A divided panel of the U.S. Court of Appeals for the Eleventh Circuit in Daniels v. Select Portfolio Servicing, Inc. held last week that monthly mortgage statements required under the Truth in Lending Act and Regulation Z can constitute communications in connection with the collection of a debt under the Fair Debt Collection Practices Act (FDCPA) and the Florida Consumer Collection Practices Act (FCCPA).  The decision represents a ruling on a question of first impression in the Eleventh Circuit.

After falling behind on her mortgage payments, the plaintiff entered into a mortgage modification agreement with her lender in 2009 that provided for interest-only payments for a 10-year period followed by payments of principal and interest pursuant to a schedule set forth in the agreement.  Following a year of timely interest-only payments by the plaintiff, the lender assigned the mortgage to a mortgage company that refused to accept the plaintiff’s interest-only payments.  The assignee claimed that the plaintiff had defaulted on the mortgage and filed a foreclosure action in state court. At the time of the foreclosure filing, Select Portfolio Servicing (Select) was the servicer of the plaintiff’s mortgage.  In 2015, the state court granted the plaintiff’s motion to enforce the modification agreement and ordered the plaintiff to resume making payments according to the terms of the agreement.  The state court also ruled that certain interest and escrow payments, that had either not been made or had not been accepted, would be added to the end of the modified loan term. 

Following the conclusion of the foreclosure action, Select sent a number of monthly mortgage statements to the plaintiff, not all of which were the same in terms of format, language, and amounts.  The November 2016 statement, which the Eleventh Circuit called “the most problematic,” included language not expressly required in Regulation Z, or included in the regulation’s Sample Forms of Periodic Statement, such as:

• “This is an attempt to collect a debt.  All information obtained will be used for that purpose.”
• “Paying your mortgage on time is an important obligation, so please pay on or before the payment due date. Payments are not considered paid until received and posted to your account.”

The court also described language that was included in the statement, which is expressly required under Regulation Z or included in the Sample Forms, such as a payment coupon, late fee information, payment due dates and instructions, overdue payment information, and amounts needed to bring the loan current.  

The plaintiff alleged that the November 2016 statement significantly misstated the deferred principal balance, the outstanding principal balance, and the amount of the interest-only payment that was due.  She also alleged that the “delinquency notice” misrepresented that the loan was in arrears when there was in fact no delinquency.  In her complaint, the plaintiff alleged that Select had violated the FDCPA and FCCPA by sending her the erroneous mortgage statements which she alleged were harassing, false, and misleading and by engaging in unfair practices in connection with the collection of a debt.  The district court dismissed the plaintiff’s claims with prejudice, ruling that the mortgage statements complied with TILA and Reg. Z and therefore were not communications in connection with the collection of a debt under the FDCPA and FCCPA.

In reversing the district court, the Eleventh Circuit first concluded that the plaintiff had plausibly alleged that the mortgage statements for November 2016 and for July, August, and September 2017 were communications in connection with the collection of a debt under the FDCPA and FCCPA.  According to the court, “[v]iewed holistically, a communication that expressly states that it is ‘an attempt to collect a debt,’ that asks for payment of a certain amount by a certain date, and that provides for a late fee if the payment is not made on time is plausibly ‘related to debt collection.’” (citation omitted)  The court added a footnote stating that “[w]e do not hold that the statements are, as a matter of law, communications in connection with the collection of a debt.  Our ruling is that [the plaintiff] has plausibly alleged that they are.”

The Eleventh Circuit then considered whether TILA and Reg. Z foreclosed the plaintiff’s FDCPA and FCCPA claims as a matter of law and concluded that under the circumstances alleged in the complaint, they did not.  It held that TILA-required monthly mortgage statements can plausibly constitute communications in connection with the collection of a debt under the FDCPA and FCCPA if: (1) they contain “this is an attempt to collect a debt” language, (2) they request or demand payment of a certain amount by a certain date, (3) they provide for a late fee if the payment is not made on time, and (4) the history between the parties suggests that the statement is an attempt to collect on a disputed debt.

The Eleventh Circuit also rejected Select’s argument that the CFPB’s 2013 bulletin on the intersection of the FDCPA and the TILA’s monthly mortgage statement requirement.  In that bulletin, the CFPB concluded that servicers who are debt collectors subject to the FDCPA are generally not liable to consumers who make a cease communication request under the FDCPA if they continue to send TILA-required monthly statements.  According to the Eleventh Circuit, there was nothing in the bulletin indicating that the CFPB sought to provide an advisory opinion excusing all TILA-required mortgage statements from FDCPA coverage regardless of the circumstances.  As a result, the court was unwilling to read the bulletin to mean that any conduct or communication required by the TILA and Reg. Z could not be actionable under the FDCPA.

The Eleventh Circuit noted in closing that its holding does not mean that TILA-required monthly mortgage statements “automatically lead to liability under the substantive provisions of the FDCPA or the FCCPA.” It stated that for the plaintiff to prevail on her claims she would need to show that the statements violated the statutory provisions cited in her complaint.  The court indicated that it was “express[ing] no view on whether [the plaintiff] has plausibly pled that any of the mortgage statements—given the alleged inaccuracies—violated any of these provisions” and that it was “[leav]ing the matter for the district court to resolve on remand under the “least sophisticated consumer standard.’” 

In her dissenting opinion, Judge Lagoa indicated that she did not disagree with the majority’s conclusion that a required monthly mortgage statement that generally complies with the TILA and Reg. Z can plausibly be a communication in connection with the collection of a debt under the FDCPA and FCCPA if it contains additional debt collection language.  However, in her view, this means that a court’s inquiry should focus on the additional debt collection language and the substance of the communication sent to the consumer by the servicer.  According to Judge Lagoa, “[t]hat approach is consistent with our precedent, and it is also consistent with the conclusion of other circuits, which have uniformly rejected the legal significance of the ‘attempt to collect a debt’ language.”  She stated that “[c]ourts should look at the substance of the communication to determine whether the FDCPA applies, i.e., by determining whether the communication uses language typically seen in debt-collection efforts.”  Because she found that the statements received by the plaintiff did not contain that type of language, it was her view that the “attempt to collect a debt” language alone could not be the basis for a reversal and that the district court’s dismissal of the plaintiff’s complaint should have been affirmed.

This decision should prompt mortgage servicers to revisit the language included in periodic statements, particularly for those sent to delinquent borrowers or for accounts in bankruptcy.  Clearly the primary takeaway is to be mindful of disclaimer language stating that the communication is “an attempt to collect a debt”, versus a communication “for informational purposes”.  However, the court notes precedent that a communication can have a dual informational and collection purpose (“we have recognized that a communication can ‘have dual purposes,’ such as providing a consumer with information and demanding payment on a debt”).  Accordingly, it is also important to review periodic statements for collection-related language that is not expressly required by Regulation Z or the Sample Forms.