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FDCPA Claim Arising from State Court Clerical Error--Case Dismissed

May a debt collector incur liability under the Fair Debt Collection Practices Act (FDCPA) by seeking to collect a debt under a state court judgment later determined to be void? Not according to the Third Circuit Court of Appeals in a nine-page opinion issued on January 11, 2023 in the case of Barbara Lowe v. FBCS, Inc. et al. The facts in Lowe are clearly peculiar, but the case offers some reassurance to collections firms facing FDCPA liability due to administrative mishaps in state court collection proceedings.

The dispute in Lowe arose from a state court collection action initiated by LVNV Funding, LLC and FBCS, Inc. in New Jersey Superior Court. On October 14, 2016, a week before the matter was scheduled for trial, the defendants filed a certification of proof of ownership of the account at issue. For unknown reasons, after receiving the certification, the superior court clerk erroneously entered a default judgment in favor of the defendants. Though the judgment was “effective” October 14, 2016, it was not mailed to the parties until November 7. On the morning of trial, the defendants submitted a letter to the superior court advising that the matter “should be marked as settled” and, therefore, did not appear for trial. The plaintiff, however, did appear. The trial judge, presumably unaware of the prior entry of default judgment, entered an order dismissing the case due to the defendants’ non-appearance. Alas, two contradictory orders issued by the same court relating to the same contested debt obligation.

Fast forward two years. On October 11, 2018, the superior court entered a docketing statement confirming default in favor of the defendants. The defendants began contacting the plaintiff in 2019 seeking payment on the debt at issue. The plaintiff, relying on the superior court’s dismissal order, disputed the debt. The plaintiff’s FDCPA lawsuit ensued, with the plaintiff claiming the defendants violated § 1692e of the FDCPA by illegally seeking to collect on a debt they knew to be unenforceable. The plaintiff also filed a motion in the superior court to vacate the erroneously entered default judgment. The superior court granted the motion to vacate one year later — declaring the defendants’ judgment void ab initio or “void from the beginning” due to the clerical error. Following the superior court’s order, the parties filed cross motions for summary judgment in the federal action. The district court granted summary judgment in favor of the defendants.

On appeal, the plaintiff argued first that the district court’s entry of summary judgment violated the Rooker-Feldman doctrine — an abstention rule under which federal district courts must refrain from exercising jurisdiction over claims that are, in essence, appeals from state court judgments. Specifically, the plaintiff argued that the district court’s grant of summary judgment effectively supplanted the superior court’s order vacating the default judgment. The Third Circuit was not persuaded — reasoning that the plaintiff neither lost in state court nor sought review of the state court judgment. To the contrary, the plaintiff was asking the district court to rely upon the superior court’s judgment. Rooker-Feldman, therefore, did not apply.

The plaintiff further argued that the defendants’ collection attempts were per se invalid because the superior court retroactively nullified the 2016 default judgment. In other words, because the judgment was decreed “void from the beginning,” any collection efforts were necessarily deceptive, not authorized by law, and violative of the FDCPA. The Third Circuit rejected the argument, reasoning that “[a]lthough the [s]uperior [c]ourt eventually vacated and declared ab initio the default judgment order after Lowe filed this action, the default judgment was in effect when Defendants allegedly attempted to collect.” (Emphasis added.) And, to the extent the defendants referred the plaintiff to the default judgment in connection with the collection attempts, any such reference was not a false representation “because, at the time of the communication, the default judgment was an order issued by the [s]uperior [c]ourt.” (Emphasis added.) As the plaintiff alleged no misleading representations apart from those based on the void default judgment, the Third Circuit affirmed summary judgment for the defendants. To read more click here.

CFPB Proposes Big Brother Tactics for Consumer Contracts

The CFPB issued a proposed rule that would require nonbanks under its supervisory authority, subject to limited exceptions, to annually register information about their use of certain terms and conditions in nonnegotiable form contracts that seek to waive or limit consumer rights and legal protections. The CFPB’s actions are widely viewed as an attempt to make another run at creating new requirements around arbitration agreements, after its arbitration rule was struck down by Congress in a Congressional Review Act (CRA) challenge in 2017. Once a rule is struck down by the CRA, the CFPB is prohibited from creating a substantially similar rule.

