Letter Stating that Student Loan is “Ineligible for Bankruptcy Discharge” is False, Deceptive and Misleading Statement under FDCPA

Student loans are presumptively nondischargeable in bankruptcy.  However, student loans can be discharged in bankruptcy if a debtor demonstrates, by a preponderance of the evidence, that requiring their repayment would impose an undue hardship on the debtor.   To seek an undue hardship discharge of student loans, a debtor must commence an adversary proceeding by serving a summons and complaint on affected creditors. To succeed in such a proceeding, the debtor must show: (1) that the debtor cannot maintain, based on current income and expenses, a ”minimal” standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.

 

With this state of the law as a background, would a statement to a consumer that her/his student loan was “ineligible for discharge in bankruptcy” be deemed a false statement under the FDCPA? The Second Circuit recently responded to this question in the affirmative.

 

In  Easterling v. Collecto, Inc., 2012 U.S. App. LEXIS 18444 (2d Cir. N.Y. Aug. 30, 2012), Berlincia Easterling obtained a student loan. Approximately 4 years later she filed for bankruptcy, however, in her petition, she classified the student loan as non-dischargeable. Accordingly, her student loan was not discharged. When the debt collector for the Department of Education learned about the bankruptcy, it sent Easterling a letter advising her that her account was “NOT eligible for bankruptcy discharge. After receiving the letter, Easterling filed a claim under the Fair Debt Collection Practices Act ("FDCPA"), contending that the collection letter’s statement that her student loan was “ineligible for bankruptcy discharge” was false, deceptive, or misleading under the least sophisticated consumer standard. The District Court granted defendant/debt collector's motion for summary judgment.  Easterling appealed.

 

The Second Circuit held that the debt collector violated the FDCPA’s proscription against false, misleading, or deceptive practices by sending the debtor a collection letter incorrectly informing her that her student loans were “ineligible for bankruptcy discharge” because, although the debtor may have faced significant hurdles to discharging her student loans in bankruptcy, the least sophisticated consumer would have interpreted the letter as representing, incorrectly, that bankruptcy discharge of her loans was wholly unavailable to her. The Court concluded that the letter’s capacity to discourage debtors from fully availing themselves of their legal rights rendered its misrepresentation exactly the kind of abusive debt collection practice that the FDCPA was designed to target.

For more information about the Fair Debt Collection Practices Act, or, its state law counterpart, the Florida Consumer Collection Practices Act, visit us at: Stop Collection Harassment; or Consumer Rights Orlando

Settlement Offer Does Not Moot FDCPA Claims

Plaintiffs alleged claims under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C.S. § 1692 et seq.  In each case, defendant/debt collectors sent emails offering to settle the case for $1,001 – an amount exceeding by $1.00 the maximum that each plaintiff could recover, plus legal fees and costs.  The offers were not accepted. The  District Court granted the defendants’ motions to dismiss, holding the offers left the consumers with "no remaining stake" in the litigation and that the cases were moot.

The Eleventh Circuit reversed the trial courts holding that the defendants s did not offer judgment as part of the settlement, an important distinction in the mootness analysis. It was error to have found the settlement offers rendered the FDCPA claims moot because the offers did not offer to have judgment entered against them.  The Court went on to state that because the settlement offers were not for the full relief requested, a live controversy remained over the issue of a judgment, and the cases were not moot.  Furthermore, the Court stated, a judgment was important to the consumers because the district court could enforce it. Instead, with no offer of judgment accompanying the settlement offers, the consumers were left with a mere promise to pay.  If payment was not made, the consumers faced the prospect of filing a breach of contract suit in state court with its attendant filing fees — resulting in two lawsuits instead of just one.

