Where plaintiffs assert civil claims alleging violations of the Fair Debt Collection Practices Act (the “FDCPA”), 15 U.S.C. §§ 1692-1692p, against mortgage lenders and their servicers, the defendants should assess the claims to determine whether they are subject to immediate dismissal. The first question that should be considered is whether the lender or servicer even qualifies as a “debt collector” pursuant to the FDCPA. If the answer to that question is “yes,” then the next question needing an answer is “what are the most effective available defenses?”
To establish a violation of the FDCPA, a plaintiff must satisfy three elements: (1) the plaintiff must be a “consumer” as defined in 15 U.S.C. § 1692a(3); (2) the defendant must be a “debt collector” as defined in 15 U.S.C. § 1692a(6); and (3) the defendant must have committed some act or omission in violation of the FDCPA. Okyere v. Palisades Collection, LLC, 961 F. Supp. 2d 508, 514 (S.D.N.Y. 2013); accord Brake v. Slochowsky & Slochowsky, LLP, 504 F. Supp. 3d 103, 112 (E.D.N.Y. 2020).
As to the first element, the statutory definition of “consumer” is so broad that circumstances rarely give rise to a legitimate challenge. However, the same cannot be said for the statutory definition of “debt collector.” As defined in the FDCPA, a “debt collector” is “any person 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 who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692a(6).
The broad purview of the FDCPA subjects those qualifying as “debt collectors” to potential claims for a wide variety of vaguely defined activities. The FDCPA “establishes certain rights for consumers whose debts are placed in the hands of professional debt collectors for collection, and requires that such debt collectors advise the consumers whose debts they seek to collect of specified rights.” DeSantis v. Computer Credit, Inc., 269 F.3d 159, 161 (2d Cir. 2001). The statute provides that a debt collector “may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt,” (15 U.S.C. § 1692d), “may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt,” (id. at § 1692e), and “may not use unfair or unconscionable means to collect or attempt to collect any debt.” Id. at § 1692f.
Given the FDCPA’s expansive applicability to a wide range of activities that could qualify as FDCPA violations, avoiding the “debt collector” designation in the first place is the safest way to ward of FDCPA claims.
In recent years, the courts have provided at least some clarity for determining who qualifies as a “debt collector.” Prior to the Supreme Court’s decision in Henson v. Santander Consumer USA, Inc., 137 S. Ct. 1718 (2017) (hereinafter “Henson”), circuit courts were split on whether entities that acquired and then collected on defaulted debts qualified as “debt collectors.” Id. at 1721; see, e.g., Schlegel v. Wells Fargo Bank, N.A., 720 F.3d 1204, 1209 (9th Cir. 2013) (Wells Fargo, the assignee of the originating lender, was not a “debt collector” under the FDCPA because its collection efforts related only to debts owed to itself); but see FTC v. Check Investors, Inc., 502 F.3d 159, 171-73 (3rd Cir. 2007) (noting that “Congress has unambiguously directed our focus to the time the debt was acquired in determining whether one is acting as a creditor or debt collector under the FDCPA,” and finding that defendant qualified as a debt collector because it acquired the defaulted debt only for collection purposes); Miller v. BAC Home Loans Servicing, L.P., 726 F.3d 717, 722 (5th Cir. 2013) (mortgage servicing companies and debt assignees are not “debt collectors” under FDCPA, as long as the defaulted mortgage or debt was not in default at the time it was assigned by the originator).
In Henson, the Supreme Court held that an entity that regularly purchases debts originated by someone else and then seeks to collect those debts for its own account is not a debt collector subject to the FDCPA. Henson, at 1721-1722.
Despite the modest clarification provided in Henson, the Supreme Court explicitly avoided analysis of whether a defendant qualifies as debt collector “because it regularly acts as a third party collection agent for debts owed to others” or because it engages “in any business the principal purpose of which is the collection of any debts.” Henson, at 1721 (citing 15 U.S.C. § 1692a). Thus, unless the party in question is the indisputable owner of the debt subject to collection, the Supreme Court left the agents of debt owners, such as their servicers, still arguably vulnerable to FDCPA claims, without a unified approach to determining whether a party “regularly acts” as a collection agent for debts owed to others or engages in business with the “principal purpose” of collecting debts.
