debt buyers

Federal Judge Rules One Voicemail Message Is Not Enough to Sustain FDCPA Violation

In Hagler v. Credit World Services, Inc., a federal judge in Kansas decided that a debt collection agency was not in violation of the FDCPA by failing to identify itself as a debt collector in one voicemail message.  The judge explained that multiple calls must be made in order for “harassment” to occur.

Plaintiff was initially contacted by a Credit World Services employee to discuss the outstanding debt.  Plaintiff informed the employee that he would need to call him back.  After waiting about a month with no contact with Plaintiff, Defendant called Plaintiff and left the following voicemail:

“Hi, this message is for Charles.  Please call Bill Jackson at 913-362-3950 when you get a chance. 

 My extension is like 281.  Thank you.”

Plaintiff sued, arguing that Defendant’s voicemail violated several provisions of the FDCPA.  Specifically, Plaintiff alleges Defendant:

•Failed to disclose meaningfully the caller’s identity, in violation of 15 U.S.C. § 1692d(6);

•Failed to disclose that a debt collector had left the voicemail, in violation of 15 U.S.C. § 1692e(11); and

•Used misleading and deceptive language, in violation of 15 U.S.C. § 1692e.

Plaintiff also claimed that the voicemail message was otherwise deceptive and failed to comply with the provisions of the FDCPA.  Plaintiff and Defendant filed cross-motions for summary judgment on all four claims.

The judge agreed with the collection agency on all four counts.  The judge decided that the voicemail message did not provide a “meaningful” disclosure of the employee’s identity as a debt collector under § 1692d(6) as the employee only provided his name, which has no real meaning to the debtor.  The judge explained further that the employee must provide more about himself than his name to be a “meaningful” disclosure.  However, the judge ruled that a violation requires more than just one call.

Because the clear language of § 1692d(6) prohibits the placement of telephone “calls” without meaningful disclosure, the judge did not agree that this single voicemail message violated the FDCPA.  He supported this finding by citing other district courts who also focused on the plural usage of “calls” in the statute.  See Thorne v. Accounts Receivables Mgmt, Inc., 2012 U.S. Dist. LEXIS 109165 (S.D. Fla. July 23, 2012); Jordan v. ER Solutions, Inc., 900 F. Supp. 2d 1323 (S.D. Fla. 2012); Sanford v. Portfolio Recovery Assocs., LLC, 2013 U.S. Dist. LEXIS 103214 (E.D. Mich. May 30, 2013).

The judge also determined that the debt collector was not in violation of the FDCPA for failing to provide the “mini-Miranda” disclosure.  The judge noted that “in order to ‘convey information regarding a debt,’ a message must ‘expressly reference debt’ or the recipient must be able to infer that the message involved a debt.”  Since the employee did not mention the debt in the voicemail message, the judge did not consider it a debt collection communication under the FDCPA.

Finally, the judge disagreed that the message was misleading.  The employee merely left his name, phone number, and requested Plaintiff call him back.  The judge decided that nothing in the message was intended to mislead the Plaintiff.

For more information on this topic, contact Stephanie Strickler at 312-334-3465 or sstrickler@messerstrickler.com.

Debt Buyers Beware! Post-Charge Off Interest May Lead to Class Action Liability

Tempting for many debt purchasers is the prospect of adding post-charge off interest or fees to a purchased debt. After all, upon acquisition of a debt a purchaser legally “stands in the shoes” of the predecessor creditor. Meaning, the buyer generally inherits that creditor’s rights to invoke the provisions of the original agreement between the creditor and debtor. In that many credit agreements typically include provisions allowing the imposition of interest and even the addition of late fees and collection costs, relying on those agreements to beef up the balance of the debt can be an attractive prospect. As a recent case has shown, however, debt purchasers should be wary of the shoes they step into. In McDonald v. Asset Acceptance LLC, 2013 WL 4028947 (E.D. Mich. 2013), a group of plaintiffs filed a class action complaint arguing that a debt purchaser illegally attempted to collect post-charge off interest in violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. Specifically, Plaintiffs alleged that while the original agreement between the original creditors and the debtors allowed for the imposition of interest, the creditors waived the right to collect interest once the debts were charged-off. A credit account is characterized as “charged-off” when it is treated as a loss and the creditor receives a tax deduction under the Internal Revenue Code. See, Victoria J. Haneman, The Ethical Exploitation of the Unrepresented Consumer, 73 Mo. L. Rev. 707, 713-714 (2008). Because a debt purchaser, as an assignee, “stands in the shoes” of the original creditor when it attempts collect on accounts, Plaintiffs argued that the waiver of interest by the original creditors foreclosed the purchasers’ right to subsequently add interest.