Zinni v. ER Solutions, Inc., 2012 U.S. App. LEXIS 18163 (11th Cir. Fla. Aug. 27, 2012)

For more information about the Fair Debt Collection Practices Act, or, its state law counterpart, the Florida Consumer Collection Practices Act, visit us at:

• Stop Collection Harassment;
or
• Consumer Rights Orlando

Offer of Judgment Halts FDCPA Lawsuit

Federal Rule of Civil Procedure 68 provides that, at least fourteen days before trial, a defending party may serve a plaintiff with an offer to allow a judgment on specified terms.   Several recent district court opinions have rules that an offer of judgment providing the plaintiff with the maximum allowable relief will moot the plaintiff’s  FDCPA claim.  Moten v. Broward Cnty., No. 10-62398-CIV, 2012 U.S. Dist. LEXIS 19332, 2012 WL 526790, at 2 (S.D. Fla. Feb. 16, 2012); see also  Mackenzie v. Kindred Hosp. E., LLC, 276 F. Supp. 2d 1211, 1218-19 (M.D. Fla. 2003) (dismissing FLSA claim as moot after plaintiff rejected  Rule 68 offer where offer exceeded amount plaintiff could have received at trial).

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In Young v. AmeriFinancial Solutions, LLC, 2012 U.S. Dist. LEXIS 125661 (S.D. Fla. Sept. 5,2012), plaintiff filed an action against defendant under the Fair Debt Collection Practices Act which provides that damages in an action brought by an individual shall not exceed $1,000.00. Defendant served an Offer of Judgment proposing to have judgment entered in the about of $1,001, plus attorney's fees incurred prior to the date of the offer. Defendant then moved the trial court to dismiss the action for lack of subject matter jurisdiction contending that the action is moot because the Offer would grant Plaintiff more than the full amount of relief that Plaintiff could obtain under the FDCPA. The Court granted the defendant’s motion to dismiss for lack of subject matter jurisdiction because the offer of  judgment would provide plaintiff with the maximum allowable relief on her claims.  Therefore, the court concluded, that the action was moot and the Court would no longer have subject matter jurisdiction over the suit. 

For more information about the Fair Debt Collection Practices Act, or, its state law counterpart, the Florida Consumer Collection Practices Act, visit us at:

• Stop Collection Harassment;
or
• Consumer Rights Orlando

Frequently Asked Questions about the FDCPA

Frequently Asked Questions

Q. What is the Fair Debt Collection Practices Act?

A. The Fair Debt Collection Practices Act ("FDCPA") requires that debt collectors treat you fairly by prohibiting certain methods of debt collection.

Q. What debts are covered?

A. Personal, family, and household debts are covered under the Act.  This includes money owed for the purchase of an automobile, for medical care, or for charge accounts.

Q. Who is a debt collector under the FDCPA?

A. A debt collector is any person, other than the creditor, who regularly collects debts owed to others. Under a 1986 amendment to the Fair Debt Collection Practices Act, this includes attorneys who collect debts on a regular basis.

Q. Who is a debt collector under the Florida Consumer Collection Practices Act?

A. Under Florida law, the definition of a "debt collector" is much broader than under its federal counterpart. Under the Florida Consumer Collection Practices Act (“FCCPA”), a “debt collector” is defined as: “any person who uses any instrumentality of commerce within this state, . . . in any business the principal purpose of which is the collection of debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. The term ’debt collector’ includes any creditor who, in the process of collecting her or his own debts, uses any name other than her or his own which would indicate that a third person is collecting or attempting to collect such debts.”

So, the FCCPA applies to any person or persons, collecting his/her own debts. Under that broad definition, the FCCPA would apply to a law or accounting firm attempting to collect its own fees, as well as the employees engaged in such collection activity on the law firm's behalf.

Q. How may a debt collector contact you?

A.  A collector may contact you in person, by mail, telephone, telegram, or FAX. However, a debt collector may not contact you at unreasonable times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves.

Q. Can you stop a debt collector from contacting you?

A. You may stop a collector from contacting you by writing a letter to the collection agency telling them to stop.  Once the agency receives your letter, they may not contact you again except to say there will be no further contact. Another exception is that the agency may notify you if the debt collector or creditor intends to take some specific action.

Q. May a debt collector contact any person other than you concerning your debt?

A. If you have an attorney, the debt collector may not contact anyone other than your attorney. If you do not have an attorney, a collector may contact other people, but only to find out where you live and work. Collectors usually are prohibited from contacting such permissible third parties more than one. In most cases, the collector is not permitted to tell anyone other than you and your attorney that you owe money.

