Alston & Bird Consumer Finance Blog

Debt Collection

Seventh Circuit Declines to Adopt FDCPA “Benign Language” Exception

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A&B ABstract:

The Seventh Circuit’s ruling in Preston v. Midland Credit Mgmt. departs from other circuits that have considered whether there is a “benign language” exception under the Fair Debt Collection Practices Act (“FDCPA”). The Seventh Circuit, ruled, as the Consumer Financial Protection Bureau (“CFPB”) urged in an amicus brief, that the FDCPA does not contain a “benign language” exception.

FDCPA Section 1692(f)

Section 1692(f) of the FDCPA broadly prohibits a debt collector from using unfair or unconscionable means to collect or attempt to collect any debt, and enumerates specific examples of prohibited conduct. Section 1692(f)(8) prohibits a debt collector from using 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. However, the section provides that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.

The “Benign Language” Exception

Although Section 1692(f)(8) does not include any exceptions to the prohibition discussed above, courts have found that certain types of “benign language” do not run afoul of the prohibition.  As recognized by the Fifth Circuit and the Eighth Circuit, the “benign language” exception allows words such as “personal and confidential,” “immediate reply requested,” and “forwarding and address correction requested,” and other innocuous language and corporate logos that do not identify the sender as a debt collector to appear on a debt collector’s envelope to a consumer.

Fifth Circuit

The Fifth Circuit (in Goswami v. American Collections Enterprise, Inc.), believed that the text of section 1692(f)(8) was ambiguous and could be read two ways. In isolation, it could be read as barring “any markings on the outside of… [the] envelope other than the name and addresses of the parties. However, if it was read together with the prefatory language of section 1692f it could be read as “only prohibiting markings… that are unfair on unconscionable.” To resolve the ambiguity, the court created the “benign language” exception to allow for language on an envelope that “would not intimate that the contents of the envelope relate to collection of delinquent debts.”

Eighth Circuit

Similarly, the Eighth Circuit (in Strand v. Diversified Collection Service, Inc.) found that a literal reading of the statutory text would “create bizarre results.” Specifically, the Eighth Circuit found under Section 1692f(8) would “a debtor’s address and an envelope’s pre-printed postage would arguably be prohibited, as would any innocuous mark related to the post, such as ‘overnight mail’ and ‘forwarding address correction requested.’” The court examined the legislative history of the FDCPA and found that benign language or other corporate markings and logos on an envelope would not thwart the purpose of the FDCPA.  As a result, it opined that a “benign language” exception should exist for this type of language on a debt collector’s envelope.

Preston v. Midland Credit Management

Factual Allegations

In Preston, the plaintiff appealed the district court’s finding that the “benign language” exception applied to a collection letter the defendant sent the plaintiff. The collection letter was enclosed in an envelope bearing the words “TIME SENSITIVE DOCUMENT.” The internal envelope was enclosed in a larger envelope with a glassine covering, so that the words on the internal envelope were visible to the recipient. The plaintiff argued that the defendant’s use of the words “TIME SENSITIVE DOCUMENT” violated section 1692f(8) of the FDCPA.

CFPB Amicus Brief

The CFPB filed an amicus brief in Preston, petitioning the court to rule that there is no “benign language” exception to the FDCPA. The CFPB argued: (1) that the statutory text of the FDCPA was clear, and (2) there was no statutory ambiguity between the prefatory language of section 1692f and the explicit prohibition in section 1692f(8). The CFPB noted that the “benign language” exception was unnecessary because the FDCPA already provides that debt collectors may “make use of the mails” in communicating with a consumer. The CFPB argued that the FDCPA’s text allowing a debt collector “use of the mails” rendered the “benign language” exception moot, because the language and symbols the courts analyzed would all be allowed by the FDCPA as “use of the mails.”

Interpretation of Eighth and Fifth Circuit Case Law

In analyzing the plaintiff’s claims in Preston, the Seventh Circuit examined the opinions of the Fifth and Eighth Circuits in creating the “benign language” exception. Ultimately, the court declined to recognize any such “benign language” exception in the FDCPA.

