Consumer Compliance Outlook: First Issue 2019

On the Docket: Recent Federal Court Opinions


The Ninth Circuit applies a four-year statute of limitations to the foreclosure protection provision of the Servicemembers Civil Relief Act (SCRA).

McGreevey v. PHH Mortg. Corp., 897 F.3d 1037 (9th Cir. 2018). PDF External Link In January 2009, a lender initiated foreclosure proceedings against a servicemember who was not on active duty. The borrower was subsequently called to active duty in May 2009, and his service ended on July 21, 2010. After the borrower’s service ended, the lender sold the property at a foreclosure sale in August 2010. Nearly six years later, the borrower sued the lender, alleging it violated Section 3953 of the SCRA, which prohibited a foreclosure sale of a servicemember’s property during service or within nine months of the release from service. (In 2012, Congress extended this period to one year and made the one-year provision permanent in 2018.) The district court granted the lender’s motion to dismiss the lawsuit based on the statute of limitations (SOL). Although the SCRA does not contain an SOL, the district court applied the SOL of an analogous state law with a four-year period of limitation. On appeal, the Ninth Circuit affirmed but on a different basis.

The court found that prior to 1990, courts analyzing federal laws without an SOL would use the SOL of a state law most analogous to the federal law. However, in 1990, Congress enacted 28 U.S.C. §1658(a), which created a four-year catchall SOL for federal laws enacted after December 1, 1990, that have a private right of action but do not specify an SOL. Although the predecessor of the SCRA was enacted in 1918, Section 3953 did not expressly provide a private cause of action until the Veterans’ Benefits Act was enacted in 2010. The court therefore found that because the plaintiff’s lawsuit arose from a law with a private cause of action enacted after December 1, 1990, it was subject to the four-year SOL in Section 1658(a). Accordingly, the court ruled that the complaint was time-barred and affirmed the dismissal of the lawsuit.


The Seventh Circuit interprets a debt collector’s obligation to obtain verification of a disputed debt to mean the collector must confirm that the information in the validation notice matches the information it received from the creditor and that a collector is not required to further investigate the accuracy of the creditor’s information.

Walton v. EOS CCA, 885 F.3d 1024 (7th Cir. 2018)External Link Section 1692g(b) of the Fair Debt Collection Practices Act (FDCPA) requires a debt collector to obtain verification of the debt (or a copy of a judgment) if a consumer disputes the debt after receiving a debt collector’s validation notice for the debt. EOS, a debt collector, sent a collection notice to the plaintiff stating she was obligated to pay a debt with AT&T unless she disputed it. The notice identified the debt with an AT&T account number that did not belong to the plaintiff because AT&T had transmitted the wrong number. The plaintiff initially disputed the debt by stating only that the debt did not belong to her; EOS reviewed its records and responded that it had verified that the information identifying the debt matched the information it had received from AT&T. EOS reported the debt as disputed to two consumer reporting agencies, although it later asked the agencies to delete the report after the plaintiff subsequently disputed the debt by identifying her correct account number.

The plaintiff’s lawsuit alleged EOS violated the FDCPA’s requirement to obtain verification of the debt. The court had to determine whether the FDCPA requires the collector to investigate the validity of the debt, as the plaintiff’s lawsuit alleged, or to verify that the information in the debt collection notice is accurate, as EOS argued. The court held that because the FDCPA’s purpose is to protect against abusive collection practice, the statute only requires that a debt collector “verify that its letters to the consumer accurately convey the information received from the creditor.” The court therefore concluded that EOS properly validated the debt by confirming that the person to whom it mailed the debt collection notice was the same person AT&T identified as the debtor and for the amount sought. The consumer also alleged that EOS violated the FCRA by not reasonably investigating the disputed information, as required by §1682s-2(b)(1)(A) of the FCRA. The court explained that EOS conducted a reasonable investigation by verifying the information it had on record in response to the plaintiff’s initial general dispute that the account did not belong to her, and, subsequently, in asking the consumer reporting agencies to remove the report after receiving the plaintiff’s more specific dispute that the account number was wrong.


The Third Circuit holds that a debt collection notice stating that the debt collector will report information about a debt to the Internal Revenue Service (IRS), when the debt collector knows reporting is not required, can violate the FDCPA, even if the notice includes conditional language.

Schultz v. Midland Credit Mgmt., 905 F.3d 159 (3d Cir. 2018). PDF External Link A debt collector sent separate notices to the plaintiffs, husband and wife, to collect debts they owed individually. None of the debts exceeded $600. The collection notice stated: “If you pay less than your full balance, we will report your account as Paid in Full for less than the full balance … We will report forgiveness of debt as required by IRS regulations. Reporting is not required every time a debt is canceled or settled, and might not be required in your case.” The plaintiffs’ class-action lawsuit alleged that this language was intended to intimidate the plaintiffs into paying their debt with false information because IRS regulations only require that forgiven debts exceeding $600 be reported.

The lawsuit alleged that this conduct violated Section §1692e of the FDCPA, which broadly prohibits “false, deceptive, or misleading representation[s].” The district court dismissed the lawsuit, but the Third Circuit reversed on appeal, finding that the threat of reporting debt forgiveness to the IRS for debts below the $600 threshold potentially violated the FDCPA. The notice said that reporting to the IRS “might not be required in your case,” even though only debts in excess of $600 must be reported. The court found the notice could imply to the “least sophisticated debtor” that debt forgiveness could be reported. The court also noted that the “FDCPA sweeps broadly — it is not just outright lies that it condemns. … [A]nytime a debt collector includes ‘language in a debt collection letter [that] can reasonably be interpreted to imply that the debt collector will take action it has no intention or ability to undertake, the debt collector that fails to clarify that ambiguity does so at its peril.’ ” (Citation omitted). The case was remanded to the district court for further proceedings.

The Eleventh Circuit holds that a bank did not violate the Fair Credit Reporting Act (FCRA) by reporting a mortgage account as past due and delinquent when the borrower made reduced payments under a forbearance agreement.

Felts v. Wells Fargo Bank, N.A., 893 F.3d 1305 (11th Cir. 2018). PDF External Link Section 623(b) of the FCRA (15 U.S.C.§1681s-2(b)) requires a furnisher to conduct an investigation if it receives notice that a consumer has filed a dispute with a consumer reporting agency about furnished information. In Felts, a borrower entered into an unemployment forbearance agreement that reduced her monthly payment amount from $2,197.38 to $25 for six months. During this period, Wells Fargo reported the account status as past due and delinquent. The borrower sued Wells Fargo, alleging that it failed to conduct a reasonable investigation after she disputed the delinquency status. The district court granted summary judgment in favor of Wells Fargo, and the borrower appealed.

On appeal, the Eleventh Circuit observed that a claim for failing to conduct a reasonable investigation under Section 623(b) cannot succeed without identifying some fact in the record establishing that the information reported was inaccurate or incomplete. The borrower argued that because her reduced payments complied with the terms of the forbearance agreement, it was inaccurate or materially misleading to report the loan status as past due and delinquent. The court determined, however, that because the forbearance agreement did not modify the loan note, it was not inaccurate or materially misleading to report the loan status as past due and delinquent when payments were made for less than the amounts due under the note. The borrower also argued that if Wells Fargo had followed the reporting guidelines of the Consumer Data Industry Association, the trade group of the consumer reporting agencies, the loan would have been reported on the borrower’s credit report more favorably. But the court found that the guidelines did not preclude Wells Fargo from reporting the status as past due and delinquent during the months that the borrower paid less than the full payments due under the note. Accordingly, the court affirmed the district court’s summary judgment in favor of Wells Fargo.