The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), analyzing a recent decision of interest:
Over a strident dissent, in a case of first impression for the circuit, the Eleventh Circuit Court of Appeals (the Court) recently held that a series of monthly mortgage statements sent by a loan servicer to comply with the requirements of the Truth in Lending Act (TILA) were potentially communications in connection with the collection of a debt under the Federal Debt Collection Practice Act (FDCPA), reversing the district court’s dismissal with prejudice of a complaint alleging FDCPA violations. Daniels v Select Portfolio Servicing, Inc., 2022 WL 1639012 (11th Cir. May 24, 2022).
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Plaintiff Constance Daniels executed a secured note with Countrywide Home Loans in 2005, which was modified in 2009 to require interest-only payments for ten years with the principal balance remaining the same, to be reset with amortization at the conclusion of the ten years. After Daniels made her payments timely for a year, the loan was transferred to Wells Fargo Bank which utilized Select Portfolio Servicing (SPS) as servicer on the mortgage. Wells Fargo refused to accept Daniels’ payments made on the modified terms and commenced foreclosure. After Daniels sued successfully in state court, Wells Fargo was sanctioned and the foreclosure dismissed. During the lawsuit, payments had either not been made or had not been accepted, so the state court put that balance at the end of the loan as modified.
Notwithstanding the results of the state court litigation, SPS sent Daniels a number of monthly mortgage statements which had substantial inaccuracies regarding the status of the loan, amount in default, and other provisions. These statements were sent in compliance with the requirements of TILA but had additional language not required by TILA. Most significantly, they stated that “[t]his is an attempt to collect a debt,” as well as including a detachable bottom portion to be returned with payment, with instructions on how to make out a check.
In 2018 Daniels sued SPS, alleging that the erroneous monthly mortgage statements were harassing, false, and misleading and represented unfair practices in connection with the collection of a debt in violation of the FDCPA and a Florida consumer protection act. The district court granted SPS’s motion to dismiss without leave to amend, ruling that because the mortgage statements were sent in compliance with TILA, they were not communications in connection with the collection of a debt and could not be the basis of an FDCPA claim. Daniels appealed to the Court, which reversed and remanded.
The Court was tasked with reconciling two federal statutes, both intended to provide consumer protection. When federal statutes interact, courts are required to give them both meaning in context if possible, without one act excluding the application of the other. The Court had no substantial difficulty giving both statutes meaning based on the facts of this case. TILA requires certain information to be in monthly mortgage statements sent to consumers, but those sent by SPS to Daniels went beyond those requirements in meaningful ways. Therefore, the Court was able to construe that the Daniels statements were in fact communications sent in connection with an effort to collect a debt.
The Court began its inquiry by looking at the broad definition of debt provided in the FDCPA. Base on its own precedent, it concluded that a homeowner’s promissory note, secured by a mortgage, constituted such a debt. It then turned its attention to whether the statements were communications, another broad definition in the FDCPA, and determined they were, whether or not they were considered only “informational” or more. Finally, it needed to determine whether the statements were sent in connection with an attempt to collect the debt or merely sent to comply with TILA. Here, its inquiry relied heavily on the exact language in the statements as well as the implied intent which they carried as a matter of judicially-determined implication.
It was important to the Court’s decision that the statements stated boldly they were an attempt to collect a debt. But they went much further, by including due dates, amount due, outstanding principal, deferred principal and overdue amounts implying delinquency (all of which Daniels alleged were inaccurate and gave rise to the FDCPA violations). Moreover, they included the detachable bottom portion “to return with your payment” and instructed the borrower how to make out the check. In sum, any reasonable consumer would conclude these statements were sent in an attempt to collect the amounts due. Therefore, the Court held they were communications sent in an attempt to collect a debt, qualifying them for possible FDCPA violations.
The court rejected SPS’s arguments based on largely unpublished Eleventh Circuit cases as well as an assertion that other circuits had ruled TILA informational statements were not attempts to collect a debt. Those other circuit cases were distinguishable because of the additional language and provisions in the Daniels statements. The lengthy dissent largely agreed with SPS, with the majority preemptively addressing its arguments in the text of the opinion.
Given the language contained in the Daniels statements, it is hard to quibble with the Court’s conclusions. Servicers often send documents marked as “Informational.” I have wondered whether they should really be construed as only having that purpose. The more these statements imply to the borrower that he or she should pay the sums shown as due, the more they go beyond just “for information.” This comes up not only in FDCPA cases but also in the context of whether the automatic stay has been violated in bankruptcy cases when such informational statements are sent to debtors, both before and after discharge. How much is too much? In this case, too much was not a close call in the Court’s and this author’s opinion.
This review was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.