Federal Trade Commission Obtains Largest Civil Penalty Ever

July 24, 2013

Based in Texas, Expert Global Solutions and its subsidiaries-ALW Sourcing, LLC; NCO Financial Systems, Inc.; and Transworld Systems, Inc., (which also does business as North Shore Agency, Inc.), collectively are the largest debt collector in the world. They employ more than 32,000 employees and have at times generated revenues in excess of $1.2 billion. The United States is not the only place the companies operate in; they also operate in Canada, Barbados, India, Philippines and Panama.

The FTC charged the companies with violating the Fair Debt Collection Practices Act and the FTC Act by using tactics such as calling consumers multiple times per day, calling consumers even after being asked to stop, calling consumers early in the morning or late at night. The companies were also charged with calling consumers' workplaces despite them knowing that the employers prohibited such calls. The companies would leave phone messages that disclosed not only the debtors' names, but also the nature of the debt to third parties. The FTC complaint further charges that the companies would pursue debtors even though the debtors had previously informed them that they do not owe the debt. The FTC charges that the companies made no effort to verify the debts consumers denied owing; instead they would continue their aggressive collection efforts.

Under the proposed settlement order, should a consumer dispute the validity or the amount of a debt, the companies must either close the account or end collection efforts. The companies must suspend collection until they have conducted a reasonable investigation and verified that their information about the debt is not only accurate, but also complete. The proposed settlement order also imposes restrictions as to when it is appropriate for the companies to leave voicemails that disclose the alleged debtor's name and stating that he or she may have an outstanding debt.

Furthermore, the proposed settlement order goes on to state that the companies must stop falsely representing that they will not call a number to collect a debt; not harass, oppress or abuse a consumer while attempting to collect a debt; they cannot communicate with third parties about a debtor's debt; they cannot communicate with a consumer at his or her workplace if it is clearly inconvenient or prohibited by the consumer's employer (there are limited circumstances); cease communications if a consumer has requested no further contact or if a consumer refuses to pay a debt; and not violate any provisions of the Fair Debt Collection Practices Act. Beginning one year after the date of the order, the companies are required to record at least 75 percent of all their debt collection calls and they must retain the recordings for 90 days after they are made. Expert Global Solutions settled the FTC charges and has agreed to pay $3.2 million in civil penalties, the largest settlement ever obtained by the FTC against a third party debt collector.

Consumers can help the Federal Trade Commission prevent fraudulent, deceptive and unfair business practices by visiting the FTC's online Complaint Assistant or calling 1-877-382-4357.

Three out of Five Bankruptcy Filings Are Due To Medical Debt

June 28, 2013

When we think of people who file for bankruptcy, very often we tend to think of them as over spenders maxing out their credit cards and leading a carefree lifestyle; or perhaps we think of them as people who have lost their job and are now unable to pay their debts. However, the truth of the matter is three out of every five bankruptcy filed is due to medical debt. Consumers filing bankruptcy due to medical debt are quickly outpacing bankruptcies that are filed due to unpaid credit card bills or unpaid mortgages.

In fact, having medical insurance does not shield you against financial hardships. It is estimated that 10 million adults with yearly health coverage will struggle with medical bills they cannot pay. Many households, although they have medical insurance, are challenged with the rising costs of out of pocket expenses. If the consumer if hoping that the Affordable Care Act will help ease the pain, they are in for a surprise. The Affordable Care Act may make health coverage more accessible to the general public, but it certainly will not ease the pain of out of pocket expenses.

Consumers, an estimated 11 million, will incur additional credit card debts in order to cover their mounting medical bill payments. Credit cards generally charge consumers a high interest rate for carrying monthly balances. That further creates mounting debt and consumers find themselves caught in a vicious cycle. Millions of consumers will drain their savings account to pay for their medical bills. Millions of others simply skip their monthly basic necessities such as rent and food in order to pay for their medical bills. Further, it is not unusual for consumers to stop taking their recommended prescriptions simply because they need to choose between paying their medical bills or continuing treatment.

So, for the groups at large who think the majority of consumers who file for bankruptcy are doing so because they are unable to pay their credit cards and mortgages, think again. We are all, medical insurance or not, a step closer to bankruptcy when faced with mounting medical bills we cannot afford and we find ourselves unable to pay for our other monthly obligations such as rent and food. Once we are done draining our savings accounts and maxing out our credit cards to pay our medical bills, consumers are left with no choice but to file for bankruptcy.

Federal Trade Commission Halts Illegal Robocalls

June 14, 2013

The Federal Trade Commission (FTC) settled charges they brought against Skyy Consulting, Inc., a California company doing business as CallFire, located in Santa Monica, California. CallFire provided voice-over-internet, a practice also known as voice broadcasting. CallFire would use computers to send out pre-recorded messages simultaneously to large groups of consumers. As part of the settlement with the FTC, CallFire has agreed to stop making illegal robocalls to consumers. CallFire has also agreed to pay a $75,000.00 civil penalty.

FTC charged that CallFire made it easy for their clients to deliver illegal pre-recorded telemarketing calls to unsuspecting consumers, without first obtaining written consumer consent. Since such telemarketing robocalls have been illegal since September 1, 2009, the FTC accused CallFire of either knowing, or knowingly avoiding knowing, that their clients were violating the Telemarketing Sales Rule (TSR).

CallFire can no longer initiate robocalls, nor are they allowed to participate in any other activities that may violate the TSR. CallFire has been ordered to review all pre-recorded messages currently in their possession within 120 days (to ensure they comply with TSR rules) and CallFire must terminate its contracts with any clients not willing to comply to the TSR rules.