In the Second Circuit, which includes New York’s Federal District Courts, the Henson decision did not result in much change in how servicers and lenders are treated under the FDCPA. Even before Henson, mortgage servicers were “not covered by the FDCPA if the debt at issue was acquired prior to the borrower’s default,” as the FDCPA was deemed to cover “servicers who obtain a mortgage that is already in default.” Dumont v. Litton Loan Servicing, LP, No. 12-cv-2677, 2014 U.S. Dist. LEXIS 26880, at *64, 2014 WL 815244, at *17 (S.D.N.Y. Mar. 3, 2014).
Since Henson, New York’s District Courts have continued to hold that servicers are not debt collectors, so long as the debt in question was not in default when the servicer began servicing the debt. See, e.g, Makhnevich v. MTGLQ Invs., L.P., 2021 U.S. Dist. LEXIS 146043, at *15 (S.D.N.Y. Aug. 4, 2021) (“[A] creditor – one collecting on a debt owed to them – or a loan servicer acting on a creditor’s behalf is generally not a debt collector.”); Walsh v. Ricciardi, 2021 U.S. Dist. LEXIS 106737, at *5-7 (E.D.N.Y. June 4, 2021, No. 20-cv-01482 [JS] [ST]) (FDCPA only covers servicers who obtain a mortgage that is already in default); Tardi-Osterhoudt v. McCabe, Weisberg & Conway LLC, No. 1:18-cv-00840 (BKS/CFH), 2019 U.S. Dist. LEXIS 151988, at *14 (N.D.N.Y. Sep. 6, 2019) (finding that Ocwen was not a “debt collector” where plaintiff failed to allege that Ocwen began servicing her debt after default, and further, that Deutsche Bank qualifies as a creditor even if it acquired plaintiff’s mortgage after default, so long as it did not seek to collect the default for another).
The exemption of loan servicers from “debt collector” status also extends to servicers who assume servicing duties for debts already in default, where the debt was not specifically assigned or transferred to the new creditor or its servicer for the purpose of collecting the defaulted debt. Johnson-Gellineau v. Steine & Assocs., P.C., No. 16-CV-9945 (KMK), 2019 U.S. Dist. LEXIS 108025, at *18-20 (S.D.N.Y. June 27, 2019), aff’d sub nom. Johnson-Gellineau v. Stiene & Assocs., P.C., 837 F. App’x 8 (2d Cir. 2020) (finding, inter alia, that the mortgagee’s servicer, Chase, was not a “debt collector” where it became the successor servicer for all of the prior servicer’s mortgage servicing rights and obligations, and stood in the place of the prior servicer, even though the borrower defaulted on the mortgage loan in question two years before Chase succeeded to the prior servicer’s rights and obligations).
The finding of a “debt collector” exception in Johnson-Gellineau could prove particularly useful for loan servicers who assume servicing duties for defaulted debts, as it requires FDCPA plaintiffs to plead and then prove that a debt already in default was specifically assigned or transferred for the purpose of collecting the defaulted debt. As most, if not all, servicing transfer occur for reasons unrelated to the specific intention of collecting on a single defaulted debt, plaintiffs asserting FDCPA claims against their creditors’ servicers face a high hurdle to sustain their claims.
In the Second Circuit, the thorny question of whether a party regularly or principally acts as a debt collector, and is therefore subject to FDCPA claim – questions intentionally side-stepped by the Supreme Court in its Henson decision – still requires a case-by-case, fact-intensive analysis governed by non-exclusive factors stated in Goldstein v. Hutton, Ingram, Yuzek, Gainen, Carroll & Bertolotti, 374 F.3d 56, 62-63 (2d Cir. 2004); accord Walsh v. Ricciardi, 2021 U.S. Dist. LEXIS 106737, at *8 (E.D.N.Y. June 4, 2021, No. 20-cv-01482 [JS] [ST]). The case-by-case approach required under Goldstein is unlikely to change anytime soon, given the Supreme Court’s narrow holding in Henson, including the Court’s statement that many inquiries into the definition of “debt collector” for FDCPA purposes are “matters for Congress, not [the Supreme Court], to resolve.” Henson, at 725.
