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Recent Eleventh Circuit Opinion Raises Concerns for Debt Collectors

On April 21, 2021, the Eleventh Circuit Court of Appeals issued a decision in the case of Hunstein vs. Preferred Collection and Management Services. This opinion raises several issues and, in our opinion, could lead to litigation claims against debt collectors and creditors, including Credit Unions.

The original lawsuit was filed under the Fair Debt Collections Practices Act (FDCPA) and the Florida Consumer Collections Practices Act (FCCPA). The claim was brought by Mr. Hunstein, alleging that the debt collector violated the FDCPA and the FCCPA when it conveyed information about his delinquent debt to a third-party mail vendor used by Preferred Collection and Management Services to send out routine collection letters. The district court dismissed the lawsuit, finding that the consumer failed to state a cause of action under the FDCPA. On appeal, the Eleventh Circuit reversed that decision.

The Eleventh Circuit Court’s sole focus is on the FDCPA, which would not apply to Credit Unions collecting their own debt. Its decision does not address the claim under the FCCPA, which would apply to Credit Unions. The statutory language at issue under the FDCPA is Section 1692c(b) that provides “a debt collector may not communicate, in connection with the collection of any debt, with any other person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector[.]” The Eleventh Circuit found that a communication in connection with the collection of any debt with a third-party mail vendor could violate the Act if that communication is in connection with the collection of any debt. Mr. Hunstein’s allegation was that the communication from the debt collector to its mail vendor included the amount of the debt, the entity to which the debt was owed, and the fact that the debt was related to his son’s medical treatment. The Eleventh Circuit ruled that if the communication to the mail provider contained this information, then it was a communication in connection with a debt that violated 1692c(b).

This ruling will have a significant impact on debt collectors (third-party agencies). How they deal with this new risk could significantly change their process and cost structure. In fact, the Eleventh Circuit recognizes that its decision will severally impact third-party debt collectors but emphasized that the problem needs to be addressed by Congress.

It is hard to determine how this will impact Credit Unions or other creditors at this time. The court did not address the FCCPA claim, as that was not addressed at the lower court level, except for the fact that once the FDCPA claim was dismissed (the one involving a federal statute), that eliminated jurisdiction for the federal court to consider the FCCPA claim. Now that the FDCPA claim is back before the lower court, the court will have to consider the FCCPA claim as well.

The FCCPA does not have the same statutory language as the FDCPA. The complaint filed by the consumer, Mr. Hunstein, alleges violation of Section 559.72(5), which provides as follows:

Disclose to a person other than the debtor or her or his family information affecting the debtor’s reputation, whether or not for credit worthiness, with knowledge or reason to know that the other person does not have a legitimate business need for the information or that the information is false.

If a court were to rule that the use of a third-party mail vendor violates Section 559.72(5), the impact on Credit Unions and other creditors could be significant. In the meantime, as this opinion is disseminated among consumer lawyers, I would not be surprised to see similar claims brought against creditors. SVL will continue to monitor the litigation between Mr. Hunstein and Preferred Collection and Management Services as the lower court considers the FCCPA claim. In the meantime, if you wish to discuss this matter and your unique risks, please contact a lawyer at SVL.

CFPB Proposed Delay of the Effective Date of Debt Collection Rules

Yesterday, April 7, 2021, the Consumer Financial Protection Bureau (CFPB) issued a proposal to delay the effective date of the Debt Collection Rules for sixty (60) days. The reason for the delay is to give those impacted by the Rules more time to prepare given the pandemic. The new proposed effective date is January 29, 2022. The proposal seeks only to modify the effective date and does not include any other changes. This proposal is open for public comment for thirty days, after which the CFPB will make a final determination on whether the effective date will be delayed. If you have questions about this proposal or the Debt Collection Rules, please do not hesitate to contact a lawyer at SVL.

CFPB Proposed Mortgage Servicing Changes to Limit Wave of Foreclosure from COVID-19

On April 5, 2021, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule that seeks to amend Regulation X to assist borrowers affected by the COVID-19 emergency. Last week, the CFPB warned mortgage services of the coming wave of foreclosures when existing forbearance agreements come to an end. That warning included a directive that mortgage servicers need to be ready to handle the expected increase of loss mitigation requests by mortgage borrowers. The information released by the CFPB last week suggest that as many as 3 million consumers are behind on their mortgages.

