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Home mortgage lenders hire law firm to send 88,937 collection letters to defaulted borrowers: Borrowers allege this violated the FDCPA and a federal judge certifies the class

In Lori Jo Vincent, et al. v. The Money Store, Inc. et al, No. 03 cv 2876 (S.D.N.Y. February 2, 2015), the United States District Court for the Southern District of New York certified a class of home mortgage borrowers who defaulted on their loans and received uniform “breach letters” from a law firm sent on behalf of the defendant mortgage servicing company and the defendant lenders.

The breach letters informed the debtors that the servicer of their loans, defendant TMS Mortgage, Inc. (TMS), intended to enforce the loans by accelerating the principal and interest and that the law firm had been retained by defendants to collect the debt. The law firm sent out a total of 88,937 breach letters and received a flat fee of $50, later reduced to $35, per letter. The crux of the plaintiffs’ allegation is that the defendants hired the law firm to represent itself as collecting defendants’ debt, but in reality the law firm was simply sending out form letters on firm letterhead at the defendants’ “behest.” The plaintiffs contend that defendants’ conduct violates the “false name exception” of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692e(6).

Generally, creditors are not subject to the FDCPA.  See Maguire v. Citicorp Retail Servs., Inc., 147 F.3d 232, 235 (2d Cir. 1998). However, under the “false name exception,” the FDCPA defines debt collectors as creditors “who, in the process of collecting [their] own debts, use[ ] any name other than [their] own which would indicate that a third person is collecting or attempting to collect such debts.”  15 U.S.C. § 1692a(6); Catencamp v. Cendant Timeshare Resort Group-Consumer Fin., Inc., 471 F.3d 780, 782 (7th Cir. 2006) (citing Maguire v. Citicorp Retail Servs., Inc., 147 F.3d 232 (2d Cir. 1998)). The “false name exception” applies to any creditor who, in the process of collecting its debts, “indicate[s] that a third party is collecting or attempting to collect such debts . . . pretends to be someone else or uses a pseudonym or alias . . . or . . . [who] owns and controls the debt collector, rendering it the creditor’s alter ego.”  See Mazzei v. Money Store, 349 F. Supp. 2d 651, 659 (S.D.N.Y. 2004) (internal quotations and citations omitted).

One of the central issues before the district court on the issue of certification was whether the law firm was making bona fide attempts to collect the plaintiffs’ debts, or whether it was merely operating as a conduit for the defendants. The defendants, as one would expect, argued that the question was not capable of classwide resolution because the plaintiffs did not show that the breach letters sent to each class member were materially similar. The defendants argued the district court would have to review each of the 88,978 breach letters to make such a determination. The defendants also argued the district court would be required to engage in individualized inquires to determine if the law firm engaged in bona fide collection activities beyond the breach letters with respect to each class member. These arguments, if agreed with by the court, could frustrate the commonality requirements of class certification under Rule 23.

The district court rejected both arguments. With respect to the breach letters, the district court held that the evidence demonstrates that law firm pursued a program of “mass processing” with respect to the breach letters and similar letters were sent to the borrowers identified by the defendants as being in default. The district court found that in other cases involving what are essentially form letters, “no court has suggested that such an exhaustive review of all of the letters would be necessary to find commonality.” Similarly, the district court found that the evidence did not mandate a case-by-case review to determine if the law firm otherwise engaged in bona fide collection activities with respect to each class member. For example, the evidence showed a representative of the law firm provided testimony that she spoke with debtors and their attorneys approximately one hundred times – which was insignificant compared to the almost 90,000 breach letters that were mailed. Further, in some of those communications, the debtors were simply referred back to the creditor defendants.

Ultimately, the district court found that the question of whether the law firm’s breach letter program was merely a conduit under the defendants’ control in violation of the FDCPA was a unifying thread that warranted class treatment. Thus, the commonality requirement was met, allowing the case to proceed as a class action.