The Federal Trade Commission (FTC) votes to authorize their staff to refer complaints to the Department of Justice (DOJ) when they become aware that the law has been violated or is in the process of being violated. The FTC determined it was in the public's best interest to authorize a complaint be filed against CallFire. The role of the FTC is to protect consumers from falling victim to unfair, fraudulent, and dishonest business practices. If a consumer desires to assist the FTC in stopping, spotting or avoiding unfair business practices, they may file a complaint in English or Spanish by visiting the FTC website . Consumers can also reach the FTC at 1-877-FTC-HELP (1-877-382-4357).

Court Orders Car Lender To Return Repossessed Vehicle: Weber v. SEFCU

May 31, 2013

You file for bankruptcy protection to get your repossessed vehicle back from the secured lender however, the lender tells you that although you have filed for bankruptcy, they are under no obligation to give you the car back. Your attorney reminds the lender that you filed for bankruptcy and that automatic stay under section 362 of the Bankruptcy Code requires lenders to turnover property of the estate even when they don't want to. Your attorney also advises the lender that failure to turn over the property can get the lender in all kinds of trouble with the Bankruptcy Court, including having to pay for damages, costs and fees associated with the violation of the automatic stay.

In the case of In re Weber (Weber v. SEFCU), No. 12-1632-bk (2d Cir. May 8, 2013), secured creditor SEFCU, decides they are willing to take a gamble by resting their laurels on a decision from the District Court of the Northern District of New York, In re Alberto. The decision had concluded that secured lenders had no obligation to return repossessed vehicles when a person files for bankruptcy unless the debtor specifically took action to get their property back, such as obtaining a turnover order from the court. The District Court's opinion is that the secured creditor did not violate the automatic stay as the vehicle was no longer in debtor's possession, nor had the creditor unlawfully taken possession of the vehicle pre-petition. Therefore, the Court reasoned that the creditor did not have to give the vehicle back to the debtor even though the creditor was now aware the debtor had filed for bankruptcy.

The Second Circuit Court did not agree with the District Court's ruling. Debtors file for bankruptcy to seek relief from creditors and to reconstruct their financially troubled lives. That includes having secured creditors turn over to the estate, property they repossessed prior to the Debtors filing for bankruptcy. The Second Circuit held that Bankruptcy Code section 542(a) requires the turnover of property. The secured creditor, once they have returned the property back to the Debtor, may seek adequate protection. Therefore, the Second Circuit found SEFCU in obvious violation of the automatic stay, regardless of the In Re Alberto decision.

SEFCU gave the car back to the Debtor and the Court ruled that SEFCU had to pay for Debtor's damages, costs and attorney fees. SEFCU, in the Court's opinion, willfully violated the automatic stay under section 362(k). SEFCU argued that they relied on In re Alberto's ruling to support their argument; however the Court ruled that SEFCU knew the plaintiff had filed for bankruptcy, and by refusing to turn over the vehicle had violated the automatic stay.

United States Court of Appeals Seventh Circuit Discharges "BURDEN" Student Loans

May 21, 2013

The bankruptcy code generally takes the position that student loans are non dischargeable debts unless a debtor can prove the payment of the debt will cause "undue hardship" to both the debtor and debtor's dependents. Debtors can take the "Brunner test" (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987). In most cases proving undue hardship would be showing the court that the repayment of the student loans, based on current income and expenses, would impair the standard of living for debtor and debtor's dependents. Additionally, debtors much demonstrate to the court that they will be unable to repay the student loan debt during the repayment period as their financial situation shows no signs of improving. Debtors must also show the court that they have made good faith efforts to repay the student loans.

In this case, debtor incurred the student loan in order to study paralegal courses. Over the next 10 years, debtor found herself seeking employment by submitting over 200 job applications. Debtor was not hired, so she decided to relocate to a rural area to live with her retired mother. The move to the rural area, where jobs are few and hard to find, further hindered debtor's chances at finding paralegal work.

The bankruptcy court found debtor did prove undue hardship and determined that her student loan debt was dischargeable. However, the student loan creditor appealed the ruling as they argued that the debtor had failed to look for work outside of the paralegal sector. Creditor is in essence arguing that debtor did not broaden her search for work outside of what she went to school for and therefore, failed to show due diligence at finding gainful employment. The district court, upon hearing the student loan creditor's argument, agreed with creditor and reversed the bankruptcy court's decision to discharge the student loan.

The United States Court of Appeals for the Seventh Circuit, heard the appeal by the debtor and reversed the district court's ruling and reinstated the bankruptcy court's ruling. What the United States Court of Appeals is essentially saying is that the bankruptcy code does not outright forbid the discharge of student loans, but rather that a student loan can be discharged if the debtor can show hardship. In this case the Court agreed with the bankruptcy court and rendered the debtor's situation "hopeless" a burden. The United States Court of Appeals found that the US District Court had no basis for reversing the bankruptcy court's decision to discharge the student loan debt, and concluded that the debtor, despite her good intentions, currently had no ability to repay her student loan, nor was she ever going to achieve future financial success in order to pay the loans. Upon reaching that conclusion, the Court of Appeals reinstated the bankruptcy court's ruling and discharged debtor's student loans.

