Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—W.D. Wis.: Borrower’s unlawful repossession claims against credit union fail, (Dec 19, 2013)

By Linda O’Brien, J.D., LL.M.

A borrower’s claims against a credit union and debt collection company for violations of Fair Debt Collection Practices (FDCPA) and the Wisconsin Consumer Act (WCA), alleging the unlawful repossession of his vehicle, were dismissed as outside the scope of the WCA, the federal district court in Madison, Wisconsin has decided (Dallman v. Felt & Lukes, LLC, December 17, 2013, Conley, W.).

Jesse Dallman was a member of the Parker Community Credit Union (PCCU), a state-chartered credit union in the business of extending credit to individuals. In 2004, Dallman became a participant in PCCU’s “Loanliner” plan, an open-end, multi-featured credit plan which allowed a participant to complete only one security agreement at the time of enrollment. Upon completion, participants could apply for and obtain multiple loans without having to sign a new security agreement for each loan. The security agreement contained a provision that the collateral for each individual loan would also serve as collateral for all other loans under the agreement. The agreement also provided that, in the event of a default, PCCU could require the immediate payment of all outstanding loans and seek possession of any property given as security.

Dallman obtained two loans through the plan. The first loan was to refinance a 2003 Ford F250 truck that Dallman previously purchased. The second loan was to purchase a 2003 Ford F350 truck. The loans were secured by the F250 and F350 trucks. In May 2011, Dallman failed to make payments on the loan for the F350 truck. Upon his default, Dallman was contacted by Felt & Lukes, LLC, a debt collection company, requesting payment. Felt & Lukes sent a “Notice of Right to Cure Default” to Dallman which described the collateral as the “2003 Ford.” Dallman cured the default and neither PCCU nor Felt & Lukes took any further action to repossess the collateral. In July 2011, Dallman failed to make payments on the loan for the F250 truck. Felt & Lukes again contacted Dallman and sent a variety of letters requesting payment. On such letter contained a Notice of Right to Cure Default which described the collateral as the “2003 Ford F250.” A second Notice of Right to Cure Default was generated which described the collateral as the “2003 Ford F350 cross collateralized.” However, Dallman claimed that he never received the second Notice. Dallman did not cure the default, notify PCCU that he was not in default, or object to PCCU repossessing the trucks without a court proceeding. Subsequently, Dallman voluntarily surrendered the F250 truck and an agent of Felt & Lukes repossessed the F350 truck. Dallman filed suit against PCCU and Felt& Lukes for unlawful seizure of the F350 truck. The defendants moved for summary judgment on all claims.

Dallman contended that the defendants failed to send him a notice regarding the F350 truck which, under the WCA, was required before taking possession of the motor vehicle collateral.

The court determined that the WCA did not apply to Dallman’s claim. Transactions that are statutorily excluded from the scope of the WCA are consumer credit transactions in which the amount financed exceeds $25,000. The defendants argued that Dallman’s two loans were part of the same consumer credit transaction and the amount financing in both loans was over $55,000. Even if the loans were considered separate transactions, the first loan exceeded $40,000 which was outside the scope of the WCA.

The court found that, although the WCA did apply to the second loan made in the amount of $14,000, references to the WCA in the security agreement and the two notices sent by Felt & Lukes did not constitute an intention by the defendants to opt-in to the WCA with respect to the first loan of $40,000. Additionally, although the F350 was also collateral for the second loan, it did not subject the first loan to the application of the WCA since the focus of the statute was on the transaction and not the collateral at issue.

The FDCPA defines a debt collector as “any person who uses any instrumentality of interstate commerce in any business the principal purpose of which is the enforcement of security interests.” Repossessions are generally excluded from the definition of debt collection except if the repossessor takes nonjudicial action to effect the dispossession of the property when “there is no present right to possession of the property claimed as collateral through an enforceable security interest.” The court found that Dallman’s claim was within the scope of the FDCPA since he alleged that the defendants did not send the notice required by state law before repossessing his vehicle and, therefore, did not have a present right to possession. However, since Dallman’s FDCPA claim was premised on a violation of the WCA, the court concluded that the defendants were entitled to summary judgment on the FDCPA claim as well.

The case is No. 12-cv-765-wmc.

Attorneys: Gwendolyn Geneen Connolly (Law Office of Gwendolyn G. Connolly) for Jesse L. Dallman. David John Hanus (Hinshaw & Culbertson, LLP) for Felt & Lukes, LLC, Parker Community Credit Union, and Travelers Casualty and Surety Company of America.

Companies: Felt & Lukes, LLC; Parker Community Credit Union; Travelers Casualty and Surety Company of America

Cases: StateUnfairTradePractices WisconsinNews