FYI: 4th Cir Holds FCRA Furnisher Liability Claim Not Viable Against Federal Gov't

The U.S. Court of Appeals for the Fourth Circuit recently held that a trial court lacked jurisdiction over a claim for violation of the federal Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. ("FCRA") involving a student loan administered by the U.S. Department of Education because Congress did not waive sovereign immunity for suits under FCRA.

 

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

 

This appeal arose from the plaintiff's claim that the government agency responsible for administering the federal student loan program violated FCRA. 

 

The plaintiff alleged that the government agency violated 15 U.S.C. § 1681s-2(b), which requires a furnisher after being notified that a consumer disputes information relating to his credit, to "conduct an investigation with respect to the disputed information."  His dispute concerned an allegedly fraudulent student loan in his name.

 

The government agency filed a motion to dismiss for lack of subject matter jurisdiction based on sovereign immunity.  The trial court granted the motion to dismiss.

 

The only issue on appeal was whether the United States waived sovereign immunity for suits alleging that the federal government willfully or negligently violated FCRA.

 

As you may recall, the Supreme Court of the United States has recognized that sovereign powers have "traditionally enjoyed" a "common-law immunity from suit."  Santa Clara Pueblo v. Martinez, 436 U.S. 49, 58 (1978).  "Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit."  FDIC v. Meyer, 510 U.S. 471, 475 (1994).

 

"A waiver of the Federal Government's sovereign immunity must be unequivocally expressed in statutory text and will not be implied."  Lane v. Pena, 518 U.S. 187, 192 (1996).  Waivers cannot contain an ambiguity, which "exists if there is a plausible interpretation of the statute that would not authorize money damages against the Government."  FAA v. Cooper, 566 U.S. 284, 290-91 (2012).

 

On appeal, the Fourth Circuit first noted that FCRA's causes of action for willful and negligent violations apply to any "person."  15 U.S.C. §§ 1681n-1681o. 

 

The statute itself defines "person" to include "any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity."  15 U.S.C. § 1681a(b). 

 

The plaintiff argued that because the federal government is a "government", and any "government" is a person, and as any "person" can be liable, the government agency can be liable for FCRA violations.

 

The Fourth Circuit disagreed, explaining that the word "person" should not be interpreted on a blank state because there is a "longstanding interpretative presumption that "person" does not include the sovereign."  Vt. Agency of Nat. Res. v. U.S. ex. rel. Stevens, 529 U.S. 765, 780 (2002). 

 

Although § 1681a(b)'s definition of a "person" includes the term "government," the Fourth Circuit observed that the federal government is ordinarily not considered to be a person under 1 U.S.C. § 1 (general definition of "person" throughout the United States Code). 

 

The Fourth Circuit further observed that statutes waiving sovereign immunity are normally quite clear, citing the Little Tucker Act (28 U.S.C. § 1346(a)(2)) and the Federal Tort Claims Act (28 U.S.C. § 2674), both of which specifically describe claims against the United States. 

 

The definition section on which the plaintiff relied did not specifically mention the United States or the federal government.  Instead, it described only liability against a "person." 

 

This, as the Fourth Circuit explained, was "hardly evidence of an unequivocal intent to waive federal sovereign immunity in the same way as statutes that specifically describe actions against the United States."

 

The Fourth Circuit also addressed one explicit waiver of sovereign immunity elsewhere in FCRA that did not apply to plaintiff's claims. 

 

Section 1681u empowers the Federal Bureau of Investigation to obtain information from consumer reporting agencies in connection with its counterterrorism efforts.  This section contained a clear waiver:  "Any agency or department of the United States obtaining or disclosing any consumer reports, records, or information contained therein in violation of [§ 1681u] is liable to the consumer to whom such consumer reports, records, or information relate" for statutory, actual, and sometimes punitive damages.  15 U.S.C. § 1681u(j).

 

Unlike the asserted waiver on which the plaintiff relied, the Fourth Circuit described the waiver in § 1681u(j) as "plain as day."

 

The Fourth Circuit also noted that federal agencies are sometimes required by law to report delinquent debts to the consumer reporting agencies.  Each report would give rise to potential liability under FCRA.  The true cost of a waiver could be enormous when considering the potential for punitive damages.

 

The Fourth Circuit further noted FCRA empowers the Federal Trade Commission and the Consumer Finance Protection Bureau to enforce its various provisions.  States also play a role in enforcing FCRA's various provisions.  Thus, a waiver would permit federal agencies and states to pursue punitive damages against the federal government. 

 

The Fourth Circuit concluded that "FCRA's text and structure make clear that no unambiguous and unequivocal waiver of sovereign immunity has taken place," as required.

