Source: http://consumerfinancialserviceslaw.blogspot.com/2015/02/
Timestamp: 2017-06-24 13:42:45
Document Index: 73844679

Matched Legal Cases: ['§1692', '§227', 'art 3', '§58', '§1692', '§ 1692']

Consumer Financial Services Litigation and Compliance: February 2015
FTC Announces Two Enforcement Actions Against Collection Agencies
The FTC announced today that it has joined with the New York
Attorney General in filing complaints against two debt collection operations in
Buffalo, New York. The complaints were
filed February 9, 2015 and temporary restraining orders have been entered in
both matters. In Federal Trade
Commission v. 4 Star Resolution, C.A.
No. 1:15-cv-00112-WMS (W.D.N.Y.), the FTC alleges that 4 Star Resolution and
the related entities violated the FTC Act and the FDCPA by engaging in false
and deceptive debt collection practices. Particularly, the FTC alleges that the defendants’ core practice
involves misrepresenting to consumers that they have committed bank fraud,
check fraud or some other unlawful act related to the debts. The complaint goes on to allege that the
defendants then advise the consumers that they will suffer dire consequences
(including arrest and imprisonment) unless they make immediate payment of the
debt. The complaints alleges that the
defendants also fail to provide the FDCPA required notices and disclosures. The
complaint seeks injunctive relief, an order freezing assets, immediate appointment
of a receiver, disgorgement of monies paid by consumers, and civil
penalties. A temporary restraining order
has been entered which, among other things: freezes assets and appoints a receiver,
and requires a cease and desist of the practices in question.
In Federal Trade
Commission v. Vantage Point Services, LLC, C.A. No. 1:15-cv-00006
(W.D.N.Y.), the FTC alleges that Vantage Point Services and the related
entities violated the FTC Act and the
FDCPA by engaging in false and deceptive debt collection practices. Particularly, the FTC alleges that the
defendants: (a) made false representations regarding their identities,
addresses and business purposes; (b) false or unsubstantiated threats of arrest
and other dire consequences; (c) unlawful contacts to third parties, often
including representations that the consumers committed a crime and will be
arrested; (d) failing to make the required statutory disclosures; and (e)
charging illegal processing fees. Similar to the 4 Star Complaint, the
The FTC press release can be found here: http://www.ftc.gov/news-events/press-releases/2015/02/ftc-new-york-attorney-general-crack-down-abusive-debt-collectors
Cordray Addresses National Association of Attorneys General
fourth consecutive year, CFPB Director Richard Cordray addressed the National
Association of Attorneys General. Cordray’s remarks focused on his “Four Ds” – deceptive marketing, debt
traps, dead ends and discrimination. His
remarks touched on imminent rulemaking in several areas including pay day
lending, debt collection, and credit reporting. Highlights of the remarks are as follows:
Deceptive Marketing: Cordray noted that financial contracts often create confusion
by their “density and their sheer length”. Cordray highlighted the Bureau’s “Know Before You Owe” initiatives. Cordray went on to note the Bureau's focus on the for-profit
college industry and the Bureau’s enforcement action against Corinthian
Colleges. Debt Traps: Cordray’s comments on this “D” focused on pay day lending. The CFPB is the first federal agency to
supervise pay day lenders for compliance with federal consumer finance
laws. Key to his remarks was
confirmation that the CFPB takes the position that ownership or affiliation
with Indian tribes does not exempt lenders from compliance with state
laws. More importantly, Cordray
confirmed the Bureau is in the latter stages of formulating new rules to reform
the market. Cordray acknowledged that
states have been regulating pay day lending since before the inception of the
CFPB and his remarks suggest that the federal rules are likely to reflect the
state approaches to regulating pay day lending.
Dead Ends: Cordray’s remarks focused on credit
reporting and debt collection. As to
credit reporting, Cordray touted the Bureau’s work with the three major credit
reporting agencies in making modifications to E-Oscar (the electronic dispute
system) and indicated that the Bureau is “establishing clear and regular
oversight by supervising the larger credit reporting companies and many of
their largest furnishers. " As to debt
collection, no time table was provided for rule making, but Cordray did state
that the Bureau is “hard at work analyzing and preparing the details of
proposed policy measures, which could lead to the most significant changes in
federal law in this area in almost forty years.” Discrimination: Cordray’s comments focused on two
industries: the mortgage industry and the auto lending industry (both direct
and indirect). Cordray indicated that
the Bureau is moving forward with a proposed rule to begin exercising supervisory
oversight over the larger non bank auto finance companies, as well as the
Bureau’s focus of resources on the indirect auto lending market.
