In Hart v. FCI Lender Services, Inc., the Second Circuit made it clear that servicers should pay close attention to initial communications with borrowers upon commencing loan servicing when it determined in an August 12, 2015 ruling that FCI Lender Services, Inc.’s (FCI) initial communication with a borrower was not merely a Real Estate Settlement Procedures Act (RESPA) transfer-of-servicing disclosure, but also potentially a debt collection “initial communication” letter that triggered disclosure obligations under 15 U.S.C. § 1692g.
The Fair Debt Collection Practices Act (FDCPA) requires that, within five days after the “initial communication with a consumer in connection with the collection of any debt,” a debt collector must provide the debtor with a written notice containing disclosures specified by the statute. Failure to comply with the FDCPA’s provisions subjects a debt collector to actual damages, statutory damages, costs, and attorney’s fees.
In Hart, FCI sent the plaintiff a servicing transfer disclosure letter, informing him that FCI had assumed servicing rights to his mortgage loan. The plaintiff filed an FDCPA suit in the Western District of New York, arguing that a servicing transfer disclosure letter he received was instead an “initial communication with a consumer in connection with the collection of [a] debt,” and that FCI failed to provide him with the disclosures required by § 1692g(a) within five days of sending him the letter. In its motion to dismiss, FCI argued – and the District Court agreed – that the letter was not an attempt to collect a debt, but merely a transfer‐of‐servicing informational notice sent pursuant to RESPA and designed to inform the plaintiff of the servicing transfer.
On appeal of the dismissal, the Second Circuit disagreed. The court first observed that FCI conceded that it was a “debt collector” within the meaning of the FDCPA and that the servicing transfer disclosure letter was FCI’s “initial communication” with the borrower. Then, to determine whether the letter was also “in connection with the collection of any debt,” the court applied a reasonable consumer standard, asking whether, objectively, a reasonable consumer would interpret the notice as being sent “in connection with the collection” of a debt so as to obligate FCI to provide plaintiff a § 1692(g) notice. Applying this standard, the Second Circuit’s decision in this case was made easier by the language in the letter – among other similar language, the letter specifically stated in capital letters that “THIS IS AN ATTEMPT TO COLLECT A DEBT.” The Second Circuit determined that the district court erred in granting the motion to dismiss, and the court vacated the decision and remanded.
To be sure, this is not a decision that will apply in every case. 15 U.S.C. § 1692a contains many exceptions to the definition of the term “debt collector” and subsequent servicers of mortgage loans can meet the RESPA notice requirements without triggering FDCPA’s initial communication disclosure requirements (as the Second Circuit observed, even where an entity does meet the definition of a “debt collector” whether a communication with a borrower is “in connection with the collection” of a debt depends on the wording of the letter sent to the borrower). Nevertheless, mortgage loan servicers should closely examine boilerplate language in letters when beginning a relationship with a debtor. This case shows that inadvertently triggering – and failing to comply with – § 1692g’s notice requirements can lead to unnecessary litigation with real potential for exposure to liability.