debts were too old to be legally reported, a debt collector's letter
implying that the debts could be reported to credit reporting agencies
violated the federal Fair Debt Collection Practices Act and the California
Rosenthal Act. The Court also held that the plaintiffs may recover
cumulative damages under both the federal and state fair debt collection
A copy of the opinion is available at:
The plaintiff consumer ("Debtor") brought a putative class action against
Arrow Financial Services, LLC, a debt buyer and collector ("Debt
Collector"), for alleged violations of the Fair Debt Collection Practices
Act, 15 U.S.C. §1692e ("FDCPA"), and California's Rosenthal Fair Debt
Collection Practices Act, Cal. Civ. Code §1788, et seq. ("Rosenthal
The Debt Collector allegedly purchased a portfolio of old debts that could
no longer legally be reported to any credit reporting agencies. See 15
U.S.C. §1681c(a)(4). Nevertheless, in an attempt to collect on these
obsolete debts, the Debt Collector allegedly sent substantially identical
letters to about 40,000 debtors residing in California, informing them "if
we are reporting the account, the appropriate credit bureaus will be
notified that this account has been settled." The letters also contained
a disclosure which stated in part that "a negative credit report
reflecting on your credit record may be submitted to a credit reporting
agency if you fail to [pay the debt]."
The Debtor alleged that the letters supposedly would mislead recipients to
believe that failure to pay the debts would result in negative credit
information being reported to the credit reporting agencies. Granting
summary judgment for the plaintiffs, the District Court held that the
letters violated the FDCPA and the Rosenthal Act. Further, a jury later
awarded the class members separate statutory damages under each statute.
The Debt Collector appealed, and the Ninth Circuit affirmed.
Analyzing whether the Debt Collector's letters were a "false, deceptive,
or misleading representation or means in connection with the collection of
any debt" in violation of the FDCPA, the Ninth Circuit observed that a
debt collection letter violates the FDCPA where the "least sophisticated
debtor" could reasonably read the letter in more than one way, one of
which is inaccurate.
The Ninth Circuit rejected the Debt Collector's argument that the
conditional language, "if we are reporting the account," could not
reasonably be read to mean that the Debt Collector would in fact report
the debt to the credit reporting agencies. In so ruling, the Court noted
that the letters could reasonably suggest either that (1) the Debt
Collector was not reporting the debt to any credit reporting agencies and
would make no report in the event of payment, or (2) under certain
circumstances, the Debt Collector could and would report the debt.
Because the Debt Collector could not legally report the obsolete debts to
the credit reporting agencies under any circumstances, the Court ruled
that the implication that a positive report could be made was misleading.
The Court also pointed out that the Debt Collector failed to include
clarifying language to explain the conditions under which it could legally
report a debt.
The Ninth Circuit further examined whether the letters also violated the
FDCPA by making a "threat to take any action that cannot legally be taken
or that is not intended to be taken." The Court observed that a mere
implied threat in the Debt Collector's letters to report the obsolete
debts would be sufficient to violate the FDCPA. Again, the Court rejected
the Debt Collector's argument that it would be unreasonable to read the
letters as implying a threat to make a negative report if the debt were
not paid, because the letters indicate that only a positive report would
be made once the debt was paid. The Court noted that in order to make the
purportedly "positive" report, the Debt Collector would first have to make
a "negative" report of the existence of a delinquent and unpaid debt.
The Ninth Circuit also held that the Rosenthal Act permits class actions,
and that class members were entitled to cumulative recovery of damages
under both the FDCPA and the Rosenthal Act. The Court cited the FDCPA's
provision that state law is not preempted except to the extent of any
inconsistency between the FDCPA and state law, and that no inconsistency
exists where state law provides greater consumer protection than does the
FDCPA. The Court rejected the Debt Collector's argument that the
plaintiffs should not recover multiple awards for the same loss, and noted
that the Rosenthal Act specifically provides that its remedies are
intended to be cumulative and in addition to remedies available under any
other law. Finally, the Court noted that although the FDCPA places a cap
on statutory damages, there is no per se prohibition on cumulative class
recovery under both the state and federal statutes.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
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