When Is a Debt Not a Debt? The Supreme Court May Need to Decide

A recent decision by the Seventh Circuit has held that the Fair Debt Collection Practices Act (“FDCPA”) is violated when a debt collector sends a dunning letter seeking to settle a time-barred debt, even when no litigation is threatened. The Third and Eighth Circuits have disagreed. This sets up a split in the Circuits that the Supreme Court may need to resolve.

All three cases involved letters sent by debt collectors asking debtors to settle debts that could no longer be enforced by legal action. None of the letters threatened legal action, but neither did they disclose that the debts were time-barred.

The FDCPA prohibits the use of “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. Sec.1692e. This statute sets out a nonexclusive list of prohibited practices, including: false representation of the character, amount, or legal status of any debt Sec. 1692e(2)(A); the threat to take any action that cannot legally be taken, Sec. 1692e(5); and the use of any false representation or deceptive means to collect or attempt to collect any debt, 1692e(10). Continue reading this entry

Statements Rendered Credit Report Reseller a Credit Repair Organization

Sounding a cautionary note to the hypercompetitive credit report resale and monitoring industry, the U.S. Court of Appeals for the Ninth Circuit recently held that a reseller’s statements on its website and in television advertisements made it a “credit repair organization” under the federal Credit Repair Organizations Act (CROA), 15 U.S.C. sec. 1679 et seq. (Title IV of the Consumer Credit Protection Act).

The case, Stout v. FreeScore, LLC, No. 10-56887 (9th Cir., Feb. 21, 2014), is a putative class action which alleges that FreeScore, LLC d/b/a FreeScore.com, a consumer credit report reseller,  violated certain requirements of CROA and made misleading statements.  FreeScore successfully moved to dismiss the case, with the U.S. District Court ruling that FreeScore was not a credit repair organization because it “did not make any promises of credit improvement” but merely “promise[d] to provide a consumer with his or her credit score….”  On appeal, the Ninth Circuit reversed the District Court’s dismissal of the case and remanded it for further proceedings, finding that “FreeScore falls squarely within the CROA’s definition of a ‘credit repair organization.’”  Continue reading this entry

CFPB Finalizes Rule on Awards of Expenses, Attorney Fees to Prevailing Parties in Adversary Proceedings

As previously noted on this blog, the Consumer Financial Protection Bureau (CFPB) issued an interim final rule in June 2012 to implement the Equal Access to Justice Act. At the time, the CFPB requested public comment on the interim final rule.

Nearly two years later, the CFPB has now finalized the rule with no changes.

The final rule provides for eligible individuals and entities who are parties to adversary proceedings before the CFPB to receive awards of certain expenses and attorney fees if they prevail in the adversary proceeding or if the CFPB’s demand is substantially in excess of, and unreasonable in comparison to, the decision of the adjudicative officer.

Continue reading this entry

Ninth Circuit Holds Attempted Collection of Foreclosure-Related Fees Violates Servicemembers Civil Relief Act

The U.S. Court of Appeals for the Ninth Circuit ruled that a successor mortgage servicer violated Section 533(c) of the Servicemembers Civil Relief Act (SCRA) when it attempted to collect, or failed to remove, fees incurred in connection with a rescinded Notice of Default.

In Brewster v. Sun Trust Mortgage, Inc., No. 12-56560, ___ F.3d ___ (9th Cir., Feb. 7, 2014), the successor mortgage servicer continued to charge fees charged by the predecessor servicer during an earlier foreclosure proceeding. Although the prior servicer had terminated the foreclosure proceedings, it, and later the successor servicer, continued to charge to the mortgagor unpaid fees previously incurred in connection with the earlier foreclosure proceedings. Such fees are authorized and regulated by the foreclosure statutes of California (where the mortgaged property is located). Cal. Civ. Code sec. 2924c. While the district court had dismissed the servicemember-mortgagor’s claim, the Ninth Circuit reversed and remanded the case.

Section 533(c) of the SCRA prohibits any “sale, foreclosure, or seizure of property for a breach of [a mortgage that originated before the servicemember's military service]…if made during, or within one year after, the period of the servicemember’s military service” unless approved by a court. While noting that Section 533 does not define the term “foreclosure”, the Ninth Circuit gave the term an expansive reading to include the act of continuing to charge, and failing to remove, fees incidental to an earlier (later-rescinded) Notice of Default under the California foreclosure statutes.

OCC Updates Mortgage Banking Booklet in Comptroller's Handbook

The Office of the Comptroller of the Currency (OCC), which supervises federally-chartered banks and savings associations, has issued an updated “Mortgage Banking” booklet, which is part of the larger Comptroller’s Handbook.  The new booklet replaces the earlier version issued in March 1996, examination procedures issued in March 1998, and Section 750 of the former Office of Thrift Supervision’s Examination Handbook, issued in November 2008.

The updates include modifications to address significant changes to the primary and secondary mortgage market and regulatory developments, including the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010 and major revisions to Regulations X and Z.  The booklet provides guidance to national banks and federal savings associations (FSAs) on mortgage portfolio risk management and examination procedures.