This article originally appeared on www.tcpablog.com.  It is republished with permission from the authors (Eduardo Guzman and Andrew Van Houter).

The Second Circuit last week confirmed that entries of judgment satisfying an individual plaintiff’s claims moot TCPA class actions.

In Bank v. Alliance Health Networks, LLC, No. 15-cv-4037 (2d Cir. Oct. 20, 2016), the Second Circuit affirmed the dismissal of the class claims after an entry of judgment, pursuant to the defendants’ offer of judgment, rendered the class claims moot. The Second Circuit acknowledged that the Supreme Court held in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016) that an unaccepted offer of judgment does not moot a plaintiff’s claims. “But where judgment has been entered and where the plaintiff’s claims have been satisfied, as they were here when [the plaintiff] negotiated the check, any individual claims are rendered moot.” The Second Circuit then held that since the individual plaintiff’s claims were rendered moot, he was no longer in a position to pursue the class claims. The Second Circuit acknowledged that there are certain exceptions to this rule, such as the relation back doctrine, but reasoned that “absent a class certification decision or any other reason to link [the plaintiff’s] once-live claim to the now-independent class claims, that line of cases is simply inapplicable.”

The Second Circuit also rejected the plaintiff’s argument that his ability to obtain an incentive award afforded him a personal stake in the litigation sufficient to confer standing upon him. Noting that a plaintiff must allege a concrete injury to meet standing requirements, the Second Circuit held that “[a] purely hypothetical possibility of recovery is not sufficient to meet the requirements for standing.”

The Alliance decision is a useful clarification on the limits of Campbell-Ewald, which the plaintiffs’ bar has brandished in its efforts to pursue class claims even after the individual claims have been satisfied.

“Will the CFPB be shut down?  Will the FDCPA be repealed?  Can I start using my dialer again?  Is the Foti decision going to get overturned?  While the political pundits sort through last night’s election results, the question for our industry is how President-Elect Trump will work with the Senate and House to change the debt collection industry.  Attorneys John Rossman and Mike Poncin discuss possible changes that the new President will bring on the latest episode of the Debt Collection Drill.”

Listen here: Debt Collection Drill

In September, 2016, the IRS announced that it contracted with four debt collection agencies to begin collecting certain overdue federal income tax debts starting in the spring of 2017. This potentially lucrative contract has raised a number of questions among collection agencies and other ARM service providers that industry experts Mike Ginsberg and Randy Kamm addressed in their recently recorded podcast about this important topic.

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The IRS tax collection program represents a veritable “mother lode” of new business for the ARM industry.

However, only transparently-managed, fully-compliant collection agencies with scalability to absorb volume, robust data security standards, and skilled and professional workforce will be eligible to receive this windfall of account placements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sources: *Courtesy of Kaulkin Ginsberg (April 2016)

** IRS Data Book; GAO Financial Audit of IRS, and GAO Financial Audit data

This podcast sheds light on why the third attempt at an IRS private collection agency contract is likely to succeed following the important lessons learned from the first two failed attempts over the past 20 years. Assuming this attempt is successful, the Joint Tax Committee of Congress estimates this program will recover around $2.5 billion over the next 10 years after expenses.

This podcast is a product of KG Prime, Kaulkin Ginsberg’s market intelligence service. For more information about how your company can access timely ARM research to help you make decisions about growth, please contact us at hq@kaulkin.com. To contact Randy Kamm with any questions about this contract, please email him at rkamm@fuse.net.

 

Donald Trump pulled off a surprising win yesterday. And defying some expectations, both Houses of Congress will remain in Republican control. While many Republicans in Congress many not like Trump very much, they would likely agree with his opinion that the financial services industry is grossly over-regulated.

There’s not a whole lot of policy detail on http://www.donaldjtrump.com. And, it seems that every single link that is supposed to lead to more information (i.e. a press release or text of one of his speeches), is now re-directed to the home page of his website. Perhaps as a matter of policy, all policies are now under review. But, here is what there is on key topics related to the ARM industry:

Trump on Regulations

From his website:

• Ask all Department heads to submit a list of every wasteful and unnecessary regulation which kills jobs, and which does not improve public safety, and eliminate them.
• Reform the entire regulatory code to ensure that we keep jobs and wealth in America. 
• End the radical regulations that force jobs out of our communities and inner cities. We will stop punishing Americans for working and doing business in the United States.
• Issue a temporary moratorium on new agency regulations that are not compelled by Congress or public safety in order to give our American companies the certainty they need to reinvest in our community, get cash off of the sidelines, start hiring again, and expanding businesses. We will no longer regulate our companies and our jobs out of existence. (emphasis added)
• Cancel immediately all illegal and overreaching executive orders.
• Eliminate our most intrusive regulations, like the Waters of The U.S. Rule. We will also scrap the EPA’s so-called Clean Power Plan which the government estimates will cost $7.2 billion a year.
• Decrease the size of our already bloated government after a thorough agency review.

