Category Archives: Debt Collection

CFPB Looks to Expand Its Oversight of Nonbanks through Two Controversial New Registries

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R. Andrew Arculin, R. Colgate Selden, Scott E. Wortman, Paula M. Vigo Marques, and Daniel V. Funaro

The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) released two new proposals that aim to expand the Bureau’s authority over nonbank financial institutions:

  1. A “repeat offender” registry of consent orders or settlements with an array of state and federal regulators relating to compliance with consumer protection laws (“Repeat Offender Proposal”); and
  2. A public registry of the terms and conditions nonbanks use in “form contracts” that consumers typically are not able to negotiate (“Terms and Conditions Proposal”).

Assuming these registries are created as proposed and survive any ensuing legal challenges, complying with the reporting obligations should be relatively easy. The larger challenge will be managing the increased regulatory and litigation risk imposed by the registries.

Repeat Offender Proposal

On December 12, 2022, the CFPB issued a proposal to establish a “repeat offender” registry requiring certain nonbank covered entities to report all final public written orders and judgments (including any settlements, consent decrees, or stipulated orders and judgments) obtained or issued by any federal, state, or local government agency for violation of a number of enumerated consumer protection laws, including those related to unfair, deceptive, or abusive acts or practices (“UDAAPs”).

After receiving these written orders and judgments, the CFPB intends to create a database of enforcement actions that would be available online for use by the public and other regulators. The database will be limited to final settlement or consent orders, so injunctions, preliminary orders, temporary cease-and-desist, and other tentative or temporary orders would not be reportable.

In addition, the proposal would require supervised nonbanks to submit annual written statements regarding compliance with an attestation for each underlying order by an executive with “knowledge of the entity’s relevant systems and procedures for achieving compliance and control over the entity’s compliance efforts.” These entities would also be required to identify a central point of contact related to an entity’s compliance with reportable enforcement actions.

The proposed rule would only apply to certain nonbank covered entities subject to CFPB’s authority. At present, insured depository institutions and credit unions, related persons, states, natural persons, and certain other entities are excluded from registry participation requirements. However, the CFPB stated in the press release for the proposal that it “might later consider collecting or publishing the information described in the proposal from insured banks and credit unions.”

Read the full client alert on our website.

New Jersey Law Journal: The Aftermath of ‘TransUnion v. Ramirez’: An Emerging Circuit Split

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New Jersey Law Journal, January 3, 2023 

Diana M. Eng, Andrea M. Roberts, and Alina Levi ●


For years, federal courts relied on the U.S. Supreme Court’s decision in Spokeo v. Robins, 578 U.S. 330 (2016), to ascertain whether a federal plaintiff demonstrated “concrete harm” such that his claims conferred Article III standing. However, the Spokeo standard was sufficiently vague, resulting in a circuit split regarding what constitutes “concrete harm.” In June 2021, the Supreme Court addressed this split in its TransUnion v. Ramirez, 141 S. Ct. 2190 (2021) (TransUnion) decision by attempting to clarify the Spokeo standard for “concrete harm.” In a 5-4 decision authored by Justice Brett Kavanaugh, the Supreme Court unequivocally rejected “the proposition that ‘a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right,’” 141 S. Ct. at 2205 (quoting Spokeo, 578 U.S. at 341). The court emphasized that “an important difference exists between a plaintiff’s statutory cause of action to sue a defendant over the defendant’s violation of federal law, and a plaintiff’s suffering concrete harm because of the defendant’s violation of federal law.” The latter is required to satisfy Article III standing to confer federal jurisdiction: “Only those plaintiffs who have been concretely harmed by a defendant’s statutory violation may sue that private defendant over that violation in federal court.” As Kavanaugh succinctly stated: “No concrete harm, no standing.”

TransUnion was viewed as a significant win for financial institutions and the defense bar thought it would reduce the number of federal lawsuits, particularly from plaintiffs who alleged purely statutory violations. However, despite the Supreme Court’s clarification in TransUnion, courts are still reaching different conclusions on what constitutes concrete harm, and a new circuit split is already emerging, particularly with respect to intangible harms, such as economic or emotional distress, and informational harms.

