American Bar Association
Media Alerts
Media Alerts - Vincent v. The Money Store--Second Circuit
Decrease font size
Increase font size
November 14, 2013
  Vincent v. The Money Store--Second Circuit
Headline: Second Circuit Holds That Mortgage Lenders That Hire Law Firms To Send Deceptive Debt Collection Letters Can Be Held Liable under the Fair Debt Collection Practices Act ("FDCPA")

Area of Law: Debt Collection; Creditors' Rights

Issue(s) Presented: Whether the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (FDCPA") and the Truth in Lending Act, 15 U.S.C. § 1601 et seq. (TILA), apply to a mortgage lender who purchased mortgages that were initially payable to other lenders and hired a law firm to send allegedly deceptive debt collection letters to the defaulting debtors.

Brief Summary: The three plaintiffs in this case defaulted on mortgage loans that they executed with various lending entities, all of which subsequently assigned the loans to The Money Store, a mortgage servicing company. Upon the plaintiffs' default, The Money Store hired an outside law firm to send them "breach notices" informing them that they were in default. Apart from sending these breach letters, the law firm played no role in The Money Store's debt collection efforts. Plaintiffs sued The Money Store in the United States District Court for the Southern District of New York, claiming the letters violated the Fair Debt Collection Practices Act (FDCPA) by falsely implying that a law firm had been retained by The Money Store to collect the debt and commence legal action. They also alleged that The Money Store violated the Truth in Lending Act (TILA) by charging them unauthorized fees and failing to refund the resulting credit balances. The district court dismissed both claims. The United States Court of Appeals for the Second Circuit, however, reversed the dismissal of the FDCPA claim, explaining that although creditors are not usually considered debt collectors subject to the FDCPA, the act includes a "false name" exception whereby creditors can be held liable if, in the process of collecting their own debts, they use "any name other than [its] own which would indicate that a third person is collecting or attempting to collect such debts." The Second Circuit held that given this exception, summary judgment was unwarranted here. The Second Circuit affirmed the dismissal of the TILA claim, by contrast, because The Money Store did not meet the definition of a "creditor" as that term is used in the statute.

To read the full opinion, please visit:

Extended Summary: In 1996, Plaintiff Lori Jo Vincent took out a mortgage loan on her Texas home, executing a promissory note and a deed of trust with Accubanc Mortgage Corporation, her lender. Neither the promissory note nor the deed of trust mentioned The Money Store. When the loan was executed, Accubanc gave Vincent the disclosure statement pursuant to TILA. Accubanc then transferred its interest in the loan to EquiCredit Corporation of America, who then assigned and endorsed the note and deed of trust to The Money Store two-and-a-half months later and twenty-nine days after the first payment was due.

The remaining plaintiffs, Ruth Gutierrez and Linda and John Garrido, also took out mortgage loans on their homes that eventually were assigned to The Money Store by the original lenders. The facts surrounding these loans and subsequent transfers to The Money Store are materially the same as Ms. Vincent's loan and assignment. The only difference was that Ms. Vincent's first payment was due before the assignment and endorsement to The Money Store while these plaintiffs' first payments were not due until after The Money Store acquired the mortgages. None of the promissory notes or deeds of trust mentioned The Money Store.

All of the Plaintiffs eventually defaulted on their loans. In April 1997, the law firm Moss Codilis, Stawiarski, Morris, Schneider & Prior (Moss Codilis) and The Money Store entered into an agreement by which Moss Codilis would mail breach notices to defaulting borrowers. The Money Store believed that this "Breach Letter Program" would earn the attention of defaulting borrowers because the letters came from a law firm. The letters, on a Moss Codilis letterhead, warned recipients that the both the principal and interest loan amounts would be accelerated if the default was not resolved within 30 days and directed all future communication to The Money Store. Moss Codilis, who got paid by the letter, sent 88,937 letters and collected between $3 and $4.5 million in fees.

