A California Appeals Court has vacated rulings in favor of a debt buyer and ordered a lower court to award summary adjudication in favor of two consumers on the grounds that they were not required to show they suffered concrete harm or needed standing to accuse the debt buyer of violating California’s Fair Debt Buying Practices Act.
The background: In two nearly identical cases, the debt buyer sued consumers for unpaid debts they had incurred through online credit platforms. Both consumers filed cross-claims alleging that Velocity violated the Fair Debt Buying Practices Act, primarily by failing to attach the required documents to their lawsuits and not providing proper disclosures as mandated under the Act.
- The Debt Buyers Act regulates entities regularly engaged in buying consumer debts and sets specific requirements for how debt buyers must handle communications and lawsuits. Among other provisions, the Act requires debt buyers to attach documentation, such as loan agreements, to their complaints when seeking to collect on a debt. The plaintiffs argued that the debt buyer’s failure to comply with these requirements violated the Debt Buyers Act, and they sought statutory damages.
- However, a trial court ruled that the consumers lacked standing to sue for statutory damages because they had not proven they suffered concrete harm.
The ruling: On appeal, the California Court of Appeal reversed the trial court’s judgment, ruling that the Debt Buyers Act does not require consumers to show concrete harm to seek statutory damages. The court pointed to a prior decision (Chai v. Velocity Investments) that clarified the statutory nature of the Debt Buyers Act and emphasized that the Act allows consumers to seek statutory damages for violations, even in the absence of actual harm.
- The court explained that statutory damages serve as penalties and are separate from actual damages, which are awarded in cases where harm is demonstrated. This distinction is crucial as it underscores that the Act does not tie statutory damages to the occurrence of concrete injury. As such, the court held that both the consumers had standing to pursue their claims for statutory damages under the Act.
- In addition to addressing standing, the court also ruled in favor of the plaintiffs on the issue of failure to attach required documents to the debt collection complaints. The debt buyer had attached TILA disclosure statements rather than the actual loan agreements or promissory notes, violating the Debt Buyers Act’s requirement for attaching documents evidencing the consumer’s agreement to the debt. As a result, the court remanded the case to the trial court with instructions to grant summary adjudication in favor of the plaintiffs.