Under the proposed rule, information about the contracts would be posted in a publicly available nonbank registration system established by the CFPB. The proposed rule cites common examples of instances where consumers are in the process of purchasing a product, downloading an app or signing up for a service, and must subsequently click on a checkbox to agree to “terms of service” or sign contracts containing boilerplate form language to consummate the applicable purchase, download or perform another transaction. The CFPB describes these as “take or leave it” form contracts with terms of service or boilerplate language not subject to negotiation with a consumer.

The CFPB argues that the proposed rule seeks to increase public transparency of such “take it or leave it” form contracts by requiring the creation of a public registry regarding such terms and conditions that purport to waive consumers’ legal protections, limit how consumers enforce their rights or restrict consumers’ ability to file complaints or post reviews, among other things. Some industry participants have argued that it is a backdoor attempt at making it more cumbersome to use arbitration agreements, particularly in light of recent judicial precedent that has given their use a green light when adequately disclosed to consumers.


The proposed rule cites several pieces of legislation and regulatory actions over past decades as precedent for limiting the use of such “take it or leave it” terms and conditions in the context of consumer financial products and services. It points to an action in 1984, when the Federal Trade Commission issued the Credit Practices Rule, which prohibited the use of certain contract terms, including: (i) so-called “confessions of judgement” provisions under which consumers generally agree to plead guilty when faced with a creditor’s collection lawsuit, and as such, waive state laws protecting consumer assets from seizure by unsecured creditors, and (ii) so-called “gag clauses” that prohibit consumers from posting negative online reviews or filing complaints. Before the establishment of the CFPB, this rule was adopted by the Federal Reserve Board and the National Credit Union Administration. The CFPB also recently restated the scope of such protections in a compliance bulletin issued in March 2022. Further, in 2016, Congress passed the Consumer Review Fairness Act, which generally prohibited the use of form contracts that limit the way consumers communicate their reviews or assessments of the sale of goods and services.

The proposed rule also is another step in the CFPB’s scrutiny of nonbank financial institutions. As Brownstein previously highlighted, in December 2022, the CFPB issued a proposed rule that would require applicable nonbank financial institutions to report certain public agency enforcement actions and court orders for publication in an online publicly available registry similar to the public registry contemplated under this most-recent proposed rule.

Covered Entities and Covered Terms and Conditions:

The proposed rule aims to cover nonbanks subject to the CFPB’s jurisdiction that engage in the offering or provision of consumer financial products or services in markets the CFPB supervises, including, but not limited to, nonbank entities that: (a) offer or provide residential mortgage-related products or services; private educational consumer loans; and consumer payday loans, among other similar products or services, or (b) are larger participants operating in student loan servicing, automatable financing, consumer reporting, consumer debt collection and international remittances, among other similar industries. That said, the proposed rule exempts certain entities from compliance, including nonbanks with less than $1 million in annual receipts resulting from the offering or provision of certain consumer financial products or services that would make the nonbank subject to the CFPB’s supervisory authority.

Covered terms and conditions of form contracts that would fall under the scope of the proposed rule generally include clauses, terms or conditions that purport to establish a limitation on consumer legal protections applicable to the offering or provision of consumer financial products or services. The proposed rule cites categories of certain terms and conditions that:

  • Preclude the consumer from bringing a legal action after a certain period;
  • Specify a forum or venue where a consumer must bring a legal action in court;
  • Limit the ability of the consumer to file a legal action seeking relief for other consumers or to seek to participate in a legal action filed by others;
  • Limit liability to the consumer in a legal action including by capping the amount of recovery or type of remedy;
  • Waive a cause of legal action by the consumer, including by stating a person is not responsible to the consumer for a harm or violation of law;
  • Limit the ability of the consumer to make any written, oral or pictorial review, assessment, complaint or other similar analysis or statement about the offering or provision of consumer financial products or services by the supervised registrant;
  • Waive, whether by extinguishing or causing the consumer to relinquish or agree not to assert, any other identified consumer legal protection, including any specified right, defense or protection afforded to the consumer under constitutional law, a statute or regulation or common law; or
  • Require that a consumer bring any type of legal action in arbitration. To read more click here.

