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Category: FCRA

Mortgage Still “Valid Debt” Despite Being Unenforceable

Link: Bauer v. RoundPOINT MORTGAGE SERVICING CORPORATION (N.D.Ill Oct. 29 2018).

In seeking to foreclose on Plaintiff’s home, the mortgagee violated the single refiling rule in Illinois that says you can’t re-file the same lawsuit twice. As a result, the mortgage loan became unenforceable as a matter of law. (A recent Illinois Supreme Court Decision, First Midwest v. Cobo, also found this would apply to an action on the promissory note).

The mortgage companies continued to send statements, some demanding payments. Plaintiff, represented by Rusty Payton and Marc Dann of DannLaw, filed suit to quiet title and actions under the Fair Debt Collection Practices Act, the Truth in Lending Act, the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act, and the Illinois Consumer Fraud Act against the mortgage servicer (Roundpoint), the investor, and the foreclosure mill law firm Wirbicki Law Group, LLC.

Judge Virginia M. Kendall found that the debt was still “valid” even though it was legally unenforceable—meaning that many of the claims do not survive.

Although the single refiling rule prevents the defendants from pursuing another foreclosure action, extinguishing their legal remedy, the rule does not extinguish the right to the underlying debt—that remains. See Midland Funding, LLC v. Johnson, 137 S. Ct. 1407, 1411-12 (2017)Pantoja v. Portfolio Recovery Assocs., LLC, 852 F.3d 679, 684 (7th Cir. 2017), cert. denied, 138 S. Ct. 736 (2018)(explaining that Illinois treats a “debt as a debt” because “[t]he creditor retains the legal right to appeal to the debtor to honor the debt out of a sense of moral obligation even if the legal obligation can no longer be enforced in court”); Owens v. LVNV Funding, LLC, 832 F.3d 726, 731 (7th Cir. 2016) (citing Fleming v. Yeazel,40 N.E.2d 507, 508 (1942) (“[T]he statute of limitations controls the remedy for recovery of the debt, but the debt remains the same as before, excepting that the remedy for enforcement is gone.”)).
Indeed, a creditor retains some right to payment, even if its remedy is no longer a legal one but a moral one. See Buchanan v. Northland Grp., Inc., 776 F.3d 393, 396-97 (6th Cir. 2015) (recognizing that a time-barred “debt remains a debt even after the statute of limitations has run on enforcing” and “[t]here thus is nothing wrong with informing debtors that a debt remains unpaid” and “to let the debtor know what the debt is and to ask her to pay it”); HBLC, Inc. v. Egan, 2016 IL App (1st) 143922 (2016) (citing Huertas v. Galaxy Asset Management, 641 F.3d 28, 32-33 (3d Cir.2011) (noting that “the FDCPA permits a debt collector to seek voluntary repayment of the time-barred debt so long as the debt collector does not initiate or threaten legal action in connection with its debt collection efforts”).
Moreover, a debt once-unenforceable can become enforceable again under certain circumstances. 

However, the Court allowed one claim under the Fair Debt Collection Practices Act and two claims under the Illinois Consumer Fraud Act concerning Roundpoint’s threats to foreclose or legally enforce the mortgage debt.

Mistaken ID FDCPA Claim Survives Summary Judgment

Link 1: (SHA Opinion) Ali v. Portfolio Recovery Associates, LLC, Case No. 15-cv-06178 (N.D. Ill. Sept. 30, 2018);
Link 2: (SAA Opinion) Ali v. Portfolio Recovery Associates, LLC, Case No. 15-cv-06178 (N.D. Ill. Sept. 30, 2018).

These two consolidated cases derive from PRA’s attempt to collect different debts from the wrong Syed H. Ali and from his father Syed A. Ali. The suit alleges that PRA unsuccessfully sought to collect a debt from a person named SHA located in Texas, and then went after a different SHA—one of the plaintiffs here. PRA sent collection letters and then filed a lawsuit through the defendant attorneys. The underlying error here is defendants sought collection against the Debtor and served the collections complaint at an address where another person bearing the same name (including middle initial) lived.

