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On February 14, 2023, the New York Court of Appeals overturned the Appellate Division, Second Department’s Kessler decision, which had applied a strict application of Real Property Actions and Proceedings Law § 1304, also known as a 90-day notice. In 2017, the Lender moved for summary judgment against Mr. Kessler on its foreclosure complaint. Mr. Kessler cross-moved to dismiss, arguing that the inclusion of the final two paragraphs in his 90-day notice, addressing bankruptcy status and military membership, violated section 1304’s “separate envelope” provision. The trial court agreed and dismissed the complaint. The Appellate Division affirmed on the same ground, holding that including in the envelope sent to the borrower any language not required by the statute violates its separate envelope provision.

On appeal to New York’s highest court, the Lender challenged whether the inclusion of concise and relevant additional information voids an otherwise proper notice to borrowers sent under section 1304, thus barring a subsequently filed foreclosure action. In reversing the Appellate Division, the Court of Appeals found that accurate statements that further the underlying statutory purpose of providing information to borrowers that is or may become relevant to avoiding foreclosure do not constitute an “other notice” in violation of the statute. Instead, the Court of Appeals found that the paragraph relating to bankruptcy proceedings may be particularly useful to avoid confusing borrowers subject to the automatic stay in bankruptcy court and to avoid potential violation of such stays by the lender. Moreover, the Court of Appeals warned that a bright-line rule against any additional language in the same envelope might conflict with specific disclosure requirements under federal law. Instead, the Court of Appeals was in favor of a workable rule that balances the practical considerations of the lender and borrower in a way that best advances the clear statutory purpose, which is to alert the borrower in default to their current status under their loan agreement and steps they may take to avert the filing of a foreclosure action.

The decision is an important and welcomed relief for many lenders and servicers within the state. Following the Appellate Division’s ruling in Kessler, many trial courts dismissed foreclosure complaints for failure to strictly comply with the 90-day notice requirements because of the inclusion of the language regarding bankruptcy and military membership. The Court of Appeals has now clarified issues related to the 90-day notice for lenders and servicers to follow.

Troutman Pepper will continue to monitor the decision’s impact and report on any relevant updates as they happen.

In Cassandra Valentine v. Unifund CCR, Inc. et al., the District Court of New Jersey dismissed the plaintiff’s claim that a benign company name appearing on a debt collection letter through the glassine window of an envelope constituted a violation of the FDCPA if an internet search could reveal the name as belonging to a debt collector.

After allegedly defaulting on a financial obligation, plaintiff Cassandra Valentine’s debt was purchased by Distressed Asset Portfolio III, LLC (DAP III). DAP III placed the account with Unifund CCR, Inc. (Unifund) for collection, which then mailed a collection letter to Valentine in April 2019. When Valentine received this letter, the name “Unifund CCR” and Unifund’s address was visible through the glassine window envelope.

After receiving the letter, Valentine filed a putative class action suit alleging violations of sections 1692e, 1692f, and 1692g of the FDCPA. In particular, Valentine claimed that the letter violated FDCPA § 1692f(8), which prohibits the use of any language or symbol other than a debt collector’s address when communicating with a consumer by mail. However, this section carves out an exception for the use of the debt collector’s business name so long as the name does not indicate the company as being in the debt collection business.

In its motion to dismiss, Unifund argued that the name “Unifund” did not indicate any association with the debt collection business. In opposition, Valentine argued that its appearance constituted a violation because an internet search could reveal the name as being associated with a debt collector. The court agreed with Unifund, noting that “if the Court adopted Plaintiff’s interpretation, it would eviscerate the statutory exception that permits debt collectors to include their name on the envelope of a debt collection letter. Given the ubiquity of the Internet, under Plaintiff’s interpretation of Section 1692f(8), any name would indicate that the entity is in the debt collection business after an Internet Search.” Thus, the court dismissed Valentine’s claims brought against Unifund for the appearance of its name in the letter.

Although debt collectors will still have to maintain procedures to avoid the appearance of substantive language on letters no matter how benign, this case serves as guidance that the appearance of an innocuous business name on a letter should not be considered a violation under the FDCPA.

On August 8, 2019, in Lavallee v. Med-1 Solutions, LLC, No. 17-3244 (7th Cir. 2019), the Seventh Circuit Court of Appeals rejected a debt collector’s argument that its email, which contained only a “secure message” hyperlink, was a “communication” under the Fair Debt Collection Practices Act (FDCPA) because the email did not convey any information about the debt. The Court also found that the email did not adequately convey the required § 1692g disclosures because the debtor had to follow a series of links to access the notice located on the debt collector’s webpage.

