FYI: Ill App Ct (1st Dist) Holds No Waiver of KCRO Rights When Tenant Accepted Untimely Lease Extension Offer

The Court of Appeals of Illinois, First District, recently held that the successful bidder at a foreclosure sale must "strictly comply" with the Keep Chicago Renting Ordinance (KCRO), and that the tenant's acceptance of a mortgagee's untimely lease extension offer did not waive her rights under the KCRO.

 

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

 

In 2014, a condominium association obtained a court order assigning a unit owner's right to renter's rent payments directly to the association. Thereafter, the association entered a month-to-month written lease with the renter.

 

In 2015, the condominium was foreclosed and the mortgagee became the owner pursuant to a judicial sale which was approved on October 23, 2015. The Mortgagee communicated with renter after sale but did not offer to continue renter's tenancy or provide the $10,600 relocation assistance required by Chicago Municipal Code, § 5-14-010, known as the "Keep Chicago Renting Ordinance" (the "KRCO").

 

As you may recall, the KCRO provides specific timelines for communications and information disclosures between owners and tenants. Specifically, the ordinance specifies that the tenant of a foreclosed property "shall" be given notice of the change of ownership within 21 days of the change or within seven days of determining the tenant's identity. Chicago Municipal Code § 5-14-040(a). Until that notice is given, the owner cannot collect rent or terminate a tenant's lease for failure to pay rent. Chicago Municipal Code § 5-14-040(d) (amended Apr. 15, 2015).

 

The new owner is also required to pay a "qualified tenant" a one-time relocation assistance fee of $10,600, unless the new owner offers to renew or extend the rental agreement at a rate that is no more than 102% of the current annual rental rate. Chicago Municipal Code § 5-14-050(a), (b) (amended Apr. 15, 2015). To enable the owner to determine whether the tenant is "qualified tenant," the ownership change notice is to be accompanied by a "Tenant Information Disclosure Form" partially filled out by the owner.

 

In sum, the KCRO provides a series of 21-day periods in which the parties are to communicate with each other about their new relationship and whether the tenancy will persist despite the change of owners. Additionally, the Chicago City Council provides significant penalties for violations of the ordinance, including damages, fines, and injunctive relief.

 

After the mortgagee purchased the property, the renter was provided incorrect contact information for a law firm and a series of property managers purporting to be the mortgagee's agent, as well as an incomplete "Tenant Information Disclosure Form."

 

Ultimately, 67 days after the mortgagee became the new owner, the renter received a letter from the actual property manager, and 24 days thereafter renter was told the mortgagee wanted the renter to vacate the apartment. Another 96 days thereafter, renter was offered a lease extension and a week later renter signed and retuned the lease extension.

 

The following year renter sued the mortgagee and four property management companies used by the mortgagee for failure to timely communicate whether the mortgagee was offering $10,600 in relocation assistance or the continuation of her tenancy. The mortgagee moved to dismiss, arguing that the renter's acceptance of the lease offer demonstrated that the new property owner had been in "full" or "substantial" compliance with the ordinance. The trial court denied mortgagee's motion and eventually grated the renter summary judgment.

 

The mortgagee appealed seeking reversal of the orders denying its motion to dismiss the pleading and granting renter summary judgment, $21,200 in statutory damages, $45,505 in attorney fees, and $300 in court costs.

 

On appeal, the mortgagee acknowledged that it was 124-days late in complying with its statutory obligation to offer renter either $10,600 in relocation assistance or a lease renewal/extension but argued that the trial court errored in denying its motion to dismiss based on its paraphrasing of the ordinance's stated purpose.

 

In addition, the mortgagee contended renter impliedly waived her claim by executing the mortgagee's untimely lease offer and thus her "acceptance of the untimely lease extension offer had the legal effect of waiving the strict compliance with the [Ordinance] on which her complaint is premised," and, thus the mortgagee was entitled to dismissal of the action.

 

Finally, the mortgagee argued the renter was not entitled to summary judgment because substantial compliance with the ordinance was sufficient, the mortgagee substantially complied with its obligations, and it would be "absurd" to give renter the full benefit of the ordinance (which the mortgagee characterizes as uninterrupted tenancy) and then allow renter to "reverse course" by "recover[ing the] windfall damages."

