FDCPA Violations for Estimated Fees and Costs in Reinstatement and Payoff Quotes: Coming to a Court Near You?

The recent Appellate Court decision in Prescott v. Seterus, Inc., 2015 U.S. App. LEXIS 20934, has gained nationwide notice. Although the decision is only binding on the Eleventh Circuit, it has opened the door and neatly laid the ground work for other jurisdictions to give similar rulings in the future. Consequently, it is important for servicers and attorneys to be informed and proactive regarding their decisions when it comes to estimated fees and costs in reinstatement and payoff quotes.

In Prescott, the Plaintiff, Kevin Prescott, appealed the summary judgment ruling granted in favor of Defendant, Seterus, by the district court. He alleged that the Fair Debt Collection Practices Act (FDCPA) was violated by Seterus’ inclusion of estimated attorney’s fees in his reinstatement quote. Prescott, No.15-10038, 2015 U.S. Dist. LEXIS 20934, at *7 n.6 (11th Cir. Dec. 3, 2015). The FDCPA, states that “[a] debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt” 15 U.S.C. § 1692f (1996). It further specifies that a violation is considered to be, “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” Id. § 1692f(1). The Court of Appeals evaluated the question from the perspective of the least sophisticated consumer, and ultimately reversed the grant of summary judgment using the rationale that “the least sophisticated consumer would not have understood that the security agreement ‘expressly authorized’ Seterus to charge estimated fees for legal services not yet rendered.” Prescott, 2015 U.S. Dist. LEXIS 20934, at *8.

The Court further ruled that by requiring payment of the estimated attorney’s fees in order to reinstate the loan, Seterus violated section 1692e(2) of the FDCPA. Section 1692e(2) specifies that it is a violation of the FDCPA when there is “[a] false representation of- any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt” 15 U.S.C. § 1692e(2)(B). The court found that because Seterus charged estimated attorney’s fees that were not provided for as part of the security agreement, this was done in violation of the FDCPA.

Although the Eleventh Circuit Court has made it quite clear that it views the inclusion of estimated fees and costs in a reinstatement quote as a violation of the FDCPA, in other jurisdictions it is still common practice to include estimated or projected fees and costs. In particular, this is the practice when a quote has a future good-through date.

When a reinstatement or payoff quote with a future good-through date is provided to a mortgagor, there is always the potential for additional fees and costs to accrue on the mortgagor’s account from the time the quote is issued to the time the quote expires or payment is tendered. In order to account for this, many servicers and attorney firms have made it their practice to include estimated fees and costs in the quotes, and to clearly mark them as estimates. The estimates are used when charges are expected to accrue prior to the good-through date, but the work has not yet been performed.

In light of the decision in Prescott, it is a good idea for servicers to consider taking an alternative approach regarding the inclusion of estimated fees and costs in reinstatement and payoff quotes. Although the decision is currently only binding on the Eleventh Circuit, it has the potential to have a much farther reach. The only way for servicers and attorneys to ensure that they do not find themselves facing a future FDCPA violation, is to take a proactive approach and remove all estimated and projected fees and costs from reinstatement and payoff quotes.

In doing so, it is important to understand that it may be necessary to do some advance planning, which will likely require coordination and dialogue between servicers and their attorneys. When deciding the best way to precede it is important to consider the particulars and requirements of the foreclosure process in each specific jurisdiction. For instance, in some jurisdictions a foreclosure action may be able to be placed on a hold in order to stop additional fees and costs from accruing during the time period after the quote is issued, but before the quote expires or payment is tendered. However, in jurisdictions where the foreclosure process cannot be placed on a hold and it must be either cancelled or adjourned, it may be necessary to consider other alternatives to ensure that the servicer’s potential for loss due to fees and costs, that may not be able to be recouped from the mortgagor, is minimal.

Many servicers are already reevaluating their current practices in an effort to avoid any potential for future FDCPA violations. However, for those servicers who have not yet considered the impact of the decision in Prescott, it is not too late to consider a new course of action. When reevaluating current practices and making these decisions, it is advantageous for servicers to remember that their attorneys are a knowledgeable and useful resource, with jurisdiction specific expertise.  By working together and exercising a little proactive planning, servicers and attorneys can work to ensure that they are both protected from the threat of FDCPA violations.