BREAKING NEWS — (DC)
The U.S. Supreme Court appears to have granted a Writ of Certiorari to petitioner Ricky Henson, et al in his case versus Santander Consumer USA, Inc. coming out of the nation’s Fourth Circuit Court of Appeals. There have been numerous disagreements among the circuits as to what constitutes a “creditor” by definition versus what constitutes a “debt collector” by definition, within the Fair Debt Collection Practices Act (15 U.S.C. 1692a et seq). More about these definitions are specifically noted through the new book FDCPA, Debt Collection and Foreclosures (by the author of this post), anticipated to be released in its first 256-page first edition, sometime around the end of this month (January, 2017).
There is evidence of deeply-entrenched conflict among the circuits, which involves the definition of a “creditor”, which is succinctly defined within the FDCPA as: (a.) any person who offers or extends credit (thereby creating a debt to the borrower); and (b.) any person to whom a debt is owed … and that of a “debt collector”, also succinctly defined as: (a.) any person whose principal purpose is to collect debts; (b.) any person who regularly collects debts owed to another; and (c.) any person who collects its own debts, using a name other than its own. You can see where these so-called variance opinions have formed as cases involving FDCPA complaints have worked their way through each of the federal circuits.
The hinge pin here however, is that the FDCPA also states that a person is NOT a “creditor” if that person “receives an assignment or transfer of a debt in default solely for the purpose of facilitating collect of such debt for another.” That, by definition, would make most mortgage servicers “debt collectors”, which consumers, as mortgagors, now find useful to wage war in federal court by using FDCPA actions! This is one of the reasons this author did the research of over 400 FDCPA actions, some successful and others not successful, for the purposes of illustrating not only the circuit split in definitions, but also because the only way circuit splits can be resolved in finality is by a Supreme Court decision on the valid merits of the case.
The key word here is “default”. The Federal Trade Commission and the Consumer Financial Protection Bureau both concur that the default status of a debt at the time it was acquired determines the status as to whether the entity is a “creditor” or “debt collector”. The CFPB used this model in an action against a large bank, finding the bank violated the FDCPA by failing to send validation notices on student loan accounts there were in default at the time they were acquired from another bank. This puts student loan borrowers in a very interesting litigation posture when debts get “assigned” to entities like Pioneer Credit Recovery, Inc., Van Ru Credit Corporation, The CBE Group and Immediate Credit Recovery, Inc. (to name a few) to collect, which comprise the larger number of entities assigned to collect student loan debt on behalf of the U. S. Department of Education, which is the alleged “guarantor” (which cannot be sued, so don’t even try it). Every case the the author has reviewed involving a state-based corporation designed to monitor the accounts of student loan borrowers and the Department of Education, wherein the Plaintiff borrower sued them for alleged FDCPA violations, got tossed out. The smarter consumers appear to be going after the actual debt collection agencies that have been assigned to collect the debt.
When a debt is in default and has been assigned or transferred to another entity who then attempts to collect the debt, here’s where the splits stack up:
The 4th, 9th and 11th Circuits have held that a person is not a “debt collector” unless its principal purpose is to collect a debt, regularly in the business of collecting debts owed to another, or collecting a debt using a name other than its own. The 11th Circuit has come out with some very pro-consumer decisions (like Reese v. Ellis) that have helped homeowners fighting foreclosures in going after the law firms trying to collect a debt (NOT enforcing a security instrument … there is a difference) using a different name than the one it operates under as a creditor. These three “tests” must be met, in addition to the court’s determination that the debt was indeed in default at the time it was acquired by the person claiming the right to collect it. These three Circuits also rejected the argument that any person taking assignment of defaulted debts is regularly collecting debts owed to another because the debts were owed to a different creditor at the time of default. You can plainly see where the banks and their servicers (as creditors and quasi-debt collectors) want to confuse the issue, which, it appears they have done, over time. Now the Supreme Court gets to interpret what the FDCPA means and what it doesn’t mean when it comes to these definitions.
The 3rd, 6th and 7th Circuit decisions in conflict with the foregoing Circuits have focused predominantly on the exclusions from the definitions of “creditor” and “debt collector”, declaring that any person who takes an assignment of a debt in default is a debt collector, while a person who takes assignment of a debt that is NOT in default is a “creditor”, because they actually BOUGHT the debt. The 7th Circuit went further in explaining that any person acquiring a debt stands in the shoes of that creditor and acts similarly, as opposed to simply acquiring the debt for collection, wherein it acts more like a debt collector, by the strictest defined sense of the FDCPA.
Additionally, Also, both the CFPB and the FTC have adopted the view that the default status of the debt at the time of acquisition determines whether the entity is a “creditor” or a “debt collector.” The CFPB took this approach in a recent consent order with a large bank, finding that the bank violated the FDCPA by failing to send validation notices on student loan accounts that were in default at the time they were acquired from another bank.
VALIDATION OF STUDENT LOAN DEBTS
The CFPB just recently reported that a larger number of student loan debts have afflicted those aged 62 and older to the tune of $66.7-billion! That’s pretty scary, considering many of these debtors are co-signers for their children’s (and grandchildren’s) education.
It is seriously implied here that in addition to mortgage loans, student loans (car loans and credit cards), have also be securitized on Wall Street into “common law trusts”. Mortgage loans get securitized into REMICs (which stands for Real Estate Mortgage Investment Conduits), while other securitized trusts are listed as to their designed use.
