On Tuesday, the Ninth Circuit remanded Robins v. Spokeo, Inc., Case No. 2:10-cv-05306-ODW-AGR on the basis that the district court erred in finding that the Plaintiff, Thomas Robins (“Robins”), did not have Article III “injury-in fact” standing to file his suit alleging violations of Fair Credit Reporting Act (“FCRA”) §§1681b(b)(1), 1681e(b), and 1681j(a).
In a per curiam decision which vacated the lower court’s dismissal of a consumer class action under the federal Fair Debt Collection Practices Act (FDCPA), the U.S. Court of Appeals for the Fourth Circuit, in a case of first impression in that circuit, found that debt collection notices violate the FDCPA if they require consumers’ disputes of the validity of debts to be in writing. In Clark v. Absolute Collection Service, Incorporated, No. 13-1151, ___ F.3d ___ (4th Cir., Jan. 31, 2014), the court held that section 1692g(a)(3) of the FDCPA does not explicitly or implicitly require consumer’s disputes to be in writing.
Section 1692g(a)(3) of the FDCPA requires that debt collectors send written notices to consumer debtors containing “…a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector….” However, pursuant to section 1692g(b) of the FDCPA, when a consumer “notifies the debt collector in writing” (emphasis added) that he or she disputes a debt, the debt collector must cease collection activity until verification of the debt is obtained and mailed to the consumer.
In this case, the debt collector issued collection notices stating, among other things, that “ALL PORTIONS OF THIS CLAIM SHALL BE ASSUMED VALID UNLESS DISPUTED IN WRITING WITHIN THIRTY (30) DAYS….” (Emphasis added). The debt collector argued that its collection notices comply with section 1692g(a)(3) of the FDCPA because it imposes “an inherent writing requirement” because consumers’ oral notices would waive important protections under sections 1692g(a)(4), 1692g(a)(5) and 1692g(b), producing what the debt collector contended was an absurd result. This position has been adopted by the U.S. Court of Appeals for the Third Circuit (Graziano v. Harrison, 950 F.2d 107 (3d Cir. 1991)) but rejected by the Second and Ninth Circuits (Hooks v. Forman, Holt, Eliades & Ravin, LLC, 717 F.3d 282 (2d Cir. 2013); Camacho v. Bridgeport Fin. Inc., 430 F.3d 1078 (9th Cir. 2005)).
In adopting the position of the Second and Ninth Circuits, the Fourth Circuit found that the plain meaning of FDCPA section 1692g(a)(3) should be enforced as written–without a requirement that disputes be in writing–and does not produce absurd results. The court noted that oral disputes under section 1692g(a)(3) trigger statutory protections for consumers which are independent of those under sections 1692g(a)(4), 1692g(a)(5) and 1692g(b).
In the case of Cross v. Prospect Mortgage, LLC, No. 1:12-cv-1455 (E.D. Va., Nov. 27, 2013), a federal district court found that a mortgage lender violated the Equal Credit Opportunity Act (ECOA) when the lender failed to provide the borrower with an “adverse action” notice stating that the lender did not obtain a requested U.S. Department of Agriculture Rural Development (USDA-RD) loan guarantee. Accordingly, the court granted the plaintiff-borrower’s motion for summary judgment on her ECOA claim.
The borrower had applied for a USDA-RD guaranteed mortgage loan to refinance her existing home mortgage loan. The lender did obtain a required pre-closing conditional loan guarantee commitment from USDA. The conditional commitment contemplated a residential mortgage loan with a principal balance of $397,800 and a 5.0% interest rate, requiring the borrower to pay $5,000 in cash at closing for closing costs. However, prior to closing, the borrower requested that the lender modify the loan to finance all of the closing costs, and the lender agreed to do so subject to an increase in the interest rate to 5.375%. The borrower accepted this higher rate, and the lender advised her that the changed loan terms would require USDA approval prior to closing. The parties proceeded to close, and the borrower paid a $7,956 USDA loan note guarantee fee, which was itemized on the HUD-1 settlement statement. However, the lender apparently never sought or received from USDA a new pre-closing approval of the new loan terms. Apparently the lender knew then that the USDA would not guarantee the loan, yet it did not disclose this fact to the borrower. Continue reading this entry
In the case of In re: Late Fee and Over-Limit Fee Litigation (Pinon v. Bank of America, N.A.), No. 08-15218, ___ F.3d ___ (9th Cir., Jan. 21, 2014), a plaintiff class of cardholders contended that overlimit and late payment fees charged by banks to credit card-holders grossly exceed the actual harm caused to the issuing banks. The plaintiffs argued that such fees are analogous to punitive damages in excess of constitutional limits and, notwithstanding clear authority under the National Bank Act (NBA) and the Depository Institutions Deregulation and Monitary Control Act (DIDMCA), should be subject to constitutional substantive due process limits.
The U.S. Court of Appeals for the Ninth Circuit rejected this argument and affirmed the District Court’s dismissal of the case for failure to state a claim. The court noted that the fees are permissible under the NBA and DIDMCA, and reasoned that the Constitution’s due process jurisprudence does not prevent enforcement of penalty clauses, however excessive, in private contracts. The court separately affirmed the District Court’s dismissal of a claim under the California Unfair Competition Law, Cal. Bus. & Prof. Code sec. 17200 et seq.
The “reluctant” concurring opinion of Circuit Judge Reinhardt observed that existing due process jurisprudence does not extend to cardholder agreements, but–stressing that such agreements are essentially contracts of adhesion, a point apparently conceded by the majority opinion–encouraged the Supreme Court to “evolve” its due process jurisprudence to cover such fees.
The U.S. Court of Appeals for the Seventh Circuit, in a consolidated appeal of four separate cases, recently affirmed a lower court’s dismissal of four separate cases for failure to state claims under the federal Fair Debt Collection Practices Act (FDCPA). In Gruber v. Creditors’ Protection Service, Inc., Nos. 13-2084, 13-2164, 13-2297 and 13-2351, __ F.3d __ (7th Cir., Jan. 23, 2014), the appellate court considered whether a minor deviation from the statutory language of FDCPA Section 1692g(a)(4) in collection notices resulted in a violation of the FDCPA.
Section 1692g(a)(4) requires debt collectors to provide consumers a “statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector.” In the four cases presented, the notices failed to include the phrase “…that the debt, or any portion thereof, is disputed….” The consumer plaintiffs contended that this omission created risks that an unsophisticated consumer who may wish to exercise his or her rights would fail to properly do so, and may be misled to request verification instead of to dispute the debt.
The Court of Appeals rejected this argument, finding, as a matter of law, that the debt collectors’ notices complied with FDCPA Section 1692g(a)(4), notwithstanding the omitted clause, and “treat[ing] a request for verification as a dispute within the meaning of [FDCPA].”
In addition, one of the debt collection notices included the following statement (which is not set forth in the FDCPA) immediately above the statutorily-mandated language: “We believe you want to pay your just debt.” The plaintiff in that case argued that the use of the words “just debt” implied that judgment was already obtained against the consumer and could improperly dissuade a consumer from disputing or requesting validation of a debt, in violation of the FDCPA.
The Court of Appeals ruled against this argument, finding that the “just debt” clause is neutral in effect and does not direct the consumer to take any action.