Read the full article on our website.

Farewell, Hunstein—Eleventh Circuit Holds Disclosing Debtor’s Information to Mail Vendor Does Not Establish Concrete Harm

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Wayne Streibich, Diana M. Eng, and Andrea M. Roberts ●

Financial institutions, debt collectors, debt collection law firms, and consumer-facing businesses should take note that the Eleventh Circuit Court of Appeals reversed the prior panel’s decision and has ruled that merely providing a consumer’s information to a mail vendor to send a debt collection letter did not violate the FDCPA since it is not a public disclosure and, therefore, the consumer did not suffer concrete harm sufficient to confer Article III standing. The Eleventh Circuit En Banc Panel’s decision should result in the dismissal of other pending FDCPA actions based on this mailing vendor theory and reduce future actions. Further, the decision has broader implications beyond FDCPA cases, as it outlines the Eleventh Circuit’s overall approach in evaluating whether a plaintiff has sufficiently alleged concrete harm. 

In Hunstein v. Preferred Collection and Management Services, Inc., 2022 WL 4102824 (11th Cir. Sept. 8, 2022), the Eleventh Circuit’s En Banc Panel reversed the prior panel’s decision and held “no concrete harm, no standing,” citing the United States Supreme Court’s decision in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021). As such, the Eleventh Circuit held that the United States District Court for the Middle District of Florida (“District Court”) lacked jurisdiction to adjudicate plaintiff’s claim, vacated the District Court’s Order, and remanded with instructions to dismiss the case without prejudice. 

Summary of Facts and Background

After Richard Hunstein (“Plaintiff”) failed to timely pay a medical bill, the hospital transferred the debt to Preferred Collection and Management Services, Inc. (“Defendant”), a debt collection agency. Defendant sent Hunstein a debt collection letter through a commercial mail vendor. In preparation for mailing the letter, Defendant provided the mail vendor with certain information, including Hunstein’s name, his son’s name, and the amount of the debt. 

To read the full client alert, please visit our website.

Fifth Circuit Holds Mere Statutory Violation of the FDCPA, Future Risk of Harm, Confusion, and Lost Time Are Insufficient to Establish Article III Standing

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Wayne Streibich, Diana M. Eng, and Alina Levi

Financial institutions, debt collectors, debt collection law firms, and consumer-facing businesses should take note that the Fifth Circuit Court of Appeals has ruled that merely asserting a statutory violation of the Fair Debt Collection Practices Act (“FDCPA”), confusion, lost time, and/or a future risk of harm are insufficient to establish Article III standing. The Fifth Circuit’s application and clarification of the United States Supreme Court’s 2021 decision in TransUnion LLC v. Ramirez, —U.S.—, 141 S. Ct. 2190, 2200 (2021) (“TransUnion”) should result in the dismissal of other pending actions and prevent future actions based on allegations of a mere statutory violation of the FDCPA, future risk of harm, lost time, and/or confusion resulting from debt collection communications.

In Perez v. McCreary, Veselka, Bragg & Allen, P.C., — F.4th —, No. 21-50958, 2022 WL 3355249, at *1 (5th Cir. Aug. 15, 2022), the Fifth Circuit Court of Appeals (“Fifth Circuit”) vacated a class certification order and remanded the case to be dismissed for lack of jurisdiction, holding that a statutory violation of the FDCPA, alone, is insufficient to confer Article III standing. Further, the Fifth Circuit held that a purported future risk of harm, experiencing confusion, and/or lost time are insufficient to allege the required injury-in-fact for Article III standing to maintain a lawsuit in federal court.

To read the full client alert, please visit our website.

The Hunstein Effect—Examining the Eleventh Circuit’s Ruling and What’s Next for Debt Collectors and Their Third-Party Service Providers

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Wayne Streibich, Nicole R. Topper, Scott E. Wortman, and Anthony Richard Yanez

The U.S. Court of Appeals for the Eleventh Circuit has delivered a novel and highly consequential interpretation of the Fair Debt Collection Practices Act that is potentially transformative for debt collectors and their third-party service providers.

