All “Communications” Are Not Created Equal: Mohr v. Newrez
The Fair Debt Collection Practices Act (“FDCPA”) prohibits a debt collector from using false, deceptive, misleading, unfair, or unconscionable means “in connection with the collection of any debt.” 11 U.S.C. 1692(e)-(f). This is particularly seen in the context of communications “in connection with” debt collection. That begs the question of what constitutes a communication “in connection with” the collection of a debt. The Northern District of Indiana recently opined on the subject.
In Mohr v. Newrez, 448 F. Supp. 3d 956 (N.D. Ind. 2020), a consumer granted a mortgage on certain Merrillville, Indiana residential property to secure a consumer loan. The consumer vacated the property and their personal liability was discharged in a Chapter 7 bankruptcy. The note and mortgage were then transferred to a new servicer who sent three letters to the consumer regarding the lack of hazard insurance on the property. Each letter informed the consumer that hazard insurance was required and that any insurance purchased by the servicer would be more expensive “than the insurance you can buy yourself.” The first two letters contained the servicer’s disclosure that it was a debt collector and that “to the extent your obligation has been discharged . . . this notice is for compliance and informational purposes only and does not constitute a demand for payment[.]” The final letter informed the consumer that hazard insurance had been purchased, would be charged to the consumer’s escrow account, and listed the amount paid but advised that the letter was “not an invoice.”
The consumer filed suit for alleged violations of the FDCPA. To determine whether the letters constituted a communication “in connection with” the collection of a debt, and therefore within the purview of the FDCPA, the District Court applied the Seventh Circuit’s “commonsense inquiry. That inquiry objectively considers: (i) whether there was a true demand for payment; (ii) the parties’ relationship; and (iii) the purpose and context of the communications. The District Court first noted that despite the letters’ inclusion of “[y]ou must pay us for any period during which the insurance we buy is in effect,” there was no explicit demand for payment. On the other hand, the District Court found the relationship of the parties (including prior litigation between them) weighed in favor of the communication being one in connection with collection. The final and deciding factor was the context and purpose of the letters. Under federal law mortgagees may recover premiums for force-place hazard insurance only if certain information is first sent to a borrower. Because the letters issued to the consumer were informational notices in accordance with federal regulation, they were not communications in connection with the collection of a debt. The FDCPA was therefore inapplicable.
The Northern District’s decision emphasizes the various constructs utilized in determining the applicability of the FDCPA and any violation thereof. Although a “least sophisticated consumer” standard governs the interpretation of a communication, an objective standard determines whether a communication is “in connection with” the collection of a debt. The Seventh Circuit has made clear that just because a communication bears an FDCPA disclaimer does not automatically render such communication to be in connection with debt collection. Creditors are nonetheless wise to carefully review all communications to consumers to ensure compliance with the differing standards governing communications under the FDCPA.