Other Comments of Note: The CFPB is providing state agencies with access to its
complaint data and encouraging them to take advantage of this access. To date, 22 attorneys general
and 28 state banking regulators have signed up for access. Additionally, Cordray announced that the CFPB’s
public enforcement actions have thus far resulted in $5.3 billion in relief and
over $200 million in civil penalties.
The CFPB has proposed a temporary suspension of card issuers' obligations to submit their credit card agreements quarterly to the CFPB. The proposal is intended to reduce the burden on the CFPB while it works to develop a more efficient electronic submission system. Other requirements under the CARD Act, including card issuers' obligation to post their currently offered agreement on their own websites would be unaffected. The proposed rule was published today and the comment period expires March 13, 2015. The provision of the CARD Act in question, 12 C.F.R. 1026.58(c), currently requires card issuers to post agreements for open end consumer credit cards on their website and to submit them quarterly to the CFPB. Currently, the agreements are manually submitted to the CFPB via email on a quarterly basis. The disclosed purpose of the proposed suspension is to allow the CFPB time to work on a more streamlined and automated electronic submission system. The CFPB proposes to suspend the requirement beginning with the April 30, 2015 submission. The proposed suspension would not affect the required annual submission of collect credit card agreements and related data, the biannual submission of credit card pricing and availability information, or the requirement that card issuers post agreements on their website. The CFPB proposes the modification take effect immediately upon publication of the final rule in the Federal Register.
A petition for writ of certiorari has been filed seeking to
overturn the Eleventh Circuit’s decision in Crawford
v. LVNV Funding, LLC. The petition,
if granted, may have wider implications than simply determining whether filing
a proof of claim on time barred debt violates the FDCPA. In Crawford, the
debtor commenced an adversary proceeding against a debt buyer, alleging that
the filing of a time barred proof of claim violated the automatic stay and the
FDCPA. The debt buyer ultimately withdrew the proof of claim; however,
the adversary proceeding proceeded forward. The Bankruptcy Court granted
LVNV’s motion to dismiss holding that the filing of a proof of claim, even one
on time barred debt, did not constitute a violation of the FDCPA. The
district court affirmed. On appeal, the Eleventh Circuit reversed, holding that
filing of a proof of claim for time barred debt violated the FDCPA. In so
holding, the court seemed to take issue with the fact that an otherwise
uncollectible debt would result in some recovery under the Chapter 13 plan.
“Such a distribution of funds to debt collectors with time-barred claims then
necessarily reduces the payments to other legitimate creditors with enforceable
claims.” Crawford,
758 F.3d at 1261. Additionally, the court premised its reversal on
the notion that “a debt collector’s filing of a time-barred proof of claim
creates the misleading impression to the debtor that the debt collector can
legally enforce the debt.” Id. Moreover, the court applied the least sophisticated consumer standard
even though Crawford was represented by counsel.
petition calls the court’s attention to the numerous problems presented by the
Eleventh Circuit’s opinion in Crawford: 1. It is inconsistent with the uniform prior case
law which held that a proof of claim in bankruptcy cannot serve as the basis
for an FDCPA claim. The petition points
to the fact that the Eleventh Circuit’s opinion is in direct conflict with the three
other circuits that have reviewed this issue.
2. Crawford created a further divide amongst the circuits as to whether FDCPA
liability can be premised upon actions in bankruptcy. The petition points to the Supreme Court’s
prior decision in Kokoszka v. Belford, in which the Supreme Court
established the interpretative framework for assessing the scope of the
Consumer Credit Protection Act (out of which the FDCPA was passed as an
amendment to the CCPA) in the context of a bankruptcy. “In enacting the CCPA, the Court concluded,
there was “no indication” that “Congress intended drastically to alter the
delicate balance of a debtor’s protections and obligations during the
bankruptcy procedure.”” The petition,
while noting the current split in decisions amongst the circuits as to Kokoszka’s
application, underscores the need for clarity from the Supreme Court. The
petition goes to great lengths to point out that the Eleventh Circuit’s
extension of the FDCPA into the bankruptcy context is inconsistent with the
stated purpose and text of the FDCPA. The petition points out that the filing
of a proof of claim cannot be debt collection regulated by the FDCPA because the
FDCPA applies only to attempts to collect an obligation from a natural
person. Proofs of claim, on the
other hand, are vehicles for making claims against the bankruptcy estate,
which is a separate and distinct entity from the debtor.
