Banking and Finance Law Daily Mortgage lenders and servicers can be “debt collectors” under California’s Rosenthal Act
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Wednesday, March 14, 2018

Mortgage lenders and servicers can be “debt collectors” under California’s Rosenthal Act

By Lee P. Dunham, J.D.

A California appellate court held that the definition of "debt collector" under California’s Rosenthal Fair Debt Collection Practices Act encompasses a mortgage servicer who engages in debt collection practices in attempting to obtain repayment of a mortgage debt (Davidson v. Seterus, Inc., March 8, 2018, Friedland, M.).

A class action plaintiff, Edward Davidson, alleged that he and others had been the victims of harassing and excessive phone calls by Seterus, Inc., a mortgage service company formed by International Business Machines, Inc., in violation of the Rosenthal Act. The trial court sustained Seterus’s demurrer, holding that mortgage servicers are not "debt collectors" as defined under Section 1788.2 of the Act. The California Court of Appeal for the Fourth Appellate District reversed, holding that, as the Act is a civil statute that was enacted for the protection of the public, the Act should be broadly construed in favor of that protective purpose.

The court held that the Act was silent with respect to whether it applied to persons or entities attempting to collect mortgage debt, but that nothing in the Act appeared to preclude such an application. The court further noted that the conduct Davidson alleged that the company had engaged in—harassing telephone calls at all hours of the day, threats of negative credit reporting, and threats to foreclose—was precisely the type of conduct that the legislature wanted to protect consumers against when it enacted the Rosenthal Act.

The court acknowledged a split among California federal courts as to whether the Act’s definition of "debt collector" may include mortgage lenders and servicers, but held that those courts that had concluded that the definition may include such persons or entities "have the better position under an analysis of the statutory language." The court distinguished the Rosenthal Act from the Fair Debt Collection Practices Act, which has a more limited definition of "debt collector."

The case is No. D071502.

Attorneys: Glenn A. Danas (Capstone Law APC) for Edward Davidson. Stephen G. Larson (Larson O'Brien LLP) for Seterus, Inc.

Companies: Seterus, Inc.; International Business Machines, Inc.

MainStory: TopStory CaliforniaNews DebtCollection StateBankingLaws Mortgages

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