He cites an April 2016 study by the Mercatus Center at George Mason University that the U.S. economy today is twenty-five percent smaller than it would have been without the surge of regulations since 1980.

Trump on Business Taxes

From his website:

The Trump Plan will lower the business tax rate from 35 percent to 15 percent, and eliminate the corporate alternative minimum tax. This rate is available to all businesses, both small and large, that want to retain the profits within the business.

It will provide a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10 percent. It eliminates most corporate tax expenditures except for the Research and Development credit.

The annual cap for the business tax credit for on-site childcare authorized by Sec. 205 of the Economic Growth and Tax Relief Reconciliation Act of 2001 would be increased to $500,000 per year (up from $150,000) and recapture period would be reduced to 5 years (down from 10 years).

Businesses that pay a portion of an employee’s childcare expenses can exclude those contributions from income. Employees who are recipients of direct employer subsidies would not be able to exclude those costs from the individual income tax and the costs of direct subsidies to employees could not be used as a cost eligible for the credit.

Trump on the Consumer Financial Protection Bureau

In May 2016 Trump said that “Dodd-Frank has made it impossible for bankers to function,” and that he would dismantle most of the reforms it put in place. It’s not quite clear how a total dismantle would happen, as Congress would have to publicly support the elimination a consumer protection initiative. This seems unlikely, even for Republicans who would support the move.

The early October decision in PHH Corp. v. Consumer Financial Protection Bureau by the U.S. Court of Appeals, D.C. Circuit, gave President-elect Trump an assist; the decision held that the structure of the CFPB is unconstitutional, because its power is massive in scope, concentrated in a single person, and unaccountable to the President (allowing him to remove the CFPB’s Director only “for-cause”). To correct this, the court deleted “for-cause” from the Dodd-Frank language. Unless the PHH decision is overturned or stayed prior to Trump taking office, Republicans would likely push for Director Cordray to be removed fairly quickly.

It will be interesting to see what Cordray attempts to accomplish between now and January 21, 2017. One thought is that he might try to focus on finalizing those rules that have already been out for public comment – payday and arbitration.

With the completion of the debt collection SBREFA hearing in August, debt collection rulemaking had finally entered the next phase. It now seems likely that the completion of this rulemaking will be overseen by a new regime, which may well be a positive outcome for the ARM industry.

Another potential positive outcome for industry would be a Trump appointment of a new Federal Communications Commission Chairman, which could change the agency’s approach to interpretation of the Telephone Consumer Protection Act (TCPA).

For now, the uncertainty continues. But as it relates to the ARM industry, there is new reason to be optimistic that a more business-friendly approach is possible.

For more insight, listen to a podcast recorded this morning by Moss & Barnett’s John Rossman and Mike Poncin.

This article was originally published on the Maurice Wutscher blog and is republished here with permission.

The U.S. Court of Appeals for the Fourth Circuit recently confirmed that a law firm and its employees, who pursued foreclosure on behalf of creditors, were acting as “debt collectors” under the federal Fair Debt Collection Practices Act (FDCPA) when they pursued foreclosure proceedings against a borrower.

In so ruling, the Court also confirmed that a servicer that does not also own the mortgage loan does not have a duty to provide notice of the sale and assignment of a loan to itself under the federal Truth in Lending Act (TILA) merely because it accepts the assignment of the deed of trust.

A copy of the opinion in McCray v. Federal Home Loan Mortgage Corp. is available at:  Link to Opinion.

After obtaining a mortgage loan, the borrower sent her servicer a written request for information about the fees and costs that it was charging and how it was maintaining the escrow account on the loan. The servicer allegedly failed to respond or responded inadequately to her request and her follow-up inquiries.

The borrower stopped making payments on her mortgage loan, and went into default.  The servicer retained a law firm to pursue foreclosure. The law firm informed the borrower that the firm had been instructed to initiate foreclosure proceedings on her property.

