CFPB Amicus Brief Supports FDCPA Claim for Unknowing Stay Violation

On January 2, the Consumer Financial Protection Bureau (CFPB) filed an amicus curiae brief urging the U.S. Court of Appeals for the First Circuit to reverse a district court’s decision finding that a debt collector lacked the requisite knowledge and intent to violate the Fair Debt Collection Practices Act (FDCPA) when it sent a debt-collection communication prior to any knowledge of the debtor’s bankruptcy filing.

As discussed here, in Carrasquillo v. CICA Collection Agency, Inc. (CICA), a district court for the District of Puerto Rico dismissed a debtor’s case with prejudice, finding the debt collector lacked the requisite knowledge and intent to violate § 1692e of the FDCPA. Specifically, the debtor did not notify the debt collector, CICA, of his bankruptcy filing prior to the debt-collection communication at issue. Although the creditor, Claro Puerto Rico (Claro), was listed on the bankruptcy petition, Claro also failed to inform CICA of the bankruptcy filing.

After receiving the debt-collection communication, the debtor, through his bankruptcy attorney, filed suit against CICA for violation of § 1692e. The plaintiff alleged that at the time CICA mailed the debt-collection letter to him, CICA knew or should have known that he had filed for bankruptcy and was under the protection of the Bankruptcy Code. The district court found that “a debt collector’s unknowing violation of an automatic [bankruptcy] stay does not transform an otherwise accurate collection letter into a ‘false representation’ within the meaning of § 1692e,” and that a “false representation under § 1692e(2)(A) requires that the misrepresentation be intentional.” The court found that the provision prohibiting debt collectors from using false or misleading representation in the collection of any debt was not intended to punish debt collectors for failing to discover a debtor’s bankruptcy filing, but was instead intended to prohibit only knowing or intentional conduct by debt collectors. The debtor appealed.

The CFPB argues in its brief that the text of § 1692e’s general prohibition against debt collectors using “any false, deceptive, or misleading representation or means in connection with the collection of any debt” does not include a scienter requirement. In other words, “Congress did not expressly require that the representation be knowingly or intentionally false, deceptive, or misleading to violate that prohibition.” In support, the CFPB points to the FDCPA’s bona fide error provision. Section 1692k provides that a debt collector may avoid liability “if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” According to the CFPB, there would be no reason for Congress to include the language about “procedures reasonably adapted to avoid any such error” if showing that a violation was unintentional was sufficient to avoid liability. The CFPB therefore urges the appellate court to reverse the district court’s decision to dismiss the debtor’s FDCPA claims based on CICA’s lack of scienter.

Troutman Pepper's Take:

The fundamental principle of the automatic stay is that a violation must be willful to be actionable. The CFPB’s position would essentially turn that principle on its head. In practice, it would force creditors and debt collectors to perform case searches for bankruptcy filings before ever sending out a demand letter, potentially imposing significant costs, and would remove the onus from debtors to provide notice to their creditors in order to receive the protection of the stay.