Debt Buyers & Collectors

The United States District Court for the Western District of Washington recently granted a debt collector’s motion for summary judgment on a debtor’s Fair Debt Collection Practices Act claims stemming from a collection letter sent in an effort to collect on unpaid bills for medical services.

In McBroom v. Syndicated Office Systems d/b/a Central Financial Control, No. 2:18-cv-00102-JCC (Nov. 28, 2018), plaintiff Charles McBroom received medical treatment from Franciscan Medical Group West Seattle, which commonly transacts business as “FMG West Seattle.”  McBroom failed to pay the balance due for his medical treatment.  As a result, FMG West Seattle placed McBroom’s account with a debt collector—defendant Central Financial Control—who sent a letter to McBroom notifying him of the debt.

The letter sent to McBroom identified FMG West Seattle as the relevant “facility” and listed an account number, patient reference number, the date of service, and an account summary with the account’s balance.  The letter not only identified Central Financial Control as a “debt collector,” but also stated that McBroom’s account had been placed with Central Financial Control for collection of the balance, and that McBroom could contact Central Financial Control for financial assistance or a payment arrangement.

In addition to the above, the letter provided a second phone number and website “for more information about financial assistance.”  This phone number and website belonged to CHI Franciscan Health.  Franciscan Medical Group is a wholly-owned subsidiary of Franciscan Health Systems d/b/a CHI Franciscan Health.

McBroom filed suit against Central Financial Control, in which he alleged that this letter violated the FDCPA by failing to clearly identify the creditor of the debt under 15 U.S.C. §1692g(a)(2) and by failing to meaningfully convey the name of the creditor under 15 U.S.C. § 1692e.  Central Financial Control moved for summary judgment seeking dismissal of both FDCPA claims.

In evaluating McBroom’s section 1692g(a)(2) claim, the Court noted that the letter’s “account” section listed FMG West Seattle as the only facility and that a separate section of the letter indicated that amounts owed may vary based on other coverage for medical services “received from FMG West Seattle.”  The Court further noted that the letter identified Central Financial Control as a debt collector and, although it directed that payments be made to Central Financial Control, it described McBroom’s account as being “placed” with Central Financial Control.  Finally, the Court noted that although CHI Franciscan Health’s contact information was provided at the close of the letter, this section is entirely devoted to financial assistance.  Taken together, the Court found that these statements did not render the identity of the account’s creditor unclear.

The Court used these same factors to evaluate McBroom’s section 1692e claim.  In particular, the Court noted that the letter failed to indicate that ownership of the account had been transferred to Central Financial Control, and that the limiting language used to describe the assistance provided by CHI Franciscan Health meant that it could not reasonably be interpreted as a creditor.  Accordingly, the Court granted Central Financial Control’s motion for summary judgment and dismissed both of the plaintiff’s FDCPA claims.

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


A Florida federal judge entered a judgment for over $23 million last week against Robert Guice, the alleged operator of a telemarketing scam offering debt relief services to consumers.

The lawsuit, brought by the Federal Trade Commission and the Florida Attorney General, alleged that Guice created Loyal Financial & Credit Services, LLC (“Loyal”), Life Management Services of Orange County, LLC (“LMS”), and multiple shell companies to contact financially distressed consumers by phone and offer various services aimed at reducing credit card debt.  The services included transferring debt to no-interest credit cards and urging consumers to default to allow negotiations with credit card companies.

The government began investigating Guice and the companies in 2016 for multiple violations of Section 5 of the FTC Act (15 U.S.C. § 53(b)), the Florida Deceptive and Unfair Trade Practices Act, or “FDUTPA” (Fla. Sta. §501.201 et. seq.), and the Telemarketing Sales Rule, or “TSR” (16 C.F.R. § 310.1 et. seq.).  The Court initially granted the government’s request for a temporary restraining order, causing all business activities to cease in June 2016.

The government alleged that Loyal, LMS, and the shell companies operated as a common enterprise that was controlled by Guice. Under Guice’s leadership, the enterprise engaged in deceptive business practices, made material misrepresentations and omissions when selling services, and violated numerous provisions of the TSR, including calling consumers on the Do Not Call Registry.

