Debt Buyers & Collectors

In A-1 Premium Acceptance, Inc. v. Hunter, the Missouri Supreme Court upheld the circuit court’s order denying counterclaim defendant A-1’s motion to compel arbitration because the plain language of the consumer arbitration agreement limited the arbitrator to the National Arbitration Forum (NAF).  After the parties executed the arbitration agreement, NAF entered into a consent decree with the Minnesota Attorney General requiring NAF immediately to stop providing arbitration services for consumer claims nationwide.

The parties’ arbitration agreement stated that claims “shall be resolved by binding arbitration by the National Arbitration Forum, under the Code of Procedure then in effect.”  The applicable Code of Procedure provides that only NAP may administer the Code.  Thus, even though the arbitration agreement did not expressly state that arbitration can proceed “only” before NAF, the Court explained that the parties agreed to arbitrate only before NAF because the language identifying NAF was coupled with the reference to a Code of Procedure that mandates only NAF can administer the Code.  The fact that A-1 drafted the agreement and could have included language contemplating the unavailability of NAF precludes any inference that the parties intended to arbitrate before another arbitrator in the event NAF became unavailable.  Accordingly, the Court ruled the parties had agreed to arbitrate “before NAF and no other arbitrator.”

The Missouri Supreme Court’s decision in A-1 Premium may have far-reaching implications for lenders based on NAF’s agreement to withdraw from arbitration services for consumer claims nationwide.  As the Court noted, however, courts are split on whether NAF’s unavailability renders an arbitration agreement unenforceable.

On November 29, the Third Circuit Court of Appeals reversed a district court’s grant of summary judgment to Drexel University in a Fair Debt Collection Practices Act case brought by a former student.  

In Tiene v. Law Office of J. Scott Watson PC, No. 18-1221 (3d Cir. Nov. 29, 2018), Philip Tiene, a former Drexel University student, argued that the district court erred in granting summary judgment to the University on his FDCPA claims. 

After Tiene failed to pay $7,881.73 in tuition and fees, Drexel University sent a series of collection letters to Tiene through its attorney—Law Office of J. Scott Watson PC—and a collection agency. When Tiene did not respond to the letters, Drexel filed suit in Philadelphia Municipal Court to seek recovery of the debt. Although Tiene provided an updated billing address to Drexel at the start of its collection efforts, the letters and court filings were served at Tiene’s previous billing address. 

After a default judgment was entered against Tiene for failing to appear at a hearing on the complaint, he filed a motion to vacate the default on the grounds that Drexel “knowingly served process at the wrong, out of state address, where [Tiene] does not reside.” Although the Municipal Court judge found that Drexel did not engage in intentional misconduct when it served Tiene at an incorrect address, it nonetheless vacated the default judgment. It later entered judgment for Drexel in full. 

In his federal lawsuit, Tiene alleged that Drexel violated the FDCPA by its false and deceptive service of the Municipal Court complaint and by making false and deceptive statements in a letter notifying Tiene of the default judgment and attempting to collect on the judgment. The District Court granted summary judgment to Drexel on Tiene’s FDCPA claims, finding that his service of process allegations were precluded by the vacatur of the default judgment by the Municipal Court and the collection letter did not misrepresent the amount of the judgment. 

The Third Circuit reversed the District Court’s grant of summary judgment on both of Tiene’s FDCPA claims. In particular, the Third Circuit held that Tiene’s deceptive service of process claim was not barred by collateral estoppel because the District Court’s determination that Drexel did not intentionally serve Tiene at the wrong address was not essential to the vacatur of the default judgment.  

In addition, the Third Circuit held that the District Court failed to consider all of Tiene’s collection letter allegations – although it addressed Tiene’s claim that that the collection letter misrepresented the amount of the judgment against Tiene, the District Court failed to consider Tiene’s claim that the letter contained erroneous information about the Municipal Court’s default judgment.  

Troutman Sanders will continue to monitor and report on developments in this area of the law.


On November 16, the United States Court of Appeals for the Fifth Circuit issued a memorandum opinion in Crystal Davis v. Credit Bureau of the South denying counsel’s statutory attorney’s fees for a successful Fair Debt Collection Practices Act claim.  The opinion—which is well worth the read—can be accessed here.

