Appellate Court makes decision regarding Fair Debt Collection Practices Act (FDCPA) and Mortgage Lenders

Sacramento area debtors who have filed Chapter 7 or Chapter 13 bankruptcy are frequently concerned with the implications of the FDCPA (affecting a creditor’s ability to collect on a debt) while his or her case is pending in the local bankruptcy court.

The Seventh U.S. Circuit Court of Appeals, which covers the Midwestern U.S., recently decided that some communications sent to borrowers by a loan servicer may fall under the provisions of the FDCPA. In Gburek v. Litton Loan Servicing LP, a borrower appealed after the trial court dismissed her case when she sued her mortgage servicer for violating her rights under the Act when the mortgage servicer hired a third party company to communicate with her about the debt. In her original complaint, Gburek claimed that Litton violated the FDCPA by contacting her despite knowledge that she had a lawyer, using deceptive means to obtain her personal information, and for disclosing her personal information to a third party.

According to the case, Litton contacted Gburek to discuss Gburek’s default on her mortgage. Litton sent Gburek a letter that asked her for a variety of financial information which also discussed Gburek’s possible alternatives to foreclosure on the property in an attempt to settle her mortgage-loan debt. The letter contained a disclosure that Litton was a debt collector and that the letter was sent as an attempt to collect a debt. Sometime thereafter Litton contracted with Titanium Solutions to contact Gburek. Gburek received a letter from Titanium that also asked for Gburek’s financial information but stated that it was not a debt collector and could not accept payments even though they had been hired by Litton to contact Gburek in order to facilitate a settlement between them.

Litton filed a motion to dismiss the case with the trial court saying that the two letters did not fall within the scope of the FDCPA since they were not sent “in connection with the collection of any debt.” The trial court found for Litton and said they had not violated the FDCPA since neither letter specifically demanded payment of the debt. The appellate court disagreed with the trial court, however, and determined that the issue revolved around whether the letters were sent in connection with the collection of Gburek’s debt. The appellate court’s decision revolved around factors that consider the relationship between the parties and the purpose and context of the communications between them. The court noted that “there is no specific test for proving this, but in this specific context, the letters had clearly been sent to collect on the debt.” Thus, the 7th Circuit determined that the trial court had improperly dismissed Gburek’s case.

As a Sacramento Bankruptcy Attorney, I am pleased to see that the 7th Circuit Court of Appeals looks more deeply into the purpose of the FDCPA versus a dry and strict interpretation of its provisions. I can only hope that judges and courts that have jurisdiction in Sacramento and the surrounding areas look at the law in a similar fashion. If you or someone you know has been contacted by a debt collector and you believe they have violated your rights you should contact a qualified attorney immediately.