FYI: MD Fla Holds Notice of BK Sufficient for "Actual Knowledge" of Representation by Counsel Under FCCPA

The U.S. District Court for the Middle District of Florida, Orlando Division recently ruled that a debtor's FCCPA and TCPA claims did not arise out of and were not related to the mortgage to fall under the jury waiver provisions in the mortgage where the claims arose out of attempts to enforce a debt that was discharged in bankruptcy. 

 

The Court also ruled the debtors sufficiently stated a claim under FCCPA by alleging the creditor received notice of the debtors' bankruptcy case to constitute actual knowledge the debtors' were represented by counsel.

 

A copy of the opinion is attached.

 

The borrowers entered into a mortgage loan secured by their residential property.  Thereafter, the borrowers filed a voluntary Chapter 7 bankruptcy. The mortgage loan was listed in their bankruptcy filing.  The remaining debts, including the in personam debt held by the mortgagee, were discharged in bankruptcy. The mortgagee was sent notice of the discharge. 

 

After the discharge, the mortgagee allegedly began sending mail and making calls to the borrowers supposedly attempting to collect on the debt.  The debtors filed a complaint alleging violations of the Florida Consumer Collection Practices Act ("FCCPA"), Fla. Stat. § 559.55 et seq., and the federal Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227.

 

The mortgagee moved to strike the plaintiff's jury demand pursuant to the jury waiver provision in the mortgage.  The debtors argued that this lawsuit is not "in any way related to" the note or mortgage. The Court agreed with the debtors. 

 

The Court noted that several courts have ruled that FCCPA and TCPA claims are sufficiently related to mortgage documents to allow similar waivers to be enforced. See, e.g., Levinson v. Green Tree Servicing, LLC, No. 8:14-cv-2120-EAK-TGW, 2015 WL 1912276, at *2 (M.D. Fla. Apr. 27, 2015); Foley v. Wells Fargo Bank, N.A., 849 F. Supp. 2d 1345, 1352 (S.D. Fla. 2012) (collecting cases).

 

However, the Court here distinguished those cases.  In all of the cases, the Court explained, the disputes arose directly out of the defendant's attempts to enforce the plaintiff's obligations under the note or mortgage agreement containing the waiver. See Levinson, 2015 WL 1912276, at *2 ("[The] [p]laintiffs acknowledge that [the defendant's] alleged . . . violation of the FDCPA and FCCPA was due to [the plaintiffs'] failure to pay as contractually obligated under the same mortgage.

 

Here, however, the Court pointed out that the plaintiffs have alleged an intervening bankruptcy. The Court noted that the debtors' claims here arise out of the mortgagee's alleged attempts to enforce a debt that was discharged in bankruptcy and not for claims arising directly from the mortgage. 

 

The Court ruled the debtor's FCCPA and TCPA claims did not arise out of and are not sufficiently related to the mortgage to fall within jury waiver provision in mortgage, where the debtors' claims arise out of creditor's attempts to enforce a debt that was discharged in bankruptcy, as opposed to arising directly from mortgage.

 

The debtors also alleged that the mortgagee had actual knowledge that they were represented by counsel when the mortgagee received notice of the debtors' bankruptcy case.

 

As you may recall, subsection 559.72(18) of the Florida Statutes prohibits direct communication with a debtor with respect to a debt "if the person knows that the debtor is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney's name and address." "Actual knowledge is required to prove violations of Fla. Stat. § 559.72(18)." Nordwall v. PNC Mortg., No. 2:14-cv-747-FtM-CM, 2015 WL 4095350, at *3 (M.D. Fla. July 7, 2015).