The appellant consumer, Crystal Davis, filed a complaint in the U.S. District Court for the Eastern District of Texas alleging that Credit Bureau of the South (“CBOTS”), a debt collector, violated the FDCPA and the Texas Debt Collection Act (“TDCA”) by using the words “credit bureau” in its name and misrepresenting itself as a credit bureau in an attempt to collect a debt.  Through a report and recommendation to the District Court, the magistrate judge concluded that summary judgment for Davis was warranted based on the evidence that CBOTS used the term “credit bureau” in its name, even though it ceased being a consumer reporting agency years ago.  Upon the recommendation of the magistrate judge, the District Court awarded Davis statutory damages of $1,000.  However, it rejected all other claims made by Davis, including her state TDCA claim.

Davis subsequently moved for an award of attorneys’ fees in the amount of $130,410.  The motion was referred to the magistrate judge who denied Davis’s motion, finding that the case involved “special circumstances” which made an award of attorneys’ fees unjust.  The magistrate judge found that there was evidence of apparent collusion between Davis and her counsel to create the claim, and the requested $130,410 in attorney’s fees was “excessive by orders of magnitude.”  After Davis filed objections, the District Court adopted the magistrate judge’s order as its final judgment and Davis appealed.

Applying Fifth Circuit precedent, and in line with decisions from the Third and Fourth circuits, the Court of Appeals stated that in limited “special circumstances” a district court may deny an award of fees in circumstances where it would be unjust.  Accordingly, the Fifth Circuit found that a denial of attorney’s fees was proper given the extenuating circumstances before it.

First, the Fifth Circuit highlighted the fact that Davis’s counsel’s hourly rate of $450 was unreasonable given the record before it, including the quality of work.  The Court noted that Davis’s brief on appeal was replete with grammatical errors, formatting issues, and improper citations, and was not of the caliber of work calling for such a rate.  The Court also addressed the fact that much of the work was duplicative among the multiple attorneys representing Davis in addition to the amount of work done being excessive given the simple nature of the case.

Next, the Fifth Circuit found that there was an air of collusion between Davis and her counsel to create the claim, including facts showing that despite alleging in the complaint that Davis was a citizen of Harrison County, Texas, the overwhelming evidence showed that she was a citizen of Louisiana, and her only ties to Texas were based on the fact that her parents both resided there.  Davis’s counsel knew or should have known of this fact since she was an employee of her counsel’s firm in the summer of 2015, which was shortly before the alleged conduct of CBOTS.

Based on these facts, the Fifth Circuit found that because Davis could not and did not prove that there were any actual damages, and as a means to disincentivize her counsel and others from bringing mere technical violations in a scheme to generate attorney’s fees, it upheld and affirmed the District Court’s decision.

Generally, a successful judgment for a violation of the FDCPA allows for an award of attorney’s fees for the consumer’s counsel.  This case is emblematic of the fact that there are special circumstances where a purely manufactured technical claim will prevent consumer counsel from successfully obtaining fees even for a meritorious case.  While the Fifth Circuit—in addition to the Third and Fourth circuits—has adopted the “special circumstances” exception, others have concluded that an award of attorneys’ fees for a successful FDCPA claim is mandatory.

Last month, Troutman Sanders reported on the proposed TRACED Act which would instruct the Federal Communications Commission to engage in rulemaking to protect consumers from receiving unwanted calls and text messages from unauthenticated phone numbers.  FCC Chairman Ajit Pai tweeted his approval for the bill, but the FCC is not waiting on Congress to fight robocalls.  On November 21, it released its final report and order on creating a reassigned numbers database.

According to the FCC’s press release, the final draft of the report and order would create a comprehensive database to enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number, thereby helping to protect consumers with reassigned numbers from receiving unwanted robocalls.

More specifically, this proposal changes the existing federal regulatory scheme by:

  • Establishing a single, comprehensive reassigned numbers database that will enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number;
  • Establishing a minimum aging period of 45 days before permanently disconnected telephone numbers can be reassigned;
  • Requiring that voice providers that receive North American Numbering Plan numbers and the Toll Free Numbering Administrator report on a monthly basis information regarding permanently disconnected numbers; and
  • Selecting an independent third-party administrator, using a competitive bidding process, to manage the reassigned numbers database.

Pai announced the items tentatively included on the agenda for the December Open Commission Meeting scheduled for Wednesday, December 12. Considering that robocalls are the number one basis of complaints filed with the FCC and the speed in which the issue has been addressed, it will come as no surprise if the proposal is passed at the meeting.

Troutman Sanders will continue to monitor this and related FCC’s rulemaking decisions.

