RMAI is actively monitoring over 300 bills that may impact the receivables industry in both positive and negative ways. Here are a few noteworthy bills that have been enacted or are pending action:
California SB 908 [Chapter 163 of the Laws of 2020] – This law requires collection agencies, debt buyers, and collection law firms that are either located in California or that collect from California residents to be licensed as debt collectors by the Department of Business Oversight (DBO). The bill generally contains requirements similar to other states that license debt collectors, including bonding requirements, the filing of reports, and compliance with state and federal law. The new law takes effect on January 1, 2021, but licenses will not be required until January 1, 2022. [RMAI and the California Association of Collectors (CAC) engaged in an extensive eight-month negotiation with the bill’s author and was able to obtain a number of concessions, including among other things: (1) eliminating language that would have granted consumers access to bond funds; (2) eliminating language which would have required all summons and complaints involving licensees to be served upon DBO; (3) preventing minor FDCPA violations from impacting a license; (4) allowing a family of companies to share a license and examination; (5) preempting local governments from licensing; (6) ensuring no branch license requirements; (7) eliminating a mandatory state audit every two years; (8) creating an advisory committee to review rules and fees prior to publishing them for comment; (9) delaying the licensure date until January 1, 2022; and (10) allowing businesses to operate without a license until DBO accepts or denies their application provided the application was submitted no later than December 31, 2021.]
California AB 1864 [Chapter 157 of the Laws of 2020] – This law changes the name of the Department of Business Oversight to the Department of Financial Protection and Innovation (DFPI) while giving the department new authorities that mirror the federal Consumer Financial Protection Bureau. Among the new authorities is to regulate unfair, deceptive, or abusive acts or practices (UDAAP) in connection with any transaction with a consumer for a consumer financial product or service. The new law takes effect on January 1, 2021. [Understanding this was a Governor’s budget bill and passage was virtually guaranteed, RMAI and CAC successfully focused all of our energy on obtaining a single amendment that placed parameters on the UDAAP authority by stating DFPI “shall consider the relative harm to the consumer, the frequency of the act or practice in question, and whether such act or practice is unintentional or stems from a technical, clerical, or nonmaterial error.”]
California AB 1885 [Chapter 94 of the Laws of 2020] – This law increases the homestead exemption for personal residences to a baseline of $300,000 with a cap not to exceed $600,000. The degree that the exemption can exceed $300,000 will be based on the median sale price of homes within a county. The new homestead amounts will be indexed against inflation. The new law takes effect January 1, 2021. The prior homestead exemptions were $75,000, $100,000 or $175,000 and were based on the martial status, age, status as the head of household, and/or physical or mental disability of the property owner. [This bill was introduced three days prior to the end of the legislative session which prevented any organized lobbying efforts to negotiate a compromise or prevent its passage. RMAI and CAC issued a memo in opposition.]
Massachusetts SB 2874 – This bill among other things: (1) increases the garnishment exemption from 50x state minimum wage to 70x state minimum wage; (2) reduces the statute of limitations in an action for the collection of a consumer debt from six to four years; (3) prohibits the revival of a debt that is beyond the statute of limitations through the making of a payment; and (4) reduces the time allowed to take action to enforce a judgment from 20 to 10 years. [RMAI has retained a lobbyist to oppose the bill in its current form. RMAI participated in a stakeholder roundtable requested by the committee chair in January 2020. Working with a receivables industry coalition, RMAI has exchanged several redlines with proponents of the bill. While we have made progress, such as the removal of debt expungement from the bill, more work is needed.]
New York AB 6909-E/SB 4827-E – This bill which is known as the “Consumer Credit Fairness Act” would: (1) reduce the statute of limitations from six to three years on consumer credit transactions; (2) prohibit the revival of a debt that is beyond the statute of limitations through the making of a payment; (3) require the mailing of a notice by the court clerk after filing proof of service of the summons and complaint; (4) require specific data to be included in the complaint; and (5) require the provision of form affidavits. [RMAI has been actively opposing this bill since it was first introduced in 2009. After years of industry offers to negotiate the bill being rejected, the sponsors finally expressed a desire to discuss our concerns. After 13 months of negotiations, the industry was successful at: (1) removing language which would have expunged all debt at the expiration of the statute of limitations; (2) removing pre-charge-off itemization requirements on revolving lines of credit; (3) changing the point of reference on data and documents from origination to charge-off; (4) clarifying a provision of existing law, that some judges were misinterpreting, to make clear that creditors are not required to inform consumers when their accounts are sold in order for the successor parties in interest to be able to collect on those accounts; and (5) extending the effective date by six months to provide the industry time to adjust operational controls as well as accelerate any legal actions under existing law.]
If you are interested in obtaining a copy of the RMAI state tracking list, please contact David Reid at email@example.com.
