Debt Collector Unsuccessful In Bid To Force Georgia FDCPA Class Action Brought By K&S Into Individual Arbitration
Attempts to strip consumers of their ability to bring and participate in class actions by means of forced arbitration clauses have been in the headlines this week. (For a great editorial on the issue, click here.
I am pleased to report that we recently beat back one such attempt in Thomas et al. v. Sherwin P. Robin & Associates, P.C., et al (16-cv-2529)(N. Ga 2016), an FDCPA class action pending in federal court in Georgia in which we represent Plaintiffs and the putative class. A U.S. Magistrate Judge found that the debt collection law firm failed to show that our clients had ever agreed to arbitrate.
The Complaint alleges that Defendants regularly overstate the amount of post-judgment interest they are entitled to collect from consumers. We are proud to co-counsel the case with Georgia consumer attorney, E. Talley Gray.
Kakalec & Schlanger, LLP Files Suit Against Carsbuck, Inc. and Westlake Financial Services, Deceptive Auto Financing Practices
Kakalec & Schlanger, LLP recently filed suit in U.S. District Court, Eastern District of New York, against auto dealer Carsbuck, Inc. and Westlake Financial Services on behalf of consumer Carlos Guerrero-Roa. The suit, brought under the Truth In Lending Act, the Equal Credit Opportunity Act, New York’s Motor Vehicle Retail Installment Sales Act and New York’s deceptive practices and usury statutes, alleges that the dealership refused to accept cash for the vehicle and then engaged in a variety of misconduct in order to inflate the price of the vehicle and the cost of financing. The lawsuit addresses the increasingly frequent dealership practice of having consumers provide their signature via use of a digital “pad”, and alleges that despite instructing the consumer to provide his signature in this manner, the dealership failed to provide the consumer with the relevant loan documents, including statutorily required disclosures regarding the cost of borrowing.
For understandable reasons, many consumer and business debtors that come to us with collection issues are focused overwhelmingly on the monetary terms of any potential settlement with the creditor or debt collector. Particularly for those pressed for cash, there are hard-to-ignore bottom line issues such as: Will they have to pay? How much? Lump sum or over time?
Without detracting from the obvious importance of these questions, it is important to note that the non-money terms can often be critical and failure to adequately address non-money terms can leave the debtor at a severe disadvantage.
Here are just a few examples:
Example #1: Where a judgment has been taken against the client, the creditor typically does not care whether payment results in vacatur and dismissal vs. satisfaction of judgment. But the difference can be hugely important to the consumer in terms of credit reporting. Vacatur and dismissal cleans up the person’s credit, removing the judgment from the public record that is reflected in the credit report. Satisfaction of judgment, in contrast, memorializes the lawsuit as one in which the consumer was sued for non-payment, lost the suit and then paid the judgment. There is typically no reason not to condition settlement with the creditor on the parties entering into a stipulation of vacatur and dismissal.
Example #2: Where appropriate, does the settlement agreement characterize the debt as disputed and/or specifically address the fact that this is not a case of “forgiveness of debt”? Creditors are big on boilerplate and that boilerplate is rarely if ever favorable to the consumer. Where the debt is legitimately disputed, there is no reason (in fact, every reason not to) agree to boilerplate language that has the defendant acknowledging indebtedness and/or that characterizes a reduction or elimination of the purported balance as “forgiveness of debt”. By leaving this language in, the defendant/alleged debtor is virtually assuring that he or she will be issued a 1099-MISC characterizing the reduction in principle as income on which taxes are to be paid while simultaneously limiting his or her ability to effectively challenge that characterization. It is an avoidable and common mistake. (The appropriate alternative language will, of course, depend on the facts of the case.)
Example #3: Does the settlement provide for a reasonable “right to cure” procedure? It seems basic, but many standard creditor agreements contain no or only very limited right to cure language. The result is that the debtor can find themselves arguably in breach and owing the full amount originally sought based upon a purported one-day delay in payment. One common trap is to provide for a very short cure window plus notification by USPS regular mail. By the time the notice arrives, the window to fix any alleged deficiency may have closed! Our practice is to insist on at least 7 days, with notice by multiple, fast communication channels (e.g. fax plus email) and notice to both the debtor and his or her attorney. That way, we and our clients have a meaningfully window to address any purported delay in payment without adverse consequence.
I could keep going (and don’t even get me started with regard to overly broad confidentiality provisions), but you get the idea: to paraphrase the old Smokey The Bear public service announcements: Only You Can Stop Anti-Debtor Boilerplate.
Although auto loan deficiencies are not the most common form of debt we see in our office, we do regularly see (and represent) folks who are being sued (after their vehicles have been repossessed or “voluntarily returned”) for alleged deficiencies between their outstanding balance and the price at which the vehicle was purportedly sold for.
Although many of the defenses in these types of action are common to collection cases more generally (assignment, statute of limitations, service of process, etc.), others are specific to this particular type of debt.
Over the next couple of months, I will be reviewing various substantive defenses specific to vehicle repossession deficiency cases. Many of these defenses are less well-known but nonetheless powerful and worth considering. Today, we start with defenses rooted in Article 9 of New York’s Uniform Commercial Code
The New York Uniform Commercial Code Provides Significant Protections. For example,
- NYUCC 9-614 provides for detailed notice prior to sale of a consumer’s vehicle. These notice requirements are in addition to the notice required in commercial cases, and include, e.g. a description of any liability for a deficiency, a telephone number to call in order to redeem the collateral and a telephone number or mailing address to obtain more details regarding the disposition of the vehicle; the time and place of any public sale, etc.
- NYUCC 9-615 requires a detailed written explanation of any deficiency to be sent to the consumer following the sale of the vehicle.
