Alston & Bird Consumer Finance Blog

Fair Debt Collection Practices Act (FDCPA)

The Hunstein Case: Upending Servicing and Debt Collection?

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A&B Abstract:

The U.S. Court of Appeals for the Eleventh Circuit, covering Alabama, Florida, and Georgia, recently decided in Hunstein v. Preferred Collection and Management, Inc., that a debt collector’s communication with its third-party vendor violated section 1692c(b) of the Fair Debt Collection Practices Act (“FDCPA”), which prohibits a debt collector for communicating, in connection with the collection of any debt, with an unauthorized third party.

The FDCPA and Regulation F

 In 1977, Congress enacted the FDCPA to eliminate abusive debt collection practices by debt collectors.  Section 1692c(b) of the FDCPA generally provides that, except with respect to seeking location information:

without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.

The FDCPA defines “communication” to mean “the conveying of information regarding a debt directly or indirectly to any person through any medium.”

For decades the FDCPA was enforced by the Federal Trade Commission (“FTC”).  However, prior to the Dodd-Frank Act, no federal regulator had rulemaking authority under the FDCPA.  The Dodd-Frank Act empowered the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) with rulemaking authority with respect to the collection of debts by debt collectors, as defined by the FDCPA.  Prior to finalizing Regulation F, the CFPB conducted market outreach to better understand how debt collectors attempt to collect on accounts.  In July 2016, the CFPB published a study of third-party debt collection operations (“Operations Study”) that recognized debt collection firms’ reliance on vendors (such as print mail services, predictive dialers, voice analytics, payment processes and data servers).  In fact, the CFPB noted that most respondents use an outside vendor for sending written communications.

On November 30, 2020, amended Regulation F,  implementing the FDCPA, was published in the Federal Register with an effective date of November 30, 2021 (which has subsequently been delayed to January 29, 2022).  Regulation F does not specifically address the use of third-party vendors, such as print mail services, although the Operations Study was cited in the preamble to Regulation F.

With regard to civil liability, section 1692k of the FDCPA states that “[n]o provision of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the Bureau, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.”

The Hunstein Case

Despite the CFPB’s implicit recognition of debt collectors’ use of print and other vendors,  a recent court decision suggests that use of certain vendors could violate the FDCPA’s prohibition on third-party communications.  In Hunstein, the U.S. Court of Appeals for the Eleventh Circuit reversed the district court’s judgment, holding that (1) a violation of section 1692c(b) of the FDCPA confers Article III standing; and (2) a debt collector’s transmittal of a consumer’s personal information to its dunning vendor constituted a communication “in connection with the collection of any debt” within the meaning of section 1692c(b).

The facts in this case are not unusual, and reflect the typical interactions between a debt collector and their third-party vendors. Specifically, the debt collector, Preferred Collection and Management Services Inc. (“Preferred”), electronically transmitted information concerning Hunstein’s debt (his name and his status as a debtor, the entity to which he owed the debt, the outstanding balance, the fact that his debt resulted from his son’s medical treatment, and his son’s name) to its third-party vendor. In turn, the vendor used that information to create, print, and mail a dunning letter to Hunstein.  As a result, Hunstein sued alleging that by sending his personal information to the third-party vendor, Preferred had violated section 1692c(b). The district court dismissed Hunstein’s action for failure to state a claim, holding that Hunstein had not sufficiently alleged that Preferred’s transmittal to its third-party vendor violated section 1692c(b), because it was not a communication “in connection with the collection of any debt.”  Hunstein appealed to the Eleventh Circuit. On appeal, the Eleventh Circuit addressed both the issues of Article III standing and whether Preferred’s communication was “in connection with the collection of any debt.”

The court first considered the threshold issue of whether a violation of section 1692c(b) confers Article III standing. Specifically, the court focused on whether Hunstein had suffered an injury in fact, which requires an invasion of a legally protected interest that is both concrete and particularized and actual or imminent, not conjectural or hypothetical. The court indicated that the “standing question here implicates the concreteness sub-element.”  The court explained that a plaintiff can satisfy the concreteness requirement in one of three ways. A plaintiff can meet this requirement by (1) alleging a tangible harm (e.g., physical injury, financial loss, and emotional distress), (2) alleging a risk of real harm, or (3) identifying a statutory violation that gives rise to an “intangible-but-nonetheless-concrete injury.”  The court ultimately concluded that Hunstein had met the concreteness requirement “[b]ecause (1) § 1692c(b) bears a close relationship to a harm that American courts have long recognized as cognizable and (2) Congress’s judgment indicates that violations of §1692c(b) constitute a concrete injury.”

