FYI: 2nd Cir Holds No FDCPA Violation for Failure to Disclose Whether Fees or Interest Continues to Accrue

In an unpublished ruling, the U.S. Court of Appeals for the Second Circuit held that when a debt collector did not seek to collect fees and interest after default, its letter to a borrower that did not state whether fees and interest continued to accrue after default did not engage in deceptive or misleading conduct in violation of the FDCPA.

 

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

 

After a borrower ("Borrower") defaulted on her credit card account, the original creditor assigned the account to a debt collector ("Debt Collector").  The Debt Collector sent a letter (the "Letter") to the Borrower requesting that she contact the Debt Collector to resolve the debt.  The Letter listed the amount due on the account.  However, the Letter did not indicate "whether interest and fees continued to accrue while the account was in collection."

 

The Borrower sued the Debt Collector alleging that the Letter violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq., because the failure to indicate whether interest and fees continued to accrue was a "deceptive or misleading collection notice."

 

The parties filed cross-motions for summary judgment.  The trial court granted the Debt Collector's motion and denied the Borrower's motion.  This appeal followed.

 

The Second Circuit reviewed the grant and denial of summary judgment de novo.

 

Initially, the Second Circuit observed that it previously decided in Taylor v. Financial Recovery Services, Inc., 886 F.3d 212 (2d Cir. 2018) that collection notices that do not state whether interest and fees continue to accrue on a debt do not violate the FDCPA "per se."  Specifically, if a debt is not accruing any interest and fees, then, "a collection notice that fails to disclose that interest and fees are not currently accruing on a debt is not misleading within the meaning" of the FDCPA. Id. at 215.

 

The remaining issue involved if the Borrower created a genuine dispute of material fact regarding whether the Debt Collector continued to charge interest and fees on the account after acquiring the debt sufficient to defeat summary judgment. 

 

In support of its motion for summary judgment, the Debt Collector submitted a declaration that it did not charge interest or fees to the account.  The Debt Collector also introduced two letters into evidence, one of which the Borrower did not dispute receiving, which showed that the amount the Borrower owed on the debt did not change over time.

 

In response, the Borrower introduced her declaration stating that her account had previously "accrued interest on any balances carried, and late fees on any late or missed payments," and the generic credit card agreement, which allowed the creditor, if it chose to do so, to collect interest and fees after default. 

 

The Second Circuit found that the Borrower's evidence failed to create a genuine dispute of material fact because whether the account accrued interest and fees when the original creditor administered the account does not establish whether the Debt Collector continued to attempt to collect interest and fees after it acquired the debt.  The Borrower's speculation that the Debt Collector continued the original creditor s practice failed to defeat summary judgment against the specific evidence present here that the Debt Collector did not continue to collect fees and interest after the assignment of the debt.

 

Thus, the Second Circuit determined that the Borrower failed to demonstrate a genuine dispute of material fact regarding whether the Debt Collector continued to charge interest and fees on the account after acquiring the debt. 

 

Accordingly, the Second Circuit affirmed the trial court's judgment in favor of the Debt Collector.

 

 

 

 

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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Email: rwutscher@MauriceWutscher.com

 

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FYI: 1st Cir Holds Reference to "Auction Price" Rather Than "Fair Market Value" Insufficient for Deficiency Notice

The U.S. Court of Appeals for the First Circuit recently held that, at least under the Massachusetts version of the UCC, post automobile repossession and sale notices must expressly advise the borrower that any deficiency will be calculated using the difference between the amount owed on the loan and the fair market value of the vehicle instead of the difference between the amount owed on the loan and the auction sale price.

 

In so ruling, the Court held that the defendant's compliance with the safe-harbor provision contained in the Massachusetts UCC that uses the auction sale proceeds to measure any deficiency was not sufficient to avoid liability.

 

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

 

Plaintiff filed a putative class action alleging that an auto finance company defendant violated Massachusetts consumer protection laws by failing to provide her with adequate loan deficiency notifications after she defaulted on her automobile loan. 

 

The defendant allegedly repossessed the automobile and sent the plaintiff a post-repossession notice to the plaintiff advising her that the defendant intended to sell the automobile at auction.  The notice informed the plaintiff that: "[t]he money received from the sale (after paying our costs) will reduce the amount you owe.  If the auction proceeds are less than what you owe, you will still owe us the difference."

 

The car sold for $8,900 at auction.  After the auction, the defendant sent another notice to plaintiff advising that it calculated her deficiency by subtracting the auction sale price from the outstanding loan balance.

 

The plaintiff alleged that the notices violated the Massachusetts version of the Uniform Commercial Code ("UCC") and the Massachusetts consumer protection statute, Mass. Gen. Laws ch. 93A, § 2(A), because they calculated plaintiff's deficiency liability using the automobile sale price at auction instead of the automobile's fair market value.

 

The trial court entered summary judgment in favor of the defendant finding that the notice tracked the safe-harbor provision contained in the Massachusetts UCC that uses the auction sale proceeds to measure any deficiency and because the plaintiff did not provide any evidence that the fair market value exceeded the auction proceeds. The plaintiff appealed.

 

The First Circuit first certified the matter to the Massachusetts Supreme Judicial Court because the claims depended on questions of Massachusetts law.  Relevant to the First Circuit's opinion, the Supreme Judicial Court held that post-repossession and post-sale notices like the notices defendant sent to plaintiff must "expressly describe the deficiency as the difference between the amount owed on the loan and the fair market value of the vehicle."

 

Initially, the First Circuit, affirmed the trial court's ruling that plaintiff did not demonstrate that the fair market value exceeded the auction proceeds because she failed to offer sufficient evidence to meet her burden of proof on this issue.

