Debt Buyers & Collectors

In a recent ruling, the Seventh Circuit Court of Appeals held that plaintiffs stated a viable claim under the Fair Debt Collection Practices Act by alleging that a collection letter which included the safe harbor language set forth in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, LLC, 214 F.3d 872 (7th Cir. 2000), was false and misleading.  In reversing the lower’s court decision on which we previously reported, the Court of Appeals concluded that the letter’s reference to late and other charges was inaccurate, even though it came directly from the Miller safe harbor language, since the defendant could not lawfully impose such charges.  A link to the Seventh Circuit’s decision can be found here.

The letter at issue was an attempt to collect medical debts.  It recited verbatim the safe harbor language, including the statement of the amount of debt and a disclosure that “interest, late charges, and other charges … may vary from day to day … .”  The plaintiffs filed a class action asserting that the letter was misleading because the collector could not lawfully or contractually impose “late charges or other charges.”  In response, the collector argued that it was permitted to charge interest and that reference to late and other charges was not materially misleading.  The trial court agreed because “the central purpose of Miller’s safe harbor formula is to provide debt collectors with a way to notify debtors that the amounts they owe may ultimately vary.”  On appeal, the Seventh Circuit reversed dismissal of the plaintiffs’ claims.

In performing materiality analysis, the Court explained that, while debtors always have some incentive to pay variable debts quickly, the source of variability matters.  The letter did not specify how much the “late charges” are or what “other charge” may apply, “so consumers are left to guess about the economic consequences of failing to pay immediately.”  Because these additional fees and charges may be “a factor in [plaintiffs’] decision-making process,” the plaintiffs plausibly alleged that the letter was materially false or misleading.

The Court also found that the collector was not entitled to safe harbor protection because the Miller language was inaccurate under the circumstances in that the collector could not lawfully impose “late charges and other charges.”  The Court rejected the collector’s reliance on the Court’s earlier decision in Chuway v. Nat’l Action Fin. Servs., 362 F.3d 944 (7th Cir. 2004), wherein the Court instructed collectors to use the safe harbor language if “the debt collector is trying to collect the listed balance plus the interest running on it or other charges.”  Despite the apparent applicability of Chuway, the Court found that it was not persuasive because Chuway dealt with a fixed debt; therefore, the statement was arguably made in dicta.  The Court further stated that “in any event, our judicial interpretations cannot override the statute itself, which clearly prohibits debt collectors from [making] false or misleading misrepresentations.”  In support, the Court cited its recent controversial decision in Oliva v. Blatt, Hasenmiller, Leibsker & Moore LLC, 864 F.3d 492 (7th Cir. 2017), that effectively rejected the collector’s reliance on controlling law and found that the bona fide error defense did not apply.

Boucher highlights the need for customized compliance review of collection letters within the context of specific debts.  Such review must take into account not only whether the amount of debt is static or variable but also the sources of variability to help avoid claims of confusion and deception.

On March 19, the United States District Court for the Western District of New York granted summary judgment to a debt collector who was sued for allegedly violating the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692p, by including language in a form letter that referred to the tax implications of accepting a settlement offer. 

The underlying facts are that on or around July 13, 2015, debt collector Financial Recovery Services, Inc. (“FRS”) sent a form collection letter to plaintiff Mary Rozzi Church, stating that she owed $2,170.50, and offering her three separate “settlement opportunities” to pay the balance for less than what was owed.  Following the details of the settlement offers, the letter stated the following: 

These settlement offers may have tax consequences.  We recommend that you consult independent tax counsel of your own choosing if you desire advice about any tax consequences which may result from this settlement.  FRS is not a law firm and will not initiate any legal proceedings or provide you with legal advice.  The offers of settlement in this letter are merely offers to resolve your account for less than the balance owed. 

Church argued that the language contained in the letter, wherein FRS stated that “these settlement offers may have tax consequences,was a false representation or deceptive means in connection with the collection of a debt in violation of 15 U.S.C. § 1692e because an unaccepted offer does not have any tax consequences and the least sophisticated consumer would be confused by the statement. 

The Court, however, agreed with FRS and found that even the least sophisticated consumer would read the entirety of the statement and understand that any potential tax consequences attach only once the offer has been accepted and, as such, the statement was neither deceptive nor misleading in violation of the FDCPA. 

A copy of the entire opinion can be found here. 