 

The renter responded that a motion to dismiss cannot be reviewed on appeal following the entry of summary judgment, but since the mortgagee renewed the argument in opposition to renter's motion for summary judgment, this court may consider the theory in that context. Renter also contends she did not waive her claim by accepting the new lease.

 

The Appellate Court agree with renter that the order denying the mortgagee's motion to dismiss is not reviewable. Additionally, the Appellate Court was not persuaded that the renter waived her right to damages and fees provided by the KCRO, finding none of the allegations or conduct that the mortgagee cited were indicative of an express waiver, nothing a party asserting implied waiver must show a "clear, unequivocal, and decisive act of the party who is alleged to have committed waiver." Ryder, 146 Ill. 2d at 105.

 

The Appellate Court next examined the language of the KCRO to assess the mortgagee's contention that substantial compliance, rather than strict compliance, was sufficient.

 

The Appellate Court noted the KCRO makes repeated use of the verb "shall" and when interpreting a statute or ordinance, the "use of the word 'shall' generally indicates that the legislature intended to impose a mandatory obligation." Schultz v. Performance Lighting, Inc., 2013 IL 115738, ¶ 16, 999 N.E.2d 331. Another indication that an obligation is "mandatory, as opposed to merely directory," is that the legislating body "dictate[s] a particular consequence for failure to comply with the provision." Schultz, 2013 IL 115738, ¶ 16. Furthermore, the combination of a mandatory obligation and a penalty or consequences for noncompliance indicates that strict compliance, rather than substantial compliance is necessary.

 

Here, the Appellate Court found that because the Chicago ordinance at issue not only imposed mandatory obligations on the mortgagee by using the word "shall" but also mandated the imposition of significant financial consequences for the mortgagee's failure to comply, that City Council's language was a clear message that strict compliance is necessary.

 

Accordingly, the Appellate Court affirmed the trial court's summary judgment order and the subsequent award of the amount of damages specified in the KCRO.

 

Finally, the Appellate Court examined the mortgagee's contention that the attorney fee award was excessive, noting the trial court has broad discretion to award attorney fees and its decision will not be disturbed on appeal absent an abuse of that discretion. Guerrant v.Roth, 334 Ill. App. 3d 259, 262-63, 777 N.E.24 499, 502 (2002). And "[e]ven where the trial court has, in its calculations, included improper fees or excluded recoverable fees, this court will not disturb the judgment unless 'the total fees and costs awarded *** was [so excessive or] so inadequate as to amount to a clear abuse of discretion ***.' " Sampson v. Miglin, 279 Ill. App. 3d 270, 281, 664 N.E.2d 281, 288 (1996).

 

The Appellate Court found that the mortgagee did not establish that the trial court's award was an abuse of discretion. The renter's fee request was supported by affidavits and billing statements which detailed when, what, and by whom the work was performed, including adjustments which reduced fees by almost $9,000. Additionally, the Appellate Court held, the record indicated that the issue of fees was fully briefed and that a hearing was conducted in which both parties had an opportunity to argue.

 

Accordingly, the Appellate Court affirmed the trial court's ruling.

 

 

 

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: 6th Cir Adopts Expansive Reading of TCPA's Definition of ATDS, Joining 2nd and 9th Cirs

The U.S. Court of Appeals for the Sixth Circuit recently affirmed entry of summary judgment in favor of plaintiffs alleging violations of the federal Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq. ("TCPA") for calls placed by their student loan servicer to their cell phones using an alleged automatic telephone dialing system (ATDS) after they revoked consent to receive such calls.

 

In so ruling, the Sixth Circuit deepened a split between Circuits over the TCPA's definition of an ATDS, joining the Second and Ninth Circuits in holding that devices that dial from a stored list of numbers qualify as an ATDS, and are subject to the purview of the TCPA's autodialer bank.

 

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

 

A borrower and co-signor ("Borrowers") on a student loan (the "Loan") consented to receive calls on their cell phones at the time they submitted a forbearance request.  The Borrowers subsequently requested that the loan's servicer ("Servicer") stop calling about the loan.  Despite their requests, the Servicer subsequently placed a combined 353 allegedly automated calls to the Borrowers on a near-daily basis and leaving at least thirty voicemails.

