Consumer Compliance Outlook: Third Issue 2022

On the Docket: Recent Federal Court Opinions


The Ninth Circuit holds that whether a furnisher conducted a reasonable investigation of disputed credit report information is a factual question for the jury.

Gross v. CitiMortgage, Inc., 33 F.4th 1246 (9th Cir. 2022). The consumer financed the purchase of a home in Arizona with two mortgage loans. After he later defaulted, the senior lender foreclosed on the property. The proceeds were insufficient to pay the balance owed on the junior loan, but under Arizona law, a creditor may not sue for a foreclosure deficiency, so the consumer liability on the debt was abolished. When the consumer later began shopping for a new home, CitiMortgage’s junior loan appeared on his TransUnion credit report as past due and included interest and fees. The consumer filed a dispute with TransUnion and specifically cited the Arizona Anti-Deficiency Statute. CitiMortgage continued to report the loan as past due but noted the consumer disputed this and later reported the debt as charged off. The consumer sued CitiMortgage under the FCRA for failing to reasonably investigate the dispute and for furnishing inaccurate information. The district court held the information provided to the consumer reporting agencies was accurate and that CitiMortgage had reasonably investigated the consumer’s disputes. The court granted summary judgment for CitiMortgage.

On appeal, the Ninth Circuit reversed. The court held the information CitiMortgage furnished was inaccurate as a matter of law because the Anti-Deficiency Statute, as interpreted by the Arizona Supreme Court, abolishes a debtor’s personal liability for a mortgage loan after the property securing the loan is foreclosed. In this case, however, the consumer also needed to establish that CitiMortgage failed to conduct a reasonable investigation, which the court held is a factual issue for a jury to determine. Accordingly, the case was remanded back to the district court.


The Eleventh Circuit holds TILA monthly mortgage statements with debt collection language can be subject to the Fair Debt Collection Practices Act (FDCPA).

Daniels v. Select Portfolio Servicing, Inc., 34 F.4th 1260 (11th Cir. 2022). After the consumer defaulted on her residential mortgage loan, she entered into a mortgage modification agreement, under which she would make interest-only monthly payments and escrow amounts for 10 years, with the principal balance remaining at $189,911.00 during that period. The loan was later sold to Wells Fargo, which refused to accept the interest-only payments and filed a foreclosure action alleging borrower default. The borrower asked the foreclosure court to enforce the modification agreement, which the court granted. In addition to sanctioning Wells Fargo, the court ordered that $60,808.83 in payments not made or not accepted during the litigation be added to the loan balance when the modification agreement ended.

The mortgage servicer (Select Portfolio, Inc.) subsequently sent the borrower monthly mortgage statements required by the TILA and Regulation Z, several of which included an FDCPA disclaimer: “This is an attempt to collect a debt. All information obtained will be used for that purpose,” along with other information about payments and the consequences of nonpayment. In June 2018, the borrower’s sued Select Portfolio for violations of the FDCPA, alleging that the statements were “harassing, false, and misleading” and that Select Portfolio’s sending of the statements constituted “unfair practices in connection with the collection of a debt.” Specifically, the borrower alleged that the statements misstated the amounts the borrower owed, among other errors — for example, one statement said the principal balance was $356,122 when it should have been $250,715. The lower court granted a motion to dismiss the case, finding the statements complied with the specifications for monthly mortgage statements under TILA and Regulation Z, and therefore were not communications in connection with the collection of a debt subject to the FDCPA.

On appeal, the Eleventh Circuit reversed, with one judge dissenting. The court held that the monthly mortgage statements at issue “can plausibly constitute communications in ‘connection with the collection of a[ ] debt’ under the FDCPA.” The court pointed to four factors on which the holding was based: (1) the mortgage statements “contain ‘this is an attempt to collect a debt’ language” — which was not required by TILA or its implementing regulations; (2) “they request or demand payment of a certain amount by a certain date”; (3) “they provide for a late fee if the payment is not made on time”; and (4) “the history between the parties suggests that the statement is an attempt to collect on a disputed debt.”

In light of these factors, the court rejected Select Portfolio’s argument that the statements were required by the TILA and therefore not subject to the FDCPA. Having determined the FDCPA applied, the court remanded the case to determine whether the servicer violated the FDCPA.

The Eleventh Circuit holds that the TILA provision banning mandatory arbitration clauses for residential mortgage loans does not apply to a delegation clause specifying the arbitrator decides the scope of the arbitration.

Attix v. Carrington Mortgage Services, LLC, 35 F.4th 1284 (11th Cir. 2022). The consumer made a mortgage payment to his loan servicer using SpeedPay, an automated third-party pay-by-phone service that charged a convenience fee for the payment. The terms and conditions for the service, to which the consumer agreed, required arbitration of disputes and also contained a “delegation clause” specifying that the arbitrator decides the scope of disputes subject to the arbitration. The consumer’s class-action lawsuit alleged the convenience fee violated the FDCPA and Florida law because it was not expressly authorized by the term of mortgage agreement. The loan servicer filed a motion to compel arbitration, which the district denied because §1414(a) of the Dodd‒Frank Act amended TILA to expressly prohibit residential mortgage agreements that “require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.”

On appeal, the Eleventh Circuit reversed. The court held that while TILA prohibits agreements requiring arbitration of the merits of a claim arising from a residential mortgage loan agreement, it does not apply to the threshold question of who determines if the dispute is arbitrable (a court or the arbitrator), including the issue of whether the arbitration agreement is enforceable. The court also noted the plaintiff agreed to the terms and conditions of the payment service, including its provision delegating the “threshold questions” of arbitrability to the arbitration.

The Fourth Circuit holds that the Dodd‒Frank Act prohibits mandatory arbitration clauses in consumer agreements that relate to residential mortgage loans.

Lyons v. PNC Bank, N.A., 26 F.4th 180 (4th Cir. 2022). The borrower opened a home equity line of credit (HELOC) in 2005 with PNC Bank and signed an agreement that did not contain an arbitration provision. The borrower later opened three separate deposit accounts at PNC on May 3, 2010. One of those deposit accounts included a provision permitting PNC to set off funds from the account to pay other indebtedness and further permitted PNC to amend the account agreement (2010 Account). PNC later amended the agreement for this 2010 Account on February 1, 2013, to add an arbitration provision from which the borrower could opt out until June 11, 2013. The borrower opened yet another deposit account on June 6, 2014, that similarly permitted PNC to set off funds from the deposit account to pay other indebtedness and also contained the same arbitration provision found in the amended 2010 Account agreement (2014 Account). The borrower’s HELOC ended in February 2005, but the borrower did not pay all the owed HELOC payments until June 17, 2020. In September 2019, PNC set off some of the HELOC amount due from the borrower’s 2010 Account and then again in February 2020 did the same from the borrower’s 2014 Account. The consumer sued PNC alleging violations of the Truth in Lending Act (TILA) for the offsets. The district court granted PNC’s motion to compel arbitration under the 2010 Account but denied PNC’s motion to compel arbitration of the borrower’s 2014 Account.

On appeal, the Fourth Circuit reversed the district court’s ruling granting PNC’s motion to compel arbitration under the 2010 Account and affirmed the district court’s ruling denying PNC the ability to compel arbitration under the 2014 Account. The court held the Dodd‒Frank Act amendment to TILA, which became effective on June 1, 2013, prohibits consumer agreements related to residential mortgage loans from requiring the arbitration of claims (15 U.S.C. §1639c(e)). Although the 2010 Account agreement was amended on February 1, 2013 — before the effective date of §1639c(e) — the consumer had the right to opt out of that amended agreement until June 11, 2013. The Fourth Circuit found that the amendment adding an arbitration clause to the 2010 Account agreement did not become effective until after the borrower’s opt-out right expired on June 11, 2013. Consequently, the amended 2010 Account agreement was subject to the prohibition against mandatory arbitration provisions in residential mortgage loans in §1639c(e) of the Dodd‒Frank Act, and PNC could not compel arbitration of the consumer’s claim arising from the HELOC.