This decision is part of a growing body of cases centering around similar language regarding potential tax consequences on settlement offers made by debt collectors.  Debt collectors should evaluate this decision and review their policies and procedures to minimize potential liability under the FDCPA for “tax consequences” disclosures.  We will continue to monitor court decisions to identify and advise on new compliance risks and strategies.


We previously reported on the Seventh Circuit Court of Appeals’ decision in Oliva v. Blatt, Hasenmiller, Leibsker & Moore, LLC, 864 F.3d 492 (7th Cir. 2017).  In Oliva, the sharply-divided Seventh Circuit held that the debt collector was liable under the Fair Debt Collection Practices Act even though the collector followed a longstanding law on venue selection, including the Seventh Circuit’s own controlling precedent at the time.  The Supreme Court has now denied the debt collector’s petition for review of the Oliva ruling.

As we explained in our previous post, the case arose out of the debt collector’s choice of venue in filing a collections lawsuit.  The debt collector relied on the Seventh Circuit’s 18-year-old controlling precedent interpreting the FDCPA’s venue provision and probably never foresaw that its entirely justified conduct would result in FDCPA liability.  The problem was that of timing.  During the pendency of the debt collection lawsuit, the Seventh Circuit overruled itself, thus rendering the debt collector’s choice of venue erroneous.  When the borrower sued, the trial court entered a judgment for the debt collector on the grounds of a bona fide error defense.  Sitting en banc, the Seventh Circuit reversed on the grounds that the new precedent applied retroactively and, therefore, the debt collector’s conduct violated the FDCPA even though it had not at the time of the conduct.  The Seventh Circuit also rejected the debt collector’s argument that its venue choice was subject to a bona fide error defense.

In its petition to the Supreme Court, the debt collector led with a quote from Justice Kennedy’s dissent in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, L.P.A., 559 U.S. 573 (2010).  The majority in Jerman held that the bona fide error defense under the FDCPA applies to mistakes of fact and not mistakes of law,  no matter how justified.  In his dissent, Justice Kennedy predicted that the Supreme Court’s holding would result in liability where a debt collector follows a “particular practice [that] is compelled by existing precedent … if that precedent is later overruled.”

This is exactly what happened here.  As the debt collector emphasized, the issue with the Seventh Circuit’s expansive reading of Jerman is that it characterized the debt collector’s error as an unprotected “mistake of law” despite the undisputed fact that, at the time of the conduct at issue, there was no mistake at all.  To be sure, the debt collector’s choice of venue did not become a mistake until the Seventh Circuit changed its controlling precedent and retroactively applied it to the debt collector’s conduct after it took place.

As a result of the Supreme Court’s denial of the debt collector’s petition, the Seventh Circuit’s ruling stays in place, along with all the unfortunate ramifications that will likely follow.  In fact, the Seventh Circuit already relied on Oliva in a recent decision and held that a defendant’s reliance on the Seventh Circuit’s prior precedent did not absolve the defendant from liability under the FDCPA.

We will continue to monitor Oliva’s progeny as it develops.

According to a recent decision from the California Court of Appeal, mortgage lenders and servicers can, at least under certain circumstances, be “debt collectors” under the California Rosenthal Fair Debt Collection Practices Act, frequently referred to as the “Rosenthal Act.”.

In the case, plaintiff Edward Davidson filed a putative class action suing his mortgage servicer, Seterus, Inc., after allegedly receiving hundreds of phone calls from employees of Seterus demanding mortgage payments that Davidson had already paid or that were not yet due.  The alleged calls included threats to report negative credit information to the credit bureaus and to foreclose on Davidson’s home.  The trial court sustained Seterus’s demurrer, dismissing the complaint with prejudice based on the fact that a mortgage servicer may not be considered a debt collector under the Rosenthal Act.

The California Court of Appeal reversed the trial court’s ruling and held that Seterus and its parent company were subject to the Rosenthal Act for these alleged collection activities.

