Episode 5 – Financial Consumer Rights Talk – 3rd Circuit FDCPA Kaymark v Bank of America - Denbeaux & Denbeaux Attorneys at Law

Episode 5 – Financial Consumer Rights Talk – 3rd Circuit FDCPA Kaymark v Bank of America

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Date: April 14, 2015Author: Denbeaux & Denbeaux

The Third Circuit Court of Appeals Renders Landmark Decision in Favor of Consumer Debtors

On April 7, 2015 Third Circuit Court of Appeals (DE, NJ, PA) published a landmark decision ruling that a debt collection law firm can be held liable for violation of the Fair Debt Collection Practices Act (“FDCPA”) based upon false allegations within a foreclosure complaint.  In reaching this conclusion, the Court of Appeals reversed the District Court’s ruling and maintained the Third Circuit’s long standing approach to view the FDCPA as a remedial consumer protection statute that Congress intended to be interpreted broadly in favor of the consumer.  The decision has significant implications for individuals facing debt collections on consumer debt including mortgage loans, credit cards and medical debt.

The case in question, Kaymark v. Bank of America, N.A. 2015 U.S. App. LEXIS 5548 (3d Cir. 2015) originates from a claim that debt collection law firm Udren Law Offices, P.C. violated the FDCPA by claiming in the body of a foreclosure complaint to be owed specified fees including $1,650.00 in attorney fees.  In Pennsylvania (and NJ) legal fees for foreclosure lawsuits are set by statute.  Kaymark argued that it was a violation of the FDCPA to claim that $1,650.00 in attorney fees were owed at the time the complaint was filed, because the fees were not yet incurred and the debt collector would not become entitled to the fees unless it successfully obtained a foreclosure judgment and was awarded the fees by the state court.  The District Court dismissed Kaymark’s claim, calling it “rather hyper-technical.”  The inference from the District Court is that it assumed the foreclosure action would be successful and fees awarded, therefore no harm was done.  The Appellate Court rejected the reasoning.

The Appellate Court explained that had Udren Law Offices, P.C. asserted that the fees were an estimate, or would be sought they may be excusable however because the fees were demanded in a precise amount, the demand “misrepresented the amount of the debt owed, forming a basis for violations.”  Essential to the Court’s holding is confirmation that a complaint and/or other document filed with the Court in connection with debt collection litigation is actionable under the FDCPA.  In 1996 and again in 2006, Congress amended the FDCPA to provide exemptions from formal court pleadings from coverage of two sections of the FDCPA (15 U.S.C. 1692e(11) and 15 U.S.C. 1692g(d).  The Court of Appeals explains in the Kaymark case that “If Congress intended that all conduct in the course of formal pleadings be exempt from the FDCPA, then these express exemptions would be superfluous” and it is presumed that Congress acted with purpose in carving narrow exemptions.

In light of the Kaymark decision, the rights of consumer debtors have not been expanded, but they have been clarified and secured in the Third Circuit.  Litigation is a form of debt collection, no different than phone calls and dunning letters.  Congress enacted the FDCPA after finding “abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.” 15 U.S.C. 1692(a).  In the Third Circuit, it is an abusive debt collection practice and violation of the FDCPA to make false assertions of the amount and character of a debt in a communication whether the communication is a phone call, letter, or document filed with the Court.

It is plausible that the Kaymark decision will reshape the legal landscape for state court debt collection litigation.  In state court the debt collector is often given a great deal of deference in presentation of proofs.  This has long been a complaint of debtor litigants.  Where a debt collector violates the FDCPA in pursuit of relief in state court, the debtor can seek relief under the FDCPA.  Eventually this may lead to a change in the way state courts approach debt collection matters.  Particularly in the context of foreclosure actions which are heard by courts of equity, it is appropriate for the court to deny relief to the debt collector on the basis that they are acting with unclean hands by violating federal law while seeking relief under state law.

Debtors who believe they have been misled by debt collectors must act diligently.  Under the FDCPA, Congress enacted a one year statute of limitations, meaning that a claim must be brought within a year from the debt collector’s offending conduct.  To encourage debtors to act as private enforcers of the statute, Congress provides that a successful FDCPA claimant is entitled to reimbursement of costs and attorney fees.  This means relief can often be obtained without any out of pocket expenses.  That said, relief under the FDCPA is limited to $1,000 per debt collector and actual damages if any.  It is in part because of how limited the monetary relief is under the statute that the Third Circuit interprets Congressional intent as requiring strict compliance with the FDCPA.

The Third Circuit is expected to rule on another FDCPA case in the coming months Jensen v. Pressler & Pressler, LLP 2014 U.S. Dist. LEXIS 59676 (Dist. NJ. 2014) in which it will address whether a misleading statement by a debt collector must be “material” to the decision making process of the debtor in order to give rise to an FDCPA claim.  If Kaymark is a sign of what is to come, the Third Circuit should continue its streak of interpreting the FDCPA liberally so as to provide a maximum protection for consumer debtors.


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