Background

This action arose out of a November 2015 telephone conversation between Beth Lavallee and Med-1 Solutions, LLC, regarding two medical debts referred to Med-1 for collection. Lavallee believed this telephone conversation was the “initial communication” with this debt collector. She filed a lawsuit contending Med-1 failed to provide Lavallee with certain statutorily required disclosures, including the § 1692g validation notice, during or within five days after the telephone conversation.

In discovery, Med-1 produced evidence it had emailed Lavallee regarding her two debts several months prior to the November 2015 telephone conversation. The emails contained a “secure message” hyperlink, directing Lavallee to a Med-1 vendor’s web server, which she could use to access information about her debt, including the § 1692g disclosures. Importantly, Lavallee, who denied receiving the emails, would have had to navigate through several links or buttons and download a .pdf document to gain access to the information and disclosures.

Med-1 argued these emails constituted the “initial communication” between the parties, so it was not required to provide Lavallee with the § 1692g disclosures following the November 2015 telephone conversation. Med-1 also claimed it provided the § 1692g disclosures in the emails because Lavallee had access to this information via the “secure message” hyperlink. On cross-motions for summary judgment, the Southern District of Indiana found the emails were ineffective methods of transmitting the § 1692g disclosures because there was no evidence Lavallee accessed the disclosures and the requirement that a debtor click a hyperlink to access the disclosures made receipt of the notices unlikely. Med-1 appealed the decision.

Standing Analysis

Before turning to the “email as a communication” issue, the Seventh Circuit analyzed Lavallee’s Article III standing to bring the lawsuit. The Court recognized it recently found a debtor lacked standing to bring a claim based on an alleged violation of § 1692g(a) in Casillas v. Madison Ave. Assocs., Inc., 926 F.3d 329, 333 (7th Cir. 2019). In Casillas, the debtor received an incomplete validation notice that failed to disclose that the debtor could only dispute the debt in writing. The Seventh Circuit found the debtor lacked standing because “‘there was no prospect that [Casillas] would have tried to exercise’ her statutory rights.” Because the debtor “never explained how [the] omission ‘harmed or posed any real risk of harm to her interests under the Act[,]'” the Seventh Court concluded the debtor’s suit was based on a “bare procedural violation” and therefore lacked standing.

The Court found Casillas factually distinguishable from the circumstances involving Lavallee. Unlike in Casillas, where the disclosure was provided but lacked the “proper procedure” for the debtor to exercise her dispute rights, Med-1 failed to provide Lavallee with the disclosure at all (following the November 2015 telephone call or in the emails). The Court found this lack of information especially material to Lavallee because Med-1 was actively collecting on the account when the emails were sent while providing the required disclosures could have delayed the collection actions until Med-1 obtained the proper verification. The Court found these facts provided sufficient “concreteness” to Lavallee’s alleged injury to provide her standing.

An Email Containing A “Secure Message” Is Not a “Communication” Under the FDCPA

Med-1 conceded it did not provide the necessary § 1692g disclosures during, or following, the November 2015 telephone call with Lavallee. However, Med-1 argued it was not required to do so because the call was not the “initial communication” between the parties; instead, the previously sent emails were the initial communications. Thus, the two main issues before the Court on appeal were: (1) did Med-1’s emails constitute “initial communications” under the FDCPA; and (2) if so, did the emails sufficiently apprise Lavallee of her § 1692g rights? The Court answered both queries in the negative.

With respect to the first issue, the Court reasoned that Med-1’s failure to include any information about Lavallee’s debts in the body of the emails precluded a finding that the emails were “communications” under the FDCPA. To qualify as a “communication” under the FDCPA, an oral or written message must “convey . . . information regarding a debt.” In other words, a message must “inform its reader that it . . . pertains to a debt.” The Court found Med-1’s emails, which only contained Med-1’s email address, name, and the “secure message” hyperlink, did not suggest the emails were about a debt or even that they were from a debt collector.

Even if the Emails Were Communications, Med-1 Still Violated § 1692g

The Court also found the emails deficient under § 1692g because the disclosures were not contained within the body of the emails. Indeed, Lavallee would have had to navigate through several additional steps after clicking the “secure message” hyperlink to access the requisite disclosures. As the Court stated, “we’ve already rejected the argument that a communication ‘contains’ the mandated disclosures when it merely provides a means to access them.” See Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, L.L.C., 214 F.3d 872, 875 (7th Cir. 2000). Med-1 argued its emails were analogous to an envelope that enclosed a letter containing the § 1692g disclosures. The Court rejected this argument; instead finding Med-1’s emails were more like “a letter that provides nothing more than the address of a location where the message can be obtained.”

