Thursday, June 4, 2015

FYI: NJ Fed Ct Requires "Materiality" in FDCPA Claims, Holds "Competent Attorney" Standard Applies to Content of Communications to Counsel

As you may recall, two years ago, in Simon v. FIA Card Services, N.A. (copy available here), the U.S. Court of Appeals for the Third Circuit held that alleged violations of the FDCPA resulting from conduct in a bankruptcy case were not precluded by the Bankruptcy Code.

 

At issue was whether the defendants engaged in false, misleading or deceptive conduct in connection with their service of a subpoena for a Rule 2004 examination.  The certification of service on the subpoenas indicated service both directly on the plaintiffs and on their attorney, but the subpoenas were actually only served on the attorney. In addition, the location provided for the examination was improper under the bankruptcy rules.

 

The U.S. District Court for the District of New Jersey originally held that the complaint failed to state a claim for relief prior to the Third Circuit reversing and remanding the case.

 

Now on remand, the District Court granted the defendants’ motions for summary judgment, holding that the alleged irregularities with the subpoena were immaterial, and would not mislead a competent attorney regarding a consumer’s rights.

 

Two significant holdings come from this opinion, which is available here.

 

First, the district court held that although technically inaccurate, the statement that the subpoenas had been served on the plaintiffs at their home address was immaterial, and thus would not mislead the least sophisticated consumer regarding his rights under the FDCPA.  The District Court recognized that multiple Circuits -- including the Second, Fourth, Sixth, Seventh and Ninth Circuit, as well as district courts within the Third Circuit -- have all included a materiality component in FDCPA claims.

 

The District Court held:

 

the misstatement regarding service had no connection to the nature or legal status of the debt, it was of no consequence to the bankruptcy proceeding, and it would not in any way have affected the decisionmaking of the least sophisticated debtor with respect to their response to the debt collector’s action.

 

The second significant holding in this opinion is that a “competent attorney standard” is appropriate to evaluate the claims that the subpoenas were false and deceptive.  Because the subpoenas were sent to the plaintiffs’ attorneys and not to the plaintiffs directly, the District Court determined that the interpretation of the misstatement at issue (the location of the deposition) had to be determined from the perspective of the competent attorney and not the least sophisticated debtor.

 

The District Court acknowledged that the Third Circuit rejected the competent attorney standard in specific situations, such as whether the “mini Miranda” disclosures had been provided, or a threshold inquiry of whether the subpoena rule had been violated.  However, because the issue here was whether the attorney recipient would be misled by the content of the subpoena, the District Court agreed with other Circuits that have held that the least sophisticated debtor standard is inappropriate for evaluating communications with lawyers.

 

Ultimately, the District Court held that the competent attorney would not be misled by the subpoenas and would recognize immediately, as plaintiffs’ attorney actually did, the defects in the subpoenas and would advise the plaintiffs accordingly.

 

The plaintiffs have already appealed the summary judgment ruling to the Third Circuit, such that the Third Circuit will have to directly address both materiality and the competent attorney standard.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
Fax: (312) 284-4751
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

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Wednesday, June 3, 2015

FYI: CFPB Announces Leniency for Good Faith Efforts to Comply as to TRID Implementation, But No Formal Grace Period

In response to a letter from numerous Senators, and in response to “considerable input” from other members of Congress and various trade groups, the federal Consumer Financial Protection Bureau (CFPB) today announced that it will employ leniency in relation to implementation of the TILA-RESPA Integrated Disclosure Rule. 

 

The CFPB’s letter (copy attached) states that the CFPB “will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the Rule on time,” and that the approach “is consistent with the approach we took to implementation of the Title XN mortgage rules in the early months after the effective dates in January 2014.”

 

However, the letter stops short of providing a formal grace period, “hold harmless” period, or stay of enforcement.

 

More specifically, the letter (copy attached) states:

 

I have spoken with our fellow regulators to clarify that our oversight of the implementation of the Rule will be sensitive to the progress made by those entities that have squarely focused on making good-faith efforts to come into compliance with the Rule on time. My statement here of this approach is intended to ease some of the concerns we have heard about this transition to new processes in the coming months and is consistent with the approach we took to implementation of the Title XN mortgage rules in the early months after the effective dates in January 2014, which has worked out well.”

 

As you may recall, the CFPB stated in its “Supervisory Highlights” report for Winter of 2015 that “[m]ost of the Title XIV rules took effect in January 2014 and the CFPB commenced supervisory examinations for compliance four months after the effective date.”

 

Our update as to the CFPB’s “Supervisory Highlights (Winter 2015)” report is available here:  Link to Prior Update

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
Fax: (312) 284-4751
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

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Monday, June 1, 2015

FYI: US Sup Ct Holds Chapt 7 Debtor Cannot "Strip Off" or Void Wholly Unsecured Junior Mortgage

The Supreme Court of the United States recently held that a debtor in a Chapter 7 case cannot “strip-off” or void a wholly unsecured junior mortgage under section 506(d) of the Bankruptcy Code.

 

A copy of the opinion is available at: http://www.supremecourt.gov/opinions/14pdf/13-1421_p8k0.pdf

 

The debtors in the consolidated cases both had two mortgages on their homes. The petitioner held a second-position mortgage on each of the homes. The senior mortgage on each home exceeded its fair market value, meaning that the junior mortgages were entirely unsecured and “underwater.”

