FYI: 4th Cir Weighs In On What Qualifies as a "QWR" Under RESPA

The U.S. Court of Appeals for the Fourth Circuit recently reversed a trial court's dismissal of one named plaintiff's claims against a loan servicer in a putative class action, but affirmed the dismissal of the other named plaintiff's claims.

 

In so ruling, the Fourth Circuit held that, where written correspondence to a loan servicer provides sufficient information to identify the account and an alleged servicing error, such correspondence is a qualified written request" (QWR) under the federal Real Estate Settlement Procedures Act (RESPA).  However, if the letter merely challenges a contractual issue, it does not implicate a servicing issue and is not a QWR.

 

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

 

One consumer's credit reports reflected purported overdue home loan payments. The consumer sent a letter to his loan servicer stating that the wrong amount was being reported to credit agencies, but the servicer continued to report the adverse loan information. 

 

When a second consumer fell behind on her mortgage payments, the same loan servicer reported this to credit agencies. While seeking a loan modification, the second consumer sent a letter to the loan servicer, challenging the existence of "title issues" and requesting "a reasonable investigation," correction of the "errors," and "an accounting of all sums you have imposed." The parties ultimately finalized a loan modification, but in the interim, the loan servicer continued reporting adverse information.

 

The first and second consumers filed claims against the loan servicer, both individually and on behalf of a putative class of "all residential loan borrowers" who submitted qualified written requests ("QWR") under the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. 2601 and the Consumer Financial Protection Bureau's ("CFPB") Regulation X to the loan servicer in the preceding three years.

 

The loan servicer in turn filed a motion to dismiss the consumers' claims, arguing that the letters were not QWRs because the first letter did not dispute a specific payment, which the servicer claimed is required under RESPA, and the second letter only disputed a potential loan modification, which the servicer claimed is not protected under RESPA.

 

The trial court agreed with the loan servicer and granted the motion, dismissing the consumers' individual and class claims. The consumers appealed.

 

As you may recall, RESPA provides that loan servicers have a duty to respond to any QWR received from borrowers "for information relating to the servicing of the loan." 12 U.S.C. § 2605(e). Further, when a loan servicer receives a QWR, that servicer has a duty to refrain from "provid[ing] information regarding any overdue payment, owed by such borrower and relating to such period [of sixty days from the servicer's receipt of a QWR] or [QWR], to any consumer reporting agency." Id.

 

Moreover, the CFPB has enforcement authority for RESPA and issued Regulation X to interpret and implement RESPA. Regulation X provides guidance with regard to QWRs that assert an error, as well as guidance with regard to what constitutes "servicing."

 

On appeal, the Fourth Circuit first held that the trial court erred by concluding that the first letter was not a QWR, and did not trigger RESPA's prohibition on credit reporting, because it did not dispute specific payments. Instead, the Court noted that RESPA does not limit the reporting of overdue payments to disputes of specifically identified payments, but includes any "qualified written request relating to a dispute regarding the borrower's payments." 12 U.S.C. § 2605(e)(3).

 

Thus, the Fourth Circuit concluded that the first letter was a QWR subject to RESPA, as it was "a written correspondence" that articulated a "statement of reasons" in "sufficient detail" to indicate to the loan servicer why the first consumer believed the credit reporting was in error. Id. § 2605(e)(1)(B); see also Poindexter v. Mercedes-Benz Credit Corp., 792 F.3d 406, 413 (4th Cir. 2015).

 

Specifically, the first letter included the name, account number, and other information that would "enable[] the servicer to identify" the account, and it included "reasons for the belief of the borrower, to the extent applicable, that the account is in error." 12 U.S.C. § 2605(e)(1)(B).

 

For the same reason, the Fourth Circuit also held that the trial court erred in concluding that the first letter was not a QWR for a "lack of specificity."

 

However, the Fourth Circuit determined that the trial court properly dismissed the second consumer's claims because the second letter merely contested the loan servicer's denial of the second consumer's loan modification. The key question was whether "servicing" for the purpose of RESPA includes disputes about potential loan modifications.