On November 14, the Bureau of Consumer Financial Protection filed an amicus brief with the United States Supreme Court, arguing a law firm’s nonjudicial foreclosure actions to enforce a security interest on a mortgage debt fell outside the purview of the Fair Debt Collection Practices Act because the activity did not constitute “debt collection.”

The issue is currently under review before the Supreme Court in Obduskey v. McCarthy & Holthus LLP, No. 17-1307 (2018).

This action originally arose out of a home mortgage loan that petitioner Dennis Obduskey applied for and obtained from Magnus Financial Corporation in 2007, secured by Obduskey’s Colorado home. Wells Fargo Bank subsequently took over as servicer of the loan, on which Obduskey subsequently defaulted in 2009.  Wells Fargo spent the next several years unsuccessfully attempting to foreclose on the home. In 2014, Wells Fargo hired respondent McCarthy & Holthus LLP to initiate non-judicial foreclosure proceedings against Obduskey in accordance with procedures set forth under Colorado state law.

As a part of its foreclosure attempts, McCarthy & Holthus sent Obduskey a letter that contained, among other things, the amount of the outstanding loan, the name of the creditor, and a disclosure regarding the potential imposition of interest and fees, and it stated that McCarthy & Holthus intended to seek non-judicial foreclosure of the home. The letter also included a statement that McCarthy & Holthus “may be considered a debt collector attempting to collect a debt” as well as a disclosure regarding Obduskey’s rights to dispute the debt or seek validation akin to the disclosure required under Section 1692g of the FDCPA.  Although Obduskey disputed the debt, McCarthy & Holthus provided no verification but instead initiated a non-judicial foreclosure proceeding.

Obduskey filed an action against McCarthy & Holthus and Wells Fargo in the United States District Court for the District of Colorado, alleging the defendants violated the FDCPA and Colorado state law. The district court dismissed the FDCPA claims against McCarthy & Holthus and Wells Fargo based on what it perceived as the majority view that foreclosure proceedings do not constitute the collection of a debt. On appeal, the Court of Appeals for the Tenth Circuit affirmed the district court because in Colorado, a non-judicial foreclosure proceeding only allows for the sale of the property but does not automatically entitle the trustee to the collection of the sale proceeds; this must be done through a separate action. In other words, the enforcement of a security interest is not an attempt to collect money from a debtor and in general, the FDCPA only governs entities that attempt to collect money. The Court also found that a contrary decision would create a conflict between the FDCPA and Colorado state law, which requires certain disclosures to borrowers when initiating non-judicial foreclosure proceedings. However, the Court of Appeals noted that there is somewhat of a circuit split with respect to this issue between the Ninth Circuit, along with numerous district courts, and the Fourth, Fifth, and Sixth circuits. Finally, the Court of Appeals found that both defendants were not debt collectors under the FDCPA. Obduskey again appealed and the Supreme Court granted certiorari on June 28, 2018.

In its amicus brief, the BCFP largely echoes the Tenth’s Circuit’s findings. First, the BCFP argues that McCarthy & Holthus’s non-judicial foreclosure action against Obduskey was not “debt collection” under the FDCPA because the FDCPA’s text is clear that enforcement of a security interest, without very specific other prohibited activity mentioned in Section 1692f(6), does not constitute debt collection. Second, the BCFP argues that McCarthy & Holthus’s actions were specifically required by Colorado state law. Therefore, to find its actions in violation of the FDCPA would throw the FDCPA into conflict with state law and would have hindered McCarthy & Holthus from complying with state law. While the BCFP’s argument largely follows the reasoning of the Tenth Circuit, it could also signal the agency taking on an ever-increasing pro-business tilt following Mick Mulvaney’s appointment as acting director of the BCFP one year ago.

Oral arguments have not yet been scheduled. We will continue to monitor this case and provide updates accordingly.


Does a debt collector risk violating the Fair Debt Collection Practices Act if it fails to provide an oral disclosure regarding the statute of limitations during an incoming call with a consumer?  In a comprehensive opinion, a district court just issued a resounding “no.” 

In Douglas v. NCC Business Services, Inc., consumer Onesha Douglas claimed that NCC Business Services violated the FDCPA by failing to tell her on the phone that the statute of limitations had expired on her debt.  The court disagreed, holding that the debt collector was not obligated to provide an oral disclosure regarding the statute of limitations.  

Douglas had leased an apartment but failed to pay her rent, resulting in a debt of $4,032.75.  More than five years later, Douglas and Vance Dotson, a so-called “credit doctor,” called the debt collector regarding the status of the debt.  Douglas stated that she had been denied a mortgage application and was calling to get more information regarding her debt.   

