Damned If You Do: Second Circuit Rules That Language Included In RESPA-Required Notice Begets FDCPA Violation

shutterstock_120456940The Fair Debt Collection Practices Act (“FDCPA”) provides that, if a “debt collector” makes an “initial communication with a consumer in connection with the collection of any debt,” the debt collector must provide the consumer with certain information, such as the amount of the debt, the name of the creditor, and the consumer’s right to dispute the debt. See 15 U.S.C. § 1692g(a). However, the statute does not elaborate on the meaning of the phrase “in connection with the collection of any debt.”

Because this phrase is not defined with precision in the statute, courts often have struggled to determine what particular types of communications by debt collectors trigger the Section 1692g(a) duty. This issue is important because, if a debt collector triggers but fails to fulfill the duty within five days, the debt collector may get hit with liability for damages under the FDCPA. The U.S. Court of Appeals for the Second Circuit recently flagged a Section 1692g(a) tripwire in Hart v. FCI Lender Services, Inc.,___F.3d___, 2015 WL 4745349 (2d Cir. Aug. 12, 2015). In Hart, the plaintiff defaulted on his mortgage loan. At the time of the default, the loan was being serviced by GMAC Mortgage, LLC. Following the default, servicing and collection responsibilities were transferred to the defendant, FCI Lender Services, Inc. (“FCI”).

At that point, FCI mailed a letter to Hart. In FCI’s view, the letter was not a dunning notice. Instead, it was introductory letter for the purpose of complying with RESPA, which requires, in certain circumstances, that a new servicer notify the borrower of the transfer of servicing. Much of the letter indeed was, by all appearances, a standard RESPA change-of-servicer notice. At the same time, however, the letter contained a boilerplate addendum stating, “This is an attempt to collect upon a debt, and any information obtained will be used for that purpose,” and elaborating on the borrower’s rights under the FDCPA. FCI argued that the purpose of this addendum was not to “induce” the borrower to pay a debt. Instead, the addendum was meant to ensure FCI’s compliance with another, separate provision of the FDCPA, 15 U.S.C. § 1692e (“False or misleading representations”). Under that provision, a debt collector, when initially communicating with a consumer, must disclose “that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.” See 15 U.S.C. § 1692e(11).

FCI argued that it would be unfair for its good-faith effort to comply with RESPA and Section 1692e(11) to result in liability under Section 1692g(a). Rejecting FCI’s position, the Second Circuit noted that whether a particular communication is “in connection with the collection of any debt” is “a question of fact to be determined by reference to an objective standard.” Hart, 2015 WL 4745349, at *5. Thus, the issue is whether “a consumer receiving the communication could reasonably interpret it” as such a communication, specifically, as “an attempt to collect a debt.” Id. at *5-*6. Applying this standard, the Court held that inclusion of the addendum transformed the change-of-servicer notice into an attempt to collect a debt, thus triggering the duties of § 1692g(a) – which FCI allegedly did not satisfy.

The Court’s decision carries two key lessons for debt collectors generally and mortgage servicers in particular. First, benign intent is not necessarily relevant to the question whether a communication with a consumer constitutes an attempt to collect a debt. Second, a RESPA change-of-servicing letter may also be deemed a dunning letter under the FDCPA if the loan is in arrears. Mortgage servicers would be well advised to consider Section 1692g(a) when taking over the servicing of defaulted loans.

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Eric Sherman

Eric Sherman

Eric regularly appears before federal and state courts and arbitration panels in matters relating to banking and financial services, corporate trusts, personal trusts and estates, securities and broker-dealer regulation, shareholder disputes, director and officer liability, health care, and complex business disputes.

Michelle Ng

Michelle Ng

An attorney in Dorsey’s U.S.-China group, Michelle’s practice focuses on banking regulatory and compliance matters involving the bank secrecy act and related anti-money laundering regulations.

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