 

The Fourth Circuit had not directly addressed this question before, and therefore the Court cited two Ninth Circuit decisions for guidance. In Medrano v. Flagstar Bank, FSB, 704 F.3d 661 (9th Cir. 2012), the Ninth Circuit concluded that RESPA "distinguishes between letters that relate to borrowers' disputes regarding servicing, on the one hand, and those regarding the borrower's contractual relationship with the lender, on the other." 704 F.3d at 667. Consequently, the Ninth Circuit held that "challenges to the terms of the loan and mortgage documents" are not disputes regarding servicing under RESPA. Id.

 

Similarly, in Poindexter v. Mercedes-Benz Credit Corp., the Ninth Circuit emphasized that "servicing" is limited to "the receiving or making of loan payments" and is not related to "the terms of the loan and mortgage documents." 792 F.3d at 413 (citing 12 U.S.C. § 2605(i)(3)). Thus, correspondence limited to the dispute of contractual issues that do not relate to the servicing of the loan, such as loan modification applications, do not qualify as QWRs. Id.

 

Therefore, the Fourth Circuit here held that a loan modification is a contractual issue, not a servicing matter. Because the second letter did not relate to any dispute of the second consumer's payments, or assert an error related to the servicing of the loan, it did not fall within the ambit of "servicing" so as to trigger RESPA's protections against providing adverse information to credit reporting agencies. Rather, the second letter merely challenged the denial of a loan modification.

 

Accordingly, the Fourth Circuit held that the trial court erred in granting the loan servicer's motion to dismiss the first consumer's claims, and it reversed and remanded for further proceedings. However, the Court affirmed the trial court's grant of the loan servicer's motion to dismiss the second consumer's claims.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

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FYI: 7th Cir Holds No Violation of FDCPA or FCRA in "Identity Theft" Case

The U.S. Court of Appeals for the Seventh Circuit recently affirmed a trial court's ruling granting summary judgment in favor of two debt collectors for alleged violations of the federal Fair Debt Collection Practices Act (FDCPA) and federal Fair Credit Reporting Act (FCRA) relating to their attempts to collect a debt resulting from identify theft.

 

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

 

The appeal arises out of a lawsuit brought against a debt buyer and debt collecting agency ("Creditors") for alleged violations of the FDCPA and FCRA. The lawsuit stemmed from an airline credit card which was opened in plaintiff's name ("Alleged Debtor") and used to make a single purchase for a one-way airline ticket.

 

Alleged Debtor did not become aware of the debt until Creditors attempted to collect.

 

Alleged Debtor disputed the debt, and Creditors found the debt to be valid multiple times and reported the delinquent debt to credit reporting agencies. Alleged Debtor also contacted the airline who initially determined the debt to be valid and owing by Alleged Debtor.

 

Shortly after filing suit, the airline concluded that Alleged Debtor was not responsible for the unpaid charges and Creditors asked the credit reporting agencies to stop reporting the account.

 

Alleged Debtor alleged that Creditors violated the FDCPA by using "false representation[s] or deceptive means to collect or attempt to collect any debt." 15 U.S.C. § 1692e(10). Alleged Debtor reasoned that the debt reported by Creditor was literally false, as the debt had been determined by the airline not to be his.

 

The trial court granted summary judgment in favor of Creditors finding that Alleged Debtor had not met the threshold burden of showing that the airline ticket was a "consumer debt" and that an unsophisticated consumer would not have been deceived by the collection letters.

 

Alleged Debtor also claimed that Creditors violated the FCRA by failing to conduct a reasonable investigation into his fraud claims. See 15 U.S.C. § 1681s-2(b)(1)(A).

 

The trial court granted summary judgment in favor of Creditors on this count as well, finding that Creditors "closely examined" his claim, immediately noted the dispute and asked for more information and documents to help resolve the matter.

 

Alleged Debtor appealed.

 

On appeal, the Seventh Circuit first reviewed Alleged Debtor's claim under the FDCPA.

 

The FDCPA protections apply only to consumer debts, which are defined as any obligation to any money "arising out of a transaction" entered into "primarily for personal, family, or household purposes." 15 U.S.C. §1692a(5). The trial court reasoned that because there was no way to know for sure whether the one-way flight was purchased for business or consumer purposes, Alleged Creditor had failed to meet his burden.

