Fourth Circuit: No common-law litigation immunities under FDCPA for debt-collection law firms.

by David Arkush

David Arkush is a Fellow at Georgetown University Law Center's Appellate Litigation Program and a new contributor to the blog.

In a forceful opinion issued today, Sayyed v. Wolpoff & Abramson, No. 06-1458 (May 9, 2007), the Fourth Circuit rejected a debt-collection law firm’s argument that it enjoys common-law immunity from FDCPA claims that arise out of statements made in the course of litigation.

Farid Sayyed alleged in federal district court that the law firm Wolpoff & Abramson (W & A) had filed, in a state-court debt-collection action, interrogatories and a summary judgment motion that contained false statements. W & A argued that it was absolutely immune from FDCPA claims arising from statements made in litigation, and the district court agreed and dismissed.

The Fourth Circuit reversed.  First, it concluded broadly that "The statutory text makes clear that there is no blanket common law litigation immunity from the requirements of the FDCPA." It is settled law that FDCPA covers attorneys, the court noted, and FDCPA’s exception for formal pleadings in a legal action—that they need not disclose that they are from a debt collector—illustrates that such pleadings are subject to all other FDCPA requirements.  Otherwise, there would be no need for an exception.

The court also addressed the more specific arguments that (1) FDCPA liability cannot attach to communications made to a debtor’s counsel, and (2) because common-law immunities exist under 42 U.S.C. § 1983, they also exist under FDCPA. The court rejected the first argument because it contradicts FDCPA’s expansive definition of a "communication" as "the conveying of information regarding a debt directly or indirectly to any person through any medium." More important, the court rejected the second argument by reasoning that recognizing common-law immunities under FDCPA would defeat the Act’s very purpose:

Congress meant not to incorporate common law immunities in this area, such as they may be, but to overwrite them, defining the scope of liability and immunity entirely by statute.

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The FDCPA aims "to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 15 U.S.C. § 1692(e). Adopting the sweeping immunities urged by appellee would stop the statute in its tracks.

(The court also held that the district court erred when it concluded in the alternative that dismissal was proper because W & A asserted that it relied on representations of its client. The court held that the proper time for considering a § 1692k(c) bona fide error defense is at summary judgment, not on a 12(b)(6) motion.)

Is There A Relationship Between Predatory Mortgage Lending And Political Contributions?

by Brian Wolfman

Common Cause has just issued this intriguing report suggesting a link between the severe problems in the subprime lending market and political contributions made by the lending industry to lawmakers.  Read it in its entirety, but, for now, I'll tease you with this excerpt from the report's executive summary:

While investing nearly $210 million on Washington lobbying and campaign contributions, the mortgage lending industry for seven years successfully blocked Congress from taking action to restrict lending abuses that saddled economically vulnerable families with home mortgages they could not afford. In 2006 alone, foreclosure filings across the country were up 42 percent compared to 2005—a total of 1.2 million homes in jeopardy, or one in every 92 homes.  And foreclosures continue to mount in 2007, with March foreclosure filings up 47 percent compared to the year before.

Common Cause's press release is available here.

 

NY Times on Proposed Carfax Settlement

Jeff's post mentioned two articles in yesterday's Times.   I want to just briefly mention of a third article from yesterday's paper--a piece by Christopher Jensen discussing a proposed nationwide coupon settlement of a class action against Carfax.  Here's a link to the article.  Public Citizen, representing a group of individual consumers and the Center for Auto Safety, has filed objections to the settlement, which you can read here.

Times Articles on Certified Cars and Arbitration

Yesterday's New York Times had at least two articles that bear on consumer law issues.  The first, available here, reported on litigation and legislation involving certified cars.  The second described how Senators Leahy and Finegold have written to the S.E.C. to ask that it ban mandatory arbitration in claims brought by investors.  Many of the arguments for banning mandatory arbitration in the investor context apply with at least equal force to the consumer context.   

A Look At The Subprime Lending Industry

The Washington Post continues its coverage of subprime lending with this front-page expose on the pressure felt by employees at one subprime lender, New Century, to approve mortgage loans.  The following short excerpt from the Post article gives you a flavor for the story:

New Century has become the premier example of a group of companies that grew rapidly during the housing boom, selling working-class Americans with questionable credit huge numbers of "subprime" loans with "teaser" rates that typically rose after the first two years. This business transformed the once-tiny New Century into a lending powerhouse that was held up as a model of the mortgage industry's success.

But now, with home values falling and adjustable loan rates rising, record numbers of homeowners are failing to make their payments. And a detailed inquiry into the situation at New Century and other subprime lenders suggests that in the feeding frenzy for housing loans, basic quality controls were ignored in the mortgage business, while the big Wall Street investment banks that backed these firms looked the other way.

New Century, which filed for bankruptcy protection last month, has admitted that it underreported the number of bad loans it made in its financial reports for the first three quarters of 2006. Hardiman and other former employees of New Century interviewed said there was intense pressure from bosses to approve loans, even those with obviously inflated housing appraisals or exaggerated homeowner incomes.

Avoiding Foreclosure

   

Today's Washington Post has this lengthy article on strategies for mortgage lenders and borrowers to avoid foreclosure.  One premise of the article is that lenders are willing to work with borrowers because a restructured loan that the borrower can realistically afford is often a better financial deal for lenders than is foreclosure.