Not all Judges are swayed by this decision. Judge Daniel Manion who authored the concurring opinion, wrote that he disagreed with the decision made by the judge in bankruptcy court. Judge Manion opinionates that bankruptcy judges allow too much leeway in determining undue hardships and because of this broad view the Court of Appeal was required to uphold the bankruptcy court's earlier decision to discharge the student loans. In Judge Manion's opinion debtor may have filled out 200 applications over a 10 year period, however if one was to closely examine what 200 applications over a 10 year period equates to, it would result in less than two job applications per month. Judge Manion, being aware that there are many others who struggle to repay their student loan, contemplates if this decision will allow others who are in a similar situation as this debtor determine that they too should avoid repaying their student loan obligations.

If you have any questions about student loans or how to get rid of student loans in a bankruptcy, feel free to check out our web-site.

What You Don't Know Can Hurt You; Credit Reporting Errors Are More Common Then You Think

March 13, 2013

Twenty Percent Of Consumers Have Errors On At Least One Of Their Three Credit Reports

We all know that our credit score affects our ability to obtain credit as well as influence how much interest we will pay for the credit we receive. But, did you know that your credit score also affects your ability to obtain insurance, the amount you will pay for insurance and whether or not you can get a cell phone? Unfortunately, the heavily relied upon information on credit reports is frequently wrong. A recent congressionally mandated study conducted by the Federal Trade Commission (hereinafter FTC) found that twenty percent of consumers had errors on at least one of their three credit reports. Obviously, those of us in California (especially in San Jose or the San Francisco Bay Area) should be worried about paying higher interest rates on mortgage loans for real estate that commands higher prices than just about anywhere else in the U.S.

The Fair Credit Reporting Act Helped Some Consumers Correct The Mistakes

The FTC is responsible for assisting consumers prevent fraudulent, deceptive and unfair business practices. Additionally, they provide information to consumers about how to recognize errors on their credit report and how to have the errors corrected. The FTC provided the study participants with an associate to help them spot the problems on their credit reports. Then the FTC encouraged consumers to use the Fair Credit Reporting Act ("FCRA") to resolve any potential credit report errors. Four out of five study participants who filed disputes saw some type of modification to their credit report and approximately ten percent of the study participants saw a change in their credit score after the credit reporting agencies ("CRA") corrected the errors on their credit report.

What To Do If Contacting The Credit Reporting Agencies Yourself Does Not Work

While some of the study participants' credit report errors were fixed, what happened to the other participants who did not see any resolution? Once a dispute is raised with the CRA, they are required to contact the creditor to confirm the accuracy of the reported debt. If the creditor informs the CRA that the debt is being reported accurately, the CRA may not change the credit report. If this happens to you, contact an attorney to discuss your rights and your legal options. One of your options may be to file a lawsuit against the creditor or collector who is reporting the debt incorrectly under the FCRA or Fair Debt Collection Practices Act ("FDCPA"). The FDCPA was enacted by congress to protect consumers against both abusive and mistaken collection activity. Furthermore, California's Rosenthal Fair Debt Collection Practices Act, and the California Consumer Credit Reporting Act, may assist consumers in California against illegal and deceptive collection activity, and incorrect credit reporting.

You Have Rights, Use Them

The FTC study clearly shows that we all must assume a bigger role in monitoring our credit report. The FTC suggests you obtain a copy of your credit report regularly. Once a year, you can obtain a free copy of your credit report from www.annualcreditreport.com. If you find errors on your credit report be proactive and ask that the errors be corrected. If the CRA does not fix the errors, seek the advice of a consumer right's attorney.

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Harassing Collection Calls For Debts Not Owed

February 1, 2013

Hundreds of Thousands of Americans Are Receiving Harassing Phone Calls To Pay Debts They Don't Owe

Debt collectors from overseas call centers have been placing millions of abusive calls to people. The astonishing fact about these collection calls is that the loans had already been paid in full or were never owed in the first place.

Debt Collectors Targeting People Who Have Applied For Online Payday Loans

Online payday loans have become popular with people needing quick cash. It's bad enough that these loans carry an exorbitant interest rate; now overseas call centers are trying to collect money that was already repaid. The collectors call your home, cell and work number, sometimes dozens of times a day. They threaten to send someone to your home or work to personally collect the money. Collectors will even threaten legal action, including arrest. Unfortunately, their illegal tactics work. An ABC News investigation in 2012 found that call centers in India were successful in scaring people into paying more than $5,000,000.00 to them for debts they did not owe.

A Frightening Story of Abusive Collection Activity Shared by New Orleans Woman

Cindy Gervais obtained an online loan when her husband's car was damaged in an automobile accident. Ms. Gervais subsequently paid off the loan. Even though the loan was paid, she began receiving threatening collection calls. She was told that if she didn't pay, she would be arrested. They called her home, cell and place of business. They threatened to come to her job and take her to jail. She was so afraid that she paid them.

California Debt Collector Charged for Fraudulent Debt Collection

In August of 2012, United States Attorney Benjamin B. Wagner stated that Kirit Patel, a resident of Tracy, California, set up an American shell company called "Broadway Global Master". A call center in India would pressure people into paying nonexistent debts and then Mr. Patel's company would process their credit card payments. Mr. Patel's Sacramento based attorney, Mark Ellis, claims that Mr. Patel had no idea what the call centers in India were doing.

