On January 29, the Consumer Financial Protection Bureau released a snapshot report of consumer complaints to provide a high-level overview of the trends in complaints it has received over the past 24 months.  The report is split into two sections – a summary of the volume of all consumer complaints received by the CFPB per state and consumer financial product type, and a highlight of mortgage-related complaints. 

The CFPB’s snapshot reveals it received 7 percent fewer consumer complaints in 2018 than in 2017.  Between November 2016 and October 2018, New Jersey ranked 7th nationwide for most consumer complaints per 100,000 residents, while New York State ranked 13th.  Ultimately, New York experienced a 5 percent decrease in the volume of consumer complaints in 2018, while New Jersey complaints decreased by 9 percent.  One of the most significant trends the CFPB observed is a 15 percent decrease in total mortgage-related complaints across the county. 

New Jersey remains a hotbed for mortgagerelated complaints, ranking 3rd among the states as measured per 100,000 residents, while New York also finished near the top at 10th.  Although New Jersey witnessed a 17 percent decrease in mortgage-related complaints, New York experienced an even more substantial 39% reduction.  

Overall, based on consumer narratives, the CFPB reported that 42 percent of mortgage-related complaints across the county arise from issues related to servicing, specifically, consumers reporting trouble during the payment process.  These complaints range from issues regarding misapplication of payments to alleged failure of servicers to issue periodic statements.

The Texas House of Representatives recently introduced new legislation, H.B. No. 996, to amend the Texas Fair Consumer Debt Collection Act (“TFCDCA”) to require debt buyers to provide additional written disclosures to consumers regarding debt that could be subject to a statute of limitations defense in a collection action. 

The proposed bill comes as courts across the country continue to wrestle with the language of the statute of limitations disclaimer in debt collection letters – specifically, whether debt collectors should use the phrase “will not sue” or “cannot sue” regarding debt that is past the limitations period to maintain a lawsuit. 

The proposed bill defines “debt buyer” to mean a person who purchases consumer debt from a creditor or subsequent owner, regardless of whether the person collects the debt or hires a third party or attorney to collect the debt.  Excluded from this definition are (a) persons who acquire charged-off debt as part of a portfolio that predominantly consists of debt that has not been charged off, and (b) check services companies that acquire the right to collect on paper or electronic negotiable instruments. 

The legislation would require debt buyers to provide the following notice in the “initial written communication with the consumer relating to debt collection:” 

THE LAW LIMITS HOW LONG YOU CAN BE SUED ON A DEBT.  BECAUSE OF THE AGE OF YOUR DEBT, WE WILL NOT SUE YOU FOR IT. … THIS NOTICE IS REQUIRED BY LAW.” 

Also, debt buyers would be required to include additional language in the notice regarding whether the account could still be included in a consumer report prepared by a consumer reporting agency, with the required verbiage dependent on whether the reporting period has expired or not.    

The notice language would be required to be “boldfaced, capitalized, underlined or otherwise conspicuously set out from the surrounding written” content of the letter. 

By proposing this language, the Texas Legislature implicitly found that “will not sue” is sufficient to notify consumers as to their rights regarding the collection of debt past the applicable limitations period. 

The proposed bill sets the statute of limitations on actions by a debt buyer to collect on a debt as follows: (1) four years from the consumer’s last activity on the debt, or (2) upon the expiration of any other applicable statute of limitation, whichever occurs first.  It also codifies Texas common law regarding revival of the statute of limitations, providing that a “cause of action is not revived by a payment of the consumer debt” and further provides that revival will not occur upon “oral or written affirmation of the consumer debt, or any other activity.” 

Troutman Sanders will continue to track H.B. 996 as it moves through the legislative process.

