The U.S. Court of Appeals for the Eleventh Circuit recently held that a debtor's complaint stated a "false representation" claim under the federal Fair Debt Collection Practices Act, where the debt validation/1692g notice identified the loan servicer who started servicing the loan after it was in default as the "creditor."
A copy of the opinion is available at:
Plaintiff-Appellant ("Debtor") obtained a mortgage loan on his property and eventually defaulted on the loan. Following the default, the original lender transferred the servicing rights for the loan. The loan servicer in turn hired a foreclosure law firm ("Law Firm") to assist in the collection efforts. To that end, the Law Firm sent a notice to the Debtor stating that the notice was being sent pursuant to the federal Fair Debt Collection Practices Act ("FDCPA") to collect on the debt. The notice also identified the loan servicer as the creditor on the loan.
The Debtor filed suit against the Law Firm in federal district court, claiming that the notice sent to him by the Law Firm violated Section 1692e of the FDCPA by falsely representing that the loan servicer was the "creditor" on the loan. The Debtor claimed that the loan servicer, having been assigned a debt already in default solely for purposes of collecting on the debt, was not a "creditor" under the FDCPA.
The Law Firm moved to dismiss for failure to state a claim. The district court granted the motion, ruling that the loan servicer was a "creditor" according to the "ordinary meaning" of the term and, further, that even if the loan servicer were not a "creditor" under the FDCPA, it was harmless error to use the term with respect to the servicer, because the loan servicer had the authority to foreclose and otherwise act as the creditor on the loan.
The Debtor appealed. The Eleventh Circuit vacated and remanded.
As you may recall, the FDCPA defines a "creditor" as "any person who offers or extends credit creating a debt or to whom a debt is owed," but expressly excludes from the definition "any person to the extent that he receives an assignment or transfer of a debt in default solely for purposes of facilitating collection of such debt for another." 15 U.S.C. § §1692a(4). In addition, the FDCPA requires a debt collector to send the debtor a written notice containing "the name of the creditor to whom the debt is owed" and subjects debt collectors to liability for "any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. §§ 1692e, 1692g(a)(2), 1692k(a).
After ruling that a false representation in connection with the collection of a debt need not be misleading or deceptive to constitute a violation under the FDCPA, the Eleventh Circuit noted that the Debtor's complaint contained allegations as to the date of default, that the debt was assigned to the loan servicer after the default, and that the Law Firm violated the FDCPA by falsely identifying the loan servicer as the "creditor" in its debt collection notice. Construing the allegations in the Debtor's favor, the Court concluded that the Law Firm's statement in the collection notice falsely identified the loan servicer as the "creditor" and that the Law Firm could be liable to the Debtor for potential damages and attorneys fees.
Accordingly, the Eleventh Circuit held that the Debtor's complaint stated a claim under the FDCPA.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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Email: RWutscher@mtwllp.com
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