 

The Borrowers filed suit against the Servicer alleging that the unconsented-to calls violated the TCPA.  The trial court granted judgment in the Borrowers' favor, awarding damages in the amount of $176,500.  The Servicer noticed this timely appeal.

 

As you may recall, the TCPA generally prohibits unconsented-to calls or texts placed by an automatic telephone dialing system ("ATDS") which it defines as:

 

"equipment which has the capacity–

(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and

(B) to dial such numbers."

 

§ 227(a). 

 

Interpretation of the TCPA's definition of an ATDS was the lone issue presented on appeal. 

 

The Sixth Circuit acknowledged a split of opinions between Circuits as to whether "stored-number dialer systems" like the Servicer used here—systems that do not randomly or sequentially generate numbers to dial, but place calls from a stored list of numbers—are covered by the TCPA. 

 

The Ninth and Second Circuits have held that stored-number systems are covered under the TCPA, while the Seventh and Eleventh have gone the other way.  See Marks v. Crunch San Diego, LLC, 904 F.3d 1041, 1052 (9th Cir. 2018); Duran v. La Boom Disco, Inc., 955 F.3d 279, 2020 WL 1682773 (2d Cir. Apr. 7, 2020); Gadelhak v. AT&T Servs., Inc., 950 F.3d 458, 460 (7th Cir. 2020); Glasser v. Hilton Grand Vacations Co., 948 F.3d 1301, 1304–05 (11th Cir. 2020). 

 

In addition, the Sixth Circuit note that it could not turn to the FCC's orders for guidance on this issue, as they were invalidated by the D.C. Circuit's ruling in ACA Int'l v. Fed. Commc'ns Comm'n, 885 F.3d 687, 700 (D.C. Cir. 2018).  Thus, the Sixth Circuit was compelled to interpret the language by giving the words used their ordinary meaning, and by looking at the language and design of the statute as a whole.  In re Application to Obtain Discovery for Use in Foreign Proceedings, 939 F.3d 710, 717-718 (6th Cir. 2019).

 

The Sixth Circuit analyzed three potential readings of the statutory definition of an ATDS. 

 

The first reading —- applying the phrase "using a random or sequential number generator" to modify both to "store" and "produce" -— would not qualify the Servicer's phone system as an ATDS because it did not store numbers using a random or sequential number generator, but instead using some other type of device.  Acknowledging that this reading follows proper grammar, the Sixth Circuit concluded that this reading was too narrow and problematic, essentially creating a loophole by allowing companies to avoid the autodialer ban by transferring numbers from the number generator to a separate storage device, and then dialing from that separate device. 

 

The Seventh and Eleventh Circuits accepted the first reading, though "imperfect," as the best reading considering the administrative and legislative history of the TCPA and practical effects of a more expansive interpretation of ATDS (Glasser, 948 F.3d at 1306, 1308–11; Gadelhak, 950 F.3d at 467, 468).

 

A second reading to mean that "using a random or sequential number generator" could apply to "produce" only would qualify the Servicer's system as an ATDS because it stores numbers and dials those numbers.  However, this leaves "to store," a transitive verb, lacking a direct object, requiring adding the phrase ""telephone numbers to be called" after "store" for it to make grammatical sense.  This significant modification rendered this reading "unworkable" too.

 

A third proposed reading offered in the dissenting opinion, in which "using a random or sequential number generator" modifies the phrase "telephone numbers to be called", was also deemed problematic by the Sixth Circuit as requiring a strained reading of "store," and introducing superfluidity into the statute.

 

Ultimately, the Sixth Circuit agreed with the Ninth's Circuit's assessment in Marks that the autodialer definition, viewed in isolation was "ambiguous on its face" and required an examination of the structure and context of the autodialer ban as a whole.  Marks, 904 F.3d at 1051.

 

Viewing the larger context of the autodialer ban, because the autodialer ban contains an exception for calls "made with the prior express consent of the called party" § 227(b)(1)(A), the Sixth Circuit reasoned that consenting recipients' provided numbers are stored by the calling entity on a list. See Marks, 904 F.3d at 1051; Glasser, 948 F.3d at 1316.  Thus, the call is dialed using a stored number, not one randomly generated, and an exception for consented-to calls implies that the autodialer ban otherwise could be interpreted to prohibit consented-to calls. 