Several of the law firm’s employees were substituted as trustees on the deed of trust to facilitate foreclosure, and the substitute trustees filed a foreclosure action.

The borrower brought an action for damages against the mortgagee, the servicer, and the law firm and its employees, alleging that they violated the FDCPA and TILA, by failing to provide her with required notices and information.

The district court granted the mortgagee, the servicer, and the law firm’s motions to dismiss the borrower’s FDCPA and TILA claims.

On appeal, the borrower argued that the district court erred in concluding that her complaint failed to allege sufficient facts to establish that the law firm and its employees were “debt collectors” subject to the FDCPA’s regulation.

As you may recall, the FDCPA defines the term “debt collector” to include “any person [1] who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or [2] who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”

The law firm and its employees argued that the borrower failed to plead any facts indicating that they had made any demands for payment, or communicated deadlines and penalties for the borrower’s failure to make any payment.

They also argued that the actions occurred in connection with the enforcement of security interests in real property, which were distinct from debt collection activity under the FDCPA. They further argued that a foreclosure action was not designed to obtain payment on an underlying debt, but to terminate the borrower’s ownership interests of the mortgagor in the property.  Finally, they argued that their activity was only incidental to a bona fide fiduciary obligation and therefore was excluded from regulation by an exception contained in the FDCPA’s definition of “debt collector.”

The Fourth Circuit disagreed with the law firm, noting that it had already decided this issue in Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 375-77 (4th Cir. 2006), where it held that a law firm that provided notice that it was preparing foreclosure papers and thereafter initiated foreclosure proceedings could be a debt collector as defined by the FDCPA.

The Court reversed the district court, holding that the borrower’s debt remained a debt even after foreclosure proceedings commenced and the law firm’s actions surrounding the foreclosure proceeding were attempts to collect that debt.  The Fourth Circuit also held that foreclosure was not excluded from the FDCPA because it was central to the mortgagee’s fiduciary obligation under the deed of trust.

In sum, the Fourth Circuit held that borrower’s complaint adequately alleged that the law firm and its employees were debt collectors under the FDCPA, and that their actions in pursuing foreclosure constituted a step in collecting debt and thus was debt collection activity that is regulated by the FDCPA.

The Court noted, however, that its conclusion was not to be construed to indicate, one way or the other, whether the law firm and its employees, as debt collectors, violated the FDCPA.

The borrower next argued that the district court erred in dismissing her claim that the mortgagee violated TILA by failing to give her notice of its purchase of her loan.

As you may recall, TILA at 15 U.S.C. § 1641(g) provides that the new owner or assignee of a mortgage loan must provide written notice to a borrower no later than 30 days after the date on which it is sold or otherwise transferred or assigned.

The Fourth Circuit disagreed with the borrower, affirming the district court’s dismissal of the TILA claims against the mortgagee, because Congress added this provision to TILA in 2009, and the borrower failed to allege that the sale and transfer of the mortgage loan to the mortgagee occurred after 2009.

Because the borrower seemed to concede that at least as of December 2011, she had notice that the mortgagee was the owner of her loan, the Court also affirmed the district court’s alternative conclusion that the claim was barred by TILA’s one-year statute of limitations.

Finally, the borrower contended that the district court erred in dismissing her claim against the servicer for failing to give her notice of the assignment of the deed of trust to it, in supposed violation of TILA, 15 U.S.C. § 1641(g). The district court had dismissed her claim because it concluded that the servicer received only a beneficial interest, not legal title, in order to service the loan.

On appeal, the borrower conceded that the statute is usually interpreted to mean that notice is required only when legal title to the debt obligation is transferred, but she argued that, in addition to receiving a beneficial interest, the servicer also received an ownership interest based on a line in the deed of trust that read, “The Note or a partial interest in the Note (together with this Security Instrument) can be sold.”

The Fourth Circuit disagreed with the borrower, holding that the statement only indicated that the note could be sold.  Additionally, the Court noted that the inference would be inconsistent with the borrower’s assertion that the mortgagee was in fact the owner and failed to give her timely notice of its ownership.

In short, the Court concluded that the district court did not err in dismissing this claim.

