FDCPA – Consumer Financial Services Watch

What Is in a Name? The Third Circuit Holds That Debt Buyers Can Be Debt Collectors under the FDCPA

Mar 15 2019

Authors: Gregory N. Blase, Andrew C. Glass, Roger L. Smerage

“Debt buyers”—entities that purchase debt from original creditors or other downstream assignees—often view themselves as being different from “debt collectors”—entities that act to collect debts from obligors. But in Barbato v. Greystone Alliance, LLC, [1] the U.S. Court of Appeals for the Third Circuit disagreed, holding that debt buyers can be debt collectors under the Fair Debt Collection Practices Act (“FDCPA”). Specifically, the Third Circuit ruled that part of the FDCPA’s definition of “debt collector” encompasses debt buyers, regardless of whether they outsource collection activities to third parties.

Dismissing FDCPA Lawsuit, Sixth Circuit Calls Out Congress for Creating Statutory Remedies Where No Harm Has Occurred

Mar 12 2018

By Andrew C. Glass, Gregory N. Blase, Roger L. Smerage, and David A. Mawhinney

The Sixth Circuit Court of Appeals recently ended a Fair Debt Collection Practices Act (“FDCPA”) lawsuit because the plaintiffs could not show that the allegedly offending letter had caused them actual harm. In Hagy v. Demers & Adams,^[1] the Sixth Circuit held that the plaintiffs lacked standing to sue a law firm for its technical FDCPA violation, namely failing to identify itself as a debt collector in a letter to the plaintiffs. Debt collectors will likely applaud the practical and sensible approach the Sixth Circuit applied in Hagy. The decision is remarkable, however, for its constitutional rebuke of Congress. Reminding the legislative branch that it lacks general police powers to create statutory remedies where no actual harm exists, the Sixth Circuit’s decision suggests — without specifically stating — that the statutory damage provision of the FDCPA may be unconstitutional. Read More

CFPB Director Informs Consumer Advisory Board That Bureau Will Not Shy Away from Issuing Debt Collection Proposed Rule

Jun 15 2017

By Brian M. Forbes, Gregory N. Blase, Andrew C. Glass and Roger L. Smerage

In prepared remarks delivered to the Consumer Advisory Board on Thursday, June 8, 2017, Consumer Financial Protection Bureau Director Richard Cordray explained that the CFPB is moving forward with its long-anticipated debt collection rules. K&L Gates previously chronicled the CFPB’s efforts to promulgate debt collection rules here, here, and here.

The Director emphasized his view that new debt collection rules are necessary because of the age of the Fair Debt Collection Practices Act—enacted in 1977—and the statute’s inability to fit modern methods of communication. According to the Director, the forthcoming rules would benefit consumers and industry participants by clarifying what constitutes unfair collection practices. Substantively, the Director focused on the portion of the CFPB’s July 2016 outline aimed at ensuring that debt collectors possess correct information about debts they are seeking to collect and consumers who owe those debts. In a notable shift, the Director indicated that the CFPB is prepared to issue a single set of debt collection rules relating to the gathering of information by and transfer of information between first-party creditors and third-party debt collectors. Acknowledging that the shift will require the CFPB to take some additional time to iron out “intertwined issues,” the Director suggested that the CFPB will try to fast-track other aspects of its proposed rulemaking, including the information third-party debt collectors must disclose to consumers and the manner in which third-party debt collectors interact with consumers.

K&L Gates will continue to monitor and report on further developments.

Balancing Act: Supreme Court Rules That Filing a Proof of Claim for Stale Debt Does Not Violate the Fair Debt Collection Practices Act

May 25 2017

By: Phoebe S. Winder, Andrew C. Glass, Gregory N. Blase, Sean R. Higgins, David A. Mawhinney, Theresa A. Roozen, and Brandon R. Dillman

The U.S. Supreme Court has held that the filing of a proof of claim in bankruptcy proceedings with respect to time-barred debt is not a “false, deceptive, misleading, unfair, or unconscionable” act within the meaning of the Fair Debt Collection Practices Act (“FDCPA”) when there continues to be a right to repayment after the expiration of the limitations period under applicable state law. The Court’s decision in Midland Funding, LLC v. Johnson [1] resolved a split among the federal courts of appeal about the application of the FDCPA to proofs of claim in bankruptcy proceedings. While the decision is favorable for creditors, applicable state law (Alabama, in this case) played a key role in the Court’s conclusion that the creditor held a “claim” under the Bankruptcy Code. Creditors must be aware of and review the relevant state law in the jurisdiction of collection to determine whether the filing of a proof of claim could be deemed false, deceptive, or misleading.

To read the full alert, click here.

