Mortgage Lenders and Servicers Are “Debt Collectors” Under California’s Rosenthal Fair Debt Collection Practices Act

On March 13, 2018, the California Court of Appeal held that the definition of “debt collectors” under California’s Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) includes mortgage servicers and lenders who attempt to collect on a mortgage debt. The Court of Appeal noted there is a split of authority among the many federal district courts that have considered the issue, and there is “a paucity of California authority addressing the question.”

A class action plaintiff, Edward Davidson, alleged that he and others had been the victims of harassing and excessive phone calls from Seterus, Inc., a mortgage service company formed by International Business Machines, Inc., in violation of the Rosenthal Act. The defendants demurred to Davidson’s complaint, arguing that neither of them was a “debt collector” who engages in “debt collection” under the Rosenthal Act. The trial court sustained the defendants’ demurrer, concluding that the defendants “are not ‘debt collectors’ because servicing a mortgage is not a form of collecting ‘consumer debts.’ ”

On appeal, Davidson contended the trial court erred in determining that mortgage servicers were not “debt collectors” under the Rosenthal Act. Following the general principle that the Rosenthal Act is a civil statute, which was enacted for the protection of the public and should be broadly construed in favor of that protective purpose, the Court of Appeal concluded that mortgage lenders and mortgage servicers are “debt collectors” under the Rosenthal Act. The Court of Appeal further acknowledged that the alleged conduct by Seterus — harassing phone calls at all hours of the day, and threats of negative credit reporting and threats of foreclosure — is precisely the type of conduct that the California legislature wanted to protect consumers against when enacting the Rosenthal Act.

The ruling is likely to be of concern for mortgage servicers and lenders who may now be targeted by plaintiffs alleging violations of the Rosenthal Act. Parent companies may also be discouraged as they are subject to the Rosenthal Act as well.

For more information on how to protect your rights or take advantage of AMLG’s expertise on this matter, please feel free to contact Jack Valinoti or Tracy Henderson.