Debt Buyers & Collectors

The U.S. District Court for the Northern District of Texas recently ruled that a plaintiff has statutory standing to sue under the Fair Debt Collection Practices Act, despite the fact that the debt collector was attempting to collect a debt from the plaintiff’s son, not from the plaintiff himself.

The plaintiff’s name is “Christopher O. Smith” (hereinafter “Smith”) and his son’s name is “Christopher O. Smith II.”  Smith’s son borrowed money but then defaulted on his debt.  Moss Law Firm initiated a lawsuit on behalf of Barclays Bank Delaware to collect the delinquent debt.  The case was captioned “Barclays Bank Delaware v. Christopher O Smith.”  A credit card statement was appended to the complaint which identified the debtor as “Christopher O. Smith II.”

Smith accepted service of the lawsuit.  He alleges that when he later realized that it was not his debt, he informed Moss of the error, but Moss continued to pursue the lawsuit against him.  Notably, Smith’s version of the facts differs widely from Moss’s version.  According to Moss, as soon as it learned of the error from Smith’s wife, it informed her that it was not trying to collect the debt from him.  Moss twice offered to pick up the petition and summons or asked that they be mailed back to Moss, but Smith’s wife refused.  Moss immediately instructed the process server not to attempt further service at the address on the petition.  Within a month, Moss nonsuited the lawsuit, ending any legal proceedings against Smith.

However, Smith retained an attorney and sued Moss for a violation of the FDCPA.  Moss filed a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, asserting that Smith did not have statutory standing to sue because Moss’s debt collection efforts were not directed at him.  Based on the allegations in the complaint, the Court found that Smith had statutory standing.

First, the Court distinguished between statutory standing as challenged under Rule 12(b)(6) and jurisdictional standing as would be challenged under Rule 12(b)(1).  Moss attempted to factually challenge Smith’s standing by explaining that the facts were different from what Smith alleged.  The Court rejected this argument because a statutory standing challenge under Rule 12(b)(6) must accept as true all of Smith’s allegations.  A court may only consider additional facts outside the pleadings in a jurisdictional challenge under Rule 12(b)(1).  Since Moss did not make a Rule 12(b)(1) motion, the Court could not consider outside facts.

Second, the Court found that the facts Smith alleged were sufficient for statutory standing.  According to the Court, “Smith allege[d] that Moss sought to collect a debt that Smith did not owe to Barclays; that Moss initiated a lawsuit against Smith to collect this alleged debt; that Smith informed Moss of the error; and that Moss nevertheless continued to pursue the lawsuit against Smith.”  This was sufficient to state a claim for violation of the FDCPA, despite Smith not being a debtor on the alleged debt.

This case is significant for several reasons.  First, it serves as a reminder of the distinction between statutory standing as challenged under Rule 12(b)(6) and jurisdictional standing as challenged under Rule 12(b)(1).  Second, it asserts that a non-debtor, which the debt collector admittedly was not directing debt collection efforts towards, could have statutory standing to sue under the FDCPA.  Notably, the Court did make the point that this holding did not “suggest … a view on how the court would decide a motion for summary judgment or how a jury would evaluate the merits of Smith’s claims.”

Two words could put a new burden on debt collectors in Florida. On February 14, Sen. Joe Gruters (R-Fla.) introduced Senate Bill 1034, which proposes a change to Florida Statute § 559.715. That section currently requires the assignee of the “right to bill and collect a consumer debt” to “give the debtor written notice of such assignment as soon as practical after the assignment is made, but at least 30 days before any action to collect the debt.” Senate Bill 1034 would change this to require such notice at least 30 days “before bringing any legal action to collect the debt” (additional text noted in italics). The change could overturn decisions by Florida’s First, Second, Fourth, and Fifth District Courts of Appeal regarding consumer debt collection suits. 

Florida Precedent

In Brindise v. U.S. Bank Nat. Ass’n, Florida’s Second District Court of Appeal held that § 559.715 does not make the “notice of assignment a condition precedent to suit,” noting that “the Legislature declined to be more specific when enacting [§] 559.715.” 183 So. 3d 1215, 1219 (Fla. Dist. Ct. App. 2016). Thus, a debt collector’s failure to provide the notice is not a defense to a suit to collect on the debt. Recognizing the “innumerable” cases where defendants had raised § 559.715 as a defense, the Brindise Court certified the issue to the Florida Supreme Court. However, the Florida Supreme Court declined to consider the question and denied the Petition for Review. Since Brindise, the First, Fourth, and Fifth District Courts of Appeal have also held that the notice requirement in § 559.715 is not a condition precedent to filing a suit to collect a consumer debt, as ruled in Dyck-O’Neal, Inc. v. Lanham, No. 1D16-1624, 2019 WL 654358, at *2, ___ So. 3d ____ (Fla. Dist. Ct. App. Feb. 18, 2019); Nat’l Collegiate Student Loan Tr. 2007-1 v. Lipari, 224 So. 3d 309, 311 (Fla. Dist. Ct. App. 2017); and Bank of Am., N.A. v. Siefker, 201 So. 3d 811, 818 (Fla. Dist. Ct. App. 2016). 

Potential Ramifications of Florida Senate Bill 1034 

Senate Bill 1034 might overturn these precedents by making the notice of assignment a condition precedent to a lawsuit to collect a debt. The bill might introduce the kind of “specific” language Brindise and other courts have found was lacking. If so, failure to provide the notice at least 30 days before a lawsuit could serve as an affirmative defense to an assignee’s efforts to collect the debt. Additionally, bringing a suit without providing the proper notice could violate the Fair Debt Collection Practices Act (“FDCPA”) and the Florida Consumer Collections Protection Act (“FCCPA”). 

Since the Brindise line of cases, federal courts have held that the failure to provide the notice required by § 559.715 cannot form the basis of an FDCPA claim because the notice is not a condition precedent to a lawsuit on the debt. See Merrill v. Dyck-O’Neal, Inc., 745 F. App’x 844, 847–48 (11th Cir. 2018); Valle v. First Nat’l Collection Bureau, Inc., 252 F. Supp. 3d 1332, 1343 (S.D. Fla. 2017); Wright v. Dyck-O’Neal, Inc., 237 F. Supp. 3d 1218, 1222 (M.D. Fla. 2017). As mentioned above, Senate Bill 1034 could change this, creating liability under the FDCPA. Likewise, under Senate Bill 1034, a suit to collect on a debt without providing the notice required by § 559.715 might violate the FCCPA, which prohibits the assertion of a “legal right when [the debt collector] knows that the right does not exist.” See Fla. Stat. § 559.72(9); see also Merrill, 745 F. App’x at 848 (holding that a debt collector did not violate the FCCPA because “compliance with § 559.715 is not a condition precedent to collection of a debt,” and thus a failure to provide the notice does “not foreclose [the debt collector’s] right to collect”). 

Lastly, the change proposed in Senate Bill 1034 would make clear that the 30-day notice requirement only applies to the bringing of a legal action, as opposed to “any action to collect the debt.” This could benefit debt collectors, as debtors have attempted to use § 559.715’s notice requirement to argue that an assignee cannot take any action to collect the debt—such as sending a dunning letter—until 30 days after providing a § 559.715 notice. 

Florida Senate Bill 1034 was referred to the Florida Banking and Insurance, Judiciary, and Rules committees on February 22. Troutman Sanders will continue to monitor this legislative proposal.

The Supreme Court agreed to hear a consumer’s appeal from the Third Circuit’s ruling that his claims under the Fair Debt Collection Practices Act were time-barred despite being brought within one year of discovering the violation.  The circuits have been split on whether the one-year statute of limitations under the FDCPA begins to run when an alleged violation takes place or when it is discovered.  The split has caused a lot of uncertainty about potential liability under the FDCPA and, on February 26, the Supreme Court granted certiorari in a case squarely presenting the issue.

We previously reported on Kevin Rotkiske v. Paul Klemm, et al., No. 16-1668 (3d Cir. May 15, 2018).  There, Kevin Rotkiske sued Paul Klemm, claiming that a judgment obtained by Klemm against Rotkiske in 2009 violated the FDCPA.  However, Rotkiske did not file his FDCPA claims until 2015 – five years outside of the FDCPA’s one-year statute of limitations.  In response to Klemm’s motion to dismiss, Rotkiske asserted that his FDCPA claims were timely because he did not find out about the judgment until 2014.  The trial court dismissed Rotkiske’s claims and he appealed.

The Third Circuit affirmed the dismissal and held that the plain language of the statute controls.  In particular, the FDCPA requires that actions for violations of the statute must be brought “within one year from the date on which the violation occurs.”  15 U.S.C. § 1692k(d).  Although the language leaves no room for argument, the plaintiff’s bar has claimed over the years that the discovery rule should apply.  The Fourth Circuit and the Ninth Circuit have agreed.  On the other hand, the Eighth Circuit, Eleventh Circuit, and now Third Circuit have rejected this reading of the statute and have held that the one-year statute of limitations begins to run from the time of the alleged violation, not its discovery.

In his petition to the Supreme Court, Rotkiske argued that the result reached by the Third Circuit was unjust and “absurd.”  In response, Klemm emphasized that courts could prevent any unfairness by applying the doctrine of equitable tolling in FDCPA cases involving a defendant’s fraudulent or concealed conduct which would effectively stop the statute of limitations from accruing until the violation is discovered.

It is hoped that a Supreme Court decision in this case will bring long-awaited certainty to the issue of the FDCPA’s statute of limitations.

On February 22, 2019, the Third Circuit Court of Appeals issued a precedential ruling affirming a district court’s finding that Crown Asset Management LLC is a debt collector under the Fair Debt Collection Practices Act. In doing so, the Third Circuit interpreted the Supreme Court’s recent ruling in Henson v. Santander, Consumer USA Inc., 137 S. Ct. 1718 (2018), and held an entity is a debt collector if its “important aim” and the reason for its existence is obtaining payment on the debts that it acquires.

In Mary Barbato v. Crown Asset Management LLC, et al., No. 18-1042 (3d Cir. Feb. 22, 2019), the lawsuit arose out a credit card debt Barbato incurred and defaulted on prior to 2010. Following various other assignments and sales, Crown purchased Barbato’s account, then referred it to Greystone for collection. After receiving collection letters and telephone calls from Greystone attempting to collect on the debt, Barbato filed a complaint alleging violations of the FDCPA. Crown and Barbato filed cross-motions for summary judgment on the issue of whether Crown and Greystone were debt collectors under the FDCPA.

Crown argued it was not a debt collector under the FDCPA because the principal purpose of its business is the “acquisition” of debts, rather than the “collection” of debts that it outsources to other companies. Further, Crown was not collecting the debt on behalf of another because it owned the debt. As such, Crown argued it does not fall under the definition of a debt collector in the FDCPA. Indeed, Crown had no contact with Barbato during the time period Greystone was attempting to collect the debt at issue.

In 2017, the district court issued an opinion denying Crown’s motion for summary judgment, concluding that because Crown acquired Barbato’s debt after default and its “principal purpose” was debt collection, it was a debt collector under the FDCPA. However, the court also denied Barbato’s motion for summary judgment because there was insufficient evidence to find that Greystone was likewise a debt collector under the FDCPA. The court granted both parties leave to file renewed motions for summary judgment on the issue of Greystone’s status as a debt collector.

Shortly thereafter, the Supreme Court issued its opinion in Henson v. Santander, in which it found that an entity that seeks to collect a debt that it owns is not a debt collector under the FDCPA’s “regularly collects” definition. That provision of the FDCPA defines a debt collector as “any person . . . who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Crown filed a motion for reconsideration with the district court based on the decision in Henson, arguing that because it owned Barbato’s debt, it was a creditor, not a debt collector, per Henson. Further, since the Supreme Court’s decision in Henson rejected Third Circuit precedent that took into consideration the default-status of the debt when determining if an entity is a debt collector under the FDCPA, Crown argued the district court should reverse its decision because of its reliance on faulty legal grounds. The district court rejected Crown’s argument and found that Crown was still a debt collector under the FDCPA’s “principal purpose” definition. Crown filed for interlocutory appeal and the district court certified its decision on the issue of “whether Henson requires a finding that Crown is not a debt collector in this case when it was a third-party buyer of the debt, and the debt was in default at the time it purchased it.”

The Third Circuit agreed with the district court and found that Crown was a debt collector under the FDCPA’s “principal purpose” definition. In doing so, the Court focused on the meaning of the phrase “principal purpose” in the FDCPA, holding that “an entity that has the ‘collection of any debts’ as its ‘important’ ‘aim’ is a debt collector under [the principal purpose] definition . . . . [a]s long as a business’s raison d’etre is obtaining payment on the debts that it acquires, it is a debt collector.”

The Third Circuit expressly rejected Crown’s interpretation that the definition of debt collector was limited to those entities that are actually engaged in the “collection” of debts. Specifically, the Court determined that:

[i]n contrast to the ‘regularly collects’ definition, where Congress explicitly used the verb ‘to collect’ in describing the actions of those it intended the definition to cover, in the ‘principal purpose’ definition, Congress used the noun ‘collection’ and did not specify who must do the collecting or to whom the debt must be owed.

Thus, in the Third Circuit’s view, the fact that Crown used Greystone to collect on the debt was of no-consequence because the noun “‘[c]ollection’ by its very definition may be indirect.” Turning back to the “principal purpose” part of the definition of debt collector, the Court opined that a company purchasing debts specifically for the purpose of forgiving the debts or even re-selling the debt to other entities for a profit would not fall under the “principal purpose” definition. However, since the record reflected Crown’s only business was the purchase of debts for the purpose of collecting on them, it fell well within the “principal purpose” definition.

This decision is significant because it limits the Supreme Court’s decision in Henson to the interpretation of the “regularly collects” definition of a “debt collector” in the FDCPA. Entities whose principal purpose is the purchase and collection of consumer debts may still be subject to the requirements of the FDCPA regardless of who is actually engaged in collection activity with a consumer. In other words, while the Third Circuit’s opinion was decided in the context of traditional debt buying, i.e., third-party debt collectors, it does raise important considerations for any entity whose business model relies on the purchase and collection of consumer receivables. Finally, this decision did not speak to the “creditor as a debt collector under a different name” definition that is the third way in which an entity can fall under the purview of the FDCPA as a “debt collector.”

Troutman Sanders will continue to monitor this area of law and report accordingly.

A federal court in Pennsylvania recently awarded summary judgment in favor of a consumer who brought a suit under the Fair Debt Collection Practices Act against a collection agency. The plaintiff alleged, and the Court agreed, that the collection letter misleadingly indicated that a dispute could be made by phone, despite the letter’s inclusion of the statute’s debt validation language indicating that disputes must be in writing.

A copy of the ruling in Coulter v. Receivables Management Systems can be found here.

The plaintiff, Joshua Coulter, failed to pay a bill from a healthcare facility where he had received treatment, instead believing that his insurance would cover the bill.  The account was ultimately placed with the defendant collection agency, Receivables Management Systems (“RMS”). The following language from the RMS letter formed the basis for Coulter’s FDCPA claims:

Our records indicate that despite our client’s numerous requests for payment you have allowed your account to become seriously PAST DUE. Your payment of this balance, however, will allow us to cease further collection action against you.

If you feel that this balance may be due from your insurance carrier please contact your carrier prior to contacting the representative at the extension listed below.

Our Collection Representatives are available to work with you between the hours of 8:30 a.m. and 4:30 p.m. Mail your payment or call today.

Collection Representative: Phil Irvin Extension 3141

Federal Law requires us to inform you that:

Unless you notify this office within 30 days after receiving this notice that you dispute the validity of the debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days from receiving this notice, this office will: obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgement or verification.

In ruling on the parties’ cross summary judgment motions on the issue of liability, the Court began its analysis by explaining that, even when a debt collection letter includes the required validation notice, the letter may nevertheless run afoul of the FDPCA “if it fails to effectively communicate the required notice to the consumer.” This means, among other things, that the notice “must not be overshadowed or contradicted by accompanying messages from the debt collector.”

To determine whether a validation notice is “overshadowed or contradicted,” courts apply the “legal sophisticated debtor” test.  Under that standard, the Court ultimately agreed with Coulter that, although the issue was “a close one,” the letter could reasonably be understood to instruct the consumer to raise insurance-related disputes regarding the debt by calling RMS, thereby overshadowing and contradicting the statutory dispute language included in the letter requiring that any dispute be in writing to be effective.

This case is an important reminder for persons subject to the FDCPA to review their form communications to consumers for language that could potentially be seen to “overshadow” or “contradict” the included debt validation language.

On January 22, the United States District Court for the District of Arizona found that a consumer had standing to pursue a claim under the Federal Debt Collection Practices Act. The case is Driesen v. RSI Enterprises Inc., No. 3:18-cv-08140-PCT-DWL (D. Ariz. Jan. 22, 2019). 

The plaintiff, Kimberly Driesen, received phone calls from RSI Enterprises Incorporated on February 27, 2018, at 10:12 a.m. and 11:18 a.m. In both calls, an RSI employee left Driesen the following message: “We have an important message from RSI Enterprises. This call is from a debt collector. Call 602-627-2301. Thank you.” Several days later, Driesen received a letter from RSI dated February 27, 2018, in which RSI stated that it was attempting to collect a debt and that any information obtained would be used for that purpose. In her lawsuit, Driesen alleged that RSI violated 15 U.S.C. § 1692e(11) by “failing to disclose in its initial communication with [her] that the communication was an attempt to collect a debt and any information obtained would be used for that purpose.” 

