Summary:
Three North Carolina homeowners brought a putative class action against Selene Finance, alleging that Selene’s standardized “default and intent to accelerate” letters violated the FDCPA, the North Carolina Debt Collection Act, and the North Carolina Collection Agencies Act. They also asserted negligent misrepresentation under state law. Selene moved to dismiss.
Judge Schroeder denied most of Selene’s motion, allowing the FDCPA and state debt collection claims to proceed. He held that even though Selene used the conditional word “may,” its threats of acceleration and foreclosure could still mislead the least sophisticated consumer if Selene did not, in fact, intend to follow through on such threats. As the court explained, “conditional language does not insulate a debt collector from liability” when the practice is to never actually accelerate or foreclose under the terms described. The court likewise sustained claims under the NCDCA and NCCAA, noting that “informational injury” suffices to show harm. Only negligent misrepresentation was dismissed for lack of allegations of pecuniary loss. One plaintiff, Joyner-Perry, was dismissed from the FDCPA subclass because her loan was not in default when Selene acquired it.
Commentary:
While this case is framed as a consumer protection class action under the FDCPA and North Carolina debt collection statutes, it should not be overlooked that many of the putative class members almost certainly also passed through the bankruptcy courts—most often Chapter 13—during their struggles with Selene. Selene is a frequent filer of proofs of claim in Chapter 13 cases in North Carolina, and the standardized letters at issue here would have overlapped with bankruptcy filings.
That raises two important concerns. First, damages from these improper collection communications should include not just emotional distress and informational injury, but also the very real costs imposed when any of these borrowers resorted to bankruptcy protection: attorneys’ fees, Chapter 13 trustee commissions, court filing fees, and the years-long burden of repayment plans. Any settlement or award must account for those harms, which flow directly from Selene’s practices.
Second, if there is a class wide recovery, its distribution should reflect the difficulty of getting relief in bankruptcy court itself. As practitioners know, consumer rights claims—particularly FDCPA and state law claims—tend to see stronger outcomes in federal district court than when brought in bankruptcy courts, where they are too often minimized as tangential to case administration.
Given these realities, coordination between any recovery in this case and parallel or past bankruptcy proceedings is critical. NACBA (the National Association of Consumer Bankruptcy Attorneys) is well-positioned to assist in such coordination, ensuring that debtors who filed Chapter 13 are not overlooked, and would be an appropriate recipient for any cy pres award if direct distribution proves impractical.
This case underscores the importance of federal district courts in vindicating consumer rights against mortgage servicers, and it highlights the need for thoughtful resolution that takes into account the full spectrum of damages suffered by homeowners—including the costs of bankruptcy itself.
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