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Fair Debt Collection Practices Act

A creditor can be exposed to liability under the Fair Debt Collection Practices Act where it indicates that a law firm has been retained to collect its debts, but the law firm makes no genuine effort to collect those debts, the U.S. Court of Appeals for the Second Circuit held recently.

A divided circuit panel held that liability can attach under the Act's “false name” exception to creditor immunity in the case of Mazzel v. The Money Store, 11-4525-cv (11/13/2013). The Money Store and its subsidiaries and affiliates are creditors that had purchased mortgages from other lenders. It retained the law firm of Moss, Codilis, Stawiarski, Morris, Schneider & Prior LLP of Denver, CO, to send debt collection letters to homeowners who had defaulted on their mortgages.

The Case

The plaintiffs were homeowners who claimed that The Money Store had violated the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. ' 1692, and the Truth in Lending Act, (TILA),15 U.S.C. ' 1601, by sending deceptive letters. Southern District Judge John Koeltl granted summary judgment for the defendants on the Truth in Lending claims and denied a motion to reconsider Judge John Sprizzo's earlier dismissal of the
FDCPA claim.

The Appeal

The plaintiffs appealed to the circuit, where oral argument was heard by Judges Robert Katzmann, Debra Ann Livingston and Raymond Lohier. All three judges held that the district court was correct in finding that the defendants were not “creditors” for purposes of being accused of charging improper fees under the TILA, because The Money Store was an assignee of the plaintiffs' notes. But Katzmann and Lohier held that the lower court erred in its grant of summary judgment under the FDCPA because of the false name exception to the general rule that a creditor has immunity.

Under ' 1 692a(6) of the FDCPA, the exception to creditor immunity exists where the creditor “in the process of collecting [its] own debts, uses any name other than [its] own which would indicate that a third person is collecting or attempting to collect such debts.”

Here, the plaintiffs charged that Moss Codilis was hired by The Money Store in 1997 to send out “breach” letters on its stationery, falsely indicating that Moss Codilis had been retained to collect debts that The Money Store was in fact itself collecting.

The letters stated that “this law firm” has been “retained” in order to “collect a debt for our client.” The letters also stated that “this firm has been authorized by [The Money Store] to contact you” and “provide[] notice that you are in default” and they warn that a failure to resolve their default within 30 days would lead “our client” to accelerate the entire sum of both principal and interest and possibly pursue foreclosure.

Moss Codilis, which has since gone out of business, received $50, and later $35, for each breach letter mailed to defaulting debtors, but the firm played no other role in collecting the debts purchased by The Money Store ' a fact the circuit said might expose the latter to liability. ' Mark Hamblett, The New York Law Journal

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Fair Debt Collection Practices Act

A creditor can be exposed to liability under the Fair Debt Collection Practices Act where it indicates that a law firm has been retained to collect its debts, but the law firm makes no genuine effort to collect those debts, the U.S. Court of Appeals for the Second Circuit held recently.

A divided circuit panel held that liability can attach under the Act's “false name” exception to creditor immunity in the case of Mazzel v. The Money Store, 11-4525-cv (11/13/2013). The Money Store and its subsidiaries and affiliates are creditors that had purchased mortgages from other lenders. It retained the law firm of Moss, Codilis, Stawiarski, Morris, Schneider & Prior LLP of Denver, CO, to send debt collection letters to homeowners who had defaulted on their mortgages.

The Case

The plaintiffs were homeowners who claimed that The Money Store had violated the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. ' 1692, and the Truth in Lending Act, (TILA),15 U.S.C. ' 1601, by sending deceptive letters. Southern District Judge John Koeltl granted summary judgment for the defendants on the Truth in Lending claims and denied a motion to reconsider Judge John Sprizzo's earlier dismissal of the
FDCPA claim.

The Appeal

The plaintiffs appealed to the circuit, where oral argument was heard by Judges Robert Katzmann, Debra Ann Livingston and Raymond Lohier. All three judges held that the district court was correct in finding that the defendants were not “creditors” for purposes of being accused of charging improper fees under the TILA, because The Money Store was an assignee of the plaintiffs' notes. But Katzmann and Lohier held that the lower court erred in its grant of summary judgment under the FDCPA because of the false name exception to the general rule that a creditor has immunity.

Under ' 1 692a(6) of the FDCPA, the exception to creditor immunity exists where the creditor “in the process of collecting [its] own debts, uses any name other than [its] own which would indicate that a third person is collecting or attempting to collect such debts.”

Here, the plaintiffs charged that Moss Codilis was hired by The Money Store in 1997 to send out “breach” letters on its stationery, falsely indicating that Moss Codilis had been retained to collect debts that The Money Store was in fact itself collecting.

The letters stated that “this law firm” has been “retained” in order to “collect a debt for our client.” The letters also stated that “this firm has been authorized by [The Money Store] to contact you” and “provide[] notice that you are in default” and they warn that a failure to resolve their default within 30 days would lead “our client” to accelerate the entire sum of both principal and interest and possibly pursue foreclosure.

Moss Codilis, which has since gone out of business, received $50, and later $35, for each breach letter mailed to defaulting debtors, but the firm played no other role in collecting the debts purchased by The Money Store ' a fact the circuit said might expose the latter to liability. ' Mark Hamblett, The New York Law Journal

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