The U.S. Court of Appeals for the Second Circuit recently reversed the dismissal of a consumer’s claim alleging that a mortgage loan servicer violated the federal Fair Debt Collection Practices Act by sending a servicing transfer notice that did not contain the disclosures required under the FDCPA, 15 U.S.C. 1692g.
A copy of the opinion is available at: Link to Opinion.
The borrower argued that the defendant mortgage servicer violated the FDCPA by sending him two written communications: (1) a RESPA transfer of servicing notice, informing the borrower that the mortgage servicer had become the servicer for the borrower’s mortgage loan; and (2) a periodic payment statement sent several months after the letter.
As you may recall, when a debt collector sends an “initial communication with a consumer in connection with the collection of any debt,” the FDCPA imposes obligations on a debt collector to provide certain information about the loan, either in the initial communication or within five days thereafter by written notice.
The parties’ disagreement centered on whether the letter was sent “in connection with the collection of any debt,” which the FDCPA does not define. The mortgage servicer argued that because the purpose of the servicing transfer notice was to provide transfer-of-servicing information in order to comply with the federal Real Estate Settlement Procedures Act (RESPA), not to collect debt, it had no obligation to provide the information required by the FDCPA.
The district court agreed, finding that the servicing transfer notice was informational in nature, did not refer to any amount owed or threaten to take any action, and thus was not sent to induce the consumer to make a payment.
On appeal, the Second Circuit began by noting that the “scope of the FDCPA’s ‘in connection with the collection of any debt’ language” was a matter of first impression in the Second Circuit. It then quickly concluded that whether a communication is “in connection with the collection of any debt,” is “a question of fact to be determined by reference to an objective standard” rather than by the sender’s subjective intent.
The Second Circuit noted that such an objective standard to be “consistent with the FDCPA’s goal of protecting consumers: if a consumer receiving a letter could reasonably understand it to be a communication in connection with the collection of a debt, then the consumer is entitled to the protections Congress mandated for such communications.”
Citing precedent from the Sixth and Seventh Circuits, the mortgage servicer argued that–in order for a communication to be subject to the FDCPA–the communication must be designed to induce payment, not just convey information. The consumer, relying on a 2014 district court decision in the Second Circuit, argued that the “information/inducement dichotomy” should be rejected because the phrase “in connection with” is a synonym for “related to, associated with, and with respect to” and does not include any element of inducement to pay.
Letter was ‘an Attempt to Collect a Debt’
The Second Circuit side-stepped the issue, “concluding that an attempt to collect a debt—which we believe the Letter was—qualifies as a communication ‘in connection with the collection of any debt.’”
The Appellate Court then held that, viewed objectively, the consumer sufficiently alleged that the servicing transfer notice was an attempt to collect a debt because it: (a) referred to the consumer’s particular debt; (b) instructed him to send payments to the new servicer at a particular address; (c) contained boilerplate language expressly stating that “this is an attempt to collect upon a debt” specifically referencing the FDCPA; and, (d) warned that he must dispute the debt’s validity within 30 days after receiving the letter or the debt would be assumed to be valid.
Rejecting the servicer’s argument that the purpose of the letter was merely to convey information required by RESPA, the Second Circuit reasoned that a reasonable consumer would take the letter at face value and understand it as an attempt to collect a debt.
In addition, the Second Circuit saw no reason why the servicing transfer notice could not serve more than one purpose. In a footnote, the Court stressed that although 15 U.S.C. 1692g provides that a communication required by certain statutes, such as the Gramm-Leach-Bliley Act, “shall not be treated as an initial communication in connection with debt collection for purposes of this section,” RESPA is not one of those data privacy statutes.
The Court also rejected the servicer’s argument that it would be unfair to deem the language required by the FDCPA as evidence that the letter was really an attempt to collect a debt, reasoning that recipient consumer “has no reason to know that the language is required by the FDCPA or to believe that the language mandated by § 1692e can safely be disregarded on that basis.” The Second Circuit pointed out that “[w]hile it may be unfortunate for debt collectors that the use of a defective notice helps give rise to an obligation to provide a proper notice, the solution is to improve the defective notice.”
Turning to the periodic payment statement, the Second Circuit determined that it did not have to decide whether the consumer adequately alleged the statement constituted a communication in connection with the collection of a debt because: (a) the duty to provide the § 1692g notice arises only upon the initial communication with a consumer; and (b) a consumer can only recover once for failure to comply with § 1692g’s notice requirements, regardless of the number of collection communications.
According to the Court, because the consumer plausibly alleged that the letter was sent “in connection with the collection of [a] debt,” any allegations pertaining to the later payment statement were irrelevant.
The Second Circuit concluded that because the consumer sufficiently alleged that the servicing transfer notice was an “initial communication … in connection with the collection of [a] debt, which required the debt collector to provide the consumer with a § 1692 notice, the district court “erred in dismissing the amended complaint and ruling as a matter of law that the Letter did not trigger § 1692g’s notice requirement,” and remanded the case for further proceedings.