Vacatur of Default Judgment Does Not Make Collection Activity Retroactively Unlawful

The Third Circuit held that attempting to collect on a default judgment did not constitute using "'false, deceptive, or misleading' representations in connection with collecting the judgment" if the default judgment was later vacated. Lowe v. FBCS, Inc., No. 21-3307, 2023 WL 154970, at *1 (3rd Cir. Jan. 11, 2023). Barbara Lowe (Lowe) filed a lawsuit claiming FBCS, Inc. (FBCS) and LVNV Funding, LLC (LVNV) (collectively, Defendants) violated the Fair Debt Collection Practices Act (FDCPA) by calling her to collect on a default judgment later vacated and declared void ab initio. The underlying default judgment was entered in a 2016 debt collection case LVNV filed against Lowe, and was entered at the same time as a conflicting order dismissing the action. In 2018, the New Jersey Superior Court "filed a Statement for Docketing that confirmed default judgment was entered in favor of LVNV and against Lowe on October 14, 2016." FBCS allegedly began calling Lowe to collect on the default judgment in 2019. Lowe claimed she disputed the debt and that FBCS sent Lowe a letter acknowledging her dispute in September of 2019.

Lowe filed this federal lawsuit in March of 2020 claiming the Defendants "attempted to collect a debt they 'knew or should have known . . . was unenforceable' and thus made a false representation in violation of the FDCPA . . . ." Several months later, in August of 2020, Lowe moved the New Jersey Superior Court to vacate the judgment against her and declare it void ab initio. The New Jersey Superior Court granted Lowe's motion in August 2021.

The Defendants and Lowe both moved for summary judgment. The District Court found that, because the default judgment existed when the alleged communications were made, the fact that the default judgment was subsequently declared invalid did not make FBCS's attempts to collect the debt false or misleading. Accordingly, the District Court granted summary judgment in Defendants' favor.

Lowe appealed. Essentially, Lowe argued that the "alleged attempts to collect on the default judgment in 2019 are per se improper because the Superior Court, two years later, vacated the default judgment and declared it void ab initio." Lowe further argued that "[b]ecause 'void ab initio' means '[n]ull from the beginning,' . . . the default judgment order should be treated as if it were never in effect and 'per se not valid' when the debt collection efforts occurred." Thus, according to Lowe, the "'Defendants attempted to collect on a debt that was not authorized at law.'"

The Third Circuit agreed the District Court properly granted summary judgment in Defendants' favor. The Third Circuit explained:

[a]lthough the Superior Court eventually vacated and declared void ab initio the default judgment order after Lowe filed this action, the default judgment order was in effect when Defendants allegedly attempted to collect. If Defendants attempted to collect on the default judgment prior to the Superior Court's vacatur order, such action would not misrepresent the "legal status" of the judgment . . . or constitute a "threat to take any action that cannot legally be taken" . . . because judgment was entered against Lowe at the time of the alleged communication. To read more click here.

Over 10 Million Families Have Less Trouble Paying Medical Bills

Paying medical bills has gotten a little easier for patients, according to a new report from HHS. The report released by the Centers for Disease Control and Prevention (CDC) found that the percentage of people who were in families having trouble paying medical bills over the last year fell from 14.0 percent in 2019 to 10.8 percent in 2021. That means 10.5 million fewer people were in families having problems paying medical bills compared to a few years ago. The downward trend, according to the CDC, can be explained by pandemic-era legislation that may have indirectly mitigated the impact COVID-19 had on people who report trouble paying medical bills.

Pandemic-era legislation, including the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Consolidated Appropriations Act of 2021, and The American Rescue Plan Act of 2021, provided direct monetary payments, flexibility with payments to creditors, additional unemployment assistance, subsidized payroll for certain small businesses, and improvements in paid sick leave, among other provisions.

Additionally, the American Rescue Plan Act of 2021 increased the percentage of people covered by insurance using COBRA premium subsidies, eliminated the income limit for subsidy eligibility for those buying private plans through the Marketplaces, and increased subsidies already available to those with lower incomes. This law also made changes to the Medicaid program to increase coverage and expand benefits.

Together, the provisions may have mitigated the impact the pandemic had on people experiencing difficulties paying for their medical bills, the CDC stated.

People may also have gotten a reprieve from medical bills during the early days of the pandemic when utilization was low due to community shutdowns, the agency hypothesized in the report.