Delaware’s No-Usury-Cap Rule Deemed Unenforceable as Contrary to New York Public Policy in FDCPA Class Action

Apr 03 2017

By Andrew C. Glass, Roger L. Smerage, and Brandon R. Dillman

The Southern District of New York recently refused to enforce Delaware’s no-usury-cap rule in a long-running Fair Debt Collection Practices Act (“FDCPA”) class action, concluding that the rule violates New York public policy. See Madden v. Midland Funding, LLC, 2017 WL 758518 (S.D.N.Y. Feb. 27, 2017). In Madden, the plaintiff claimed that the defendants charged her an interest rate in excess of the limit imposed by New York law, triggering a violation of the FDCPA. The case has a long history. We first addressed the case in a client alert after the Second Circuit determined that National Bank Act preemption does not apply to debt purchased by independent, third parties. The United States Supreme Court declined to review the Second Circuit’s decision, a ruling about which we blogged.

Leave the “Tow Truck Guy” Alone: The Ninth Circuit Rules Foreclosure of a Deed of Trust Is Not Debt Collection

Nov 10 2016

By Andrew C. Glass, Gregory N. Blase, Roger L. Smerage, and Joshua Butera

The Ninth Circuit recently clarified when a trustee of a deed of trust acts as a debt collector under the Fair Debt Collection Practices Act (“FDCPA”). In a break from other courts of appeal, the Ninth Circuit held that when a trustee carries out the contractual and statutory requirements for foreclosing property subject to the deed of trust, the trustee does not act as a debt collector. The Ninth Circuit reasoned that in so acting, the trustee does not seek to collect monetary debt from the debtor. In so holding, the court broke with other courts of appeals.

To read the full alert, click here.

Change Order: The CFPB Previews Its Proposed FDCPA Regulations

Aug 10 2016

By Andrew C. Glass, Brian M. Forbes, Gregory N. Blase, and Roger L. Smerage

The Consumer Financial Protection Bureau (“CFPB”) recently took the next step toward promulgating regulations under the Fair Debt Collection Practices Act (“FDCPA”) by releasing its “Outline of Proposals under Consideration and Alternatives Considered” (the “Outline”). The Outline sheds light on the approach the CFPB may take in regulating the debt-collection industry. As detailed in this alert, the proposed approach would implement comprehensive and substantial changes.

To read the full alert, click here.

A Careful Balancing Act: Second Circuit Requires Debt Collectors to Disclose When a Consumer’s Current Balance May Increase Due to Interest and Fees

Apr 01 2016

By Andrew C. Glass, Gregory N. Blase, Roger L. Smerage and Eric W. Lee

In Avila v. Riexinger & Associates, LLC, No. 15-1584, — F.3d —, 2016 WL 1104776 (2d Cir. Mar. 22, 2016), the Second Circuit Court of Appeals construed the scope of Section 1692e of the Fair Debt Collection Practices Act (“FDCPA”). Section 1692e prohibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” The Second Circuit held that when notifying consumers of their current account balance, Section 1692e requires debt collectors to disclose when the balance may increase due to interest and fees and identified certain safe harbor language discussed herein.

To read the full alert, click here.

Two for the Price of One? The First Circuit Holds that a Violation of the FDCPA is a Per Se Violation of the Massachusetts Consumer Protection Statute

Feb 06 2015

By: Brian M. Forbes, Laura P. Rich

A recent decision by the United States Court of Appeals for the First Circuit, McDermott v. Marcus, Errico, Emmer & Brooks, P.C., may have broad implications for persons and entities involved in debt-collection activities in Massachusetts. In McDermott, the First Circuit addressed the scope of the Massachusetts consumer protection statute, M.G.L. c. 93A, § 11 (“Chapter 93A”) and its interplay with the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”). While prior decisions from the First Circuit had suggested that a violation of the FDCPA may also be a per se (intrinsically or by itself) violation of Chapter 93A, the Court took a fresh look at the issue in McDermott and made clear that it is. Notably, the coupling of FDCPA claims with a state unfair and deceptive trade practices statute could provide plaintiff debtors with additional avenues of relief, including statutory damages and injunctive relief.

To read the full alert, click here.

Private Student Lenders, Get Ready for Your Final Exams: The CFPB Releases Its Student Lending Examination Procedures

Dec 21 2012

By: Stephanie C. Robinson, Rebecca Lobenherz

This week the Consumer Financial Protection Bureau (“CFPB”) released an addendum to its Supervision and Examination Manual focused on the examination of private student lenders. The Student Lending Examination Procedures, available on the CFPB’s website, provide guidance to CFPB examiners on how to review private student lenders for compliance with consumer financial protection laws. The CFPB has supervisory authority over both very large banks and nonbanks that make private student loans. Read More

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