even wider implications, the petition seeks a ruling on the standard for
evaluating communications to attorneys under the FDCPA. The petition points to the Eleventh Circuit’s
holding that a least sophisticated consumer standard governs FDCPA claims
arising from the filing of a proof of claim in bankruptcy. The petition points to the fact that the
circuits are widely split as to the proper standard to be applied to communications
to attorneys under the FDCPA.
4. The petition further points to the practical
problems presented by the Eleventh Circuit’s opinion. Included among the many pointed out by the petition,
if proofs of claim are by their very nature debt collection activities, then
the very filing of a proof of claim violates the automatic stay. Additionally, if the filing of a proof of
claim is debt collection, then all the other provisions of the FDCPA must also
apply, including the notice and debt validation procedures of the FDCPA.
well worth the read and can be found here: http://www.scotusblog.com/case-files/cases/lvnv-funding-llc-v-crawford/. Amicus briefs have been filed by at least
three other interested organizations. The consumer’s response brief is due March 23, 2015. Posted by
In Komisar v. Blatt, Hasenmiller, Leibsker
& Moore, C.A. No. 14-c-17950 (N.D. Ill. Jan. 29, 2015), the plaintiff alleged that the defendant
law firm violated 15 U.S.C. §1692i by filling suit against the consumer in the
wrong municipal district. A default
judgment was entered against the consumer on October 10, 2013. The FDCPA suit was filed October 10,
2014. The law firm moved to dismiss
contending that the suit was time barred. The court agreed, holding that the
statute of limitations began to run when the collection action was allegedly
filed in the improper venue and not when the resulting judgment was
entered. The court further rejected the
plaintiff’s argument that the violation was a continuing violation and thus,
the action was timely. “The FDCPA
prohibits “bringing” a legal action in an improper forum. Thus, the violation and injury occurs as soon
as the debt collector brings the lawsuit in the improper forum, in other words
the moment the complaint is filed.”
District Court Grants Summary Judgment in Favor of Collection Agency on TCPA Claim
granted summary judgment in favor of a collection agency regarding plaintiff’s
TCPA claims. In Jones v. Stellar Recovery, Inc., C.A. No. 1:14-cv-21056-KMM (S.D.
Fl. Feb. 20, 2015), the consumer alleged that the collection agency violated
the TCPA by making at least forty six (46) calls to his cell phone and leaving
automated messages in an effort to collect a Comcast account. The Southern District
of Florida determined that prior express consent existed where the consumer
provided his cell phone number to the original creditor on a prior account and
granted summary judgment in favor of the collection agency. In September 2012, Jones opened
an account with Comcast which he subsequently closed when he moved. In opening that account (Account 1), Jones
provided his cell phone number to Comcast. After moving, Jones opened a second account with Comcast (Account 2)
which he eventually defaulted on. It was
with regard to Account 2, that Stellar Recovery (“Stellar”) made collection
Stellar moved for summary
judgment, arguing that the prior express consent exception to the TCPA
precluded liability. The issue before
the court was whether plaintiff consented to debt collection calls regarding
Account 2 by giving Comcast his cellphone number when opening Account 1 which never
became delinquent. The court noted that
there were no cases on point and that the FCC rulings interpreting 47 U.S.C. §227
were written under the assumption that an individual only had one account with
a given creditor. “It is clear that the
2008 FCC Declaratory Order fails to contemplate the facts of this case, where a
plaintiff gave his number when opening one account with a creditor, but then
received debt collection calls regarding a second account with the same
creditor.” The court determined, however,
that the 2008 FCC Declaratory Order’s rationale offered guidance:
The FCC stated that the prior express
consent exceptions allows debt-collectors to calls individuals’ cellphones