On the phone call, the debt collector stated that he was a “professional debt collector” with NCC Business Services and informed Douglas that his communications with her were “an attempt to collect a debt.”  He solicited payment and asked Douglas, “How would you like to get that closed out today?”  Douglas responded by declining to close out the account because she only wanted information.  Following additional discussion, Dotson told the debt collector that he should have disclosed to Douglas that payment would renew the statute of limitations and that the debt collector could not sue Douglas because of the age of the debt.  The debt collector responded that he was not obligated to disclose such information on the phone.  

Because the Tenth Circuit had not yet ruled on a debt collector’s obligations regarding disclosure of the effect of payment on time-barred debt, the District Court surveyed circuit court opinions from across the United States.  The court looked at cases finding in favor of debt collectors, such as Mahmoud v. De Moss Owners Association, Inc., 865 F.3d 322, 333-34 (5th Cir. 2017); Huertas v. Galaxy Asset Management, 641 F.3d 28, 32-33 (3d Cir. 2011); and Freyermuth v. Credit Bureau Services, Inc., 248 F.3d 767, 771 (8th Cir. 2001).  It contrasted these cases with other cases holding in favor of consumers, such as Tatis v. Allied Interstate, LLC, 882 F.3d 422, 425, 428-30 (3d Cir. 2018); Pantoja v. Portfolio Recovery Associates, LLC, 852 F.3d 679, 684, 687 (7th Cir. 2017); Daugherty v. Convergent Outsourcing, Inc., 836 F.3d 507, 509 (5th Cir. 2016); Buchanan v. Northland Group, Inc., 776 F.3d 393, 395, 399-400 (6th Cir. 2015); and McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014).  

Having surveyed the evolving state of the law, the court distinguished the Douglas case because (1) Douglas contacted the debt collector, instead of the other way around; (2) there was no explicit or implicit threat of litigation; (3) the running of the statute of limitations under the applicable state law did not extinguish Douglas’ legal obligation on the debt; and (4) the debt collector could sue on the time-barred debt because the statute of limitations is an affirmative defense that must be raised by the debtor or it is waived.  Consequently, the court held that the debt collector said nothing that was actionably misleading under the FDCPA. 

This is an important case in the developing law regarding a debt collector’s obligation (or lack thereof) to affirmatively warn debtors regarding partial payment on time-barred debt.  This case provides a comprehensive overview of how the various circuit courts have held on this issue.  It also makes the critical distinction that the statute of limitations is an affirmative defense, meaning that it must be raised by the debtor or it is waived.  As such, it cannot prohibit a debt collector from suing on a time-barred debt because there is nothing inherently improper about such a suit—the debt is a legal obligation, which allows the debt collector to sue on it, but the debt collector may be unable to recover based upon the debtor raising the statute of limitations as an affirmative defense.  This distinction has been overlooked by some courts, resulting in one court describing it as “illegal” for a debt collector to sue on time-barred debt instead of the statute of limitations merely providing a defense against recovery on such a suit.  See Pantoja, 852 F.3d at 685.  Douglas refreshingly returns to the well-established understanding that, as a procedural rule, the statute of limitations is an affirmative defense that the debtor (defendant)—not the debt collector (plaintiff)—must raise in an action to recover for debt.

On November 20, Federal Communications Commission Chairman Ajit Pai proposed the implementation of a reassigned numbers database and a declaration that wireless providers are authorized to take measures to stop unwanted text messaging through use of autodialed text messaging (“robotext”)-blocking, anti-spoofing measures, and other anti-spam features. 

Calls to reassigned numbers can be a significant problem for legitimate businesses making calls for which they have prior consent and for consumers receiving unwanted messages.  To combat this problem, the draft order would establish a single database of reassigned numbers based on information provided by phone companies that obtain North American Numbering Plan U.S. geographic numbers. The database should help legitimate callers direct their calls to parties who asked for them rather than individuals who have subsequently obtained those reassigned numbers. 

As an increasing number of Americans rely on text messaging as a communications service, the draft Declaratory Ruling on text messaging would formally rule that text-messaging services are information services, not telecommunications services. This would allow carriers to continue using robotext-blocking and anti-spoofing measures to protect consumers from unwanted text messages. 

In the FCC press release announcing the proposal, Pai stated, “Combatting robocalls is our top consumer protection priority, and these proposals are a significant step forward in that effort.  Today, I am calling on the FCC to take additional measures to combat these calls and also to prevent a flood of spam robotexts from clogging Americans’ phones.” 