Accordingly, the Fourth Circuit affirmed in part the district court’s judgment, reversed in part, and remanded. The Court reversed the order of dismissal of the borrower’s FDCPA claims against the law firm and its employees and remanded for further proceedings, without suggesting whether or not those defendants violated the FDCPA.  As to the TILA claims, the Court affirmed.

KENNER, La. — Altus Global Trade Solutions (Altus GTS) announced that B2B Credit Chex, Inc., a Canadian-based Commercial Credit Services company, recently joined Altus as its newest Affiliate member.

“We are very excited to be part of the Altus Affiliate program. While we still provide state-of-the-art credit application processing and verification, credit profiles and credit recommendation services, this partnership with Altus allows B2B Credit Chex, Inc. to become a major player in the global accounts receivables market,” said President of B2B Credit Chex Bruno Santia.

The Altus GTS Affiliate program allows small and medium sized commercial collection agencies to focus on rapidly increasing front-end sales without the hassle and expense of maintaining a back-end collections infrastructure.  The Affiliates program has seen significant growth over the last year as more agencies realize the benefits of partnering with the country’s largest independent commercial collections company.

Julie Kaplan, Altus GTS’s Director of Licensing said, “The program’s success demonstrates the need and desire for smaller companies to meet the ever-changing compliance, risk mitigation and security requirements necessary to provide unparalleled protection to their clients.  B2B Credit Chex, Inc. will be able to leverage Altus’ global network and suite of accounts receivable management services to increase profitability.”

When partnered with Altus, Affiliates benefit from a dynamic, supportive environment allowing them to grow their sales without the challenges of collections, trust accounting, administration, and compliance. The program allows the Affiliate to operate in a fully licensed, insured, and bonded environment, which is audited and certified, allowing the Affiliate to sell those infrastructure benefits to their clients. The Affiliate retains all the benefits of a small enterprise, while operating as a large international firm.

“We are delighted to add B2B Credit Chex, Inc. to our Affiliate roster. This mutually beneficial relationship provides a perfect synergy between a commercial credit company and an accounts receivables agency. They are able to broaden their client service scope and Altus is able to broaden our Canadian footprint,” said Altus GTS President Thomas E. Brenan.

“We chose to partner with Altus because of their reputation in the industry. We wanted to provide our clients tailored, responsive and worldwide receivables management solutions that achieve the highest rate of return while adhering to the highest professional and ethical standards. There was no doubt that Altus GTS was the ideal partner,” said Santia.

To learn more about the Altus Affiliate Program, visit https://trustaltus.com/affiliate-program/

About Altus Global Trade Solutions

Altus GTS is the largest independent commercial accounts receivable management and collection business in North America.  Altus provides commercial receivables management services to more than 100,000 customers in the United States and abroad. The company is a comprehensive, full service receivable management agency offering receivable management outsourcing, domestic and international commercial debt collections, audit collection, and business receivable management training.

Altus is fully licensed and bonded in all required jurisdictions and is SSAE 16 Type II Certified. The company is a member of the Commercial Law League of America, the Commercial Collections Agency Association of the Commercial Law League of America, and a member of the International Association of Commercial Collectors.

Founded in 1994, Altus is headquartered in Kenner, La., with branch offices in Colorado, Washington and New Jersey and Affiliate offices in Delaware, Washington State, Arizona, Iowa and Ontario, Canada. Visit us at www.TrustAltus.com.

The Consumer Financial Protection Bureau (CFPB) has been active in the ARM industry during the past year, including the release of its long-awaited Outline of Proposals Under Cosideration governing third-party debt collectors. insideARM has provided an overview, perspective, and industry reaction to those proposals.

In paralell to rulemaking activity, the CFPB has issued consent orders with the intent of setting industry-wide precedents. In March 2016, CFPB Director Richard Cordray remarked to the Consumer Bankers Association that any company not adapting to the policies called out in the CFPB’s consent orders is committing “compliance malpractice.”

Since we published The CFPB’s Consent Orders Regulating the ARM Industry earlier this year, the Bureau has issued more consent orders against firms in the ARM industry. As a result, we’ve updated the report.

When you download the updated version of The CFPB’s Consent Orders Regulating the ARM Industry, you’ll get a comprehensive, easy-to-read guide to all relevant CFPB consent orders. Get all the critical CFPB consent order intelligence you need – organized, synthesized, and summarized in one place.

You’ll get:

• Compact analysis on every industry-relevant consent order, explaining how and to what extent an order applies to you;
• Real-world examples for how the CFPB identifies UDAAP violations; and
• A complete chart of consent orders to give you a quick visual reference guide to all orders.