 

By this logic, the Sixth Circuit deduced that the TCPA's consent exception implies that the autodialer ban applies to stored-number systems.

 

The Court further noted that this rationale is consistent with Congress's 2015 amendment to the TCPA to exempt use of an ATDS to make calls "solely to collect a debt owed to or guaranteed by the United States."  Although that exception was recently struck down by the Supreme Court because it "impermissibly favored [government-]debt-collection speech over political and other speech, in violation of the First Amendment." See Barr v. Am. Ass'n of Political Consultants, Inc., – S. Ct. –, 2020 WL 3633780, at *2 (July 6, 2020), the Sixth Circuit reasoned that the now-defunct government-debt-collection exception implies that the autodialer ban covers stored-number systems.

 

Lastly, addressing the Eleventh Circuit's concern that a more expansive interpretation of the term "store" would subject everyday use of smartphones to the purview of the TCPA (Glasser, 948 F.3d at 1309), the Sixth Circuit stated that any such concern was unfounded and rendered moot by the D.C. Circuit's rejection of the FCC's interpretation of section 227(a)(1)'s definition of "capacity" as "unreasonably, and impermissibly, expansive" in holding that a device is an ATDS only if it actually is used in the way prescribed by statute.  ACA Int'l 885, F.3d at 700.

 

In sum, using the related provisions of the autodialer ban as guidance of how to interpret section 227(a)(1), the Sixth Circuit concluded that the definition of an ATDS should be read as:

 

"An ATDS is "equipment which has the capacity—

(A) to store [telephone numbers to be called];

or produce telephone numbers to be called, using a random or sequential number generator; and

(B) to dial such numbers."

 

§ 227(a)(1).

 

This reading, joining the Second and Ninth Circuit, led the Sixth Circuit here to conclude that the Servicer's stored-number dialing system qualifies as an ATDS.  Accordingly, summary judgment in the Borrowers' favor was affirmed.

 

 

 

 

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   |   Tennessee   |   Texas   |   Washington, DC

 

 

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FYI: 7th Cir Holds Separately Reporting Debts to Same Creditor Not "Unfair or Unconscionable" Under FDCPA

The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of a consumer's claims that a debt collector's separate reporting of debts accrued for medical services, rather than aggregated together, violated the federal Fair Debt Collection Practices Act (FDCPA).

 

In so ruling, the Seventh Circuit held that separately reporting individual debts to a single creditor does not constitute an "unfair or unconscionable" means to collect or attempt to collect a debt in violation of the FDCPA.

 

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

 

A medical services provider administered x-rays and billed the services to the patient (Debtor).  After Debtor's insurance provider covered some of the costs, amounts due to the provider remained outstanding. 

 

The provider eventually retained a debt collector (Debt Collector) who reported Debtor's four outstanding debts for separate x-ray charges to a consumer reporting agency (CRA) after two years of unsuccessful collection attempts. 

 

A similarly situated patient (Debtor 2) received medical services from a different provider, and were also eventually referred to the Debt Collector for collection.  After two years passed without collecting the debts, the Debt Collector reported Debtor 2's ten outstanding debts to the CRA for the unpaid medical service charges.

 

Debtor 1 filed suit in federal court alleging that the Debt Collector's reporting of the obligations separately, rather than aggregated together, violated subsections 1692e(2)(A) and 1692f of the FDCPA.   Shortly after Debtor's complaint was filed, the Seventh Circuit held in Rhone v. Medical Business Bureau, LLC, 915 F.3d 438 (7th Cir. 2019) that reporting debts separately, rather than aggregated together, does not misrepresent the "character" of a debt in violation of 1692e(2)(A). Id. at 440.  Accordingly, Debtor 1 filed an amended complaint with Debtor 2 (collectively, Debtors) dropping the 1692e claim and asserting only a violation of section 1692f.

 

The Debt Collector moved to dismiss, and the motion was granted.  Rather than file an amended complaint, the Debtors appealed.

