Consumer Finance Insights
February 9, 2016

Recent Eleventh Circuit Reversal Sparks Upward Trend in Estimated-Fee FDCPA Litigation

On December 3, 2015, the Eleventh Circuit issued an opinion that has carved a path for plaintiffs challenging their communications with loan servicers.  The decision, Prescott v. Seterus, Inc., reversed a grant of summary judgment in favor of the defendant, Seterus, Inc.  — Fed.Appx. —, 2015 WL 7769235 (S.D. Fla., Dec. 3, 2015).  In reviving the plaintiff’s Fair Debt Collection Practices Act (“FDCPA”) and Florida Consumer Collections Practice Act (“FCCPA”) claims, the Eleventh Circuit cleared a path for plaintiffs to bring similar claims against their loan servicers.

Prescott begins with a factual scenario not uncommon to mortgage servicers—a request for a payoff quote.  Id. at *1.  In response to this request, Seterus sent a quote that included incurred costs for property inspections and attorney’s fees, but which also included costs that Seterus expected to incur in the ensuing four months. Id. at *2.  The payoff quote expressly identified these yet-to-be incurred costs as “estimated” fees. Id.  Relying on the clarity of this delineation, the Southern District granted summary judgment to Seterus.  It found that even the “least sophisticated consumer” would have understood that the “estimated fees” had yet to be incurred, and therefore there was nothing misleading about the payoff quote. Id. at *4.

The Eleventh Circuit reversed, reasoning that Section 1692e(2)’s prohibition on misrepresentations regarding “compensation which may be lawfully received by any debt collector for the collection of a debt,” (15 U.S.C. § 1692e(2)(B)) applied to Seterus’ inclusion of estimated fees in its payoff quote.  Prescott, 2015 WL 7769235 at *4.  Concluding that the payoff quote was a demand for payment, it held that the inclusion of fees that had not yet been incurred (even if expressly designated as such) was a demand for compensation not permitted by the plaintiff’s mortgage agreement.  Id.

We are seeing an increase in complaints by borrowers based on Prescott.  Given the frequency of requests for payoff quotes (and similar requests such as Regulation X Requests for Information), loan servicers should consider the impact of Prescott on their communications with borrowers.