On April 21, 2021, in Hunstein v. Preferred Collection and Management Services, Inc., — F.3d — (2021), the U.S. Court of Appeals for the Eleventh Circuit issued a decision on a case of first impression, finding that a debt collector’s transmittal of a consumer’s personal information to its letter vendor constituted a prohibited third-party communication “in connection with the collection of any debt” within the meaning of section 1692c(b) of the Fair Debt Collection Practices Act (“FDCPA”). As discussed below, this ruling has broad ranging ramifications for the accounts receivable management industry and will likely foster a new wave of litigation under the FDCPA.

By way of background, this lawsuit originated from unpaid bills for medical treatment at a hospital. The hospital assigned the unpaid bills to a debt collector that had contracted with a third-party vendor for printing and mailing its collection letters. The collector electronically transmitted to its vendor certain information about the plaintiff/debtor such as: (1) his status as a debtor, (2) the exact balance of his debt, (3) the entity to which he owed the debt, (4) that the debt concerned his son’s medical treatment, and (5) his son’s name. The vendor then used that information to generate and send a dunning letter to the debtor. The debtor received the dunning letter and then filed a lawsuit in the Middle District of Florida alleging violations of both the FDCPA and the Florida Consumer Collection Practices Act. The district court dismissed the lawsuit for failure to state a claim by concluding that the debtor had not sufficiently alleged that the collector’s transmittal of information to the letter vendor was a communication “in connection with the collection of a debt.” The debtor then appealed to the Eleventh Circuit.

To read the full client alert, please click here.

CFPB Issues Debt Collection Interim Final Rule Due to the Ongoing COVID-19 Pandemic

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Wayne Streibich, Diana M. Eng, and Chenxi Jiao

The CFPB’s interim final rule amends Regulation F to, among other things, (i) require debt collectors to provide written notice to certain consumers about the CDC’s temporary eviction protections; and (ii) prohibit debt collectors from misrepresenting that a consumer is ineligible for eviction protection under the CDC’s moratorium. Debt collectors should take the necessary steps to ensure compliance with the amendment.

On April 19, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued an interim final rule to amend Regulation F at 12 C.F.R. § 1006 (the “IFR”) to require debt collectors to provide consumers with disclosures relating to the Centers for Disease Control and Prevention (“CDC”) order, titled “Temporary Halt in Residential Evictions to Prevent the Further Spread of COVID-19” (86 FR 16731 (Mar. 31, 2021)) (the “CDC Order”). The CDC Order “generally prohibits a landlord, owner of a residential property, or other person with a legal right to pursue eviction or possessory action from evicting for non-payment of rent any person protected by the CDC Order from any residential property in any jurisdiction in which the CDC Order applies.” This prohibition applies to any agent or attorney acting on behalf of a landlord or owner of a residential property. Notably, however, the CDC Order does not cover foreclosure on a home mortgage.

The CFPB issued the IFR due to its concerns that consumers are unaware of their protections under the CDC Order and that debt collectors may be engaging in eviction-related conduct that violates the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (the “FDCPA”). The IFR applies to “debt collectors,” “consumers,” and “debt,” as defined in the FDCPA.

To read the full client alert, please click here.

CFPB Proposes Delay of Effective Date for Debt Collection Rules

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Jonathan K. Moore and Louise Bowes Marencik

On April 7, 2021, the Consumer Financial Protection Bureau (“CFPB”) issued a Notice of Proposed Rulemaking delaying the effective date of its recent debt collection final rules. The final rules, which were issued on October 30, 2020 and December 18, 2020, were scheduled to become effective on November 30, 2021. However, in light of the ongoing COVID-19 pandemic, the CFPB has proposed delaying the effective date until January 29, 2022, in order to give the affected parties additional time to review and comply with the new rules.

To read the full client alert, please click here.

NY’s Third Department Holds Action Enforcing Note Is Neither Barred by Estoppel Doctrines Nor the Applicable Statute of Limitations

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Andrea M. Roberts and Diana M. Eng

In CitiMortgage, Inc. v. Ramirez, 2020 WL 7647749, at *3 (3d Dept. Dec. 24, 2020), the Appellate Division, Third Department, held that CitiMortgage, Inc.’s action to recover under a note (i) was not precluded because of CitiMortgage, Inc.’s right to an election of remedies; and (ii) was timely because the statute of limitations was tolled during the pendency of the prior foreclosure action.

