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Federal Circuit Explains Reach of FDCPA Protection in Considering Bank’s “Cash for Keys” Offer

Small model home with keys to the side

A federal circuit panel of judges recently issued a decision concerning certain requirements under the Fair Debt Collection Practices Act (FDCPA) that lenders must follow when contacting consumers, specifically when offering homeowners “cash for keys” settlements. A cash for keys offer means the bank or mortgage holder offers you a small amount of money to deed the house over to the bank and move out of your home. The idea is to avoid the time and expense of a foreclosure lawsuit.

Cash for keys offers are actually common following a foreclosure sale and serve the interests of both parties involved in a foreclosure. The offers furnish former homeowners with immediate cash necessary to pay for moving out and securing a new place to live, in exchange for vacating the property earlier than required.

In the federal case, the plaintiff had his home foreclosed upon. After the forced sale of the home, the bank (Wells Fargo) sent the plaintiff a letter offering him money to move out of his home at an earlier date than scheduled.

The plaintiff then sued Wells Fargo for violating the FDCPA and other state laws. He claimed that Wells Fargo’s offer violated his right not to be harassed because he should not have been contacted by a debt collector after his foreclosure suit was over.

The trial court disagreed with the plaintiff, finding that he failed to demonstrate that the cash for keys offer was an attempt to collect a debt within the meaning of the FDCPA. Although the appellate circuit agreed with the trial court’s overall decision, the Court pointed out that a creditor or debt collector could still be liable for violating the FDCPA even if their communication with a consumer does not explicitly demand the payment of money.

Rather, the Court explained that a payment demand can be implicit or implied. For instance, a creditor may mail you a statement reflecting the amount of money allegedly owed, a description of the loan or account, and directions on how to pay the debt – without ever actually asking you for payment. A letter like this may still violate the FDCPA if you have already notified the creditor or debt collector not to contact you.

Despite the possibility that Wells Fargo’s letter violated the FDCPA, the Court held that since Wells Fargo had actually offered the plaintiff cash without demanding anything other than that he vacate the home early, the letter was not an attempt to collect a debt.

This case is important because it illustrates how certain communications are still attempts to collect a debt, even if they don’t demand payment outright, and must comply with the requirements of the FDCPA. This is true of any communication, not just cash for keys offers!

Small model home of a house with keys sitting on the side

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