 

The Federal Reserve Board of Governors and the Federal Deposit Insurance Corporation (“FDIC”) issued a joint advisory making financial institutions aware of a recent change to the Fair Credit Reporting Act (“FCRA”) that provides that financial institutions may offer to remove defaults in private education loan borrowers’ consumer reports under an approved rehabilitation program. Qualifying borrowers must show consumer reports containing a default on a private education loan, and the financial institution must submit a written request for approval of the program to their federal regulatory agency. 

The amendment appeared in Section 602 of the Economic, Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA”), enacted on May 24, 2018.  The amendment changed FCRA Section 623 to allow financial institutions to offer the Section 602 Program.  The recent joint advisory addresses requirements of the Section 602 Program. 

The joint advisory explains that if a borrower meets the requirements of a financial institution’s Section 602 Program, the institution can remove a reported default from the borrower’s consumer report.  The advisory further explains that the financial institutions that choose to establish a private education loan rehabilitation Section 602 Program are entitled to a safe harbor from potential claims under the FCRA related to removal of the reported default.

On February 7, the Seventh Circuit Court of Appeals ruled in favor of the accounts receivable management industry, finding that a debt collector did not misrepresent the “character” of debt by reporting unpaid medical bills owed to a single provider separately rather than in the aggregate.

In Rhone v. Medical Business Bureau, LLC, the Seventh Circuit Court of Appeals reversed a decision by the United States District Court for the Northern District of Illinois, which held that defendant Medical Business Bureau, LLC (“MBB”), a debt collector, violated §1692e(2)(A) of the Fair Debt Collection Practices Act by reporting that plaintiff Diane Rhone owed nine debts of $60 each for nine physical therapy sessions rather than one aggregate debt of $540.  The Court, resolving an issue of first impression, held that simple arithmetic does not affect the “character” of debt under the FDCPA; instead, the “amount” of the debt governs the debt’s size.

In Rhone, it was undisputed that the plaintiff’s credit report was factually correct.  The question in the case was whether accurately representing the “character” of debt requires the debt collector to aggregate multiple transactions between a debtor and a single entity.  The Seventh Circuit answered “no,” finding that there is no regulation requiring aggregation and emphasizing that the terms “character” and “amount” are used independently in the statute and, thus, must be given different meanings.

The Court also found that representing the debts on a per transaction basis would allow a debtor to identify exactly which transactions are at issue and which debts may be stale.  Accordingly, the Court held that MBB did not misstate the “character” of Rhone’s debt, reversing the District Court’s finding of liability.

In rendering its decision, the Seventh Circuit had the benefit of an amicus brief filed by ACA International, advocating for reversal of the district court’s decision on several grounds that were ultimately adopted by the Court.

On January 31, 2019, Senator Mike Azinger introduced Senate Bill 495 to the West Virginia Legislature (referred to the Judiciary Committee). The Bill proposes amendments to the West Virginia Consumer Credit and Protection Act (“WVCCPA”), W. Va. Code § 46A-5-101, which are intended to “bring the Act in conformity with the federal Fair Debt Collection Practices Act.”

A key change proposed by Senate Bill 495 is to limit the cap on damages from violations arising under the WVCCPA to $1,000 per civil action. The current rule provides a cap on damages of $1,000 per violation.

In the context of class action lawsuits, Senate Bill 495 also proposes to limit the recovery of class members to $500,000 or one percent of the net worth of the creditor. The current rule provides a cap on damages in class actions to the greater of $175,000 per member or the total alleged outstanding indebtedness.

We will continue to monitor and report on developments in this legislation.

 

The District Court for the Eastern District of Arkansas granted summary judgment in favor of defendant debt collector ProCollect, Inc. in Jennifer Fox v. ProCollect, Inc. by ruling that ProCollect did not violate the Fair Debt Collection Practices Act by making two phone calls to a wrong number after first learning the number was not the debtor’s phone number.  The Court’s ruling illustrates the difference between a debt collector that mistakenly contacts the wrong individual and, on the other hand, a collector that intentionally harasses and abuses a consumer in violation of the FDCPA.   

