U.S. Supreme Court Rules Statute of Limitations for FDCPA Claim Runs One Year from Alleged Violation, Not Discovery

Wayne Streibich, Diana M. Eng, Jonathan M. Robbin, Scott E. Wortman, and William L. Purtell

The Supreme Court of the United States (“Supreme Court”) recently affirmed the Third Circuit’s decision holding Fair Debt Collection Practices Act (“FDCPA”) claims are subject to a one-year statute of limitations from the date of an alleged violation and rejecting the Fourth and Ninth Circuit’s adoption of a broad “discovery rule.” However, debt collectors should take note that equitable tolling principles may still apply in certain circumstances. 

On December 10, 2019, in Rotkiske v. Klemm, — S. Ct. — (2019), the Supreme Court issued an opinion holding that the one-year statute of limitations under the FDCPA accrues when a violation of the FDCPA occurs, not when that violation is discovered by the consumer. The Justices ruled 8-1 in the case, with Justice Thomas writing the opinion and Justice Sotomayor concurring. Justice Ginsburg filed a dissent, which would have remanded the case back to the district court to re-review the consumer’s separate allegations of equitable tolling of the statute of limitations.

Summary of Facts

In 2009, respondent Klemm & Associates (“Klemm”) sued petitioner Kevin Rotkiske (“Rotkiske”) in state court to enforce a credit card debt, which was allegedly beyond Pennsylvania’s statute of limitations for enforcement (“2009 Action”). Klemm issued service of process to an address where Rotkiske did not live, which Klemm allegedly had reason to know was inaccurate. An unknown individual accepted service on behalf of Rotkiske. Ultimately, Klemm obtained a default judgment against Rotkiske based on this return of service. Rotkiske was unaware of the default judgment against him until 2014, when his mortgage loan application was denied based on this default judgment.

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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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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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Second Circuit Holds That Debt Collector’s Inquiry Regarding Nature of Consumer’s Verbal Dispute of Debt Did Not Violate the FDCPA

By: Diana M. Eng, Jonathan M. Robbin, and Andrea M. Roberts

In Levi Huebner v. Midland Credit Management, Inc., Nos. 16-2363-cv, 16-2367-cv (2d Cir. July 19, 2018), the Second Circuit affirmed the Eastern District of New York’s (“Lower Court”) order granting defendant Midland Credit Management, Inc.’s (“Midland”) summary judgment motion and dismissing the complaint on the grounds that plaintiff Levi Huebner (“Plaintiff”) failed to state a claim under Sections 1692e(5), (8), and (10) of the FDCPA. The Second Circuit held Midland’s follow-up questions about the nature of Plaintiff’s dispute cannot be interpreted as threatening, or conveying false information about the consumer’s debt. Rather, Midland’s questions were an endeavor to learn more about Plaintiff’s dispute, so Midland could properly resolve the dispute. The Second Circuit also affirmed the Lower Court’s imposition of sanctions against Plaintiff and his counsel on the grounds they intentionally misled the court and Midland as to Plaintiff’s theory of the case, breached the protective order entered into amongst the parties, acted in bad faith by “unreasonably and vexatiously” multiplying the proceedings in the action, and commencing a frivolous action and filing several frivolous motions in bad faith. As such, the Lower Court properly granted summary judgment in favor of Midland.

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Second Circuit Confirms Interest Disclaimer Not Required on Collection Notices Not Accruing Interest

By: Edward W. Chang, Jonathan M. Robbin, Scott E. Wortman, Diana M. Eng, and Hilary F. Korman

In a win for the collection industry, the Second Circuit Court of Appeals confirmed an “interest disclaimer” is only necessary on collection notices if the debt is accruing interest. While this much-needed clarification may reduce the volume of “reverse-Avila” FDCPA litigation, questions still remain about the best method to accurately characterize balances in collection notices.