After concluding that Hunstein had standing to sue, the court considered whether Preferred’s transmittal to its third-party vendor was a “communication in connection with the collection of any debt.” At the outset, the court noted that the parties were in agreement that Preferred was a “debt collector,” that Hunstein was a “consumer,” and that the debt at issue was a “consumer debt,” as contemplated under the FDCPA. Moreover, the parties agreed that Preferred’s transmittal of Hunstein’s information to the third-party vendor constituted a “communication” within the meaning of the FDCPA. Thus, the only question remaining before the court was whether Preferred’s communication was “in connection with the collection of any debt.” The court began its analysis by reviewing the plain meaning of the phrase “in connection with” and the word “connection,” and determined that “in connection with” and “connection” are generally defined to mean “with reference to or concerning” and “relationship or association,” respectively.  Based on these definitions, and the facts at issue, the court found it “inescapable that Preferred’s communication to [its third-party vendor] as least ‘concerned,’ was ‘with reference to,’ and bore a ‘relationship or association’ to its collection of Hunstein’s debt.”  Accordingly, the court held that Hunstein had alleged a communication “in connection with the collection of any debt” as that phrase is commonly understood.

The court next considered, and rejected, Preferred’s three arguments that its communication was not “in connection with the collection of any debt.” First, the court found Preferred’s reliance on prior Eleventh Circuit decisions interpreting the phrase “in connection with the collection of any debt,” as used under section 1692e, to be misplaced. The court explained that in those line of cases, the court had focused on the language of the underlying communications that were at issue. However, the court found that the district court’s conclusion that the phrase “in connection with the collection of any debt” necessarily entails a demand for payment “defies the language and structure of § 1692c(b) for two separate but related reasons—neither of which applies to § 1692e.” First, the court explained that the “demand-for-payment interpretation would render superfluous the exceptions spelled out in §§ 1692c(b) and 1692b.” The court noted that under section 1692c(b), “[c]ommunications with four of the six excepted parties—a consumer reporting agency, the creditor, the attorney of the creditor, and the attorney of the debt collector—would never include a demand for payment,” and that the “same is true of the parties covered by § 1692b and, by textual cross-reference, excluded from § 1692c(b)’s coverage.” Accordingly, the court held that the phrase “in connection with the collection of any debt” in section 1692c(b) must mean something more than a mere demand for payment, so as not to render “Congress’s enumerated exceptions…redundant.”

The court also rejected Preferred’s argument that the court adopt a holistic, multi-factoring balancing test that was adopted by the Sixth Circuit in its unpublished opinion in Goodson v. Bank of Am., N.A., 600 Fed. Appx. 422 (6th Cir. 2015), for two reasons: (1) “Goodson and the cases that have relied on it concern § 1692e—not § 1692c(b),” and (2) sections 1692c(b) and 1692e differ both “linguistically, in that the former includes a series of exceptions that an atextual reading risks rendering meaningless, while the latter does not, and…operationally, in that they ordinarily involve different parties.” Moreover, the court found that “in the context of § 1692c(b), the phrase ‘in connection with the collection of any debt’ has a discernible ordinary meaning that obviates the need for resort to extratextual ‘factors.’”

Finally, the court rejected Preferred’s “industry practice” argument—namely that there is widespread use of mail vendors and a relative dearth of FDCPA suits against them—holding that simply because “this is (or may be) the first case in which a debtor has sued a debt collector for disclosing his personal information to a mail vendor hardly proves that such disclosures are lawful.”

In holding that Preferred’s communication with its third-party vendor constituted a communication “in connection with the collection of any debt,” the court acknowledged that its “interpretation of § 1692c(b) runs the risk of upsetting the status quo in the debt-collection industry…[and that its] reading of § 1692c(b) may well require debt collectors (at least in the short term) to in-source many of the services that they had previously outsourced, potentially at great cost.” Moreover, the court recognized that “those costs may not purchase much in the way of ‘real’ consumer privacy.” Nevertheless, the court noted that its “obligation is to interpret the law as written, whether or not we think the resulting consequences are particularly sensible or desirable.”