Third Circuit Joins Second and Seventh on “as of the date of this letter” Language
Dotson v. Nationwide Credit, Inc., No. 19-3695, 2020 U.S. App. LEXIS 30732 (3d Cir. Sep. 28, 2020)
The U.S. Court of Appeals for the Third Circuit recently determined in a non-precedential opinion that collection letters stating the amount owed “as of the date of this letter” do not violate the federal Fair Debt Collection Practices Act (FDCPA) when no interest or fees are accruing.
The consumer received letters from a debt collector stating: “The Account Balance as of the date of this letter is shown above.” The consumer filed a lawsuit arguing that the language “did not accurately disclose the amount he owed” in violation of 15 U.S.C. § 1692g(a)(1), which requires recitation of the amount owed, and was misleading and deceptive in violation of § 1692e(2)(A) which prohibits the “false representation of the the character, amount, or legal status of any debt.”
The trial court granted the debt collector’s motion to dismiss, and the consumer appealed.
On appeal, the consumer argued that “the language ‘as of the date of this letter’ could confuse a consumer into believing that the amount of debt could change when in fact it was static.” The Third Circuit made short work of this, relying on Taylor v. Fin. Recovery Servs., 886 F.3d 212, 215 (2d Cir. 2018), which held that “if a collection notice correctly states a consumer’s balance without mentioning interest or fees, and no such interest or fees are accruing, then the notice will neither be misleading within the meaning of Section 1692e, nor fail to state accurately the amount of the debt under Section 1692g.”
The Third Circuit also relied on Bartlett v. Heibl, 128 F.3d 497, 503 (7th Cir. 1997), where the Seventh Circuit provided a “safe harbor” letter that referenced the amount owed “as of” a certain date. A related Seventh Circuit reference could have been to Koehn v. Delta Outsource Grp., Inc., 939 F.3d 863 (7th Cir. 2019), where the Court found the phrase “current balance” did not violate the FDCPA where the balance was static.
Accordingly, the Third Circuit affirmed the trial court’s holding that the “as of” language did not violate §§ 1692g or 1692e.
5th Cir. Finds Overpayment of Hurricane-Related Grant is ‘Debt’ Under FDCPA
Calogero v. Shows, Cali & Walsh, L.L.P., 970 F.3d 576 (5th Cir. 2020)
A Louisiana consumer whose home was damaged by hurricanes applied for and received a grant administered through the Louisiana Office of Community Development (OCD) as compensation for her damage. More than ten years after receiving the funds, the consumer received a letter from a debt collector representing the state and grant program demanding payment for an alleged $4,598.89 grant overpayment. The consumer disputed the overpayment and the debt collector then provided an explanation of the amount owed, including the consumer’s underreporting of FEMA benefits received, overreporting of homeowner’s insurance and a recalculation of a penalty lacking flood insurance.
In response, the consumer sued the debt collector alleging that the debt collector committed multiple violations of the FDCPA.
The debt collector moved to dismiss arguing that the consumer’s complaint did not state a claim because the money it sought to collect did not qualify as a “debt” under 15 U.S.C. § 1692a(5). The trial court agreed and dismissed the consumer’s FDCPA claims with prejudice. This consumer appealed.
The Fifth Circuit began its analysis by observing that to state an FDCPA claim, a plaintiff must allege that a debt collector sought to collect a “debt” from them. Under the FDCPA, a debt is “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” 15 U.S.C. § 1692a(5).
The Fifth Circuit noted that when deciding whether something constitutes a debt under the FDCPA, it follows the Third Circuit’s three-part test enunciated in St. Pierre v. Retrieval-Masters Creditors Bureau, Inc., 898 F.3d 351, 360 (3d Cir. 2018): 1) the court must establish if the “underlying obligation arises out of a transaction” involving “an affirmative request and the rendition of a service or purchase of property or other item of value, such as a contract.”; 2) the court must determine “what money, property, insurance, or services . . . are the subject of the transaction, i.e., what it is that is being rendered in exchange for the monetary payment.”; and 3) the court must consider “the characteristics of that ‘money, property, insurance, or services’ to ascertain whether they are ‘primarily for personal, family, or household purposes.’”
Here, the Fifth Circuit found that the agreement involved “a mutual exchange of value that reciprocally affected and influenced” the consumer and the OCD. The OCD gave the consumer money to repair her home, and in exchange the consumer agreed to comply with the terms of the agreement. The consumer’s agreement to repay any excess grant money, arose specifically from her agreement to provide any “future funds she received from insurance or FEMA” to the OCD. Thus, the Court concluded that the consumer’s “obligation to repay excess funds amply meets the ‘transaction’ test and distinguishes it from the cases of overpayment in which there was no explicit consent to repay an erroneous deposit of money.”
