Sometimes it is just not that easy to say “hello.” A recent decision from the United States Court of Appeals for the Second Circuit highlights the uncertainty mortgage servicers face with respect to Fair Debt Collection Practices Act (“FDCPA”) compliance when notifying borrowers of changes in loan servicing rights, as required by the Real Estate Settlement Procedures Act (“RESPA”). Often the first communication from a new servicer to a borrower is a RESPA transfer-of-servicing letter—sometimes referred to as a “hello” letter. Under the FDCPA, however, a debt collector—which can include a mortgage servicer when the loan serviced was in default at the time servicing rights were acquired—must provide a debt-validation notice within five days of the “initial communication with a consumer in connection with the collection of [a] debt.” See 15 U.S.C. § 1692g(a). Given the multiple regulatory obligations applicable to communications with borrowers, it is no surprise that litigation often ensues (often in the form of class action litigation for statutory damages), and courts struggle to make sense of the various (and sometimes competing) obligations imposed by the FDCPA and RESPA.
In Hart v. FCI Lender Services, Inc., No. 14-191-CV, — F.3d —, 2015 WL 4745349 (2d Cir. Aug. 12, 2015), the Second Circuit analyzed a transfer-of-servicing letter that, in addition to the information RESPA requires, also included the FDCPA mini-Miranda disclosure (required to be included in a debt collector’s “initial communication” by 15 U.S.C. § 1692e(11)) and a partial statement of rights a consumer has to dispute the validity of a debt under the FDCPA (but not a full debt-validation notice, which is required by 15 U.S.C. § 1692g(a)). Diverging from the approach taken by most courts that have considered the issue, the Second Circuit held that a reasonable consumer would consider the letter to be an attempt to collect a debt and, therefore, to constitute a communication in connection with the collection of debt. In reaching its holding, the Second Circuit considered the most important factor to be the inclusion of the mini-Miranda disclosure, which stated that the notice was “AN ATTEMPT TO COLLECT UPON A DEBT.” Most other federal courts that have considered the issue looked to the purpose behind the “hello” letter, which is to provide information regarding where the borrower will need to make future payments rather than to demand payment itself (even when including the so-called mini-Miranda and other FDCPA disclosures as a prophylactic measure). Most courts have concluded that such a letter is merely informational, does not attempt to induce payment, and thus is not a communication “in connection with” the collection of the account in question.
The Hart decision highlights the context-specific nature of analysis of communications under the FDCPA. Given its seeming deviation from the approach of other courts, there is added confusion as to whether “hello” letters trigger obligations under the FDCPA. Additional courts are sure to weigh in as the issue continues to be litigated. In the meantime, mortgage servicers would do well to ensure they are paying close attention when reviewing such letters for FDCPA compliance.