Agencies seek to maintain Congress’s vision of applying the validation process to each subsequent collector of a consumer debt
On August 20, 2014, the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) filed a joint amicus brief in an appeal of a Fair Debt Collection Practices Act (FDCPA) case in the United State Court of Appeals for the Ninth Circuit. The case, Maria Hernandez v. William, Zinman & Parham, P.C., focuses on the FDCPA’s debt validation notice process well known to the consumer law bar and concerns the interpretation of which communication qualifies as a debt collector’s “initial communication” under 15 U.S.C. § 1692g(a). According to the agencies, the Ninth Circuit has not previously defined the phrase.
In cross motions for summary judgment filed in the U.S. District Court for the District of Arizona, the issue became whether the statutory language of § 1692g(a) obligated the defendant (debt collector) to comply with the requirements of the validation notice process if the defendant’s communication to the plaintiff was not the initial communication that the plaintiff received about the alleged debt. The defendant’s argument, which the district court adopted, reasoned that since an earlier, initial debt collector’s communication to plaintiff activated the §1692g requirements, defendant’s communication—sent as a subsequent debt collector—was not subject to the validation notice requirements. The district court reached this conclusion by determining that the statutory language suggested that there would be only a single initial communication, and that subsequent debt collectors—by their later-in-time status unable to be considered the sender of the initial communication to the consumer about the debt—were not responsible for sending the statutory validation notice.
In granting summary judgment for defendant, the district court’s plain text interpretation of the section anticipates only one initial communication, thereby releasing subsequent debt collectors from the requirements of the debt validation process. This has obvious adverse implications for consumers attempting to challenge the validity of debts which may have been sold multiple times before collection begins in earnest.
The Bureau and Commission’s argument for the reversal of the district court takes a two-prong approach, beginning with a textual analysis that emphasizes the consistently broad meaning given to “a debt collector” and the absence of an “initial” limitation that the district court mistaken inserted into the broader phrase that Congress actually used in the statute. The agencies seek to clarify that statute’s use of the phrase “the initial communication” has been read to mean each debt collector’s intial communicaiton with a consumer, and that interpretation is the most likely one in light of the legislative history that demonstrates that Congress’s purpose for enacting §1692g was to end the frustrating issue of debt collectors collecting the wrong payments from incorrect individuals.
Lastly, the agencies’ brief reminds the Court that as the federal agencies responsible for enforcing the FDCPA, their reasonable construction of the statute deserves great weight in the Court’s ultimate interpretation of the statutory language.
 The validation notice process under 15 U.S.C. §1692g(a) involves the following:
Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing—(1) the amount of the debt; (2) the name of the creditor to whom the debt is owed; (3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector; (4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of the judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and (5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
•There was no evidence that the website user had actual knowledge of the agreement.
More than one-third of Americans (35%) have a debt in collections, according to a study recently released by the Urban Institute. That means just about every third person you pass by on the street is dealing with a collection company in regard to a delinquent debt.
Just about one out of every three Oregonians is also dealing with a debt collector. The same study found that 30.5% of Oregonians have a debt in collections, with the amount averaging $5,456. The national average amount of a debt in collections is $5,178. The national average debt is $53,850. The average Oregonian is $60,752 in debt, the ninth highest in the nation. Only 20% of Americans with credit records have no debt at all.
Debt in collections often originates from nonpayment of a bill, including failing to make payments on an outstanding credit card balance, not paying medical or utility bills, or even not paying a parking ticket. After a debt is more than 180 days past due, it is typically placed in collections by the original creditor or sold to a third-party debt buyer. What the report reveals beyond the numbers is the daily financial distress millions of Americans are living under, as well as the degree of that distress.
The collections industry recovers approximately $50 billion annually, mostly from consumers, according to a study published this year by a Federal Reserve branch research group. Thus while everyday Americans may be struggling, the collections industry is booming and cashing in on the situation. Debt collectors are regulated by the federal Fair Debt Collection Practices Act (FDCPA), among other state specific statutes, such as Oregon’s Unlawful Debt Collection Practices Act (UDCPA).
Ninth Circuit Court of Appeals Determines that a Borrower Does Not Need to Tender Before Suit or Allege Ability to Tender in Complaint for a Viable Rescission Claim under TILA
In Merritt v. Countrywide Financial Corp. et al, the Ninth Circuit reversed a district court’s dismissal of the plaintiffs’ TILA rescission claim for failure either to tender the rescindable value of their loan prior to filing suit or to allege ability to tender its value in their complaint. Declining to extend Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003), the panel held that an allegation of tender or ability to tender is not required. The panel held that only at the summary judgment stage may a court order the statutory sequence altered and require tender before rescission, and then only on a case-by-case basis, once the creditor has established a potentially viable defense.