Plaintiff Jennifer Fox alleged ProCollect violated FDCPA Section 1692d, which prohibits harassment or abuse, and Section 1692f, which prohibits unfair or unconscionable practices. The main issue was whether ProCollect intended to annoy, abuse, or harass Fox when it placed two calls to her phone number after being told twice that it had a wrong number.

ProCollect intended to call the correct debtor’s phone number, which ended in 9183;” instead, ProCollect called Fox’s phone number, which is one digit off, ending in 9182. Over the span of ten months, between July 1, 2016 and May 10, 2017, ProCollect called Fox’s phone number five times, but Fox never answered any of these calls.  Then, on May 11, Fox answered ProCollect’s call and informed the company that it had the wrong number. On May 18, ProCollect called Fox’s phone number again and left a voicemail message for the intended debtor. That same day, Fox called ProCollect and told them for the second time that it had the wrong number. On June 8, 2017, ProCollect called Fox yet again. Fox responded by informing ProCollect for the third time that it had the wrong number.

The Court ruled that ProCollect’s conduct does not give rise to an intent to annoy, harass, or oppress because ProCollect clearly intended to reach the debtor, and not to annoy, harass, or oppress Fox. Judge Holmes wrote in his ruling that “[r]epeatedly calling a number despite being told that number is incorrect would at some point, perhaps, cross a line from merely intending to carry out legitimate collection efforts to intending to harass. But the Court does not draw that line in this case. In any event, the facts here do not give rise to such an intent. Even the courts that have denied summary judgment partly based on continued phone calls to a wrong number did so under more egregious facts than those present here.”

The attorneys in Troutman Sanders’ Financial Services Litigation team regularly defend clients in FDCPA claims and other debt collection consumer claims.  Please do not hesitate to contact us with any questions about this or any other ruling. 

 

In a recent case, the United States District Court for the Southern District of California partially dismissed a consumer’s claims under the Telephone Consumer Protection Act.  The case is Bodie v. Lyft, No. 3:16-cv-02558-L-NLS (S.D. Cal. Jan. 16, 2019). 

Plaintiff Jason David Bodie’s complaint alleged that he received two unsolicited text messages from a telephone number that belongs to or was used by Lyft on or about October 10, 2016.  Bodie alleged that the first text message instructed him to download the Lyft app onto his cellular phone, while the second message included a link to download the app.  In addition, he alleged that the text messages were sent using an automatic telephone dialing system, or “ATDS,” as defined by 47 U.S.C. § 227(a)(1), and that the ATDS was owned by a commercial text messaging system acting as an agent or vendor of Lyft.  Finally, Bodie alleged that he sustained damages because the text messages invaded his privacy interests, were a nuisance, and caused frustration, distress, and loss of time. 

Lyft filed a motion to dismiss the complaint on the grounds that: (1) Bodie’s ATDS allegations were conclusory; and (2) he failed to plausibly allege that Lyft sent the texts or had an agency relationship with the sender.  The Court first noted two permissible approaches to evaluating the sufficiency of the consumer’s ATDS allegations.  Under the first, a plaintiff is permitted to make minimal allegations in the complaint, and discovery is permitted to proceed on the ATDS issue because the information is in the sole possession of the defendant.  Under the second, the plaintiff must plead factual allegations beyond mere statutory language.  The Court held that, under either approach, Bodie had failed to state a plausible claim for relief because his complaint “merely parrot[ed] [the] statutory definition of an ATDS” and failed to contain any facts that supported a reasonable inference that Lyft used an ATDS to send the relevant text messages. 

With respect to Bodie’s claim regarding the agency relationship between Lyft and the sender of the text messages, the Court held that his allegations were sufficient to survive a motion to dismiss.  In particular, the Court noted that the consumer’s allegations that the texts were “sent via a commercial text messaging system by an agent or vendor hired by Lyft” and that “Lyft instructed its agents or vendors as to the content of the text messages and timing of the sending of the text messages” sufficiently stated Lyft’s alleged vicarious liability. 