Get the report here.

You can stay up-to-date by buying every new edition of the report when it’s released – or you can get this report, all subsequent updates of this report, and nearly all of insideARM’s time-saving compliance resources and intelligence, for free, with a Compliance Professionals Forum (CPF) membership.

Click here to learn more about joining CPF today!

Yesterday the Consumer Financial Protection Bureau (CFPB), in partnership
with the New York Attorney General, filed a lawsuit in a federal district court
against the leaders of a massive debt collection scheme based out of Buffalo,
N.Y. The lawsuit alleges Douglas MacKinnon and Mark Gray operate a network of
companies that harass, threaten, and deceive millions of consumers across the
nation into paying inflated debts or amounts they may not owe. The Bureau is
seeking to shut down this illegal operation and to obtain compensation for
victims and a civil penalty against the companies and partners.

The CFPB and the New York Attorney General allege that
Northern Resolution Group LLC, Enhanced Acquisitions LLC, and Delray Capital
LLC are interrelated collections companies based in Buffalo, N.Y. 
Together, the companies have purchased millions of dollars’ worth of consumer
debt and collected some of those debts directly.  The companies were
created, operated, and are overseen by Douglas MacKinnon and Mark Gray.

The complaint alleges that since at least 2009, Northern
Resolution Group, Enhanced Acquisitions, and Delray Capital, operating under
the supervision of MacKinnon and Gray, have served as the lynchpin of a massive
collections scheme. The operation routinely inflates consumer debts and relies
on illegal tactics to extract as much money as possible from consumers for
debts. MacKinnon also set up a network of at least 60 additional fly-by-night
debt-collection firms to collect on the large debt portfolios purchased by Northern
Resolution Group, Enhanced Acquisitions, and Delray Capital. This elaborate
network also served as “window dressing,” or a workaround, when other debt
sellers would no longer do business with the defendants. 

The CFPB alleges that the defendants violated the Fair Debt
Collection Practices Act. The CFPB and the New York Attorney General also
allege that the defendants violated the Dodd-Frank Wall Street Reform and
Consumer Protection Act, which prohibits unfair and deceptive acts or practices
in the consumer financial marketplace. 

Specifically, the CFPB and the New York
Attorney General allege that MacKinnon, Gray, and their network of debt
collection companies:

• Inflated
  consumer debts and misrepresented amounts consumers owed: The defendants
  misrepresented to consumers that they owed sums they did not owe, were not
  obligated to pay, or that the companies did not have a legal right to collect.
  Specifically, Northern Resolution Group, Enhanced Acquisitions, and Delray
  Capital illegally added $200 to each consumer debt account they acquired,
  regardless of whether applicable state law or the underlying contract between
  the consumer and the original issuer permitted such fees or charges. In some
  cases, the scheme further inflated the amounts owed by tacking on additional
  unauthorized fees and charges to the debts.  At times, some collectors
  quoted consumers balances that exceeded 600 percent of the debt amount.
• Falsely
  threatened legal action: The companies falsely threatened consumer with
  legal action that the collectors had no intention of taking. In reality, they
  never referred a case for prosecution.  In some cases the companies
  falsely accused consumers of committing crimes. Further, the companies lied to
  some consumers, claiming that they would be arrested to pressure them to pay
  debts. In one case, the companies instructed a consumer that she did not even
  have time to get a lawyer because she would be arrested the next day. These
  deceptive practices could also have affected the relative priority consumers
  gave to competing financial commitments.
• Impersonated
  law-enforcement officials, government agencies, and court officers: The
  companies faked calls and emails to make it appear the communications were coming
  from government or court officials. The companies used call-spoofing
  technologies to make it appear that collectors were calling from government
  agencies.  The collection agents would barrage consumers and relatives
  with calls, claiming to be a government official who could arrest the consumer
  for non-payment of the debt. The companies also used emails to pretend they
  were contacting consumers and their family from a court.  

The complaint also alleges repeated fraudulent acts and
deceptive acts or practices in violation of New York law, as well as violations
of New York state debt-collection law.