There Are More Abusive Debt Collectors That Have Yet To Be Caught

In the past few months, California consumers have been reporting collection calls eerily similar to Cindy Cervais' story. In mid January 2013, one woman said a collection company was trying to collect for a payday loan she had in 2008. She did not believe she ever had such a loan. Another, in January 2013, claimed a collection company called him over 100 times in the past year trying to collect for a supposed bad check he wrote in 2007 to a company called Allied Cash Advance. This man denied ever writing a check to this company. He called his bank and his bank confirmed that there was never a returned check from Allied Cash Advance. In late January a woman reported that a collection agency based in California who claimed they were collecting for HSBC. This woman claimed she has never owned HSBC and asked the collection company for proof of the debt. They responded to her request by hanging up on her. When she tried to call them back, at the same number they used to call her, the telephone just rang and rang and no voice mail would pick up.

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Older Americans Are Incurring More Debt Than Ever Before

January 30, 2013

Older Americans Are Incurring More Debt Than Ever Before

According to the Federal Reserve, Americans between the ages of 65 and 74 are saving less and borrowing more. The debt owed by these borrowers includes mortgages. Unfortunately, one of the by-products of mortgages owed by older borrowers is Widows losing their homes.

The Time in Life When A Family Home Is Paid In Full Is Changing

Remember watching old television programs when mom and dad threw a party to burn their deed when the mortgage was paid? The programs usually showed married couples where dad was still working and mom stayed home to take care of the kids. Times have changed; more and more retired individuals still make monthly mortgage payments.

In California, The Average Home Price More Than Doubled From 2000 To 2006

In California, the jump in property value coupled with the ease of refinancing with sub-prime lenders led numerous people to borrow on the equity they built in their home. For older borrowers, this money was often used to pay medical bills and to supplement their retirement income. The housing crash hit the Bay Area hard and the inflated home values quickly disappeared.

In 2011 6 Percent Of Loans Held By People Over 50 Were Delinquent

A study by AARP in July 2012 showed that loan payment delinquencies for people over the age of 50 were up from 1 percent in 2007 to 6 percent in 2011. Housing lawyers have confirmed that this accurately reflects the rising foreclosures on seniors' homes.

A Poor Housing Market Combined With Higher Mortgage Debt Is Causing More Widows To Enter Foreclosure

A growing sub-group of mortgage debtors are widows, some who are facing the complex arena of mortgage loans for the first time. If a widow falls behind on payments, one of the options available to a number of borrowers may not be available to them; loan modification. A loan modification allows borrowers to lower their monthly mortgage payments, bring their account current and sometimes lower the debt amount. However, many widow's names are not on the mortgage note. If their name is not on the mortgage, lenders will not work with them to modify the loan and in order to add their name to the mortgage note, they must be current on the loan payments. Put another way, by the time they need a loan modification, it is not available to them.

Bankruptcy Will Not Protect Your Home If Your Name Is Not On The Mortgage

A number of people who are unsuccessful modifying their mortgage file a Chapter 13 Bankruptcy. A Chapter 13 Bankruptcy will allow a borrower to keep their home and repay their mortgage delinquency over a 3 to 5 year period. Unfortunately, if a widow's name is not on the mortgage, they can't protect the home in bankruptcy as only debts owed by the individual filing bankruptcy can be restructured in bankruptcy. Therefore, the widow's options are limited to foreclosure or sale. However, if their property value dropped or they previously borrowed against the equity, they may owe more on their home than it's worth. Thus, their ability to sell their residence and pay off the mortgage is gone.

Continue reading "Older Americans Are Incurring More Debt Than Ever Before" »

Bankruptcy Discharge Does Not Prevent Ability To File FDCPA Lawsuit

November 12, 2012

Court Rules That Bankruptcy Discharge Does Not Prevent Consumer's Ability To File FDCPA Lawsuit

Magistrate Judge Dennis J. Hubel found that a lawsuit filed by Kevin Walch against Columbia Collection Service, Inc. ("Columbia") for violations of the federal Fair Debt Collection Practices Act (FDCPA) should be referred to the Bankruptcy Court only for resolution of the claims that fall within the jurisdiction of the Bankruptcy Court and that the Bankruptcy Court should then refer the remaining claims back to the District Court for resolution. Kevin Walch v. Columbia Collection Service, Inc., 2012 U.S. Dist. LEXIS 132281.

Kevin Walch Received A Bankruptcy Discharge

On July 21, 2010, Kevin Walch filed a petition under Chapter 7 of the Bankruptcy Code. His bankruptcy schedules included both Silverton Hospital and Columbia (the collection agency that was attempting to collect the debt owed to Silverton Hospital). Mr. Walch received a discharge in his bankruptcy on October 25, 2010.

Despite The Discharge, Columbia Collection Service, Inc. Continued Collection Activity

On January 23, 2012, Mr. Walch filed a lawsuit against Columbia in Clackamas County, Oregon. His lawsuit claimed that even though Columbia received notice of his discharge, they continued their collection efforts including obtaining a default judgment against him for the amount of the debt plus attorney's fees and costs, and garnishing his wages. He also alleged that Columbia unlawfully contacted his employer, threatened and harassed him, caused him to suffer emotional distress and damaged his reputation. On February 27, 2012, Columbia had the case reassigned to the District Court and then moved to dismiss Mr. Walch's lawsuit.