 

The mortgagee argued that notice of the debtors being represented in a bankruptcy case is not sufficient to constitute actual knowledge that the debtors were represented with respect to this specific debt and relied on two recent decisions.  See Nordwall, 2015 WL 4095350, at *3 (holding that the plaintiff's counsel's "appearance in a separate [foreclosure] action does not constitute actual notice of representation for all-debt related activity"); Wright v. Select Portfolio Servicing, Inc., No. 8:14-cv-2298-T-30TGW, 2015 WL 419618, at *5 (M.D. Fla. Feb. 2, 2015) ("[T]he notice of appearance filed in the foreclosure action . . . was insufficient as a matter of law to place [the defendant] on notice that the [plaintiffs] were represented by counsel with respect to their debt.").

 

However, the Court again agreed with the debtors.  The Court held that, when an attorney files a notice of appearance in a bankruptcy case, the scope of representation is readily ascertainable as being related to all collection efforts with respect to the debts listed in that bankruptcy action. Here, the Court noted, the debtors alleged that the debt was listed in the bankruptcy proceedings and the mortgagee received notice of those proceedings. 

 

Accordingly, the Court held the debtors' allegations were sufficient to state a claim under the FCCPA and denied the mortgagee's motion to dismiss with respect to the FCCPA claim.

 

The debtors also asserted a claim pursuant to the TCPA alleging the mortgagee placed several calls to their cell phone using an automatic telephone dialing system, without their prior express consent.  The debtors also asserted that, if they did give consent, it was subsequently revoked.

 

The TCPA provides that "[i]t shall be unlawful for any person . . . to make any call (other than a call . . . made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice . . . to any telephone number assigned to a . . . cellular telephone service." 47 U.S.C. § 227(b)(1)(A)(iii).  Prior express consent is an affirmative defense for which the defendant bears the burden of proof.  Lardner v. Diversified Consultants Inc., 17 F. Supp. 3d 1215, 1224 (S.D. Fla. 2014).

 

The Court held the debtors' allegations were sufficient to state a claim under the TCPA and denied the defendant's motion to dismiss with respect to the TCPA claim.  The Court avoided making any ruling as to revocation of consent as it was not clear from the pleadings if the plaintiffs ever provided consent. 

 

Accordingly, the Court denied both the mortgagee's motion to strike the debtors' demand for jury trial and the mortgagee's motion to dismiss.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
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FYI: Fla App Ct (4th DCA) Holds FCCPA's Notice of Assignment Requirement Applies to Mortgagees, But Not Condition Precedent to Foreclosure

The District Court of Appeal of the State of Florida, Fourth District, recently reversed the dismissal of a foreclosure complaint, holding that the "notice of assignment of debt" requirement in the Florida Consumer Collection Practices Act ("FCCPA"), at Fla. Stat. § 559.715, was not a condition precedent to filing the foreclosure action.

 

However, the Court also held that "the notice requirement of section 559.715 applies to the mortgage foreclosure suit." 

 

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

 

A mortgagee sued to foreclose its mortgage.  The borrower raised an affirmative defense that the mortgagee failed to comply with section 559.715 of the FCCPA, which purportedly required the mortgagee to give the borrower written notice of assignment of the mortgage within 30 days before filing "any action to collect the debt."

 

At the conclusion of trial, the borrower moved for an involuntary dismissal, arguing  there was no evidence of compliance with section 559.715, which the borrower argued was a condition precedent to foreclosure.

 

The mortgagee argued in response that the FCCPA did not apply to mortgage foreclosure actions and the trial court agreed, denying the borrower's motion and entering a final judgment of foreclosure.

 

The borrower moved for rehearing and the trial court changed its mind, granted the motion, vacated the judgment and dismissed the complaint. The mortgagee appealed the dismissal order.

 

On appeal, the Fourth District first addressed whether section 559.715 applies to mortgage foreclosure actions or, more specifically, "whether a mortgage foreclosure suit is an 'action to collect the debt' [under section 559.55(1), which defines "debt"] and, as a separate and distinct issue, whether the notice requirement provided for in the statute acts as a condition precedent to bringing suit."