because “persons who knowingly release their phone number have in effect given
their invitation or permission to be called at the number which they have given,
absent instructions to the contrary.” See FCC Declaratory Order at 560,
564. Therefore, there is an exception when
the called party has provided the telephone number…for use in normal business
communications.” Id. The court
therefore determined that the FCC’s focus is on whether a consumer has
consented to phone calls to a particular number for a particular creditor. When
Jones gave his cellphone number to Comcast while opening Account 1, therefore,
he gave Comcast permission to call that number for normal business
communications, absent instructions to the contrary. “Normal business communications” included
communications from Comcast concerning Account 2, as well. “In sum, because Plaintiff knowingly gave
Comcast his cellphone number, he gave Comcast (and thereby defendant)
permission to call him at that number for normal business communications.” Plaintiff, therefore, consented to
debt-collection calls regarding Comcast Account 2 when he provided his
cellphone number while opening Comcast Account 1 and never expressed
instructions to the contrary. Posted by
District Court Grants Summary Judgment in Favor of Debt Buyer on FDCPA and North Carolina Debt Collection Claims
District of North Carolina has granted summary judgment in favor of debt buyer
on both federal and state debt collection claims, but ruled in favor of the
consumer on his TCPA claims. In Wallace v. Optimum Outcomes, Inc., C.A.
No. 5:13-cv-277 (E.D.N.C. Feb. 12, 2015), Wallace asserted violations of the
FDCPA, the North Carolina Collection Agency Act (the “NCCAA”) and the TCPA regarding
wrong number calls made by Optimum Outcomes, Inc. (“Optimum”). Prior to this suit being filed, Wallace
settled wrong number claims with Optimum’s assignor, Absolute Collection
Services (“ACS”) who then added Wallace’s cell phone number to a “do not call” list. After settling with ACS, Wallace’s cellular
telephone number changed. Optimum then took assignment of certain portions of ACS’
business, including the “do not call” list. Optimum subsequently received a new
account for collection against a third party which included Wallace’s new
cellular telephone number. Optimum made
two calls to Wallace’s cellular telephone number in its attempt to collect the
NCCAA claim was premised upon Section 58-70-100’s prohibition against conduct
whose natural consequence is to oppress, harass or abuse any person in
connection with the attempt to collect any debt and specifically, it’s prohibition
against causing a telephone to ring or engaging any person in telephone conversation with such frequency as to be
unreasonable or to constitute harassment under the circumstances. (emphasis supplied). The NCCAA is expansive in its definition of a
consumer, including any “individual, aggregation of individuals, corporation,
company, association, or partnership that has incurred a debt or alleged debt.” Debt is defined as being any obligation owed
or due or alleged to be owed or due from a consumer. However, the court keyed in on the
enforcement provision of the NCCAA which provides that “[a]ny collection agency
which violates Part 3 of this Article with respect to any debtor shall be liable to that debtor in an amount equal to the
sum of any actual damages sustained by the debtor as a result of the violation.”
N.C.G.S. §58-70-130(a). The court
concluded that there was no violation of the NCCAA because of subsection 130’s
limitation of remedies to a “debtor”
bars his claim under the NCCAA. Thus, it appears that at least in the Eastern District,
there may be some traction that wrong number calls are not actionable under the
NCCAA.
also found in favor of Optimum with respect to the FDCPA claim which was brought
pursuant to 15 U.S.C. §1692d (prohibiting causing a phone to ring or engaging
in telephone conversation repeatedly or continuously with intent to annoy,
abuse or harass any person at the called number”). The court perfunctorily held that a “showing
of a mere two calls to plaintiff’s cell phone number, made weeks apart” was not
sufficient to establish a claim.
