The U.S. Court of Appeals for the Seventh Circuit held that a mortgage field servicing company's actions were too attenuated from its mortgage servicer client's own-debt collection efforts to be considered a debt collector under the federal Fair Debt Collection Practices Act ("FDCPA").
Accordingly, the Seventh Circuit affirmed the ruling of the trial court granting the company's motion for summary judgment.
A copy of the opinion is available at: Link to Opinion
The plaintiff homeowners ("Plaintiffs") owned property that was subject to an FHA-insured mortgage loan serviced by a mortgage loan servicer ("Servicer"). Plaintiffs defaulted on their mortgage loan.
The Servicer contracted with a mortgage field servicing company ("Company") to perform a variety of services on properties with defaulted mortgages, including lawn maintenance and winterization services. Additionally, the Servicer arranged with the Company to assist it in complying with certain Department of Housing and Urban Development ("HUD") regulations to which its properties with FHA-insured mortgages were subject.
Specifically, the Servicer contracted with the Company to perform "contact attempt inspections" where a Company representative would visit the property to determine its occupancy status and place a door hanger on an outside doorknob of the property. The door hanger requested that the person call the Servicer at the number provided, and stated to "please be ready to give your account number," and "we are expecting your call today." The number listed was for the Servicer.
When the Servicer was unable to contact the Plaintiffs about their delinquent payments, it arranged with the Company to perform a series of such contact attempt inspections at the property. During each of the inspections, the Company representative left the Servicer's door hanger on the Plaintiffs' door.
On at least one occasion, one of the Plaintiffs encountered a Company representative, who did not identify himself as being employed by the Company or anyone else, and told the plaintiff he was "[j]ust doing [his] job."
Plaintiffs stated that they called the number on the door hanger and it took them right to the Servicer.
Plaintiffs filed a lawsuit alleging the Company violated the FDCPA by not including the initial disclosure requirements of 15 U.S.C. § 1692g. Plaintiffs also alleged that the Company violated section 1692e(11), which requires debt collectors to disclose in their initial communications that they are communicating with the debtor in an attempt to collect a debt.
The Company moved to dismiss arguing that it was not a "debt collector" within the meaning of the FDCPA. The trial court denied the motion to dismiss.
The case proceeded through discovery and the parties filed cross-motions for summary judgment. Based on the record evidence, the trial court held that the Company was not a debt collector and therefore not subject to the FDCPA's requirements. It therefore granted its motion for summary judgment. Plaintiffs then appealed.
On appeal, the Seventh Circuit first examined the language of the FDCPA, noting that its "substantive provisions apply only to debt collectors," and "only to communications made 'in connection with the collection of any debt.'"
The Court explained that there are two categories of debt collectors: (1) "those whose 'principal purpose . . . is the collection of any debts,'" and (2) "those who regularly collect[] or attempt[] to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.'"
"Here, the parties appropriately focus on whether [the Company's] contact attempt inspections are 'indirect' debt collection services under the second prong."
In ruling that the Company was not a debt collector, the Seventh Circuit held: "we cannot say that [the Company] engages in direct debt collection simply by leaving a door hanger that asks the homeowner to call [the Servicer]."
Moreover, the Court determined that the Company was not an indirect debt collector, which it noted was "consistent with our interpretation of a separate, threshold requirement . . . that the communication being made was 'in connection with' debt collection."
The Seventh Circuit explained that it had not established a "bright-line rule" for determining whether a communication was made in connection with debt collection, but instead "described it as a 'commonsense inquiry' consisting of several factors, none of which is dispositive."
The factors include whether the communication includes a demand for payment, the nature of the parties' relationship, and the purpose and context of the communication judged by an objective standard.
In analyzing these factors, the Court noted that the door hangers did not make a demand for payment, and only provided the Servicer's name and phone number. Further, they contained no offers of debt settlement or for payment options. Thus, the Court concluded that the "door hangers are left in connection with property preservation, not debt collection."
Because the Company was "so far removed from [the Servicer's] actual debt-collection process . . . it cannot be said to have engaged in debt collection, even indirectly, under § 1692a(6)." Instead, "[t]he principal purpose of the contact inspection is to assist [the Servicer] in its FHA property preservation efforts, not its debt-collection efforts."
However, the Court cautioned that "what constitutes 'indirect' debt collection will have to be determined on a case-by-case basis until the case law produces a more robust understanding of that concept." Further, "[o]ur holding today is limited to the situation before us, a situation that implicates none of the concerns articulated by Congress in enacting the statute."
Ralph T. Wutscher
Maurice Wutscher LLP
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