The U.S. Second Circuit Court of Appeals in New York Wednesday took aim at defining what actions taken by a creditor expose it to liability under the Fair Debt Collection Practice Act (FDCPA) by reviving an FDCPA class action against a mortgage company and three servicing and debt collection firms. The case could impact liability under first-party or flat-rate collection relationships.

On appeal from the Southern District of New York, the three-judge panel vacated the decision to dismiss FDCPA claims and remanded Vincent v. The Money Store for further proceedings. There were also Truth in Lending Act (TILA) claims that the lower court dismissed and the appellate panel upheld. One of the judges wrote a dissent that disagreed with the FDCPA ruling.

The case is quite old, with the original mortgage transactions taking place in the late 1990s and the initial lawsuit filed in April 2003. Oral arguments before the panel were held a year ago.

After the plaintiffs executed their mortgages, the accounts were assigned for servicing to The Money Store, a mortgage lender. The plaintiffs all defaulted on their loans at some point. At that time, letters were sent out under the letterhead of law firm Moss, Codilis, Stawiarski, Morris, Schneider & Prior, LLP (“Moss Codilis”) informing the borrowers of default.

At issue in the case is how involved Moss Codilis was in the collection of the debt. Plaintiffs contend that The Money Store used the name of the law firm by hiring the law firm to send out collection letters that falsely indicated that Moss Codilis had been retained to collect the debts The Money Store was in fact collecting. The district court rejected that argument, finding that The Money Store had not used a name other than its own, and therefore could not be found liable for violating the FDCPA through the so-called false name exception.

The court disagreed and remanded the FDCPA claims for further proceedings because it found that Moss Codilis did nothing more than send out the letters. All additional collection actions were taken by The Money Store.

“Where a creditor, in the process of collecting its own debts, hires a third party for the express purpose of representing to its debtors that the third party is collecting the creditor’s debts, and the third party engages in no bona fideefforts to collect those debts, the false name exception exposes the creditor to FDCPA liability,” the court wrote.

In a dissent, one of the judges wrote that the majority was not defining what collection activities counted as “bona fide” debt collection efforts. Judge Debra Ann Livingston noted that this may have broad impact on the “flat-rate” or first-party debt collection space. Going further, she wrote “under this ‘bona fide’ standard, an actual debt collector like Moss Codilis can escape civil liability under the FDCPA by becoming more involved in deceptive collection practices. Surely this was not Congress’s intent.”


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