The United States, at the Solicitor General’s request, has filed an “unopposed motion” with the U.S. Court of Appeals for the District of Columbia Circuit for leave to file an amicus brief in PHH Corporation v. Consumer Financial Protection Bureau by March 17, 2017. The motion states that both PHH and the CFPB have consented to the motion.

The D.C. Circuit’s order granting the CFPB’s petition for rehearing en banc requires amicus briefs supporting PHH to be filed by March 10 and amicus briefs supporting the CFPB to be filed by March 31. (PHH must file its opening brief by March 10 and the CFPB must respond by March 31.) In asking for leave to file its amicus brief by March 17, the United States appears to be signaling that its brief will support PHH rather than the CFPB.

In December 2016, at the D.C. Circuit’s invitation, the United States filed a response to the CFPB’s petition for rehearing en banc. The response, which supported the CFPB’s motion, did not address the D.C. Circuit’s RESPA rulings and instead addressed only the panel’s constitutional separation-of-powers holding. The United States argued that the panel’s holding was based on an incorrect application of U.S. Supreme Court precedent.

Since the Department of Justice is now headed by Attorney General Jeff Sessions, a Republican, the amicus brief to be filed by the United States can be expected to support PHH’s position that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional. Should the United States also address PHH’s RESPA arguments in its amicus brief, it is also likely to support PHH’s position that the CFPB’s RESPA interpretation was incorrect.

In addition to requesting a March 17 date for filing its amicus brief, the following statements made by the United States in its unopposed motion also appear to signal its intention to support PHH: “As this Court recognized in calling for the views of the United States on the question whether rehearing should be granted, the views of the United States on matters involving the President’s removal power are not always congruent with the views of independent agencies. An earlier filing date would make it exceedingly difficult to engage in the necessary consultation with the government. A March 17 filing by the United States would provide the Bureau adequate time to address, in the Bureau’s own filing on March 31, points made in the Department of Justice’s filing.”

- Barbara S. Mishkin


PHH has filed a response opposing the motion of the plaintiffs in State National Bank of Big Spring, Texas, et al. v. Lew to intervene in the en banc rehearing. The D.C. Circuit granted the CFPB’s petition for en banc rehearing on February 16.

In July 2016, the D.C. federal district court rejected the plaintiffs’ attempt in State National Bank of Big Spring to invalidate the actions taken by Director Cordray while he was a recess appointee. The district court deferred ruling on the plaintiffs’ separation of powers constitutional challenge pending a decision by the D.C. Circuit in PHH. The D.C. Circuit subsequently ruled in PHH that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional. Following the D.C. federal district court denial of the plaintiffs’ attempt to consolidate their case with PHH on appeal to the D.C. Circuit, the plaintiff filed a motion to intervene with the D.C. Circuit.

In their motion to intervene, the plaintiffs argued that if the D.C. Circuit grants the CFPB’s petition for rehearing en banc but decides the case on RESPA grounds, their “constitutional claims will be left unresolved, and the district court will be left without binding guidance from this Court as to how the constitutional question should be answered.” According to the plaintiffs, a decision on RESPA grounds would delay the resolution of their case, “prolonging the harm they suffer from being subject to unconstitutionally promulgated regulations and ensuring that they will wait even longer for an eventual, inevitable merits determination from this Court.” The plaintiffs also asserted that because they could not rely on PHH to defend the panel’s constitutionality holding as vigorously as they would, they met the requirement for intervention of right that no party to the action could adequately protect their interests.

In its response in opposition to the motion to intervene, PHH argues that like other intervention motions filed in the case, the motion filed by the plaintiffs in State National Bank of Big Spring “appears to be little more than a naked attempt to seize control of this litigation from the actual litigants for the purpose of someday petitioning the Supreme Court for a writ of certiorari in the event the defeated litigant determines that it is not in its interest to do so. That goal is equally illegitimate when pursued by those who agree with PHH on the separation-of-powers question as it is for those who disagree.” PHH characterizes the plaintiffs’ motion as an improper attempt to use intervention as a means of circumventing the district court’s abeyance order.

PHH also challenges the plaintiffs’ standing to intervene, asserting that “it is elementary that a third party’s purported interest in securing a particular precedent does not create standing to intervene.” According to PHH, this principle applies with even more force in this case because the plaintiffs are not concerned merely with an adverse legal decision but with any decision that leaves the constitutional claims unresolved. According to PHH, if the plaintiffs “were truly aggrieved by the CFPB’s order, as PHH is, than it is unclear why [plaintiffs] would have any interest in the rationale this Court employs in vacating that order. It is well-established that a party’s interest in securing a decision with a particular legal rationale is insufficient to provide standing to appeal the decision if it produces no adverse consequences.”

With regard to the plaintiffs’ claim that they cannot rely on PHH to adequately protect their interest in challenging the CFPB’s constitutionality, PHH asserts that “PHH, represented by capable counsel,” is fully capable of representing that interest and “there is utterly no reason to think that [plaintiffs] can do a better job in pressing [the constitutional argument] than PHH.” PHH also observes that “[t]o the extent [plaintiffs] are interested in the issues presented, their amicus curiae brief [filed with the D.C. Circuit in support of PHH prior to the panel’s ruling] allows them to be heard and to advise the Court as to the possible effects of its decision in this matter on [plaintiffs’] pending litigation, a traditional function of such briefs.”