 

Accordingly, the Fourth Circuit affirmed the trial court's dismissal of the case for want of subject matter 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

 

 

 

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

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments 

 

FYI: 11th Cir Says Offering to 'Resolve' a Time-Barred Debt Can Violate FDCPA Absent Disclosures

The U.S. Court of Appeals for the Eleventh Circuit recently ruled that an offer to "resolve" a debt without disclosing its time-barred status may be deceptive or misleading under the federal Fair Debt Collection Practices Act (FDCPA) even in the absence of an express threat of litigation.

 

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

 

The letter at issue stated the debt collector wanted to "resolve" the consumer's account by accepting a reduced amount by a specific date.  The consumer filed a lawsuit alleging the letter was false and misleading in violation of 15 U.S.C. § 1692e.

 

Relying on Freyermuth v. Credit Bureau Services, Inc., 248 F.3d 767 (8th Cir. 2001), Huertas v. Galaxy Asset Management, 641 F.3d 28 (3d Cir. 2011), and Elrich v. Convergent Outsourcing, Inc., the trial court dismissed the complaint with prejudice because the letter "did not contain any language that could be interpreted as initiating or threatening legal action" on a time-barred debt.

 

The trial court distinguished the case from Daugherty v. Convergent Outsourcing, Inc., 836 F.3d 507 (5th Cir. 2016), Buchanan v. Northland Group., Inc., 776 F.3d 393 (6th Cir. 2015), and McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir. 2014), which held that using the word "settle" could imply an impermissible threat of litigation when used with respect to a time-barred debt.

 

The trial court was of the opinion that "resolve" did not rise to the same level of litigation threat as "settle."

 

Violation Can Occur Without Express Threat of Litigation

 

On appeal, the Court was persuaded by the very decisions from which trial court distinguished the case.  Following the reasoning of those cases, the Court concluded that "an express threat of litigation is not required to state a claim for relief under § 1692e so long as one can reasonably infer an implicit threat."

 

The Court noted that the deadline for the payment and the notice that there was no obligation to renew the offer heightened the possibility of such an inference.  Further, the Court was not convinced that the word "resolve" was "materially distinguishable" from the word "settle."

 

Although the defendants argued it would be "untenable" to require debt collectors to "analyze and advise debtors as to the merits of any potential statute of limitations defense," the Court saw no such burden.  Quoting Buchanan, "if a debt collector is unsure about the applicable statute of limitations, it would be easy to include general language about that possibility. . ."

 

Thus, in reversing the decision of the trial court on this issue, the Court held that any language that could reasonably imply the threat of litigation on time-barred debt violates the FDCPA unless accompanied by a notice that the debt is, in fact, time-barred.

 

NY Trial Court Dismisses Similar Claim

 

Another recent case on the issue presents an interesting comparison.

 

In Hollander v. Alliant Capital Mgmt., LLC, No. 18-CV-02808 (DLI)(VMS), 2019 U.S. Dist. LEXIS 58381 (E.D.N.Y. Mar. 31, 2019), the plaintiff argued that a collection letter violated the FDCPA by failing to disclose that the time-barred debt could not be enforced by legal action and that a partial payment might restart the statute of limitations.

 

The decision noted that the Second Circuit Court of Appeals has yet to address the issue of whether "time-barred" debt disclosures are required but dismissed the claim, nonetheless.

 

Although the FDCPA claim was premised on a debt being collected after the statute of limitations had expired, the court found that the complaint offered no factual allegations to support that conclusion because it: 1) did not state the date the debt was incurred; 2) did not state which statute of limitations applied; and 3) did not specify when the statute of limitations expired.

 

Therefore, the plaintiff's claim was an "unadorned legal conclusion."  The complaint filed with the trial court in Holzman in the Southern District of Florida similarly failed to plead those elements.

 

 

 

 

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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments 

 

FYI: 5th Cir Holds Providing Reason for Loss Mit Denial Once Is Enough Under RESPA

The U.S. Court of Appeals for the Fifth Circuit recently held that a mortgage servicer only had to comply with the federal Real Estate Settlement Procedure Act ("RESPA") requirements regarding loss mitigation applications once when the servicer had already provided the same reasons the denial of a loan modification in response to a prior loss mitigation application.

 

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

 

In 2005, a borrower executed a deed of trust in favor of a lender to refinance his home. In 2012, the servicer began servicing the loan. In 2014, the mortgagee became the holder of the note secured by the deed of trust.  The borrower went in and out of default several times since 2009 and last made a loan payment in 2014.

 

In 2012, the servicer initiated a foreclosure, and the borrower submitted the first of four loss mitigation applications.  The servicer denied the loan modification request because the loan owner did not allow the modification.  The servicer subsequently denied the other three modification applications over several years.

 

In 2015, the servicer accelerated the loan and set the property for foreclosure.  In response, the borrower filed to suit in state court against the mortgagee and the servicer to stop the foreclosure.  The defendants removed the case to federal court. 