Seventh Circuit: Under FCRA, A Credit Report Must Be Both Accurate And Clear, And Accuracy Doesn't Necessarily Equal Clarity

By Brian Wolfman

[Introductory Note: This post was updated on May 6, 2007, to eliminate potential ambiguity pointed out by a careful reader.  Nothing of substance has changed from the original post on May 5, 2007.]

The Seventh Circuit just issued a short, powerful decision concerning the Fair Credit Reporting Act's fundamental requirement that “[e]very consumer reporting agency shall, upon request . . . clearly and accurately disclose to the consumer [a]ll information in the consumer’s file at the time of the request.” 15 U.S.C. § 1681g(a)(1).  In Gillespie v. Equifax Information Services, L.L.P., No. 06-1952 (May 3, 2007), the court reminded the world that a technically accurate disclosure is not necessarily a clear disclosure -- and both accuracy and clarity are required to meet the Act's requirements.  In Gillespie, the plaintiffs requested their credit reports, which, among other things, listed the "date of last activity" on certain collection accounts.  Depending on what event triggered the listing in this category, the report could lack clarity as to when delinquency had occurred.  Having clarity on this point could be important to the consumer because, under FCRA, a consumer report may not include “accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.” 15 U.S.C. § 1681c(a)(4).  Here's the Seventh Circuit's key holding:

We conclude that the consumer reporting agency must do more than simply make an accurate disclosure of the information in the consumer’s credit file. The disclosure must be made in a manner sufficient to allow the consumer to compare the disclosed information from the credit file against the consumer’s personal information in order to allow the consumer to determine the accuracy of the information set forth in her credit file. In writing § 1681g(a)(1), Congress requires disclosure that is both “clearly and accurately” made. An accurate disclosure of unclear information defeats the consumer’s ability to review the credit file, eliminating a consumer protection procedure established by Congress under the FCRA.

Disappointing Draft Military Lending Regs: Comments Sought

by Lauren Saunders

[Ed Note:  Last month, we blogged about the DOD's proposed regs and request for comments on predatory lending limits and the reaction of consumer groups.  In this post, Lauren Saunders of NCLC provides further details on the regs and how to comment.]

Last fall, the Talent/Nelson Military Lending Act (MLA) imposed a 36% interest rate cap, banned mandatory arbitration, and imposed other restrictions on credit offered to active duty military service members and their dependents.  DOD published draft regulations to implement the Act last month, and they are very disappointing.  They limit the law only to payday, auto title and refund anticipation loans, and offer plentiful opportunities for evasion even within those categories.

Comments on the draft regulations must be received by DOD no later than June 11, 2007. Ironically, DOD is asking for comments on whether it should go further in exempting banks, fees or credit products, but does not ask whether the regulations will stop the abusive high-cost lending to military borrowers that it believes is impairing military readiness.

Imperfect Competition in Auto Lending: Subjective Markup, Racial Disparity, and Class Action Litigation

Mark Cohen of Vanderbilt's working paper with the above title is available online at SSRN. The abstract is as follows:

While the market for auto lending at first appears to be highly competitive, many consumers lack the ability to obtain accurate information about price. In many markets, uninformed consumers can free ride off the knowledge of informed consumers. However, the market for auto lending differs from traditional markets because price ultimately depends upon both the credit worthiness of the individual borrower and the details of the auto loan (e.g. term length, payment-to-income ratio, etc.). Auto dealers in this market act as agents of both consumers (identifying suitable auto lenders for them) and auto lenders (identifying prospective borrowers).

Given the asymmetric information about prices facing consumers, this market has been characterized by a wide disparity in the prices paid by consumers. This disparity comes about through a mechanism whereby auto dealers are quoted a risk-based interest rate from the lender and are then authorized to subjectively mark up this rate and charge what the market will bear. While the majority of auto loans are written without any markup, some consumers are charged thousands of dollars in addition to the risk-based interest rate.  While charging different prices to different consumers is not illegal, one of the apparent consequences in auto lending is that minority consumers - African-Americans and Hispanics in particular - have systematically been charged a higher markup on auto loans than White borrowers. It is this fact - coupled with federal laws outlawing discrimination in credit markets - that led to a series of lawsuits against auto lending institutions.  This paper reviews the theory and evidence of subjective markups on auto loans and examines how class action litigation has changed the auto lending market.

FTC Wants Comments on Collection of Consumer Debts

by Deepak Gupta

  The Federal Trade Commission is going to be holding a workshop this fall, on October 10-11, entitled Collecting Consumer Debts: The Challenges of Change.  As the title suggests, the FTC is mostly interested in learning about how changes in technology and society have affected debt collection.  They're looking for comments and papers on a list of topics, including legislative proposals.

Here's a link to a description of the workshop and a list of the specific questions on which the FTC is seeking comments.  They're looking for empirical data; I'm skeptical about how much of this information is really available.  There's very little published research using empirical data on the collection of consumer debts and although the industry presumably has a lot of data, their perspective isn't exactly neutral.  In any event, here are the general areas on which they're seeking comment:

• Demographic and industry information
• Industry information
• Debt collection practices and techniques
• Industry compliance with applicable federal and state laws
• Consumers' behavior and knowledge of their rights
• Legislative issues

Comments are due by June 6 and can be filed in paper form or online via this link.