Plaintiffs filed suit in the United States District Court for the Southern District of New York against The Money Store only, alleging that the breach letters were unlawful under FDCPA because they falsely created the impression that a hired third party was collecting the debt and that this third party was authorized to commence legal action against the debtors. Plaintiffs also claimed that The Money Store wrongfully charged their accounts for fees and expenses and failed to, pursuant to TILA, return any overcharges to the borrowers. The district court granted The Money Store's motion for summary judgment as to both of plaintiffs' claims.

Generally, creditors are not subject to the FDCPA. However, the FDCPA provides that "[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. § 1692(e). The FDCPA also prohibits "[t]he false representation or implication that any individual is an attorney or that any communication is from an attorney." Id. § 1692(e)(3). To consider a creditor a debt collector pursuant to the false name exception, three conditions must be met: "(1) the creditor is collecting its own debts; (2) the creditor "uses" a name other than its own; and (3) the creditor's use of that name falsely indicates that a third person is 'collecting or attempting the collect' the debts that the creditor is collecting." 15 U.S.C. § 1692a(6). Here, the first condition was indisputably met. The Second Circuit also concluded that the second and third conditions were arguably met, considering factors such as whether the firm's involvement with the letter was merely ministerial, whether the firm had access to the debtor's files, and whether the firm had authority to legally pursue the debts. Considering these factors, Moss Codilis was not making a bona fide attempt, as would a collection agency, to collect the debts; the firm was merely acting as a conduit for the creditor. Because it was not a bona fide debt collector, the firm falsely implied that it was collecting or attempting to collect the debts, especially since the letters stated that the firm had been "retained" in order to "collect a debt for our client." Therefore, on Plaintiff's FDCPA claims, the Second Circuit held that the district court erred in granting summary judgment for The Money Store and remanded the case for further proceedings.

By contrast, the Seocnd Circuit affirmed the District Court's ruling dismissing Plaintiffs' claim that The Money Store violated TILA by wrongfully charging fees and failing to return overcharges to the borrowers. The Court found dismissal of the TILA claim appropriate because The Money Store was not a "creditor" as defined in the statute and therefore not subject to the provisions contained therein. Specifically, TILA defines a creditor as a person who regularly extends consumer credit payable by agreement in more than four installments or for which payment of a finance charge is or may be required. This definition, however, is further qualified and applies only to a person to whom the debt obligation is initially payable, either on the face of the note or contract or by agreement. Plaintiffs argued that The Money Store met this second requirement because they had acquired the loans prior to the first payments being due, therefore, plaintiffs argued, the loans in question were "initially payable" to The Money Store. The court rejected this argument stating that this inquiry focuses on the "face of the evidence of indebtedness," in this case the original promissory notes. Since all three of the initial lenders were entities other then The Money Store and none of the promissory notes mentioned The Money Store, it was not a creditor under TILA and the claims against it were dismissed.

To read the full opinion, please visit:

Panel: Circuit Judges Katzmann, Livingston, and Lohier.

Argument Date: 11/08/2012

Date of Issued Opinion: 11/13/2013

Docket Number: No. 11-4525-cv

Decided: District Court's judgment affirmed in part, vacated in part, and remanded for further proceedings consistent with this Opinion.

Case Alert Author(s): Amanda Zefi & Christopher Roma

Counsel: Paul S. Grobman (Neal DeYoung, Sharma & DeYoung LLP, on the brief) for Plaintiffs-Appellants; Daniel A. Pollack (Edward T. McDermott, W. Hans Kobelt, on the brief), McCarter & English, LLP for Defendants-Appellees.

Author of Opinion: Chief Judge Katzmann

Case Alert Circuit Supervisor: Professor Emily Gold Waldman

    Posted By: Emily Waldman @ 11/14/2013 09:10 AM     2nd Circuit  

FuseTalk Enterprise Edition - © 1999-2018 FuseTalk Inc. All rights reserved.

Discussion Board Usage Agreement

Back to Top