TCPA claim, Optimum raised equitable estoppel and failure to mitigate defenses
which the court did not accept. Optimum
asserted that Wallace was equitably estopped from bringing his TCPA claims
because he did not provide the new cell number to Optimum’s assignor. Had Wallace done so, the number would have
been added to the “do not call” file. Likewise, Optimum argued that Wallace had failed to mitigate his damages
by failing to provide the new cell number. The court dismissed these arguments and noted that the TCPA places no
affirmative duty on telephone subscribers to notify companies that the
subscriber does not wish to be called. The court did, however, find that the calls amounted to a negligent
violation of the statute and thus, the treble damage provision was not called
into play. Posted by
CFPB Issues Focus Group Report on Credit Reports and Scores
issued a report on credit reports and scores based on its focus group results. We summarize it in 300 words or less:
Findings Based Upon the Focus Group
consumers do not take advantage of free annual credit reports
consumers are confused and frustrated by consumer reports and scores
consumers do not understand the difference between soft and hard inquiries or
pulls and the impact they may or may not have on their credit scores
consumers are confused by the trade line names found on their credit reports
consumers pull their credit report out of a concern with identity theft and
who are more engaged in the financial system tend to check their credit reports
and scores more often
consumers believe their credit reports are difficult to understand
The CFPB Identified Several General
Messages that Need to Be Conveyed to Consumers:
credit reports on a regular schedule can be a valuable financial management
provides consumers with access to free credit reports once a year as mandated
credit reports once a year through annualcreditreport.com will not hurt your
are multiple credit scoring systems created by companies
may use different credit scoring systems than what consumers typically can
financial actions play a major role in their credit scores
credit reports on a regular schedule can help identify potential fraud and
Deputy Director Provides Insight to CFPB Enforcement Philosophy
In his prepared remarks to the Washington D.C. Exchequer
Club, CFPB Deputy Director Steven Antonakes provided insight into the CFPB’s
enforcement philosophy. Antonakes, a
career regulator, leads the CFPB’s Division of Supervision, Enforcement, and
Fair Lending. Antonakes acknowledged
that the CFPB focuses on risks to consumers rather than risks to institutions
and that the CFPB conducts its examinations by product line rather than taking
an institution-centric approach. Here
are the key take-aways:
· Product lines are
o The potential for consumer harm related to a
o The size of the product market
o The entity’s market share; and
o Risks inherent to the entity’s operations and
offering of consumer financial products within that market.
· Risk is assessed on
o The market level – particularly, when the
consumer cannot choose their provider of financial products; o The institution level – particularly,
considering the institution’s market share
· Debt collection and
credit reporting were two markets singled out as high risk. Antonakes noted that with respect to debt
collection, it is the single largest category of complaints received by the
CFPB’s Consumer Response Office. · As to the
institution level analysis, the assessment of relative risks to the consumer takes
into account a number of factors, including:
o The institution’s market share within an
o Strength of compliance management systems; and
o Prior regulatory actions.
· Antonakes
acknowledged that the CFPB prioritizes relatively large players with a more dominant
· When reviewing
violations, the CFPB takes into account the following:
o Violation Focused
§ The number of consumers affected
§ Magnitude of harm
§ Nature of the violation
§ Whether the violation is ongoing or has ceased
§ The value of deterrence – Antonakes noted that “[i]f
we suspect a troubling practice is widespread, we may want to put the entire
industry on notice through public enforcement actions.”
o Institution Focused
§ The entity’s level of cooperation with the CFPB
§ Whether the entity has self-corrected
o Policy Focused
§ Historical treatment of similar violations
§ Other CFPB activity related to the conduct
§ Consistency with the CFPB’s priorities and goals
The Exchequer Club of Washington, D.C. is an association of
senior level professionals with a primary interest in national economic and
financial policy. The full content of
Antonakes’ prepared remarks can be found here: http://www.consumerfinance.gov/newsroom/prepared-remarks-of-cfpb-deputy-director-steven-antonakes-at-the-exchequer-club/
FDCPA: Judge Enters Show Cause Order Against Consumer and Counsel
In a scathing opinion, an Eastern District of New York judge
has sent fair warning to the FDCPA plaintiff’s bar, leaving no doubt as to his
thoughts concerning how the FDCPA’s use
has deteriorated in recent years. In Huebner v. Midland Credit Management, C.A.
