Justia U.S. 7th Circuit Court of Appeals Opinion SummariesArticles Posted in Banking
Preston v. Midland Credit Management, Inc.
Preston brought a putative class action, claiming that Midland Credit sent him a collection letter that violated the Fair Debt Collection Practices Act, 15 U.S.C. 1692–1692[. He claimed the words “TIME SENSITIVE DOCUMENT” on the envelope violated section 1692f(8)’s prohibition against “[u]sing any language or symbol,” other than the defendant’s business name or address, on the envelope of a debt collection letter. He claimed that those words, and the combination statements about discounted payment options with a statement that Midland was not obligated to renew those offers, in the body of the letter, were false and deceptive, under section 1692e(2) and (10). The district court dismissed the complaint, citing a "benign‐language exception" to the statutory language because the language “TIME SENSITIVE DOCUMENT” did not create any privacy concerns or expose Preston to embarrassment. The court also rejected Preston’s section 1692e claims. The Seventh Circuit reversed in part: the language of section 1692f(8) is clear and its application does not lead to absurd results. The prohibition of any writing on an envelope containing a debt collection letter represents a rational policy choice by Congress. The language on the envelope and in the letter does not, however, violate section 1692e(2) and (10). Midland accurately and appropriately used safe‐harbor language as described in precedent. View "Preston v. Midland Credit Management, Inc." on Justia Law
Steffek v. Client Services, Inc.
The plaintiffs received form notices from Client Services with a header stated only “RE: CHASE BANK USA, N.A.,” with an account number. The letters continued: “The above account has been placed with our organization for collections.” The letters did not say whether Chase Bank still owned the accounts or had sold the debts. The Fair Debt Collection Practices Act, 15 U.S.C. 1692, requires the collector of consumer debt to send the consumer-debtor a written notice containing, among other information, “the name of the creditor to whom the debt is owed.” The plaintiffs argued that Client Services’ letters failed to identify clearly the current holder of the debt. The district court certified a plaintiff class of Wisconsin debtors who received substantially identical notices from Client Services, found that Chase Bank was actually the current creditor, and granted Client Services summary judgment. The Seventh Circuit reversed and remanded. The actual identity of the current creditor does not control the result. The question under the statute is whether the letters identified the then-current creditor clearly enough that an unsophisticated consumer could identify it without guesswork. The notices here failed that test. View "Steffek v. Client Services, Inc." on Justia Law
Dennis v. Niagara Credit Solutions, Inc.
Dennis fell behind on his debt to Washington Mutual Bank. LVNV bought the debt and Niagara Credit sent a form collection letter on LVNV’s behalf, stating: “Your account was placed with our collection agency” and that Niagara’s “client” had authorized it to offer a payment plan or a settlement of the debt in full. The letter identifies Washington Mutual as the “original creditor” and LVNV as the “current creditor.” It lists the principal and interest balances of the debt and the last four digits of the account number. Dennis filed a putative class action complaint, claiming violation of the Fair Debt Collection Practices Act by “fail[ing] to identify clearly and effectively the name of the creditor to whom the debt was owed,” 15 U.S.C. 1692g(a)(2). The Seventh Circuit affirmed the rejection of the suit on the pleadings, rejecting an argument that listing two entities as “creditor” then stating that Niagara was authorized to make settlement offers on behalf of an unknown client could likely confuse consumers. The defendants’ letter expressly identifies LVNV as the current creditor and meets the Act’s requirement of a written notice containing “the name of the creditor to whom the debt is owed.” An unsophisticated consumer will understand that his debt has been purchased by the current creditor; the letter is not abusive or unfair. Section 1692(g)(a)(2) does not require a detailed explanation of the transactions leading to the debt collector’s notice. View "Dennis v. Niagara Credit Solutions, Inc." on Justia Law
Saccameno v. U.S. Bank National Association
Around 2009, Saccameno defaulted on her mortgage. U.S. Bank began foreclosure proceedings. She began a Chapter 13 bankruptcy plan under which she was to cure her default over 42 months while maintaining her monthly mortgage payments, 11 U.S.C. 1322(b)(5). In 2011, Ocwen acquired her previous servicer. Ocwen, inexplicably, informed her that she owed $16,000 immediately. Saccameno continued making payments based on her plan. Her statements continued to fluctuate. In 2013, the bankruptcy court issued a notice that Saccameno had completed her payments. Ocwen never responded; the court entered a discharge order. Within days an Ocwen employee mistakenly treated the discharge as a dismissal and reactivated the foreclosure. For about twp years, Saccameno and her attorney faxed her documents many times and spoke to many Ocwen employees. The foreclosure protocol remained open. Ocewen eventually began rejecting her payments. Saccameno sued, citing breach of contract; the Fair Debt Collection Practices Act; the Real Estate Settlement Procedures Act; and the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFDBPA), citing consent decrees that Ocwen previously had entered with regulatory bodies, concerning inadequate recordkeeping, misapplication of payments, and poor customer service. The jury awarded $500,000 for the breach of contract, FDCPA, and RESPA claims, plus, under ICFDBPA, $12,000 in economic, $70,000 in non-economic, and $3,000,000 in punitive damages. The Seventh Circuit remanded. While the jury was within its rights to punish Ocwen, the amount of the award is excessive. View "Saccameno v. U.S. Bank National Association" on Justia Law
Heredia v. Capital Management Services, L.P.