- NYUCC 9-610 provides that every aspect of the sale of the collateral must be commercially reasonable, including the method, manner, time, place and other terms of the sale.
- NYUCC 9-623 provides the debtor with a right to redeem the collateral prior its disposition.
All of this would be interesting but academic were it not for powerful but underutilized remedies with regard to consumer UCC deficiency cases:
Some Courts, including those in New York’s Second Department, have held that there is an absolute bar against recovery of a deficiency where the repossessing party has failed to meet its Article 9 UCC obligations in a consumer transaction. Most other Courts have held that non-compliance in consumer and non-consumer cases triggers a rebuttable presumption against recovery of the deficiency. See Coxall v. Clover Commer. Corp., 781 N.Y.S.2d 567, 574, 4 Misc. 3d 654, 661, 2004 N.Y. Misc. LEXIS 714, *15-16 (N.Y. Civ. Ct. 2004) (collecting cases)
Statutory damages, fees and costs may also be available. For example, NYUCC 9-625 entitles a consumer to statutory damages for non-compliance to the interest on the loan plus 10 percent of the principal amount of the loan, as well as actual damages.
Bottom line: If the debt the consumer is being sued on stems from an auto loan or other secured transaction, be sure to go over the facts, including all correspondence, carefully for potential UCC related defenses and counterclaims. A repo notice violation or other UCC non-compliance can completely change the dynamics of the case.
I am excited to report that I will be presenting a Lawline CLE this coming February titled “Using the Truth in Lending Act to Challenge Predatory Auto Lending”. The webinar will be presented live on February 8, 2016 at 2:30 PM EST, and should be available as part of Lawline’s catalog after that.
For more information about the presentation, and to sign up, click here.
Second Circuit Addresses Standing In Statutory Damages Class Actions: Finds Standing Where Procedural Rights Protect Consumer’s Concrete Interests
The Second Circuit issued an interesting and significant decision on standing in statutory damages class actions just before Thanksgiving. The case, Strubel v. Comenity Bank, 2016 U.S. App. LEXIS 21032 (2nd Cir. November 23, 2016) contains a lengthy discussion of the Supreme Court’s decision in Spokeo, Inc., v. Robins, 136 S.Ct. 1540 (2016). The District Court in Strubel dismissed Plaintiff’s claims on summary judgment without addressing Article III standing. On appeal, the bank argued that the District Court was correct on the merits and that, in addition, Plaintiff lacked standing under Spokeo.
Addressing standing, the Second Circuit found that two of the four statutory claims alleged a sufficiently concrete injury and that two others did not. The Second Circuit that upheld the District Court’s decision on the merits with regard to the two claims for which there was standing.
So, the Defendants won. Nonetheless, on the way to finding for Defendants, the Second Circuit’s discussion contains good news for consumers, as the standard the Court articulated for determining Article III standing was largely consumer-friendly. Specifically, the Second Circuit affirmed that violations of a purely procedural right (e.g. the right to receive a given disclosure or notice) are sufficient to confer standing “where Congress confers a procedural right in order to protect a plaintiff’s concrete interests and where the procedural violation represents a ‘risk of real harm’ to that concrete interest.”
Applying this standard, Court found that two of the alleged violations were sufficient because the disclosures in question “each serve[d] to protect a consumer’s concrete interest in ‘avoiding the uninformed use of credit,’ a core object of the” Truth in Lending Act. Thus, the connection between the procedural right that was violated and the purpose of the statute is critical. Where consumers can tie the two together, they should be on solid ground. This is good news for consumer advocates.
The Court’s discussion also emphasized that “risk of harm” was sufficient to confer standing, and noted that a showing of risk of harm did not mean that the “consumer must have occasion to use challenged procedures to demonstrate concrete injury from defective notice”. Again, this is good news, as shuts the door to reliance or actual damages based arguments.
The violations that were found insufficient are telling with regard to the sorts of situations that do not meet the “risk of harm” standard. To wit, the Court found failure to provide a disclosure regarding procedures relating to stopping automatic payment of disputed credit card charges insuffient and immaterial because it was “undisputed that [the bank] did not offer an automatic payment plan at the time Strubel held the credit card at issue.” The Court concluded that, in light of this, there was no risk of injury that could be tied to the purpose of the statute. Likewise, an alleged defect regarding disclosure of the bank’s obligation to correct a billing error was immaterial where it was undisputed that the bank had already corrected the error at the time it sent the notice. These sorts of facts point to something more akin to impossibility or mootness than reliance or actual damages,
Bottom line: Although dismissal of the particular allegations set forth by plaintiff in Strubel was upheld, consumer advocates should generally be happy with how Spokeo was applied here.
Kakalec & Schlanger Obtains Reversal of Report & Recommendation Dismissing American Suzuki Financial Services From Consumer’s Truth In Lending Act Suit
Kakalec & Schlanger recently obtained reversal of a report and recommendation in a Truth In Lending Act suit brought in the Eastern District of New York on behalf of an elderly consumer who alleges that she was forced by an auto dealer to purchase numerous supplemental products as a condition of financing.
The decision, issued in Pierre v. Planet Automotive, Inc, docket #, 2016 U.S. Dist. LEXIS 80884 (E.D.N.Y. June 21, 2016), reversed multiple aspects of a magistrate judge’s report and recommendation, pursuant to which all of the consumer’s claims against the loan assignee, American Suzuki Financial Services, would have been dismissed. The District Court declined to adopt the magistrate’s report and the consumer retains her claims against the assignee under the Truth In Lending Act, New York’s false advertising statute (New York General Business Law Section 350) and for fraud. The consumer is represented by Kakalec & Schlanger, LLP partner Dan Schlanger.