 

Looking to rulings interpreting the federal Fair Debt Collection Practices Act ("FDCPA"), to which the FCCPA directs courts to give "great weight," the Court reasoned that the majority view is that a mortgage foreclosure is the enforcement of a security interest and does not constitute debt collection.

 

The Fourth District further explained that the federal U.S. Court of Appeals for the Sixth Circuit in Glazer v. Chase Home Fin. LLC, 704 F.3d 453 (6th Cir. 2013), "found this approach unpersuasive and it looked to the text of the FDCPA for guidance."

 

As you may recall from our prior updates, the Sixth Circuit in Glazer reasoned that because the FDCPA defined "debt" as a consumer's obligation to pay money "arising out of a transaction …primarily for personal family, or household purposes" … [t]he focus on the underlying transaction indicates that whether an obligation is a 'debt' depends not on whether the obligation is secured, but rather upon the purpose for which it was incurred." In addition, the Sixth Circuit noted, nothing in the statute indicates an intent to exclude foreclosure actions from constituting debt collection activity and every foreclosure action is in fact an attempt to obtain payment of a debt.

 

In addition, the Fourth District here noted that "[t]he Third and Fourth Circuits have also issued opinions supporting the proposition that a mortgage foreclosure suit is an attempt to collect a debt."  See Kaymark v. Bank of Am., N.A., 783 F.3d 168, 179 (3d Cir. 2015); Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 376-77 (4th Cir. 2006).

 

The Court also looked to rulings by the federal U.S. Court of Appeals for the Eleventh Circuit, which "initially held that 'foreclosing on a security interest is not debt collection activity for purposes of [the FDCPA], … [but] later recognized that 'an entity that regularly attempts to collect debts can be a 'debt collector' … even when that entity is also enforcing a security interest."

 

The Fourth District here reasoned that the Eleventh Circuit's precedent "indicate that a mortgage foreclosure suit may or may not amount to an attempt to collect a debt, and whether it does depends on the surrounding circumstances." The Court then concluded that "[h]ere, those circumstances point to debt collection. … Given that the bank brought suit in order to obtain what it was owed, through the sale of the property and, if necessary, a deficiency judgment, the suit is an action to collect a debt and thus falls within the requirements of section 559.715."

 

Having found that section 559.715 applies to mortgage foreclosure actions, the Fourth District turned to whether the notice requirement in the statute acts as a condition precedent to bringing a foreclosure action. 

 

The Court looked to the language of the statute, noting that "[t]he plain language does not impose a bar on filing suit if notice is not provided", distinguishing the case at bar from cases cited by the borrower, "which all involve unambiguous statutory language providing a bar to suit if a specified act as not satisfied."

 

Moreover, even if the statute were ambiguous, the Fourth District noted, "the rules of statutory construction would lead to the same result. '[W]here reasonable differences arise as to the meaning or application of a statute, rules of statutory construction control.'" One of those rules allows the court to "examine the legislative history of the statute."

 

The Court found that "[t]he legislative history of section 559.715 does not reflect any intent by the Legislature that the notice provision of section 559.175 should operate as a condition precedent to filing a mortgage foreclosure suit." Also, "the Legislature has created a statutory scheme governing mortgage foreclosure suits [in Chapter 702, Florida Statutes, and] [t]he statutes comprising chapter 702 do not provide, as a condition precedent to filing suit, that creditors' assignees must give debtors notice of the assignment." Finally, the FCCPA provides for administrative and civil remedies for violation of section 559.72 … [but a] bar to filing suit is not provided for as a sanction."

 

In sum, the Court held that "the notice requirement of section 559.715 applies to the mortgage foreclosure suit."  However, the Court also held that "the notice requirement of the statute does not operate as a condition precedent to bringing a mortgage foreclosure suit."

 

Accordingly, the trial court's order was reversed and remanded with instructions to reinstate the final judgment of foreclosure.