Still, millions of Americans struggled to pay their medical bills during the period. The report showed that people were more likely to have problems paying medical bills if they had low family income, were uninsured, or lived in non-Medicaid expansion states.  

People who struggle to pay their medical bills not only experience financial consequences, such as increased debt from credit cards and other means of paying for medical bills, but they may also forgo care and prescription drugs altogether, the CDC said.

Gallup poll released just one day before the CDC’s report showed that the percentage of Americans reporting that they or a family member postponed medical treatment in 2022 due to cost increased by 12 points in one year, reaching 38 percent of respondents. That is the highest percentage in Gallup’s 22-year-trend.

“Despite the decreasing trend in the percentage of people with problems paying medical bills, the burden associated with unpaid medical bills remains a public health concern,” CDC said in its report.

Unpaid medical bills have become a major burden for Americans, especially as healthcare costs rise. Some healthcare providers and medical debt collectors have even placed liens against patient homes over unpaid bills, while others have garnished patient wages.

Federal and state governments are seeking to prohibit aggressive medical debt collection. New York, for example, modified civil practice law last year to ban healthcare providers from placing liens on an individual’s primary residence or garnishing wages to collect medical debt.

"No one should face the threat of losing their home or falling into further debt after seeking medical care," New York Governor Kathy Hochul said at the time. “With medical debt a burden for far too many, this is an important step to address this crucial issue.”

The Biden Administration has acknowledged the problem of medical debt and promised to protect consumers through several reforms, including requesting data from more than 2,000 providers to evaluate medical bill collection practices and financial assistance offerings.

The Consumer Financial Protection Bureau (CFPB) also plans to investigate credit reporting companies and debt collectors that violate patient rights and hold the violators accountable. In addition, CFPB will monitor credit reporting and determine if credit reports should include past-due medical bills. To read more click here.

Court Finds Letter to Debtor is Not a Debt-Collection Communication Under the FDCPA

Recently, in Velez v. Absolute Resolutions Investments., LLC, the district court for the Northern District of Illinois confirmed the long-standing principle that not all communications sent from a debt collector to a debtor are governed by the Fair Debt Collection Practices Act (FDCPA). Instead, the communications must be in connection with the collection of a debt to fall within the statute’s purview. As background, the defendants, Absolute Resolutions Investments, LLC (ARI) and Absolute Resolutions Corporation (ARC), were debt collectors who regularly worked together to collect consumer debts. ARI acquired a debt owed by the plaintiff. In February of 2021, the plaintiff’s attorney informed the defendants that the plaintiff was represented by counsel. Counsel sent a second letter in May of 2021 asking ARI to stop collection and reporting of the debt because the plaintiff had been affected by the COVID-19 crisis. In response, ARI suspended collection of the account and opened an investigation.

On June 17, 2021, ARC, acting as records custodian for ARI, sent a letter directly to the plaintiff rather than his attorney. The letter indicated that the defendants needed additional time to investigate the plaintiff’s dispute of the credit reporting of his account and that they would request the consumer reporting agencies to delete the reporting while the investigation was in progress. Based on this letter, the plaintiff filed suit alleging the defendants violated FDCPA § 1692c(a)(2), which prohibits debt collectors from communicating with a consumer in connection with the collection of any debt “if the debt collector knows the consumer is represented by an attorney with respect to such debt.”

The defendants moved for summary judgment, arguing that the plaintiff had not suffered an injury-in-fact sufficient to confer standing under Article III of the Constitution. The court noted that stress and annoyance alone do not amount to “concrete harm for standing purposes.” But the plaintiff alleged that the stress caused him financial harm because it prompted him to refuse freelance work that he ordinarily would have performed. The court held that was evidence of a tangible harm sufficient to confer standing.

However, the court also noted that the FDCPA does not apply to every communication between a debtor and a debt collector. Based on a “common sense inquiry” as to its purpose, the court found that the June 2021 letter did not amount to a communication in connection with the collection of a debt. Rather, the letter merely acknowledged the plaintiff’s dispute, stated that ARC would investigate, and told the plaintiff that ARC had asked the consumer reporting agencies to delete the credit reporting of the account. Because it found that the FDCPA did not apply to the letter, the Court granted summary judgment in favor of the defendants. To read more click here.