Takeaway 

The court’s textual reading of the statute fails to account for the technological changes to the industry since the FDCPA was enacted in 1977.

The CFPB has the authority to take a more pragmatic view, either through its advisory opinion program or formal rulemaking to recognize the important role of vendors while also putting in proper guardrails to protect consumers’ privacy.  Such a view would be consistent with the FTC’s treatment of this issue.  The FTC previously indicated that a debt collector could contact an employee of a telephone or telegraph company in order to contact the consumer, without violating the prohibition on communication to third parties, if the only information given is that necessary to enable the collector to transmit the message to, or make the contact with, the consumer. Presumably, a debt collector would have to transmit much the same information for purposes of communicating with the debtor through a letter vendor.

Congress also has the authority to modernize the FDCPA.  The House of Representatives recently passed a comprehensive debt collection bill (H.R. 2547, the Comprehensive Debt Collection Improvement Act, sponsored by Chairwoman Waters). While this bill currently doesn’t address the issue in Hunstein, that could be remedied in the Senate.

The consumer finance industry will be closely watching the Hunstein case as it works through the appeal process, as well as how other courts, Congress, CFPB and other regulators react.

District Courts Split on Convenience Fees Under Debt Collection Laws

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A&B ABstract:

In a number of recent decisions, district courts have split on the issue of whether a mortgage servicer violates the Fair Debt Collection Practices Act (“FDCPA”) and related state debt collection statutes by charging a borrower a convenience fee for making a mortgage payment over the phone, interactive voice recording system (“IVR”).

FDCPA Sections 1692(f) and 1692a

Section 1692(f) of the FDCPA prohibits a debt collector from using unfair or unconscionable means to collect any debt, and enumerates specific examples of prohibited conduct.  Such conduct includes the “[c]ollection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement created the debt or permitted by law.  15 U.S.C. § 1692f(1).

The FDCPA defines “debt collector” as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C.A. § 1692a(6).  Among other things, the term “debt collector” does not include “any person collecting or attempting to collect any debt owed or due . . . to the extent such activity . . . concerns a debt which was originated by such person” or “concerns a debt which was not in default at the time it was obtained by such person….”  Id.

Overview of Convenience Fees

In addition to offering consumers several no-cost options to make a timely monthly mortgage payment, many servicers also offer borrowers a means to make an immediate payment on their mortgage by phone, IVR, or the Internet.  Servicers who make such services available to their customers may charge a fee, often referred to as a “convenience fee,” in connection with this service.  In a wave of recent cases, borrowers who have elected to use such payment methods and consequently incurred convenience fees have sued their mortgage servicers, alleging that the convenience fees violated the FDCPA.  Frequently, these borrowers also allege that the convenience fees violated other state consumer protection statutes, breached the express terms of their mortgage agreements, and ran afoul of common law.

Recent Decisions

This year, numerous courts across the country have ruled on loan servicers’ motions to dismiss convenience claims asserted by borrowers.  A clear split has now emerged regarding the viability of plaintiffs’ legal theories.

Some Courts Dismiss Plaintiffs’ FDCPA Claims, Finding Plaintiffs’ Allegations Concerning Convenience Insufficient to State a Violation of the FDCPA

Many courts, largely in district courts in Florida, have dismissed borrowers’ claims for failure to state a claim under the FDCPA and related state acts.  According to these courts, a convenience fee is neither a “debt,” nor is it properly characterized as “incidental” to the mortgage debt itself.  Moreover, these courts have also rejected the argument that the servicer is “debt collector” under the FDCPA unless the loan was in default when the borrower became obligated to pay the convenience fee.

One of the key decisions in this recent line of cases in Turner v. PHH Mortgage Corp. No. No. 8:20-cv-00137-T-30SPF (Feb. 24, 2020 M.D. Fla.).  There, PHH charged Turner for making mortgage payments via telephone or online.  Turner alleged those convenience fees violated the FDCPA, and its Florida counterpart, the Florida Consumer Collection Practices Act (“FCCPA”).  PHH responded by moving to dismiss those claims.  The court agreed with PHH, concluding that the convenience fees were not debts owed another as contemplated by the acts.  Further, the court found that even if the fees were debts, PHH’s optional payment services had separate convenience fees that originated with PHH—not with Turner’s mortgage.

