Servicer’s Attorney’s Failure to Send Compliant Debt Validation Notice May a Make Servicer Vicariously Liable for FDCPA Violation
An April 7, 2016 opinion by the United States Court of Appeals for the Seventh Circuit, with jurisdiction over Illinois, Indiana and Wisconsin, reversed an order granting summary judgment in favor of co-defendants and held that a debt collector that employs another debt collector to collect a debt may be found vicariously liable for the violation of the Fair Debt Collection Practices Act by the person it employs. In Janetos v. Fulton Friedman & Gullace, LLP, 2016 WL 1382174 (7th Cir. April 7, 2016), attorneys hired by a debt buyer, which itself fell within the definition of a debt collector under the Act, sent debt validation notices to a number of consumers but failed to identify the creditor who owned the debts. The correspondence contained the name of the co-defendant, Asset Acceptance, LLC, describing it as the assignee of another entity, and went on to inform each consumer-plaintiff that the account referenced in the letter had been transferred from Asset Acceptance to Fulton, Friedman and Gullace. Plaintiffs alleged that these communications violated 15 U.S.C. § 1692g(a)(2), which provides that “[w]ithin five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing… (2) the name of the creditor to whom the debt is owed.”
The Court held that “[i]f a letter fails to disclose the required information clearly, it violates the Act, without further proof of confusion. Section 1692g(a) also does not have an additional materiality requirement, express or implied. Congress instructed debt collectors to disclose this information to consumers, period, so these validation notices violated § 1692g(a).” Id. at *1. The Court thus rejected the law firm’s contention that plaintiffs were required to present some extrinsic evidence that they were confused by the communication with respect to the identity of the creditor because the Court found that the communications themselves did not identify any entity as the current creditor, which was enough to constitute a violation. The Court also found there was no requirement for plaintiffs to show that the failure to clearly identify the creditor was material, meaning that the disclosure helps the consumer make an intelligent choice in responding to the communication. “For § 1692g(a)(2), however, that decision has been made for us. In enacting § 1692g(a)(2), Congress determined that a debt collector must include in its § 1692g(a) notice “the name of the creditor to whom the debt is owed.” With that specific disclosure requirement, Congress decided that the failure to make the disclosure is a failure the Act is meant to penalize.” Id. at *6. It is, therefore, a per se violation of the Act to fail to identify the current creditor in the debt validation notice, and the consumer need not show that the failure was material to his understanding of the notice.
While Janetos does not have precedential effect in the Fourth Circuit (which has jurisdiction over Maryland, North Carolina, South Carolina, Virginia and West Virginia), the Court, in support of its decision that materiality was not required for a violation of § 1692g(a), cited Warren v. Sessoms & Rogers, P.A., 676 F.3d 365, 374 (4th Cir. 2012), in which the Fourth Circuit Court of Appeals declined to establish a materiality requirement for a violation of 15 U.S.C. § 1692e(11) – the obligation of a debt collector to inform the consumer in any communication that it is a debt collector attempting to collect a debt - because that section of the FDCPA “expressly prohibits this exact omission”. Janetos, at * 6, quoting Warren v. Sessoms & Rogers, P.A., 676 F.3d 365, 374 (4th Cir.2012), abrogated on other grounds, Campbell–Ewald Co. v. Gomez, ––– U.S. ––––, 136 S.Ct. 663, 193 L.Ed.2d 571 (2016). Because Warren, a published decision carrying precedential value, found materiality was not a requirement to show a violation of § 1692e(11) – a per se violation analogous to the failure to identify the creditor required by § 1692g(a)(2) - it is likely the Fourth Circuit would apply the same reasoning to a violation of § 1692g(a), thus following the position taken by Janetos.
The Court went on to hold that because Asset Acceptance was itself a debt collector, the acts of its attorneys – also debt collectors under the Act – were attributable to Asset Acceptance under the theory of vicarious liability. The Court found support for this position in the Third and Ninth Circuits: Pollice v. National Tax Funding, L.P., 225 F.3d 379, 404–06 (3d Cir.2000); and, Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507, 1516 (9th Cir.1994). “A debt collector should not be able to avoid liability for unlawful debt collection practices simply by contracting with another company to do what the law does not allow it to do itself. Like the Third Circuit, we think it is fair and consistent with the Act to require a debt collector who is independently obliged to comply with the Act to monitor the actions of those it enlists to collect debts on its behalf.” Janetos, at *7. The Court, however, noted that such would not be the case where the party contracting for debt collection services was a creditor, not a debt collector, citing Wadlington v. Credit Acceptance Corp., 76 F.3d 103, 108 (6th Cir.1996) (“We do not think it would accord with the intent of Congress, as manifested in the terms of the Act, for a company that is not a debt collector to be held vicariously liable for a collection suit filing that violates the Act only because the filing attorney is a ‘debt collector.’ ”). Janetos, at *7. Indeed, this position has, arguably, been accepted by at least one federal district court in North Carolina. In the unreported case Price v. Brock & Scott, PLLC, 2011 WL 126934 (E.D. N.C. April 6, 2011), while granting plaintiff’s motion for summary judgment against the law firm debt collector on her overshadowing claim, the district court cited approvingly to the Third Circuit decision in Pollice and declined to enter summary judgment against the law firm’s client because plaintiff had provided no evidence that it qualified as a debt collector. Price, at * 12-13.
Two lessons can be learned here. Firstly, no good can come from deviating from the required contents of the debt validation notice. Debt collectors should ensure they provide the required disclosures accurately and completely. Secondly, while mortgage loan servicers may, in most cases, qualify as creditors under the FDCPA when they or their law firms engage in debt collection activities, there will be many instances when the servicer is itself a debt collector with respect to particular borrowers. Periodically confirming that its foreclosure and debt collection law firms are following proper debt collection practices may pay dividends for the mortgage loan servicer.
Published by Hutchens Law Firm on June 15, 2016