As to the second prong, the Fifth Circuit looked at “what is being rendered in exchange for payment.” Here the consumer received repair funds from the OCD in exchange for agreeing to certain obligations in a contract, including her promise to repay any excess grant money. The Court rejected the consumer’s argument that the FDCPA only applies to transactions that occur within the “normal creditor/debtor relationship,” noting that the receipt of funds from the government in exchange for promises “comports with other cases in which we have assumed the FDCPA applies.”
Finally, the Court easily determined the third prong had been met, noting that the parties did not dispute that the funds received were primarily for “personal, family, or household purposes.”
Thus, the Fifth Circuit held that the trial court erred when it determined that the FDCPA did not cover the consumer’s obligation to repay the OCD, and reversed the trial court’s determination and remanded for additional proceedings consistent with its opinion.
2nd Cir. Holds ‘Bona Fide Error’ Defense Should Go to Jury
Wagner v. Chiari & Ilecki, LLP, 973 F.3d 154 (2d Cir. 2020)
A collection firm obtained a default judgment against a debtor named “William J. Wagner, Jr.” in 2006 for unpaid rent. Thereafter, the collection firm unsuccessfully attempted to serve various post-judgment subpoenas and summons on the debtor at various addresses over the next few years.
In February 2015, the collection firm obtained a new address for a William J. Wagner in Hamburg, New York and sent a debt collection notice to Wagner at that address. Upon receipt, Wagner called the collection firm to notify it that he was not the debtor, did not use the suffix Jr., and had a different Social Security number.
The collection firm had also sent a subpoena and restraining notice by certified mail addressed to the debtor to the Hamburg address, but Wagner, knowing that he was not the debtor, did not retrieve the letter and again called the collection firm to advise that he was not the debtor.
With the prior subpoena unclaimed, the collection firm sent a special process server to serve the debtor at the Hamburg address with specific instructions to “be sure to serve the correct William J. Wagner” because the collection firm “believe[d] there is a William J. Wagner, Sr. and William J. Wagner, Jr. living at the same address.” This instruction was based off a LexisNexis search that indicated that a Senior and Junior William Wagner lived at the Hamburg address.
The process server served Wagner who again called the collection firm to reiterate that he was not the debtor and explained that no person using the suffix Jr. resided at the Hamburg address.
On July 15, 2015, Wagner brought suit against the collection firm, alleging the collection firm violated various provisions under 15 U.S.C. §§ 1692d (harassment, oppression or abuse), 1692e (false, deceptive or misleading representations) and 1692f (unfair or unconscionable means). After discovery, both parties moved for summary judgment.
The trial court granted the collection firm’s motion for summary judgment on claims relating §§ 1692e(5) and 1692f(1), “reasoning that [the collection firm] had legal authority to pursue the collection of the debt in the precise amount owed, but merely attempted to collect the debt from the wrong person.” The trial court also held that the collection firm’s conduct was not “unfair or unconscionable” since Wagner didn’t attend the debtor’s examination, which was adjourned upon request.
However, the trial court did find that the collection firm violated §§ 1692e, 1692e(2)(A), and 1692e(10) by serving Wagner with the subpoena after being informed he was not the debtor. Nevertheless, it concluded that the FDCPA’s bona fide error defense shielded the collection firm from liability. Thus, judgment was entered in favor of the collection firm and the consumer appealed.
On appeal, the Second Circuit held the trial court did not err with respect to its holdings in favor of the collection firm on the §§ 1692e, 1692e(2)(A), and 1692e(10) claims, basically for the same reasons iterated by the trial court.
Next, the Appellate Court examined the application of the bona fide error defense under § 1692k(c) which requires that a “debt collector asserting the bona fide error defense must show by a preponderance of the evidence that its violation of the act: (1) was not intentional; (2) was a bona fide error; and (3) occurred despite the maintenance of procedures reasonably adapted to avoid any such error.”
The Second Circuit disagreed with the trial court’s ruling that the collection firm was entitled to summary judgment pursuant to the bona fide error defense, because a reasonable jury could find that the collection firm’s error was not bona fide and that it did not maintain procedures reasonably adapted to avoid its error.
In making this holding, the Appellate Court relied on the fact that Wagner informed the collection firm that he was not the debtor twice before receiving the subpoena, and the collection firm conceded it had no written policies for situations when it is uncertain where a debtor resides based on conflicting information.
Accordingly, the Appellate Court affirmed in part, vacated in part, and remanded the judgment of the trial court for further proceedings consistent with its opinion.
3rd Cir. Allows Parallel State AG and CFPB Prosecutions
Pennsylvania v. Navient Corp, 967 F.3d 273 (3d Cir. 2020)
In January 2017, the Consumer Financial Protection Bureau (CFPB), along with the States of Illinois and Washington filed similar lawsuits against a federal student loan lender and servicer alleging, among other things, that it failed to adequately disclose the availability of income-driven repayment programs to borrowers, instead steering its borrowers into forbearance to their detriment by adding interest to the loan’s principal and losing credit for months that would have been counted towards forgiveness.
