (Tex. 2011) (harmless failure to comply with a deed of trust's requirements does not void an otherwise-valid foreclosure sale).
Thus, because the Lender's "minor defect" did not result in any different outcome for the Borrower and was insufficiently prejudicial to justify setting aside an otherwise valid foreclosure sale, the trial court's grant of summary judgment to the Lender and Buyer was affirmed.
FYI: 3rd Cir Resolves Circuit Split on FDCPA by Re...
FYI: 5th Cir Holds No FDCPA Violation When Collect...
FYI: 5th Cir Holds "Minor Defect" in Notice of Def...