Plaintiff, represented by  Bryan Thompson and Robert Harrer of the Chicago Consumer Law Center, P.C., Daniel Brown, of Main Street Attorney, LLC, Blaise & Nitschke, P.C. & The Law Office of M. Kris Kasalo, Ltd., filed a 9-count complaint.

Opinion 1

The court (Judge Sharon Johnson Coleman) issued two opinions: one for the minor SHA and one for the father SAA. As to SHA, the court found that factual issues abound as to whether this was a consumer debt (thus falling within the FDCPA) and also regarding the Bona Fide Error defense that Defendants asserted. However the court granted summary judgment as to the 1692d and 1692f claims finding that there wasn’t harassing or unfair or unconscionable means used in the attempted debt collections.

The claim under the Illinois Collection Agency Act (“ICAA”), 225 ILCS 425/1 et seq. failed because the court found that the ICAA did not intend to give consumers a private right of action and dismissed it sua sponte under Rule 12(h)(3):

SHA cites Sherman as authority for his implied right of private action. Sherman v. Field Clinic, 74 Ill. App. 3d 21, 392 N.E. 2d 154 (1st Dist. 1979). Since Sherman was decided nearly 40 years ago this district and even Illinois state courts have been split on whether to follow it . . .  If the legislature intended for there to be an implied right of action, it would have written it into the law itself, especially considering the lapse in time since Sherman was decided, implying this right.

Opinion 2

The second (SAA) opinion  addressed additional claims by SAA against Blitt & Gaines, P.C. and Freedman Anselmo Lindberg Oliver, LLC (which have since merged). The additional counts were brought under the Fair Credit Reporting Act and Fair Debt Collection Practices Act. The court dismissed the 1692d claim on the basis that there was no evidence that the collection attorneys knew they had they wrong man, but allwed the 1692e claim against PRA to survive despite the Bona Fide Error defense:

The Section 1692e FDCPA violations against Portfolio stem from its alleged failure to confirm the account Debtor’s personal information and recognize that it differed from SAA’s information before pursuing collections and the lawsuit. This Court finds that there is a question of fact whether a reasonable, unsophisticated consumer would be misled by Portfolio’s actions. SAA was upset and confused by the letters and the lawsuit against “Syed Ali.” Indeed, mistakenly being sent a demand letter or being served with a lawsuit in one’s name, taken in isolation, could be confusing[. . .]

This Court [. . .] finds an issue of fact as to the sufficiency of Portfolio’s controls and procedures since Portfolio was on notice from the August 29, 2014 TransUnion report, prior to its filing of the lawsuit against Syed Ali, that another Syed Ali lived at the address associated with the Debtor.

The court granted summary judgment in favor of the debt collector attorneys based on their bona fide error defense, noting that they don’t have to apply “most comprehensive approach to avoid errors. Courts have found it sufficient for defendants to take reasonable efforts to avoid violations if FDCPA.”

As to the impermissible pull claim under the FCRA, the court sided with PRA in that the CRA was the entity responsible for the pull on the incorrect address and the subsequent pulls were related to accounts that the correct SAA had with Portfolio.

 

No Standing for Claims Not Disclosed on Bankruptcy Petition

Link: Kitchner v. FIERGOLA, Case No. 18-CV-133-JPS (E.D. Wisc., Sept. 18, 2018).

Judge J.P. Stadtmueller found that because the Plaintiff did not disclose her Fair Credit Reporting Act and Fair Debt Collection Practices Act claims on her Chapter 7 Bankruptcy petition, and because they arose prior to the filing of her bankruptcy, they were still property of the estate and the bankrtupcy trustee is the true party in interest for standing purposes. The court allowed the claim to be stayed under Rule 17:

Rule 17 instructs that “[t]he court may not dismiss an action for failure to prosecute in the name of the real party in interest until, after an objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be substituted into the action. After ratification, joinder, or substitution, the action proceeds as if it had been originally commenced by the real party in interest.” Fed. R. Civ. P. 17(a)(3). Thus, Defendants having put Kitchner on notice of the standing issue, the Court is obliged to give Kitchner a reasonable period of time in which to ratify her commencement of the action by convincing the trustee to abandon these claims, or to substitute the trustee as the sole party plaintiff.