 

After confirming jurisdiction, the issue before the Seventh Circuit was whether the Debtors' complaint stated a claim under section 1692f of the FDCPA.  As you may recall, section 1692f prohibits "unfair or unconscionable means to collect or attempt to collect any debt."  15 U.S.C. 1692f.  Here, the Debtors argued that the Debt Collector's reporting of separate amounts on each medical-service charge was "unfair or unconscionable" and supposedly resulted in further lowering of their credit scores than if the charges were reported as a single aggregated debt.

 

The Seventh Circuit initially noted a discrepancy between the Debtors' allegations that they each owed a "single debt" to a "single medical provider" and their acknowledgment that the FDCPA defines "debt" on a per-transaction -- and not a per-creditor -- basis.   15 U.S.C. 1692a(5).  The Debtors further acknowledged that the obligations reported to the CRA correspond to individual medical-service charges, and their credit report documents reflect each charge with separate dates when the debt was placed for collection and when they will be removed from the report. 

 

Thus, the Seventh Circuit rejected the Debtors' allegations that the separately reported obligations owed to each medical-service provider comprised a "single debt",  as defined under the FDCPA. Cf. Rhone, 915 F.3d at 439 ($60 co-pay per physical therapy session, which added up to $540 owed to a creditor, constituted nine debts of $60 each).

 

The Court next addressed the Debtor's allegations concerning their tradelines and accounts.  Specifically, Debtor 1 claimed that the Debt Collector reported his unpaid charges as separate "accounts," and that for both Debtors' debts that the separate reporting of unpaid charges caused their credit reports to display multiple "tradelines," instead of a single "tradeline" and total sum owed to a creditor. 

 

Acknowledging that these terms used by the CRA are not specifically defined under the FDCPA, the Debtors' claims therefore rested upon whether section 1692b's prohibitions against " unfair or unconscionable" debt-collection practice requires collectors, when reporting debts to a consumer reporting agency, to aggregate together multiple debts owed to a single creditor. 

 

The Seventh Circuit was compelled to evaluate the phrase through the eyes of an unsophisticated, but reasonable consumer.  See Turner v. J.V.D.B. & Assocs., Inc., 330 F.3d 991, 997 (7th Cir. 2003).

 

The FDCPA does not define "unfair" or "unconscionable," and the eight enumerated examples of "unfair or unconscionable means" to collect or collect a debt do not address separate-versus-aggregate reporting.  The FDCPA specifies that the examples do not "limit[] the general application" of what might constitute "unfair or unconscionable means" to collect a debt, leaving the full list of permissible applications unannounced.

 

The Debtors argued that the seventh and eighth examples under 1692f -- prohibiting "[c]ommunicating with a consumer regarding a debt by post card" (15 U.S.C. 1692f(7)) and "[u]sing any language or symbol, other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails or by telegram" (15 U.S.C. 1692f(8)) -- relate to their theory and show that the Debt Collector's separate reporting of debts falls within the general provision's reach. 

 

However, the Seventh Circuit rejected the Debtors' arguments that these examples relate to a person's image or credit reputation, and that listing the obligations separately makes a debtor looks less creditworthy.

 

The Seventh Circuit further noted that it could not locate any advisory or enforcement opinions bearing on the specific question before it, nor any applicable rules prescribed by the Consumer Financial Protection Bureau (CFPB) under its authority to enforce FDCPA compliance, thus leaving the court "on [its] own" in answering whether debts owed to a single creditor should be reported in the aggregate.  Rhone, 915 F.3d at 440.

 

Viewing the Debt Collector's separate reporting of debts from the perspective of an unsophisticated but reasonable consumer, the Court concluded that the alleged conduct fell outside the scope of "unfair" or "unconscionable" based on the terms' ordinary meaning, and it was reasonable and perhaps preferable to certain consumers that a collector individually report debts that correspond to different charges to truthfully communicate the amount owed on each debt.  See Rhone, 915 F.3d at 439 (recognizing that aggregated reporting could be misleading); Cf. Fields v. Wilber Law Firm, P.C., 383 F.3d 562, 566 (7th Cir. 2004) (concluding that collector's failure, in a dunning letter, to separate attorney fees from other obligation was misleading and unfair to consumers, impairing their ability to knowledgeably assess debt validity).

 

Accordingly, the trial court's dismissal of the Debtor's complaint for failure to state a claim under section 1692f of the FDCPA was affirmed.