In considering whether Driesen had standing to bring an FDCPA claim against RSI, the Court looked to Spokeo v. Robins, 867 F.3d 1108 (9th Cir. 2017) (“Spokeo II”), and noted the following two-part test for determining whether a plaintiff has standing to bring a statutory claim: (1) whether the statute at issue was established to protect the plaintiff’s concrete interests (as opposed to purely procedural rights), and if so, (2) whether the procedural violations alleged by the plaintiff actually harm or present a material risk of harm to those protected interests. 

RSI asserted that Driesen lacked standing because her complaint lacked allegations of any informational violation, risk of financial harm, detrimental reliance, or actual tangible harm. By contrast, Driesen alleged that she suffered an injury upon listening to RSI’s initial voicemail because it “infringed upon her concrete interest in being reminded that any future communications with RSI will be adversarial in nature.”  

The Court ultimately agreed with Driesen. First, it held that 15 U.S.C. §1692e(11) protects more than mere procedural rights because its requirement that a debt collector include a warning that “the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose” is intended to allow consumers to determine a course of action in response to collection efforts by a debt collector. Second, the Court held that RSI’s failure to comply with this provision presented a material risk of harm to Driesen because it “created a risk that [Ms.] Driesen might volunteer information to her detriment during subsequent interactions with RSI.” 

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

The United States District Court for the Western District of Texas recently granted summary judgment in favor of a debt collector, holding that letters sent with the same client account number for two different debts incurred with the same underlying creditor was not false, deceptive, or misleading or otherwise in violation of the Fair Debt Collection Practices Act.

Consumer plaintiff Mary Reynolds incurred debts with the original creditor, Methodist Specialty & Transport Hospital, for two separate hospital visits five months apart in 2017. Medicredit, Inc. sent Reynolds two collection letters relating to the hospital visits. These letters included the same account number generated by Medicredit but pertained to debts from two separate hospital visits, with two separate balances, and different account numbers for the original creditor.

The first letter stated the balance owed as $600 for a hospital visit in March 2017, and the second letter stated a balance of $75, pertaining to a hospital visit in the following August. Reynolds alleged this caused her to believe that the amount of debt had decreased due to her insurance paying off a portion of the debt.

Reynolds filed suit, alleging Medicredit violated the FDCPA by unlawfully confusing her by including the same internal account number on both letters even though the letters pertain to separate debts. Specifically, Reynolds alleged a violation of § 1692e for using any false, deceptive, or misleading representation or means in connection with the collection of any debt, and a violation of § 1692(f) for using unfair or unconscionable means to collect or attempt to collect any debt. Medicredit filed a motion for summary judgment on the basis that no reasonable factfinder could find the correspondences at issue misleading because an unsophisticated consumer would understand that the letters were for separate financial obligations.

In its opinion, which can be found here, the Court held that the ultimate question in the case is whether the unsophisticated or least sophisticated consumer would have been led by the debt collection letter into believing something untrue that would have influenced their decision making.

In granting Medicredit’s motion for summary judgment, the Court noted that the collection letters would deceive or mislead only under a “bizarre or idiosyncratic” reading. The Court reasoned that an unsophisticated consumer, when reading the letters as a whole with some care, would note the differing client account numbers in the letters, the fact that the dates of service differed by more than four months, and the large gap between the two balances of $600 and $75. Finally, the Court held that Medicredit’s inclusion of a self-generated account number, even viewed from an unsophisticated consumer’s perspective, is not unfair or unconscionable, just as it is not false, deceptive, or misleading.

In a recent ruling, the Second Circuit Court of Appeals affirmed the district court’s $10 million disgorgement order assessed jointly and severally not only against collection agencies but also their individual owners.  The Second Circuit’s decision can be found here.

This case involved thirteen debt collection companies that operated pursuant to the same strategy: employee collectors would contact debtors or even their family and friends and identify themselves as “processors,” “officers,” or “investigators” from a “fraud unit” or “fraud division.”  The collectors would accuse debtors of a crime, such as check fraud, and threaten them with criminal prosecution if they did not pay their debts.  All the companies were owned by two individuals: Mark Briandi and William Moses.  After receiving a litany of consumer complaints, the Office of the New York State Attorney General stepped in and its investigation resulted in Briandi and Moses entering, on behalf of themselves and their companies, into an Assurance of Discontinuance, or “AOD.”  Nonetheless, shortly after the AOD, the same unlawful practices continued.