The Seventh Circuit found that adhering to the plain wording of the statute would not prohibit the use of a debtor’s address on a debt collection letter, or of pre-printed postage. Rather, the court agreed with the CFPB, finding that because the FDCPA allows for debt collectors to communicate by “use of the mails,” it authorizes any language or symbol needed for communicating by mail to appear on an envelope, but not more. That is, “the use of the mails” provision permits the inclusion of language and symbols that are required to ensure the successful delivery of communications through the mail, but in Preston, the court found that that the inclusion of “TIME SENSITIVE DOCUMENT” was not required to ensure the successful delivery of the communication though the mail, and therefore was in violation of the FDCPA.

Takeaway

The Seventh Circuit’s ruling in Preston casts uncertainty on the status of the “benign language” exception. Although the Seventh Circuit addressed the printed language at issue in the Fifth and Eighth Circuit cases, the Seventh Circuit did not address the use of corporate logos that were not the debt collector’s name. Debt collectors that do business in the Seventh Circuit, comprising Illinois, Indiana, and Wisconsin, should ensure that any letters sent to consumers do not contain any extraneous language that is not used in the ordinary course of sending mail.

New York Proposes Licensing Consumer Debt Collectors

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A&B ABstract:  On January 21, 2020, New York Governor Andrew Cuomo proposed a measure to license consumer debt collectors as part of his budget bill. If enacted, the measure would require any person acting as a “consumer debt collector” in New York to obtain a license from the New York Banking Superintendent.

Effective October 1, 2020, the measure would require any person acting as a consumer debt collector either directly or indirectly in the State of New York to obtain a license.

Who is a Consumer Debt Collector?

The proposed bill defines a “consumer debt collector” as “any person who engages in a business, a principal purpose of which is the collection of consumer debts or of debt buying, or who regularly collects or attempts to collect, directly or indirectly, consumer debts owed or due to another person.” The definition also includes any creditor that “in the process of collecting its own consumer debts, and uses [sic] any name other than its own, which would reasonably indicate that a third person is collecting or attempting to collect a consumer debt.” The measure would set a one-year license period, with an expiration date of September 1 each year.

Exemptions

Although the definition of “consumer debt collector” is broad, the proposed bill does carve out exemptions for a variety of entities. Notably, loan servicers are exempt from licensing if they are servicing loans or accounts that are not delinquent. Additionally, the measure exempts from licensure a national bank and any subsidiary or affiliate of a national bank if the entity is not primarily engaged in the business of purchasing and collecting upon delinquent debt, other than debt secured by real property. However, unlike many other states (such as Illinois and Washington), New York would not exempt attorneys from licensure.

License Requirements

The proposed bill would require that consumer debt collectors file and maintain a $25,000 surety bond in connection with the application for, and renewal and maintenance of, a consumer debt collector license. Further, expiration of a debt collector’s bond without a replacement being filed with the New York Department of Financial Services would cause automatic expiration of a license.

Practice Restrictions

The proposed bill also includes substantive restrictions on communications with consumer debtors. Significantly, the measure would prohibit a consumer debt collector from contacting a consumer debtor outside the hours of 8 a.m. to 8 p.m. local time for the consumer debtor. This prohibition deviates from a similar provision in the Fair Debt Collections Practices Act (“FDCPA”). The FDCPA prohibits debt collectors from contacting consumers outside of the hours of 8 a.m. to 9 p.m. local time for the consumer.

Takeaways

If enacted, the proposed bill would expand the scope of licensing for debt collectors in New York, which are currently licensed only by individual municipalities. Further, in its current form, the measure would require attorneys to be licensed to collect on delinquent debt. We will continue to monitor this measure, which has a high likelihood of passage given its inclusion in Governor Cuomo’s budget bill.

NY DFS unveils Consumer Protection Task Force, adds Former CFPB Deputy Director

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A&B ABstract:

Less than one month into the new year, New York’s Department of Financial Services (DFS) has taken strong measures to make good on its proclamation that  “2020 must be the year of the consumer” by: (1) unveiling a 12-member Consumer Protection Task Force to help implement an extensive consumer protection agenda; and (2) adding former CFPB Deputy Director Leandra English as a special policy advisor to the Superintendent.

