Taylor v. First Resolution Inv. Corp.

Decision Date16 June 2016
Docket NumberNo. 2013–0118.,2013–0118.
Citation148 Ohio St.3d 627,2016 Ohio 3444,72 N.E.3d 573
Parties TAYLOR, Exr., Appellee, v. FIRST RESOLUTION INVESTMENT CORPORATION et al., Appellants.
CourtOhio Supreme Court

Burke & Horrigan, James F. Burke Jr., and John J. Horrigan, Cleveland, for appellee.

Surdyk, Dowd & Turner Co., L.P.A., Jeffrey C. Turner, John Langenderfer, and Kevin A. Lantz, Dayton, for appellants First Resolution Investment Corporation and First Resolution Management Corporation.

Law Office of Boyd W. Gentry, L.L.C., and Boyd W. Gentry, Dayton, for appellants Cheek Law Offices, L.L.C., and Parri Hockenberry.

Michael DeWine, Attorney General, Michael J. Hendershot, Chief Deputy Solicitor, and Tracy M. Dickens, Teresa A. Heffernan, Jeffrey Loeser, Brittany M. Steele, and Melissa G. Wright, Assistant Attorneys General, urging affirmance for amicus curiae state of Ohio.

Burdge Law Office Co., L.P.A., and Ronald L. Burdge, Dayton, urging affirmance for amicus curiae AARP.

Sessions, Fishman, Nathan & Israel, L.L.C., and Michael D. Slodov, urging reversal for amici curiae Ohio Creditors Attorneys Association and DBA International.

PFEIFER, J.

{¶ 1} This case began with a default on credit-card debt by an Ohio consumer. It reaches this court because that consumer alleged violations of the federal Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. 1692 et seq., and the Ohio Consumer Sales Practices Act ("OCSPA"), R.C. 1345.01 et seq., by the entities that purchased her debt and were involved in suing her to collect on it. Today, we determine several issues relevant to the application of the FDCPA and the OCSPA to the collection of purchased credit-card debt in Ohio. We hold that the underlying cause of action for default on the credit card in this case accrued in Delaware, the home state of the bank that issued the credit card and where the consumer's payments were made, and that Delaware's statute of limitations—through operation of Ohio's borrowing statute—determines whether the collection action was timely filed. We further hold that the filing of a time-barred collection action may form the basis of a violation under both the FDCPA and the OCSPA. We also hold that that a consumer can bring actionable claims under the FDCPA and the OCSPA based upon debt collectors' representations made to courts in legal filings, specifically on a debt collector's claim for interest that is unavailable to the debt collector by law. Finally, we hold that debt buyers collecting on credit-card debt and their attorneys are subject to the OCSPA.

BACKGROUND
Using Courts to Collect Purchased Debt

{¶ 2} The questions presented to us arise from the now common phenomenon of debt sales, in which a creditor sells an individual's debt to a private entity that then attempts to collect the debt. The sale of debt can provide grease for the wheels of commerce. "Debt buying can reduce the losses that creditors incur in providing credit, thereby allowing creditors to provide more credit at lower prices." Federal Trade Commission, The Structure and Practices of the Debt Buying Industry (Jan. 2013) i, available at http://www.ftc.gov/sites/default/files/documents/reports/structure-and-practices-debt-buying-industry/debtbuyingreport.pdf (accessed Mar. 14, 2016) ("Structure and Practices "). Private debt collectors often employ the court process to collect the debt that they have purchased, and thus, courts have become vital cogs in the machinery of debt collection. The threat of a lawsuit, a filed lawsuit, or a judgment can be a powerful, intimidating force against a consumer.

A Problematic Process

{¶ 3} First-party debts are debts owed by a consumer to an entity that initially extended credit to the consumer. Note, Improving Relief from Abusive Debt Collection Practices, 127 Harv.L.Rev. 1447 (2014), fn. 1. When a consumer falls in arrears on paying a debt, "first-party creditors frequently charge off the debt (that is, account for the debt as being unrecoverable) and sell the rights to the delinquent debt to debt buyers and collection agencies who specialize in the collection of delinquent debts." Id., citing Consumer Financial Protection Bureau, Fair Debt Collection Practices Act: CFPB Annual Report 2013, at 8–9 (2013). Those debts are then "bundled" into portfolios, which are purchased by debt buyers through a bidding process, usually at a steep discount from the face value of the debts. Improving Relief at 1448.