Additionally, the court relied on the fact that when Turner became obligated to pay the convenience fees, she was not in default in her obligation to pay it.  Thus, according the court’s analysis, PHH was not acting as a debt collector under the acts because (1) the debt was not in default and (2) the debt originated with PHH.  A number of other courts have since dismissed the borrowers’ claims under similar reasoning, often citing Turner’s analysis as persuasive.  See, e.g. Estate of Derrick Campbel. V. Ocwen Loan Serv., LLC, No. 20-CV-80057-AHS, slip op. at 5 (S.D. Fla. Apr. 30, 2020); Reid v. Ocwen Loan Serv., LLC, No. 20-CV-80130-AHS, 2020 U.S. Dist. LEXIS 79378 (S.D. Fla. May 4, 2020); Bardak v. Ocwen Loan Serv., 2020 U.S. Dist. LEXIS 158874 (M.D. Fla. Aug. 12, 2020).

Some Courts Find that Borrowers’ Allegations Concerning Convenience Fees Are Sufficient to State a Claim Under the FDCPA

A number of other courts across the country, from California to Florida to Texas, have concluded that a borrower does state a claim for violation of the FDCPA (or an equivalent state statute) by alleging that the borrower was charged a convenience fee in connection with a mortgage payment made over the phone, IVR, or Internet.

In contrast to the decisions discussed above, these courts find that the convenience fee is “incidental” to the mortgage debt under FDCPA section 1692f(1).  These courts have rejected the servicers’ arguments that convenience fees are not incidental to the mortgage because they arise from separate services and obligations voluntarily undertaken by the borrower.  They have found instead that, regardless of the fact that the payment method is optional, it is still incidental to the mortgage debt because the servicers only collect convenience fees when borrowers make debt payments.  See, e.g., Glover v. Owen Loan Servicing, LLC, 2020 U.S. Dist. LEXIS 38701 (S.D. Fla. Mar. 2, 2020).

Similarly, the court in Glover further found that the convenience fees were not permitted by Florida law because the court could not identify any statute or law expressly permitting such fees, nor were they explicitly allowed by the mortgage agreement.  A number of other courts have employed similar reasoning and refused to dismiss borrowers’ convenience fee claims under the FDCPA or corollary state statutes.  See, e.g., Torliatt v. Ocwen Loan Serv., No. 19-cv-04303-WHO, 2020 U.S. Dist. LEXIS 141261 (N.D. Cal. Jun. 22, 2020) (refusing to dismiss claims under the Rosenthal Fair Debt Collection Practices Act—California’s equivalent of the FDCPA—and California’s Unfair Competition Law); Caldwell v. Freedom Mortg. Corp., No. 3:19-cv-02193-N (N.D. Tex. Aug. 14, 2020) (refusing to dismiss plaintiffs’ claims under the Texas Debt Collection Act).

Takeaway

There is a growing split among district courts regarding whether a borrower who is charged a convenience fee has a viable claim under the FDCPA.  This division is particularly acute within the Eleventh Circuit, and is one unlikely to be resolved in the Court of Appeals any time soon.  So, for the foreseeable future, we expect to see more lawsuits where borrowers seek to take advantage of the current state of legal uncertainty around convenience fees.

CFPB Issues Winter 2020 Supervisory Highlights

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A&B ABstract:

The Winter 2020 Supervisory Highlights identifies the CFPB’s findings from recent examinations, noting violations that resulted in compliance management system weakness.

CFPB Issues New Edition of Supervisory Highlights:

The Winter 2020 edition of the Consumer Financial Protection Bureau (“CFPB”) Supervisory Highlights details recent examination findings relating to debt collection, mortgage servicing, and student loan servicing, among other topics.

Debt Collection

 With respect to debt collection, the CFPB focused on:

  • Failure to disclose in communications subsequent to the initial written communication that the communication is from a debt collector, in violation of Section 807(11) of the FDCPA; and
  • Failure to send a written validation notice within five days after the initial communication with the consumer, in violation of Section 809(a) of the FDCPA.

As a result of these deficiencies, the CFPB reported that servicers revised their policies and procedures, and monitoring and training programs.

Mortgage Servicing and Loss Mitigation

With a focus on compliance with the loss mitigation provisions of Regulation X, the CFPB’s first finding was that servicers failed to notify borrowers in writing of the servicer’s determination that the loss mitigation application is complete or incomplete within five business days of receiving a loss mitigation application.  Second, the CFPB found that servicers failed to provide borrowers with a written notice of available loss mitigation options within 30 days of receiving the complete loss mitigation application.