 

Relevant to this appeal, the borrower alleged that the mortgagee and servicer defendants violated RESPA and the Texas Debt Collection Act ("TDCA").  Specifically, the borrower alleged that defendants violated section 1024.41(c) and (d) of RESPA's implementing regulation because, even though the loan owner did not change and the servicer had previously identified the loan owner, subsequent loss mitigation denials did not "repeat the name of the owner of the mortgage note."

 

As you may recall, 12 U.S.C. § 1024.41(c) provides that after receiving a completed loss mitigation application more than 37 days before a foreclosure sale, the loan servicer shall (1) "[e]valuate the borrower for all loss mitigation options available to the borrower" and (2) "[p]rovide the borrower with a notice in writing stating the servicer's determination of which loss mitigation options, if any, it will offer to the borrower on behalf of the owner or assignee of the mortgage."

 

Further, section 1024.41(d) states that: "[i]f a borrower's complete loss mitigation application is denied for any trial or permanent loan modification option available to the borrower pursuant to paragraph (c) of this section, a servicer shall state in the notice sent to the borrower pursuant to paragraph (c)(1)(ii) of this section the specific reason or reasons for the servicer's determination for each such trial or permanent loan modification option."

 

Section 1024.41(i) also provides that a: "servicer is only required to comply with the requirements of this section for a single complete loss mitigation application for a borrower's mortgage loan account."

 

The trial court held that the defendants only had to comply with RESPA's requirements to identify the loan owner "for one loss mitigation application" and granted summary judgment in favor of the defendants on all of the borrower's claims.  This appeal followed.

 

The Fifth Circuit initially examined the borrower's argument that the trial court erred in entering summary judgment because the defendants failed to raise their defense of 1024.41(i) as an affirmative defense. This was an issue of first impression for the Fifth Circuit.

 

As you may recall, Rule 8(c) of the Federal Rules of Civil Procedure requires defendants to "affirmatively state any avoidance or affirmative defense."  Defendants denied the allegation that they did not comply with section 1024.41(i), but did not raise their alleged compliance as an affirmative defense.  Essentially, the defendants maintained "that they could not have violated RESPA by failing to comply with § 1024.41 because they did, in fact, comply with that section."  The Fifth Circuit rejected the borrower's argument, ruling that the defendants "use of § 1024.41(i) in their motion for summary judgment is merely an expansion of the denial in their answer." 

 

Next, the Fifth Circuit turned to the borrower's argument that the trial court erred when it found that the defendants only had to comply with section 1024.41's requirement to identify the loan owner for one loss mitigation application.  The borrower argued that this wrongly makes section 1024.41, which became effective on January 10, 2014, retroactive. 

 

The Fifth Circuit agreed that section 1024.41 is not retroactive, but nevertheless rejected the borrower's argument in this case because "if the servicer complied with the requirements of the provision prior to the effective date, that compliance must be credited to the servicer because it need only comply with such a requirement once."  To find otherwise, the Court noted, would wrongly read section 1024.41's limitation on duplicative requests out of the statute's effective date.

 

Further, the "purpose of the regulation is not to make already compliant servicers repeat their compliance actions, but rather to bring noncompliant servicers into compliance."  Thus, "[s]ection 1024.41 is a forward-looking provision, but it accounts for a servicer's past actions by requiring only one compliance per requirement." 

 

As such, when the servicer previously complied with section 1024.41 in response to prior loss mitigation applications, it did not have to repeat the name of the same loan owner in each subsequent response, and the trial court properly entered summary judgment on this issue and the alleged TDCA claim based on a violation of section 1024.41.

 

The Fifth Circuit also analyzed the borrower's claim that the defendants violated sections 392.304(a)(14), (19) of the TDCA which provide that:

 

 

a debt collector may not use a fraudulent, deceptive, or misleading representation that employs the following practices:

. . . .

(14) representing falsely the status or nature of the services rendered by the debt collector or the debt collector s business;

. . . .

[or] (19) using any other false representation or deceptive means to collect a debt or obtain information concerning a consumer.

 

 

The borrower argued that that the defendants violated these provisions of the TDCA "by holding out the possibility of a [loan] modification."  The Fifth Circuit had little trouble rejecting this argument because the defendants never promised the borrower a loan modification by asking him to submit loss mitigation applications and the borrower presented no evidence that the defendants knew they would deny the request when they asked for applications.

 

Finally, the Fifth Circuit wrote separately to admonish the borrower because the case history "demonstrates beyond cavil that [the borrower] has spent the last 10 years gaming the system through a series of applications for loan modification, a flawed bankruptcy filing, and the institution of this lawsuit." The Fifth Circuit cautioned the borrower, "and his present and future counsel, if any, that further machinations to prolong this litigation or delay foreclosure proceedings could and likely will be met with sanctions."

 

Thus, the Fifth Circuit affirmed the trial court's summary judgment order in favor of the mortgagee and the servicer and against the borrower.

 

 

 

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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments