2015 Prof. Dali Jimnez; Univ. of Connecticut School of Law Nick Wooten; Nick Wooten LLC Alane A. Becket; Becket & Lee LLC Buying Claims in Consumer Cases Fontainebleau Miami Beach Debt Sales: Background & issues 2 3 4 5 6 What if the debt is sold? 7 Assignment $$$ Assignment $$$ Assignment $$$ 8 What information is transferred at the sale? 9 Spreadsheet likely to contain Name, address, SSN (98%); Account number (100%); Outstanding balance (100%); Date account opened (97%); Date of last payment (90%); Date of charge-off (83%); Amount owed at charge-off (72%); Debtors home phone number (70%) FTC Debt Buyer Report Critical facts may be missing Principal amount (missing in 89%); Interest rate charged (missing in 70%); Date of first default (missing in 65%); Name of the original creditor (missing in 54%); Finance charges and fees (missing in 63%); and Dispute history (typically not provided) FTC Debt Buyer Report What documentation is transferred? 12 Percent of accounts FTC Debt Buyer Report T-11, T-15 13 Availability of documents after sale is limited Short amount of time to request docs Specified max number of docs After a threshold, docs cost $$ Seller has days to respond No guarantees from seller FTC Debt Buyer Report How do subsequent debt buyers obtain documents? 15 Assignment $$$ Assignment $$$ Assignment $$$ Docs 16 17 18 19 20 21 22 23 24 Legal and Regulatory Response Changes to Bankruptcy Rules: 2011 For individual debtors: itemized statement of the interest, fees, expenses petition date accounting for secured claims sanctions for failure to comply 25 Legal and Regulatory Response Changes to Bankruptcy Rules: 2012 For open end or revolving credit: the name of the entity from whom the creditor purchased the account; the name of the entity to whom the debt was owed at the time of an account holders last transaction on the account; the date of an account holders last transaction; the date of the last payment on the account; and the date on which the account was charged to profit and loss. 26 Legal and Regulatory Response 2012: Writing not required but must be made available Advisory Committee Note: Because a claim of this type may have been sold one or more times prior to the debtors bankruptcy, the debtor may not recognize the name of the person filing the proof of claim. Disclosure of the information required by paragraph (3) will assist the debtor in associating the claim with a known account. It will also provide a basis for assessing the timeliness of the claim. 27 The CFPB Effect 2010: Dodd Frank Wall Street Reform and Consumer Protection Act authorized formation of the Consumer Financial Protection Bureau CFPB mission: to make current rules in the financial services marketplace more effective; to consistently and fairly enforce rules; and to empower consumers to take more control over their financial lives. 28 The CFPBs Authority Supervise, examine and enforce covered persons banks, non-banks and larger market participants To prescribe rules and issue orders and guidance, as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasion thereof. 29 The CFPBs Authority Power to Investigate Civil Investigation Demand Examination: by deposition or onsite Enforcement: by consent or suit Bulletins, white papers or research policy making without formal rule making Examination Manuals Regulation 30 CFPB Priorities Mortgage Servicing and Origination Student Loan Servicing and Origination Debt Collection Medical Debt Payday/Small Dollar Lending Auto Lending and Financing Arbitration Clauses Pre-paid Cards 31 Third Party Oversight Covered persons must: Conduct due diligence to determine that service providers understand and are capable of complying with federal consumer protection laws Review service provider policies and procedures and ensure training of its employees Ensure contracts reflect these expectations and expressly provide for termination if not followed Have on-going monitoring of service provider Take prompt action, including termination, if monitoring reveals issues 32 Coordination with Other Regulators Exchange of information with prudential regulators Informal understanding with state Attorneys General regarding investigations and enforcement actions CFPB and 47 state AGs brought claim against financial institution resulting in multi-million dollar settlement for over 500,000 consumers, CFPB, states and the OCC Supplies extra resources that CFPB lacks in investigations and enforcement Complaint portal used by state and federal prudential regulators as well as state AGs 33 The CFPB Effect Significant fines and penalties for improper practices Changes to business model for debt sales Changes to collection procedures Changes to compliance management Changes to vendor management 34 35 After CRAWFORD VS. LVNV What is a Crawford Claim The scope of the problem Anecdotal Evidence of filings before and after Crawford Focus of problem (Debt Buyers) 36 After CRAWFORD VS. LVNV The Circuit Split on the Issue Simmons v. Roundup Funding, LLC, 622 F. 3d 93 (2d Cir. 2010); Walls v. Wells Fargo Bank, 276 F.3d 502 (9th Cir. 2002) Crawford v. LVNV Funding, LLC, 758 F. 3d 1254 (11 th Cir. 2014); Simon v. FIA Card Services, NA, 732 F. 3d 259 (3 rd Cir. 2013); Randolph v. IMBS, Inc., 368 F.3d 726 (7 th Cir. 2004) 37 After CRAWFORD VS. LVNV The Legal Issue implicit repeal or repeal by implication Discussed in-depth by Randolph v. IMBS, Inc., 368 F.3d 726 (7 th Cir. 2004). 38 After CRAWFORD VS. LVNV Two key points: When two federal statutes address the same subject in different ways, the right question is whether one implicitly repeals the other. It takes either irreconcilable conflict between the statutes or a clearly expressed legislative decision that one replaces the other.