CFPB Proposes Regulations to Clarify, Modernize, and Implement the Fair Debt Collection Practices Act

Wayne Streibich, Diana M. Eng, Jonathan M. Robbin, Nicole R. Topper, Scott E. Wortman, and Paul Messina Jr.

Financial institutions and debt collectors should take note of, and provide comments on, the CFPB’s recent Notice of Proposed Rulemaking, which attempts to provide consumers with “clear protections against harassment by debt collectors and straightforward options to address or dispute debts.”      

On May 7, 2019, the Consumer Financial Protection Bureau (“CFPB”) released its long-awaited Notice of Proposed Rulemaking (“NPRM”), aiming to clarify and modernize the Fair Debt Collections Practices Act (“FDCPA”). The over 500-page NPRM marks the CFPB’s latest half-decade long effort to issue the first set of substantive rules interpreting the FDCPA since its passage in 1977.

Background

Seeking to curb abuses in the debt collection industry, Congress enacted the FDCPA in 1977. However, with the passage of time and the creation of new technologies, ambiguities and uncertainties in the industry developed. Without any federal agency delegated authority to write substantive rules interpreting the FDCPA, the courts were left with the sole burden of doing so. That changed in 2010, when Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) delegating authority to the CFPB.

Citing the ongoing and abundance of consumer complaints, as well as the need to adapt the FDCPA for modern technologies, the CFPB called for public input on potential new regulations in 2013, and again in 2016, releasing an outline of proposals under consideration. This week’s NPRM incorporates many of those ideas with some adjustments. The NPRM will be open for 90 days for public comment following its publication in the Federal Register.

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Second Circuit Holds No Need to Identify Components of Debt Where Collection Letter Provides Exact Amount Owed and Reaffirms Use of Safe Harbor in Holding Debt Collector’s Letter Did Not Violate the FDCPA

Jonathan M. Robbin, Diana M. Eng, and Namrata Loomba

In Kolbasyuk v. Capital Management Services, LP, No. 18-1260 (2d Cir. 2019), the Second Circuit recently held that a debt collector’s letters informing a consumer of the total present amount of debt owed satisfies Fair Debt Collection Practices Act (“FDCPA”) requirements. The Second Circuit’s decision clarified that, under the FDCPA, collection letters are not required to inform consumers of the debt’s constituent components, or the rates by which the debt may later increase.

Summary of Facts and Background

In July 27, 2017, Capital Management Services, LP (“CMS”) sent Plaintiff a collection letter stating “[a]s of the date of this letter, you owe $5918.69.” The letter further stated, “[b]ecause of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater.” Continue reading

U.S. Supreme Court Holds Foreclosure Firms Conducting Nonjudicial Foreclosures Are Not Debt Collectors Under the FDCPA

By: Wayne Streibich, Diana M. Eng, Cheryl S. Chang, Jonathan M. Robbin, and Namrata Loomba

The United States Supreme Court holds businesses conducting nonjudicial foreclosures are not “debt collectors” under the FDCPA, but lenders and foreclosure firms should take note that the Court specifically chose to leave open the question of whether businesses that conduct judicial foreclosures are “debt collectors” under the statute. 

On March 20, 2019, in Obduskey v. McCarthy, the Supreme Court of the United States issued an opinion holding businesses conducting nonjudicial foreclosures are not “debt collectors” under the Fair Debt Collection Practices Act (“FDCPA”). The Supreme Court limited its decision to nonjudicial foreclosures.1 The Justices ruled 9-0 in the case, with Justice Breyer writing the opinion and Justice Sotomayor concurring.

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New York Appellate Court Rejects Usage of a Mortgage’s Reinstatement Provision as a Defense to the Expiration of the Statute of Limitations

By: Wayne Streibich, Diana M. Eng, Jonathan M. Robbin, and Diana M. Eng

On March 13, 2019, in a case of first impression, New York’s Appellate Division, Second Department (“Second Department”) issued a decision holding the reinstatement provision of a mortgage does not prevent the acceleration of the loan prior to entry of a foreclosure judgment. In Bank of New York Mellon v. Dieudonne, 2019 WL 1141973 (2d Dept. Mar. 13, 2019), the Second Department affirmed the Kings County Supreme Court’s decision granting defendant Dieudonne’s (“Defendant”) motion to dismiss the complaint pursuant to CPLR 3211(a)(5) because the foreclosure action was barred by the expiration of the statute of limitations. Specifically, the Second Department held that “the extinguishment of the defendant’s contractual right to de-accelerate the maturity of the debt pursuant to the reinstatement provision of paragraph 19 of the mortgage was not a condition precedent to the plaintiff’s acceleration of the mortgage” and, therefore, acceleration occurred upon commencement of the prior foreclosure action.