Recently, in an opinion authored by Justice Sotomayor, the U.S. Supreme Court released its unanimous decision in Clark v. Rameker, holding that individual retirement account (IRA) funds that a Chapter 7 bankruptcy debtor inherited from her deceased mother are part of the debtor’s bankruptcy estate and are not protected from liquidation by the Trustee to pay her creditors.
The Supreme Court upheld the Seventh Circuit’s decision disallowing the exemption, by finding that inherited IRAs do not share many of the same important characteristics of non-inherited IRAs and thus, unlike non-inherited IRAs, are not exempt from liquidation pursuant to the Bankruptcy Code. The applicable provision, 11 U.S.C. § 522(b)(3)(C), states that a debtor may exempt “retirement funds to the extent those funds are in a fund or account that is exempt from taxation” as set forth in the Internal Revenue Code. According to the Court, the central distinctions of inherited IRA accounts are that, unlike non-inherited IRAs, the beneficiary of the inherited IRA cannot continue to invest funds into the account, IRS tax rules require withdraw of funds from the account after it is inherited, it is possible to completely drain the account upon transfer, and the withdraws, or complete liquidation, could occur long before the transferee’s retirement age.
The Supreme Court’s decision resolved a circuit split, as the Fifth Circuit had reached a contrary holding in In re Chilton in 2012. It is important to note that “inherited” IRAs are different from “roll over” IRAs, and IRAs that are bequeathed by a deceased spouse to the surviving spouse. Those accounts may still be exempt pursuant to 11 U.S.C. § 522(b)(3)(C), because the IRS rules governing these types of more traditional IRAs do not necessarily exhibit the characteristics highlighted by the Court in Clark. It is also worth noting that some inherited IRAs may still be exempt pursuant to various state exemption schemes, depending on the language of the applicable state exemption statute. Although most bankruptcy attorneys outside of the Fifth Circuit were probably already cautious in advising potential bankruptcy clients with funds in inherited IRAs, but this is another reminder that extremely careful pre-bankruptcy asset determination and planning is certainly a must.
A number of bills passed in the 2013 legislative session that may impact your practice or your consumer clients. Many of these bills do not have a private right of action; however, you may still want to be aware of these changes when you are giving clients advice or screening potential clients. Of course, since you’re also a consumer, you may want to know about these changes for your “real life” away from the office.
I briefly summarize the bills in three categories: (1) changes to the Unlawful Trade Practices Act, (2) bills related to foreclosure or mortgages and (3) other consumer protection-related bills. The effective date for all of the bills is January 1, 2014 unless otherwise noted. To view the full text of any bill, go to https://olis.leg.state.or.us/.
Unlawful Trade Practices Act
HB 2059 – adds consignment sales to ORS 698.640, a violation of which is a violation of ORS 646.608(1)(v). Adds a new requirement regarding the return of unsold property.
HB 2573 – adds a violation to ORS 646.608 of acting as an immigration consultant for compensation. Exceptions for authorization under federal law and attorneys.
HB 2824 – amends ORS 98.854 pertaining to non-preference tows, a violation of which is a violation of ORS 646.608(1)(ddd). Provides that a tower may tow a vehicle if the vehicle violates a prominently posted no parking sign that warns that parking is prohibited 24 hours a day.
HB 3070 – requires disclosure of shipping and handling charges during a sales transaction. Added to ORS 646.607; no private right of action.
HB 3467A – adds a violation to ORS 646.608. If a person operates a website that posts mug shots and charges a fee to remove the mug shot, the person must take down the mug shot and personal information related to the mug shot for free within 30 days if it receives a written request that contains documentation that all charges were acquitted, reduced to violations, or were expunged.
HB 3489A – changes licensing exemptions for escrow agents to act as debt management service providers. Relates to a violation of ORS 646.608(1)(kkk). Effective date: July 18, 2013.
SB 558 – expands the foreclosure mediation program (“resolution conference”) enacted under SB 1552 (2012) to include judicial foreclosures. There is no private right of action. Effective date: August 4, 2013.
HB 2528 – amends definition in ORS 86.205 to remove cap on amount in real estate loan agreement that is subject to requirement to pay interest to borrower on funds that lender collects for lender’s security protection provision.
HB 2568 – amends time of and information required in notices of sale in foreclosures. Changes amount of time a trustee may postpone a sale.
HB 2569A – permits law firms to be trustees of trust deeds.
HB 2929B – relates to trustee’s sale of foreclosed property. Permits trustee to rescind sale within 10 days in certain circumstances. Requires trustee to provide notice of rescission within 10 days after the date of sale, specifies contents of notice, and requires trustee to record affidavit regarding notice. Requires trustee to refund purchase price to purchaser within three days after date of notice. Requires trustee to register with the Secretary of State or DCBS.