Troutman Sanders will continue to monitor and report on courts’ analysis and treatment of the TCPA.

The Seventh Circuit recently affirmed judgment in favor of the national consumer reporting agencies (“CRAs”), rejecting a plaintiff’s attempt to impose Fair Credit Reporting Act liability upon the CRAs for reporting information the furnisher had verified as accurate.  This case represents a significant victory for CRAs facing collateral attacks of the accuracy of the accounts they report. 

The case is Humphrey v. Trans Union, LLC, et al.  A copy of the opinion can be found here. 

Plaintiff Ian Humphrey never made payments on his federal student loans, which were serviced by Navient and became due in 2011.  Instead, he submitted multiple disability-discharge applications, but each application was deficient, and the debt was not discharged.  Accordingly, Navient continued to report his account as past due.  Finally, in July 2014, Humphrey’s loans were discharged, but his credit reports continued to reflect the past nonpayment periods.  

Humphrey then submitted disputes (on many grounds) with the CRAs, who then sent Navient Automated Credit Dispute Verifications (“ACDVs”).  Each time, Navient confirmed to the CRAs the information was accurate.  Humphrey’s suit against the CRAs alleged violations of FCRA § 1681e(b) for inaccurate reporting and of § 1681i for an unreasonable reinvestigation.  Navient was also named in the suit.  The district court granted the CRAs’ joint motion for judgment on the pleadings.   

In affirming the district court’s decision, the Seventh Circuit flatly rejected Humphrey’s argument that the CRAs could face liability under the FCRA by continuing to report the debt even though he claimed he had no obligations to make payments while his disability-discharge application was pending.  The court first noted that §1681e(b) and § 1681i claims both require the consumer to “sufficiently allege that his credit report contains inaccurate information.”   

In finding Humphrey had not alleged a factual inaccuracy, the Court confirmed the importance of the distinction between factual and legal inaccuracies.  The inaccuracy alleged by Humphrey relating to his requirement to make payments “required a legal determination about whether his disability-discharge applications required Navient to cease collections” and, therefore, did not constitute a legal inaccuracy. 

Like other courts before it, the Seventh Circuit recognized that an attack on the validity of a debt is not the CRAs fight to fight, ruling “a consumer may not use the Fair Credit Reporting Act to collaterally attack the validity of a debt by challenging a CRAs reinvestigation procedure.” This sound reasoning demonstrates why these collateral attacks should fail.  The Court noted that “Navient was in a better position than the CRAs” to make the legal determination regarding Humphrey’s loan obligations.  Additionally, because the CRAs had properly contacted Navient to verify the loans, the reinvestigations were reasonable, as “CRAs are not a tribunal sitting to resolve legal disputes.”  Indeed, no reasonable reinvestigation by the CRAs could have resolved the question because it “was a legal question beyond the scope of a reasonable reinvestigation.”   

Like here, CRAs often face lawsuits wherein the plaintiff attacks the validity of the underlying debt under the guise of challenging the accuracy of the CRA’s reporting.  The Seventh Circuit’s decision provides helpful support to CRAs facing these types of suits.

If a recent proposal is any indication, the Federal Housing Finance Agency (“FHFA”) may feel more comfortable with the status quo than with permitting Fannie Mae and Freddie Mac (“the Enterprises”) to explore the benefits of using VantageScore 3.0, a credit-scoring alternative jointly created by the nationwide consumer reporting agencies, or “CRAs.”

Last month, the FHFA announced a proposal that establishes standards and criteria for the Enterprises to adopt new credit-scoring models. This proposal satisfies a requirement embedded in Congress’s recent Economic Growth, Regulatory Relief, and Consumer Protection Act requiring the FHFA to establish such standards. For some observers, this was a specific push by Congress to allow the Enterprises to consider credit-scoring alternatives such as VantageScore 3.0.