The Seventh Circuit’s reasoning is consistent with the Consumer Financial Protection Bureau’s released Proposed Rule on Debt Collection. As we previously reported, the CFPB has signaled it is open to allowing debt collectors to provide important disclosures via electronic means, including email. However, the Rule requires that a validation notice, if provided by email, must be included in the body of the email.

In a recent decision, the United States District Court for the District of New Jersey denied a consumer’s motion for summary judgment of her claims arising under the Fair Debt Collection Practices Act (“FDCPA”). The case is Estate of Wilfred C. Clements v. Apex Asset Management, LLC, No. 1:18-cv-10843-JBS-AMD (D.N.J. Mar. 25, 2019). 

Defendant Apex Asset Management, LLC (“Apex”) is a debt collector that hired a vendor to mail a collection letter to the plaintiff. Apex’s vendor created, printed, folded, and inserted the letter into a glassine-windowed envelope and mailed the letter to the plaintiff on May 10, 2017. The plaintiff filed suit on May 11, 2018, alleging that Apex violated Section 1692f of the FDCPA, which prohibits a debt collector from using “unfair or unconscionable means” to collect a debt. 15 U.S.C. § 1692f. In particular, Section 1692f(8) prohibits a debt collector from “[u]sing any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails.” 15 U.S.C. § 1692f(8). 

In her suit, the plaintiff claimed that two series of numbers were visible through the window of the envelope in which the collection letter was mailed—a five-digit number, which was randomly generated by Apex’s vendor for mailing purposes, and a twenty-three-digit number, which contained the decedent’s entire account number. In support of her argument, the plaintiff referred to a copy of the letter and envelope located in “Exhibit C,” but failed to include an Exhibit C with her argument. Apex argued that although the five-digit number was visible through the window, the plaintiff’s account number was not.

In light of Apex’s concession that the five-digit number was visible, the Court first evaluated whether this aspect of the collection letter violated Section 1692f(8). The Court ultimately held that it did not because the plaintiff had been unable to demonstrate that this number revealed the decedent’s private information. Thus, the Court held that the five-digit number did not implicate any privacy concerns that Congress intended to protect with the FDCPA. 

With respect to the twenty-three-digit number, Apex submitted a detailed description of how its vendor folded and inserted each collection letter into an envelope. This demonstration showed that it would be impossible to see the twenty-three-digit number through the glassine window unless the letter shifted up by 7/16 inch; however, there was only 3/16 inch of space within the envelope for the letter to move.  In addition, Apex provided over twenty copies of previously mailed collection letters, none of which revealed a consumer’s account number through a glassine window.   

In light of the ample evidence provided by Apex and the lack of any evidence from the plaintiff, the Court found that the plaintiff had failed to demonstrate a violation of Section 1692f(8) for either the five- or twenty-three-digit number. As a result, the Court denied the plaintiff’s motion for summary judgment on all counts.  

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

 

On February 28, Mick Mulvaney, the acting director of the Consumer Financial Protection Bureau, delivered remarks at the winter meeting of the National Association of Attorneys General (“NAAG”) in which he outlined the CFPB’s strategic vision and enforcement priorities.

More Enforcement Leadership from State Attorneys General

In his comments, Mulvaney stressed that, moving forward, the CFPB will rely much more on state attorneys general for the enforcement of consumer protection laws.  “We’re going to be relying on you folks a lot more,” he said.  “We’re going to be looking to the state regulators and the states’ attorneys general for a lot more leadership when it comes to enforcement.”

More Cooperation and Consultation

Mulvaney also said that, under his leadership, the CFPB would do a better job of seeking constructive input from stakeholders, including state attorneys general, consumer groups, and industry groups.  He acknowledged that the CFPB has been criticized for not listening and for seeking input from stakeholders only after the agency has made a final decision about how to proceed.  Mulvaney promised to change that.

Consumer Education

Mulvaney stressed that the CFPB will focus much more on consumer education.  He noted that the CFPB has a statutory mandate to educate consumers about their financial decisions.  He also said, however, that in reviewing the CFPB’s recent enforcement actions he was “shocked” by the voluntary but harmful behavior that so many consumers engage in.  The prevalence of that behavior, according to Mulvaney, indicates that the CFPB has not done enough to educate consumers about their financial decisions.

