Banking and Finance Law Daily Wrap Up, DEBT COLLECTION—4th Cir.: Mortgage servicing letters not debt collection under FDCPA, (Mar 24, 2026)

By Shashi Kant, BALLB, LL.M.

Court finds mortgage servicing letters conveyed account information and loss-mitigation options, not payment demands, and therefore fell outside FDCPA coverage.

The Fourth Circuit Court of Appeals has affirmed the dismissal of a borrower’s Fair Debt Collection Practices Act claims against Bayview Loan Servicing, LLC, holding that mortgage-related correspondence sent to the borrower did not constitute communications “in connection with the collection of any debt.” The court concluded that the letters were informational and tied to mortgage servicing and loss-mitigation obligations, rather than attempts to induce payment (Palazzo v. Bayview Loan Servicing, LLC, No. 24-2169 (4th Cir. 2026)).

Borrower challenges mortgage servicing communications. The dispute arose after borrower Palazzo received multiple written communications from Bayview concerning his mortgage loan. The correspondence included periodic statements, notices relating to delinquency status, and communications describing available loss-mitigation options. Palazzo alleged that Bayview acted as a debt collector and that the communications violated the FDCPA by improperly attempting to collect a debt. He pointed to language in the letters referencing the amount owed, account status, and potential consequences of nonpayment, arguing that these communications were designed to induce payment. The district court dismissed the complaint, concluding that the communications did not qualify as debt-collection activity under the statute.

Fourth Circuit applies “in connection with debt collection” standard. On appeal, the Fourth Circuit focused on whether the communications were made “in connection with the collection of any debt,” a threshold requirement for FDCPA liability. The court emphasized that this inquiry is objective and context-dependent, requiring examination of the nature, purpose, and overall context of the communication. The panel explained that not every communication relating to a debt qualifies as debt collection. Instead, courts must assess whether the communication includes a demand for payment, seeks to induce payment, or exerts pressure on the borrower to pay.

Letters lacked demand or inducement to pay. Applying that framework, the court held that Bayview’s communications did not amount to debt collection. Although the letters referenced the loan balance and delinquency status, the court found that they did not include language demanding payment or urging the borrower to make payment.

Instead, the communications primarily provided:

• account information and loan status updates,

• explanations of delinquency and servicing status, and

• descriptions of available loss-mitigation options.

The court concluded that these features reflected an informational purpose rather than an attempt to collect a debt.

Regulatory disclosures did not transform letters into collection efforts. The Fourth Circuit also addressed the inclusion of regulatory disclosures in the communications, including language required under federal mortgage servicing rules. The court held that such disclosures do not transform a communication into a debt-collection effort. Rather, communications required by regulation, such as periodic statements or loss-mitigation notices, serve a compliance and informational function, even when they reference amounts owed or delinquency. The panel emphasized that treating required servicing communications as debt collection would conflict with federal regulatory schemes that mandate disclosure of loan information to borrowers.

Loss-mitigation communications serve servicing, not collection, function. The court further explained that communications offering loss-mitigation options, such as loan modification or repayment alternatives, are generally not debt collection because they are designed to facilitate resolution of delinquent loans, not to demand immediate payment. Here, Bayview’s letters informed the borrower of available options and next steps rather than pressuring him to pay a specific amount. The court found that this context reinforced the conclusion that the communications were not sent in connection with debt collection.

Affirmance of dismissal. Because the communications were not attempts to collect a debt, the Fourth Circuit held that the FDCPA did not apply and affirmed dismissal of Palazzo’s claims.

The case is No. 24-2169.

Judge: Thacker, C.J.

Attorneys: Phillip R. Robinson (Consumer Law Center LLC) for Ruben Palazzo. Bradford Scott Bernstein (Miles & Stockbridge PC) for Bayview Loan Servicing, LLC.

Companies: Bayview Loan Servicing, LLC

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