 

 

 

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   |   Tennessee   |   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: 7th Cir Holds Separately Reporting Debts to Same Creditor Not "Unfair or Unconscionable" Under FDCPA

The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of a consumer's claims that a debt collector's separate reporting of debts accrued for medical services, rather than aggregated together, violated the federal Fair Debt Collection Practices Act (FDCPA).

 

In so ruling, the Seventh Circuit held that separately reporting individual debts to a single creditor does not constitute an "unfair or unconscionable" means to collect or attempt to collect a debt in violation of the FDCPA.

 

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

 

A medical services provider administered x-rays and billed the services to the patient (Debtor).  After Debtor's insurance provider covered some of the costs, amounts due to the provider remained outstanding. 

 

The provider eventually retained a debt collector (Debt Collector) who reported Debtor's four outstanding debts for separate x-ray charges to a consumer reporting agency (CRA) after two years of unsuccessful collection attempts. 

 

A similarly situated patient (Debtor 2) received medical services from a different provider, and were also eventually referred to the Debt Collector for collection.  After two years passed without collecting the debts, the Debt Collector reported Debtor 2's ten outstanding debts to the CRA for the unpaid medical service charges.

 

Debtor 1 filed suit in federal court alleging that the Debt Collector's reporting of the obligations separately, rather than aggregated together, violated subsections 1692e(2)(A) and 1692f of the FDCPA.   Shortly after Debtor's complaint was filed, the Seventh Circuit held in Rhone v. Medical Business Bureau, LLC, 915 F.3d 438 (7th Cir. 2019) that reporting debts separately, rather than aggregated together, does not misrepresent the "character" of a debt in violation of 1692e(2)(A). Id. at 440.  Accordingly, Debtor 1 filed an amended complaint with Debtor 2 (collectively, Debtors) dropping the 1692e claim and asserting only a violation of section 1692f.

 

The Debt Collector moved to dismiss, and the motion was granted.  Rather than file an amended complaint, the Debtors appealed.

 

After confirming jurisdiction, the issue before the Seventh Circuit was whether the Debtors' complaint stated a claim under section 1692f of the FDCPA.  As you may recall, section 1692f prohibits "unfair or unconscionable means to collect or attempt to collect any debt."  15 U.S.C. 1692f.  Here, the Debtors argued that the Debt Collector's reporting of separate amounts on each medical-service charge was "unfair or unconscionable" and supposedly resulted in further lowering of their credit scores than if the charges were reported as a single aggregated debt.

 

The Seventh Circuit initially noted a discrepancy between the Debtors' allegations that they each owed a "single debt" to a "single medical provider" and their acknowledgment that the FDCPA defines "debt" on a per-transaction -- and not a per-creditor -- basis.   15 U.S.C. 1692a(5).  The Debtors further acknowledged that the obligations reported to the CRA correspond to individual medical-service charges, and their credit report documents reflect each charge with separate dates when the debt was placed for collection and when they will be removed from the report. 

 

Thus, the Seventh Circuit rejected the Debtors' allegations that the separately reported obligations owed to each medical-service provider comprised a "single debt",  as defined under the FDCPA. Cf. Rhone, 915 F.3d at 439 ($60 co-pay per physical therapy session, which added up to $540 owed to a creditor, constituted nine debts of $60 each).

 

The Court next addressed the Debtor's allegations concerning their tradelines and accounts.  Specifically, Debtor 1 claimed that the Debt Collector reported his unpaid charges as separate "accounts," and that for both Debtors' debts that the separate reporting of unpaid charges caused their credit reports to display multiple "tradelines," instead of a single "tradeline" and total sum owed to a creditor. 

 

Acknowledging that these terms used by the CRA are not specifically defined under the FDCPA, the Debtors' claims therefore rested upon whether section 1692b's prohibitions against " unfair or unconscionable" debt-collection practice requires collectors, when reporting debts to a consumer reporting agency, to aggregate together multiple debts owed to a single creditor. 

 

The Seventh Circuit was compelled to evaluate the phrase through the eyes of an unsophisticated, but reasonable consumer.  See Turner v. J.V.D.B. & Assocs., Inc., 330 F.3d 991, 997 (7th Cir. 2003).