The CFPB’s proposed rule to amend Regulation X (mortgage servicing rule) would:

  • Give borrowers more time by providing “a special pre-foreclosure review period” that would generally prohibit servicers of mortgage loans from starting foreclosure until after December 31, 2021. In essence, it would modify the 120-day rule to be a temporary blanket prohibition on starting a foreclosure because of a mortgage delinquency until after December 31, 2021.
  • Allow for streamlined loan modification options to borrowers with COVID-19 related hardships based on the evaluation of an incomplete application. 
  • Keep the consumers informed of their options by changing the required servicer communications to consumers. 

Please note that this proposed rule to the mortgage servicing rules would apply only to mortgage loans secured by a borrower’s principal residence. Further, the proposed changes would apply only to large servicers but the CFPB is seeking comments on whether it should extend to small servicers. The proposed effective date of these changes is August 31, 2021. The CFPB is accepting public comments on the proposed rule through May 10, 2021.

SVL is working to put together a virtual event to go through this proposed rule in detail. We anticipate having further information on the virtual event later this week. In the meantime, if you have questions, please contact a lawyer at SVL.

Supreme Court Defines Automatic Dialing System

Yesterday, the United States Supreme Court issued a long-awaited ruling in the case of Facebook, Inc. v. Duguid. This was an appeal out of the Ninth Circuit and involved the Telephone Consumer Protection Act of 1991 (TCPA). In particular, this case involved the definition of an “automatic telephone dialing system” (ATDS). Many in the consumer credit industry hoped that this case would restore some limits to the definition given by the Federal Communication Commission’s (FCC) previous ruling that defined an ATDS to include any modern telephone system.

The Court held that an ATDS under the TCPA is a device that “must have the capacity either to store a telephone number using a random or sequential number generator, or to produce a telephone number using a random or sequential number generator.” The case centered on the reading of the TCPA statute and its definition of an ATDS. Furthermore, the case turned on whether the clause “using a random or sequential number generator” modifies the two verbs that precede it (“store” and “produce”). The Court adopted the position that the clause modifies the two verbs. As such, for a creditor to be subject to the TCPA, it must use a random or sequential number generator that either stores or produces telephone numbers. Unfortunately, the Court did not address the term “capacity,” which is another part of the statutory definition that has caused litigation.

This limiting definition of an ATDS should help to reduce future litigation under the TCPA. How much this will limit future litigation remains uncertain. Credit Unions must remain careful and comply with the other provisions of the TCPA, which remain in effect, including respecting consumer’s revocation of consent.

Should you have question on how this ruling impacts your practices or procedures, please contact a lawyer at SVL.

Fannie Mae and Freddie Mac Extend Foreclosure Moratorium

On February 25, 2021, the Federal Housing Finance Administration (FHFA), an independent federal agency that oversees Fannie Mae and Freddie Mac, announced that it is extending its moratorium on residential foreclosures through June 30, 2021. The extension is in line with the extension of the moratorium for federally backed residential mortgages (loans insured by HUD, VA and USDA) that was announced earlier this month by the Biden Administration. As with the extension on federally backed loans, the FHFA moratorium was scheduled to expire on March 31, 2021.

In addition to extending the moratorium on foreclosures, FHFA is also offering an additional 3-month forbearance, which is in addition to the 3-month extension that was announced earlier this year. This will enable borrowers to be in a forbearance for 18 months, and possibly defer the 18-months of payments until maturity or the loan is refinanced.

If you have any questions or concerns about these moratoriums, or any other matters related to creditor’s rights, please do not hesitate to reach out to one of the attorneys at Sorenson Van Leuven, PLLC.

President Biden Extends Foreclosure Moratorium

Today, February 16, 2021, President Biden announced that the current moratorium on foreclosures for federally backed mortgages (loans insured by HUD, VA and USDA) is extended through June 30, 2021. The moratorium on federally back loans, which has been in place since March 2020 and extended on several occasions, was scheduled to expire on March 31, 2021.

In addition to extending the moratorium on foreclosures, the Biden Administration is also extending the forbearance enrollment period on federally backed loans through June 30, 2021. They are also providing an additional six-month forbearance for those borrowers that entered into a forbearance on or before June 30, 2020.

Last week, the Federal Housing Finance Administration (FHFA), an independent federal agency that oversees Fannie Mae and Freddie Mac, announced that it was extending the moratorium on foreclosures through March 31, 2021. In addition, they are now offering an additional forbearance extension of up to three months, for a total of fifteen months.