Finally, the CFPB cited servicers’ failure to comply with Regulation X’s requirements, including providing a written notice to borrowers, for offering a short term loss mitigation option to a borrower based on an evaluation of an incomplete loss mitigation application. In this instance, the servicers granted short-term forbearance if the borrower in a disaster area experienced home damage or loss of income from the disaster. The borrowers received such accommodation after speaking with the servicer over the phone and responding to certain questions.

In response to that finding, the CFPB reminded servicers that an application for loss mitigation can be oral or written.   Because the servicer’s efforts to respond to a natural disaster were the partial cause of violations, the CFPB only required the servicer to develop plans to ensure staffing capacity in response to any future disaster-related increases in loss mitigation applications. The CFPB also reminded servicers of its September 2018 Statement on Supervisory Practices Regarding Financial Institutions and Consumers Affected by a Major Disaster or Emergency, which provides flexibility for servicers to assist borrowers during a major disaster or emergency but does not lift the Regulation X requirements.

Payday Lending

With a focus on Regulation Z, Regulation B, and unfair acts or practices, the CFPB found that lenders engaged in unfair acts or practices when they: (1) processed borrowers’ payments, but did not apply such payments to borrowers’ loan balances in lenders’ systems; (2) lacked systems to detect unapplied payments; and (3) incorrectly treated borrowers accounts as delinquent. The CFPB found that the injury was not reasonable avoidable by the borrowers because lenders conveyed incorrect information to them about their accounts and failed to follow up on borrower’s complaints. Furthermore, because the cost to lenders to implement appropriate accounting controls to reconcile payments would have been reasonable, countervailing benefits did not outweigh the injury.

Additionally, the CFPB found that a payday lender engaged in unfair acts or practices by assessing consumers a fee as a condition of paying or settling a delinquent loan when the underlying loan contract required the lender to pay that particular fee. The lender mischaracterized the fee as a court cost (which would have been paid by the borrower) or did not disclose it. According to the CFPB, a lack of monitoring and/or auditing of the lender’s collection practices caused the error. In response to this finding, the lender refunded the fee to affected consumers and made changes to its compliance management system.

Other Payday Lending Observations

Further, the CFPB found that payday lenders:

  • Violated Regulation Z by relying on employees to manually calculate APRs when the lender’s loan origination system was unavailable. The CFPB found that errors made in calculating the term of the loan, which resulted in misstated APRs, were caused by weaknesses in employee training.
  • Violated Regulation Z by charging a loan renewal fee to consumers who were refinancing delinquent loans and omitted such fee from the finance charge, resulting in inaccurate disclosure of the APR and finance charge. The CFPB found that a lack of detailed policies and procedures and training contributed to the Regulation Z violations. In response, the lender refunded the fee to the consumer explaining the reason for the refund and strengthened its policy and procedures and training program.
  • Violated record retention requirements of Regulation Z by failing to maintain evidence of compliance for two years. The CFPB found that the violation resulted in part from a lack of training and detailed policies and procedures on record retention.
  • Violated Regulation B by providing consumers with an adverse action notice that incorrectly stated the principal reason for taking an adverse action as a result of a coding error. In response, the lenders sent corrected adverse action notices to consumers and made changes to the system that generate the notices.

Student Loan Servicing

With a focus on unfair practices, the CFPB found that servicers engaged in an unfair act or practice caused by a data mapping errors during the transfer of private loans between servicing systems that resulted in inaccurate calculations of monthly payment amounts. As a result, borrowers may have made payments based on the inaccurate amounts, incurred late fees on such inaccurate amounts, or had inaccurate amounts debited from their account. In response to the examination findings, the CFPB required servicers to remediate affected consumers and implement new processes to eliminate data mapping errors.

 Takeaways

Highlighting debt collection, mortgage servicing, payday lending and student loan servicing, the Supervisory Observations in the Winter 2020 Supervisory Highlights showcase the importance of adequate policies and procedures, training, monitoring and auditing and system controls to avoid consumer harm and violation of consumer financial laws.  Although they cut across multiple industries, the CFPB’s findings highlight common themes – such as entities’ liability for violations that result from system errors or the assessment of unauthorized fees, and the need for careful monitoring in connection with servicing transfers.

 

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.

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.