Q. What is the debt collector required to tell you about the debt?

A.  Within five days after you are first contacted, the collector must send you a written notice telling you the money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.

Q. May a debt collector continue to contact you if you believe you do not owe money?

A.  A debt collector may not contact you if, within 30 days after you are first contacted, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed.

Q.  What control do you have over payment of debts?

A.  If you owe more than one debt, any payment you make must be applied to the debt you indicate. A debt collector may not apply a payment to any debt you believe you do not owe.

Q.  What can you do if you believe a debt collector violated the law?

A.  You have the right to sue a collector in a state or federal court within one year from the date you believe the law was violated. If your win, you may recover money for the damages you suffered. Court costs and attorney's fees also can be recovered.

For more information about the Fair Debt Collection Practices Act, or, its state law counterpart, the Florida Consumer Collection Practices Act, visit us at:

• Stop Collection Harassment;
or
• Consumer Rights Orlando

Eleventh Circuit reaffirms application of FDCPA to mortgage foreclosure actions

Since 2009, debt collectors in the Eleventh Circuit (Florida, Georgia and Alabama) who were contacting consumers in connection with mortgage foreclosure actions relied on the decision of Warren v. Countrywide Home Loans, Inc. , 342 F. App’x 458 (11th Cir. 2009) for protection from suit because that decision held that enforcement of a security interest through the foreclosure process is not debt collection for purposes of the FDCPA.  However, creditors can no longer seek refuge in Warren v. Countrywide Home Loans, supra, since publication of the opinion in Reese v. Ellis, Painter, Ratterree & Adams, LLP , 678 F.3d 1211 (11th Cir. 2012).  Reese held that an entity that regularly attempts to collect debts can be a “debt collector” under the FDCPA even when that entity is also enforcing a security interest. 


The Reese holding was recently reaffirmed in Birster v. Am. Home Mortg. Servicing, 2012 U.S. App. LEXIS 14660 (11th Cir. Fla. July 18, 2012).  In this recent case, the Birsters owned a home in Jupiter, Florida which they refinanced through Option One.  The Birsters ceased making mortgage payments on or around June 1, 2008.  The promissory note and mortgage provided that any missed payment by the Birsters places the loan into a default status.  On July 30, 2008, AHMSI began servicing the loan and initiating collection activities.  On February 2, 2009, U.S. Bank, N.A., as the trustee for the lienholder, initiated foreclosure proceedings against the Birsters. In their FDCPA lawsuit, the Birsters alleged that AHMSI began its relentless assault on them in 2008.  According to the Birsters, AHMSI called them multiple times on a daily basis to collect the past due amounts.  The Birsters further alleged that most of these calls occurred after AHMSI knew that Angela suffered from an inoperable glioma (brain tumor) that cannot be diagnosed as cancerous or non-cancerous.  As early as April 16, 2009, the Birsters informed AHMSI that they were represented by an attorney, and provided AHMSI with the attorney’s name and phone number.  The Birsters advised AHMSI to contact their attorney and to cease contacting them directly.  AHMSI nevertheless continued its direct communications with the Birsters.  The Complaint further alleged that during these calls, AHMSI used offensive and abusive language towards Mrs. Birster and made false representations that the Birsters’ home was scheduled for a foreclosure sale.  Mrs. Birster also alleged that after a particularly abusive call on May 5, 2009, she collapsed in her front yard and was rushed to a nearby hospital.  Once the calls ceased, the Birsters claim AHMSI then began intimidating and harassing them at their home.  AHMSI sent agents to “inspect” the property, despite knowing the Birsters resided there.  Although AHMSI was initially inspecting the property on a monthly basis, AHMSI soon began visiting the Birsters’ home every day or every other day.  AHMSI’s home inspections even occurred on Thanksgiving and Christmas days. The Birsters alleged AHMSI’s actions caused Angela to suffer a deep depression and anxiety, resulting in her attempted suicide. 


