Monday, April 17, 2017

Clinic Files Amicus Brief on Debt Collection

The Mortgage Foreclosure Litigation Clinic at Yale Law School (MFLC), along with the Public Good Law Center (affiliated with the UC Berkeley School of Law) and the Economic Justice Project of Notre Dame Clinical Law Center, has filed an amicus brief with the U.S. Supreme Court in Henson v. Santander Consumer USA, which is scheduled for argument this Tuesday, April 18. The case concerns whether the Fair Debt Collection Practices Act (FDCPA) covers entities that regularly attempt to collect debts that they purchased in default. Santander Consumer USA is accused of purchasing defaulted debts and demanding payment from Petitioners even though it knew the original creditor had waived the debts as part of a class-action settlement.

The amicus brief supports the Petitioners, relying on the Clinic’s experience with debt collection to argue that reading the FDCPA narrowly would allow lender misconduct to escape scrutiny, in contravention of congressional intent. Petitioners are represented by Kevin Russell ’94, a partner at Goldstein & Russell, P.C. “We enjoyed the opportunity to help shape how this important consumer-protection statute is understood and enforced,” said Anderson Tuggle ’18, a law student intern with the MFLC. “Not only were we able to submit a brief to the Court, but we also helped moot a seasoned Supreme Court advocate, which was an amazing learning experience.”

The Mortgage Foreclosure Litigation Clinic has been representing homeowners fighting foreclosure in Connecticut since 2008. Although most of the Clinic’s litigation against banks and mortgage servicers occurs in trial courts, the Clinic has also developed a burgeoning appellate practice. In addition to filing an amicus brief in the U.S. Supreme Court’s 2015 Term, the Clinic has filed amicus and merits briefs with appellate courts in several states and its members have testified before the Connecticut legislature on foreclosure policy.

“Because our Clinic deals with mortgages in foreclosure, we regularly see the negative effects of unscrupulous debt buyers,” said James Mandilk ’17, a student director of the MFLC. “Increasingly in the past three years, debts have been sold to entities that are willing to engage in ruthless debt collection practices rather than working with homeowners to keep them in their homes and build stronger communities. Congress recognized that, unlike those who originate debt, debt buyers have no vested interest in their relationship with consumers. That is why the FDCPA puts special restrictions on debt buyers.”

Purchasers of consumer debt, or “debt buyers,” have multiplied in size and scope in the decades following passage of the FDCPA in 1977 to become part of a multibillion-dollar industry. Because the FDCPA largely predates the debt-buying industry, the statute does not recognize debt buyers as a class even though debt buyers are responsible for a large part of the abuses that still pervade the debt-collection industry today, according to the Clinic. The multiple rounds of packaging and selling debt that fuel the debt-buying industry are commonplace across the consumer-lending industry, from medical and credit-card debt to student loans and home mortgages.

“Given the new administration’s decision not to participate in the case, we thought it particularly important that the Supreme Court receive a brief that explained the debt-buying environment and the decades of work done by government agencies to regulate these entities using the FDCPA,” said Solange Hilfinger-Pardo ’17, another Student Director of the MFLC.

The Clinic’s amicus brief supplemented the textual analysis and policy arguments in the Petitioners’ Brief by exploring the disruptive consequences Santander’s cramped interpretation of the FDCPA would have for consumers and agencies seeking to hold debt buyers accountable for abusive collection practices. The amicus brief first argued that Santander’s interpretation would create a loophole that would allow relatively sophisticated debt collectors to evade FDCPA coverage by purchasing debt they would otherwise have collected for a third party or by strategically diversifying their business practices. The brief also contended that Santander’s interpretation would undermine decades of FDCPA enforcement by private parties and government agencies and upend the longstanding understanding, reiterated in agency guidance, that the FDCPA covers debt buyers. “Exempting debt buyers that regularly collect debt they have acquired in default would fly in the face of agency judgments that FDCPA coverage of these entities is particularly important,” said Nathan Nash ’17, a law student intern with the MFLC. “Moreover, it would weaken consumer protections in an increasingly large and aggressive sector of the debt-collection industry.”

The case will be argued for Petitioners by Russell before the Court on April 18. An audio recording of the argument will be available on the Supreme Court’s website by Friday, April 21. A decision is expected by late June 2017. “We look forward to seeing how the Court addresses Petitioners’ arguments and are eager to work on similarly significant consumer protection questions in the future,” said Jeffrey Gentes, the MFLC’s co-supervisor.

The Mortgage Foreclosure Litigation Clinic is part of the Jerome N. Frank Legal Services Organization at Yale Law School.