Tag Archives: Kelly D. Jones

Oregon District Court finds that a UTPA claim based upon a mortgage servicer’s conduct is viable even if the mortgage loan it is servicing was entered into prior to the 2010 UTPA amendment incorporating “loans” or “extension of credit.”

By Kelly D. Jones

Effective March 23, 2010 Oregon’s Unlawful Trade practices Act (UTPA) was amended to include loans or extensions of credit. See ORS 646.605(6). Prior to that date, Oregon Supreme Court precedent dictated that a plaintiff could not bring a UTPA claim when the underlying conduct alleged to violate the act arose out of a loan or an extension of credit. See, e.g., Lamm v. Amfac Mortg. Corp., 44 Or. App. 203, 204-05 (1980). In part based upon the 2010 UTPA amendment, in 2012 the Oregon Attorney General adopted Oregon Administrative Rule (OAR) 137-020-0805, which prohibits certain conduct related to mortgage loan servicing, including failing to deal with a borrower in good faith.

In December 2017, Julie Collis (Collis) filed a lawsuit against her mortgage loan servicer, Rushmore Loan Management Services, LLC (Rushmore), in the Eugene Division of the District of Oregon court, captioned Collis v. Rushmore Loan Management Services LLC, Case No. 6:17-cv-02062. Collis, a home owner, alleged that Rushmore, her mortgage servicer, had failed to deal with her in good faith as prohibited by OAR 137-020-0805(6) and in violation of ORS 646.608(1)(u) of the UTPA. Rushmore filed a motion for summary judgment arguing that Collis’s UTPA could never succeed as a matter of law because the 2010 UTPA amendment incorporating loans and extensions of credit was not retroactive and Collis’s mortgage loan was entered into long before 2010, and her last modification of the loan occurred just weeks before the 2010 UTPA amendment became effective on March 23, 2010. Rushmore argued that no matter which date was used, Collis’s UTPA claim arose out of a mortgage loan that predated the non-retroactive 2010 UTPA amendment and thus her claim could not be viable. Rushmore relied on multiple District of Oregon decisions dismissing plaintiffs’ UTPA claims, which it argued were analogous to the facts underlying Collis’s claim. Rushmore was represented by attorney Michael Farrell and Thomas Purcell of MB Law Group LLP.

Collis was represented by Portland attorneys Michael Fuller and Kelly Jones (the author). In opposition, Collis argued that the conduct alleged to violate the UTPA, through OAR 137-020-0805, did not arise out of the mortgage loan, but instead arose out of Rushmore’s services in 2017, and “services” have always been covered by the UTPA, prior to the 2010 UTPA amendment. Collis also distinguished the previous District of Oregon cases that Rushmore relied on in support of its arguments. The Magistrate Judge agreed with Rushmore’s arguments, and in his findings and recommendations (F&R) suggested that Collis’s UTPA claim should be dismissed as a matter of law because the UTPA claim arose out of the mortgage loan which predated the 2010 UTPA amendment. In her objections to the F&R, Collis renewed her previous arguments and pointed out to the Article III Judge that the F&R completely ignored Collis’s reliance on what she believed was the most on point Oregon state court case on the issue, Cullen v. Investment Strategies, Inc., 139 Or. App. 119, 127 (1996). In Cullen, the Oregon Court of Appeals navigated the line between the “services” of a non-lender mortgage servicer, like Rushmore, which have always been within the ambit of the UTPA, and conduct arising out of the mortgage loan, which was not covered by the UTPA prior to the 2010 amendment. Collis argued that a close reading of the holding in Cullen, and the persuasive reasoning of an Eastern District of California court, in Contreras v. Nationstar Ltd. Liab. Co., No. 2:16-cv-00302-MCE-EFB, 2017 U.S. Dist. LEXIS 127357, at *13-14 (E.D. Cal. Aug. 9, 2017), that followed Cullen to reach the same conclusion on very similar facts, would in her case have led to an outcome that Rushmore’s conduct arose of its allegedly bad faith services in 2017, rather than out of the mortgage loan itself; therefore her claim was not prohibited by application of the pre-2010 amended UTPA.

The Article III Judge (Court) declined to adopt the F&R (order available here). The Court agreed with Collis that Cullen was the most on point Oregon case and that Cullen’s reasoning confirmed that “[a] determination that a plaintiff cannot pursue a claim under the UTPA based on a loan or loan modification, however, does not bar UTPA claims against the servicer of a loan. Allegations against the servicer of a loan by a non-lender are aimed at ‘those services [that] fall within the UTPA even though the loan itself does not.’” Collis v. Rushmore Loan Mgmt. Servs. LLC, Case No. 6:17-cv-02062-MK, slip op. at 3 (D. Or. Feb. 7, 2019) (second brackets in original) (quoting Cullen, 139 Or. App. at 127). In specific regard to Collis’s UTPA claim, the Court noted that her “claim does not relate to the loan or loan modification, but to Defendant’s actions—or lack thereof—in servicing the loan. Specifically, Plaintiff alleges that Defendant failed to pay her property taxes as promised, ensured her that it had paid the taxes, failed to return her phone calls, and refused to provide her an accounting.” Id. at 4. The Court also found that the decision in Contreras, relying in part on Cullen, holding that the servicing of a loan was subject to the UTPA although the loan itself was not, was persuasive.