Background

In Taylor v. Fin. Recovery Servs., Inc., No. 17-1650-cv (“Taylor”), the Second Circuit confirmed that the appellants (and many other members of the consumer bar) were misapplying its decision in Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016) (“Avila”).1 In Avila, the Second Circuit ruled that a debt collector violates 15 U.S.C. § 1692e of the Fair Debt Collection Practices Act (“FDCPA”) if it identifies the “current balance” of a debt without disclosing that such balance could increase due to the accrual of interest or fees. In that case, interest was actually accruing on the subject debt. Continue reading

Third Circuit Holds “Settlement Language” in Collection Letter Can Be Misleading

By: Jonathan M. Robbin, Edward W. Chang, and Scott E. Wortman

Action Item: In a change of course from its prior holding in Huertas v. Galaxy Asset Mgmt., 641 F.3d 28 (3d Cir. 2011), the Third Circuit rules that the terms “settlement” and “settlement offer,” in connection with collecting of a time barred debt, may connote litigation and thus mislead a consumer. However, the Court continues to hold that settlement terms alone do not necessarily constitute deceptive or misleading practices under the FDCPA.

In a unanimous published decision in Tatis v. Allied Interstate LLC, No. 16-4022 (3d Cir.) the Third Circuit reversed the District of New Jersey’s granting of a motion to dismiss. The lower court had held that a debt collector’s attempt to collect the time-barred debt did not violate the Fair Debt Collection Practices Act (“FDCPA”) because the collection letter was not accompanied by a threat of legal action. In its order overruling the lower court, the Third Circuit deviated from its prior holding in Huertas v. Galaxy Asset Mgmt., 641 F.3d 28 (3d Cir. 2011) and instead looked to the more recent decisions from its sister circuits—the Fifth, Sixth, and Seventh—which all held that the term “settle” could mislead a consumer. Continue reading

Eastern District of New York Court Holds Debt Collection Letter Stating Settlement May Have Tax Consequences Does Not Violate the Fair Debt Collection Practices Act

By: Jonathan M. Robbin, Diana M. Eng, and Andrea Roberts

In Ceban v. Capital Management Services, L.P., Case No. 17-cv-4554 (E.D.N.Y. Jan. 17, 2018), the District Court held that the statement “[t]his settlement may have tax consequences” in a debt collection letter does not violate the Fair Debt Collection Practices Act (“FDCPA”).

On or about August 6, 2016, Plaintiff, Julian Ceban (“Plaintiff”) received a collection letter from defendant Capital Management Services, L.P. (“Defendant”) concerning his outstanding debt (the “Letter”). The letter stated, in relevant part, that Defendant was “authorized to accept less than the full balance due as settlement” and that Plaintiff could “contact [Defendant] to discuss a potential settlement.” Further, the letter indicated: “This settlement may have tax consequences. If you are uncertain of the tax consequences, consult a tax advisor.” Continue reading

Eleventh Circuit Holds that Voicemails Are “Communications” and Clarifies “Meaningful Disclosure” Under the FDCPA

By:  Diana M. Eng and Paul Messina, Jr.

In Stacey Hart v. Credit Control, LLC, No. 16-17126 (11th Cir. Sept. 22, 2017), the United States Court of Appeals for the Eleventh Circuit clarified two significant definitions under the Fair Debt Collection Practices Act (“FDCPA”), one of which was a novel issue for the Court.  First, the Eleventh Circuit ruled that the first voicemail that Credit Control LLC (“Credit Control”) left for Stacey Hart (“Hart”) qualified as a “communication” within the meaning of 15 U.S.C. § 1692a(2).  Because the voicemail was the initial communication between the parties, Credit Control had to provide the required disclosures under 15 U.S.C. § 1692e(11), commonly known as the “mini Miranda” warning.

Second, the Eleventh Circuit determined the novel issue of what constitutes a “meaningful disclosure” under the FDCPA by ruling that an individual caller is not required to disclose his/her identity as long the caller discloses that the call is being made on behalf of a debt collection company and the debtor collection company’s name.

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