The Consumer Protection Task Force

On January 9, Superintendent Lacewell announced the roll-out of a 12-member Consumer Protection Task Force to “further DFS’ mission to protect consumer as the federal government rolls back important consumer protections.”  In his annual State of the State, Governor Cuomo expressed his belief that with the current Administration’s “rolling back of consumer protections and regulations, Americans are more exposed to predatory and abusive practices than at any time since the 2008 financial crisis.”  The DFS press release noted that one of the task force’s immediate focuses will be to help bring to fruition “the extensive consumer protections proposals included in Governor Cuomo’s 2020 State of the State agenda” which includes such initiatives as: (1) licensing and regulating debt collection companies; (2) the codification of a Federal Trade Commission rule banning confessions of judgment; (3) strengthening the state’s consumer protection laws to protect against unfair, deceptive, and abusive practices; (4) cracking down on elder financial abuse; and (5) increasing access to affordable banking services.

According to the DFS, task force members will “provide formal input on the [DFS’] consumer engagement, policy development and research” in order to “ensure that consumer’s always come first as the [DFS] develops policies and regulates the financial services industry.”  The 12-member committee consists of: (1) Chuck Bell, Programs Director for the advocacy division of Consumer Reports; (2) Elisabeth Benjamin, Esq., Vice President of Health Initiatives at the Community Service Society; (3) Carolyn Coffee, Esq., Director of Litigation for Economic Justice at Mobilization for Justice; (4) Beth Finkel, State Director for the New York State Office of the AARP; (5) Jay Inwald, Esq., Director of Foreclosure Prevention at Legal Services NYC; (6) Paul Kantwill, Esq., Distinguished Professor in Residence and Executive Director, Rule of Law Program at Loyola University Chicago School of Law; (7) Neha Karambelkar, Esq., Staff Attorney at Western New York Law Center; (8) Kristen Keefe, Esq., Senior Staff Attorney with the Consumer Finance and Housing Unit at Empire Justice Center; (9) Peter Kochenburger, Esq., Executive Director of the Insurance LLM Program and Deputy Director of the Insurance Law Center at the University of Connecticut Law School; (10) Sarah Ludwig, Esq., Co-Director of New Economy Project; (11) Frankie Miranda, Executive Director at the Hispanic Federation; and (12) Cy Richardson, Senior Vice President at the National Urban League.

Superintendent Lacewell noted that, as the federal government, in her words, “dismantles consumer protections across the board, New York has intensified its commitment” to “further solidify New York’s reputation as the consumer protection capital of America.” Lacewell added that, “[w]ith the federal government stepping down and refusing to enforce critical consumer protection law, we must make 2020 the Year of the Consumer.”

NY DFS Adds Former CFPB Deputy Director Leandra English

On January 14, 2020 the DFS announced that former CFPB Deputy Director Leandra English would be joining the DFS as a special policy advisor reporting directly to Linda Lacewell.  According to the press release, Ms. English will “help develop policy initiatives and manage DFS’ consumer protection agenda” and her appointment “strengthens the mission of the [DFS] to protect and empower New York consumers as Washington continues to roll back on consumer protections.”  Ms. English is well known for leaving the CFPB after having been appointed acting director by departing director Richard Cordray only to see the President’s administration issue a dual appointment, naming Mick Mulvaney as acting director.  The ensuing legal dispute reached the U.S. Court of Appeals for the D.C. Circuit before Ms. English ultimately resigned.

Ms. English’s most recent work was as Director of Financial Services Advocacy for the Consumer Federation of America (CFA), a “national nonprofit organization dedicated to advancing the consumer interest through research, advocacy, and education.”  One of Ms. English’s initiatives in that role was to support the Forced Arbitration Injustice Repeal Act (H.R. 1423), known as the “FAIR” Act, which would eliminate compulsory arbitration in consumer contracts and was passed by the House of Representatives in the Fall by a 225-186 vote.  Upon the bills passage, Ms. English commented that, “Americans deserve their day in court, but when companies force consumers into signing away their rights, the chances of a fair outcome diminish drastically. We thank the House for taking this important step in eliminating these clauses from contracts for products consumers use every day including credit cards and checking accounts. We now need the Senate to act to protect consumers.”

