Creditor Can Be Liable for 'False' Use of Firm, Circuit Says

, New York Law Journal

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A creditor can be exposed to liability under the Fair Debt Collection Practices Act where it indicates that a law firm has been retained to collect its debts, but the law firm makes no genuine effort to collect those debts, the U.S. Court of Appeals for the Second Circuit held Wednesday.

A divided circuit panel held that liability can attach under the act's "false name" exception to creditor immunity in the case of Mazzel v. The Money Store, 11-4525-cv.

The Money Store and its subsidiaries and affiliates, are creditors who had purchased mortgages from other lenders. It retained the law firm of Moss, Codilis, Stawiarski, Morris, Schneider & Prior LLP of Colorado to send debt collection letters to homeowners who had defaulted on their mortgages.

The plaintiffs were homeowners who claimed The Money Store had violated the Fair Debt Collection Practices Act,(FDCPA),15 U.S.C. §1692, and the Truth in Lending Act, (TILA),15 U.S.C. §1601, by sending deceptive letters.

Southern District Judge John Koeltl (See Profile) granted summary judgment for the defendants on the Truth in Lending claims and denied a motion to reconsider Judge John Sprizzo's earlier dismissal of the FDCPA claim.

The plaintiffs appealed to the circuit, where oral argument was heard on Nov. 8, 2012 by Judges Robert Katzmann (See Profile), Debra Ann Livingston (See Profile) and Raymond Lohier (See Profile).

On Wednesday, all three judges held the district court was correct in finding that the defendants were not "creditors" for purposes of being accused of charging improper fees under the TILA, because The Money Store was an assignee of the plaintiffs' notes.

But Katzmann and Lohier held that the lower court erred in its grant of summary judgment under the FDCPA because of the false name exception to the general rule that a creditor has immunity.

Under §1692a(6) of the FDCPA, the exception to creditor immunity exists where the creditor "in the process of collecting [its] own debts, uses any name other than [its] own which would indicate that a third person is collecting or attempting to collect such debts."

Here, the plaintiffs charged that Moss Codilis was hired by The Money Store in 1997 to send out "breach" letters on its stationery that falsely indicated Moss Codilis had been retained to collect debts that The Money Store was in fact itself collecting.

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