No. 14-cv-6046 (E.D.N.Y. Feb. 11, 2015), the court entered an Order requiring plaintiff
and his counsel to show cause why the complaint should not be dismissed with
fees awarded pursuant to 15 U.S.C. 1692k and sanctions awarded pursuant to Rule
11. The complaint centers around one phone call between the
consumer and the collection agency which was initiated by the consumer. The complaint alleges that defendant "wrongfully stated to the
Plaintiff that he could not orally dispute the debt" and that "he
must have a reason to dispute a debt." The complaint asserts that defendant
"made the above false statements in violation of 15 U.S.C. §§ 1692e(8) and
1692e(10)." The call transcript,
which was produced to the court at its own behest, however, told another
story. As noted by the court the
consumer repeatedly attempted to bait the defendant’s representative:
At one point, he asks her, "I don't understand, I
can't take it off my credit card, my account without paying it?" The
representative declined the bait: "That's not what I said, sir, I need to
know what your dispute is before I can just delete it for you. So you're saying
you want to dispute it, why is it that you want to dispute it?" Plaintiff
then reverted to his refrain that the debt is "nonexistent." For the
third time, the representative asked, "Did you ever have Verizon,
sir?" And plaintiff would only answer "I don't understand the
question you ask me, this is a non-existent debt." She responds,
"[i]t's a very straightforward question. Did you ever have Verizon
service?" Plaintiff again evaded the question: "Okay, but I told you,
you ask me, I told you, if you tell me, you're not going to take my dispute,
that's fine. I'm just going to try to see if I can get more information."
The substantive discussion in the call ended with the representative saying,
"I'm trying to help you with your dispute, sir, but you're not really
helping me help you."
It is notable that despite the representation in the
complaint that plaintiff was told he could only dispute the debt in writing,
which was reaffirmed by plaintiff's counsel at the Initial Status Conference,
the word "writing" is never mentioned in the call. Again, it is
undisputed that following this call, defendant immediately dispatched a
cessation letter and no effort was made at collection.
the court noted that: [t]his
case has all the earmarks of a setup. Plaintiff and his lawyer decided they
were going to outsmart the collection company and make a little money while at
it. But this statute is not a game, and its purpose is not to provide a
business opportunity. There are still consumers who are in fact harassed by
debt collectors, albeit less often than prior to the statute's enactment. Those
genuinely aggrieved parties are entitled to the protection of the statute. It
should not be diluted to become a plaything for fast talking plaintiffs and
The court in concluding that a
show cause order should be entered observed that [f]requently,
these cases are brought on behalf of the same debtor-plaintiffs, who seize on
the most technical alleged defects in collection notices or telephone
communications, often raising claims of "confusion" or
"deception" regarding practices as to which no one, not even the
least sophisticated consumer, could reasonably be confused or misled. These
cases are often brought for the non-salutary purpose of squeezing a nuisance
settlement and a pittance of attorneys' fees out of a collection company, which
it will often find cheaper to pay than to litigate.
Plaintiff and his counsel have until February 18th
to comply with the show cause order. A transcript of the call is attached to the court's order. http://scholar.google.com/scholar_case?case=4388497270415580672&q=fdcpa+huebner&hl=en&as_sdt=6,34&as_ylo=2015
A United States District Court has dismissed both FDCPA and
RESPA claims brought against a bank and its servicer. In Fleming
v. U.S. Bank, C.A. No. 14-3446 (D. Minn. Feb. 6, 2015), the consumers sent
the servicer a Qualified Written Request which the servicer timely responded
to. The Flemings eventually defaulted on
the mortgage and the bank commenced foreclosure proceedings. The Flemings filed suit asserting violations
of both the FDCPA and RESPA.
Regarding the FDCPA claim, the plaintiffs argued that defendants
violated the FDCPA by attempting to foreclose on the property and engaging in
conduct that was unfair and deceptive in its efforts to foreclose. The defendants argued that they were exempt
from the FDCPA because foreclosure activities undertaken by mortgagors and
mortgage servicing companies are not debt collection under the FDCPA. While
noting a split in the circuits (the Fourth and Sixth Circuit have held that
foreclosure is debt collection), the court concurred with the defendants,
holding that foreclosure activities do not constitute debt collection under the
FDCPA. The court also dismissed the RESPA claim. Under RESPA, servicers are required to
provide a written response to a Qualified Written Request within 30 days of
receipt. The court determined that the
QWR served by the Flemings was not proper and even assuming for the sake of argument
that the QWR was proper, the servicer had adequately responded to the
same. Moreover, the court determined
that the plaintiffs failed to properly plead the RESPA claim because they
failed to allege that they suffered some actual damage as a result of the
alleged violation. The court noted that “[A]
RESPA plaintiff must plead and prove, as an element of the claim, that he or
she suffered some actual damage as a result of the alleged RESPA violation. In the case of the Flemings, they only sought
damages “if any be proven”, thus failing to properly allege harm. Posted by
FDCPA: Consumer Lacked Standing to Bring Pre-petition Consumer Claim.