Summary of Facts & Background

In May 2010, plaintiff, CitiMortgage, Inc. (“Plaintiff”), commenced an action to foreclose against borrower, Jose Ramirez (“Borrower”) (the “First Foreclosure Action”). The foreclosure action was dismissed in October 2013 for failure to prosecute. Plaintiff moved to vacate the dismissal, which was denied in April 2015. In 2017, plaintiff commenced a second foreclosure action (the “Second Foreclosure Action”), which was ultimately dismissed on the grounds that the statute of limitations to foreclose had expired in May 2016. The Court also discharged the mortgage.

In May 2019, Plaintiff commenced another action against Borrower seeking a money judgment in the amount of the unpaid balance of the note. Borrower moved to dismiss on the grounds that the (i) action was time-barred and (ii) barred by res judicata. The Schenectady County Supreme Court (“Lower Court”) granted Borrower’s motion holding that Plaintiff was collaterally estopped from relitigating the issue of whether the statute of limitations period was tolled. Plaintiff appealed.

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CFPB Issues Second Final Rule Clarifying Regulation of Fair Debt Collection Practices

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Wayne Streibich, Jonathan K. Moore, and Louise Bowes Marencik

On December 18, 2020, the Consumer Financial Protection Bureau (“CFPB”) issued a final rule concerning debt collection disclosures, which follows its October 30, 2020 final rule regarding debt collection communications. The two final rules implement and interpret the consumer protections set forth in the Fair Debt Collection Practices Act (“FDCPA”) of 1977. The final rules will both become effective on November 30, 2021.

The latest final rule outlines various requirements regarding debt collection disclosures. Specifically, a debt collector must send a written disclosure to a consumer containing information concerning the debt and actions the consumer may take in response, within five days of its initial communication with the consumer. This disclosure must be sent unless such validation information was provided in the initial communication or the consumer has paid the debt. The final rule includes a model validation notice, which, if used, provides a safe harbor for compliance with the disclosure requirements. The final rule also requires debt collectors to disclose the existence of a debt to the customer, orally, in writing, or electronically, before it can report information concerning the debt to a consumer reporting agency.

Please click here to read the full client alert.

Florida Supreme Court Resolves Conflict on Business Records Exception to the Hearsay Rule and Clarifies Standard for Qualified Witness Testimony

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Wayne Streibich, Edward W. Chang, Nicole R. Topper, Anthony R. Yanez

On July 2, 2020, the Florida Supreme Court issued its written opinion[i] in Jackson v. Household Finance Corporation, III, 236 So. 3d 1170 (Fla. 2d DCA 2016) to resolve a conflict with a case decided by the Fourth District Court of Appeal (Maslak v. Wells Fargo Bank, N.A., 190 So. 3d 656 (Fla. 4th DCA 2016). Specifically, the issue concerned whether the predicates were met for admissions of records into evidence under the business records exception to the hearsay rule during the course of a bench trial in a residential foreclosure case. The Florida Supreme Court held that the proper predicate for admission can be laid by a qualified witness testifying to the foundation elements of the exception set forth in Section 90.803(6) of the Florida Evidence Code.

Background

On June 23, 2014, the originating lender, Household Finance Corporation III (“HFC”), filed a foreclosure complaint alleging a default under the note and mortgage. Before the loan was originated, HFC was purchased by HSBC Holdings (“HSBC”) and became a wholly-owned subsidiary of HSBC. The borrower did not challenge the default, but opted to challenge whether the lender could establish its case in chief at trial.

At trial, HFC called an assistant vice president at HSBC, with 25 years’ experience at the company, to establish the foundation for admission of records under the business records exception to the hearsay rule. The borrower objected to the witnesses’ testimony on hearsay grounds and the original note, mortgage, and payment history were received into evidence over the borrower’s objections. The borrower elected not to introduce any evidence of her own and the trial court entered final judgment of foreclosure. The borrower appealed to the Second District Court of Appeal, which affirmed the final judgment of foreclosure.