Heredia received four collection letters from CMS, a collections firm, and claims that the language in this correspondence violated the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. 1692(e). The Seventh Circuit reversed the dismissal of the case, finding that Heredia has plausibly alleged that the dunning letter violated the FDCPA. The letters, which proposed a payment plan, stated: “Discover may file a 1099C form” and that “[s]ettling a debt for less than the balance owed may have tax consequences.” Language in a dunning letter violates section 1692e if the creditor used false, deceptive, or misleading representation or means in connection with the collection of debt. Under section 1692f, a debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Although it is not technically illegal or impossible for Discover to file a 1099C form with the IRS if the amount is under $600, “a collection letter can be literally true” and still misleading. The defendants do not dispute that Discover would never file a 1099C form unless required to do so by law (forgiving $600 or more of principal). In the case of the Heredia letter, Discover would never file a 1099C form because in no circumstances would Discover be forgiving at least $600 in principal. View "Heredia v. Capital Management Services, L.P." on Justia Law
First Midwest Bank v. Reinbold
The debtor obtained a commercial loan from Bank. The agreement dated March 9, 2015, granted Bank a security interest in substantially all of the debtor’s assets, described in 26 categories of collateral, such as accounts, cash, equipment, instruments, goods, inventory, and all proceeds of any assets. Bank filed a financing statement with the Illinois Secretary of State, to cover “[a]ll Collateral described in First Amended and Restated Security Agreement dated March 9, 2015.” Two years later, the debtor defaulted and filed a voluntary Chapter 7 bankruptcy petition. Bank sought to recover $7.6 million on the loan and filed a declaration that its security interest was properly perfected and senior to the interests of all other claimants. The trustee countered that the security interest was not properly perfected because its financing statement did not independently describe the underlying collateral, but instead incorporated the list of assets by reference, and cited 11 U.S.C. 544(a), which empowers a trustee to avoid interests in the debtor’s property that are unperfected as of the petition date. The bankruptcy court ruled that ”[a] financing statement that fails to contain any description of collateral fails to give the particularized kind of notice” required by UCC Article 9. The trustee sold the assets for $1.9 million and holds the proceeds pending resolution of this dispute. The Seventh Circuit reversed, citing the plain and ordinary meaning of the Illinois UCC statute, and how courts typically treat financing statements. View "First Midwest Bank v. Reinbold" on Justia Law
Fifth Third Mortgage Company v. Kaufman
Ahmed co‐owned an LLC that owned a condominium building. Ahmed recruited individuals to pose as buyers for the building's units and to submit fraudulent loan applications to lenders, including Fifth Third. The participants split the loan proceeds; no payments were made on the loans. Kaufman was the seller's attorney for every closing. The closings were conducted by Traditional Title at Kaufman’s law office. Traditional received closing instructions from Fifth Third to notify it immediately of any misrepresentations and to suspend the transaction if “the closing agent has knowledge that the borrower does not intend to occupy the property.” Kaufman concealed the buyers’ misrepresentations and instructed closing agents to complete closings even when buyers were purchasing multiple properties. Ahmed and Kaufman extended the scheme to other buildings. Although Kaufman testified that he was not aware of the fraud, Ahmed testified that Kaufman knew the buyers were part of the scheme. Two closing agents testified that they informed Kaufman about misrepresentations in loan applications. The Seventh Circuit affirmed a fraud judgment for Fifth Third. Kaufman participated individually in each closing as counsel and personally directed Traditional’s employees to conceal the fraud from Fifth Third, for his personal gain. The judgment against Kaufman was not derived solely from Traditional’s liability, based on his membership in the LLC, so the Illinois LLC Act does not bar his liability. Kaufman is not shielded by being the attorney for the seller in the fraudulent transactions. View "Fifth Third Mortgage Company v. Kaufman" on Justia Law
Burton v. Kohn Law Firm, S.C.
