California Appellate Court Permits Debt Collection Suit against Mortgage Loan Servicer

Acknowledging a split of authority among the many federal courts reviewing whether a mortgage loan servicer falls within the FDCPA's definition of a "debt collector," one California appellate court has revived a putative class action dismissed at the trial court through which borrowers pursued fair debt claims under the Rosenthal Act. The decision issued in Davidson v. Seterus is significant because borrowers could not pursue these claims under the more restrictive FDCPA.

Davidson alleged that he received regular and frequent harassing and annoying telephone calls from his mortgage loan servicer over a three year period. He claimed a practice of making timely monthly mortgage payments, but he contended that the servicer's employees called his cell phone two to five times per day; that he received these calls from the servicer between the 3rd and 16th of each month, even after payment had been made; and that the calls from the servicer included threats to foreclose and report negative credit information to the credit bureaus. Davidson further alleged that the calls continued after he began using a "speedpay" method of payment suggested by the servicer's website which required a monthly transaction fee. The servicer only stopped making the calls when Davidson's attorney threatened legal action. Alleging emotional distress and economic damages, Borrower filed a putative class action on behalf of California residents who had been subjected to the servicer's debt collection practices asserting causes of action under the Rosenthal Act and California's Unfair Competition Law.

The trial court granted the servicer's motion to dismiss on grounds that the defendants were not "debt collectors" because mortgage loan servicing is not a form of collecting consumer debts. In rejecting and reversing that decision, the appellate court adhered to California's general rule that civil statutes for the protection of the public are to be "broadly construed in favor of that protective purpose." Given that principle—and the fact that in comparison with the FDCPA the Rosenthal Act's definitional language is sufficiently broad to include mortgage lenders and/or mortgage servicers within its purview—the appellate court concluded that a mortgage servicer who engages in debt collection practices can be a "debt collector" under the Rosenthal Act.