FYI: 7th Cir Rejects FDCPA Claims That Collection Letters Falsely Implied Future Interest and Late Fees

The U.S. Court of Appeals for the Seventh Circuit recently held that factually accurate collection letters that did not make explicit or implicit suggestion about future outcomes did not violate the FDCPA as they would not confuse or mislead the reasonable unsophisticated consumer.

 

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

 

A consumer defaulted on a debt which was then placed with a collection firm. The first collection firm handling the debt sent a collection letter to the consumer stating "The amount of your debt is $425.86. Please keep in mind, interest and fees are no longer being added to your account. This means every dollar you pay goes towards paying off your balance."

 

The consumer understood this to mean that the debt had been "charged-off" and would no longer accrue late charges, or other fees for any reason.

 

The debt was then placed with a second collection firm who mailed the consumer a letter informing him of the new placement and providing an itemized balance along with an offer to resolve the debt which included a notice that stated "no interest will be added to your account balance through the course of [collection firms] collection efforts concerning your account." The itemized breakdown showed a zero balance for "interest" and "other charges."

 

Upon receipt of the letter, the consumer filed suit alleging the letter misleadingly implied that the creditor would begin to add interest and possibly fees to the previously charged-off debt if the consumer failed to resolve his debt with the collection firm.

 

Specifically, he alleged that he was confused by the discrepancy between the first collection firm's letter that "interest and fees are no longer being added to your account" and the second collection firm's implication that the creditor would begin to add interest and possibly fees to the debt once the second collection firm stopped its collection efforts.

 

The consumer alleged the letters violated the FDCPA by supposedly using false, deceptive, and misleading representations or means to collect a debt, and by supposedly failing to disclose the amount of the debt in a clear and unambiguous fashion.

 

The trial court granted the collection firms' motion to dismiss finding that the second letter had accurately and correctly disclosed the amount of the debt, and did not imply fees or interest would be added to the debt in the future.  In addition, the trial court noted that even if the second letter did imply that fees and interest would begin to accrue at a later date if the debt remained outstanding, the statement was not false or misleading given that Wisconsin law provided for the assessment of fees and interest on "static" debts in certain circumstances.

 

The consumer appealed.

 

The Seventh Circuit began its review noting the FDCPA requires debt collectors to send consumers a written notice disclosing "the amount of … debt" they owe. 15 U.S.C. § 1692g(a)(1). This disclosure must be clear. See Janetos v. Fulton Friedman & Gullace, LLP, 825 F.3d 317, 319 (7th Cir. 2016) ("If a letter fails to disclose the required information clearly, it violates the Act, without further proof of confusion.").

 

The Seventh Circuit acknowledged there is no dispute that the letter disclosed the amount owed, but rather the pertinent question was whether the second letter, by providing a breakdown of consumer's debt which showed a zero balance for "interest" and "other charges," violated 15 U.S.C. §§ 1692e and 1692g(a)(1) by implying that interest and other charges would accrue if the debt remained unpaid.

 

The Court noted that a debt collector violates § 1692e by making statements or representations that "would materially mislead or confuse an unsophisticated consumer" defined as a consumer who is "uninformed, naïve, or trusting" but "nonetheless possesses reasonable intelligence, basic knowledge about the financial world, and is wise enough to read collection notices with added care." Koehn v. Delta Outsource Grp., Inc., 939 F.3d 863, 864 (7th Cir. 2019).

 

The Seventh Circuit then examined its ruling in Koehn where it found a similar claim could not proceed. In Koehn, the consumer claimed the phrase "current balance" was misleading because it implied that her balance could grow even though her account was actually "static."

 

Rejecting this argument, the Court explained that "dunning letters can comply with the Fair Debt Collection Practices Act without answering all possible questions about the future. A lawyer's ability to identify a question that a dunning letter does not expressly answer ("Is it possible the balance might increase?") does not show the letter is misleading, even if a speculative guess to answer the question might be wrong."

 

The Seventh Circuit applied this logic to the letter at issue here noting that it merely detailed, correctly, that no interest or other charges had accrued from the date the creditor charged off the debt to the date of the letter. Except for the accrual of interest, the letter was totally silent as to the future and any inference made by the consumer was entirely speculative.