- Barbara S. Mishkin


A collection letter potentially violated the Fair Debt Collection Practices Act (FDCPA) because a box the plaintiff could check to indicate she disputed the validity of the debt was accompanied by a statement that a reason for the dispute was required, a federal magistrate judge ruled.

The decision serves as a reminder of the risks a debt collector takes when designing collection letters that vary from the content of the validation notice required by the FDCPA, notwithstanding the similarity of the collector's form to the model validation notice the CFPB included with its Small Business Regulatory Enforcement Fairness Act (SBREFA) proposal.

In Mikolajczyk v. Universal Fidelity, LP, filed in a Wisconsin federal district court, U.S. Magistrate Judge William E. Duffin denied the defendant's motion to dismiss, concluding that the plaintiff had stated a claim that the defendant violated FDCPA Sections 1692e and 1692g. Section 1692e prohibits a debt collector from using any "false, deceptive, or misleading representation or means in connection with the collection of any debt." Section 1692g requires a debt collector to send a written "validation notice" to a consumer within five days of the collector's initial collection attempt and specifies what information the notice must contain. Such information includes "a statement that if the consumer notifies the debt collector in writing within the thirty-day period [after receipt of the notice] that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector."

In addition to the validation notice required by Section 1692g, the defendant's initial collection letter to the plaintiff included a box that she could check to indicate, "I am disputing the validity of this debt," followed by the language, "Reason for Dispute (required):" and four blank lines where a reason could be written. Citing case authority holding that the FDCPA does not require a consumer to provide a reason for disputing a debt to trigger the right to obtain verification, Magistrate Judge Duffin concluded that because the defendant's letter told the plaintiff she had to provide a reason, she had stated a claim under Section 1692e that the defendant used a "false, deceptive, or misleading representation or means" to collect the debt.  

The court rejected the defendant's argument that the plaintiff had not adequately alleged that the statement requiring her to provide a reason was materially misleading. Magistrate Judge Duffin observed that if a consumer lacked a reason for wishing to dispute a debt, or was unclear whether her reason was relevant or sufficient, "being told that she must provide a reason may dissuade her from exercising her unfettered right under the FDCPA to dispute the debt." He also concluded that, although she had not disputed that the letter contained the required validation notice, the plaintiff had nevertheless stated a claim that the letter violated Section 1692g based on her allegation that the rights outlined in the notice were overshadowed by the letter's contradictory or inconsistent statement that she was required to provide a reason for her dispute.

The defendant's inclusion of a check box and space for the plaintiff to indicate the reason for her dispute is similar to the approach taken by the CFPB in designing a model validation notice. The model notice was included as an appendix to the outline of the debt collection rule proposals issued by the CFPB in August 2016 in preparation for convening a small business review panel under SBREFA. The CFPB's model notice contains a "tear-off" to appear on the bottom of the notice on which the consumer could respond to the question, "How do you want to respond to this notice?" by marking one or more check boxes to select from the following options:

  • "I want to dispute the debt because I think:"
  • "I want you to send me the name and address of the original creditor."
  • "I enclosed this amount: $_____" 

A consumer selecting the dispute option could then choose from various types of reasons for the dispute by marking a check box, such as, "This is not my debt" or "The amount is wrong." 

The CFPB's model notice does not state that it is optional for a consumer to indicate a reason for a dispute, nor does it expressly state that a consumer is required to indicate a reason. However, the notice's design could readily lead a consumer to believe that a reason must be provided. In explaining its rationale for prompting the consumer to indicate a reason, the CFPB stated its belief that by using this approach, "debt collectors would experience less uncertainty about the basis for many disputes, allowing collectors to respond more efficiently to them."

Attorneys in Ballard Spahr's Consumer Financial Services Group regularly advise clients on compliance with the FDCPA and state debt collection laws, defend clients in FDCPA lawsuits and enforcement matters, and represent clients commenting on regulatory proposals. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

- Alan S. Kaplinsky, Christopher J. Willis, John L. Culhane, Jr., Stefanie H. Jackman, Kim Phan

Did you know?

NMLS Reinstatement Period Has Ended

On February 28, 2017, the annual NMLS reinstatement period ended. Contact licensing agencies directly if your license has not been renewed.

NMLS Q4 Reports Released

On March 6, 2017, the NMLS Mortgage Industry Report was posted for the fourth quarter of 2016. The report includes data on entities and individuals licensed or registered with each state agency through NMLS to conduct mortgage activities. The full report can be found here.

Wyoming Modifies Uniform Consumer Credit Code Provisions

The Wyoming Division of Banking has modified licensing fees under the Consumer Credit Code in the following manner:

  • The application fee has increased from $150 to $300 for the first license (principal license) for each license type under the Consumer Credit Code.
  • The initial license fee for each office has increased from $25 to $50.
  • The modification fee for any licensee who wishes to move the location of an office has increased from $25 to $50.
  • The annual renewal fee  has increased from $25 to $50, plus any fees assessed by the registry.

In addition, a section  has been added regarding insurance refunds and obsolete language has been removed or updated.

These provisions are effectively immediately.

- Wendy T. Novotne

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.