The FCC will consider these items at its Open Commission meeting on December 12.  

Troutman Sanders will continue to monitor the movement of these proposals and will report on any further developments.


The Minnesota Department of Commerce recently entered into a consent order with collection agency Range Credit Bureau, Inc. regarding its compliance practices.

The Commissioner found numerous regulatory and compliance infractions, including the company’s ongoing failure to file an Unclaimed Property report with the state for funds owed to a customer whom the company could not locate; failure to implement an appropriate compliance management system; failure to establish background check procedures for the company’s individual collectors; and the company’s unlicensed collection activity in Minnesota and other states.

The order emphasizes the importance of strong internal compliance policies and systems.  Significantly, the Department of Commerce found violations not only for Range Credit’s collection activities, but also for its practices with respect to non-collections laws, such as background checks and state escheat obligations.

In addition to a monetary penalty of $50,000 (with $10,000 stayed, reducing the actual penalty to $40,000), the Consent Order requires Range Credit to take specific, compliance-oriented actions, including:

  • Developing and implementing a Compliance Management System (“CMS”), which includes a written Compliance Program.  The Compliance Program is required to address obligations for debt collection activities under state and federal law and include policies to prevent violations of consumer protection laws, a training program, a CMS monitoring system, and a complaint monitoring system.
  • Developing and implementing a background check policy; and
  • Completing an internal audit of all unclaimed funds and reporting the funds to the state.

This consent order highlights that regulators are considering not only whether a company or a collector holds a proper license, but also head-to-toe compliance practices.

In a recent decision, the Eleventh Circuit affirmed the Middle District of Alabama’s dismissal of a consumer’s claim under § 1692g of the Fair Debt Collection Practices Act because he failed to state a plausible claim for relief.

Among other things, § 1692 of the FDCPA requires a debt collector to “send the consumer a written notice containing” certain information, including “the name of the creditor to whom the debt is owed.” In this case, the consumer claimed that Medical Data Systems violated this provision when it mailed him a debt collection letter that failed to “effectively convey” the name of his creditor, Medical Center Enterprise. The consumer’s claim arose out of medical services he received from Medical Center Enterprise in 2015.

In analyzing the consumer’s claims, the Eleventh Circuit noted that the collection letter identified Medical Data Systems as doing business with Medical Revenue Service, “a collection agency.” The letter further stated that Medical Revenue Service was tasked with collecting the “account(s) listed below,” and listed Medical Center Enterprise next to a service date, patient name, and outstanding balance. The consumer argued that this notice was insufficient because it failed to expressly state that Medical Center Enterprise was his “creditor.”

The Eleventh Circuit disagreed with the consumer and held that he had failed to state a plausible claim for relief because he was challenging only the “effectiveness of the debt collection letter, not the accuracy of it.” In doing so, the Court noted that although the Eleventh Circuit has not decided whether courts should apply the “least sophisticated consumer” standard to claims under § 1692g, the consumer’s claim in this case was insufficient to survive even this standard. In particular, the Court stated that “[a] consumer who had been a patient at a hospital would surely understand the hospital to be the creditor when its name was listed next to the amount of the debt,” even without the use of the term “creditor.”

The case is Lait v. Medical Data Systems, Inc., No. 18-12255 (11th Cir. Nov. 9, 2018).

In an ominous sign, Americans’ total debt hit another record high, rising to $13.5 trillion in the last quarter, as student loan delinquencies jumped, according to Reuters. Specifically, flows of student debt into serious delinquency of 90 or more days rose to 9.1 percent in the third quarter from 8.6 percent in the previous quarter, reported the Federal Reserve Bank of New York, propelling the biggest jump in the overall U.S. delinquency rate in seven years.  

Total household debt, driven by $9.1 trillion in mortgages, now stands $837 billion higher than its previous peak in 2008, just as the Great Recession took hold and induced massive deleveraging across the United States. In fact, indebtedness has risen steadily for more than four years and sits more than 21% above its 2013 low point, and the $219 billion rise in total debt in the quarter that ended on September 30 amounts to the biggest jump since 2016. 

“The new charts in our report help to better understand how the debt and repayment landscape have shifted in the years following the Great Recession,” Donghoon Lee, research officer at the New York Fed, announced in a press release published on November 16. “Older borrowers now hold a larger share of total outstanding debt balances, while the shares held by younger borrowers have contracted and shifted toward auto loans and student loans.”