 

Moreover, the consumer's complaint relied heavily on the first collection firm's statement that "interest and fees are no longer being added," and the Court noted that even that statement did not say that interest and fees could never be added to the account.

 

Therefore, the Seventh Circuit found that the itemized breakdown, which made no comment whatsoever about the future and did not make an explicit suggestion about future outcomes, did not violate the FDCPA.

 

Next, the Seventh Circuit applied the same analysis to the consumer's argument that the letter attempted to mislead him when it stated "Please note that no interest will be added to your account balance through the course of [the second collection agency's] collection efforts concerning your account."

 

The Seventh Circuit held that the letter simply informed the consumer that no interest would accrue while the collection firm pursued its debt collection efforts but did not address in any way whether interest would accrue in the future after it no longer controlled the debt. The fact that a debtor may incorrectly speculate as to a possible outcome does not render a letter misleading.  Instead, it is only when a letter at least implicitly points to a possible outcome that it can become misleading.

 

Accordingly, the Seventh Circuit found that the letter complied with both §§ 1692e and 1692g and affirmed the judgment of the trial court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
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 Holds Debtor Cannot Use State Law to Revive Time-Barred FDCPA Claim

The U.S. Court of Appeals for the Eleventh Circuit, in an unpublished opinion, affirmed a trial court order dismissing a consumer's lawsuit holding that Georgia's renewal statute, O.C.G.A. § 9-2- 61, did not save a claim that is otherwise time-barred under the federal Fair Debt Collection Practice Act (FDCPA), 15 U.S.C. § 1692 et seq.

 

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

 

On April 26, 2019, a consumer filed a complaint against a debt collector in Georgia state court alleging various FDCPA violations.  The debt collector removed the case to the United States District Court for the Northern District of Georgia.  The consumer then voluntarily dismissed the lawsuit without prejudice under Rule 41(a)(1)(A) of the Federal Rules of Civil Procedure.

 

On November 27, 2019, the consumer refiled the complaint in Georgia state court and the debt collector again removed the case to federal court.  The debt collector moved to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure claiming that the FDCPA's one-year statute of limitation barred the alleged claims.

 

As you may recall, the FDCPA provides that "[a]n action to enforce any liability created by this subchapter may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within one year from the date on which the violation occurs." 15 U.S.C. § 1692k(d). 

 

Here, the debt collector argued that the FDCPA's statute of limitation barred the claims because the alleged violations occurred on May 1, 2018, May 25, 2018, and July 23, 2018, more than one year before the consumer filed the second lawsuit

 

In response, the consumer asserted that Georgia's renewal statute, O.C.G.A. § 9-2-61 served to save his otherwise time-barred claims.  The trial court dismissed the case finding that the FDCPA one-year statute of limitation controlled because "where Congress has set a specific statute of limitations, it cannot be extended by operation of state law." 

 

This appealed followed.

 

The consumer argued that Georgia's renewal statute should control despite the FDCPA's clear one-year statute of limitation.

 

Georgia's renewal statute provided in relevant part that: "[w]hen any case has been commenced in either a state or federal court within the applicable statute of limitations and the plaintiff discontinues or dismisses the same, it may be recommenced in a court of this state or in a federal court either within the original applicable period of limitations or within six months after the discontinuance or dismissal, whichever is later."

 

The Eleventh Circuit noted that the appealed turned solely on this one issue because if the renewal statute does not control, then the FDCPA's one-year statute of limitation barred the consumer's claims.

 

The Eleventh Circuit had little trouble rejecting the consumer's argument because the "case law is clear that, where Congress has set an express statute of limitations, state law cannot otherwise extend it."  This same general principal applies to the FDCPA.  In enacting the FDCPA, "Congress specifically provided for a one-year limitations period for FDCPA claims." 

 

The Court held that incorporating Georgia's renewal statute into the FDCPA as the consumer seeks, "would undermine the uniform application of this federal limitation." Thus, the Eleventh Circuit held "that Georgia's renewal statute does not extend the FDCPA's one-year statute of limitation."

 

The consumer also argued the Eleventh Circuit should apply the same rational that in enunciated in Arias v. Cameron, 776 F.3d 1262 (11th Cir. 2015) to this case. Arias held that it was not an abuse of a trial court's discretion to permit a plaintiff to voluntarily dismiss their state law tort claim that the defendants had removed to federal court, even where the dismissal might prejudice the defendants by eliminating their statute of limitation defense. 