Collis is continuing to litigate her claim. Collis is an important decision for several reasons. First, Oregon consumer plaintiffs (and the Oregon Department of Justice) can use it as support in future attacks to dismiss their UTPA claims based upon bad faith mortgage servicing conduct in violation of the OARs and UTPA. Second, if the F&R had been adopted, and its reasoning had spread, many Oregon home owners would have no claim for relief under the UTPA for a mortgage servicer’s unlawful mortgage servicing conduct if their mortgage or modification had been entered into prior to March 2010, even if the conduct complained of had occurred long after the 2010 UTPA amendment and adoption of the OAR regulating mortgage servicing in 2012. Clearly this would have negatively impacted many Oregonians who would have been left without a cause of action to seek redress for bad faith mortgage servicing conduct.

 

SCOTUS Holds that Auto Loan Lender Santander Is Not a Debt Collector Pursuant to the FDCPA

By Kelly D. Jones, Consumer Rights Attorney

On June 12, 2017, the U.S. Supreme Court issued a unanimous decision in Henson v. Santander Consumer USA Inc., the first decision authored by Justice Gorsuch. The slip opinion can be found here.

Santander Consumer USA Inc. is a subsidiary of a large European bank conglomerate, and the principal purpose of its business is extending and servicing auto loans. Although it typically does not purchase accounts or debts from other creditors, in this instance, Santander purchased a portfolio of defaulted auto loan accounts from CitiFinancial Auto that had been the subject of a class action settlement against CitiFinancial. This portfolio included accounts owed by Ricky Henson and other consumers. Santander attempted to collect on the accounts, and Henson, along with four other Maryland consumers, sued Santander and multiple other defendants in the United States District Court for the District of Maryland, alleging various violations of the federal Fair Debt Collection Practices Act (FDCPA).

Santander filed a motion to dismiss the FDCPA lawsuit, arguing that it was not a “debt collector” pursuant to the FDCPA and thus could not be found liable. 15 U.S.C. § 1692a(6) defines debt collector, in part, as

any person [1] who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or [2] who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

The district court and the Fourth Circuit  both concluded that because Santander’s principal business purpose is the origination and servicing of auto loans, it did not qualify as a debt collector under the first definition. Santander also argued it was not a debt collector pursuant to the second definition because it does not regularly collect debts owed or due to another entity, as the only debts it attempted to collect that it did not originate were debts it owned. The Supreme Court upheld the decision of the Fourth Circuit, finding that Santander was not a debt collector that could be found liable for violating the FDCPA. The Court also rejected Henson’s argument that because 15 U.S.C. § 1692a(6)(F)(iii) specifically excludes persons who collect non-defaulted debt from the definition of debt collector, the term debt collector included all entities that regularly attempt to collect debts obtained after default.

Practitioners should be careful to note that the Supreme Court did not hold that debt buyers, in general, are not subject to the FDCPA simply because they may have purchased defaulted debts from another entity before they began collecting on the debts. The Court merely found that entities that are collecting upon debts that they own are not debt collectors under the second definition of 15 U.S.C. § 1692a(6), and it made sure to point out that it was not addressing the first definition (“principal purpose”) of debt collector by stating:

[T]he parties briefly allude to another statutory definition of the term “debt collector”—one that encompasses those engaged “in any business the principal purpose of which is the collection of any debts.” §1692a(6). But the parties haven’t much litigated that alternative definition and in granting certiorari we didn’t agree to address it either.  With these preliminaries by the board, we can turn to the much narrowed question properly before us.

Henson v. Santander Consumer USA, Inc., No. 16–349, slip op. at 3 (U.S. June 12, 2007). The two definitions of debt collector are clearly distinct, and an entity that meets either definition is regulated by the FDCPA. See Schlegel v. Wells Fargo Bank, NA, 720 F.3d 1204, 1208-10 (9th Cir. 2013); Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379, 405 (3d Cir. 2000). Unlike entities such as Santander, whose principal business purpose is originating and servicing active loans, the principal purpose of debt buyers is the acquisition of defaulted debts for the purpose of collecting on the debts—regardless of whether they themselves then collect on the debts or hire other debt collectors to collect on their behalf. See, e.g., Pollice, 225 F.3d at 405; see also Davidson v. Capital One Bank (USA), N.A., 797 F.3d 1309, 1316 n.8 (11th Cir. 2015) (distinguishing creditors like Capital One from other entities such as debt buyers, whose “principal purpose” of business is the purchase and collection of charged off debts, that cannot escape FDCPA regulation). After all, a debt buying business that acquired debts for any other purpose besides to collect them (or directing others to do so) would not be in business for long.

