Firm News

On May 10, 2016, the United States Department of the Treasury issued a white paper that provides (i) an overview of the online marketplace lending industry, (ii) a summary of the responses that the Treasury received to its 2015 Request for Information on the
industry (RFI), (iii) policy recommendations for private sector participants and the federal government and (iv) identification of
trends that the Treasury believes require ongoing observation. Read More

The Federal Reserve Bank of Cleveland released on August 25, 2015 a report entitled “Alternative Lending through the Eyes of ‘Mom & Pop’ Small- Business Owners: Findings from Online Focus Groups” (attached). The report provides the results on a study of small business owners’ perceptions and understandings with respect to online alternative lenders and cash advance providers and their small dollar credit products. Read More

The Consumer Financial Protection Bureau (“CFPB”), Chase Bank, USA N.A. and its subsidiary Chase BankCard Services, Inc. (collectively “Chase”), recently entered into a Consent Order for alleged violations by Chase of Sections 1036(a)(1) and (a)(3) of the Consumer Financial Protection Act, 12 U.S.C. §§ 5536(a)(1) and (a)(3) (“CFPA”), with respect to Chase’s debt sale and collection
practices. Read More

The New York Department of Financial Services (NY-DFS) has issued a proposed regulatory framework for virtual currencies. The proposed regulations will require virtual currency companies to obtain licenses named “BitLicenses.” By releasing the proposed “BitLicense” rules, New York became the first state to propose a regulatory structure specifically designed for virtual currencies. This Alert is first in a series on virtual currency regulation…
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On December 10th, the Consumer Financial Protection Bureau (CFPB) entered into a consent order with CareCredit LLC. CareCredit agreed to refund up to $34.1 million to borrowers who were allegedly subject to deceptive credit card enrollment practices.

Prompted by consumer complaints, the CFPB’s investigation focused on enrollment practices at health care providers’ offices for deferred interest credit card plans. The CFPB allegedly found incidences where health care providers: (i) orally misrepresented that the plan has no interest for 12 months as distinct from a deferred interest promotion, (ii) did not provide consumers with copies of the credit agreement or Truth in Lending Act (TILA) disclosures, (iii) failed to disclose the interest rate on the plan once the promotional period expired and (iv) finished incomplete applications and submitted them on behalf of borrowers. The CFPB also noted the lender’s limited involvement in the credit card enrollment process and the lack of training provided to health care providers, many of whom did not understand deferred interest credit cards.
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JPMorgan Chase Bank, N.A. and certain affiliates (“Chase”) entered into orders with the Office of the Comptroller of the Currency (“OCC”) and Consumer Financial Protection Bureau (“CFPB”) for alleged unfair billing of certain add-on identity theft products, which included credit monitoring and credit report retrieval, and unsafe and unsound practices in connection with the bank’s non-home loan debt collection litigation practices and non-home loan compliance with the Servicemembers Civil Relief Act (“SCRA”). Read More

The Federal Trade Commission recently released .COM DISCLOSURES, HOW TO MAKE EFFECTIVE DISCLOSURES IN DIGITAL ADVERTISING, updating its 2000 staff guidance DOT COM DISCLOSURES. The FTC has authority to enforce general consumer protection laws that prevent advertisements from being deceptive, unfair or otherwise in violation of FTC rules and to require disclosures to be presented clearly and conspicuously. According to the FTC, whether a disclosure meets this standard is measured by performance — that is, how consumers actually perceive and understand the disclosure in the context of the entire ad… Read More

An Illinois Appellate Court has held that a collection agency had standing to sue a debtor in its own name under Illinois law but that the collection agency’s complaint was deficient because it failed to include documents evidencing the debt’s assignment as required by Illinois law. Unifund CCR Partners v. Shah, No. 1-10-0855, 2011 WL 477725 (Ill. App. Ct. Feb. 1, 2011).

In Unifund, a credit card issuer sold a delinquent credit card debt. The purchaser sold the debt to another third party who assigned a legal interest in the debt to another entity for purposes of collection while retaining an equitable interest in the debt. The legal interest was again assigned to another entity who sued the debtor to collect the outstanding balance. To support the chain of title, the collection agency attached to the complaint an employee’s affidavit explaining the series of transactions along with purported documents evidencing the sale and assignment of the debt. The debtor moved to dismiss, arguing that the materials purporting to establish the assignment of his debt were inadequate because crucial information regarding the account was scattered over multiple documents. The trial court denied the debtor’s motion to dismiss.

On appeal, the Court of Appeals analyzed whether the collection agency had standing to sue the debtor even though the debt was assigned to it for collection purposes only. The Court indicated that the Illinois Code of Civil Procedure appears to limit standing to a party who is an assignee and owner of a debt, but that the Illinois Collection Agency Act (CAA) explicitly permits a collection agency who is assigned a debt for collection purpose to bring suit in its own name. The Court concluded that the more specific CAA should control and held that the collection agency had standing to bring suit in its own name if it pleads and proves that it has legal title to the account receivable assigned to it for collection purposes only. The Court then analyzed whether the collection agency adequately plead that it was the assignee of the original creditor.

