Consumer Bankruptcy Panel: Recent Developments in Bankruptcy Regulation: Mortgage Servicing Rules, the Fdcpa, and the Cfpb
| Publication year | 2016 |
Consumer Bankruptcy Panel: Recent Developments in Bankruptcy Regulation: Mortgage Servicing Rules, the FDCPA, and the CFPB
Frederick Tung
Alane A. Becket
Sarah Bolling Mancini
Nick Wooten
MS. DEPPERT: Welcome back. Before we begin, I'd like to take this opportunity to introduce you to our second panel of the day, our Consumer Panel, which will discuss Recent Developments in Bankruptcy Regulation, including mortgage servicing rules, the Fair Debt Collection Practices Act (the "FDCPA"), and the Consumer Financial Protection Bureau (the "CFPB"). This afternoon we are privileged to have the following distinguished panelists join us. First we have Alane Becket, Managing Partner at Becket & Lee LLP, in Malvern, Pennsylvania, a law firm representing primarily consumer lenders in bankruptcy proceedings. Ms. Becket was elected to the Board of Directors of the ABI in 2009, where she served as the co-chair of the Consumer Bankruptcy Committee from 2009 through 2011. Ms. Becket currently serves on the Board of Directors of the ABI where she is a member of the Executive Committee and Vice President of Publication.
Next, we have Nick Wooten. Mr. Wooten is a solo practitioner living in Little Rock, Arkansas, whose practice primarily involves consumer litigation in the Northern District of Illinois, and selected consumer cases in various bankruptcy courts. Nick is nationally recognized for handling consumer claims including claims under the FDCPA and mortgage servicing abuse cases in bankruptcy courts, federal courts and state courts around the country.
Third, we have Ms. Sarah Mancini, Of Counsel for the National Consumer Law Center and also an attorney in the Home Defense Program at Atlanta
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Legal Aid. Ms. Mancini is a co-author of Georgia Real Estate Finance and Foreclosure Law, Collier on Bankruptcy, and National Consumer Law Center's treatises on the Truth in Lending Act ("TILA") and foreclosures in mortgage servicing.
Finally, moderating our panel today we have Professor Frederick Tung, Professor of Law and Associate Dean for Academic Affairs at Boston University School of Law. Professor Tung is a former law professor at Emory University, and has been a visiting professor at Harvard Law School. Professor Tung researches, teaches, and consults in the areas of corporate and securities law, bankruptcy, and the governance of financial institutions. So with that, I'll turn it over to Professor Tung to begin the discussion.
PROFESSOR TUNG: Thanks very much, Chelsea, and let me echo our thanks to all the folks that were involved in organizing this wonderful event. It's really nice for me to be back here, having spent some time wandering this building a few years back. It's really great to see several of my former students here who have now grown up and they're now earning an honest living as bankruptcy lawyers, so that's gratifying. And, also great to see professional colleagues in Judge Hagenau and Judge Diehl in the audience.
We've got a great panel on consumer bankruptcy this morning. We're going to have first a little brawl between Alane Becket and Nick Wooten. They take opposite sides on the question whether it is a violation of the Fair Debt Collection Practices Act to file a proof of claim in a consumer bankruptcy where the claim is time barred. And then following that, we have Sarah Mancini who is going to talk to us about the activities of the Consumer Financial Protection Bureau and the U.S. Trustee's Offices in policing mortgage foreclosures and related consumer issues. With that, I'm going to turn it over to Alane for her presentation.
MS. BECKET: Thank you. I'm very happy to be here. Thank you for inviting me. The last panel was really impressive. It was professor, professor, professor, Judge. And now we've got Professor and Sarah Mancini (Brilliant), and then me and Nick, so I hope that we live up to that last panel.
PROFESSOR TUNG: Excuse me. I'm sorry I have to interrupt. I just want to let you know the ground rules. If anybody has a question during a presentation, all the speakers have graciously agreed to field them. So, if you just want to walk up to a microphone, I'll try to pay attention and make sure we get you in. Okay, thanks.
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MS. BECKET: I'm also standing up here so I can be taller than Nick who's about 6'5" and I'm five feet tall, and I won't be hitting him from here. We're going to have sort of two parts here. Let me just ask, how many people out in the audience are familiar with the Crawford1 case from the Eleventh Circuit from 2014? Okay, so I'm going to say a little more than half maybe. We're going to talk about that case. We're going to talk about what's next in the Eleventh Circuit and sort of how the rest of the country is looking at this issue, and Sarah is going to talk about a separate piece on the mortgage issues.
