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Federal Court Holds Wells Fargo Must Comply With Fair Debt Collection Practices Act

A Federal District Court within the Ninth Circuit Court of Appeals (whose jurisdiction includes federal courts in California) has held that Wells Fargo Bank, N.A. may be a debt collector required to comply with the Fair Debt Collection Practices Act. Williams v. Wells Fargo Bank, N.A., Et al., 2012 U.S. Dist. LEXIS 2871 (W.D. WA, January 12, 2012).


On December 2, 2010, David S. Williams and Christine L. Williams filed a lawsuit against Wells Fargo Bank, N.A. ("Wells Fargo "). Their lawsuit alleged Wells Fargo violated the federal Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Real Estate Settlement Procedures Act, and the Washington Consumer Protection Act, in relation to a wrongful foreclosure of their home. Basically, the consumers argued their home mortgage had been refinanced and Wells Fargo had already been paid.

On October 18, 2011, Wells Fargo filed a motion to dismiss the lawsuit. On November 4, 2011 the husband and wife opposed Wells Fargo's attempt to have the case thrown out.

Court Holds Wells Fargo Bank May Be a Debt Collector

The consumers alleged Wells Fargo was in violation of federal debt collection laws by failing to provide verification of the alleged debt. 15 U.S.C. § 1692, et seq.,

In their motion to have the lawsuit thrown out, Wells Fargo did not not claim that the bank had provided verification of the debt to the consumers. Instead, the bank asserted two reasons the case should be dismissed.

First, Wells Fargo bank argued it was not a debt collector under the FDCPA. The bank argued that the FDCPA only applies to "parties collecting the debt of another," 15 U.S.C. § 1692(a)(6), and that "creditors, mortgagors and mortgage servicing companies are not 'debt collectors' and are exempt from liability under the [FDCPA]." Id. (citing Caballero v. Ocwen Loan Servicing, 2009 U.S. Dist. LEXIS 45213, 2009 WL 1528128, at *1 (N.D. Cal. 2009) and Glover v. Fremont Inv. and Loan, 2009 U.S. Dist. LEXIS 117890, 2009 WL 6114001, at *8 (N.D. Cal. 2009)). Simply put, Wells Fargo argued that because it was collecting its own debts it was exempt from FDCPA liability.

Second, Wells Fargo claimed that the FDCPA does not apply in a non-judicial foreclosure proceeding. Basically, the bank argued that when there is a typical foreclosure on a deed of trust, (where there is no lawsuit filed by the bank), the bank is not attempting to collect money, and thus they are not really attempting to collect a debt.

The federal court disagreed with Wells Fargo on both grounds. The court reasoned, the term "debt collector" applies to those who acquired the debt when it was already in default. See Schlosser v. Fairbanks Capital Corp., 323 F.3d 534, 536 (7th Cir. 2003). The Court noted that Wells Fargo admitted the debt had already been in default for one year when the deed of trust was assigned to Wells Fargo, and thus Wells Fargo met the definition of a debt collector under the FDCPA.

Court Holds Foreclosing on Property May Be Debt Collection

Next, the Court ruled on the issue of whether foreclosing on property could be considered an attempt to collect a debt, and it stated:

Although the Court is aware of district court cases that have held that the act of foreclosing on property is not "debt collection" under the FDCPA, this Court has not adopted such a per se holding and it will not do so here. See Albers v. Nationstar Mortg. LLC, 2011 U.S. Dist. LEXIS 182, 2011 WL 43584, at *2 (E.D.Wash. Jan. 3, 2011) (citing cases). Nothing in the statute compels the Court to create an exception to the definition of "debt collector," as Wells Fargo proposes, where a party is non-judicially enforcing on a security instrument rather than pursuing debt collection through more traditional means. To the contrary, courts have reasoned that as long as a defendant meets the statutory definition of debt collector, "they can be covered by all sections of the Act . . .regardless of whether they also enforce security interests." Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 378 (4th Cir. 2006) (referring to § 1692f(6) as an inclusive provision); see also Kaltenbach v. Richards, 464 F.3d 524, 528-29 (5th Cir. 2005) (noting that "the entire FDCPA can apply to a party whose principal business is enforcing security interests but who nevertheless fits § 1692a(6)'s general definition of debt collector").

While the court did go on to dismiss some other claims, the entire case was not thrown out- as Wells Fargo wished.

Our San Jose bankruptcy law office protects consumers from being harassed by debt collectors. We are investigating claims against Wells Fargo Bank for allegedly violating the federal and California Fair Debt Collection Practices Acts.

If you are being contacted by Wells Fargo Bank or any other creditors or debt collectors, give us a call at 408-296-0400.