No More Pushing the Envelope

Mulvaney reiterated his frequent refrain that the CFPB would no longer be “pushing the envelope” or “regulating via enforcement actions.”  He said that the agency learned a valuable lesson in several of the recent cases it has lost, where it had brought creative claims that were ultimately unsuccessful.  In the future, he said, the CFPB would make sure that firms “know what the rules are before we accuse them of breaking those rules.”

You can hear Mulvaney’s full speech to NAAG here.

On Tuesday, White House budget director and acting interim director of the Consumer Financial Protection Bureau, Mick Mulvaney, introduced his plan for a more tempered, data-driven, governing philosophy for the CFPB.

In a three-page memo sent to CFPB employees, Mulvaney emphasized the CFPB would continue to enforce consumer protection laws but stressed it would operate within the confines mandated by Congress in the Dodd-Frank Act. This is a marked change from what Mulvaney characterized as the previous governing philosophy at the CFPB to “push the envelope,” as expressed by former director Richard Cordray.  

Mulvaney expressed concern over the unintended consequences such aggressive enforcement actions could have on the economy, American citizens, and the rule of law in general. Enforcement using the “full weight of the federal government,” Mulvaney noted, should be used only as a last resort after careful consideration of all component interests and circumstances.  

To implement this philosophy, Mulvaney suggested the actions of the CFPB, in both rulemaking and enforcement, will be data driven; with an emphasis on quantitative – rather than qualitative – analysis. Further, the bureau will focus on formal rulemaking providing interested parties with notice of what the rules are, instead of “regulation by enforcement.” 

Mulvaney specifically identified that almost one third of the complaints submitted to the CFPB in 2016 were related to debt collection. A closer inspection of the 2016 Consumer Response Annual Report, reveals that roughly three-quarters of the consumer complaints dealt with continued attempts to collect debts allegedly not owed, alleged improper or insufficient disclosures, and claims of improper communication tactics. Given Mulvaney’s statement that this type of data will inform the agency’s actions going forward, the debt collection industry may expect to see that the CFPB will continue to focus on debt collection issues even under Mulvaney’s approach.

We will continue to monitor the CFPB’s actions as it begins to implement Mulvaney’s interpretation of the agency’s role in the regulatory and enforcement landscape.

 

The United States District Court for the District of New Jersey recently dismissed a putative Fair Debt Collection Practices Act class action against defendant debt collector, Retrieval-Masters Creditors Bureau, Inc. (“RMCB”), over allegedly violative letters dealing with unpaid E-ZPass tolls.  A copy of the opinion can be found here.

As background, plaintiff Thomas E. St. Pierre had an E-ZPass account and maintained a prepaid balance on the account.  Under the terms of the account, if he had insufficient funds in his account when passing through a toll, St. Pierre would be subject to penalties for nonpayment of the toll.  St. Pierre allegedly failed to maintain a sufficient prepaid balance, and E-ZPass assigned the unpaid obligation to RMCB for collection.

In his class action complaint, St. Pierre alleged that RMCB sent him two collection letters in envelopes with glassine windows through which the account numbers were visible.  St. Pierre filed a putative class action, arguing RMCB violated section 1692f(8) of the FDCPA.  RMCB subsequently filed a motion to dismiss, arguing that St. Pierre does not have standing to sue, or in the alternative, the obligation St. Pierre seeks to recover is not a “debt” as defined by the FDCPA.

With respect to the standing issue, the Court held that “because the FDCPA unambiguously grants Plaintiff a statutory right to be free from the disclosure of private information that could expose his status as an alleged debtor, and that the right to privacy is an interest that has long been recognized at law … Plaintiff has adequately alleged that concreteness requirement under Article III.”

With respect to the latter issue, the Court held that tolls and penalties do not constitute a “debt” under the FDCPA.  More specifically, the Court found that “the relationship between Plaintiff and E-ZPass, an agent of the State authorized to administer the electric toll collection program, stands on a vastly different footing than a traditional consumer relationship.”  The “debt” at issue arose out of St. Pierre’s obligation to pay tolls under New Jersey law, and “does not arise from a transaction that is ‘primarily for personal, family, or household purposes.’”  The Court therefore granted RMCB’s motion to dismiss.

St. Pierre has appealed the district court’s decision to the Third Circuit.  We will continue to monitor the case.