The court indicated that the CAA permits an assignment to be established by a written contract of assignment, which can be established through multiple documents that are incorporated by reference into the contract of assignment. The contract of assignment, however, must contain the information required by the CAA including the date of assignment, the consideration paid and the identifying information for the account. The Court held that the collection agency failed to adequately plead the assignment because the affidavit attached to the complaint was not permitted by the CAA and the other documents attached to the complaint did not adequately set forth the consideration paid nor identify the assigned account.

The Unifund case illustrates that courts may hold collection agency’s to a high standard when bringing suit on assigned debts by requiring affidavits that are supported by detailed documents evidencing the chain of title.

• Margaret Stolar and Chuck Gall

The notice of assignment requirement under the Florida Consumer Collection Practices Act (“CCPA”) has recently been amended. The CCPA provides that it does not prohibit the assignment, by a creditor, of the right to bill and collect a consumer debt. However, the assignee now must give the debtor written notice of such assignment as soon as practical after the assignment is made, but at least 30 days before any action to collect the debt. The assignee is a real party in interest and may bring an action to collect a debt that has been assigned to the assignee and is in default. Fla. Stat. Ann. § 559.715. The prior version of the CCPA merely required an assignee to provide a notice within 30 days after assignment. Importantly, the CCPA now prohibits actions to collect the debt within 30 days after giving the notice.

Debt buyers and collectors should review their communications and collection practices with Florida residents to make sure that they comply with the amended law.

• Margaret Stolar and Chuck Gall

The Appellate Court of Illinois, First District, recently held that a credit card agreement was an unwritten contract subject to Illinois’ five-year statute of limitations, rather than its 10-year statute of limitations. Portfolio Acquisitions, L.L.C. v. Feltman, No. 1-07-3004, 2009 WL 1444791, at *8 (Ill. App. Ct. May 20, 2009).

In Portfolio Acquisitions, a debt buyer sued a consumer in 2005 for a credit card debt charged off in 1999. The debt buyer’s second amended complaint indicated that the consumer applied for a credit card and agreed to pay for amounts charged, but failed to make required payments. The debt buyer attached to the complaint copies of a signed application, cardholder agreements and account statements setting forth the last payment or charge date. The consumer filed a motion to dismiss the complaint, arguing that the debt buyer’s suit was untimely because it was filed after the expiration of the five-year statute of limitations for unwritten contracts. The trial court dismissed the complaint.

The appellate court agreed with the trial court that the suit was time-barred by Illinois’ five year statute of limitations for unwritten contracts and that the 10-year statute of limitations for written contracts did not apply. The court indicated that a contract may be deemed written for purposes of the Illinois statute only if the parties are identified and all essential terms are in writing and ascertainable from the instrument itself without resort to parol evidence. The court found that there was no written contract because parol evidence would be required to show (i) all essential terms and conditions of the contract under consideration, (ii) the relationship of the parties and (iii) the consumer’s receipt and acceptance of the essential terms.

The court stated that the credit card account statements attached to the complaint were not “other evidence of indebtedness” subject to the 10-year statute of limitations because parol evidence would be needed to establish mutual assent, the consumer’s promise to pay and lack of objection to the statements.

Without much explanation, the court also found that the debt buyer could not rely on a “composite document theory” to prove the existence of a writing and the application of the 10-year statute of limitations based on all the documentation provided.

The court did not grant summary judgment for the plaintiff on plaintiff’s federal Fair Debt Collection Practices Act claim for improperly bringing suit. Both the debt buyer and its law firm claimed that their procedures for screening debts supported a bona fide error defense. The appellate court observed that a reasonable jury could find either way and denied plaintiff’s motion.

The Illinois court’s decision follows two earlier federal court cases that reached the same conclusion. See Ramirez v. Palisades Collection, LLC, No. 07-C-3840, slip op., 2008 WL 2512679 (N.D. Ill. June 23, 2008) and Parkis v. Arrow Fin. Servs., LLS, No. 07-C-410, slip op., 2008 WL 94798 (N.D. Ill. Jan. 8, 2008).

Relying on an inapplicable statute of limitations can bar a creditor from collecting and cause a creditor and collector to be subject to direct or vicarious liability under federal, state or local debt collection laws. Accordingly, great care in determining the appropriate statute is essential. Creditors and collectors need to exercise care in analyzing debts. As the Illinois appellate court noted, modern business methods present a variety of contracting methods such as telephone solicitation, electronic signatures, pre-approved offers and the like. State statutes do not always reflect the realities of the market place. A contract may be evidenced by one or more writings but not constitute a “written contract” for statute of limitations purposes. Even when deemed a “written contact” in an original creditors hands, a contact may lose that character in a subsequent holder’s hands, diminishing the debt’s value.

• Mike Tomkies and Chuck Gall