Schlegel v. Wells Fargo Bank

A complaint alleging a violation of the Fair Debt Collection Practices Act must specifically allege that defendant was a debt collector; and prior to taking an adverse action, which includes a notice of default, a lender must give proper notice.

John and Carol Schlegel received a loan from NTFN, Inc., which was later assigned to Wells Fargo during their bankruptcy proceedings. The bankruptcy court approved Wells Fargo’s loan modification proposal, pursuant to that modification, the Schlegels started making payments at the required date; in the meantime, Wells Fargo began sending them default notices. The Schlegels sued when Wells Fargo did not respond to their letter “asking it to explain its failure to acknowledge the loan modification.” The complaint alleged that Wells Fargo violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692e (a “debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt”) and 15 U.S.C. § 1692f (a “debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt”). The complaint raised an Equal Credit Opportunity Act ("ECOA") claim and alleged “that Wells Fargo annulled, repealed, or canceled [the Schlegel's] right to defer repayment of their loan” without giving them required notice of adverse action. The Ninth Circuit held the acceleration of debt was an adverse action, however the panel affirmed the dismissal of the FDCPA claim because the complaint did not allege that Wells Fargo was a debt collector under § 1692a(6) (principle purpose was not debt collection or business of collecting debt of others). The panel further held that the complaint’s “allegations that Wells Fargo took an adverse action without complying with ECOA's notice requirements was enough for the claim to survive a motion to dismiss” and reversed the ECOA claim’s dismissal. AFFIRMED in part, REVERSED in part and REMANDED.