Columbia Argued The District Court Lacked Jurisdiction; The District Court Disagreed

Columbia argued that pursuant to Walls v. Wells Fargo Bank, N.A. 276 F.3d 502 (9th Cir. 2002) the District Court lacked subject matter jurisdiction and that the proper forum for Mr. Walch to raise any alleged violations was the Bankruptcy Court. The district court disagreed. Judge Hubel reviewed each of Mr. Walch's claims for relief. He found that certain claims were preempted, and some were not. Judge Hubel reasoned that only those claims that "necessarily entail bankruptcy-laden determinations are preempted or precluded". He went on to say that "consumer protection claims are properly heard in the district courts when those claims do not directly allege a violation of the bankruptcy discharge order". Church, 2011 U.S. Dist. LEXIS 68718, 2011 WL 2444719. Simply put, claims that would exist regardless of the bankruptcy should be heard by the district court.

The Violations By Columbia That Did Not Directly Relate To The Discharge Of The Debt Are Claims That Should Be Decided By The District Court

Judge Hubel listed the following claims alleged by Mr. Walch as matters that should be heard by the District Court:

1- Columbia increased the debt amount by adding attorney fees, in violation of ORS §646.639(2)(m) and the Oregon Rules of Professional Conduct.
2- Columbia unlawfully attempted to collect charges and fees in excess of the actual debt, in violation of ORS §646.639(2)(n).
3- Columbia unlawfully communicated directly with Mr. Walch despite knowing he was represented by an attorney.

Judge Hubel recommended the Bankruptcy Court determine the scope of its jurisdiction, render decisions on those claims that it has jurisdiction and then submit findings and recommendations to the District Court on the remaining claims.

Court Rules Consumers Have Valid Claims Against Portfolio Recovery Associates

October 29, 2012

United States District Court Finds Consumers Have Valid Claims Against Portfolio Recovery Associates For Violating The Fair Debt Collection Practices Act

Consumers, Gordon and Majolis Swearingen sued Portfolio Recovery Associates alleging violations of the Fair Debt Collection Practices Act (FDCPA). The FDCPA was passed to protect consumers against both abusive and mistaken collection activity. The Swearingens claimed Portfolio's phone calls were harassing because Portfolio's representatives used deceptive practices. Specifically, they threatened to file a lawsuit on the outstanding debt even though the statute of limitations had passed. Simply put, the debt was too old and Portfolio knew that a lawsuit was unwinnable. Portfolio moved to have the Swearingens' lawsuit dismissed and also asked for attorney fees. The United States District Court for the Northern District of Illinois denied Portfolio's motion. Gordon Swearingen and Majolis Swearingen v. Portfolio Recovery Associates, LLC 2012 U.S. Dist. LEXIS 136434.

The Original Debt Was Over 20 Years Old

In the 1980s, Majolis Swearingen (Majolis) incurred two debts. Portfolio subsequently purchased the debts from the original creditors and on October 14, 2010, began placing phone calls in an attempt to collect the debt. Approximately 22 calls were placed between October 14, 2010 and December 28, 2010. Gordon Swearingen (Gordon) received calls from Portfolio at both their home telephone number and his personal cell phone despite the fact that Gordon informed Portfolio that it was his personal cell phone, and that Majolis could not be reached by calling it. Portfolio never spoke to Majolis; Gordon answered each and every telephone call.

Majolis Can Sue Portfolio Even If They Never Spoke To Her And Gordon Can Sue Portfolio Even If He Was Not The Debtor

Portfolio argued that it could not be liable to Majolis under FDCPA §1692e because it's representatives never spoke to her. Furthermore, Portfolio argued that the threats made in phone calls answered by Gordon cannot be a basis for liability because Gordon is not the debtor and therefore does not have standing to sue under FDCPA §1692e. The District Court disagreed. The court held that non-debtors can sue a debt collector for abusive and mistaken attempts to collect debts pursuant to the FDCPA, where prohibited conduct was either experienced by or directed toward the non-debtor. The court went on to say that any other ruling would not only violate the purposes of the FDCPA, but would allow debt collectors to escape liability, no matter how egregious their conduct.

Bankruptcy Discharge Does Not Prohibit A Lawsuit For Inaccurate Credit Report Information

October 14, 2012

Court Rules That Bankruptcy Discharge Does Not Prevent Consumer's Ability To File a Lawsuit For Inaccurate Reporting on Credit Report

Magistrate Judge Joseph Spero found that a lawsuit filed by Karen King against Bank of America for violations of the Fair Credit Reporting Act ("FCRA"), California Consumer Credit Reporting Agencies Act ("CCRAA") and California Unfair Competition Law ("UCL") fell within the jurisdiction of the District Court. Karen King v. Bank of America, N.A., 2012 U.S. Dist. LEXIS 141963.

Karen King Received A Bankruptcy Discharge

On July 21, 2010, Karen King received a bankruptcy discharge pursuant to 11 U.S.C. §727. Included in her discharge was a $50,877.00 debt owed to Bank of America, N.A. On July 23, 2010, the Bankruptcy Court sent Bank of America notice of her discharge.

Despite The Discharge, Bank of America Continued to Report the Debt as Delinquent on Karen King's Credit Report

On or about May 5, 2011 Ms. King sent Experian written notice that Bank of America was inaccurately reporting that she was delinquent on payments for a debt that was discharged in bankruptcy. Simply put, Ms. King could not be delinquent on payments for a debt she no longer owed. On June 6, 2011 Ms. King received a copy of her Experian credit report. The credit report reflected that Bank of America was still reporting the debt incorrectly.

On July 6, 2012 Karen King Sued Bank Of America

On July 6, 2012, Ms. King filed a lawsuit against Bank of America in Superior Court. Her lawsuit claimed that Bank of America failed to investigate her dispute of the debt, failed to remove the inaccurate derogatory information and conducted unfair and unlawful business practices. Ms. King claimed that Bank of America's actions were intentional and in reckless disregard of it's duty. On August 8, 2012, Bank of America had the case reassigned to the District Court and then moved to dismiss Ms. King's lawsuit.