{¶ 4} During the debt-sale process, documentation of information about the debt is often lost. Debt buyers receive some information about the debt, but "[f]or most portfolios, buyers did not receive any documents at the time of purchase" and "[o]nly a small percentage of portfolios included documents, such as account statements or the terms and conditions of credit." Structure and Practices at iii. "Even when [account documents] are available and debt buyers request them, banks often require additional payments to supply them. Such demands can prove prohibitively expensive or encourage debt collectors to gather detailed evidence only in sporadic cases." Horwitz, Banks Face Official Backlash Against Card Debt Collection Practices, American Banker (Jan. 16, 2013), available at http://www.americanbanker.com/issues/178_12/banks–face–official–backlash–against–card–debt–collection–practices–1055929–1.html?pg=2629 (accessed Mar. 14, 2016).

{¶ 5} Debt collectors go to court with the information they have. As an industry that buys debt for an average of four cents per dollar of face value, Structure and Practices at ii, consumer-debt collection, by its very nature, is a high-volume enterprise. It is dependent in large part on the acquiescence, ambivalence, or ignorance of consumers:

The consumer debt collection industry is premised on a high-volume business model. Debt buyers holding portfolios of debts with a low ratio of book value to face value seek to collect on a sufficient number of debts to generate a profit, through direct collection efforts as well as lawsuits. Empirical evidence shows that many debt buyers using a high volume of lawsuits as a component of their recovery strategy rely heavily on the assumption that consumers often fail to show up to contest the case; this assumption is largely valid. There may be several reasons for such a failure to respond. Some of these reasons may themselves be related to FDCPA violations, including defective notice, or may stem from a (mistaken) consumer belief that no response is required if the debt being sued upon is not actually hers. Most simply, many consumers may not respond due to a misunderstanding of the legal procedures required to avoid default. In addition, some debt collectors rely on the assumption of default to pursue what has been called a "scattershot" approach, whereby they file many lawsuits with the hope of securing default judgments, but without the intent to actually litigate them should the opposing parties respond.

(Footnotes omitted.) Improving Relief, 127 Harv.L.Rev. at 1449.

{¶ 6} A predictable result of debt buyers filing a high volume of lawsuits based on imperfect information is that lawsuits are regularly filed after the right to collect debts has expired or that seek to collect a debt that is not owed; "each year, buyers sought to collect about one million debts that consumers asserted they did not owe." Structure and Practices at iv.

Statutory Protections
The FDCPA

{¶ 7} Federal and state statutes in play in this case provide protections against such debt-collection abuses. "Congress passed the FDCPA to address ‘what it considered to be a widespread problem’ of consumer abuse at the hands of debt collectors."

Wise v. Zwicker & Assocs., P.C., 780 F.3d 710, 712–713 (6th Cir.2015), quoting Frey v. Gangwish, 970 F.2d 1516, 1521 (6th Cir.1992). The intent of the FDCPA is to "eliminate abusive debt collection practices" that have contributed to personal bankruptcies, job loss, and invasions of individual privacy. 15 U.S.C. 1692(a) and (e) ; Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, L.P.A., 559 U.S. 573, 577, 130 S.Ct. 1605, 176 L.Ed.2d 519 (2010). "In reaction to the size of the problem, [Congress] crafted ‘an extraordinarily broad’ remedial statute." Wise at 713, quoting Frey at 1521. The FDCPA prohibits debt collectors from employing "any false, deceptive, or misleading representation or means in connection with the collection of any debt," including misrepresenting "the character, amount, or legal status of any debt." 15 U.S.C. 1692e(2)(A). A debt collector may not employ any "unfair or unconscionable means to collect or attempt to collect any debt," 15 U.S.C. 1692f, and cannot collect "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," 15 U.S.C. 1692f(1).

{¶ 8} When analyzing whether conduct giving rise to the claim fits within the broad scope of the FDCPA, "the conduct is viewed through the eyes of the ‘least sophisticated consumer.’ " Currier v. First Resolution Invest. Corp., 762 F.3d 529, 533 (6th Cir.2014). That standard, while protecting "the gullible and the shrewd alike," also presumes "a basic level of reasonableness and understanding on the part of the debtor." Id.

{¶ 9} A plaintiff must prove four essential elements to establish a prima facie case for a violation of the FDCPA:

1. [T]he plaintiff is a natural person who is harmed by violations of the FDCPA, or is a "consumer" within the meaning of 15 U.S.C.A. §§ 1692a(3), 1692(d) for purposes of a cause of action, 15 U.S.C.A. § 1692c or 15 U.S.C.A. § 1692e(11) ;
2. [T]he "debt" arises out of a transaction entered primarily for personal, family, or household purposes, 15 U.S.C.A. § 1692a(5) ;
3. [T]he defendant collecting the debt is a "debt collector" within the meaning of 15 U.S.C.A. § 1692a(6) ; and
4. [T]he defendant has violated, by act or
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