One example detailed is that Delray’s scripts direct collectors to tell consumers the following: “You need to be aware of multiple fraud charges being filed against you in ___ County. It is imperative I speak with you to debrief you on your case and retain a statement in your defense. Failure to respond will result in you forfeiting your right to settle this case on a voluntary basis and it will be forwarded out for prosecution.” The complaint then states that Enhanced and Delray never referred a case for “prosecution” or even filed a debt-collection lawsuit against a consumer.

According to the complaint, MacKinnon and Gray have known
about, directed, and encouraged these illegal collections practices and have
profited significantly—amounting to tens of millions of dollars annually. These
illegal profits have been funneled back to MacKinnon, his relatives, and Gray
through payments to various sham companies that MacKinnon, Gray, and
MacKinnon’s relatives controlled. 

Through this lawsuit, the Bureau seeks to stop the alleged
unlawful practices of MacKinnon, Gray, Northern Resolution Group LLC, Enhanced
Acquisitions LLC, and Delray Capital LLC.  The Bureau has also requested
that the court impose penalties on the company and its partners for their
conduct and require that compensation be paid to consumers who have been
harmed.

The full text of the complaint can be found here. 

insideARM Perspective

From the perspective of legitimate debt collection agencies, it is encouraging to see regulators use language like “sham collection companies” and “illegal operation.” 

In an article yesterday, the Wall Street Journal ties this action together with the CFPB’s debt collection rulemaking activity:

The legal action comes as the CFPB and other regulators turn up the heat on debt collectors. In July, the CFPB unveiled an outline for new rules to rein in their aggressive practices, which would mark the first overhaul of federal oversight of the debt-collection market in four decades. 

What isn’t acknowledged is that the individuals and organizations involved in the action by the CFPB and the New York Attorney General are allegedly in wanton violation of laws that already exist. Many legitimate collectors, all of which have extensive policies and procedures in place (which they regularly revisit with the intent to refine and improve), are enthusiastically engaged with regulators in this current opportunity to modernize and clarify grey areas of federal debt collection laws. 

insideARM suspects it is unlikely that “sham collection companies,” with policies and procedures that are simply “window dressing,” will comply with these new rules — or any rules — and applauds the efforts of regulators to call them out.

This article was originally published on the Maurice Wutscher blog and is republished here with permission.

The U.S. District Court for the Middle District of Florida, Orlando Division recently ruled that debtors’ FCCPA and TCPA claims did not arise out of and were not related to their mortgage to fall under the jury waiver provisions in the mortgage where the claims arose out of attempts to enforce a debt that was discharged in bankruptcy.

The Court also ruled the debtors sufficiently stated a claim under FCCPA by alleging the creditor received notice of the debtors’ bankruptcy case to constitute actual knowledge the debtors’ were represented by counsel.

A copy of the opinion in Bray et al v. PNC Bank, N.A. is available at: Link to Opinion.

The borrowers entered into a mortgage loan secured by their residential property.  Thereafter, the borrowers filed a voluntary Chapter 7 bankruptcy. The mortgage loan was listed in their bankruptcy filing.  The remaining debts, including the in personam debt held by the mortgagee, were discharged in bankruptcy. The mortgagee was sent notice of the discharge.

After the discharge, the mortgagee allegedly began sending mail and making calls to the borrowers supposedly attempting to collect on the debt.  The debtors filed a complaint alleging violations of the Florida Consumer Collection Practices Act (FCCPA), Fla. Stat. § 559.55 et seq., and the federal Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227.

The mortgagee moved to strike the plaintiffs’ jury demand pursuant to the jury waiver provision in the mortgage.  The debtors argued that this lawsuit is not “in any way related to” the note or mortgage. The Court agreed with the debtors.

The Court noted that several courts have ruled that FCCPA and TCPA claims are sufficiently related to mortgage documents to allow similar waivers to be enforced. See, e.g., Levinson v. Green Tree Servicing, LLC, No. 8:14-cv-2120-EAK-TGW, 2015 WL 1912276, at *2 (M.D. Fla. Apr. 27, 2015); Foley v. Wells Fargo Bank, N.A., 849 F. Supp. 2d 1345, 1352 (S.D. Fla. 2012) (collecting cases).

However, the Court here distinguished those cases.  In all of the cases, the Court explained, the disputes arose directly out of the defendants’ attempts to enforce the plaintiffs’ obligations under the note or mortgage agreement containing the waiver. See Levinson, 2015 WL 1912276, at *2 (“[The] [p]laintiffs acknowledge that [the defendant’s] alleged . . . violation of the FDCPA and FCCPA was due to [the plaintiffs’] failure to pay as contractually obligated under the same mortgage.