Takeaway

As the DFS continues its push to strengthen protections for New York consumers in 2020, it will be interesting to watch how such initiatives impact the DFS’ investigative and enforcement priorities.  Moreover, as New York is a bellwether state, it will be interesting to see whether other states follow suit.

Supreme Court Ruling Addresses FDCPA Statute of Limitations

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A&B ABstract: 

On December 10, 2019, the U.S. Supreme Court held that, absent the application of an equitable doctrine, the one-year statute of limitations for actions against debt collectors under the Fair Debt Collection Practices Act (“FDCPA”) begins to run on the date on which an alleged FDCPA violation occurs, not the date on which the violation is discovered.  In doing so, the Supreme Court declined to apply a general discovery rule to the FDCPA’s limitation period as a principle of statutory interpretation, but left the door open for the application of a fraud-specific discovery rule as an equitable doctrine.

Background

The case—Rotkiske v. Klemm, 589 U.S. ___ (2019)—involves the suit of a credit card debtor (“Rotkiske”) against his debt collector (“Klemm”), claiming Klemm attempted to collect an unpaid debt that it lacked the lawful ability to collect.  In January 2009, Klemm sued Rotkiske on the debt and employed fraudulent service of process to obtain and conceal a default judgment. Rotkiske did not discover the existence of the default judgment against him until September 2014.  On June 29, 2015, less than one year after discovering the default judgment, but more than six years after it was obtained, Rotkiske sued Klemm under the FDCPA.

Klemm moved to dismiss under the FDCPA’s one-year statute of limitations, 15 U.S.C. § 1692k(d).  Citing Ninth Circuit precedent, Rotkiske responded that the “discovery rule” should apply so that the statute of limitations began to run when he knew or should have known of the alleged FDCPA violation, rather than the date the violation occurred.  The district court rejected Rotkiske’s argument and dismissed the action as time barred.  An en banc Third Circuit affirmed.  Notably, Rotkiske failed to raise the application of equitable doctrines on appeal, so the Third Circuit did not address that issue.  The Supreme Court granted certiorari to resolve the conflict between the Ninth and Third Circuits.

The Discovery Rule

On review, the Court explained that there is no generally accepted meaning of the phrase “discovery rule,” but that there are at least two conceptions of the rule: (1) the application of a general discovery rule as a principle of statutory interpretation, and (2) the application of a fraud-specific discovery rule as an equitable doctrine.  Addressing each in turn, the Court affirmed the Third Circuit’s decision.

First, the Court explained that Rotkiske was, in effect, asking the Court to read the discovery rule into § 1692k(d)’s limitations period, even though this would amount to an “atextual judicial supplementation” of the statute.  The Court cited several other federal statutes that expressly set limitations periods to run from the date on which a violation occurred or the date of discovery of such violation, concluding that in the absence of such language, the Court could not supply the discovery rule as an exception.  It characterized the argument in favor of supplementing § 1692k(d)’s plain language as “bad wine of recent vintage.”

Second, the Court explained that while there is a basis in the Court’s precedent for applying an equity-based doctrine to toll the statute of limitations, Rotkiske had failed to preserve the issue before the Third Circuit.  As such, the Court declined to decide whether §1692k(d) permits the application of equitable doctrines, but indicated that an equitable, fraud-specific discovery rule might potentially apply in other cases.

On this second point, Justice Sotomayor (concurring) stated that this fraud-specific equitable principle was not the bad wine of recent vintage that the majority denounced, and that nothing in the Court’s decision prevented parties from invoking a fraud-specific discovery rule.

To this end, Justice Ginsberg (dissenting in part) went even further, framing the fraud-based discovery rule as a statutory presumption “read into every federal statute of limitations.”  She also said that “[u]nlike the general discovery rule, there is no reason to believe the FDCPA displaced the fraud-based discovery rule,” and “[t]he Court does not hold otherwise.”  In her view, the fraud-based discovery rule would apply “if either the conduct giving rise to the claim is fraudulent, or if fraud infects the manner in which the claim is presented.”