 

The Eleventh Circuit determined that Arias did not help the consumer here because it involved a state law tort claim where the state legislature enacted the statute of limitation, not a federal claim like this FDCPA claim where Congress set a specific limitation period. 

 

Thus, because the Georgia renewal statute does not apply to federal claims "where Congress expressly set a limitations period, such as the FDCPA," the Eleventh Circuit affirmed the trial court's dismissal of the complaint.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
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: 4th Cir Reverses Dismissal of Servicer's RESPA Tax Escrow Disbursement Claim

The U.S. Court of Appeals for the Fourth Circuit recently reversed the dismissal of a borrower's claims that the servicer of his mortgage loan violated the federal Real Estate Settlement Procedures Act, 12 U.S.C. § 2601, et seq. ("RESPA") by failing to timely make his tax payment from the loan's escrow account.

 

In so ruling, the Fourth Circuit rejected the servicer's argument that it was the responsibility of the loan's prior servicer who received the borrower's payment to escrow to make those payments on time, holding that RESPA requires taxes to be paid by the entity responsible for servicing the mortgage at the time the tax payment is due.

 

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

 

A homeowner ("Borrower") obtained a refinance home mortgage loan (the "Loan").  The Loan's mortgage ("Mortgage") required the Borrower to make his property tax payments to the lender ("Lender"), for placement in the Loan's escrow account, triggering requirements for the Lender — who at the time was also the Mortgage servicer — to timely pay the Borrower's property tax bill.  See 12 U.S.C. § 2605(g); 12 C.F.R. § 1024.17(k)(1). 

 

The Lender sold the Loan to a new entity who also took over servicing rights and responsibilities from the Lender (the "Mortgagee"), effective October 31, 2017 with the Borrower's first monthly installment due November 1, 2017.

 

Before the service transfer of the Loan, funds tendered by the Borrower for payment of property taxes due to his local municipality taxes were deposited into the Loan's escrow account, then overseen by the Lender. 

 

However, the Mortgagee failed to timely pay the Borrower's November 2017 real estate taxes and did not disburse the tax payment until 2018, leading the municipality to assess $895 in late payment penalties (ultimately paid by the Mortgagee), and allegedly resulting in a loss of tax savings to the Borrower for his 2017 income taxes.

 

The Borrower filed a putative class action suit against the Mortgagee, on behalf of himself and all others similarly situated, alleging that its failure to timely pay his municipality taxes: (i) violated RESPA , (ii) breached the Mortgage, and; (iii) the Mortgagee was negligent. 

 

The Mortgagee moved to dismiss the Borrower's complaint, arguing that it was not under the "servicer" responsible for the 11/15/17 tax payment under RESPA's statutory definition, and that the responsibility to timely pay taxes fell on the prior servicer -- here, the Lender. 

 

The trial court agreed that the Lender was, indeed, the "servicer" under RESPA and granted the Mortgagee's motion to dismiss for failure to state a claim.  The instant appeal followed, with the Borrower electing to only pursue his RESPA claims on appeal.

 

As you may recall, subsection 12 U.S.C. § 2605(g) of RESPA establishes the obligation for a servicer to make payments from the escrow account for taxes, while subsections 2605(i)(2) and 2605(i)(3) define the terms "servicer" and "servicing," respectively.

 

Specifically, subsection 2605(g) provides that "[i]f the terms of any federally related mortgage loan require the borrower to make payments to the servicer of the loan for deposit into an escrow account for the purpose of assuring payment of taxes, insurance premiums, and other charges with respect to the property, the servicer shall make payments from the escrow account for such taxes, insurance premiums, and other charges in a timely manner as such payments become due."

 

Here, this subsection applied to the Borrower's Loan because it is both a "federally related mortgage loan" and the "terms" of the loan "require the borrower to make [tax] payments.. into an escrow account," thus triggering the Mortgage servicer's responsibility to "make [tax] payments from the escrow account" as they "become due"—that is, the date at which payment is required.  see Due, 4 Oxford English Dictionary 1105 (2d ed. 1989). 