The court also rejected the defendant’s judicial estoppel defense, stating that the only person who could take inconsistent positions that would jeopardize the claims for purposes of judicial estoppel would be the trustee.

Summary Judgment Awarded Against Comcast for Impermissible Pull Claim

Link: Santangelo v. Comcast Corporation, Case No. 15-cv-0293 (N.D. Ill., Sept. 17, 2018).

Plaintiff, represented by Keith Keogh of Keogh Law, Ltd., sued Comcast under the Fair Credit Reporting Act and the Illinois Consumer Fraud Act alleging they impermissibly pulled a credit check on him despite the fact he paid a $50 deposit to forgo a credit check when applying for internet services. As a result, his credit score dropped by six points. Comcast refunded Plaintiff the money he paid with interest and caused the hard pull to be masked. The parties filed cross motions for summary judgment which were both granted and denied in part.

FCRA Claim

Comcast argued that Plaintiff’s lowered credit score could not satisfy Article III’s injury-in-fact requirement with respect to his FCRA claim, because he has not shown that he was denied a loan, a purchase, or a credit application. Judge John Z. Lee disagreed, citing Evans v. Portfolio Recovery Assocs., LLC, 889 F.3d 337, 344-46 (7th Cir. 2018) for the proposition that “it is ‘very easy’ to envision a lowered credit score creating a real risk of financial or other harm that satisfies the injury-in-fact requirement.” The court also rejected the challenge to causation since the score dropped the same day as Comcast’s pull and that the case was not moot due to the refund or subsequent masking.

As to the merits, the parties disputed whether Comcast had a “legitimate business need” under § 1681b(a)(3)(F)(i), and the court found in favor of Plaintff:

There is no dispute that Comcast offered to provide Santangelo internet service without obtaining his TELCO information, if he paid a $50 deposit. And no reasonable jury could conclude that Comcast needed Santangelo’s credit score to determine his eligibility for service when Comcast’s own policies and representations to Santangelo indicated otherwise.

The court also ruled in favor of Plaintiff in regards to Comcast’s argument that Plaintiff agreed to the credit pull under § 1681b(a)(2), finding that it’s a strained argument and that Comcast failed to develop the record to support it. So liability as to the the FCRA claim was decided in favor of Plaintiff.

Whether Comcast violated the FCRA willingly or negligently (and thus whether Plaintiff may be awarded punitive damages or not) under § 1681n will be a fact for the jury:

There is evidence in the record from which a jury could reasonably conclude that the Comcast representative who initiated the credit check did so in error. But, there is other evidence from which a reasonable jury could conclude that Comcast knew or should have known that it would likely happen based upon prior experiences with similar incidents.

State Law Claims

The court found that as to the state law claims under the Illinois Consumer Fraud Act, breach of contract, and unjust enrichment, Plaintiff failed to adduce sufficient evidence of actual damages. As a result Comcast was awarded summary judgment on those counts. The court noted, however, that for purposes of Article III standing analysis, “actual damages and injury in fact ‘are not the same thing.’ Abbott v. Lockheed Martin Corp., 725 F.3d 803, 808 (7th Cir. 2013).”

U.S. Public Interest Research Group Releases Report: One Year Post Equifax Breach

Link: EQUIFAX BREACH: ONE YEAR LATER How to Protect Yourself Against ID Theft & Hold Equifax Accountable

“Ultimately, we are not the customers of Equifax or the other credit bureaus; we are their product. We did not ask or give them permission to collect or sell our personal information. Congressional action, state and federal agency enforcement and private rights of action are needed to provide both the necessary financial consequences and oversight that will help prevent anything like last year’s Equifax breach from happening again. Additionally, breached companies should be required to provide consumers with clear, complete, and concise information about what can be done to prevent, detect, and resolve most kinds of identity theft and fraud.”

