Just last week, the Third Circuit held that a borrower can state a claim for violation of the Fair Debt Collection Practices Act (FDCPA) when a foreclosing plaintiff alleges incorrect fees as part of a foreclosure complaint. The implication is that, with respect to certain sections of the FDCPA, a formal complaint may not be exempt from scrutiny as a debt collection communication under the Act. 

In the case Kaymark v. Bank of America, N.A., Case No. 14-1816 (3d Cir. April 7, 2015), the Third Circuit reversed the U.S. District Court for the Western District of Pennsylvania’s order dismissing borrower Dale Kaymark’s FDCPA claims raised against foreclosure counsel. 

In the lower court, Kaymark brought suit against Bank of America and foreclosure counsel after Kaymark was served with a foreclosure complaint demanding, among other things, certain yet-to-be incurred attorney’s fees, title report fees and property inspection fees. These fees, totaling $2050 were ultimately incurred in the course of the foreclosure action against Kaymark, though presumably after the service of the Complaint. Kaymark’s suit alleged that the demand for these prospective fees violated §§ 1692e(2)(A), (10), and 1692f(1) of the FDCPA. The U.S. District Court for the Western District of Pennsylvania dismissed Kaymark’s FDCPA claims holding that the FDCPA contains no prohibition against claiming fees in a complaint that have not yet been incurred but are reasonably expected to be incurred. 

In reversing the district court’s decision, the Third Circuit extended its decision in McLaughlin v. Phelan Hallinan & Schmieg, LLP, 756 F.3d 240 (3d Cir. 2014) which found that a borrower could state a claim for FDCPA violations sufficient to overcome a motion to dismiss where a debt collector demanded in a letter payment of a debt that purported to include yet to be incurred attorney’s fees and title search fees. 

The Third Circuit extended the McLaughlin decision to cover not just debt collection letters but also allegations in formal pleadings. The Court concluded that congressional amendments to other sections of the FDCPA, including §§ 1692e(11) and 1692g(d), which excluded their application to formal pleadings, implied that Congress intended the remaining unamended sections of the FDCPA to apply still to formal pleadings. Sections 1692e(2)(A), (10) and 1692f(1) were not amended to include the pleadings exception. 

Given this decision, with respect to litigation in the Third Circuit, financial service providers must be cautious to ensure that the foreclosure complaints which they serve only allege those charges which have already been incurred and do not include those yet-to-be incurred fees as part of a debt due amount.