The U.S. Court of Appeals for the Eleventh Circuit recently held that periodic statements required by the federal Truth in Lending Act (TILA) may violate the federal Fair Debt Collection Practices Act (FDCPA) if they are not truthful and fair.
A copy of the opinion is available at: Link to Opinion
The appeal arose from a lawsuit brought by two home owners ("Debtors") against their home loan servicer ("Servicer") for alleged violations of the FDCPA and Florida's Consumer Collection Practices Act.
After defaulting on their home loan, a foreclosure suit was instituted. While the foreclosure was pending, Servicer took over the servicing of the loan. Debtors sued Servicer during the foreclosure after a disagreement arose, which resulted in a settlement of both lawsuits wherein the parties agreed that Debtors owed $85,790.99 to be paid in one year.
Four months later, Servicer began sending mortgage statements to Debtors, notifying them the loan had "been accelerated" as they were "late on [their] monthly payments." The mortgage statements included a loan balance of $92,789.55 which increased each month. The statements also warned that failure to pay may result in the loss of Debtors' home and provided options for payment.
The trial court held that Debtors failed to state a FDCPA claim reasoning that the periodic statements were unrelated to debt collection because the periodic statement are required under TILA. The trial court declined to exercise supplemental jurisdiction over the Florida law claims and dismissed the complaint. Debtors appealed.
While the appeal was pending, the Eleventh Circuit issued its ruling in Daniels v. Select Portfolio Servicing, holding that courts "must try to give meaning to both" the FDCPA and TILA. 34 F.4th 1260, 1269 (11th Cir. 2022).
In the instant matter, the Eleventh Circuit addressed whether Debtors plausibly alleged that the periodic statements constituted "attempts to collect or induce payment on a debt." Id. at 1263.
The relevant FDCPA provisions prohibit false or misleading representations "in connection with the collection of any debt," and from using "unfair or unconscionable means" of debt collection. 15 U.S.C. §§ 1692e, 1692f. The question at issue was whether the periodic statements which contained information that suggested Servicer was ignoring the settlement agreement in telling Debtors they owed a larger amount of money sooner were "in connection with" or a "means" of debt collection even though they came in periodic statements which are required under TILA.
Under the FDCPA, if a communication "conveys information about a debt and its aim is at least in part to induce the debtor to pay", it has the necessary nexus to debt collection. Caceres v. McCalla Raymer, LLC, 755 F.3d 1299, 1302 (11th Cir. 2014). In determining whether a communication contains these traits, the Court views it "holistically." Daniels, 34 F.4th at 1268.
Here, the Eleventh Circuit found that Servicer's monthly statements had both traits. The statements contained the remaining principal balance of the loan, the interest rate, the amount owed, the payment due date, and the delinquency on the account. In addition, the statements advised Debtors to pay. The statements further contained warnings of the consequences of Debtors' failure to pay.
The Court also noted a detachable payment coupon was included, presumably with the hope the warnings would persuade Debtors to pay. Additionally, the back of the statements listed additional methods of payment and the statement stated "[Servicer] is a debt-collector, and information you provide to use will be used for that purpose."
The Eleventh Circuit recited that to survive a motion to dismiss, Debtors' complaint needed only to allege that the statements plausibly "aim[ed]," "at least in part," to induce them to pay. Caceres, 755 F.3d at 1302. The Court found the statements easily satisfied the standard. See Daniels, 34 F.4th at 1268.
Servicer argued that the statements were not constrained by the FDCPA's limitations because they were required to be sent by TILA. The Eleventh Circuit disagreed, noting that the goal of the TILA requirements is "to assure a meaningful disclosure of credit terms" to consumers. 15 U.S.C. § 1601(a).
Consistent with its prior ruling in Daniels v. Select Portfolio Servicing, the Eleventh Circuit found both the FDCPA and TILA applied to the periodic statements at issue here. The Court found there was nothing in TILA which said periodic statements could not serve as a means of debt collection.
The Court further noted that nothing in the two acts irreconcilably conflicted in their operation. See Tug Allie-B, Inc. v. United States, 273 F.3d 936, 944 (11th Cir. 2001). Instead, the Court found the statutes reinforce each other in that TILA requires the sending of periodic statements by a servicer and the FDCPA requires those statements be fair and accurate when containing language that would induce payment by a debtor.
Servicer also argued that the purpose of the statements was to inform. See U.S.C. § 1601(a). However, the Eleventh Circuit previously recognized "a communication can have more than one purpose." Caceres, 755 F.3d at 1302; see also Daniels, 34 F.4th at 1268. The Court went on to rule that the purposes of notification and collection can exist even when the statement resembles the template provided by the Consumer Financial Protection Bureau ("CFPB"). The Court further noted that following the format of the CFBP did not give servicer's license to include incorrect information.
Finally, Servicer argued it was exempt from liability under the FDCPA because a CFPB bulletin carved out periodic statements from the FDCPA altogether. See 15 U.S.C. § 1692k(e). The Eleventh Circuit easily rejected this argument as the CFPB Bulletin at issue only addressed a provision of the FDCPA that limits when debt collectors can contact debtors rather than how. See Consumer Fin. Prot. Bureau, CFPB Bulletin 2013-12, Implementation Guidance for Certain Mortgage Servicing Rules 6-7 (2013).
The Court found that the information that TILA encourages lenders to give about their loan is only useful if it is accurate and fair, as required by the FDCPA. The Eleventh Circuit held that, if a servicer uses the periodic statements to collect a debt, they can be held liable if they make unconscionable or misleading representations in the statements.
Thus, the Eleventh Circuit held that Servicer was required to comply with both the FDCPA and TILA as they did not irredeemably conflict and reversed the trial court's dismissal of Debtors' complaint.
Ralph T. Wutscher
Maurice Wutscher LLP
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