MS. BECKET: For those of you who don't know what Crawford is, this is basically the hottest topic in consumer bankruptcy litigation that doesn't have to do with mortgages. This was Nick's case, a miraculous win for him, because the ruling is wrong, sorry, Eleventh Circuit, in my humble opinion. But anyway, here's what Crawford said. Crawford said that the FDCPA is designed to protect the least sophisticated consumer from unfair and deceptive acts or practices, and if you were to file a proof of claim that you knew was out of statute, a lot of people call it time barred or the statute of limitations has run, a party who does that violates the Fair Debt Collection Practices Act, even though you're operating in a bankruptcy context because it's unfair and unconscionable, deceptive practice under the FDCPA.
What you have to remember about this part of it is that the FDCPA is a statute that only applies to certain parties, so not all bankruptcy claimants are subject to the FDCPA, just what are defined as debt collectors, and that's a defined term under the FDCPA that does not include original creditors. So, to put that in simple terms, American Express is not a debt collector, but when I file a claim for American Express, I am a debt collector. So, you're talking about collection agencies and servicers and attorney law firms. It also applies only to consumer debts. So, we're not talking about commercial debts, construction loans, that kind of thing. We're just talking about basically your basic credit card or maybe installment sales loan, something like that. When we talk about the Crawford decision, you need to understand that it only applies to certain claimants filing certain types of proofs of claim in bankruptcy cases. So we're not all subject to this ruling, but certainly a lot of us are because a lot of us are considered debt collectors, and a lot of these credit card companies and debt purchasers use debt collectors to file their claims so there's a lot of liability for a lot of us there, but not everybody.
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Here's what happened in Crawford. The debtors filed a chapter 13 case and the creditors filed proofs of claim for debts on which the statute of limitations had run before the claims were filed. Nick, on their behalf filed adversary proceedings for filing stale claims arguing that, among other things, that they were a violation of the FDCPA, and the creditors moved to dismiss basically saying that, all we did was file our proof of claim; it's not an FDCPA violation. At the time, no court in the country had said that filing an out-of-statute proof of claim was an FDCPA violation, and some courts specifically said it was not. So there was either no ruling from a court or they ruled that it was not an FDCPA violation, but nobody had ruled that it was. So, the Bankruptcy Court in Crawford was more or less following established precedent.
So, we get to the District Court and appellant, Nick, candidly admitted that he could not win his appeal without a change in the law, and the elephantine body of persuasive authority, that was all my people, my side of the argument, had ruled against him, but not yet in the Eleventh Circuit, but the District Court again upheld the Bankruptcy Court's ruling. Nick lost again, and as tenacious as he was, he appealed again. But what the District Court did say was, nothing that the claimants did violated the FDCPA. The creditor never talked to them, the creditor filed a proof of claim that was true on its face, there was nothing deceptive about it, we never lied to the creditor, we never spoke to the creditor, we never did anything affirmatively other than what the Bankruptcy Code allowed you to do, which is file a proof of claim. And then there's that whole thing about whether a proof of claim in a bankruptcy court is an act to collect a debt covered by the FDCPA because the FDCPA covers people in the act of collecting a debt. And there's this argument that when you're filing a proof of claim, you're sort of communicating with the Bankruptcy Court, it's a separate federal proceeding, and it's not an act to collect a debt against the consumer. It's like filing a claim against the bankrupt estate. But the Court said even if it was an act to collect a debt under the FDCPA, it still didn't violate the FDCPA which prohibits false, abusive, deceptive, misleading conduct, and that filing this proof of claim even though it was out of statute was not that kind of conduct.
So, Nick goes up to the Eleventh Circuit and wins.
MR. WOOTEN: To the shock of Alane and everyone else in the industry.
MS. BECKET: Yeah, I couldn't believe my eyes when I read it. And I didn't even know Nick back then, so that really came out of nowhere. So the Court starts off with this first line in red: "A deluge has swept the United States
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Bankruptcy Courts of late."2 Consumer debt-buyers armed with all of these accounts are inundating...
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