 

 

 

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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FYI: NY Sup Ct Holds Notice of Default Not Required to Deceased Borrower's Estate

A New York Supreme Court held that the notice of default requirement in New York Real Property Actions and Proceeding Law § 1304 (RPAPL) applies only a borrower and not a borrower's estate. 

 

As a result, according to the Court, foreclosing entities do not have to provide a notice of default pursuant to the RPAPL to a borrower's estate after the death of the borrower.

 

A copy of the opinion may be found here:  Link to Opinion

A mortgagee commenced a residential mortgage foreclosure action after a deceased borrower's estate failed to make payments.  The mortgagee moved for summary judgment, and borrower's estate opposed the motion. 

 

The major issue of contention was whether the notice of default provision of the RPAPL § 1304 applies when the borrower is deceased. 

 

As you may recall, RPAPL § 1304 among other things mandates that the mortgagee must provide the borrower notice that the loan is in default and that the home is at risk, at least a ninety days before beginning an action against a borrower to foreclose on the mortgage.  Proper service of the notice is a condition precedent to the commencement of the foreclosure action. 

 

The New York Supreme Court, a trial court in Westchester County, considered various arguments from the borrower's estate but ultimately granted summary judgment and an order of reference in favor of the mortgagee.

 

The trial court noted that there was no New York Appellate Division case on point, but that several trial courts had addressed the issue.  Following other lower courts in the State of New York, the trial court found persuasive the method of service required by section 1304.  

 

Under RPAPL § 1304[2], the notice is to be sent to the borrower by registered or certified mail and by first class mail to the last known address of the borrower.  The trial court found the statute's language was specific to a borrower even if there were other non-borrowing parties with some interest in the property. 

 

The trial court also noted that while section 1304 does not define that term "borrower," logic dictates that a "borrower" is someone who, at a minimum, "either received something and/or is responsible to return it."

 

Accordingly, the Court held that the statute requires only that the borrower be given notice, and when the borrower is deceased, the provisions of RPAPL § 1304 are not applicable.

 

The trial court also rejected the estate's argument that there was an issue of fact precluding summary judgment.  Furthermore, the trial court did not find persuasive the estate's laches argument because the borrower had not made a mortgage payment since 2008. 

 

Last, the trial court held that a previous dismissal of a prior action commenced against the borrower was not dismissed on the merits and was consequently not res judicata precluding the present action.

 

Thus, the trial court granted the mortgagee's motion for summary judgment.

 

 

 

 

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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FYI: 11th Cir Rejects Late Recordation of Satisfaction Class Action Citing Spokeo

The U.S. Court of Appeals for the Eleventh Circuit recently rejected a putative class action against a mortgagee based on the alleged late recording of satisfactions of mortgage in supposed violation of New York law.

 

Citing Spokeo, Inc. v. Robins,136 S. Ct. 1540, 1548 (2016), the Court held that, because the lead plaintiff did not allege the violations actually caused him any harm or could do so, he lacked standing to sue and the Court thus lacked subject matter jurisdiction.

 

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

 

A borrower sold his property located in New York, and used the proceeds to pay off his mortgage loan. 

 

New York law generally requires the mortgage holder to file a certificate of discharge or satisfaction of mortgage with the county clerk within 30 days after the pay-off.  See N.Y. Real Prop. Law § 275; N.Y. Real Prop. Acts. Law § 1921.

 

The mortgagee did not record the satisfaction of mortgage until more than 90 days after the date of payment and, when the borrower discovered this, he filed a putative class action alleging the mortgagee violated New York Law by routinely failing to record satisfactions of mortgages within the statutory period.

 

The district court dismissed the complaint because a prior lawsuit filed by the same plaintiff had become moot due to an offer of judgment.  The plaintiff appealed.  The mortgagee moved to dismiss the appeal based on lack of subject matter jurisdiction.

 

As you may recall, federal courts have limited jurisdiction under the U.S. Constitution's Article III, which requires an actual "case or controversy" involving "adverse parties with personal interest in the matter."  "Article III restricts the jurisdiction of the federal courts to litigants who have standing to sue."

