Tuesday, May 17, 2016

FYI: SCOTUS Rejects FDCPA "Specter of Consumer Confusion" and "Risk of Intimidation" Theories

In a unanimous opinion reversing a ruling from the U.S. Court of Appeals for the Sixth Circuit, the Supreme Court of the United States recently held that attorneys retained as independent contractors by the Ohio Attorney General to collect debts owed to the state do not violate the federal Fair Debt Collection Practices Act (FDCPA) when sending collection letters on Attorney General letterhead.


In so ruling, the Court noted that the FDCPA "bars debt collectors from deceiving or misleading consumers; it does not protect consumers from fearing the actual consequences of their debts."


Authored by Justice Ginsburg, a copy of the opinion is available here:  Link to Opinion


Under Ohio law, debts owed to the state are certified to the Attorney General's Office ("AGO") for collection or other disposition, and the law authorizes the AGO to retain outside attorneys, under the designation of "Special Counsel," to engage in collection activities on its behalf.  The Special Counsel are required to use official AGO letterhead when sending dunning letters.


In 2012, two law firms that had been retained as Special Counsel sent collection letters to the respondents.  The letters were on AGO letterhead and explained that the firms were "Outside Counsel" or "Special Counsel" to the AGO.  In 2013, the respondents filed a putative class action against the law firms alleging multiple violations of the FDCPA.


The District Court granted summary judgment in favor of the law firms, finding: (1) the law firms were acting as "officers" within the meaning of 15 U.S.C. § 1692a(6)(C), which excludes from the FDCPA "any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties"; and (2) the letters were not materially false or misleading.


On appeal, the Sixth Circuit determined the "officer" exclusion was inapplicable to the law firms because of their status as independent contractors, and remanded the case on the question of whether the letters could be misleading to the least sophisticated consumer.


The Supreme Court of the United States granted a Petition for Writ of Certiorari on Dec. 11, 2015, and heard oral arguments on March 29, 2016.


In reversing the decision of the Sixth Circuit, the Supreme Court declined to decide whether the FDCPA's "officer" exclusion applied to the law firms.  Nevertheless, the Court did determine that even if it were assumed, for the sake of argument, that the law firms were "debt collectors" under the FDCPA, their use of the AGO letterhead accurately conveyed that they were acting on behalf of the Attorney General and did not, therefore, violate the FDCPA.


During oral argument, the respondents acknowledged that use of the following statement in a letter, in lieu of letterhead and in bold typeface, would not violate §1692e's prohibition of false, deceptive or misleading statements: "We write to you as special counsel to the Attorney General who has authorized us to collect a debt you owe to [the State or an instrumentality thereof]."  The Court reasoned "it would make scant sense to rank as unlawful use of a letterhead conveying the very same message, particularly in view of the inclusion of special counsel's separate contact information and the conspicuous notation that the letter is sent by a debt collector."


Continuing, the Court found use of the letterhead could not violate §1692e(9) which prohibits, in part, letters that falsely represent they are authorized, issued or approved by a state official.  "Special counsel create no false impression in doing just what they have been instructed to do. . . use of the Attorney General's letterhead conveys on whose authority special counsel writes to the debtor."


Similarly, the Court found no violation of §1692e(14), which requires use of the debt collector's true name in all communications, as the letters identified the AGO as being primarily responsible for collecting the debt and explained the nature of Special Counsels' relationship to the AGO.


The Court was unconvinced by the Sixth Circuit's "specter of consumer confusion," noting that consumers who believed the letters to be a scam contacted the AGO which, in response, assured them the letters were authentic.  The Supreme Court saw benefit in consumers' use of official channels to verify the letters' legitimacy.


The Court also countered the Sixth Circuit's belief that use of the AGO letterhead carried a "risk of intimidation" that might lead consumers to believe the failure to pay might lead to more severe consequences.  "This impression is not false; the State does have enforcement powers beyond those afforded private creditors."  The Court concluded this analysis with a noteworthy quote: "In other words, §1692e bars debt collectors from deceiving or misleading consumers; it does not protect consumers from fearing the actual consequences of their debts."


Addressing the principle of federalism, the Court saw no reason to interpret the FDCPA in a manner that would interfere with Ohio's "core sovereign function" of collecting debts owed to it and the manner arranged for doing so.  While this issue was only lightly briefed by petitioners and respondents, it was one of the main issues addressed in the amicus curiae brief of the State of Michigan and 11 other states, filed by the states' respective Attorneys General.


The States' brief also noted that at least 31 states statutorily allow Attorney General delegation of duties to special counsel, and it identified 11 states that specifically provide for Attorney General delegation of debt collection.


On behalf of the United States, the U.S. Solicitor General filed an amicus curiae brief with counsel for the Consumer Financial Protection Bureau.  The irony of this was not lost as the Reply Brief for Eric Jones and the Law Office of Eric A. Jones, LLC noted in a footnote that "Richard Cordray, who now serves as the director of the CFPB, previously served as the Ohio Attorney General from 2009-2011, when Special Counsel were used to protect the state's bottom line."





Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com


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