The United States Court of Appeals for the Seventh Circuit recently held that a loan servicer’s letters to a debtor who was behind on her mortgage payments and the loan servicer’s sharing of debtor information with a third party were “in connection with the collection of a debt,” and thus regulated by the federal Fair Debt Collection Practices Act. Gburek V. Litton Loan Servicing, No. 08-3776, 2010 WL 2899110, at *1 (7th Cir. July 27, 2010).

    In Gburek, the debtor was in default on a mortgage loan serviced by Litton Loan Servicing. As part of its servicing activities, Litton sent out monthly statements, collected and monitored mortgage payments, addressed late payments and other delinquencies and notified homeowners of their account status. In December 2007, Litton sent the debtor a letter informing her that she could avoid foreclosure if she submitted certain financial information. A few days later, a third party working with Litton sent the debtor another letter reiterating Litton’s offer and requesting the she provide her financial information.

    The debtor sued Litton alleging violations of the FDCPA. Litton filed a motion to dismiss arguing that the communications in question were not “in connection with the collection of a debt,” and thus not regulated by the FDCPA. In ruling on the motion, the district court indicated that Bailey v. Security Nat’l Servicing Corp., 154 F.3d 384 (7th Cir. 1998), establishes that a communication is “in connection
    with the collection of a debt” and regulated by the FDCPA only if it explicitly demands payment of a debt. The court held that Litton’s communications did not expressly demand payment and granted Litton’s motion to dismiss.

    On appeal, the Court indicated that for the FDCPA to apply, two criteria must be met. First, the defendant must qualify as a “debt collector” under the FDCPA. The parties in Gburek agreed that Litton was a “debt collector.” Second, the communications under consideration must be made “in connection with the collection of a debt” as provided by the statute. The Court disagreed with the district court on the impact of Bailey. According to the Court, Bailey does not establish a bright line explicit demand for payment test, but rather provides that a demand for payment is just one of several factors that come into play in determining whether a communication is “in connection with the collection of a debt.” Other factors to consider are (i) the nature of the parties’ relationship and (ii) the purpose and context of the communications.

    The Court found that the context and content of Litton’s letters to the debtor were sufficient to bring them within the scope of the FDCPA. The Court pointed out that Litton’s first letter was the opening communication in an attempt to collect a defaulted home loan by settlement or otherwise as it contained an offer to discuss repayment options. The Court also pointed out that the purpose of the second letter was to encourage the debtor to contact Litton to discuss settlement options and thus induce the debtor to settle a debt. The Court found that Litton’s sharing of debtor information with the third party who sent the second letter likewise was “in connection with the collection of a debt” because the sharing was in furtherance of collecting financial information from the debtor for the purpose of evaluating her foreclosure alternatives and collecting the debt. For these reasons, the Court held that it was a mistake to dismiss the debtor’s complaint and reversed the district court.

    Gburek, Bailey and other FDCPA cases illustrate that a communication that does not convey an explicit demand for payment may nonetheless be subject to the FDCPA if the sender’s relationship with the debtor and the content of the communication evidence a purpose to encourage payment or collect information that can be used for such purpose. Please contact us if you have any questions about these cases or if would like assistance in evaluating your communications for potential FDCPA applicability.

    • Margaret Stolar and Chuck Gall