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Third Circuit Broadens Definition of “Debt Collector” under FDCPA to Include Entities That Acquire Debt but Outsource Collection of That Debt

By: Jonathan M. Robbin, Diana M. Eng, and Maria K. Vigilante

In Barbato v. Greystone Alliance, LLC et al., a recent precedential decision, the Third Circuit Court of Appeals held an entity whose business is the purchasing of defaulted debts for the purpose of collecting on them falls squarely within the “principal purpose” definition of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692(a), even where the entity does not collect the debt and a third party is retained to do so. No. 18-1042, __ F.3d __ (3d Cir. 2019).

Specifically, Barbato expanded the Supreme Court’s holding in Henson v. Santander Consumer USA, 137 S. Ct. 1718 (2017) and rejected the defendant’s argument that Henson renders it a creditor rather than a debt collector because “its principal purpose is the acquisition—not the collection” of debt. Thus, the Barbato court held that where an entity meets the “principal purpose” definition, it cannot avoid the FDCPA’s requirements by retaining a third party to collect the debt.

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Ninth Circuit Holds That Fannie Mae Is Not a Consumer Reporting Agency under FCRA

By: Wayne StreibichCheryl S. Chang, Diana M. Eng, and Christine Lee

On January 9, 2019, a divided Ninth Circuit panel ruled that the Federal National Mortgage Association, or Fannie Mae, was not a “consumer reporting agency” within the meaning of the Fair Credit Reporting Act (“FCRA”). In Zabriskie v. Federal National Mortgage Association, the Ninth Circuit reversed the Arizona District Court’s holding that Fannie Mae acts as a consumer reporting agency when it licenses its proprietary software, Desktop Underwriter (“DU”), to lenders and that it is therefore subject to the FCRA. Zabriskie v. Fed. Nat’l Mortgage Ass’n, Nos. 17-15807, 17-16000, 2019 WL 137931 (9th Cir. Jan. 9, 2019).

The FCRA defines a “consumer reporting agency” as “any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of preparing or furnishing consumer reports.” 15 U.S.C. § 1681a(f). In reaching its conclusion, the Ninth Circuit specifically examined whether Fannie Mae’s licensing of its DU software constituted: (1) regularly engaging in the practice of assembling or evaluating consumer credit information and (2) for the purpose of preparing or furnishing consumer reports.

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Eleventh Circuit Clarifies Foreign Company’s Dual Citizenship Status but Leaves Room for Further Debate

By: Jonathan M. Robbin and Anthony Richard Yanez

A drunken tumble on a cruise ship may lead to resolving how alienage/jurisdiction is determined in the Eleventh Circuit. In Caron v. NCL (Bahamas), Ltd., — F.3d —, 2018 WL 6539178 (11th Cir. Dec. 13, 2018), the Eleventh Circuit, for the first time, held an alien corporation has dual citizenship, but limited its holding. Specifically, Caron held there is no diversity jurisdiction in a suit between a foreign incorporated corporation with its principal place of business in Florida and a citizen of Canada. Unfortunately, despite guidance from sister courts, Caron left unresolved the question of whether a domestic incorporated corporation with a principal place of business abroad can invoke alienage-dual citizenship diversity in a suit against an alien following the 2012 amendments to 28 U.S.C. § 1332(c).

Background

On July 14, 2016, Canadian citizen Olivier Caron sued Norwegian Cruise Lines (“NCL”) after he sustained personal injuries by falling down an escape hatch on a ship while he was inebriated. Mr. Caron filed suit in the Southern District of Florida asserting diversity of citizenship jurisdiction and admiralty jurisdiction.[1]

Caron argued that the alienage-diversity provision, governing suits between aliens and citizens of a State, applies, and the district court properly entertained jurisdiction under this provision. Caron is a Canadian citizen and NCL is a Bermuda corporation with its principal place of business in Florida. Thus, Caron argued that NCL is a Florida citizen for alienage-diversity jurisdiction purposes. Continue reading