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From Banking and Finance Law Daily, August 13, 2015

RESPA notice of mortgage servicing transfer also triggered FDCPA requirement

By Thomas G. Wolfe, J.D.

In reviewing a mortgage servicer’s letter notifying a consumer about the transfer of his mortgage loan servicing—in keeping with the federal Real Estate Settlement Procedures Act—the U.S. Court of Appeals for the Second Circuit has ruled that the letter also constituted an “initial communication” in connection with the collection of a debt, thereby triggering a notice requirement of the federal Fair Debt Collection Practices Act. Allowing the consumer’s proposed class action to proceed, the Second Circuit concluded that whether a communication is “in connection with the collection of any debt” under the FDCPA is a question of fact to be determined by reference to an objective standard (Hart v. FCI Lender Services, Inc., Aug. 12, 2015, Carney, S.).

In reaching its decision, the Second Circuit emphasized the remedial nature of the FDCPA. The court vacated the judgment of the federal trial court, which had previously dismissed the consumer’s FDCPA claims.

Background. The consumer, Matthew Hart, obtained a mortgage loan from GMAC Mortgage, LLC, the original lender and servicer of the loan. Later, FCI Lender Services, Inc., assumed the loan servicing obligations from GMAC. According to the court’s opinion, the consumer was in default on his mortgage loan when FCI assumed those servicing responsibilities.

In July 2012, FCI sent Hart a letter, entitled “Transfer of Servicing Letter,” notifying him that FCI had become his mortgage loan servicer. Among other things, the letter referenced the consumer’s rights conferred by RESPA (12 U.S.C. §2601 et seq.) and provided further details about the servicing transfer, including the timeliness of payments during the transfer and how the consumer could dispute matters regarding his account.

Further, an attached “Notice” to FCI’s letter stated that “this is an attempt to collect upon a debt, and any information obtained will be used for that purpose.” The attachment, referencing the FDCPA, also set forth certain consumer rights that Hart held concerning collection of the debt.

Several months later, in December 2012, FCI sent a “Payment Statement” to Hart that stated the consumer owed past-due amounts of approximately $31,736, along with the principal balance of the mortgage loan and cumulative late charges.

Complaint. In February 2013, Hart filed a lawsuit against FCI as a proposed class action. The consumer contended that FCI violated the FDCPA by sending him the July 2012 letter, which allegedly failed to identify the current creditor and misstated the “debtor’s rights.” In an amended version of his complaint, Hart also maintained that FCI qualified as a “debt collector” under the FDCPA.

Procedural context. FCI asked the trial court to dismiss the consumer’s amended complaint, contending that its letter was intended “merely to comply with RESPA” by providing certain information, and was not aimed at collecting a debt. The trial court agreed, dismissing the consumer’s FDCPA claim and denying Hart the opportunity to amend his complaint a second time to allege that FCI’s December 2012 Payment Statement alternatively triggered FDCPA notice requirements with which the servicer failed to comply.

Hart appealed the trial court’s rulings to the Second Circuit.

FDCPA provision. In addressing the appeal, the Second Circuit focused on the FDCPA provision governing the validation of debts (15 U.S.C. §1692g). The provision requires a debt collector to furnish a written notice conveying certain information to a consumer debtor upon the collector’s “initial communication” with a consumer “in connection with the collection of any debt.” As observed by the court, the notice must state the amount of the debt, the name of the creditor to whom the debt is owed, and inform the consumer of the right to dispute the debt’s validity.

If the §1692g notice is not already contained in the initial communication to the consumer, then the notice must be provided by the debt collector within five days following the initial communication—unless the consumer has already paid the debt.

Issue on appeal. For purposes of the appeal, the parties agreed that FCI was a “debt collector” covered by the FDCPA and that the July 2012 letter from FCI to Hart was FCI’s “initial communication” to him. However, the parties disagreed about whether the July 2012 letter was an initial communication “in connection with the collection of any debt,” that would have triggered the specified notice requirements of section 1692g of the FDCPA.

Court’s decision. Notably, the Second Circuit acknowledged that it had “never addressed the scope of the FDCPA’s ‘in connection with the collection of any debt’ language.” The court concluded that whether a communication is “in connection with the collection of a debt” is a question of fact “to be determined by reference to an objective standard.”

Accordingly, the court stressed that, “at the motion to dismiss stage” of the litigation, the court was called upon to view the July 2012 letter objectively: “whether Hart has plausibly alleged that a consumer receiving the communication could reasonably interpret it as being sent ‘in connection with the collection of a debt, rather than inquiring into the sender’s subjective purpose’.”

Applying this standard, the Second Circuit determined that the consumer plausibly alleged that the letter was a “communication in connection with the collection of [a] debt” so that FCI was required to provide Hart with “a §1692g notice.” The court stressed that: (1) the letter, at a minimum, was an attempt to collect a debt, thus qualifying it as a communication in connection with the collection of any debt; (2) regardless of FCI’s intent to comply with RESPA in transmitting the letter, a reasonable consumer could view the letter as both providing information required by RESPA and attempting debt collection; (3) “defective §1692g notices pose particular dangers to consumers”; and (4) the court’s ruling was consistent with the remedial nature of the FDCPA.

Because the consumer sufficiently alleged that FCI’s letter triggered the obligation by FCI to provide the §1692g notice under the FDCPA, the court declined to address the alternative basis—FCI’s Payment Statement—to trigger the same obligation. Consequently, the Second Circuit determined that it “need not decide whether the District Court abused its discretion in denying Hart’s request to amend his complaint a second time.”

The case is No. 14-191-cv.

Attorneys: Daniel A. Edelman, Cathleen M. Combs, and Tiffany N. Hardy (Edelman, Combs, Latturner & Goodwin, LLC) for Matthew Hart. Preston L. Zarlock and Spencer L. Durland (Phillips Lytle LLP) for FCI Lender Services, Inc.

Companies: FCI Lender Services, Inc.; GMAC Mortgage, LLC

MainStory: TopStory ConnecticutNews DebtCollection Loans Mortgages NewYorkNews RESPA VermontNews

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