Defendants in CFPB Case Argue that Debt Buyers are not “Covered Persons” and the CFPB’s Vague Allegations are Unfair

The defendants in CFPB case argue that investors who do not contact consumers were meant to be excluded from Dodd-Frank. 

5/27/2022 9:30 A.M.

4 minute read

Defendants in a Fair Debt Collection Practices Act and Consumer Financial Protection Act case filed by the Consumer Financial Protection Bureau have filed motions to dismiss the complaint on the grounds that the bureau has not established standing for its claims and its vague allegations are unfair under court procedure and the Fifth Amendment.

The CFPB opposed the defendants’ motion to dismiss, which the defendants countered in a response to the court. The CFPB is now seeking a sur-reply.

The CFPB originally filed the complaint in the U.S. District Court for the Western District of New York against United Debt Holding (UDH), JTM Capital Management (JTM), United Holding Group (UHG), and their owners, Craig Manseth, Jacob Adamo and Darren Turco, for alleged violations of the Consumer Financial Protection Act (CFPA) and FDCPA in January, ACA International previously reported.

The CFPB has since amended the complaint to correct certain facts and mistakes in the parties’ names.

“The bureau alleges that the defendants placed consumer debt with, or sold consumer debt to, collection companies that used unlawful and deceptive collection tactics,” according to a news release from the CFPB. “The defendants knew, or should have known, the collection companies made false threats and false statements to consumers. And although some of the defendants have been the subject of prior enforcement action, they continued their unlawful practices.”

All three companies are investors that buy debt portfolios from creditors, or other debt sellers, and then place the portfolios with or sell them to other accounts receivables investors, according to the CFPB.

No defendants service or collect accounts, thus the lawsuit is based on the activities of third parties.

Motion to Dismiss

The motion to dismiss from the defendants argues that the CFPB’s action is unfair and a due process violation because the CFPB does not allege who committed the actual FDCPA or CFPA violations or what defendants should have done to prevent the alleged wrongdoing. In its opposition, the CFPB says it is not required to identify any of the primary violators (i.e., the debt collectors), the existence or duration of their relationships (if any) with each defendant, the dates of any alleged violations, or each defendant’s intentional participation in the alleged violation in order to support its third-party liability claims against the companies and the individual defendants.

The CFPB claims that its amended pleading satisfies the controlling Federal Rules of Civil Procedure.

“Due to the vague [first amended complaint] and the bureau’s unwillingness to elucidate further, defendants are in the dark about which debt placements, sales, or consumer interactions the bureau alleges were improper. This is despite the fact that the bureau has already amended its complaint,” the defendants’ motion to dismiss states.

As established in UDH, JTM and UHG’s motion to dismiss, this lack of clarity requires dismissal of all claims, and the bureau’s lack of statutory authority over indirect collection activities requires that claims must be dismissed with prejudice as a matter of law.

Some of the defendants’ main arguments include:

  • UHG argues the eight defendants are not “covered persons,” under the CFPA, therefore the CFPB lacks that statutory mandate that allows it to sue without pleading a specific injury.
  • The first amended complaint does plead violations traceable to the corporate or individual defendants The complaint does not discern between defendants or primary violators—who all operated at different times—thus it is both impossible and implausible that all defendants engaged in the wrongdoing and the FAC’s “lumping” of alleged violators fails to meet the standards under Rule 12(b)(1).
  • The CFPB does not allege any facts that show UDH, JTM, or UHG pose a risk of future harm to consumers nor how defendants’ continued operation entitles the bureau to injunctive relief against the company. Furthermore, the complaint says only that defendants collected payments on accounts it owned or sold, but not that the company profited from a violation.
  • The use of generalized allegations prejudices UHG because the complaint alleges violations spanning from 2015 to 2021, but according to the complaint, UHG did not begin placing accounts for collection until 2017 or 2018. Furthermore, the complaint does not connect UHG to the few telephone calls with consumers alleged in the complaint. And those few calls alleged with detail raise more questions than answers.

Complaint Dismissal

In addition to pointing out the improper lack of detail in the CFPB’s amended complaint, the defendants’ motion also observed that the CFPB misstated the elements of its substantial assistance claims and its third-party liability legal theories are not cognizable or supported by 2nd Circuit precedent.

A ruling on whether the court will give an exception to local rules to allow the CFPB to file a sur-reply remains pending. Defendants are likely to oppose the exception, saying that their earlier filing did not raise any new arguments in response to the CFPB’s opposition.

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