By Thomas G. Wolfe, J.D.
Under certain circumstances, can a mortgage loan servicer’s notice to a borrower of a transfer of servicing responsibilities to another party—in keeping with the federal Real Estate Settlement Procedures Act—also trigger an obligation for the loan servicer to comply with a separate notice requirement of the federal Fair Debt Collection Practices Act? Yes, according to a recent ruling by the U.S. Court of Appeals for the Second Circuit.
In its Aug. 12, 2015, decision (Hart v. FCI Lender Services, Inc.), the Second Circuit ruled that a mortgage servicer’s RESPA-related letter, notifying a consumer about the transfer of his mortgage loan servicing, also constituted an “initial communication” in connection with the collection of a debt, thereby triggering a notice requirement of the federal Fair Debt Collection Practices Act. In reaching its decision, the federal appellate court allowed the consumer’s proposed class action, claiming violations of the FDCPA, to proceed.
By way of background, the consumer obtained a mortgage loan from GMAC Mortgage, LLC, the original lender and servicer of the loan. Later, FCI Lender Services, Inc., assumed the loan servicing obligations from GMAC. According to the court’s opinion, the consumer was in default on his mortgage loan when FCI assumed those servicing responsibilities.
In July 2012, FCI sent the consumer a letter, entitled “Transfer of Servicing Letter,” notifying him that FCI had become his mortgage loan servicer. Among other things, the letter referenced the consumer’s rights conferred by RESPA and provided further details about the servicing transfer, including the timeliness of payments during the transfer and how the consumer could dispute matters regarding his account.
In addition, FCI’s letter included an attached “Notice,” stating, “This is an attempt to collect upon a debt, and any information obtained will be used for that purpose.” The attachment, referencing the FDCPA, also sought to convey certain consumer rights under the FDCPA.
In February 2013, the consumer filed a lawsuit against FCI as a proposed class action, alleging that FCI violated the FDCPA by sending him the July 2012 letter. According to the consumer, FCI failed to identify the current creditor and misstated his “debtor’s rights.” In response, FCI asked the trial court to dismiss the consumer’s lawsuit, contending that its letter was intended “merely to comply with RESPA” by providing certain information, and was not aimed at collecting a debt. The consumer appealed the trial court’s dismissal of his FDCPA claim to the Second Circuit.
For purposes of the appeal, the parties agreed that FCI was a “debt collector” covered by the FDCPA and that the July 2012 letter from FCI to the consumer was FCI’s “initial communication” to him. However, the parties disagreed about whether the July 2012 letter was an initial communication “in connection with the collection of any debt,” that would have triggered specified notice requirements under the FDCPA.
The Second Circuit concluded that whether a communication is “in connection with the collection of a debt” is a question of fact “to be determined by reference to an objective standard.” The court stressed that, “at the motion to dismiss stage” of the litigation, the court was called upon to view the July 2012 letter objectively: whether a consumer receiving the communication could reasonably interpret it as being sent ‘in connection with the collection of a debt, rather than inquiring into the sender’s subjective purpose’.”
Applying this standard, the Second Circuit determined that the consumer plausibly alleged that the letter was a “communication in connection with the collection of [a] debt” so that FCI was required to provide the consumer with “a §1692g notice” under the FDCPA. In the court’s view: (1) the letter was, at a minimum, an attempt to collect a debt; (2) regardless of FCI’s intent to comply with RESPA in transmitting the letter, a reasonable consumer could view the letter as both providing information required by RESPA and attempting debt collection; (3) defective “§1692g notices” pose particular dangers to consumers; and (4) the court’s ruling was consistent with the remedial nature of the FDCPA.
Consequently, in light of the Second Circuit’s recent decision, it would behoove a mortgage loan servicer that notifies a borrower of a transfer of loan servicing—in compliance with RESPA—to also ask itself whether a consumer receiving that communication could reasonably interpret it as being sent in connection with the collection of a debt.
For more information about mortgage servicing under RESPA and the FDCPA, subscribe to the Banking and Finance Law Daily.