The Jackson case conflicted with the Maslak decision from the Fourth District Court of Appeal, which reached the opposite conclusion regarding the sufficiency of the bank witness’ testimony. In Maslak, despite the bank employee’s testimony describing her job duties and familiarity with the bank’s loan servicing practices, the court held that the witness was not qualified to lay a foundation for the admission of the loan servicing documents that were offered into evidence at that trial. As a direct conflict of two intermediate appellate court decisions on the same issue of law, the Florida Supreme Court had jurisdiction to resolve the issue.

Florida Supreme Court’s Decision

In examining the business records exception to the hearsay rule, the Florida Supreme Court noted that a party has three options to lay the foundation to meet that exception: (1) offering testimony of a records custodian, (2) presenting a certification that or declaration that the elements have been established, or (3) obtaining a stipulation of admissibility. If the party elects to present testimony, the applicable case law explains that it does not need to be the person who created the business records. The witness may be any qualified person with knowledge of each of the elements.

Patterned closely after the federal rule, Section 90.803 of the Florida Evidence Code[ii] lists the following foundational elements of the business records exception: (1) that the record was made at or near the time of the event, (2) that it was made by or from information transmitted by a person with knowledge, (3) that it was kept in the ordinary course of a regularly conducted business activity, and (4) that it was a regular practice of that business to make such a record.

Turning to the testimony of the HFC trial witness, the majority opinion determined that the foundational elements were met and that no additional foundation was required by the business records exception language of the Section 90.803(6). The majority rejected the notion that the witness was required to detail the basis for his or her familiarity with the relevant business practices of the company, or give additional details about those practices in order to lay the foundation for the admission of those records. Since no such requirements were in the statute, any requirement imposed by the trial court or the appellate court would be inconsistent with the plain language of the statute. The majority explained that once the proponent lays the predicate for admission, the burden shifts to the opposing party to prove that the records were untrustworthy or should not be admitted for some other reason. According to the majority, the Jackson borrower failed to do that in this case and only waited until after the documents were received into evidence to question the witness about the basis for his knowledge.

The dissenting opinion posited that the majority’s ruling “[took away] the proponent’s burden to lay a proper foundation for admission” and focused on whether the proper foundation was met in the Jackson case. The dissent argued that the testimony at the Jackson trial was merely “general statements” that recited the elements of the statute but did not explain how the business records at issue were generated, what they were used for, or how they were maintained. For that reason, the dissenting judges maintained that the burden never shifted to the borrower to prove the untrustworthiness of those records, and concluded that the majority’s treatment of the business records exception as a “magic words” test would only increase the likelihood of inadmissible documents being admitted into evidence.

Conclusion

Compliance with the business records exception to the hearsay rule will almost always be a hotly contested issue at a foreclosure non-jury trial in Florida. The Jackson opinion, and the arguments raised in the dissenting opinion, will remind the trial courts to pay careful attention to the foundational requirements of the business records exception to the hearsay rule when timely objections are made to the evidence on those grounds. Despite competing opinions on the issue, the Florida Supreme Court agrees that the proponent’s witness should demonstrate personal knowledge and establish that the offered exhibits are reliable business records. To remove all doubt, a witness’ testimony should demonstrate a working knowledge of the company’s business record practices and systems. As a result of the Jackson opinion, it is important to effectively prepare the business records custodian witness to withstand any increased scrutiny as to the foundation requirements of the business records exception to the hearsay rule.

[i] The Florida Supreme Court decided the case by a 4 to 2 margin. Newly appointed justice, Renatha Francis, did not participate in the opinion. This decision is not final until the disposition of a timely-filed rehearing motion.

[ii] This section was last revised in 2003, adding language that a certification or declaration is an acceptable means of authenticating a business record under the business records exception to the hearsay rule. See ch. 2003–259, § 2, at 1299, Laws of Fla.; see also Fla. Stat. § 90.803(6) (2003) (providing for admission of business records upon testimony of the custodian of the records, “or as shown by a certification or declaration that complies with paragraph (c) and s. 90.902(11)”).