On its face, the FHFA’s proposed rule creates a straightforward, four-step process by which the Enterprises can evaluate and adopt alternative credit-scoring models. Further within the proposal, however, the FHFA proposes to “prohibit an Enterprise from approving any credit score model developed by a company that is related to a consumer data provider through any common ownership or control, of any type or amount.” The proposal would also require the Enterprises to evaluate “potential conflicts of interest and competitive effects” of a potential credit-scoring model. To support these positions, the FHFA expressly discussed the relationship between the owner of VantageScore 3.0 and the CRAs. It further expressed its concern that a credit-scoring model with vertical integration with a CRA could offer its services “more cheaply.”

Despite the stated prohibition against the Enterprises’ use of a credit-scoring model with ownership ties to a consumer data provider, the proposal could still be amended as the FHFA considers the feedback it receives from industry participants during the comment period. Additionally, a recent change in the director of the FHFA may further impact the final rule. Industry participants who desire to see amendments to the proposal should consider submitting comments to the FHFA prior to the comment period closing on March 21, 2019. As always, Troutman Sanders stands available to assist industry participants with this and other developments within the financial services landscape.

On January 29, the District Court in Georgia, in Jones v. Jason A. Craig and Associates, P.C., denied a motion for judgment on the pleadings by a defendant-collections law firm seeking dismissal of a Fair Debt Collection Practices Act claim.  Plaintiff John Jones alleges that the law firm’s use of “& Associates,” as part of its name in a debt collection letter, was a violation of the FDCPA. 

The collection letter at issue reads “JASON A. CRAIG & ASSOCIATES, ATTORNEYS AT LAW” in the letterhead.  The letter is also signed by “JASON A. CRAIG & ASSOCIATES, ATTORNEYS AT LAW.”   Jones claimed a violation of Section 1692e of the FDCPA because the only lawyer allegedly associated with the defendant is Jason A. Craig.  His theory is that there is a violation of the FDCPA because the defendant allegedly seeks to intentionally mislead consumers into believing that it is a law firm comprised of many attorneys, not just Jason A. Craig.  Yet, at the time the letter at issue was provided, the defendant had “Jason A. Craig & Associates” registered with the Georgia Secretary of State.  In responding to Jones’s claim and allegations, the defendant argued that even if the collection letter was deemed to be misleading, the conduct at issue did not rise to the level of being material enough to be actionable under the FDCPA.  The District Court held:

The Defendant contends that even if its name on the letter was deceptive and/or misleading, that does not rise to the level of material misrepresentation to be actionable under § 1692e. Doc. 11-1 at 8. This argument is contingent on the Court applying materiality requirement to actions under § 1692e. Both parties correctly note that the Eleventh Circuit has not yet adopted the materiality requirement for claims brought under the FDCPA, specifically, § 1692e. […]  The Court agrees ‘the materiality requirement is a corollary of the least sophisticated debtor standard’ and that only material misrepresentations are actionable under § 1692e.

[…]

Contrary to the Defendant’s assertion, the Court finds the Plaintiff has alleged sufficient facts suggesting that the Defendant’s misrepresentation of its name as a firm with multiple attorneys is material in the eyes of the least sophisticated consumer. Given that at this stage all well-pleaded facts are accepted as true, the question becomes, why would a debt collector, in its collection letter to a debtor, represent itself as a law firm with multiple attorneys knowing it is actually a single-attorney law firm? The question is largely rhetorical, but it serves to highlight the materiality of the Defendant’s misrepresentation.

(internal citations omitted).

Based on the District Court’s decision, certain factual disputes between the parties in Jones will need to be resolved in discovery.  Relatedly, the District Court’s decision signals that a determination as to “materiality,” at least in the Eleventh Circuit, is more properly decided on summary judgment than as part of a motion for judgment on the pleadings, in the context of the type of factual allegations present in Jones.