To make things a little more “interesting” … here is one sample debt validation response sent to a debt collector, who sent an “initial communication” to a student loan borrower in an attempt to collect a debt (the names of the borrower and debt collector have been purposefully changed to protect their identities):
Certified Mail, Return Receipt Requested Number:
Date of Debt Validation Correspondence
Name and address of Debt Collector
Re: Your Unsigned Debt Collection Letter, dated ______, 2017.
To Whom It May Concern:
I am in receipt of a PAST DUE NOTICE, dated “______, 2017” and am responding accordingly. I choose to respond point for point to what I allege is in fact, an initial communication letter from your debt collection agency.
This is to inform you that I am a “consumer” as defined under 15 U.S.C. 1692a(3). Further, I deem you as a debt collector, subject to the Fair Debt Collection Practices Act, which I have a copy of, under 15 U.S.C. 1692a(5).
First, you have provided me with no written proof of any of the claims you have made in this letter. You have listed debt collection account reference numbers that I am not personally knowledgeable of.
There is no proof provided in the initial communication I received as to who purchased any alleged student loans under any guarantee agreement bearing my name and personal identifying information. You also failed to provide me with a copy of the guarantee agreement or any of the loan paperwork that you allege or claim I owe you that is in default. Therefore, I am disputing the entire balance of what you claim I owe you and further require that you provide me with following:
(a.) Proof of all indebtedness, including copies of any alleged loan paperwork you have in your possession, on which you base your alleged claim of default;
(b.) Proof of the entire chain of custody of each promissory note you claim that the entity you are collecting for was “required to purchase”, including but not limited to, copies of the “guarantee agreement” for each of the alleged loans contained within your initial communication to me;
(c.) Please send me a full accounting of ALL sums due that have been applied to this alleged loan balance, including alleged default insurance payments, credit default swap payments and any other insurance that was purchased to cover the entirety of the loan should an alleged default occur, including correspondence showing the payout dates of these alleged policies;
(d.) If this loan was securitized, along with other student loans, please provide me with the name of the trust and location of its trustee, including the its full contact information and telephone number;
(e.) Since you have threatened me with the garnishment of my wages, and based on the United States Code section shown below, I demand to be provided an opportunity to view all my purported loan documents and a hearing at a location close to my home;
31 U.S.C. § 3720D: US Code – Section 3720D: Garnishment
(3) The individual shall be provided an opportunity to inspect and copy records relating to the debt.
(5) The individual shall be provided an opportunity for a hearing in accordance with subsection (c) on the determination of the head of the executive, judicial, or legislative agency concerning –
(A) the existence or the amount of the debt, and
(B) in the case of an individual whose repayment schedule is established other than by a written agreement pursuant to paragraph (4), the terms of the repayment schedule.
Please be advised that I am responding with the above verbiage as you have indicated in your letter that you may utilize additional collection efforts, including an administrative wage garnishment, tax offset or assigning these alleged loans to the U. S. Department of Education, who, unless you can provide me with proof to the contrary, guaranteed these alleged loans in the first place;
(f.) Please provide me with the Name and Address of the Original Lender / Creditor and all correspondence you have in your possession related to these alleged loans.
(g.) Please provide me with the exact location of my purported loan documents, signed by me, including a direct phone number; and
(h.) Please provide me with copies of all correspondence between your agency and the U. S. Department of Education, including all loan documents, and any documents you have in your possession, bearing my legitimate signature, that prove you have the right to collect this alleged debt, including any agreements signed between you and the alleged creditor you claim to be representing in your initial communication to me.
Please be advised that, in providing the above response, John Q. Consumer is not limiting or waiving any rights or remedies he may now or hereafter have, whether arising under your purported loan documents at law or in equity, all of which rights and remedies are expressly reserved.
Further, since I cannot take your telephone calls into court, this is a demand upon you that you are restricted from contacting me at my home, on my cellular phone or at my workplace regarding the collection of any of the foregoing, until you can fully satisfy the demands set forth in this letter.
Failure to completely respond will also result in an FDCPA action being filed against your company in the appropriate forum.
All further correspondence (including your answer and supporting documentation) may be sent to the address shown below. I expect to hear from you in short order, as this letter is intended to give you notice that I am disputing the entirety of this debt in full.
John Q. Consumer (address)
Enclosure: Copy of Debt Collection Letter
Again, I managed to acquire this from a “consumer”, who sent a variation of this letter, regarding a student loan debt. This letter is a SAMPLE and does NOT constitute the rendering of legal advice for your particular situation and may not draw any conclusions of law or guarantee any legal outcome. If you intend on using any form of this for your own personal use, you should be aware that you do so at your own risk. After reading this letter, I was tempted to contact “John Q. Consumer” to see if the debt collector ever responded. It would seem to appear that when the issue of securitization is brought up, this may create a real dilemma, because the student loan itself may have already been paid in full upon the default of the borrower! Entire of tranches of student loans may have been paid off over time!
I just thought I’d let you, the blog subscriber, know that student loan borrowers are also using similar tactics, more of which are in the new book on the FDCPA, coming out shortly, which you can pre-order on the Clouded Titles website. The book also goes into detail about how debtors have used FDCPA actions to repeatedly sue debt collectors in order to make a part-time income! It is fascinating to see what the mind can achieve and the human condition to accomplish! I’ve actually included an “exploded” view of an FDCPA lawsuit, both applied individually and as a class action, so you can compare notes! I think you’ll find the 256 pages worthy of your time and consideration.
Just because SCOTUS is deciding this narrow issue does not mean that FDCPA actions will be put “on hold” either. The definitions of the FDCPA do merit clarification by the nation’s highest court, so the lower circuits will (once and for all) STOP QUIBBLING over what the terms really mean. This is why it pays to know the FDCPA and get an education in debt collection before getting yourself into debt!