Barris v. Midland
Funding LLC, C.A. No. 14-cv-6469 (D.N.J. Fe. 9, 2015) serves as a reminder
that bankruptcy can divest a consumer of its standing to bring an FDCPA
claim. In Barris, the consumer discovered Midland had re-reported a disputed
debt on her consumer report without notating the dispute. The plaintiff the filed a Chapter 7
bankruptcy and failed to list the claim as an asset. After receiving her discharge, plaintiff brought
suit alleging that Midland’s credit reporting violated the FDCPA. Midland filed a motion to dismiss, challenging
the plaintiff’s standing to sue. In
Chapter 7s, the pre-petition claim becomes property of the estate and the
trustee has standing- not the debtor- to pursue it unless the trustee has
abandoned the claim. The court agreed
with Midland, holding that the debtor lacked standing to bring a cause of
action for a pre-petition claim that was not disclosed in the bankruptcy
because pre-petition claims belong to the bankruptcy trustee. The court pointed out that “[u]nscheduled
property…can never be abandoned without…notice and hearing” and concluded that “[t]he
Trustee has exclusive authority to dispose of or control property of the
bankruptcy estate” including Barris’ claim against Midland. The case serves as a great reminder that
defense counsel should always be aware of whether or not the consumer has filed
bankruptcy and if so, whether or not the claim (if prepetition) was disclosed
in the consumer’s schedules.
North Carolina Car Dealers Settle with Department of Justice Regarding Predatory Lending Complaint
In a settlement still subject to court approval, the Department of Justice
and the State of North Carolina have settled a predatory lending lawsuit with
two North Carolina "buy here, pay here" car dealerships. “Buy
here, pay here” dealerships typically provide the financing in house, allowing
the purchaser to defer payment for a set time and to make periodic payments
often on a more frequent basis than a traditional financing arrangement. “
In United States v. Auto Fare, Inc.,
the government alleged that the dealerships violated the Equal Credit
Opportunity Act (“ECOA”) and the North Carolina Unfair and Deceptive Trade
Practices Act by targeting African American consumers for inflationary pricing
and interest rates without meaningfully assessing their credit worthiness. The government
contended that the pricing increased the likelihood of defaults. The government further alleged that the
dealerships engaged in repossession and remarketing practices that violated
Article 9 of the North Carolina Commercial Code, and that the dealers installed
GPS devices on cars without the consumer's knowledge to assist the dealerships
in their repossession efforts. See United States v. Auto Fare, Inc., C.A.
No. 3:14-cv-00008-RJC-DSC (W.D.N.C.). The proposed consent order, among
· Requires the dealerships to develop and
implement written policies and procedure for collection applications and
financial documents for all credit applicants sufficient to allow the
dealerships to assess meaningfully the applicants’ income and ability to meet
the payments on any vehicle purchased;
· Prohibits the dealerships from entering into
credit transactions where the total monthly payments (excluding any pick up
payments, tax, tags or title fees) exceed 25% of the total documented monthly
net income of the customer;
· Requires the dealerships to develop retention
policies and computerized systems for maintaining documentation of all
transactions, insuring proper application of payments and correctly determining
instances of a customer’s default;
· Requires disclosures to customers of GPS systems
affixed to vehicles to inform the dealership of the location, disclosures of
price, etc. on the windshield of each car, and disclosures that the dealership
will provide Carfax or similar reports to each customer at the customer’s
· Requires the dealership to allow test drives and
seek independent inspection of vehicles selected for purchase;
· Establishes the maximum interest rate to be
charged customers;
· Establishes that guidelines for the sales price
of vehicles (in general, the sales price may not exceed the published NADA by
more than 15% of vehicles in similar condition, body type, year and model);
· Provides conditions and procedures for
repossession of vehicles where the loan is in default;
· Provides strict reporting requirements for the
duration of the decree (at least four years);
· Requires annual training of employees regarding ECOA
and the North Carolina Commercial Code procedures for consumer installment
contracts and secured transactions; and · Requires the dealerships to establish a
$225,000.00 fund to compensate aggrieved consumers.