HB 3389A – limits lender’s ability to reject short sales. Before approving a short sale, a lender may not require a nonprofit that purchases property to enter into an agreement that limits or bars the homeowner from owning or occupying the property. Provides exceptions. Effective date: July 19, 2013.
SB 237 – relates to billing errors for public utilities.
SB 525B – amends the Unlawful Debt Collection Practices Act (ORS 646.639). A debt collector is prohibited from using the seal or letterhead of a public official or public agency. Although not under ORS 646.639, the bill also prohibits public agencies and public officials from allowing a collection agency to use the agency/official’s seal or letterhead and from getting paid by the collection agency to use the seal or letterhead.
SB 574A – allows a representative of an individual under 16 years old who is incapacitated or has a court-appointed guardian or conservator to place a credit freeze on the individual’s consumer report. Effective date: June 13, 2013.
SB 577C – relates to motor vehicle service contracts and protection products.
HB 2346 – amends ORS 646A.588 pertaining to portable electronics insurance policies and consent to receive statutorily required notices and correspondence by e-mail. Effective date: May 13, 2013.
HB 2706 – allows self-storage facilities to charge late fees. Amends notice and sale requirements for liens. Amends liability for motor vehicles, watercraft and trailers.
The common belief of most consumers, and indeed most lawyers, is that when someone buys a used car “as-is” they have given away all right to complain about the future performance of the car. Certainly, many car dealers feel this is the case as “you bought it as-is” is a common refrain for consumers that try to complain after a sale.
Fortunately for consumers, most people, lawyers included, are mistaken.
Because the “lemon law” applies only to new cars, a bad used car case most often falls under the Oregon Unlawful Trade Practices Act, ORS 646.606, et seq.
In the provision most relevant to used car transaction, ORS 646.608(1)(t) makes it a violation for a dealer to fail to affirmatively disclose “any known material defect or material nonconformity.”
Because the UTPA sets up a negligence framework, it is also a violation for a dealer to fail to disclose material nonconformities or defects that the dealer has “negligently disregarded when the dealer or broker should have known, prior to sale or lease of a motor vehicle.” OAR 137-020-0020(o).
So how does the UTPA interact with an “as-is” clause? The good news for consumers is that, essentially, it doesn’t. Despite the fact that most lawyers, and almost every car dealer, will attempt to use the “as-is” clause as a defense at some point in litigation or negotiation, Oregon courts have consistently held that an “as-is” clause does not defeat a UTPA claim.
The issue was first addressed in Hinds v. Paul’s Auto Werkstatt, Inc., 107 Or App 63 (1991).
The seller defendant claimed that because it used a standard “buyer’s guide” with a standard as-is clause pursuant to 16 CFR§455.2 it was protected from a UTPA claim for failure to disclose known material defects. The trial court found for the defendant, stating that the “clear intent” of the buyer’s guide “is to make certain that a buyer purchasing a used car ‘as is’ is aware of the full consequences of the agreement.” Id. at 65 n. 3. However, the Court of Appeals rejected this argument and reversed the trial court, stating that because 16 CFR§455.2 is silent as to “disclosure of known defects” the UTPA requirement that a seller disclose defects that it knew of or should have known of is not affected. Id. at 65.
Additionally, in Parrott v. Carr Chevrolet, Inc. the defendant argued that it was protected by an “as-is” clause and that a broad interpretation of ORS 646.608(1)(t) would “effectively nullify” a car dealer’s ability to use an “as-is” clause. 156 Or App 257, 270 n. 9 (1998), affirmed 331 Or 537 (2001). The court disagreed, stating that an “as-is” clause “calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty” whereas “ORS 646.608(1)(t) addresses the failure to disclose known material defects.” Id. (emphasis added).
Once again, the courts discussed as-is clauses only in the context of “warranties” and refused to extend that language to cover a dealer’s failure to disclose material defects and nonconformities.
While there are plenty of pitfalls and nuances to taking on a bad used car case, the presence of an “as-is” clause should not scare lawyers from investigating further and potentially taking the case.
In the end, an “as-is” clause will not bar recover under a valid UTPA theory.
By David Koen
On February 26, 2014, the Oregon Court of Appeals affirmed without opinion the Multnomah County Circuit Court’s decision in Deutsche Bank National Trust Company, as Trustee for Indymac INDX Mortgage Loan Trust 2005-AR8, Mortgage Pass-Through Certificates Series 2005-AR8 v. Delaney, No. A151655, 261 Or App 477 (2014).
Defendants’ appeal included three assignments of error:
(1) the Circuit Court erred in excluding the pooling and servicing agreement at issue with respect to alleged discrepancies concerning the conveyance of the loan at issue;
(2) the Circuit Court erred in refusing to give effect to an order in another case granting Defendants’ motion to compel discovery; and
(3) the Circuit Court erred in excluding evidence of payments on the loan to plaintiff by certain non-party entities.