On deck: Non-functioning checking account numbers, what counts as "validation," and foreclosure on partially time-barred debt. Plus: three cases to concern first-party servicers.

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Oh, you need a functional checking account number?

Simonette Forto negotiated a settlement with United Recovery Systems, LP (now Alltran Financial) on a delinquent credit card account, but she gave the agency (collecting on behalf of Capital One Bank) a non-working checking account number. After the agency attempted to contact her (multiple times) about a functional account number, she sued under the FDCPA and California’s Rosenthal Act.

The court granted summary judgement in favor of United Recovery last spring. Just last week, the Northern District of California ruled that the agency was entitled to attorney’s fees and costs, too.

The deets

Last spring, the court was not impressed with the plaintiff’s two charges, finding that the “defendants did nothing that even comes close to an unscrupulous debt collection practice.”

As for fees, the court had a pretty blunt opinion on that, too.

“The record shows that for nearly three years, Plaintiff’s counsel’s conduct has forced URS to waste time and resources defending an action that, from the beginning, lacked a factual basis,” the judge wrote. “That Plaintiff’s counsel nevertheless continued to prosecute Plaintiff’s claims, despite being presented with evidence that her claims were meritless, shows that counsel unreasonably and vexatiously multiplied these proceedings and did so in bad faith.”

The agency requested over $61,000 in fees. The total amount ordered by the court has not yet been determined.

The case: Forto v. Capital One Bank National Association, et al. (Case No. 14-cv-05611, U.S.D.C. Northern District of California)

First-Party Servicer Alert

Ontario Systems’ Rozanne Andersen points to three cases that should give any first-party servicer real concern.

“Creditors like the first-party model because it maximizes control over the collection agency,” she writes. “Debt collectors like the first-party model because it insulates them from liability under the Fair Debt Collection Practices Act (FDCPA). Arguably, consumers like the first-party model because they effectively communicate directly with the party to which they owe money. But if this seems too good to be true, it probably is.”

Andersen offers this advice to any agency offering first- and third-party collection services:

  • Review the terms of the contractual relationship with creditor clients;
  • Consider each client’s definition of default;
  • Examine the chain of collection treatment; and
  • Document the representations made to the consumer about the default status of the account before initiating any type of collection activity.

Click here for the full article.

No FDCPA violation, but a pile of exceptions

The 5th Circuit recently reaffirmed a lower court ruling, finding that condo association lawyers did not violate the FDCPA when they threatened non-judicial foreclosure on debt that was partially, but not fully time-barred.

Note, however, that the type of debt made a big difference to the court in this case. Writing at insideARM, Maurice Wutscher Attorney Keith Wier notes, “The Court went to great lengths to stress the nature of the debt (i.e. real estate debt) and hinted that it might not rule favorably if the debt were of another type, like a credit card.”

The deets

The plaintiffs in this case are Houston condominium owners who sued condo ownership, its management company and its collection lawyers over their efforts to collect assessments. Those assessments stretched back several years and some but not all of the debt was beyond the Texas four-year statute of limitations.

Plaintiffs alleged, among other charges, that the collection law firm’s validation letter overshadowed their FDCPA rights (the court disagreed, citing 30-day validation language listed 3x in bold type) and that the law firm’s threatened lawsuit on time-barred debt violated the Texas Fair Debt Practices Act and the FDCPA. On this second charge, the specific nature of real estate debt as well as certain facts relating to this specific debt (that the portion of the debt alleged to be time-barred was less than 25%, for example), swayed the court's ruling.

The case: Mahmoud v. De Moss Owners Ass’n Inc.

What you can learn from CFPB’s enforcement action against National Collegiate Loan Trusts and Transworld Systems

September 18, the CFPB announced a settlement in an enforcement against National Collegiate Student Loan Trusts (NCSLT) and Transworld Systems, Inc. (TSI) for alleged illegal student loan debt collection lawsuits. NCSLT agreed to pay $19.1M. TSI agreed to pay $2.5M.

The allegations

Per the CFPB: “Consumers were sued for private student loan debt that the companies couldn’t prove was owed or was too old to sue over. These lawsuits relied on the filing of false or misleading legal documents.”

What you need to know

The CFPB likes to regulate through enforcement. This order is no different. Look out for two enforcement themes here: documentation of debt and policies and procedures regarding legal action on accounts.

The order requires NCSLT to “conduct a thorough Compliance Audit of over 800,000 accounts.” Requirements:

“For each and every student loan, whether Defendants, or their agents (including Defendants’ Servicers), have or ever had in their possession sufficient loan documentation, including signed promissory notes and documentation reflecting the complete chain of assignment since the loan’s origination, to support the claim that a Debt is currently owed to a Trust, including but not limited to, assignments from the Debt’s originator to the Trust claiming ownership and any subsequent assignments by the Trust to a student loan guarantor.”

What’s more, within thirty days, the defendants have to submit a compliance plan for review. Per the CFPB, that plan must:

“Ensure the withdrawal and dismissal without prejudice of any pending Collections Lawsuits identified in Paragraph 19(c); [and]

Ensure that Defendants and their agents, including but not limited to any of Defendants’ Servicers, will not take any steps to initiate collections or furnish negative reports to consumer reporting agencies, on loans identified in Paragraph 19(a), or accept payments on any defaulted Debts, unless and until Defendants first verify the existence of the documentation referenced in that subparagraph in order to prove the existence of the Debt and the identity of the current owner.”

The consent order against TSI can be found here.

The consent order against NCSLT can be found here.

You keep using that word. I do not think it means what you think it means.

What is a valid response to a request for validation? This question sat at the core of a recent, complicated FDCPA case involving a disagreement over just what counts as “validation.”

The deets

William Cooper, the plaintiff, demanded multiple times that Portfolio Recovery Associates, LLC (PRA), the agency attempting to collect on his debt, provide the original bank agreement and a copy of his last billing statement. PRA had already provided plenty of other information to Cooper in response to his request for verification, including the amount of debt owed, the name of the original creditor and the name, address, and telephone number of the current creditor. The agency told Cooper, essentially, that he had all the information he needed to dispute the debt.

Cooper saw this as an FDCPA violation. The court disagreed, noting:

“There is no question that Cooper had the information necessary to complete these affidavits. PRA was therefore not required to provide a copy of an original contract because Cooper would not have needed an original contract in order to sufficiently dispute the debt… Because PRA’s letters and identity theft affidavits clearly communicated to Cooper that he could dispute the validity of the debt, they were sufficient under the FDCPA.”

This is a complicated, detail-rich case. Interested parties will want to read the full opinion for all the facts.

The case: Cooper v. Portfolio Recovery Associates, LLC (Case No. 16-12969, U.S.D.C. Eastern District of Michigan, Southern Division)