Ultimately, the Federal Trade Commission brought an action against the thirteen companies, Briandi, and Moses under the Federal Trade Commission Act (“FTCA”) and the Fair Debt Collection Practices Act (“FDCPA”).  The trial court granted the FTC’s motion for summary judgment and ordered disgorgement of $10,852,396 against the corporate defendants, as well as Briandi and Moses personally.  Both individuals appealed, but Moses’ appeal was dismissed for failure to submit a brief.  Accordingly, the Second Circuit’s decision focused on Briandi.

The record before the Court showed that Briandi was responsible for the banking side of the business, personnel matters, maintenance of phone systems and websites, and receipt of payments from consumers, and that he was also in charge of the entity that purchased consumer debts.  Briandi’s main defense was that, shortly after signing the AOD, his involvement in the businesses diminished because he decided to become a pastor.  He admitted to being physically present in his office but claimed that he spent much of his time praying and taking online Bible classes.  Briandi also acknowledged that he would step out on the collection floor and take “hostile” consumer calls, and his employees testified that he had a workspace in the call center and would sometimes spend half the day there.

The Second Circuit analyzed Briandi’s personal liability under the FTCA standard which the Court found applicable to the FDCPA claims as well.  In particular, the Court concluded that an individual may be liable under both statutes if he has knowledge of the violations and either participates directly in the practices or has authority to control them.  The Court also found that knowledge could be established by a showing that the individual was recklessly indifferent to the deceptive nature of the practices and intentionally avoided learning the truth.  The Court rejected Briandi’s argument that he did not exercise control over the corporate defendants’ operations because he was focused on his religious practices.  The dispositive issue was whether he possessed authority to control the operations, not whether he actually exercised it.  The Court also found that the amount of the award was not excessive because the evidence showed that the entire operation was permeated with fraud and the defendants did not present any rebuttal evidence to show that some of the revenues were obtained by lawful means.

While this case presents an extreme example, it stands for a more general proposition that applies even in benign cases: individuals who have an ownership interest in debt buyers and collectors are not immune from personal liability, and courts may impose steep penalties against them individually even when the unlawful conduct takes place without their actual knowledge or exercise of any actual control over the operations.

On February 7, 2019, AllianceOne Receivables Management, Inc. (“AllianceOne”), a debt collector, agreed to pay $2.2 million to settle a nationwide class action alleging violations of the Fair Credit Reporting Act (“FCRA”) for obtaining consumer reports on individuals with outstanding parking tickets without a permissible purpose.

The parties moved to approve the settlement after more than three years of litigation and propose that AllianceOne will pay $2.2 million to a class fund, plus $5,000 to the named Plaintiff and up to $733,333.33 in attorney’s fees. The settlement follows the district court’s grant of partial summary judgment in Plaintiff’s favor and certification of a nationwide class of individuals.

In the case, Rodriguez v. AllianceOne, filed in 2015 in the United States District Court for the Western District of Washington, Rodriguez alleged that AllianceOne’s purpose in pulling consumer reports on individuals with outstanding parking tickets – to obtain contact information and identify assets – was not “permissible” under § 1681b of the FCRA.

The District Court agreed with Rodriguez’s theory, granting partial summary judgment in his favor, finding that AllianceOne did not have a permissible purpose to obtain consumer reports under § 1681b because a vehicle parking violation is not a credit transaction “initiated” by a consumer. However, the District Court also held that Rodriguez failed to prove any actual damages; thus, leaving only the possibility of statutory damages based on a willful violation of the FCRA. The Court further found that whether AllianceOne’s conduct was “willful” is a question of fact for the jury.

Recognizing that “there is no assurance that the jury would find a willful violation,” the parties agreed to settle the case on a class-wide basis and moved for approval of the class settlement. The certified class contains nearly 15,000 people. Assuming no opt-outs, the proposed settlement contemplates about $98 per class member for the alleged FCRA violation. This nears the minimum statutory penalty of $100 for a willful violation of the FCRA but is far less than the maximum penalty of $1,000 per violation. The District Court is expected to approve the settlement.

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:” 


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.