Attorney Kohn, on behalf of Unifund, filed suit against Burton in Brown County, Wisconsin for failure to make payments on a Citibank credit agreement. In his answer, Burton stated, “I have never had any association with Unifund ... and do not know who you are or what you are talking about, so I strongly dispute this debt.” He asserted counterclaims, alleging that his personal information had been compromised; that Unifund had failed to provide him notice of his right to cure the default before filing suit; and that there was a “Lack of Privity” because he “ha[d] never entered into any contractual or debtor/creditor arrangements” with Unifund. While that action was pending, Burton sued in federal district court, citing the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692–1692p, and the Wisconsin Consumer Act (WCA). The state court dismissed Kohn’s action against Burton on the basis of Burton’s denial that he was the individual who had incurred the underlying debt. The Seventh Circuit affirmed a judgment in favor of Kohn and Unifund, finding that the FDCPA or WCA claims could not proceed because Burton failed to present sufficient evidence that the debt incurred on the Citibank account was for personal, family, or household purposes and therefore a “consumer debt.” View "Burton v. Kohn Law Firm, S.C." on Justia Law
Doherty v. Federal Deposit Insurance Corporation
Doherty and Farano formed Worth. The bank loaned Worth $400,000, with their personal guaranties. The bank extended the loan’s maturity date multiple times. Worth defaulted. The bank sued Worth, Farano, and Doherty. Doherty, an attorney, filed an appearance on behalf of himself and Worth and raised affirmative defenses, including that the bank extended the loan without authorization and charged fees and an interest rate not agreed upon. The court entered a default judgment for the loan balance against Farano. Doherty later received a report from a forensic document examiner, opining that his signature had been forged on loan extension paperwork. The bank dismissed its claims against Worth and Doherty without prejudice. Over a year later, Doherty sued the bank and individuals, alleging breach of contract, forgery, excessive fees, fraud, legal malpractice, and malicious prosecution. The trial court dismissed, holding that most of Doherty’s claims were barred by res judicata because he should have brought them in the guaranty action. Before Doherty’s appeal was heard, the bank went into the FDIC receivership. The FDIC removed this action to federal district court, which adopted the Illinois court’s decision. The Seventh Circuit vacated. Res judicata does not bar Doherty’s claims. None of the cited Illinois cases address this situation; similar cases suggest that applying the doctrine would be inappropriate. Applying res judicata here neither advances the purposes of res judicata nor meaningfully serves the interests of judicial economy. View "Doherty v. Federal Deposit Insurance Corporation" on Justia Law
Bernal v. NRA Group, LLC
Bernal bought a monthly pass to Six Flags amusement parks. The contract said that if he fell behind on his payments, he would “be billed for any amounts that are due and owing plus any costs (including reasonable attorney’s fees) incurred by [Six Flags] in attempting to collect amounts due.” After Bernal missed several monthly payments, Six Flags hired AR, a debt collector. Under their contract, AR could charge Six Flags a 5% management fee plus an additional amount based on the number of days the debt was delinquent (in this case, an additional 20%), as is common in the market. AR hired NRA, a subcontractor, which sent Bernal a collection letter asking for the $267.31 he owed, plus $43.28 in costs. Reasoning that it could not have cost $43.28 to mail a single collection letter, Bernal filed a class-action lawsuit under the Fair Debt Collection Practices Act, alleging that NRA charged a fee not “expressly authorized by the agreement creating the debt,” 15 U.S.C. 1692f(1). The Seventh Circuit affirmed a judgment for NRA. A debt collector’s fee counts as a collection cost under that language. The contract unambiguously permits Six Flags to recover any cost it incurs in collecting past-due payments, and that includes a standard collection fee. View "Bernal v. NRA Group, LLC" on Justia Law