Where a servicer does qualify as a debt collector, the statute of limitations should be one of the first defenses considered. Particularly useful is the fact that the FDCPA has a short one-year statute of limitations, so any civil claims filed more than a year after an alleged FDCPA violation are at risk of dismissal. See, e.g., Sam v. Midland Credit Mgt., 2021 U.S. Dist. LEXIS 130713, at *11 (WDNY June 15, 2021, No. 15-CV-1029V[Sr]) (citing 15 U.S.C. § 1692k[d]) (the FDCPA authorizes private civil actions against debt collectors which are commenced within one year from the date on which the violation of the FDCPA occurs); Powell v. Ocwen Loan Servicing, LLC, 840 F. App’x 610, 613 (2d Cir. 2020) (affirming the granting of a motion to dismiss on the basis that the FDCPA claim was time-barred).
Finally, should a servicer find itself in the position of a “debt collector,” and the statute of limitations proves unhelpful, defendants should look to a more recent and promising development in defending against FDCPA claims in federal court. In its recent decision in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021) (hereinafter “Transunion”), the Supreme Court held that plaintiffs do not have standing to assert civil causes of action in federal court to allege violations of the Fair Credit Reporting Act, where only procedural violations of the statute are alleged, but no resulting concrete harm. Id. at 2203-2214. In short, the Supreme Court found that where a plaintiff fails to assert “concrete harm” as the result of a defendant’s alleged violation of a statute that provides for a private right of action (such as the Fair Credit Reporting Act or FDCPA), the plaintiff does not have standing to bring suit in federal court, because no case or controversy exists to confer federal court jurisdiction pursuant to Article III of the United States Constitution. Id.
The TransUnion decision has already found application in the Second Circuit as grounds for dismissing FDCPA claims. In both Bush v. Optio Solutions, LLC, 2021 U.S. Dist. LEXIS 140835 (E.D.N.Y. July 28, 2021, No. CV 21-1880 [GRB][ARL]) and In re FDCPA Mailing Vendor Cases, 2021 U.S. Dist. LEXIS 139848 (E.D.N.Y. July 23, 2021, Civil Action No. 21-2312), the Hon. Gary R. Brown dismissed claims brought on the so-called “mailing vendor” theory, pursuant to 15 U.S.C. § 1692c(b) of the FDCPA, which claims have mushroomed throughout the federal courts in the wake of the Eleventh Circuit’s decision earlier this year in Hunstein v. Preferred Collection & Mgt. Servs., 994 F.3d 1341 (11th Cir. 2021). In Bush and In re FDCPA Mailing Vendor Cases, the Court found the “mailing vendor” theory prompted by Hunstein is no longer viable in the aftermath of the TransUnion decision, because the mere disclosure to a creditor’s mailing vendor of the fact that a consumer owes a debt does not constitute an allegation of “concrete, particularized injury,” which is required to confer Article III jurisdiction. Bush v. Optio Solutions, at *6-*8; In re FDCPA Mailing Vendor Cases, at *14-19. Thus, where defendants face FDCPA claims in federal court, the claims should be analyzed for allegations of concrete, particularized harm, and not just per se statutory violations and highly speculative claims of potential future damages.
As discussed above, a closer reading of the case law reveals at least a few paths for defendants to dispose of FDCPA claims without even having to engage in a fact-intensive analysis of the conduct giving rise to the claims. Determining whether a party qualifies as a “debt collector,” whether the statute of limitations has expired, and whether the plaintiff has alleged a “concrete” injury sufficient to sustain federal court jurisdiction present just three ways to meet FDCPA allegations head on and obtain a dismissal.