A district court in the Eleventh Circuit has joined the Fifth and Eighth circuits, along with a host of district courts throughout the country, in adopting the “benign language” exception to Section 1692f(8) of the Fair Debt Collection Practices Act, and has dismissed a claim based on a collection letter with a visible barcode containing a debtor’s account number.  The case is Efran Martell v. ARS National Services, Inc., 2016 U.S. Dist. LEXIS 154163 (S.D. Fla. November 3, 2016).

Under the FDCPA (15 U.S.C. § 1692), a debt collector “may not use unfair or unconscionable means to collect or attempt to collect any debt,” and the Act  specifically prohibits “[u]sing any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.”

Taken literally, this provision bars a debt collector from putting anything other than its own address, and possibly its name, on the outside of an envelope containing a collection letter.  Because putting even the debtor’s name and address on the envelope would violate the literal words of the statute, thereby making it impossible to send a single collection letter, the Fifth and Eighth circuits, as well as a host of district courts, have adopted a “benign language” exception to Section 1692f(8), whereby language or symbols that do not infringe upon the FDCPA’s stated purpose – and which are not “unfair or unconscionable,” as required by Section 1692 itself – do not constitute a violation of the FDCPA.  See Strand v. Diversified Collection Serv., Inc., 380 F.3d 316, 319 (8th Cir. 2004); Goswami v. Am. Collections Enter., Inc., 377 F.3d 488, 494 (5th Cir. 2004).

Noting that the Eleventh Circuit had not yet had the opportunity to adopt the “benign language” exception, the court in Martell nonetheless reasoned that it would do so, not only to avoid the absurd results flowing from a literal interpretation of the statute, but also because “an account number embedded in a barcode, as a string of alphanumeric characters, does nothing to implicate or identify [p]laintiff as a debtor for purposes of Section 1692f(8),” and thereby creates no injury-in-fact sufficient to confer Article III standing under Spokeo v. Robins.  This blog’s further discussion of the Spokeo decision can be found here.

In holding that the disclosure of a debtor’s account number in a barcode did not violate the FDCPA, the court rejected the Third Circuit’s reasoning in Douglass v. Convergent Outsourcing, 765 F.3d 299 (3d. Cir. 2014), which held that such a disclosure was not benign, and thus violated the FDCPA.  The court reasoned that “[i]t is illogical for the Act to be concerned with the eventuality that an enterprising third party would obtain, investigate, and decipher an account number’s meaning when simply googling the return address would show that the recipient received a debt collection letter.”

The court’s decision in Martell joins the rising number of “envelope” decisions finding that visible barcodes containing only a debtor’s account number constitute “benign language” and therefore do not violate the FDCPA.

 

A federal judge in the Eastern District of New York ruled that a debt collection company’s internal reference number, which may have been visible through a glassine envelope, did not violate the Fair Debt Collection Practices Act (“FDCPA”).

In the case, the Plaintiff, Wendy Torres Rodriguez, brought an FDCPA claim against Defendant I.C. Systems, Inc., for sending a collection letter which showed Plaintiff’s name, address and a reference number through the envelopes glassine window. Plaintiff alleged that the Defendant violated Section 1692f(8) of the FDCPA by allowing a reference number to be seen on the outside of the envelope. Specifically, Section 1692f(8) prohibits the use of “any language or symbol, other than the debt collector’s address, on any envelop when communicating with a consumer by use of mails.”

In response to Plaintiff’s Complaint, Defendant, I.C. Systems, Inc., filed a summary judgment motion. Therein, the Defendant argued that Plaintiff’s claims fail because (1) Plaintiff failed to provide the alleged envelope referenced in the Complaint, and (2) that the reference number did not reveal identifying information about the Plaintiff.

The Court held as a matter of law that even if reference numbers were displayed through the envelope, the Defendant’s actions would not violate the FDCPA. The Court, citing several cases, noted that a “series of numbers and letters is indecipherable to anyone, sophisticated or not,” and that the content of the letter is only unveiled once the letter is opened.  The Court further likened the numbers to identifiers contained in junk mail. The Court also agreed with the Defendant, that Plaintiff could not prove her case because she could not produce the envelope giving rise to her FDCPA claims.

The Court’s decision further solidifies the existing judicial precedent in the Second Circuit that an alleged FDCPA violation based on the visibility of a reference number on the outside of an envelope, absent more, is not a violation of the Act.

This case is Rodriguez v. I.C. Systems, Inc., Case No. 14-CV-06558.

The Court’s Summary Judgment Memorandum and Order can be found here.