 

Third Circuit Follows Seventh to Uphold FCRA b(b)(3) Claim

Link: Long et al. v. Septa (3d. Cir. 2018)

I recently posted about the Seventh Circuit’s opinion in Robertson v. Allied Solutions, LLC.

In Long, The Third Circuit issued a similar opinion on standing where the plaintiff alleged that the Southeastern Pennsylvania Transportation Authority failed to (1) give job applicants a copy of the credit report they relied upon in taking an adverse action against them and (2) send them the appropriate notices required under § 1681b(b)(3) of the Fair Credit Reporting Act. The case was argued by Deepak Gupta and an amicus brief was filed by Francis & Mailman.

The court found that plaintiffs met Article III standing requirements espoused in Spokeo in regards to the credit reports, but not for the notices. The court applied the two-part test from Spokeo, asking whether Congress intended to grant redress for the particular injury alleged and whether the injury in question has a close relationship to a harm traditionally recognized under common law.

As to the claim for failing to give a copy of the report, the court pointed out the unambiguous language in the FCRA creating a right of action and said this about the historical analysis:

Common-law privacy rights were historically understood as being invaded by “(a) unreasonable intrusion upon the seclusion of another, . . . (b) appropriation of the other’s name or likeness, . . . (c) unreasonable publicity given to the other’s private life, . . . or (d) publicity that unreasonably places the other in a false light before the public . . . .” Restatement (Second) of Torts § 652A(2)(a)-(d) (1977). These latter three types of privacy torts represent interference with an individual’s ability to control his personal information. That is analogous to the injury here, which is the use of Plaintiffs’ personal information—their consumer reports—without Plaintiffs being able to see or respond to it.

The Third Circuit called out the Robertson case, saying “[t]he Seventh Circuit concluded, as do we, that a plaintiff has standing to sue based on allegations that she did not receive the pre-adverse action notice required by § 1681b(b)(3).”

As to the claim regarding the notice requirements, the court found it was a bare procedural violation, divorced from any concrete harm, that cannot satisfy the injury-in-fact requirement of Article III. “Plaintiffs became aware of their FCRA rights and were able to file this lawsuit within the prescribed limitations period, so they were not injured … Plaintiffs are similar to Groshek, and like him, they lack standing, because although they did not receive FCRA rights disclosures, they understood their rights sufficiently to be able to bring this lawsuit.”

7th Circuit Upholds FCRA Adverse Action Claim Under Spokeo

Link: Robertson v. Allied Solutions, LLC, (7th. Cir. 2018)

Plaintiff Shameca Robertson, through Matthew A. Dooley, filed a putative class action lawsuit against Allied Solutions, LLC for its failure to provide an adverse-action notice as required under § 1681b(b)(3)(A) of the Fair Credit Reporting Act.  Robertson applied for a job with Allied and was rejected based on adverse criminal history information. Allied allegedly failed to give Robertson the notice required in the statute or a copy of the background check it relied on in making its decision. Plaintiff filed an unopposed motion to approve a settlement, but the court raised the issue of Article III standing sua sponte and demanded briefing on whether the case of Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) required dismissal. The district court (William T. Lawrence of the S.D. Ind) found that the claim failed to allege a concrete injury and dismissed the case.

The Seventh Circuit reversed, finding that given the language and purpose of the Act, an employer’s duty to disclose is not linked with the inaccuracy of the underlying report. Instead, the section regulating users of reports (like prospective employers) deal primarily with disclosures.

The substantive interest behind a user’s disclosure obligation is the one at issue here: allow the consumer to review the reason for any adverse decision and to respond. These rights are independent of any underlying factual disputes. A consumer might, for example, wish to concede the facts presented in the report but to bring additional facts to the employer’s attention that put matters in a better light for the consumer. In other words, the consumer might wish to use the “confession and avoidance” option that existed at common law … Providing context may be more valuable than contesting accuracy. Some consumers may collect supporting documents quickly enough to corroborate an accuracy challenge before the employer makes its decision.