Bank of America Stated Several Reasons for Dismissing the Lawsuit; the District Court Disagreed With All of Their Reasons

Bank of America claimed that Ms. King failed to state a claim or allege any loss of money or property. They also argued that Ms. King could not bring a lawsuit until she suffered actual harm by Bank of America's actions. Bank of America further argued that pursuant to Walls v. Wells Fargo Bank, N.A. 276 F.3d 502 (9th Cir. 2002) the District Court lacked jurisdiction and that the proper forum for Ms. King to raise any alleged violations was the Bankruptcy Court. Judge Spero disagreed with all of their arguments. In part, Judge Spero cited Hanks v. Talbots Classics Nat'l Bank, 2012 U.S. Dist. LEXIS 109934, 2012 WL 3236323 "while FCRA and the discharge stay are similar, they are not identical. They differ in their objectives. The FCRA seeks to minimize credit reporting errors and to cure those that are made in a prompt and efficient manner. The discharge stay is directed to enforcing the bankruptcy discharge". Judge Spero ruled that the two laws can coexist. Therefore, Bank of America's motion to dismiss Karen King's lawsuit was denied.

California Judge Finds Consumer Has Valid Claims Against Creditors Who Incorrectly Reported His Debts to Credit Reporting Agencies After Bankruptcy

September 9, 2012

OC U.S. District Court.jpg

A California federal judge found a bankrupt consumer had bali claims against creditors who incorrectly reported his debts to credit reporting agencies after bankruptcy. Browndorf v. TD Bank, N.A., Et Al., 2012 U.S. Dist. LEXIS 99237 (C.D. Cal. 2012).

Matthew Browndorf filed a chapter 7 bankruptcy in February 2011. His bankruptcy filing was successful and on May 20, 2011 the court issued him a bankruptcy discharge order.

Creditors Incorrectly Reporting Debts

However, in August 2011 Mr. Browndorf checked his credit report to make sure that his bankruptcy discharge order was being properly reported. After he reviewed his credit reports he realized that the credit reporting agencies were reporting invalid information. So, he contacted them to dispute the inaccuracies and sent copies of his bankruptcy discharge order to the creditors who were inaccurately reporting his debt. Unfortunately, his efforts were unsuccessful. As a result of the inaccurate information on his credit report, he was paying high interest rates on his consumer debts.

The Consumer Sued Under Credit Reporting Laws

Mr. Browndorf filed a lawsuit against four of his creditors, TD Bank N.A., BMW Bank of North America, BMW Financial Services, N.A., LLC and Saxon Mortgage Services, Inc. claiming that they violated California's Consumer Credit Reporting Act, California Civil Code §1785.25(a), as well as other laws. In response to his lawsuit, the four creditors filed a motion to dismiss his lawsuit.

The Court Reasoned:

California Civil Code §1785.25 states that a party shall not furnish information regarding a specific transaction or experience to any consumer credit reporting agency if the party knows or should have known that the information was incomplete or inaccurate. Mr. Browndorf disputed the credit information directly with the creditors (by sending them a copy of his bankruptcy discharge order). Therefore, the court ruled that the creditors had knowledge of the inaccuracies.

Before the federal judge could reach the above conclusion, a number of other factors had to be considered:

1- The creditors tried to claim that the California Civil Code is preempted (or superseded) by the Fair Credit Reporting Act (FCRA). Simply stated, the creditors argued Mr. Browndorf was barred from arguing that there was a violation of California Civil Code §1785.25, since federal law blocked that claim. The California federal judge disagreed and pointed out that there have been two recent cases in the 9th Circuit (which governs cases in California) that expressly rejected that argument. Carvalho v. Equifax Info. Services, LLC, 629 F.3d 876, 888 (9th Cir. 2010); Gorman v. Wolpoff & Abramson, LLP, 584 F. 3d 1147, 1171-72 (9th Cir. 2009).

2- Also, the court said bankruptcy law did not block Mr. Browndorf's lawsuit since he was not seeking to enforce a bankruptcy discharge, but rather, his lawsuit revolved around the creditors' failure to adequately address the credit reporting information that he disputed.

What this means to you

If you filed bankruptcy, received your discharge order and your credit report is showing inaccurate information, the law is on your side. However, it is very important that you follow the proper procedures when disputing the inaccurate information or you may not get the result that you deserve.

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Federal Judge Refuses to Throw Out Wrongful Foreclosure Case, Despite Bankruptcy

June 10, 2012

A federal judge in San Francisco refused the throw out a wrongful foreclosure case, despite SF Federal Court.jpgthe fact the consumer failed to reveal the potential lawsuit in her bankruptcy schedules.

Consumer Andrea Chancellor brought a lawsuit against OneWest Bank ("OneWest") and Cal-Western Reconveyance Corporation ("Cal-Western") stemming from OneWest's failure to permanently modify her mortgage loan and Cal-Western's initiation of foreclosure proceedings.