Here, however, the Court pointed out that the plaintiffs have alleged an intervening bankruptcy. The Court noted that the debtors’ claims here arise out of the mortgagee’s alleged attempts to enforce a debt that was discharged in bankruptcy and not for claims arising directly from the mortgage.

The Court ruled the debtors’ FCCPA and TCPA claims did not arise out of and are not sufficiently related to the mortgage to fall within the jury waiver provision in the mortgage, where the debtors’ claims arise out of the creditor’s attempts to enforce a debt that was discharged in bankruptcy, as opposed to arising directly from the mortgage.

The debtors also alleged that the mortgagee had actual knowledge that they were represented by counsel when the mortgagee received notice of the debtors’ bankruptcy case.

As you may recall, subsection 559.72(18) of the Florida Statutes prohibits direct communication with a debtor with respect to a debt “if the person knows that the debtor is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney’s name and address.” “Actual knowledge is required to prove violations of Fla. Stat. § 559.72(18).” Nordwall v. PNC Mortg., No. 2:14-cv-747-FtM-CM, 2015 WL 4095350, at *3 (M.D. Fla. July 7, 2015).

The mortgagee argued that notice of the debtors being represented in a bankruptcy case is not sufficient to constitute actual knowledge that the debtors were represented with respect to this specific debt and relied on two recent decisions.  See Nordwall, 2015 WL 4095350, at *3 (holding that the plaintiff’s counsel’s “appearance in a separate [foreclosure] action does not constitute actual notice of representation for all-debt related activity”); Wright v. Select Portfolio Servicing, Inc., No. 8:14-cv-2298-T-30TGW, 2015 WL 419618, at *5 (M.D. Fla. Feb. 2, 2015) (“[T]he notice of appearance filed in the foreclosure action . . . was insufficient as a matter of law to place [the defendant] on notice that the [plaintiffs] were represented by counsel with respect to their debt.”).

However, the Court again agreed with the debtors.  The Court held that, when an attorney files a notice of appearance in a bankruptcy case, the scope of representation is readily ascertainable as being related to all collection efforts with respect to the debts listed in that bankruptcy action. Here, the Court noted, the debtors alleged that the debt was listed in the bankruptcy proceedings and the mortgagee received notice of those proceedings.

Accordingly, the Court held the debtors’ allegations were sufficient to state a claim under the FCCPA and denied the mortgagee’s motion to dismiss with respect to the FCCPA claim.

The debtors also asserted a claim pursuant to the TCPA alleging the mortgagee placed several calls to their cell phone using an automatic telephone dialing system, without their prior express consent.  The debtors also asserted that, if they did give consent, it was subsequently revoked.

The TCPA provides that “[i]t shall be unlawful for any person . . . to make any call (other than a call . . . made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice . . . to any telephone number assigned to a . . . cellular telephone service.” 47 U.S.C. § 227(b)(1)(A)(iii).  Prior express consent is an affirmative defense for which the defendant bears the burden of proof.  Lardner v. Diversified Consultants Inc., 17 F. Supp. 3d 1215, 1224 (S.D. Fla. 2014).

The Court held the debtors’ allegations were sufficient to state a claim under the TCPA and denied the defendant’s motion to dismiss with respect to the TCPA claim.  The Court avoided making any ruling as to revocation of consent as it was not clear from the pleadings if the plaintiffs ever provided consent.

Accordingly, the Court denied both the mortgagee’s motion to strike the debtors’ demand for jury trial and the mortgagee’s motion to dismiss.

This article was originally published on the Maurice Wutscher blog and is republished here with permission.

The U.S. Court of Appeals for the Ninth Circuit recently
held that the trustee of a California deed of trust securing a real estate loan
was not a “debt collector” under the federal Fair Debt Collection Practices
Act, because the trustee was not attempting to collect money from the borrower.

In so ruling, the Court held that “actions taken to
facilitate a non-judicial foreclosure, such as sending the notice of default
and notice of sale, are not attempts to collect ‘debt’ as that term is defined
by the FDCPA.”

The Court also vacated the dismissal of the borrower’s
federal Truth In Lending Act claim, confirming its prior ruling in Merritt
v. Countrywide Fin. Corp., 759 F.3d 1023 (9th Cir. 2014), that a mortgagor need
not allege the ability to repay in order to state a TILA rescission claim.