Key take aways for those in the “Buy
Here, Pay Here” business:
credit worthiness assessment of each applicant;
2. Make sure car
pricing is in line with the NADA pricing and/or other similar dealerships in
3. Make sure interest rates are applied consistently, do
not exceed the maximum rates established by North Carolina law, and bear a reasonable
relationship to the credit worthiness of the applicant;
4. Engage in proper accounting of loan payments and
5. Insure that periodic payments are in line with the total
documented monthly net income of the customer; and 6. Insure the exercise of any rights upon default are in
accordance with North Carolina law.
A Glimpse into the FTC: FTC Submits Annual Summary to the CFPB
Under Dodd-Frank, the CFPB, rather than the FTC, is
responsible for submitting to Congress annual reports concerning the
FDCPA. The FTC announced Monday that it
has submitted to the CFPB its annual summary of its work on debt collection
issues the past year. The eighteen page letter offers a glimpse into the agency’s
approach and priorities as to debt collection issues. Touting itself as
primarily a law enforcement agency, the FTC continues to be aggressive in enforcement
actions. Its letter noted that in recent
years, it has focused on bringing a greater number of cases and obtaining
stronger monetary and injunctive remedies against debt collectors. These are the key take aways and trends to
watch in 2015:
· The FTC filed 10 new debt collection cases in
2014, a record number.
· The FTC resolved nine cases, obtaining nearly
$140 million in judgments, including FTC
v. Asset & Capital Management Group, which netted a record $90.5
· The FTC has permanently banned 47 companies and
individuals from ever working in debt collection again. The FTC‘s message regarding this issue has
been a focal point in recent weeks. Its
blog last week announced a published list of banned companies (http://www.ftc.gov/enforcement/cases-proceedings/banned-debt-collectors).
Certain Practices Targeted.
· Deceptive,
Unfair or Abusive Collector Conduct. The letter shines a spotlight
on the agency’s efforts to pursue debt collectors that secure payments from
consumers by falsely threatening litigation or arrest or otherwise falsely
implying they are involved in law enforcement. See, e.g., FTC v. Asset &
Capital Management Group; FTC v. Federal Check Processing, Inc.; FTC v. Payday
Financial, LLC; FTC v. Goldman Schwartz, Inc.; FTC v. National Check Registry, LLC; United States v. Credit Smart, LLC.
· Phantom Debt
Collection. In 2014, “phantom debt collection” was
another focus of the FTC. The FTC
pursued debt collectors that attempted to collect debts that either did not
exist or were not owed to the phantom debt collector. The FTC noted that all of
these were related to fraudulent payday loan related operations and reiterated
its focus on the payday loan market. See
e.g., FTC v. Centro Natural Corp.; FTC v,
Williams, Scott & Associates, LLC; FTC v. Pinnacle Payment Services, LLC
· Consumer Data
Breaches. The
FTC continues to pursue two cases involved data breaches where debt sellers
impermissibly posted personal identifying information of consumers on public
websites. See, e.g., FTC v. Bayview Solutions, LLC; FTC v.
Cornerstone and Company.
Limited English Proficient Consumers from Illegal Debt Collection Practices.
The FTC noted it commitment to pursuing agencies who target Spanish speaking
consumers with abusive debt collection practices. The FTC brought three cases which illustrate
this commitment: FTC v. Rincon Management
Services, LLC; FTC v. RTB Enterprises, Inc.; FTC v. Centro Natural Corp.
Partnership with the CFPB.
· Joint Amicus
Curiae Briefs. The FTC filed joint briefs with
the CFPB in two appellate cases in 2014 reflecting the agencies’ commitment to
working together and similar view as to certain issues – time barred debt and
· Rulemaking. The FTC acknowledged that it is working
with the CFPB concerning proposed rulemaking concerning debt collection. The proposed Regulation F is widely expected
The full letter can be found here. http://www.ftc.gov/system/files/documents/reports/federal-trade-commission-enforcement-fair-debt-collection-practices-act-report-consumer-financial/150209cfpbreport.pdf.