Friday, December 22, 2017

FYI: ND Ill Holds Disclosure Approved by FTC and CFPB Might Violate FDCPA

A recent ruling from the U.S. District Court for the Northern District of Illinois calls into question whether debt collectors may rely on a widely used FDCPA disclosure approved by both the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) for collecting debt that may be subject to an expired limitations period.

 

A copy of the opinion is available at:  Link to Opinion

 

As you may recall, the FTC used to have enforcement authority over the federal Fair Debt Collection Practices Act (FDCPA).  In 2012 the Federal Trade Commission and Asset Acceptance, LLC entered into a consent decree to resolve an enforcement action that included allegations that Asset's debt collection activities violated the FDCPA.

 

The consent decree provided that when collecting "time-barred" debt not subject to credit reporting, Asset would provide the consumer with the following disclosure:

 

The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency.

 

In 2015, the FTC adopted the same language in a consent decree against Encore Capital Group. 

 

Moreover, in July of 2016, the CFPB opined that a debt collector should "inform[] the consumer that, because of the age of the debt, the debt collector cannot sue to recover it," but did not require anything more.  In fact, the CFPB expressly declined to require any additional warning that partial payment might revive a time-barred debt.

 

In this action, a debt collection letter contained the same disclosure. The plaintiff's complaint alleged that the disclosure itself is misleading because it gives the impression that the debt collector chose not to sue him instead of stating that it was barred from filing a lawsuit.

 

The defendant debt collector filed a motion to dismiss, which the Court denied.

 

The Court noted that debt collectors do not violate the FDCPA simply by seeking repayment of time-barred debts. McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014). However, debt collectors still might violate the FDCPA if they use any "false, deceptive, or misleading representation or means" to collect on a time-barred debt. 15 U.S.C § 1692e.

 

The Court explained that "[t]his includes making false representations about the character or legal status of the debt, such as its enforceability, 15 U.S.C. § 1692e(2); McMahon, 744 F.3d at 1020-22 (finding letters offering to "settle" time-barred debts could violate section 1692e(2) by leading consumers to believe debts were legally enforceable), or using false representations or deceptive means generally to collect or attempt to collect the debt, 15 U.S.C. § 1692e(10)."

 

Here, despite that fact that the disclosure at issue was created and agreed to by the FTC, the Court held that a debt collector's use of the disclosure has "the potential to mislead the unsophisticated consumer" into believing that the debt was "legally enforceable."

 

According to the Court, "[b]ecause the language is taken from consent decrees that the FTC and CFPB have entered into with other debt collectors and is not the product of the formal rule making process, it does not warrant Chevron-style deference."  Rather, the Court held that "agency approval serves only as evidence that the fact finder may consider—at a later time—to determine whether the defendants' letter is misleading to the unsophisticated consumer."

 

The plaintiff is permitted to move forward with his case and it remains to be seen whether the use of the disclosure is ultimately decided to be an FDCPA violation. But for most debt collectors, just the possibility that such a suit may be maintained at all is an unacceptable result.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, December 20, 2017

FYI: 7th Cir Holds TILA Claim for Failing to Rescind After Notice Was Time-Barred by 1Year SOL

The U.S. Court of Appeals for the Seventh Circuit recently held that, following the confirmation of a foreclosure sale in Illinois, the only remedy available to a borrower under 15 U.S.C. § 1635 was damages, and therefore the one year limitation period under 15 U.S.C. § 1640(e) applied and his claims were barred despite the fact that he provided rescission notices within three years of the loan closing, and despite the fact that the parties engaged in back-and-forth communications after the demands were first sent.

 

Accordingly, the Seventh Circuit affirmed the dismissal of the borrower's claims by the trial court.

 

A copy of the opinion is available at:  Link to Opinion

 

In 2007, the defendant ("Mortgagee") extended a loan to the plaintiff ("Borrower"), which loan was secured by a mortgage on his home.   On August 15, 2008; April 16, 2009; and June 17, 2010, the Borrower alleges he notified the Bank that he was rescinding the loan under the federal Truth in Lending Act ("TILA"), 15 U.S.C. § 1635. 

 

As you may recall, section 1635 provides borrowers with the right to rescind certain consumer credit transactions secured by a borrower's principal dwelling.  Where applicable, the borrower may rescind such a transaction for any reason within three days of the loan closing, and for some reasons within three years of the loan closing.

 

The Mortgagee allegedly ignored the first two rescission notices from the Borrower and rejected the third.   The Mortgagee later filed a foreclosure action in Illinois state court in 2011, and obtained a final judgment confirming the foreclosure sale on March 23, 2016. 

 

The Borrower subsequently filed a lawsuit in federal court seeking to declare that the state court's ruling the foreclosure was erroneous.   After the trial court dismissed the Borrower's complaint as barred by the statute of limitations, he appealed to the Seventh Circuit.

 

On appeal, the Seventh Circuit first noted that under the Rooker-Feldman doctrine, federal trial courts generally lack the authority to revise the judgments of state courts.  The Court noted that the Borrower asked "the district court to declare that the state court's decision was erroneous, but that would have been an advisory opinion – a legal declaration that could not affect anyone's rights." 

 

The Court further noted that "there remains the possibility of relief that takes as a given the judgment in the state litigation that would not be problematic under the Rooker-Feldman doctrine," but "might be problematic as a matter of issue or claim preclusion."  However, the Mortgagee did not assert issue or claim preclusion, and therefore the issue was not relevant to the appeal.

 

Instead, the Mortgagee relied on the statute of limitations defense.   Specifically, the Mortgagee argued that the Borrower's claims were barred under section 1640(e), which sets a one-year period of limitations for any claim under section 1640 as a whole.   As you may recall, section 1640(a)(1) authorizes an award for damages for violations of TILA, including section 1635. 

 

The Borrower argued that no statutory time limit applied to his claims for rescission.  Specifically, the Borrower argued that section 1635(f) gives a borrower three years to notify a creditor of an election to rescind when the creditor failed to provide information required by TILA.  The Borrower's notices all came within the three year period, and section 1635 does not provide a time limit to file a lawsuit if the creditor fails to acknowledge or implement a proper rescission.

 

The Seventh Circuit rejected the Borrower's argument, noting that section 1640(e) sets a one-year period of limitations for suits under section 1640(a).  Further, the Court determined that by the time the Borrower filed his lawsuit in 2016, "the only possible relief was damages" due to the "state court's conclusive judgment of foreclosure."   Moreover, "by 2016, it was far too late to seek damages, given §1640(e)."

 

When the Borrower sent his first notice of rescission on August 15, 2008, the Mortgagee "had 20 days to act on [the] notice.  15 U.S.C. § 1635(b); 12 C.F.R. § 226.23(d)."  Thus, by "September 4, 2008, after the [Mortgagee] ignored the notice, [the Borrower] had suffered a legal wrong (if he was indeed entitled to rescind) and could have sued."  The Court held that the Borrower's claim therefore accrued at that time.

 

The Borrower argued that the later notices and sporadic communications with the Mortgagee extended the time to file suit.  The Court disagreed, ruling that "negotiations, requests for reconsideration, and new demands for action do not affect the time to sue on a claim that has already accrued." 

 

Accordingly, the Borrower's "claim for damages had expired more than six years before he filed this suit, which was properly dismissed."    

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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