If you have any questions or concerns about these moratoriums, or any other matters related to creditor’s rights, please do not hesitate to reach out to one of the attorneys at Sorenson Van Leuven, PLLC.

Virtual Lunch & Learn Hosted by SVL Law Firm

On March 10, 2021, we will be hosting a new Virtual Lunch and Learn. The event will take place from 12:00 p.m. (noon) until 1:15 p.m. Eastern Time. Join Jim, Tyler, Steve, and Blair as we discuss the latest issues regarding new Federal laws, COVID-19 and other hot topics related to collections, bankruptcy, and foreclosure matters. There is no cost to attend.

Lunch & Learn
The meeting will be held via Zoom, and we encourage you to log in using a computer, tablet, or smartphone with a camera so that we can see each other and participate in a “face to face” gathering. We ask that you RSVP for this event by emailing Whitney at whitneyw@svllaw.com no later than Friday, March 5th, at 5:00 p.m. Upon receiving your RSVP, Whitney will send you an email with the password for entering the zoom meeting and a gift card to DoorDash.

You will not get the password to join the meeting unless you RSVP. If you plan to attend, remember to mark your calendar and copy the link below into your calendar for future reference.

Join Zoom Meeting

https://svllaw.zoom.us/j/8506335847?pwd=ZmlJTTkrZy9WczBJNzJTaEZuWEpmUT09&from=addon

Meeting ID: 850 633 5847

Dial by your location:
+1 929 436 2866 US (New York)

Meeting ID: 850 633 5847

Find your local number:
https://svllaw.zoom.us/u/ab9qj6fdLx

Supreme Court Ruling May Impact Repossessions Prior to Filing Bankruptcy

On Thursday, January 14, 2021, the Supreme Court issued a ruling in City of Chicago v. Fulton, that holds “mere retention of property does not violate the [automatic stay in] §362(a)(3)”. Unlike in Florida, the other states in the 11th Circuit (Georgia, Alabama) require a vehicle which is repossessed but not yet sold, prior to the filing of bankruptcy, to be returned to the debtor.

This ruling looks to change this imposition on creditors; however, the Court left a lot of room for debtors to still challenge the retention of held property. They explicitly did not decide whether the turnover obligation in §542 would still require the creditor to return a vehicle in this specific situation, or whether or not §362(a)(4) and (a)(6) would apply as well. Either way, this is a step in the right direction for creditors.

If you have any questions on this ruling or any other bankruptcy matter, please do not hesitate to reach out to one of the attorneys at the Sorenson Van Leuven Law Firm.

CFPB Issues Final Rule on Consumer Disclosures Related to Debt Collection

On Friday, December 18, 2020, the Consumer Financial Protection Bureau (CFPB) issued a Final Rule that implements certain disclosure requirements for consumers under the Fair Debt Collection Practices Act (FDCPA). This Rule has been expected since an announcement by the CFPB in October when it released its Final Rule on debt collection communications.

The new Rule takes effect on November 30, 2021. The Rule requires debt collectors to provide an initial detailed disclosure about the consumer’s debt and rights in debt collection. This communication must go out prior to any collection activity or within five days of the initial communication from the debt collector. These disclosures serve to provide the consumer with certain information about the debt, information about consumer protections provided by applicable law, and information on how the consumer can respond. The Rule provides a model form for the initial disclosures.

The initial disclosures are required by a debt collector even when the consumer is deceased, if the initial communication regarding the debt occurs after the consumer’s death. In the case of a deceased consumer, the debt collector must provide notice to “a person who is authorized to act on behalf of the deceased consumer’s estate.” However, the initial disclosure is not required if the first act of the debt collector is to file a proof of claim in a bankruptcy proceeding.
In addition to the initial communication requirements, the Rule requires debt collectors to take certain steps to disclose the existence of a debt to a consumer before reporting information to a consumer reporting agency. Finally, the Rule prohibits debt collectors from making threats to sue, or from suing, consumers on time-barred debts.

Unlike the Rule on debt collection communication, this Rule is expected to have limited impact on creditors, such as Credit Unions, collecting their own debts. However, the Rule will impact any third-party debt collectors the Credit Union uses, including lawyers who collect on consumer debts. My firm has already begun analyzing the Rule to determine how its procedures and process will need to change to comply with the new Rule. A full copy of the new Rule can be found here.

Should you have questions about the new Rule, please do not hesitate to contact a lawyer at SVL.