Takeaway

The Rotkiske decision conclusively bars the application of a general discovery rule to the FDCPA’s one-year statute of limitations.  The decision, however, leaves the door open for the application of a fraud-specific discovery rule as an equitable doctrine, likely if (1) the conduct giving rise to the claim is fraudulent, or (2) fraud infects the manner in which the claim is presented.

CFPB Issues Its Fall 2019 Rulemaking Agenda

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A&B Abstract:

On November 20, 2019, the Consumer Financial Protection Bureau (the “Bureau” or “CFPB”) published its Fall 2019 Rulemaking Agenda (the “Rulemaking Agenda”) as part of the Fall 2019 Unified Agenda of Federal Regulatory and Deregulatory Actions. The Rulemaking Agenda sets forth the matters that the Bureau reasonably anticipates having under consideration during the period from October 1, 2019 to September 30, 2020.  The Rulemaking Agenda is the first Unified Agenda prepared by the CFPB since Director Kraninger embarked on her “listening tour” shortly after taking office in December 2018. Below we highlight some of the key agenda items discussed in the Rulemaking Agenda.

Implementing Statutory Directives

In the Rulemaking Agenda, the Bureau indicates that it is engaged in a number of rulemakings to implement directives mandated in the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (“EGRRCPA”), the Dodd-Frank Act and other statutes.  For example:

Truth in Lending Act

In March 2019, the Bureau published an Advanced Notice of Proposed Rulemaking (“ANPR”) seeking public comment relating to the implementation of section 307 of the EGRRCPA, which amends the Truth in Lending Act (“TILA”) to mandate that the Bureau prescribe certain regulations relating to “Property Assessed Clean Energy” (“PACE”) financing.  The Bureau indicated that it is reviewing the comments it has received in response to the ANPR as it considers next steps to facilitate the development of a Notice of Proposed Rulemaking (“NPRM”).

TRID Rule Guidance

The Bureau has also been engaged in several other activities to support its rulemaking to implement the EGRRCPA.  For example, the Bureau noted that it has (i) updated its small entity compliance guides and other compliance aids to reflect the EGRRCPA’s statutory changes; and (ii) issued written guidance as encouraged by section 109 of the EGRRCPA, which provides that the Bureau “should endeavor to provide clearer, authoritative guidance” on the CFPB’s TILA/RESPA Integrated Disclosure rule.

Implementation of Section 1071 of Dodd-Frank

Additionally, the Bureau is undertaking certain activities to facilitate its mandate to prescribe rules implementing Section 1071 of the Dodd-Frank Act, which amended the Equal Credit Opportunity Act to require financial institutions to collect, report, and make public certain information concerning credit applications made by women-owned, minority-owned, and small businesses.  For example, on November 6, 2019, the Bureau hosted a symposium on small business data collection in order to facilitate a discussion with outside experts on the issues implicated by creating such a data collection and reporting regime.

We have previously issued an advisory in which we discuss the key mortgage servicing takeaways from the EGRRCPA.

Continuation of the CFPB’s Spring 2019 Rulemaking Agenda

The Rulemaking Agenda notes that the Bureau will continue with certain other rulemakings that were described in its Spring 2019 Agenda that are intended to “articulate clear rules of the road for regulated entities that promote competition, increase transparency, and preserve fair markets for financial products and services.”  Such rulemakings include:

HMDA and Regulation C

In May 2019, the Bureau issued a NPRM to (i) reconsider the thresholds for reporting data about closed-end mortgage loans and open-end lines of credit under the Bureau’s 2015 Home Mortgage Disclosure Act (“HMDA”) Rule and to incorporate into Regulation C an interpretive and procedural rule that the Bureau issued in August 2018 in order to implement certain partial HMDA exemptions created by the EGRRCPA.  In summer 2020, the Bureau is expecting to issue an NPRM to follow-up on an ANPR issued in May 2019 related to data points and coverage of certain business- or commercial-purpose loans.  The Bureau also anticipates issuing a NPRM addressing the public disclosure of HMDA data in light of consumer privacy interests to allow the Bureau to concurrently consider the collection and reporting of data points and the public disclosure of those data points.