 

Each debtor moved to “strip-off” or void the junior mortgage liens pursuant to section 506(d) of the Bankruptcy Code, 11 U.S.C. 506(d). The Bankruptcy Court granted the motion in each case, and both the District Court and U.S. Court Appeals for the Eleventh Circuit affirmed.

 

The second lien mortgagee petitioned the Supreme Court for writs of certiorari, which were granted.

 

The Court began with a textual analysis of subsection 506(d), which provides that “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured clam, such lien is void.”

 

The Court explained that a creditor’s claim is deemed “allowed” under section 502 of the Bankruptcy Code if no interested party objects or the Bankruptcy Court decides a claim should be allowed if an objection is filed.

 

The parties agreed that the bank’s claims were “allowed,” but disagreed on whether they were “secured” under subsection 506(d).

 

The Supreme Court held that its prior decision in Dewsnup v. Timm, 502 U.S. 410 (1992) controlled.

 

Dewsnup involved a Chapter 7 bankruptcy debtor that sought to “strip down” or reduce a $120,000 lien to the value of the collateral, which was $39,000. The Court refused to permit this, reasoning that the term “secured” in section 506(d) was ambiguous, and holding that section 506(d) does not apply to an allowed secured claim, and that a debtor could not strip down the lien to the value of the property serving as collateral.

 

The Court rejected the debtors’ argument that Dewsnup should be limited to the partially unsecured liens involved in that case, reasoning that the definition of “secured claim” arrived at in Dewsnup — that a claim is “secured” if it is “secured by a lien” and “has been fully allowed pursuant to § 502” — does not depend on whether a lien is partly or entirely unsecured.

 

The Supreme Court also rejected the debtors’ argument that section 506(a) should be construed as applying to a secured claim supported by collateral with some value, reasoning that adopting such an artificial reading would mean that the same words -- “allowed secured claim” -- meant different things in subsections 506(a) and 506(d).

 

The Court likewise disagreed with the debtors that its decision in Nobelman v. American Savings Bank, 508 U.S. 324 (1993) controlled, finding that case inapposite because it involved the interaction between section 506(a) and section 1322(b)(2), but not 506(d), and because the Court in Dewsnup had already refused to define the term “secured claim” in subsection 506(d) differently than in subsection 506(a), depending on the value of the collateral.

 

The Supreme Court concluded by reasoning that treating a secured claim differently based on the value of the collateral would not shed light on subsection 506(d)’s meaning and would be “odd” because if, as the debtors urged, “a court valued the collateral at one dollar more than the amount of a senior lien, the debtor could not strip down a junior lien under Dewsnup, but if it valued the property at one dollar less, the debtor could strip off the entire junior lien.”

 

The Court held this would lead to “arbitrary results,” as the value of real property fluctuates constantly.

 

Accordingly, the judgments of the Eleventh Circuit Court of Appeals were reversed, and the cases remanded for further proceedings.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
Fax: (312) 284-4751
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


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Sunday, May 31, 2015

FYI: FCC Proposes Significant TCPA Interpretation Changes Affecting Telemarketing and Servicing

The Federal Communications Commission announced a fact sheet proposal by Chairman Tom Wheeler to respond to some two dozen pending petitions regarding various aspects of the federal Telephone Consumer Protection Act (“TCPA”). 

 

The FCC states that the proposed actions would be “one of the most significant FCC consumer protection actions since it established the Do-Not-Call Registry with the FTC in 2003.”

 

The Commission will vote on the proposal at its Open Meeting on June 18, 2015.

 

A copy of the fact sheet is available at:  http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0527/DOC-333676A1.pdf

 

According to the fact sheet, and among other things, the following issues would be addressed in the proposed actions:

 

 

1.  Revocation of Consent:

 

The FCC Chairman states “[c]onsumers would have the right to revoke their consent to receive robocalls and robotexts in any reasonable way at any time.”  This would affect calls to landline home service, and to wireless/cell numbers.

 

2.  “Do Not Disturb” or “Call Blocking” Technology

 

The FCC Chairman states “[c]arriers could offer robocall-blocking technologies to consumers. It would give the go-ahead for carriers to implement market-based solutions that consumers could use to stop unwanted robocalls.”  This would affect calls to landline home service, and to wireless/cell numbers.

 

3.  Calls to Re-Assigned Numbers, the “One Free Pass” Rule.

 

The FCC Chairman proposes to make clear that “[c]onsumers who inherit a phone number would not be subject to a barrage of unwanted robocalls to which a previous subscriber of the number consented. If a phone number has been reassigned, callers must stop calling the number after one call.”  This would affect calls to landline home service, and to wireless/cell numbers.

 

4.  Definition of “Automatic Telephone Dialing System”

 

The FCC Chairman proposes to double-down on the FCC’s position that “[a]n ‘autodialer’ is any technology with the capacity to dial random or sequential numbers. The rulings would ensure robocallers cannot skirt consumer consent requirements through changes in calling technology design or by calling from a list of numbers.”  This would affect calls to wireless/cell numbers.

 

5.  Limited Exceptions for Urgent Circumstances

 

The FCC Chairman proposes to allow “[f]ree calls or texts to, for example, alert consumers to possible fraud on their bank accounts or remind them of important medication refills would be allowed. The proposal is very clear about what such messages can be and what they cannot be (i.e., no marketing or debt collection). In addition, consumers would have the ability to opt out of even these permitted calls and texts.”  This would affect calls to wireless/cell numbers.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
Fax: (312) 284-4751
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates are available on the internet, in searchable format, at:


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and

 

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