The McDonald Court explained that the propriety of the debt purchasers’ imposition of interest depended on whether the original creditors waived the right to impose interest prior to sale. The original creditors testified that as a normal course and practice they ceased from charging post-charge off interest due to cost of continuing to assess the charges. The Court also noted that the contracts of sale between the debt purchaser and creditors excluded post charge-off interest from the definition of “current balance” or “unpaid balance” in the agreements. The court found that the original creditors “intended to waive the right to collect interest on Plaintiff’s accounts” by taking “decisive and unequivocal acts to forgo the imposition of interest for strategic business reasons.” McDonald, 2013 WL 4028947 at *10. Further, the Court decided that the purchaser had no legal right or ability to retract the waiver made by its predecessor in interest. The Court held that the practice constituted violations of § 1692f(1) and § 1692e(2) (A) of the FDCPA and certified a class of consumers subject to the illegal imposition of interest. Importantly, the Court also denied the purchaser the use of the bona fide error defense explaining that ignorance of the law does not afford a debt collector a defense under the FDCPA. Id. at *13.

The lesson learned from this case is that a debt purchaser must thoroughly review not only their purchase of sale contract but also the general business practices of the creditor in regards to charged-off debt. For further information on this issue and others affecting the credit and collection industry, contact attorney Nicole M. Strickler, (312) 334-3442.

Making Sure Debt Collectors Have the Correct Person, Debt, and Documentation among CFPB’s Chief Concerns

Nearly a year ago, the Federal Trade Commission (FTC) completed a lengthy investigation into debt-buyers. Some of the more interesting findings of the study include the following: • Debt buyers only pay about $0.04 per dollar on the accounts they purchase; • Debt buyers are not being told by the seller if the debt has been challenged; • Debt buyers are rarely given a breakdown of principal, interest, and fees; • Debt buyers are rarely provided supporting documents by the sellers. Moreover, sellers generally disclaim all representations and warranties with regard to the accuracy of the information provided; • At least 500,000 disputed debts go unverified each year.

It is no surprise then that among the Consumer Financial Protection Bureau’s (CFPB) chief concerns is making sure debt collectors have the correct person, debt, and documentation. In its recent notice of proposed rulemaking, the CFPB noted: “It is widely recognized that problems with the flow of information in the debt collection system is a significant consumer protection concern.” As explained in the FTC study, often when a debt is sold for pennies on the dollar, the sale doesn’t include a lot of information about the debtor or his debt. In fact, the documentation might include nothing more than the person’s name, last known address, social security number, and amount of debt. Even ACA International, a trade group for the consumer debt collection industry, believes some updating of the collection laws is in order, stating: “Current federal debt collection laws are woefully outdated when it comes to areas such as communication, documentation, verification, and statutes of limitation.”

To combat the issue, the CFPB is currently considering rules for the debt collection market. Ultimately, it appears, the CFPB is looking to require specific and standardized proof as part of the sale of debt. But before it writes any new regulations or strengthens current legislation, the agency wants the public to weigh in. The first set of questions contained in the agency’s 114-page rulemaking proposal, seems to get to the heart of the issue for consumers, which is: what information is transferred during the sale of debt or the placement of debt with a third-party collector?

Consumers can submit comments at Regulations.gov. Consumers may also learn about the issues and submit comments at RegulationRoom.org, which is run by the students and staff at Cornell Law School. The CFPB is working with Cornell Law School to make it simpler for people to learn about the rulemaking proposal and submit comments. Comments submitted to RegulationRoom.org will be summarized and submitted to the CFPB at the end of the official public comment period.

For more information about the CFPB’s rulemaking proposal, please contact Katherine Olson at 312-334-3444 or kolson@messerstrickler.com.

Connecticut Makes Amendments to Its Collection Agency Act

Recently, the state of Connecticut passed legislation that amends the definition of consumer collection agency to cover debt buyers in its debt collection law.  The state amended its “Act Concerning Money Transmission and Consumer Collection Agencies”.  In section 36a-800 of the Act the definition of consumer collection agency now includes any person engaged as a third party or “engaged directly or indirectly in the business of collecting any account, bill or other indebtedness from a consumer debtor for such person’s own account if the indebtedness was acquired from another person and if the indebtedness was either delinquent or in default at the time it was acquired.” This amendment, which is effective October 1, 2013, requires debt purchasers to obtain a license to operate in Connecticut.  To access the Act with its amendment, please follow the link: http://www.cga.ct.gov/2013/act/pa/2013PA-00253-R00SB-00911-PA.htm

“FDBPA” Passes the California Senate

On Monday, July 1st, the California General Assembly passed a bill entitled the “Fair Debt Buying Practices Act”, California SB 233.  The bill mandates debt buyers in California to obtain extensive account information before they can even begin the collection of a debt.  It also requires debt buyers to use specific disclosures language in their collection communications. The following are several items a purchaser must now possess before beginning collection efforts:  (1) proof that they are the sole owner of the debt, (2)  a full chain of title, (3) date of last payment or default, (4) the account balance at charge-off, and (5) name and address of both the debtor and the creditor.  In addition, if the account was bought and sold several times, a complete chain of title on the account is required.