Consumer Takes Out IndyMac Loan

Back in 1993 Chancellor bought a condominium in Hayward, California. Then in February 2007, she obtained an adjustable rate mortgage from IndyMac Bank an adjustable rate mortgage in the amount of $400,000, and a second in the amount of $50,000. Id. at 6, ¶ 14, Ex. A. Then in March 2009, OneWest acquired IndyMac's loans and servicing rights. See Failed Bank Information, Information for IndyMac Bank, F.S.B., and IndyMac Federal Bank, F.S.B., Pasadena, CA. http://www.fdic.gov/bank/individual/failed/IndyMac.html (last visited May 22, 2012).

Consumer Gets Temporary Loan Modification

By April 2009, Ms. Chancellor was having difficulty staying current on her loan payments, so she sought either a special forbearance agreement or a loan modification from OneWest. Eventually, in October 2009, OneWest offered her a temporary loan modification through a Trial Period Plan ("TPP") under the Home Affordable Modification Program ("HAMP"), to which she agreed. Under the terms, Ms. Chancellor was to make three monthly payments of $1,159.15 on or before November 1, 2009, December 1, 2009, and January 1, 2010.

OneWest Starts Foreclosure Process Despite the Loan Modification

Ms. Chancellor made the first payment by November 1, 2009. But, on November 4, 2009, OneWest, through its trustee Cal-Western, basically took the first step toward foreclosure by recording a Notice of Default. Ms. Chancellor alleges OneWest broke oral and written agreements not to attempt to foreclose.

Also she alleges that she not only made the three payments by November 1, 2009, December 1, 2009, and January 1, 2010, but also made seven additional payments through September 2010. Id. OneWest accepted all of these payments and applied them to the balance of her loan but never approved Ms. Chancellor for a permanent loan modification. She was also told she did not qualify for a permanent loan modification. She alleges she was not given a reason for the denial.

Ms. Chancellor then filed series of chapter 13 bankruptcies in an attempt to stop OneWest's efforts to foreclose.

Consumer Files Federal Lawsuit in San Francisco for Wrongful Foreclosure

Ms. Chancellor filed a federal lawsuit San Francisco against OneWest and Cal-Western for wrongful foreclosure, breach of contract, unfair and deceptivive business practices, and some other related claims.

OneWest asked the court to throw the case out in light of the doctrine of judicial estoppel. Basically, OneWest argued that since Ms. Chancellor did not list her potential lawsuit in her bankruptcy schedules, she should not be allowed to proceed with the lawsuit.

Federal Court Refuses to Throw Out the Wrongful Foreclosure Lawsuit

However, the court refused to throw the consumer's case out. The court reasoned that none of the bankruptcy courts presiding over Ms. Chancellor's cases has certified any bankruptcy plans, and OneWest has not shown the court issued in any of Ms. Chancellor's bankruptcy cases that relied on the bankruptcy schedules Ms. Chancellor submitted.

The court reasoned that the Ninth Circuit Court of Appeals "has restricted the application of judicial estoppel to cases where the court relied on, or 'accepted,' the party's previous inconsistent position." Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782-83 (9th Cir. 2001). In such a factual context, the court finds that Ms. Chancellor has not "gain[ed] an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position," Hamilton, 270 F.3d at 782, and that judicial estoppel is not appropriate here.

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Court Allows FDCPA Suit Against Midland's Collection Law FIrm

May 27, 2012

The U.S. District Court in Oregon recently decided that a law office working for Midland Credit Management, Inc. may be a debt collector, and thus would have to abide by the Fair Debt Collection Practices Act. Watters v. Midland Credit Management, Inc. and Bennett Law, PLLC, 2012 U.S. Dist. LEXIS 65268 (D. OR. 2012). The U.S. District Court in Oregon is within the Ninth Circuit, which also governs other states including California and Washington.
D. OR.jpg
The consumer alleged that Bennett Law, PLLC, violated several sections of the Fair Debt Collection Practices Act, including: 15 U.S.C. §§ 1692e(2)(A)(making false, deceptive or misleading statements in an attempt to collect a debt, including the false representation of the character, amount or legal status of any debt), 1692e(10)( use any false, deceptive, or misleading representation or means in connection with the collection of any debt., and 1692f (using any unfair or unconscionable means in an attempt to collect a debt).

One of the major points the Court had to decide was whether the consumer sufficiently alleged that Bennett Law was a "debt collector" under the Fair Debt Collection Practices Act (FDCPA).

Defendant Bennett Law is a "debt collector" pursuant to 15 U.S.C. § 1692a(6)

The Court noted that in its answer to the consumer's complaint, Bennett Law denied the allegation that it is a "debt collector", saying it "is without sufficient information or belief to respond to this allegation." However, the Court stated, "facts in the record indicate that Bennett Law is, in fact, a debt collector."

To be a debt collector, a person or organization must (1) use an instrumentality of interstate commerce or the mails, (2) for the principal or regular purpose of attempting to collect debts, (3) asserted to be owed to another.

Interstate Commerce

The Court stated that using a telephone to attempt to collect debts was using an instrumentality of interstate commerce.


The Court then reasoned that in interpreting the term "regular," one court held that an attorney was "regularly engaged in debt collection practices under the FDCPA by consistently accepting at least 10 debt collection matters every year." Silva v. Mid-Atlantic Mgmt. Corp., 277 F. Supp. 2d 460, 466 (E.D. Pa. 2003).That same court also held that "'debt collection services may be rendered "regularly" even though these services may amount to a small fraction of the firm's total activity.'"

Similarly, another court held that even though a law firm's debt collection activity made up less than four percent of the firm's total business, it satisfied the "regularly" standard set forth in the statute. Stojanovski v. Strobl & Manoogian, P.C., 783 F. Supp. 319, 322 (E.D. Mich. 1992).

