On August 22, a district court judge in the Western District of New York denied the defendants’ motions to dismiss a case brought by the Consumer Financial Protection Bureau (CFPB) alleging violations of the Fair Debt Collections Practices Act (FDCPA) and Consumer Financial Protection Act (CFPA).
In CFPB v. Manseth, et al, the CFPB commenced an action against three consumer debt buyer firms, now operating as one entity, and their executives. According to the CFPB, the defendants employed the same business model, i.e., purchasing portfolios of defaulted consumer debt and then placing the portfolios with other debt collection companies. The complaint alleged that the defendants all provided written guidance to their debt collectors, including instructions on how to handle consumer complaints, whether to discipline collection employees, and how to change collection behavior. The defendants also purportedly had the authority to remove accounts from and refuse to send additional accounts to their debt collectors.
The complaint went on to allege that the debt collection companies used unlawful tactics to collect the unpaid debt. Specifically, the defendants’ debt collectors would allegedly falsely tell consumers they would be sued for their debt. In other instances, the debt collectors allegedly made representations that consumers’ credit scores would be impacted positively if they paid the debt or negatively if they did not pay the debt, when in fact the defendants did not furnish that information to the national consumer reporting agencies. Lastly, defendants’ debt collectors allegedly told consumers they would be arrested or face criminal charges if they did not pay their debt. According to the CFPB, the defendants received complaints about their debt collectors’ practices, but took no action to stop it.
The defendants responded by filing motions to dismiss arguing amongst other things, that they are not covered by the CFPA, that the FDCPA and CFPA do not allow for vicarious liability, that the CFPB’s claims are time barred, and that the CFPB’s claims are substantively inadequate.
The court denied the motions finding, amongst other things, that: 1) the defendants are covered by the CFPA because an entity can “engage in” an activity even if another entity acts on the first entity’s behalf; 2) vicarious liability is a viable theory under the CFPA and FDCPA and the CFPB plausibly alleged the underlying violations; 3) it could not conclude from the face of the complaint that the CFPB’s claims were time barred; and 4) even if some of the CFPB’s legal theories present matters of first impression, the defendants could still have reasonably foreseen that their conduct fell within the scope of the CFPA and FDCPA.