The district court granted summary judgment to AHMSI after concluding the Birsters’ allegations related solely to efforts by AHMSI to enforce a security interest, rather than to collect a debt. Thus, the district judge concluded that the actions of AHMSI were not covered by the FDCPA.  Based on the holding in Reese, supra, the Eleventh Circuit reversed the order granting summary judgment.

For more information about the Fair Debt Collection Practices Act, or, its state law counterpart, the Florida Consumer Collection Practices Act, visit us at:

• Stop Collection Harassment;
or
• Consumer Rights Orlando

Confusing Debt Validation Notice violates FDCPA

The Fair Debt Collection Practices Act (“FDCPA”) requires, among other things, that debt collectors, within five days after first communicating with an individual debtor about a debt, to provide the debtor with a validation notice provides the consumer a written notice containing -- along with other information – the name of the creditor to whom the debt is owed and the amount of the debt. This notice is sometimes referred to as a debt validation notice. Simply stating the amount due is not enough, however. The notice must state the amount of the debt clearly enough that the recipient is likely to understand it. It is not enough for a debt collection agency simply to include the proper debt validation notice in a mailing to a consumer. Congress intended that such notice be clearly conveyed. Therefore, a notice that letter fails to state amount of debt where a consumer reading it could reasonably interpret the amount of debt in two ways, is a violation of the FDCPA. In Melillo v. Shendell & Assocs., 2012 U.S. Dist. LEXIS 9248 (S.D. Fla. Jan. 26, 2012), the plaintiff recieved a collection letter from a law firm representing his condominium association. Plaintiff alleged in his Complaint that the collection letter failed to state a clear amount of the debt owed because it referred to different amounts. The Court applied the objective "least sophisticated consumer" standard to the collection letter. In denying defendant’s motion to dismiss, the Court stated that in reading the complaint in the light most favorable to plaintiff, to the extent that the parties dispute factual issues regarding whether the collection letter was actually confusing will ultimately be for the jury to decide at trial.

For more information about the Fair Debt Collection Practices Act, or, its state law counterpart, the Florida Consumer Collection Practices Act, visit us at:

• Stop Collection Harassment;
or
• Consumer Rights Orlando

Who is a "debt collector" under Florida Law

Under Florida law, and more specifically the Florida Consumer Collection Practices Act (“FCCPA”), a “debt collector” is defined as: “any person who uses any instrumentality of commerce within this state,  . . . in any business the principal purpose of which is the collection of debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.  The term ’debt collector’ includes any creditor who, in the process of collecting her or his own debts, uses any name other than her or his own which would indicate that a third person is collecting or attempting to collect such debts.”

So, the FCCPA applies to any person or persons, collecting his/her own debts.  Under that broad definition, the FCCPA would apply to alaw firm attempting to collect its own fees, as well as the employees engaged in such collection activity on the law firm's behalf.

Robin Morgan retained the law firm of Arnold & Wilkins.   Morgan did not pay the law firm and they sued her is Small Claims Court.  She counterclaimed against the law firm, as well as the attorney and his assistant, individually, for violations of the FCCPA.  The law firm and the individuals moved to dismiss the counterclaim because they were not “debt collectors” under the FCCPA.   Morgan responded to the motion to dismiss by arguing that the FCCPA applies not only to a collection agency, but to any party seeking to collect a consumer debt.  The trial court granted the motion to dismiss finding that the FCCPA only apples to debt collectors not creditors collecting their own accounts as Morgan has alleged counter-defendants were doing.

On appeal, the law firm and the individual counterdefendants conceded that the trial court was in error when it ruled that FCCPA pertains only to debt collectors, however, they argued that that the trial court reached the right result for the wrong reason because Morgan’s debt was not a debt within the purview of the FCCPA since the debt did not flow from an extension of credit.  The appellate court reversed holding that that the obligation to the law firm was a debt covered by the FCCPA.

Morgan v. Wilkins, 74 So. 3d 179 (Fla. 1^st DCA 2011). 

For more information about the Fair Debt Collection Practices Act, or, its state law counterpart, the Florida Consumer Collection Practices Act, visit us at:

• Stop Collection Harassment;
or
• Consumer Rights Orlando