The Court relied on precedent that finds that Article III standing is met where a plaintiff alleges they were deprived of a chance to obtain a benefit; so it doesn’t matter whether they were actually deprived of that benefit. Czyzewski v. Jevic Holding Corp.,137 S. Ct. 973, 983 (2017). The Court also noted that an informational injury can be concrete when the plaintiff is entitled to receive and review substantive information. In sum:

What matters is that Robertson was denied information that could have helped her craft a response to Allied’s concerns.

 

FCRA Claim May Proceed Against Mortgage Servicers Based on Trial Loan Modification

 

Link: Pittman v. EXPERIAN INFORMATION SOLUTIONS, INC., (6th Cir. 2018)

This is a Sixth Circuit case worth reading because it contains an interesting discussion of how a trial loan modification of a mortgage can constitute an enforceable agreement and change the way a furnisher should be reporting the trade line to credit reporting agencies. The court reversed the entry of summary judgment in favor of defendants and remanded the case.

 If Pittman can show that there was indeed an enforceable agreement to modify his loan and that the Servicers were supposed to send him a permanent loan modification but instead reported him to the CRAs as being behind on his loan, then Pittman could make the threshold showing of inaccuracy required for a FCRA claim.

Plaintiffs through Edward A. Mahl of Michigan Consumer Credit Lawyers are alleging mortgage servicers BSI Financial Services and iServe Servicing, Inc. violated 15 U.S.C. § 1681s-2(b), which imposes certain duties on furnishers of information upon notice of a dispute sent to a consumer reporting agency. And of course the court refers to the seminal case on loan modifications and the Home Affordable Modification Program: Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 554 (7th Cir. 2012).

Court Grants Plaintiff’s Remand to State Court Based on Spokeo

 

link: Soto v. Great America, LLC, 2017-cv-6902 (N.D. Ill., May 24, 2018)

Plaintiff Hugo Soto, represented by Edelman, Combs, Latturner & Goodwin LLC, filed a class action in Lake County, Illinois state court against Great America under 15 U.S.C. § 1681c(g)(1) of the Fair Credit Reporting Act as Amended by the Fair and Accurate Transactions Act of 2003, which prohibits printing more than the last five digits of a credit or debit card number on an electronically printed receipt.

Defendant removed the case to federal court and then Plaintiffs moved for a remand to state court on the basis that the court lacked jurisdiction because the damages alleged do not meet the federal standing requirements imposed by Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016).

Judge Robert M. Dow agreed with Plaintiff’s reliance on Meyers v. Nicolet Restaurant of De Pere, LLC, 843 F.3d 724 (7th Cir. 2016), where the Seventh Circuit addressed the application of these standing principles to FACTA claims. The Seventh Circuit in Meyers held that plaintiffs alleging only bare procedural violations of FACTA lack Article III standing because they have not suffered an injury-in-fact. 843 F.3d at 727-28 (plaintiff lacked standing because his claim that restaurant failed to truncate a payment card’s expiration date did not allege actual harm and thus was insufficient to satisfy Article III’s injury-in-fact requirement).

Defendant argued the remand would be futile because the state court would lack jurisdiction to hear the case for the very same reason, relying on Porch-Clark v. Engelhart, 930 F. Supp. 2d 928, 936 (N.D. Ill. 2013). The court rejected this argument and found that remand was still warranted because the issue of Plaintiffs’ standing to pursue their FACTA claim in state court depends on an interpretation of state standing law, and that “it is not clear that the Illinois injury-in-fact requirement is identical to its federal analogue.”

Plaintiffs’ motion also requested attorneys’ fees pursuant to 28 U.S.C. § 1447(c), but the court denied that request and found that the defendant could have reasonably believed it would be able to distinguish Meyers given the damages alleged in the complaint.