On December 7, the Court entered summary judgment against Guice, the only remaining defendant in the lawsuit. The Court found that Guice, LMS, and Loyal tricked customers into purchasing services by misrepresenting the amount of money they would save, fabricating their affiliations with credit card companies, and failing to disclose the possible impact of their actions on customers’ credit scores, among other deceptive actions.  In determining the monetary damages, the Court relied on the government’s expert accountant who calculated the customers’ net losses to be over $23 million.

A wave of lawsuits filed under the Fair Debt Collection Practices Act, especially in the Second Circuit, continues regarding disclosures of interest and fees in collection letters.  Consumers have complained about failure to warn of interest and fees continuing to accrue, as well as failure to disclose that interest and fees did not accrue.  The Second Circuit addressed these issues three times in the past two years in Avila, Taylor, and Derosa.  However, this has not deterred the consumer bar from bringing new claims over even the most careful disclosures.

In this most recent unsuccessful putative class action, consumer plaintiff Andrew Gissendaner sued Enhanced Recovery Company over a letter that listed interest and fees as “N/A.”  The letter also explained that “upon receipt of [Gissendaner’s] payment and clearance of funds in the amount of $2,562, [his] account will be considered paid in full.”

Gissendaner posited that “N/A” for interest and fees was misleading because “every debt accrues interest” and listing “N/A” for interest could lead a least sophisticated consumer to think that interest never accrued on his debt.  Enhanced Recovery argued in response that the statements were true because no interest or fees accrued since the debt was placed with Enhanced Recovery for collection.  Enhanced Recovery also emphasized that Gissendaner was ignoring the part of the letter which stated that if he paid a specific amount by a certain date, his debt would be satisfied.

In its opinion granting Enhanced Recovery’s cross-motion for judgment on the pleadings, the Western District of New York did not have any difficulty concluding that the Second Circuit’s decision in Taylor governed.  To be sure, Gissendaner admitted that no interest or fees were accruing and “supplied no convincing reason why the Court should find Taylor distinguishable.”  Accordingly, the Court held that the letter was not confusing and that Gissendaner’s claim lacked merit.

Continued development of favorable precedent, such as this case, is vital in helping to deter meritless “current balance” or “reverse-Avila” claims.

Joining an “overwhelming majority of the courts in this district,” the United States District Court for the District of New Jersey recently held that a plaintiff alleging misleading representations in a debt collection letter under 15 U.S.C. § 1692e of the Fair Debt Collection Practices Act (“FDCPA”) demonstrated concrete injury sufficient to confer Article III standing.  The Court also certified a statewide class of consumers who received the same form letter. 

In Hovermale v. Immediate Credit Recovery, Inc., a debtor sued the a debt collector for violations of the FDCPA based on alleged misrepresentations made in a collection letter sent to the debtor to collect on her defaulted Perkins student loan.  Specifically, the letter stated that interest and late charges may accrue after default on Perkins loans.  While Hovermale acknowledged that interest may accrue, she argued (correctly) that late charges may not accrue after default on such loans.  Thus, she claimed that she mistakenly believed that late charges could increase from the date of the letter to the date of payment, creating a false sense of urgency to make payment. 

IRC filed a motion to dismiss on the grounds that Hovermale lacked Article III standing under the standard articulated by the U.S. Supreme Court in Spokeo, Inc. v. RobinsSpecifically, IRC argued that Hovermale did not suffer any injuryinfact because her loan amount increased anyway (i.e. due to accruing interest).  Thus, the late fees could not have created a “false sense of urgency [to pay]” – that already existed vis-à-vis accruing interest. 

The Court rejected IRC’s argument, finding that the FDCPA – and particularly, Section 1692e – provides debtors a substantive right to receive truthful information.  An allegation that this substantive right has been violated is enough to show “concrete injury” for purposes of satisfying the Spokeo standard.  The Court characterized this injury as “informational harm” and emphasized that a claim that a letter is misleading is exactly the type of harm the FDCPA aims to prevent. 

In addition to denying IRC’s motion to dismiss, the Court certified Hovermale’s putative class of New Jersey consumers who received debt collection letters with the same language.  The Court found that the same legal issue whether the language of the letters violates the FDCPA – must be resolved for all putative class members.

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.