 

Standing has "three elements: injury in fact, causation, and redressability."  The Eleventh Circuit explained that "[t]o determine whether [plaintiff] has standing, we must decide whether he alleges an injury in fact. Absent an alleged injury, [he] cannot make out a case or controversy under Article III. A plaintiff has injury in fact if he suffered an invasion of a legally protected interest that is concrete, particularized, and actual or imminent. … "[I]ntangible injuries may satisfy the Article III requirement of concreteness. … For example, a plaintiff who alleges a violation of a statutory right to receive information alleges a concrete injury."

 

The Court then turned to "determine whether the intangible harm cause by the delay in recording the certificate of discharge constitutes a concrete injury in fact."

 

The plaintiff argued that he suffered a concrete injury for two reasons: first, "the New York legislature intended to create a substantive right to have the certificate of discharge timely recorded. Second, the right to have a satisfaction of mortgage timely recorded has deep roots in American common law."

 

The Eleventh Circuit rejected both arguments. First, the Court noted, the question was not whether New York law created a substantive right to timely recording of a satisfaction, but whether the plaintiff "was harmed when his statutory right was violated."

 

Relying on the Supreme Court's ruling in Spokeo, Inc. v. Robins that "not all statutory violations 'cause harm or present any material risk of harm,' the Eleventh Circuit concluded that the plaintiff "alleges neither a harm nor a material risk of harm that the district court could remedy."

 

The Eleventh Circuit note that the plaintiff did not allege that "he lost money because [the bank] failed to file the certificate." He also did not allege any injury to his credit rating. Finally, he did not allege that he or anyone else knew that the certificate of discharge was not recorded timely and the lawsuit was not filed until two years after the bank recorded the satisfaction. Thus, the Court ruled, the plaintiff failed "to allege eve a material  risk of harm at this late date."

 

The Eleventh Circuit explained that just because the plaintiff did not allege sufficient injury in fact under Article III does not mean he had no cause of action under New York law.

 

"But [he] chose to sue … in federal court, and the requirement of concreteness under Article III is not satisfied every time a statute creates a legal obligation and grants a private right of action for its violation. … A plaintiff must suffer some harm or risk of harm from the statutory violation to invoke the jurisdiction of a federal court."

 

The Eleventh Circuit next rejected the plaintiff's argument "that the right to have a certificate of discharge timely filed upon satisfaction of a mortgage has deep roots in remedies available at common law" because this argument "misapprehends the nature of those remedies." The Court reasoned that the Nineteenth Century cases cited in support were inapposite because "these causes of action provided a remedy to prevent the risk of harm that occurred while title to property was wrongfully clouded, not a remedy after the cloud was lifted."

 

The Court concluded that because the plaintiff alleged only that the mortgagee "recorded the certificate late and nothing else, [he] has failed to establish that he suffered or could suffer any harm that could constitute a concrete injury."

 

Because the plaintiff lacked standing to sue, the Eleventh Circuit determined that it did not need to "decide whether the earlier order of dismissal as moot bars relitigation of that issue…" and dismissed the appeal for lack of jurisdiction.

 

 

 

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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FYI: CFPB Uses UDAAP in FDCPA-Like $28.5MM Consent Order Against Depository Institution

The federal Consumer Financial Protection Bureau (CFPB) recently entered into a $28.5 million Consent Order with a depository institution for alleged violations of the "unfair, deceptive, or abusive" acts or practices provisions of 12 U.S.C. §§ 5531 and 5536 relating to the depository institution's collection of its delinquent accounts.

 

A copy of the Consent Order is available at:  Link to Consent Order

 

Among other things, the alleged "unfair, deceptive, or abusive" acts or practices included:

 

 

▪ Threatening legal action the depository institution did not intend to take.