 

The FDCPA does not define "unfair" or "unconscionable," and the eight enumerated examples of "unfair or unconscionable means" to collect or collect a debt do not address separate-versus-aggregate reporting.  The FDCPA specifies that the examples do not "limit[] the general application" of what might constitute "unfair or unconscionable means" to collect a debt, leaving the full list of permissible applications unannounced.

 

The Debtors argued that the seventh and eighth examples under 1692f -- prohibiting "[c]ommunicating with a consumer regarding a debt by post card" (15 U.S.C. 1692f(7)) and "[u]sing any language or symbol, other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails or by telegram" (15 U.S.C. 1692f(8)) -- relate to their theory and show that the Debt Collector's separate reporting of debts falls within the general provision's reach. 

 

However, the Seventh Circuit rejected the Debtors' arguments that these examples relate to a person's image or credit reputation, and that listing the obligations separately makes a debtor looks less creditworthy.

 

The Seventh Circuit further noted that it could not locate any advisory or enforcement opinions bearing on the specific question before it, nor any applicable rules prescribed by the Consumer Financial Protection Bureau (CFPB) under its authority to enforce FDCPA compliance, thus leaving the court "on [its] own" in answering whether debts owed to a single creditor should be reported in the aggregate.  Rhone, 915 F.3d at 440.

 

Viewing the Debt Collector's separate reporting of debts from the perspective of an unsophisticated but reasonable consumer, the Court concluded that the alleged conduct fell outside the scope of "unfair" or "unconscionable" based on the terms' ordinary meaning, and it was reasonable and perhaps preferable to certain consumers that a collector individually report debts that correspond to different charges to truthfully communicate the amount owed on each debt.  See Rhone, 915 F.3d at 439 (recognizing that aggregated reporting could be misleading); Cf. Fields v. Wilber Law Firm, P.C., 383 F.3d 562, 566 (7th Cir. 2004) (concluding that collector's failure, in a dunning letter, to separate attorney fees from other obligation was misleading and unfair to consumers, impairing their ability to knowledgeably assess debt validity).

 

Accordingly, the trial court's dismissal of the Debtor's complaint for failure to state a claim under section 1692f of the FDCPA was affirmed.

 

 

 

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 Separately Reporting Debts to Same Creditor Not "Unfair or Unconscionable" Under FDCPA

The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of a consumer's claims that a debt collector's separate reporting of debts accrued for medical services, rather than aggregated together, violated the federal Fair Debt Collection Practices Act (FDCPA).

 

In so ruling, the Seventh Circuit held that separately reporting individual debts to a single creditor does not constitute an "unfair or unconscionable" means to collect or attempt to collect a debt in violation of the FDCPA.

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

 

A medical services provider administered x-rays and billed the services to the patient (Debtor).  After Debtor's insurance provider covered some of the costs, amounts due to the provider remained outstanding. 

 

The provider eventually retained a debt collector (Debt Collector) who reported Debtor's four outstanding debts for separate x-ray charges to a consumer reporting agency (CRA) after two years of unsuccessful collection attempts. 

 

A similarly situated patient (Debtor 2) received medical services from a different provider, and were also eventually referred to the Debt Collector for collection.  After two years passed without collecting the debts, the Debt Collector reported Debtor 2's ten outstanding debts to the CRA for the unpaid medical service charges.

 

Debtor 1 filed suit in federal court alleging that the Debt Collector's reporting of the obligations separately, rather than aggregated together, violated subsections 1692e(2)(A) and 1692f of the FDCPA.   Shortly after Debtor's complaint was filed, the Seventh Circuit held in Rhone v. Medical Business Bureau, LLC, 915 F.3d 438 (7th Cir. 2019) that reporting debts separately, rather than aggregated together, does not misrepresent the "character" of a debt in violation of 1692e(2)(A). Id. at 440.  Accordingly, Debtor 1 filed an amended complaint with Debtor 2 (collectively, Debtors) dropping the 1692e claim and asserting only a violation of section 1692f.

 

The Debt Collector moved to dismiss, and the motion was granted.  Rather than file an amended complaint, the Debtors appealed.

