Supreme Court Clarifies Scope of the FDCPA as It Relates to Nonjudicial Foreclosures

FDCPA Fair Debt Collection Practices Act binder on a table.In Obduskey v. McCarthy & Holthus LLP,[1] the U.S. Supreme Court resolved the circuit split on whether those engaged in nonjudicial foreclosure proceedings are subject to all of the requirements and prohibitions of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692 et seq. The Court ruled that those engaged solely in nonjudicial foreclosure proceedings are not debt collectors under the FDCPA, except for the limited purpose of Section 1692f(6), which regulates enforcement of security interests.[2] In doing so, the Supreme Court threaded carefully to avoid a conflict between state nonjudicial foreclosure laws and the FDCPA. Continue Reading

Two New Bills in Congress Seek to Restrict Arbitration Agreements

Two bills making their way through Congress are taking aim at the practice of including binding arbitration agreements in consumer-facing contracts, particularly those in financial industry contracts.

In March, Sen. Sherrod Brown, D-Ohio, introduced the Arbitration Fairness for Consumers Act (S. 630) in the Senate Committee on Banking, Housing, and Urban Affairs. Sen. Brown’s bill proposes amendments to the Consumer Financial Protection Act of 2010 (CFPA) by prohibiting mandatory arbitration and class action waivers in contracts that relate to a “consumer financial product or service.” The bill would apply prospectively “to any dispute or claim that arises or accrues on or after the date of the enactment of this Act.” Continue Reading

Supreme Court Overturns “Wholly Groundless” Exception to Contractual Delegations of Arbitrability Decisions to Arbitrators

3D rendering. Symbol made of digits.

On Jan. 8, 2019, the U.S. Supreme Court issued a unanimous decision regarding an important procedural issue under the Federal Arbitration Act (FAA). In Henry Schein, Inc. v. Archer & White Sales, Inc., No. 17-1272, it held that under the FAA, courts must enforce provisions in arbitration agreements delegating threshold questions of whether claims are subject to arbitration to the arbitrator. In so doing, the Court overruled a rule that allowed federal courts to decide themselves whether claims were subject to arbitration, regardless of contract language, if they determined the argument for arbitrability was “wholly groundless.” The Court thus eliminated one of the bases some courts have relied upon to avoid the enforcement of arbitration provisions they do not like.

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Supreme Court to Rule on Whether the Fair Debt Collection Practices Act Applies to Nonjudicial Foreclosure Proceedings

FDCPA Fair Debt Collection Practices Act binder on a table.

Currently before the U.S. Supreme Court is whether entities conducting nonjudicial foreclosure proceedings are subject to the requirements of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq. (FDCPA).[1] Whether entities conducting nonjudicial foreclosure proceedings are subject to the requirements of the FDCPA has divided the courts for many years. The Supreme Court’s ruling on this issue could finally provide the mortgage industry and lower courts with guidance as to the proper steps to follow in nonjudicial foreclosure proceedings.

By way of background, the FDCPA generally only applies to entities or persons that fall under its definition of “debt collector.” Under the FDCPA, a debt collector is any person engaged in any business “the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect … debts owed or due or asserted to be owed or due another.”[2] Thus, to qualify as a debt collector a person must be collecting a “debt.” The FDCPA generally defines debt as a consumer’s obligation to pay money.[3] At the heart of the issue regarding whether entities engaged in nonjudicial foreclosure proceedings is the FDCPA’s definition of the terms “debt” and “debt collector.” Specifically, whether nonjudicial foreclosures are attempts at collecting a debt.

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Supreme Court To Review FCC Deference In TCPA Cases

On Nov. 13, 2018, the U.S. Supreme Court granted certiorari in Carlton & Harris Chiropractic, Inc. v. PDR Network, LLC, after the Fourth Circuit vacated a lower court ruling regarding what constitutes an “unsolicited advertisement” under the Telephone Consumer Protection Act (TCPA). No. 17-1705, 2018 WL 3127423, at *1 (2018).

The Supreme Court is set to review whether the Hobbs Act requires district courts to accept the Federal Communication Commission’s (FCC) legal interpretations of the TCPA. This ruling may bring uniformity to the amount of judicial deference that federal courts afford to the FCC’s TCPA rules in civil litigation.

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IRS Issues Regulations That May Affect Borrowing Costs and Financing Terms of US Multinationals

Recently proposed IRS regulations materially change the way stock and assets of foreign corporations that are “controlled foreign corporations” (CFCs) can be used to support debt of U.S. affiliates. In the commercial lending market, this has the potential to impact long-standing approaches to obtaining guarantees and collateral from CFCs.  In some cases, this may lower a company’s cost of borrowing or provide additional collateral support, particularly in asset-backed/borrowing base loan structures.

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The Ninth Circuit Wades Into the “Autodialer” Fray and Creates a Circuit Split. TCPA Litigants Await FCC Guidance

What constitutes an autodialer or “automatic telephone dialing system” (ATDS) under the Telephone Consumer Protection Act (TCPA) is in flux.

Under the statute, an “automatic telephone dialing system” is defined as “equipment that has the capacity” to “store or produce telephone numbers to be called, using a random or sequential number generator,” and “to dial such numbers.” 47 U.S.C. § 227(a)(1).

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SEC Continues to Expand Examinations Focused on Crypto-Assets

Jay Clayton, chairman of the Securities and Exchange Commission (SEC or Commission), made clear back in December 2017 that his Commission was concerned with the proliferation of crypto-assets. The SEC defines crypto-assets as “crypto-currency (e.g., Bitcoin), initial coin offering (ICO), distributed ledger technology, blockchain and/or any related products and pooled investment vehicles.” Clayton cautioned both retail investors and professional market participants to perform their diligence, including evaluating the securities law implications of transactions, on any investment involving crypto-assets. This interest has recently manifested in an increased focus by the SEC’s examination arm, the Office of Compliance Inspections and Examinations (OCIE), on investment advisers’ and broker-dealers’ activities in crypto-assets.

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OCC Announces It Will Begin Accepting Fintech Charter Applications

On July 31, 2018, the Office of the Comptroller of the Currency (OCC) announced that it will begin accepting applications for special purpose national bank charters from financial technology companies. This “fintech charter” is limited to institutions that do not accept deposits.

The fintech charter was initially unveiled on December 2, 2016, by prior Comptroller of the Currency Thomas Curry. The concept was that fintech firms not linked to national banks were forced to comply with a wide variety of state-level regulations, leading to complex compliance concerns. The fintech charter would apply at the national level and was a step toward creating uniform federal regulatory standards for fintech companies to operate nationally.

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Third Circuit Upholds Foreclosure Sale Against Preference Attack

On July 19, the Third Circuit Court of Appeals entered a decision upholding the results of a foreclosure sale against a debtor’s allegation that the sale was a preference because the bankruptcy estate could have sold the property for a higher price. Veltre v. Fifth Third Bank (In re Veltre), Case No. 17-2889 (3d Cir. July 19, 2018).

Veltre’s home was encumbered by two mortgages prior to her bankruptcy; a senior mortgage in favor of Capital One Bank and a second mortgage held by another bank. Veltre defaulted on her loan, at which point the first lienholder foreclosed and the property went to sheriff’s sale. At the sale, the second lienholder purchased the home at auction for $90,000, which paid off the first mortgage in full.

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