 

The First Circuit then turned to whether the defendant's post-repossession and post-sale notices complied with Massachusetts law.  Applying the new Supreme Judicial Court standard here, the First Circuit had little trouble concluding that the notices defendant sent to plaintiff did not comply because they described the deficiency as the difference between the amount owed and the money received from the sale when the notices must describe the deficiency as the difference between the amount owed and the automobile s fair market value.

 

The First Circuit rejected the defendant's argument that fair market value is the same as the auction price here and that its notices, which used the safe-harbor language in Mass. Gen. Laws ch. 106, § 9-614(3), therefore "conveyed the fair market value concept" because the Supreme Judicial Court "made it clear that a creditor's use of the UCC safe-harbor language in deficiency notifications is inadequate under Massachusetts law."

 

The First Circuit also rejected the defendant's argument that applying the Supreme Judicial Court's holding to it after it sent the notices violated its "constitutional right to due process" because the defendant failed to raise this issue in the trial court proceeding or on appeal before the Supreme Judicial Court's ruling.  The defendant therefore waived this argument.

 

Thus, the First Circuit determined that the trial court's entry of summary judgment in favor of the defendant was improper and remanded for further proceedings consistent with its opinion.

 

 

 

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: 7th Cir Holds Debt Collector Waived Arbitration by "Gratuitous Delay"

The U.S. Court of Appeals for the Seventh Circuit held that a defendant waived its right to arbitrate due to its "gratuitous delay" in seeking arbitration, where it waited thirteen months after the filing of the lawsuit before moving to compel arbitration, and that any showing of prejudice to the non-moving party was not required.

 

Accordingly, the Seventh Circuit affirmed the trial court's ruling denying a motion to compel arbitration.

 

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

 

The plaintiff ("Plaintiff") applied for and received a credit card from a bank ("Bank").  The credit card contract included an agreement to arbitrate all disputes related to the account.  The agreement also contained a waiver of the right to seek class action relief. 

 

The Bank hired a debt collector ("Collector") to collect an allegedly unpaid balance on the credit card.  The Collector informed the Plaintiff that it would commence collection proceedings unless she disputed the debt in writing.  

 

On July 15, 2016, the Plaintiff brought a class action suit against the Collector arguing that it violated the federal Fair Debt Collection Practices Act when it required her to dispute the debt in writing.

 

In August 2016, the Collector filed a motion to dismiss for failure to state a claim, lack of standing, and lack of personal jurisdiction.  The motion did not mention the arbitration agreement.

 

The Plaintiff subsequently filed an amended complaint and renewed her motion for class certification.  The Collector again filed a motion to dismiss and opposed the class certification, but did not mention the arbitration agreement in any of its briefs.

 

While the motions were pending, several discovery disputes arose an on February 17, 2017, the magistrate scheduled a discovery conference. 

 

After the discovery conference was held, the Collector sent the Plaintiff a letter on March 10, 2017 notifying her of the arbitration agreement and demanding arbitration.  Three days later, the Plaintiff unequivocally refused to proceed to arbitration.

 

The letter was not filed, and the trial court was not notified that the Collector had demanded arbitration.

 

On April 19, 2017, the Collector filed an answer and affirmative defenses to the amended complaint.  The Collector did not mention the arbitration agreement.

 

On June 19, 2017, the trial court denied the Collector's motion to dismiss. 

 

On August 7, 2017, thirteen months after the suit began, the Collector moved to compel arbitration. 

 

The trial court denied the motion on two grounds.  First, it found that as a non-signatory to the arbitration agreement, the Collector could not enforce the agreement.  Second, it found that the Collector waived any right to arbitrate by not diligently asserting that right. 

 

The Collector appealed. 

 

On appeal, the Seventh Circuit first addressed the issue of whether the Collector had waived any right to compel arbitration.

 

In analyzing the issue, the Court first noted that "[l]ike any other contractual right, the right to arbitrate can be waived."  Further, if the Collector "waived any right to arbitrate, the company necessarily waived any right to oppose class certification premised on the agreement."

 

The Plaintiff did not argue that the Collector expressly waived any right to arbitrate.  Thus, the question was "whether we should infer that forfeiture occurred."

 

To determine whether a forfeiture occurred, a court must "determine that, considering the totality of the circumstances, a party acted inconsistently with the right to arbitrate."

 

The Seventh Circuit explained that "[m]any factors are relevant to this analysis, but due diligence or the lack thereof is particularly important."  Included in the consideration is "whether the allegedly defaulting party participated in litigation, substantially delayed its request for arbitration, or participated in discovery." 

 

However, the court "need not find that the nonmoving party was prejudiced by the delay in seeking arbitration." 

 

The Seventh Circuit noted that the Collector "did not privately demand arbitration until eight months after the Plaintiff filed suit," and then after the Plaintiff's refusal, "waited another five months before moving to compel." 

 

Further, the Collector's "explanation for these delays [was] entirely inadequate," as it claimed it was initially unaware of the agreement.  The Seventh Circuit found this explanation "suspect," as such arbitration agreements are commonplace, and "federal regulations require credit card issuers to post their credit card agreements online." 

 

Moreover, the Court noted that even setting aside the initial eight-month delay, "the company's actions from that point were unjustified and manifestly inconsistent with an intention to arbitrate" because it filed an answer to the complaint which contained no reference to the agreement, and it failed to supplement its briefs on the motion to dismiss and for class certification even though those motions remained pending.

 

The Seventh Circuit therefore held that "[o]n these facts, the district court's conclusion that [the Collector] waived its right to arbitration was not erroneous."

 

Because it determined that the Collector waived any right to arbitrate, the Seventh Circuit did not reach the issue of whether the Collector could have enforced the arbitration agreement as a non-signatory.

 

 

 

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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