 

As you may recall, it is a violation of the federal Fair Debt Collection Practices Act (FDCPA) to threaten "to take any action that cannot legally be taken or that is not intended to be taken."  See 15 U.S.C. § 1692e(5).

 

Here, the CFPB charged the depository institution with sending letters to approximately 193,000 delinquent customers "creating the net impression" that the depository institution intended to sue to collect on the delinquent accounts.  However, the CFPB charged, the depository institution "filed fewer than 5,000 debt collection lawsuits" against its customers.  The CFPB asserted that this means the depository institution's letters were inaccurate 97% of the time.

 

The CFPB alleged that the depository institution did not engage in any account-specific review prior to threatening legal action, but rather treated all delinquent accounts as "recommended for litigation."

 

The CFPB asserted that these practices constituted "deceptive acts or practices" in violation of 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).

 

 

▪ Threatening wage garnishment the depository institution when did not intend and did not yet have authority to do so.

 

As you may recall, it is a violation of the FDCPA to represent or imply that "nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to take such action."  See 15 U.S.C. § 1692e(4).

 

Here, the CFPB charged that many of the approximately 193,000 letters to delinquent customers threatened garnishment of wages, which the CFPB noted was not available without a court judgment.

 

With the allegations relating to the threats of legal action in the letters, the CFPB alleged that the depository institution "filed fewer than 5,000 debt collection lawsuits" against its customers. 

 

The CFPB asserted that these practices constituted "deceptive acts or practices" in violation of 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).

 

 

▪ Threatening to contact commanding officers to pressure servicemembers to make payment.

 

As you may recall, it is a violation of the FDCPA to communicate in connection with the collection of a debt with a third party "without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy," subject to certain limited exceptions.  See 15 U.S.C. § 1692c(b).

 

Here, the depository institution's customers were military servicemembers.  The depository institution allegedly sent 115 letters threatening to contact the customer's commanding officer if payment were not made.  The CFPB asserted that there was no evidence that the depository institution ever followed up on these threats. 

 

In addition, the CFPB alleged that the depository institution lacked its customers' consent to contact the third party commanding officers.  Although the depository institution's account agreements allowed such contact, the CFPB asserted that this contract clause "was buried in fine print, non-negotiable, and not bargained for by consumers."

 

The CFPB asserted that these practices constituted "deceptive acts or practices" in violation of 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).

 

 

▪ Making false statements about credit rating consequences of non-payment.

 

As you may recall, it is a violation of the FDCPA to use "any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer."  See 15 U.S.C. § 1692e(10).

 

Here, the CFPB asserted that the depository institution sent approximately 68,000 letters to delinquent customers stating "You will find it difficult, if not impossible, to obtain additional credit because of your present unsatisfactory credit rating" with the depository institution, and that the customer could "repair" his or her "credit" or "credit reputation" by calling the depository institution.

 

The CFPB charged that the depository institution "did not review or analyze the recipients' particular credit situations before sending the letters," and had no basis to assert "that the recipients of the letters would necessarily find it difficult or impossible to obtain additional credit, or that the consumers' credit reputation would be repaired if they contacted" the depository institution.

 

The CFPB also alleged that it was inaccurate for the depository institution "to imply that it could, itself, raise or lower consumers' credit ratings or improve consumers' access to credit."

 

The CFPB asserted that these practices constituted "deceptive acts or practices" in violation of 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).

 

 

▪ Freezing electronic account services for delinquent accounts.

 

As you may recall, it is a violation of the FDCPA to "use unfair or unconscionable means to collect or attempt to collect any debt."  See 15 U.S.C. § 1692f.

 

Here, the CFPB charged that the depository institution froze delinquent customers' access to electronic account services, including debit card services, ATM services, online access, electronic funds transfers, travel alerts, Social Security Administration verification requests, and other such services.

 

The CFPB alleged that the depository institution also "did not provide adequate notice to consumers of an impending electronic freeze," and did not make exceptions for "accounts containing protected federal benefits, such as Social Security Income and veteran's benefits."