The bill, which passed the California Senate earlier this year, will now head to California Governor Jerry Brown for signature.  A full copy can be found at http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140SB233. The law is set to take effect on January 1st of 2014.

Messer Strickler, Ltd. Scores a Major Victory for Collection Agencies and Debt Buyers in Illinois

On June 18, 2013 the Illinois Appellate court issued its opinion in Unifund v. Shah.  Joseph Messer and Nicole Strickler of Messer Strickler, Ltd. represented ACA International which was an Amicus Curiae on the appeal.  Although not a landslide victory for Unifund, the decision was a clear victory for collection agencies and debt buyers operating in Illinois as the Appellate Court agreed with our argument that Section 8b applies only to assignments for collection and not to outright sales.  The decision clarifies the law for collectors and debt buyers and establishes a workable framework for collectors who take assignments for collection from debt buyers. The following is a brief summary of the background of the case and the Appellate Court’s ruling.

Background:

The appeal involved the application of Section 8b of the Illinois Collection Agency Act (ICAA). Section 8b provides that “[a]n account may be assigned to a collection agency for collection with title passing to the collection agency to enable collection of the account in the agency’s name as assignee for the creditor provided:

(a)    The assignment is manifested by a written agreement, separate from and in addition to any document intended for the purpose of listing a debt with a collection agency. The document manifesting the assignment shall specifically state and include:

(i)  The effective date of the assignment; and

(ii)  The consideration for the assignment.”

225 ILCS 425/8(b).

The Trial Court held that Section 8b applies not only to assignments made for collection purposes, but to those that contain a full transfer of rights associated with the debt (i.e., debt purchases).  Further, the Trial Court held  8b applies for each and every transfer in the chain of title of an account.  This decision obviously created problems for collectors collecting debt buyers as collectors would often lack information and documentation regarding the assignment of an account from the original creditor to the debt buyer, let alone the effective date of the assignment or the consideration for the assignment.

The Appeal:

On appeal we argued on behalf of ACA International that the plain language of Section 8b makes absolutely no reference to full assignments. Instead, the section specifically references “assignment[s] for collection” purposes. Id.  Appellee Shah argued that Section 8b  mandates that both the date of transfer and consideration paid must be identified for any transfer involving an account, regardless of whether the transfer was a full transfer of rights or an assignment for collection purposes. We countered with the argument that the term “assignment” in Section 8b read in conjunction with the plain language of the statute, shows otherwise. Further, we argued that our interpretation of Section 8b was directly supported by the Illinois legislature’s recent clarification of the ICAA. After the appeal was filed the legislature amended Section 8.6 of the ICAA to specify that debt buyers are not required to “adhere to the assignment for collection criteria under Section 8b of this Act.”  225 ILCS 425/8.6(b)(iv) (effective January 1, 2013). Finally, we argued that in cases involving purchased debt the Trial Court’s interpretation of Section 8(b) would place assignee collectors in an often impossible situation since they would often be unable to obtain the date of and consideration paid for each and every transfer in the chain of title of a purchased account.

The Appellate Court agreed with us, finding that the plain language of Section 8b indicates the legislature intended to exclude sales of an account to a debt buyer from the Section’s reach.  Thus, to state a cause of action in a collection lawsuit a debt buyer, unlike an assignee for collection, need not comply with Section 8b.

However, the Appellate Court found that a collector who takes legal title to an account as an assignee for collection must comply with Section 8b.  Specifically to plead a valid assignment for collection the collector must plead that the document manifesting the assignment identifies (1) the accounts transferred, (2) the consideration paid, and (3) the effective date of the transfer.  This pleading requirement exists regardless of whether the collector has taken an assignment for collection from a debt buyer or the original creditor.  Further, the Appellate Court ruled that in cases involving multiple transfers of an account between collection agencies that have passed title to the account as assignees for collection, the collector that files the collection lawsuit must comply with Section 8b by providing the 8b information  for each prior transfer of the account between those agencies.

We hope that our clients and friends will benefit from the law established by Unifund v. Shaw, as well as the ACA International inspired guidance provided by the Appellate Court in this previously murky area of the law.

If you have any questions regarding the matter or would like a copy of the Appellate Court’s Opinion feel free to contact Joseph Messer at (312) 334-3440 or jmesser@messerstrickler.com.