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From Banking and Finance Law Daily, February 20, 2018

Consumers had no standing under FDCPA for a mere procedural violation

By Nicole D. Prysby, J.D.

Although a letter from the attorney for a mortgage servicing company to loan consumers was technically in violation of the Fair Debt Collection Practices Act, it caused the consumers no injury and they therefore had no Article III standing to bring a FDCPA claim, held the Sixth Circuit Court of Appeals. The letter at issue actually benefitted the consumers, in that it explained that their debt was discharged and they were able to rely on the letter later, when the mortgage servicing company incorrectly tried to collect on the settled debt. Therefore, even though the letter lacked required disclosures under the FDCPA, the lack of disclosures caused no harm to the consumers and their claims under the FDCPA and comparable state law were dismissed for lack of standing (Hagy v. Demers & Adams, Feb. 16, 2018, Sutton, J.).

Background. The consumers took out a loan to purchase a mobile home and property and defaulted on the loan in 2010. A mortgage servicing company initiated foreclosure proceedings but eventually decided to settle the proceedings with an offer to the consumers that if they executed a warranty deed in lieu of foreclosure, the mortgage company would waive any deficiency balance. The deed was executed and the attorney for the mortgage company sent a letter acknowledging receipt of the executed deed and stating that the mortgage company would not attempt to collect any deficiency balance after the sale of the collateral. The foreclosure complaint was dismissed.

Subsequently, the mortgage servicing company began calling the consumers to collect the debt. The consumers cited the deed and letter from the attorney and argued they were not obligated to pay anything. The mortgage servicing company realized its mistake and agreed nothing was owed. The consumers than sued the mortgage servicing company and its attorney, arguing that the phone calls and letters violated the FDCPA and Ohio Consumer Sales Practices Act. The claims against the mortgage servicing company were resolved through arbitration, but the claims against the attorney continued. The lower court found that the letter from the attorney to the consumers violated Ohio law, as a communication from a debt collector without disclosure. The attorney appealed, arguing that the district court lacked jurisdiction because the consumers did not have standing to assert the federal and state law claims.

Standing in absence of actual injury. The attorney challenged Congress’ authority to create a statutory injury under the FDCPA that involved no harm of any sort, but could satisfy the injury-in-fact requirements of Article III. Although the letter from the attorney to the consumers was not identified as a communication from a debt collector, the letter did not cause an injury, argued the litigator. To the contrary, it gave the consumers peace of mind about the debt. The consumers suffered no actual injury or damages from the letter. It was also argued that the letter (and the attorney) had nothing to do with the true source of injury, the mortgage servicing company’s later phone calls attempting to collect on the debt.

The court considered the case in light of the U.S. Supreme Court’s ruling in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), and concluded that the consumers had no standing to bring the FDCPA claim. The consumers showed only a bare procedural violation in the letter; they did not allege that the non-disclosure caused anxiety or created a risk of double payment. In fact, the letter did nothing but help the consumers—they were able to rely on it later, when the mortgage servicing company called trying to collect on the debt. The court noted that Congress has leeway to define injuries, but nowhere in the FDCPA or legislative history does Congress explain why the absence of a disclosure would always create an Article III injury. Simply put, Congress may not say that anything is an injury suitable for judicial resolution. In this case, the letter created no cognizable injury and therefore the claim should be dismissed for lack of standing. The court also found that the state law claims should be dismissed for lack of standing, as Ohio law incorporates the federal FDCPA.

The case is No. 17-3696.

Attorneys: Edward A. Icove (Icove Legal Group, Ltd.) for James R. Hagy, III. Adam J. Bennett (Cooke Demers LLC) for Demers & Adams.

Companies: Demers & Adams

MainStory: TopStory DebtCollection KentuckyNews Loans MichiganNews Mortgages OhioNews TennesseeNews

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