 

After confirming jurisdiction, the issue before the Seventh Circuit was whether the Debtors' complaint stated a claim under section 1692f of the FDCPA.  As you may recall, section 1692f prohibits "unfair or unconscionable means to collect or attempt to collect any debt."  15 U.S.C. 1692f.  Here, the Debtors argued that the Debt Collector's reporting of separate amounts on each medical-service charge was "unfair or unconscionable" and supposedly resulted in further lowering of their credit scores than if the charges were reported as a single aggregated debt.

 

The Seventh Circuit initially noted a discrepancy between the Debtors' allegations that they each owed a "single debt" to a "single medical provider" and their acknowledgment that the FDCPA defines "debt" on a per-transaction -- and not a per-creditor -- basis.   15 U.S.C. 1692a(5).  The Debtors further acknowledged that the obligations reported to the CRA correspond to individual medical-service charges, and their credit report documents reflect each charge with separate dates when the debt was placed for collection and when they will be removed from the report. 

 

Thus, the Seventh Circuit rejected the Debtors' allegations that the separately reported obligations owed to each medical-service provider comprised a "single debt",  as defined under the FDCPA. Cf. Rhone, 915 F.3d at 439 ($60 co-pay per physical therapy session, which added up to $540 owed to a creditor, constituted nine debts of $60 each).

 

The Court next addressed the Debtor's allegations concerning their tradelines and accounts.  Specifically, Debtor 1 claimed that the Debt Collector reported his unpaid charges as separate "accounts," and that for both Debtors' debts that the separate reporting of unpaid charges caused their credit reports to display multiple "tradelines," instead of a single "tradeline" and total sum owed to a creditor. 

 

Acknowledging that these terms used by the CRA are not specifically defined under the FDCPA, the Debtors' claims therefore rested upon whether section 1692b's prohibitions against " unfair or unconscionable" debt-collection practice requires collectors, when reporting debts to a consumer reporting agency, to aggregate together multiple debts owed to a single creditor. 

 

The Seventh Circuit was compelled to evaluate the phrase through the eyes of an unsophisticated, but reasonable consumer.  See Turner v. J.V.D.B. & Assocs., Inc., 330 F.3d 991, 997 (7th Cir. 2003).

 

The FDCPA does not define "unfair" or "unconscionable," and the eight enumerated examples of "unfair or unconscionable means" to collect or collect a debt do not address separate-versus-aggregate reporting.  The FDCPA specifies that the examples do not "limit[] the general application" of what might constitute "unfair or unconscionable means" to collect a debt, leaving the full list of permissible applications unannounced.

 

The Debtors argued that the seventh and eighth examples under 1692f -- prohibiting "[c]ommunicating with a consumer regarding a debt by post card" (15 U.S.C. 1692f(7)) and "[u]sing any language or symbol, other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails or by telegram" (15 U.S.C. 1692f(8)) -- relate to their theory and show that the Debt Collector's separate reporting of debts falls within the general provision's reach. 

 

However, the Seventh Circuit rejected the Debtors' arguments that these examples relate to a person's image or credit reputation, and that listing the obligations separately makes a debtor looks less creditworthy.

 

The Seventh Circuit further noted that it could not locate any advisory or enforcement opinions bearing on the specific question before it, nor any applicable rules prescribed by the Consumer Financial Protection Bureau (CFPB) under its authority to enforce FDCPA compliance, thus leaving the court "on [its] own" in answering whether debts owed to a single creditor should be reported in the aggregate.  Rhone, 915 F.3d at 440.

 

Viewing the Debt Collector's separate reporting of debts from the perspective of an unsophisticated but reasonable consumer, the Court concluded that the alleged conduct fell outside the scope of "unfair" or "unconscionable" based on the terms' ordinary meaning, and it was reasonable and perhaps preferable to certain consumers that a collector individually report debts that correspond to different charges to truthfully communicate the amount owed on each debt.  See Rhone, 915 F.3d at 439 (recognizing that aggregated reporting could be misleading); Cf. Fields v. Wilber Law Firm, P.C., 383 F.3d 562, 566 (7th Cir. 2004) (concluding that collector's failure, in a dunning letter, to separate attorney fees from other obligation was misleading and unfair to consumers, impairing their ability to knowledgeably assess debt validity).

 

Accordingly, the trial court's dismissal of the Debtor's complaint for failure to state a claim under section 1692f of the FDCPA was affirmed.

 

 

 

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   |   Tennessee   |   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