The Court noted that there is a split in authority among federal district courts that have interpreted the Rosenthal Act, that there is no California authority on the issue, and that there is no language specific to whether entities attempting to collect mortgage debt are subject to, or exempt from, the Rosenthal Act.  However, in adhering to the general principle that civil statutes enacted for the protection of the public should be broadly construed in favor of protecting the public, the Court held that the definitional language in the Rosenthal Act was sufficiently broad to include mortgage lenders and mortgage servicers.  The Court further discussed that collecting on a mortgage is the same as collecting on a consumer debt, which is governed by the Rosenthal Act.  The Court also noted that the definition of a “debt collector” under the Rosenthal Act is broader than its counterpart under the federal Fair Debt Collection Practices Act, which excludes mortgage servicers in certain circumstances.

The Court distinguished the body of case law holding that the foreclosure on a deed of trust does not constitute debt collection activity under the Rosenthal Act.  The Court noted that the present action does not involve foreclosure allegations and that it was not deciding whether a mortgage lender or mortgage servicer can be sued under the Rosenthal Act for any activity that the mortgage servicer undertakes with respect to a mortgage.  The Court held that this was a different question from the one they were currently addressing: whether a mortgage lender or mortgage servicer may ever be considered a debt collector under the Rosenthal Act, the answer to which is “yes.”

Mortgage lenders and mortgage servicers should evaluate this decision and review their policies and procedures in California to minimize potential liability under the Rosenthal Act.  Troutman Sanders is experienced in California debt collection and will continue to provide updates on new legislation, court decisions, and other legal developments in this area of law.

We are pleased to announce that Troutman Sanders attorneys Ethan Ostroff and Ashley Taylor will be presenting during the Credit and Collection News Annual Conference at the Ritz- Carlton in Lake Tahoe, California. Ethan will be providing a “TCPA Update” on April 11 at 3:00 p.m., directly followed by Ashley speaking at 4:00 p.m. on “Legal Issues in Collections.”

CCN is hosting is hosting its 13th Annual Credit and Collection News conference this year. Each year CCN helps attendees gain knowledge on current issues with bringing in speakers that have a hand in our Nation’s top corresponding issues among news. Past speakers have been Senators, Congressman, Governors and Attorney Generals who present their overview knowledge on key issues they are working on daily to be able to deliver to the committees they sit on. Attendees will:

  • Gain valuable tips and advice for Credit and Collection News
  • Discuss and Learn top issues that are happening now
  • Network with highly talented individuals in the legal and legislative department
  • Stay up to date with ongoing Credit and Collection news and what is to be expected in the future

To register or obtain additional information, visit the CCN website.

The United States Court of Appeals for the Seventh Circuit recently affirmed a lower court decision finding that a debt collector’s verification and investigation of a consumer’s disputes through its review of records obtained from the creditor was both satisfactory under the Fair Debt Collection Practices Act and reasonable under the Fair Credit Reporting Act. The case is Deborah Walton v. EOS CCA, No. 17-3040 (7th Cir. Mar. 21, 2018).

Originally filed in the Southern District of Indiana in 2015, this matter arose out of a debt consumer plaintiff Deborah Walton owed to AT&T. After notifying Walton of her delinquency, AT&T assigned or sold the debt to EOS for collection. However, the records AT&T transferred to EOS contained the wrong account number for Walton’s debt.

EOS subsequently mailed Walton a collection letter in an attempt to collect the debt. Walton recognized the inaccurate account number and disputed the debt with EOS over the phone and by letter. EOS confirmed the account information through a review of the records it received from AT&T and sent Walton a letter that verified that the information included in its debt collection letter was accurate. Walton alleges EOS’ review of the account documents without specifically verifying the underlying debt with AT&T was a violation of the FDCPA.

Following Walton’s dispute, EOS reported Walton’s debt to TransUnion and Experian with a notation that the debt was disputed. Walton then disputed EOS’ reporting of the debt with these entities. The reports generated by the credit reporting agencies for EOS stated that Walton claimed the account was not hers. Again, EOS reviewed its internal records and verified Walton’s debt. Walton disputed the debt a second time, this time claiming the account number associated with the debt was inaccurate. Upon receipt of this dispute, EOS requested deletion of the credit reports at issue. Walton alleges EOS’ investigation of her disputes was not reasonable under the FCRA. 

The district court found that EOS satisfied its legal obligations under the FDCPA and FCRA in reviewing Walton’s disputes and granted EOS’ motion for summary judgment. Walton appealed and the Seventh Circuit affirmed the lower court’s findings. In doing so, the Court followed the Fourth and Ninth circuits with regards to Walton’s FDCPA claim and found that a debt collector is only required to verify that the amount of debt and debtor information in its collection communications is the same information the creditor claims is owed. The debt collector is not required to investigate whether the obligation the creditor claims is owed is valid in itself. Rather, the debt collector must simply provide the consumer with enough information to dispute the payment obligation, which the Court found EOS did.

Regarding Walton’s FCRA claims, the Court found EOS’ investigations of Walton’s credit disputes reasonable based on the information included in the credit agencies’ dispute reports. Specifically, the Court found Walton’s first dispute, which stated the AT&T account did not belong to her, provided so little information that EOS’ review of its internal information alone was reasonable. The Court also found that once EOS learned that Walton disputed the debt based on the inaccurate account number, it took the reasonable and appropriate action to request deletion of its reporting of Walton’s debt.

The Seventh Circuit’s decision provides greater clarity regarding a debt collector’s review and investigation obligations when it receives a dispute from a consumer or a credit reporting agency. We will continue to monitor and report on developments involving debt collectors responsibilities under the FDCPA and FCRA.


Under prior director Richard Cordray, the Consumer Financial Protection Bureau earned a reputation as an extremely aggressive regulator. However, since acting director Mick Mulvaney took office more than four months ago, the agency has not brought a single enforcement action.

Mulvaney has said that, in general, the CFPB will only go after egregious cases of consumer abuses. “Good cases are being brought. The bad cases are not,” he said at an event in Washington this month.

To that end, Reuters is reporting that the CFPB has decided not to file a lawsuit against a collection agency that collects on payday loans, despite the agency apparently getting the green light to move forward from former director Richard Cordray before he resigned. Cases against three other payday lending operations for engaging in illegal collection activities are also reportedly on the chopping block.

The CFPB’s new direction regarding enforcement actions was foreshadowed in January when Mulvaney, in a letter to Fed Chairwoman Janet Yellen, requested no funding for the CFPB’s second fiscal quarter budget. Mulvaney noted that the agency already had $177.1 million in its coffers — more than enough funds to cover the agency’s expenses. “Simply put, I have been assured that the funds currently in the bureau fund are sufficient for the bureau to carry out its statutory mandates for the next fiscal quarter while striving to be efficient, effective and accountable,” Mulvaney wrote in the letter. The excess funds were part of a “reserve fund” formerly maintained by Cordray. Mulvaney said he did not see a reason for the fund since the Federal Reserve has regularly supplied the money the agency needs.

Troutman Sanders LLP will continue to monitor developments regarding CFPB funding and enforcement activity.

On March 21, the House Financial Services Committee voted 35-25 to approve a bill that would amend the Fair Debt Collection Practices Act to exclude lawyers and law firms from the definition of a “debt collector” when such entities are engaged in “activities related to legal proceedings.” Introduced by Rep. Alex Mooney (R-W.Va.) in February, H.R. 5082, titled the “Practice of Law Technical Clarification Act of 2018”, will also amend the Consumer Financial Protection Act of 2010 to restrain the Consumer Financial Protection Bureau’s oversight and enforcement authority over lawyers.

If the bill proceeds, it would add the following language to definition of a debt collector under the FDCPA:

The term [debt collector] does not include –


(F) any law firm or licensed attorney, to the extent that –

(i) such firm or attorney is engaged in litigation activities in connection with a legal action in a court of law to collect a debt on behalf of a client, including –

(I) serving, filing, or conveying formal legal proceedings, discovery requests, or other documents pursuant to the applicable statute or rules of civil procedure;

(II) communicating in, or at the direction of, a court of law (including in depositions or settlement conferences) or in the enforcement of a judgment; or

(III) any other activities engaged in as a part of the practice of law, under the laws of the State in which the attorney is licensed, that relate to the legal action; and

(ii) such legal action is served on the defendant debtor, or service is attempted, in accordance with the applicable statute or rules of civil procedure.

The bill now moves to the full House for further consideration. Should it proceed to become law, the bill would undoubtedly have a significant impact on the debt collection industry as a whole as well as the role of the CFPB in regulating the industry.

We will continue to monitor this bill as it moves through the legislative process.

The Supreme Court recently held that civil actions consolidated under Rule 42(a) retain their separate identities, so that a final decision in one action is immediately appealable by the losing party, even if other actions in the consolidated proceeding remain.

Consumer litigation often lends itself to consolidation under Federal Rule of Civil Procedure 42 because defendants tend to see multiple lawsuits – often filed by the same opposing counsel – on the same issue. Although it didn’t arise from a consumer lawsuit, Hall v. Hall addresses an important issue regarding finality and appeal of consolidated civil actions in federal court.

The case arises from a family dispute that found its way into the courts. Although the facts are interesting, the procedural posture of underlying case is at issue. At bottom, two cases involving a family dispute were consolidated in the United States District Court of the Virgin Islands. One of the consolidated cases reached final judgment while the other was still going through post-trial motions. The losing party immediately filed an appeal after the first final judgment order only to have the United States Court of Appeals for the Third Circuit immediately dismiss the appeal under the theory that the court lacked jurisdiction while the other case was still pending.

On further appeal, the Supreme Court reversed the Third Circuit.  Chief Justice Roberts, writing for the unanimous court, began with the premise that had the actions not been consolidated, there would be no question that the plaintiff could have appealed the ruling, which ended the litigation and triggered the entry of judgment. According to Chief Justice Roberts, the question was whether the consolidation of the cases merged them into a single case, so that the judgment in one case was interlocutory because work remained to be done in the other case.  Rejecting this notion, the Court held that consolidated cases retain their separate identities, so that a final decision in one action is immediately appealable by the losing party, even if other actions in the consolidated proceeding remain.

The court did allow that a district court could consolidate cases for “all purposes” in appropriate circumstances. However, all-purpose consolidation likely does not create a unified action, at least as it relates to a losing party being able to immediately appeal an adverse judgment.

On March 22, 2018, the Eastern District of New York granted summary judgment to a collection agency in a “current account balance” case.  Specifically, the Court found no violation of the FDCPA because in its letter the debt collector did not have to notify the consumer that her balance may increase and the creditor was appropriately identified.

In Polizois v. Vengroff Williams, Inc., Polizois incurred a medical debt with Enzo Clinical Labs, Inc. (Enzo).  When Polizois failed to make full payment on the debt, Enzo referred the claim to Vengroff Williams, Inc. (Vengroff) for collections.  Vengroff in turn sent Polizois a letter, identifying Enzo as Vengroff’s client at both the top and bottom of its letter.  Further, the letter stated an “amount due of $51.74” and Vengroff was a “debt collection agency engaged by the above-creditor,” referring to Enzo.  A detachable payment slip appeared at the bottom of the letter, again identifying Enzo as Vengroff’s “client” and stating the “amount due” of $51.74.  The collection letter did not indicate whether any interest, fees or other charges might be added to the amount owed.

Based upon the letter, Polizois filed suit against Vengroff, claiming Vengroff violated the FDCPA by not clearly identifying the creditor in its collection letter and failing to notify Polizois the “amount due” may increase due to interest, fees and other costs.  Polizois further contended that, because of these same alleged failures, the letter was misleading and deceptive.

In granting Vengroff’s summary judgment’s motion, the Court confirmed an affirmative duty did exist to disclose when a balance accrues interest and/or fees, under the holding in Avila v. Riexinger & Associates, LLC. However, Polizois failed to provide any authority that a debt collector must provide the disclosure when in fact the balance remained “static.”  In the specific facts in this case, the Court found there was undisputed evidence establishing Polizois’ agreement with Enzo did not provide for interest or fees.  Because of this evidence, the court held there was no danger Polizois could be misled into believing her account would increase due to either interest or fees, and, therefore, granted Vengroff’s summary judgment motion.

The Court also found the letter clearly stated Vengroff was a debt collection agency “engaged by the above creditor.” The only entity identified elsewhere in the letter was Enzo.  The Court further observed the letter stated, “Enzo has not received the amount past due of $51.74” making clear that Vengroff was collecting upon a debt owed to Enzo.  Moreover, Enzo was identified as Vengroff’s “client” at both the top and bottom of the letter.  Therefore, the Court concluded the least sophisticated consumer, reading the letter in its entirety, would clearly recognize Enzo as the creditor.  The Court further held the letter was not deceptive because it was not open to more than one interpretation as to the identity of the creditor.

The Polizois case is yet another example of the inconsistencies and struggles with this area of the FDCPA, in particular because of inconsistent decisions by judges in the Eastern District of New York.  Troutman will continue to monitor “current account balance” cases as these issues continue to evolve.