The Court concluded:

"As corporate counsel for Midland, and as debt collection counsel for Wal-Mart, Shopko, and Target, and as evinced by Bennett Law's business structure, it is evident that Bennett Law is "regularly" engaged in the collection of debts, whether through litigation or over the telephone. Certainly Bennett Law is "regularly" engaged in the collection of debts if an entire group of the firm is devoted to the collection of debts via telephone, while the other group is engaged in the collection of debts via litigation. Indeed, the court is unaware that Bennett Law practices anything other than debt collection law."

The Court also added, the U.S. Supreme Court has unanimously held that the term "debt collector" "applies to a lawyer who 'regularly,' through litigation, tries to collect consumer debts" on behalf of a client. Heintz v. Jenkins, 514 U.S. 291, 292, 115 S. Ct. 1489, 131 L. Ed. 2d 395 (1995).

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Federal Court Holds Ocwen Must Comply With Fair Debt Collection Practices Act

April 14, 2012

A federal judge held Ocwen must comply with the Fair Debt Collection Practices Act ("FDCPA"). Zervos v. Ocwen Loan Servicing, LLC, 2012 U.S. Dist. LEXIS 44869 (D. MD 2012).

A husband and wife brought a lawsuit against Ocwen Loan Servicing falsely stating their home had been foreclosed on when it had not. Ocwen is a debt buyer that had bought the couple's mortgage loan from the original mortgage creditor. The couple claimed, in part, that Ocwen violated the Fair Debt Collection Practices Act- a federal law that governs how collection agencies are allowed to collect debts (and also covers those collection agencies attempting to collect debts here in California). The FDCPA provide consumers powerful rights to fight back against abusive debt collectors, without having to file bankruptcy.

Ocwen tried to get the case thrown out, arguing that the company is not a debt collector under federal law, and that they don't need to abide by the FDCPA. The federal court disagreed with Ocwen and refused to throw the case out.

Many consumers have complained about Ocwen's mortgage loan modification procedures. See video.


The consumers were in the process of modifying their mortgage with their original mortgage creditor. During this time Ocwen acquired the defaulted mortgage loan. The consumers tried to modify their loan with Ocwen but Ocwen refused. Indeed, the consumers attempted to continue negotiations with Ocwen by sending it their loan modification package, but Ocwen denied the modification and allegedly attempted to foreclose on the the Property.

On September 21, 2011, the consumers received a letter from Ocwen that said the home would not be foreclosed if the husband and wife contacted Ocwen in the next 30 days. However, when the consumers attempted to contact Ocwen they were unable to do so because the automated phone system informed them there were over 200 callers ahead of them. Also, although the consumers were told they had 30 days to contact Ocwen, a representative showed up at the consumer's residence to change the locks, saying that the property had already been foreclosed on.

Additionally, on September 22, 2011, Ocwen sent another letter, this time saying that there was a foreclosure sale set within the next 60 days. The consumer's lawsuit alleged that Ocwen's statements were false, and that no foreclosure proceedings had ever occurred and no sale was ever scheduled.

Court Holds Ocwen May Be a Debt Collector

Ocwen asked the court to throw out the lawsuit, arguing that the company could not be sued under the FDCPA because it is not a debt collector. However, the court disagreed with Ocwen.

Ocwen argued that the consumers could not state a valid claim against the company under the Fair Debt Collection Practices Act because loan servicers are not considered "debt collectors" under that law. But, the court ruled that exemption, does not apply where a loan servicer acquires a loan after it has already gone into default. Allen v. Bank of America Corp., Civil No. CCB-11-33, 2011 WL 3654451 at *7 n.9 (D. Md. Aug. 18, 2011)(citing Schlosser v. Fairbanks Capital Corp., 323 F.3d 534, 536-39 (7th Cir. 2003);
Shugart v. Ocwen Loan Servicing, LLC, 747 F.Supp.2d 938, 942-43 (S.D. Ohio

Ocwen also argue the consumer's lawsuit complaint did not allege that the mortgage was in default when Ocwen acquired it, but the Court found that default can be easily inferred from the alleged fact that Ocwen sent the consumers letters threatening foreclosure only days after acquiring the mortgage. The court held that Ocwen could be a debt collector under the FDCPA since the company acquires debts in default for the purposes of attempting to collect on those debts.

The court also determined that Ocwen can be in violation of the FDCPA (15 U.S.C. section 1692d) by engaging in conduct the natural consequence which is to harass, oppress, or abuse, in connection with the collection of the defaulted mortgage loan. The lawsuit claimed Ocwen informed the consumers that their home had been foreclosed and that a sale date was scheduled, when in fact there was no such foreclosure.

Additionally, Ocwen's attempt to foreclosure and evict the consumers by changing the locks without allowing consumers the 30 day response time promised in its first letter could be construed as abuse and or harassment. Similarly, Defendant's alleged attempt to effect foreclosure and eviction of Plaintiffs from their home by changing the locks without allowing Plaintiffs the thirty days response time allegedly promised in the first letter could be construed as abuse and or harassment, in violation of 15 U.S. 1692d of the FDCPA.

The court also found that the consumers properly stated claims that Ocwen used deceptive practices in an attempt to collect a debt, in violation of 15 U.S.C. 1692e of the FDCPA; falsely represented the legal status of a debt, in violation of 15 U.S.C. 1692e(2) of the FDCPA; threatened action it did not intent to take, in violation of the 15 U.S.C. 1692e(5).

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