Nine months later, the Commonwealth of Pennsylvania filed similar claims against the servicer, alleging violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, 73 Pa. Const. Stat. §§ 201, et seq. (the “PA UTP Law”) and the federal Consumer Protection Act of 2010, 12 U.S.C. § 5552, et seq. (the “CPA”).
The servicer moved to dismiss Pennsylvania’s complaint for failure to state a claim arguing: 1) that the CPA precluded Pennsylvania from filing a concurrent, parallel enforcement action lawsuit; and 2) that the federal Higher Education Act of 1965, 20 U.S.C. § 1001 et seq., preempted Pennsylvania’s loan servicing claims under the PA UTP Law.
These arguments were rejected by the trial court, which held that: 1) section 5552(a)(1) of the CPA unambiguously confers a right on state attorneys general to file suit to enforce the CPA with nothing in the act barring a parallel state action; 2) express preemption principles did not preclude Pennsylvania’s action because the claims were distinct allegations of unfair and deceptive business practices brought pursuant to Pennsylvania’s traditional state police powers; and 3) uniformity was not an express goal of Congress in enacting the Education Act so conflict preemption was inapplicable.
The Third Circuit granted permission to appeal two of the three questions of law certified by the trial court for interlocutory appeal: (1) whether Pennsylvania could bring a parallel enforcement action under the CPA after the CFPB filed suit; and (2) whether the Education Act preempts Pennsylvania’s loan-servicing claims under the PA UTP Law.
Turning first to the issue of whether the CPA barred concurrent actions, the Third Circuit noted that the plain language of § 5552(a)(1) permits the attorney general of any state to bring a civil action to enforce provisions of the Act: “The attorney general (or the equivalent thereof) of any State may bring a civil action in the name of such State in any district court of the United States in that State or in State court that is located in that State and that has jurisdiction over the defendant, to enforce provisions of this title or regulations issued under this title, and to secure remedies under provisions of this title or remedies otherwise provided under other law.”
Moreover, while other provisions of the CPA expressly prohibit concurrent claims, § 5552 does not.
While the servicer correctly pointed out that § 5552(b) requires state attorneys general to notify the CFPB before filing such a lawsuit and grants the CFPB authority to intervene in such lawsuits, the Third Circuit concluded that the pre-suit notice requirement does not negate that statute’s express authorization of parallel state actions, and the servicer failed to provide any case law authority supporting that, where a statute allows third-party intervention, concurrent claims are barred.
Lastly, the Third Circuit held that the trial court correctly rejected the servicer’s augment that allowing concurrent claims would overburden the courts, because although “federal courts are indeed inundated with cases, adjudicating this case is a burden the Court is required to assume, absent a recognized statutory or procedural basis that precludes the Commonwealth from bringing its action.”
Accordingly, the Third Circuit held that the clear statutory language of the CPA permits concurrent state claims, for nothing in the statutory framework suggests otherwise.
Next, the Third Circuit reviewed the servicer’s argument that Pennsylvania’s action was preempted, both expressly and impliedly by the federal Education Act.
The Supremacy Clause of the Constitution, U.S. Const. art. VI, cl. 2, invalidates any state law that “interferes with or is contrary to federal law.” Thus, in preemption cases, inquiry is guided by two principles. “First, the intent of Congress is the ‘ultimate touchstone’ of preemption analysis. . . Second, Courts start “with the basic assumption that Congress did not intend to displace state law.’”
The servicer argued that the provisions of Pennsylvania’s complaint challenging the sufficiency of the servicer’s disclosures and notices required under the PA UTP Law are expressly preempted by § 1098g of the Education Act which provides that “[l]oans made, insured, or guaranteed pursuant to a program authorized by Title IV of the Higher Education Act . . . shall not be subject to any disclosure requirements of any State law.”
Here, the Third Circuit determined that Pennsylvania’s claims were not wholly based on failures of disclosure but, instead, on affirmative misrepresentations. Following rulings from the Eleventh and Seventh Circuits, the Third Circuit adopted the distinction between affirmative misrepresentation and failure to disclosure information as required by the Education Act, concluding that § 1098g does not expressly preempt claims to the extent they are alleging affirmative misrepresentations rather than failures of disclosure.
The Appellate Court similarly rejected the servicer’s arguments that § 1098g impliedly conflicted with Pennsylvania’s state law claims, finding no intent that Congress “had the sweeping goal of regulating all misconduct that could possibly occur in student loan financing and requiring uniformity of all claims tangentially related to the Education Act.”
Accordingly, because Pennsylvania’s action was not barred under the plain language of the CPA nor preempted by the Education Act, the trial court’s denial of the servicer’s motion to dismiss was affirmed.