A copy of the opinion in Ho v. ReconTrust Co. is
available at:  Link
to Opinion.

A borrower sought damages under the FDCPA, alleging that the
foreclosure trustee initiated a California non-judicial foreclosure and sent
her a notice of default and a notice of sale that misrepresented the amount of
debt she owed.  The borrower also sought to rescind her mortgage
transaction under TILA.

The trial court granted the servicer’s motion to dismiss the
borrower’s FDCPA claims, and dismissed her TILA claim.

The borrower appealed, arguing that the foreclosure trustee
was a “debt collector” under the FDCPA because the notice of default and the
notice of sale constituted attempts to collect debt and threatened foreclosure
unless she brought her account current.

The Ninth Circuit disagreed, holding that the California
foreclosure trustee would only be liable if it had attempted to collect money
from the borrower.

As you may recall, the FDCPA imposes liability on “debt
collectors.”  Under the FDCPA, the word “debt” is defined as an
“obligation . . . of a consumer to pay money.”  15 U.S.C. §
1692a(5).  The FDCPA’s definition of “debt collector” includes entities
that regularly collect or attempt to collect debts owed or due or asserted to
be owed or due to another.

Distinguishing rulings from the Fourth and Sixth Circuits,
and agreeing with the California Courts of Appeal, the Ninth Circuit held that
a California foreclosure trustee was not a “debt collector” subject to the
FDCPA because the foreclosure trustee was not attempting to collect money from
the borrower.

Specifically, the Court noted that the Fourth Circuit’s
ruling in Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 378–79
(4th Cir. 2006), “was more concerned with avoiding what it viewed as a
‘loophole in the [FDCPA]’ than with following the [FDCPA]’s text,” which the
Ninth Circuit found improper.

The Court also noted that the Sixth Circuit’s ruling in Glazer
v. Chase Home Fin. LLC, 704 F.3d 453, 461 (6th Cir. 2013), “rests entirely on
the premise that ‘the ultimate purpose of foreclosure is the payment of money,”
but “the FDCPA defines debt as an ‘obligation of a consumer to pay
money.’”  The Ninth Circuit emphasized that “[f]ollowing a trustee’s sale,
the trustee collects money from the home’s purchaser, not from the original
borrower. Because the money collected from a trustee’s sale is not money owed
by a consumer, it isn’t ‘debt’ as defined by the FDCPA.”

The Ninth Circuit held that the object of a non-judicial
foreclosure in California is to retake and resell the security on the loan, and
thus actions taken to facilitate a non-judicial foreclosure, such as sending
the notice of default and notice of sale, are not attempts to collect “debt”
under the FDCPA.

Accordingly, the Ninth Circuit concluded that the
foreclosure notices at issue were an enforcement of a security interest, rather
than debt collection under the FDCPA.

The Ninth Circuit found it significant that California
expressly exempts trustees of deeds of trust from liability under the
California Rosenthal Act, Cal. Civ. Code. § 2924(b), the state analogue of the
FDCPA, observing that holding California foreclosure trustees liable under the
FDCPA would subject them to obligations that would frustrate their ability to
comply with the California statutes governing non-judicial foreclosure.

The Ninth Circuit agreed with the foreclosure trustee, and,
citing Sheriff v. Gillie, 136 S. Ct. 1594, 194 L. Ed. 2d 625 (2016), in
which the U.S. Supreme Court instructed that the FDCPA should not be
interpreted to interfere with state law unless Congress clearly intended to
displace that law, the Ninth Circuit affirmed the district court’s dismissal of
the FDCPA claim, declining to create a conflict with state foreclosure law in
its interpretation of the term “debt collector.”

Turning to the borrower’s TILA claims, which the trial court
had dismissed without prejudice, the Court noted that it recently held in Merritt
v. Countrywide Fin. Corp., 759 F.3d 1023, 1032-33 (9th Cir. 2014), that a
mortgagor need not allege the ability to repay the loan in order to state a
rescission claim under TILA. However, this was the basis of the trial court’s
dismissal of the TILA claim.

Accordingly the Ninth Circuit vacated the dismissal of the
borrower’s TILA claim and remanded it to the trial court for
reconsideration.  The Court also affirmed the dismissal of the borrower’s
FDCPA claims, vacated the dismissal of her TILA claims, and remanded the TILA
claims for reconsideration.