 

The CFPB asserted that these practices constituted "unfair acts or practices" in violation of 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).

 

 

As part of the Consent Order, the depository institution is required to correct its debt collection practices, stop blocking account services for delinquent customers, pay roughly $23 million to its affected customers, and pay a civil money penalty of $5.5 million.

 

 

 

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

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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FYI: 7th Cir Holds CRA's "Reasonable Investigation" Under FCRA Does Not Include Handwriting Analysis

The U.S. Court of Appeals for the Seventh Circuit recently held that a credit reporting agency had no duty under the federal Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. (FCRA), to verify the accuracy of a consumer's signature in a case of alleged forgery. 

 

A link to the opinion is available at:  Link to Opinion

 

The defendant, one of the three major credit reporting agencies, prepared a credit report based on information it received from a car dealership that the plaintiff was in arrears on a car lease.  The plaintiff informed the credit reporting agency that the signature on the lease extension at issue was forged. 

 

Referencing 15 U.S.C. §  1681i(a)(1)(A), the plaintiff demanded that the credit reporting agency "conduct a reasonable investigation" to determine whose lease it was.  The credit reporting agency reached out to the car dealership to confirm the accuracy of the report.  Neither the credit agency nor car dealership checked to see if the signature was forged.

 

The plaintiff brought a claim against the credit reporting agency under FCRA, 15 U.S.C. §§ 1681n(a), o(a), and p(a), alleging that the credit reporting agency's investigation was not "reasonable".  The district court dismissed the claims for failure to state a claim, holding that the credit reporting agency had no duty to verify the signatures because the car dealership was in a better position to determine the validity of the signature. 

 

As you may recall, under FCRA, "if the completeness or accuracy of any item of information contained in a consumer's file at a consumer reporting agency is disputed by the consumer and the consumer notifies the agency directly, or indirectly through a reseller, of such dispute, the agency shall, free of charge, conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate and record the current status of the disputed information." 15 U.S.C. §  1681i(a)(1)(A). 

 

The plaintiff argued the credit reporting agency did not conduct an adequate investigation and essentially want them to do "more."  The Seventh Circuit noted that the "more" would be hiring a handwriting expert or speak with the dealership's employees to find out who signed the lease extension.

 

The Seventh Circuit held that the car dealership was in a better position to determine the validity of its own lease, noting that the lease extension was created by the car dealership, and that the credit reporting agency had nothing to do with the agreement. 

 

The Court noted that it would be unrealistic to expect a credit reporting agency to verify the signature by communication with the car dealership's employees who handled the transaction.   The credit reporting agency made the appropriate decision to have the car dealership confirm the accuracy of the documents as the credit agency did not have access to any documents that could resolve the issue.  Henson v. CSC Credit Services, 29 F.3d 280, 287 (7th Cir. 1994).

 

The Court reasoned that forcing a credit reporting agency to hire a handwriting expert in every case of alleged forgery would impose an expense disproportionate to the likelihood of an accurate resolution of the dispute over whether it was indeed forgery.

 

In addition, the Seventh Circuit noted that FCRA's provisions for identity theft, 15 U.S.C. §§ 1681c-1, c-2, asks persons who believe they are or may be victims of credit fraud to report to the police before turning to the credit reporting agency.  Here, the plaintiff did not file any report.

 

The Court also noted that the plaintiff sued the car dealership in a separate action.  He had the opportunity to conduct discovery of the dealerships employees as to the signature on the lease extension.  He chose to settle the matter.  When the parties settled, the terms and documents were to be confidential and were not provided in this appeal. The court was never made aware of the terms of the agreement or given the opportunity to examine the signatures.  The plaintiff withheld evidence from the court that he believed was conclusive in his favor.

 

Accordingly, the Seventh Circuit  affirmed the district court's dismissal for failure to state a plausible claim for relief under FCRA. 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com

 

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