Wednesday, May 16, 2012

FYI: 7th Cir Rules in Favor of Debt Collector in FDCPA "Overshadowing" Claim as to Debt Validation/1692g Notice

The U.S. Court of Appeals for the Seventh Circuit recently held that a debt collector's written threats to take legal action against the debtor and instructions for the debtor to call the creditor immediately constituted mere "puffery" that was not confusing and did not contradict the validation/1692g notice on the back of the letter, and therefore did not violate the federal Fair Debt Collection Practices Act.
A copy of the opinion is available at: 
A creditor hired defendant debt collection company ("Debt Collector") to collect on plaintiff-debtor's overdue payments.  The Debt Collector sent the debtor a letter that included on the back of the letter a validation/1692g notice informing the debtor that she had 30 days to contest the validity of the debt under the federal Fair Debt Collection Practices Act ("FDCPA").  Using such phrases as " take action now, "call [the creditor's] office today," and "[the creditor] may be forced to take legal action," the letter stressed the importance of the communication and emphasized that the creditor could pursue legal action against the debtor if the debtor failed to pay the debt. 
The debtor filed a class-action law suit against the Debt Collector, claiming that the letter violated section 1692g of the FDCPA, because the letter's insistent tone and threats of legal action "overshadowed" the debt validation notice on the back of the letter.  The debtor also requested that the district court allow her to conduct a consumer survey to determine whether the language in the letter was in fact confusing.
Ruling on the Debt Collector's motion to dismiss, the district court concluded that the debtor failed to state a claim under the FDCPA because the use of language such as "take action now" was only puffery that did not subvert the debtor's thirty–day validation right and, further, that the placement of the validation notice on the back of the letter was proper under the FDCPA. The district court also rejected the debtor's request to conduct a consumer survey.
The Seventh Circuit affirmed.
As you may recall, section 1692g of the FDCPA requires a debt collection letter to include, among other things, (1) a "statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt . . . , the debt will be assumed to be valid . . .," and (2) "a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt . . . is disputed, the debt collector will obtain verification of the debt . . . and a copy of such verification . . . will be mailed to the consumer . . ."  15 U.S.C. §1692g(a).
In addition, Section 1692g(b) provides in part that "[a]ny collection activities and communication during the 30-day [validation] period may not overshadow or be inconsistent with the disclosure of the consumer's right to dispute the debt . .  . ."  15 U.S.C. § 1692g(b).
Applying the "unsophisticated consumer" standard to its analysis of the debt collection letter, the Seventh Circuit noted that "'a significant fraction of the population' must find the letter confusing in order to violate Section 1692g(b)'s prohibition of inconsistent or overshadowing language."  See Taylor v. Cavalry Inv., L.L.C., 365 F.3d 572 (7th Cir. 2004).  Accordingly, in considering the Debtor's assertion that the letter was confusing and thus irreparably "overshadowed" the thirty-day validation right, the Court noted the distinction between "language rushing the debtor to take action . . . and provisions that set deadlines contrary to or contradictory to the thirty-day validation period."  
In so doing, the Seventh Circuit observed that the collection letter in this case contained no terms that imposed a deadline contradicting the debtor's right to the thirty-day validation period or any terms that were "tantamount to a request for payment."  The Court thus ruled that the language urging the debtor to take immediate action and that the creditor could pursue legal action was "at worst" puffery, that is, "rhetoric designed to create a mood rather than to convey concrete information or misinformation."  The Court stated "[e]ven the most unsophisticated debtor would realize that debt collectors wish to expedite payment, and urging [the debtor] to hurry does not confuse or undermine the right to [the] validation period." 
The Seventh Circuit also stressed that, even if the collection letter had indicated that the creditor had the right to file suit during the validation period, the letter would not have risen to a violation of Section 1692g.
Moreover, reasoning that the warning on the front of the letter in all capital letters and bold typeface to "see [the] reverse for important information" adequately advised the consumer about where to find information about her rights, the Court ruled that the placement on the back did not create "confusion sufficient" to state an FDCPA claim.  See Sims v. GC Services, L.P. 445 F.3d 959, 963-64 (7th Cir. 2006).  The Seventh Circuit accordingly ruled that the collection letter in this case was clear on its face since "neither its structure nor its diction cloud its meaning such that an unsophisticated consumer could not understand it or his rights." 
Finally, the Seventh Circuit also agreed with the district court in disallowing the debtor to introduce evidence in the form of a consumer survey to illustrate the confusing nature of the collection letter.  The Court ruled that since "no reasonable person, however unsophisticated, could construe" the letter as a violation of Section 1692g(b), there was no need for a consumer survey.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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