 

The Court however, noted that there is no requirement of absolute certainty as to the purpose of the purchase. There would only need to be sufficient evidence for a jury to find it more likely than not that the balance was a consumer debt. See Burton v. Kohn Law Firm, S.C., 934 F.3d 572, 584–85 (7th Cir. 2019). The question is fact-intensive and highly contextual.

 

The Seventh Circuit found the context to point in Alleged Debtor's favor. The Court again referred to Burton, nothing that it teaches that "the types of purchases made on the credit card may be relevant" to the question whether they were consumer or business purchases. Id.at 584.

 

Here, the Seventh Circuit found it unlikely that a business traveler would purchase a one-way airline ticket and that a reasonable jury could conclude that the odds that the purchase was made for consumer purposes were better than a coin flip.

 

The Creditors argued that Alleged Debtor was required to do more, such as subpoena the airline for the information of the person who took the flight, but the Seventh Circuit disagreed. The Court found that Alleged Debtor had met his burden under § 1692a(5), as the nature of a disputed debt permitted a reasonable inference that it was undertaken "for personal, family, or household purposes."

 

The Seventh Circuit next examined Alleged Debtor's claim that Creditors used "false representation[s] or deceptive means to collect or attempt to collect any debt." 15 U.S.C. § 1692e(10).

 

Alleged Debtor argued that, because the airline eventually determined that the debt was not his, the information in Creditors' letters was literally false.

 

However, the Seventh Circuit pointed out the standard under § 1692e is not literal falsity. Instead, "[i]f a statement would not mislead the unsophisticated consumer, it does not violate the FDCPA – even it is false in some technical sense." Wahl v. Midland Credit Mgmt., Inc., 556 F.3d 643, 645–46 (7th Cir. 2009).

 

Despite Alleged Debtor's arguments to the contrary, the Seventh Circuit reiterated its prior holdings that the FDCPA only imposes strict liability in the sense that "a collector need not be deliberate, reckless, or even negligent to trigger liability" but that "the state of mind of the reasonable debtor is always relevant. Id. at 646.

 

The Court found that an unsophisticated consumer, upon receiving these letters, would have known the account was not his and known the letters were sent in error, as Alleged Debtor did. As the statements in the letters were not ones that would "influence a consumer's decision…to pay a debt," Muha v. Encore Receivable Mgmt., Inc., 558 F.3d 623, 628 (7thh Cir. 2019), they were not "false" within the meaning of § 1692e(10).

 

The Seventh Circuit thus affirmed the trial court's entry of summary judgment in favor of Creditors on the FDCPA claim.

The Court next examined Alleged Debtor's FCRA claim.

 

The Seventh Circuit noted that the reasonableness of an investigation of a credit dispute depends on the content of the Automated Credit Dispute Verification ("ACDV") the furnisher receives. In Westra, the Court found that a furnisher's limited investigation, in which it "verified [the plaintiff's] name, address, and date of birth," was reasonable beyond question. Westra v. Credit of Pinellas, 409 F.3d 825, 827 (7th Cir. 2005).

 

The Westra court left open the possibly that if the ACDV indicated the dispute concerned fraud or identify theft, "a more thorough investigation" may have been required. Id.; see also Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1157 (9th Cir. 2009).

 

Alleged Debtor argued that, because the ACDV here included the police report filed by Alleged Debtor which indicated that "someone had obtained a credit card [in] his name and had made charges", further investigation was required.

 

However, the Seventh Circuit noted that because the police report also contained additional information, namely that Alleged Debtor had received two letters from the airline "stating that they had completed an investigation and they determined that it was in fact [Alleged Debtor]" who made the purchase, Creditor was within its rights to rely on this representation to some degree.

 

In addition, the Court noted that the debt collector sent another letter inviting additional information and attaching a blank identity theft affidavit for Alleged Debtor to complete. Alleged Debtor failed to respond to this communication and did not inform Creditor of the use of an out-of-date address and bogus email to open the credit card.

 

Under the circumstances, the Seventh Circuit refused to find that Creditors' investigation was unreasonable.

 

Therefore, the Seventh Circuit affirmed the trial court's judgment in its entirety.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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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