For a more detailed analysis of the debt buying industry check out this 2013 study by the FTC:  “The Structure and Practices of the Debt Buying Industry.”

The CFPB Issues Proposed Rule to Prohibit the Use of Class Action Waivers in Consumer Financial Product Arbitration Agreements

court justice

By Kelly D. Jones, Attorney

On May 5, the Consumer Financial Protection Bureau (CFPB) released a proposed rule that would prohibit the inclusion of class action waivers into forced private arbitration clauses. Importantly, the proposed rule does not prohibit mandatory private arbitration clauses in consumer agreements in general, just the use of class action waivers. A typical consumer financial contract contains a lengthy arbitration clause specifying that the consumer agrees to resolve any dispute that she may have with company, or even other entities that the company may assign the contract to down the road, in private arbitration rather than in a court and waives the consumer’s constitutional right to have their dispute heard by a jury of her peers. Arbitration clauses are usually buried in fine print inside a long and legalistic contract, which may not even require the consumer’s signature to be valid and enforceable. Arbitration clauses are often referred to by critics as requiring “forced arbitration” or as “contracts of adhesion” as the consumer does not have equal bargaining power to reject the contractual terms, even if she could actually decipher the legalese and understand exactly what rights they were giving up and what she was agreeing to. Moreover, the typical arbitration clause contains a class action waiver, whereby the consumer waives their right to participate as a member, or representative, of a class action lawsuit and ability to aggregate their potential claims with other consumers who have been harmed by the alleged wrongdoer.

In recent decades, as a result of congressional action (chiefly the Federal Arbitration Act (FAA)) and pro-arbitration judicial opinions broadly interpreting the FAA and prohibiting state regulations of arbitration based upon federal preemption doctrine, arbitration clauses have been largely upheld and have become ubiquitous. Whereas financial institutions and other private arbitration advocates have long touted private arbitration as an efficient and cost-effective method of dispute resolution, consumer rights advocates have called out for change arguing that mandatory private arbitration creates inconsistency in outcomes, offers a very limited basis to appeal wrong decisions, lacks transparency as the proceedings are not part of the public record, and actually increases costs for the consumer plaintiff—which ultimately means that consumers are much less likely to be able to secure legal representation to seek relief for the harms they suffered. Further, consumer advocates assert that class action waivers effectively eliminate the ability to hold corporate defendants accountable when the alleged damages may be quite small yet thousands, or perhaps even millions, of consumers were injured, because the inability to aggregate the claims of the many victims in a consolidated class case would necessitate a myriad of individual cases that would become much too costly and inefficient to litigate on an individual basis.

It is important to note that this is just a proposed rule—there is a 90-day comment period starting from when the proposal is entered into the Federal Register, and then the CFPB will assess the comments and submit a final rule. Even then, if the rule is adopted, it will likely face judicial challenge given that the opponents of the rule are well-funded groups associated with national banks, institutional creditors, and other large corporations. Also, even if adopted, the rule would only regulate financial institution products (given the scope of the CFPB’s rulemaking authority), and even some financial products are exempted from the rule.

The full text of the proposed rule can be found online here.

Kelly D. Jones is a solo bankruptcy & consumer rights attorney in SE Portland

2015 Federal Budget Provides TCPA Exemption for Government-Backed Debt Collection Calls

debt calls-cell phone

By Kelly Jones

As part of the 2015 budget compromise, the Bipartisan Federal Budget Act of 2015 (“Act”) signed into law by President Obama on November 2, 2015 amends the Telephone Consumer Protection Act’s (“TCPA”) prohibitions on autodialed or artificial/prerecorded voice calls (and texts) made to cell phones without the prior express consent of the called party by exempting calls or texts that are “made solely to collect a debt owed to or guaranteed by the United States.” Thus the exception shields even third-party collectors as long as they are attempting to collect on a government-backed debt. This exception applies even when the caller does not have the prior consent of the called party, and thus there is no way for the consumer to stop the unwanted calls by revoking consent. It appears that even calls made to the wrong party/number are nonetheless included within this exception.

This amendment will likely affect student loan borrowers the most as this is the largest segment of government-backed debt collection—but the exception also presumably encompasses Small Business Administration loans, government-guaranteed mortgage loans, and federal tax liabilities. However, the Act allows for the Federal Communications Commission (“FCC”), the agency delegated TCPA rulemaking and implementation, to implement rules that “restrict or limit the number and duration” of calls made to cell phones to collect government-backed debts, but it remains to be seen if, and to what extent, the FCC will do so.

Kelly D. Jones  is a solo attorney located in inner SE Portland and represents consumers in unlawful debt collection litigation and bankruptcy cases.