Schlegel v Wells Fargo Bank (9th Cir. July 3, 2013)
John and Carol Schlegel sued Wells Fargo because the bank sent them default letters after agreeing to modify their loan.
The Ninth Circuit Court of Appeals affirmed dismissal of the couple's Fair Debt Collection Practices Act ("FDCPA") claim and reversed dismissal of their Equal Credit Opportunity Act ("ECOA") claim.
The Court held the couple's complaint didn't plead specific enough facts to infer Wells Fargo met the definition of a "debt collector".
The text of the FDCPA defines "debt collector" as someone who either (1) uses the mail in a business with the principal purpose of debt collection, or (2) regularly collects the debts of another.
The Court reasoned that Wells Fargo's principle purpose was not alleged to be debt collection and the loan at issue was not owed to "another" because Wells Fargo was assigned the debt prior to its collections.
The Court held the complaint plausibly stated a claim under the ECOA because Wells Fargo's default letters sought to accelerate the loan balance without first sending an adverse action notice.
The Court reasoned that the bank's default letters, even if sent in error, terminated the loan modification agreement and "revoked" the Schlegel's credit under the ECOA.
Read the full opinion for complete analysis: http://cdn.ca9.uscourts.gov/datastore/opinions/2013/07/03/11-16816.pdf
Commentary: Footnote 2 is notable because the Court rejects 6th and 7th Circuit case law defining "creditor" and "debt collector" as mutually exclusive under the FDCPA.