The U.S. Court of Appeals for the Seventh Circuit recently reversed a district court's decision to dismiss a lawsuit brought by a mortgage borrower against a loan servicing company under the FDCPA, holding that the plaintiff's complaint sufficiently alleged that certain loan modification communications that did not explicitly demand payment were nevertheless "sent in connection with an attempt to collect a debt," and in violation of the FDCPA. A copy of the opinion is attached.
Plaintiff brought this action against the servicer of her mortgage loan, alleging that two letters she received regarding her mortgage loan, after she was in default on the loan, violated the FDCPA. In the first letter, the servicer offered plaintiff the opportunity to discuss "foreclosure alternatives," and requested certain financial information. The second letter was from a third party that had partnered with the servicer, and also asked plaintiff to complete and return a financial information form to the servicer.
Plaintiff then filed this class action lawsuit against the servicer, alleging that the servicer violated the FDCPA by: (1) using deceptive means to obtain her personal information through the use of a third party; (2) communicating directly with plaintiff despite knowing she was represented by an attorney; and (3) communicating with a third party about plaintiff's mortgage without plaintiff's consent. The district court granted the servicer's motion to dismiss, on the grounds that the claims were not made "in connection with the collection of" plaintiff's debt, as required to state the claims under the FDCPA. The dismissing the case, the lower court ruled that a communication is made "in connection with the collection of any debt" only if it explicitly demands payment, which the communications at issue did not do. This appeal followed, and the Seventh Circuit reversed and remanded.
As you may recall, in order for the FDCPA to apply, at least two threshold criteria must be met: (1) the defendant must qualify as a "debt collector;" and (2) the communication by the debt collector that forms the basis of the suit must have been made “in connection with the collection of any debt.” Here, the parties agreed that the loan servicer is a debt collector under the statute. Accordingly, the issue for the Seventh Circuit on appeal was whether the subject communications were made in connection with the collection of a debt. In reversing and remanding the district court's holding, the Court first noted that there is no "bright-line rule for determining whether a communication from a debt collector was made in connection with the collection of a debt." Looking to its prior decisions for guidance, the Court held that a demand for payment is "just one of several factors that come into play in the commonsense inquiry" of whether a communication is in connection with the collection of a debt, noting that the nature of the parties' relationship and the purpose and context of the communications (viewed objectively) are also important factors to consider.
Ultimately, the Court held that the context and content of the letters to the plaintiff here were sufficient to bring her claim within the scope of the FDCPA. Important to the Court's decision was the fact that the plaintiff was in default on her loan when the letters were sent, and the servicer's letter to plaintiff was its "opening communication in an attempt to collect [plaintiff's] defaulted home loan - by settlement or otherwise." Even though the communication did not explicitly ask for payment, it was an offer to discuss repayment options, which, according to the Court, qualifies as a communication in connection with an attempt to collect a debt. Moreover, the third party's letter was sent for the purpose of encouraging plaintiff to contact the loan servicer to discuss debt-settlement options, and accordingly was also a communication in connection with an attempt to collect a debt. Finally, the Court held that the servicer's communication with the third party was also "plainly" in connection with the collection of a debt.
Plaintiff brought this action against the servicer of her mortgage loan, alleging that two letters she received regarding her mortgage loan, after she was in default on the loan, violated the FDCPA. In the first letter, the servicer offered plaintiff the opportunity to discuss "foreclosure alternatives," and requested certain financial information. The second letter was from a third party that had partnered with the servicer, and also asked plaintiff to complete and return a financial information form to the servicer.
Plaintiff then filed this class action lawsuit against the servicer, alleging that the servicer violated the FDCPA by: (1) using deceptive means to obtain her personal information through the use of a third party; (2) communicating directly with plaintiff despite knowing she was represented by an attorney; and (3) communicating with a third party about plaintiff's mortgage without plaintiff's consent. The district court granted the servicer's motion to dismiss, on the grounds that the claims were not made "in connection with the collection of" plaintiff's debt, as required to state the claims under the FDCPA. The dismissing the case, the lower court ruled that a communication is made "in connection with the collection of any debt" only if it explicitly demands payment, which the communications at issue did not do. This appeal followed, and the Seventh Circuit reversed and remanded.
As you may recall, in order for the FDCPA to apply, at least two threshold criteria must be met: (1) the defendant must qualify as a "debt collector;" and (2) the communication by the debt collector that forms the basis of the suit must have been made “in connection with the collection of any debt.” Here, the parties agreed that the loan servicer is a debt collector under the statute. Accordingly, the issue for the Seventh Circuit on appeal was whether the subject communications were made in connection with the collection of a debt. In reversing and remanding the district court's holding, the Court first noted that there is no "bright-line rule for determining whether a communication from a debt collector was made in connection with the collection of a debt." Looking to its prior decisions for guidance, the Court held that a demand for payment is "just one of several factors that come into play in the commonsense inquiry" of whether a communication is in connection with the collection of a debt, noting that the nature of the parties' relationship and the purpose and context of the communications (viewed objectively) are also important factors to consider.
Ultimately, the Court held that the context and content of the letters to the plaintiff here were sufficient to bring her claim within the scope of the FDCPA. Important to the Court's decision was the fact that the plaintiff was in default on her loan when the letters were sent, and the servicer's letter to plaintiff was its "opening communication in an attempt to collect [plaintiff's] defaulted home loan - by settlement or otherwise." Even though the communication did not explicitly ask for payment, it was an offer to discuss repayment options, which, according to the Court, qualifies as a communication in connection with an attempt to collect a debt. Moreover, the third party's letter was sent for the purpose of encouraging plaintiff to contact the loan servicer to discuss debt-settlement options, and accordingly was also a communication in connection with an attempt to collect a debt. Finally, the Court held that the servicer's communication with the third party was also "plainly" in connection with the collection of a debt.
Let me know if you have any questions. Thanks.
Ralph T. Wutscher
Kahrl Wutscher LLP
The Loop Center Building
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RWutscher@kw-llp.com
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