 

The Fourth Circuit read the relevant provision to mean that the obligation for the servicer to make payment is triggered by the "terms of . . . [the] loan" and the date at which a payment "becomes due," not the date that a payment is received for escrow, and does not contemplate when (or whether) a payment is received into escrow from a borrower. 

 

The Court held that the natural reading of this subsection contemplates that whoever "the servicer" is when a payment becomes due shall make that payment.  Accordingly, the Court was tasked with identifying who was "the servicer" under RESPA on November 15, 2017.

 

Applying RESPA's definition of a "servicer" — "the person responsible for servicing of a loan" (12 U.S.C. 2605(i)(2)) — to subsection (g), it followed that the person "responsible for servicing" the mortgage at the time a payment is due must make that payment.  The term "servicing" itself is further defined in subsection (i)(3) as:  "receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts . . . , and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan."

 

The Mortgagee's arguments on appeal were unavailing. 

 

First, the Mortgagee argued that because the definition of "servicing" includes "making the payments of principal and interest and such other payments with respect to the amounts received from the borrower," that the Lender was the "servicer" because it received the Borrower's escrow payment.  The Fourth Circuit rejected this argument as confusing the definition of "servicing" with the statutory definition of "servicers," who are obligated to make timely payments from an escrow account connected to the terms of the loan and the date a payment is due — not when a payment is received from a borrower nor when a bill is received from the taxing authority. Accord Marks v. Quicken Loans, Inc., 561 F. Supp. 2d 1259, 1264 (S.D. Ala. 2008). 

 

Moreover, the Mortgagee's underlying assumption that a middleman that receives payment should be responsible for forwarding that payment along to the ultimate recipient conflicts with statutory interpretation of a servicer's control of an escrow account and transferring of same pursuant to a servicing transfer (12 C.F.R. § 1024.17(b), (e), (i)(4)(ii)), and the relevant loan purchasing agreement between the Lender and Mortgagee (the "Purchase Agreement"), expressly included a transfer of "all right, title and interest," including "Related Escrow Accounts."

 

Second, the Mortgagee argued that the Purchase Agreement reaffirmed the Lender's designation as the "servicer" responsible for the November 2017 tax payment.  Specifically, the Purchase Agreement provided that "[Lender] shall pay or cause to be paid, from the applicable Related Escrow Account, all real estate taxes on the Mortgaged Properties (and all interest, late payments and penalties in connection therewith) (x) for which either (i) a tax bill has been received, [or] (ii) a tax bill was issued on or prior to the Servicing Transfer Date . . . , and (y) that have due dates . . . prior to or within (30) days after the Servicing Transfer Date."  Thus, the Mortgagee reasoned that the Lender "was obligated to ensure payment of taxes billed with due dates before or within thirty days of October 31, the effective date of the transfer."

 

This argument, too, was rejected by the Fourth Circuit, noting that a transferor's contractual responsibility to apply a tax payment before the transfer of servicing has no effect on the transferee's statutory obligation or what a previous servicer already should have done.

 

Here, because the Borrower's complaint properly alleged that the Mortgagee was "responsible for servicing the loan" on November 15, 2017 (when the tax payment became due), the Fourth Circuit determined that it plausibly alleged that the Mortgagee was obligated to make the payment as the supposed servicer. 

 

The Fourth Circuit further noted that this allocation of responsibility is reinforced by the broader statutory structure of section 2605 which imposes servicing obligations with a focal point on the "effective date of transfer," or the "the date on which the mortgage payment . . . is first due to the transferee servicer of a mortgage loan pursuant to the assignment, sale, or transfer of the servicing of the mortgage loan" (12 U.S.C. § 2605(i)(1); 12 C.F.R. § 1024.2(b) (same)) and, further, was consistent with the terms of the Purchas Agreement between the Lender and Mortgagee, who acquired "all right, title and interest of [Lender] . . . as Servicer under the Servicing Agreements" and "the related Servicing obligations as specified in each Servicing Agreement" as of November 1, 2017.

 

Because the Borrower's complaint adequately alleged that the Mortgagee was responsible for servicing his mortgage when the November 15, 2017 tax payment was due, and its failure to do so violated RESPA, the trial court's dismissal for failure to state a cause of action was reversed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
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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