Proposed Regulation F

In May 2019, the Bureau issued a NPRM which would, for the first time, prescribe substantive rules under Regulation F, which implements the Fair Debt Collection Practices Act, to govern the activities of debt collectors (the “Proposed Rule”). The Proposed Rule would address several issues related to debt collection, such as (i) addressing communications in connection with debt collection; (ii) interpreting and applying prohibitions on harassment or abuse, false or misleading representations, and unfair practices in debt collection; and (iii) clarifying requirements for certain consumer-facing debt collection disclosures.  The Bureau noted that it is also engaged in testing of consumer disclosures relating to time time-barred debt disclosure issues that were not part of the Proposed Rule.  The results of the CFPB’s testing will inform the Bureau’s assessment of whether to issue a supplemental NPRM seeking comments on any disclosure proposals related to the collection of time-barred debt.

We previously published a five-part blog series in which we discussed the provisions of the Proposed Rule that are under consideration. We will continue to monitor and report on any developments related to the Proposed Rule.

Payday, Vehicle Title, and Certain High-Cost Installment Loans (the “Payday Rule”)

The Bureau is expecting to take final action in April 2020 on the NPRM issued in February 2019 related to the reconsideration of the mandatory underwriting requirements of the 2017 Payday Rule.  That said, we note that the U.S. District Court for the Western District of Texas has stayed the Payday Rule’s August 19, 2019 compliance date. The parties before the court have a status hearing on December 6, 2019 which could affect the stay and the effective date of the Payday Rule.

Remittance Rule

In addition, the Rulemaking Agenda notes that the Bureau is planning to issue a proposal this year to amend the CFPB’s Remittance Rule to address the effects of the expiration in July 2020 of the Rule’s temporary exception allowing institutions to estimate fees and exchange rates in certain circumstances.

New Rulemakings and Review of Existing Regulations

Expiration of the “GSE Patch”

In January 2019, the Bureau completed an assessment of certain rules that require mortgage lenders to make a reasonable and good faith determination that consumers have a reasonable ability to repay certain mortgage loans and that define certain “qualified mortgages” that a lender may presume comply with the statutory ability-to-repay requirement. The “GSE Patch” is set to expire in January 2021, meaning that loans eligible to be purchased or guaranteed by GSEs that are originated after that date would not be eligible for qualified mortgage status under its criteria. In July 2019, the Bureau issued an ANPR to amend Regulation Z, regarding the scheduled expiration of the GSE Patch, and is currently reviewing the comments it received since the comment period closed on September 2019.

As noted in a previous blog post, the CFPB announced in its ANPR, that the Bureau does not intend to extend the GSE patch permanently. It will be interesting to see whether the Bureau will allow the patch to expire in January 2021 as planned of if the Bureau will use this as an opportunity to possibly extend the expiration date.

Addition of New Regulatory Agenda Items

In response to feedback received in response to the Bureau’s 2018 Call for Evidence and other outreach efforts, the Bureau is adding two new items to its long-term regulatory agenda to address concerns related to (i) loan originator compensation; and (ii) the use of electronic channels of communication in the origination and servicing of credit card accounts.

Review of Existing Regulations

The Rulemaking Agenda also highlights the Bureau’s active review of existing regulations.  For example, the CFPB will be assessing its so-called TRID Rule pursuant to Section 1022(d) of the Dodd-Frank Act, which requires the CFPB to publish a report assessing the effectiveness of each “significant rule or order” within five years of it taking effect.  The Bureau must issue a report with the results of its assessment by October 2020.

The Rulemaking Agenda further notes that, in 2020, the Bureau expects to conduct a 610 RFA review of the Regulation Z rules that implemented the Credit Card Accountability Responsibility and Disclosure Act of 2009.  Section 610 of the RFA requires federal agencies to review each rule that has or will have a significant economic impact on a substantial number of small entities within 10 years of publication of the final rule.

Takeaway

The Bureau’s Rulemaking Agenda gives industry an advanced look at what to expect from the CFPB in the coming months. We expect the Bureau to be active in working through their agenda and will provide further updates as they become available.

* We would like to thank Associate, David McGee, for his contributions to this blog post.