Thursday, March 29, 2018

FYI: 2nd Cir Cleans Up FDCPA "Interest Disclosure" Mess

Just over two years to the day after it issued its opinion in Avila v. Riexinger & Associates, LLC, the U.S. Court of Appeals for the Second Circuit issued a critical blow to a recent spate of FDCPA lawsuits attempting to create liability out of thin air.

 

In so ruling, the Second Circuit joined the Seventh Circuit in holding that "a collection notice that fails to disclose that interest and fees are not currently accruing on a debt is not misleading. . . . if instead the notice contains no mention of interest or fees, and they are accruing, then the notice will run afoul of [the FDCPA]."

 

A copy of the opinion is available at:  Link to Opinion

 

In Avila, the Second Circuit held that a debt collector violates the FDCPA by stating the "current balance" of a consumer's debt without disclosing that the balance is increasing due to the accrual of interest or fees.  In Avila, the debt at issue was actually accruing interest at a rate equivalent to 500% per year.

 

The Avila opinion adopted the same safe harbor approach in the Second Circuit that the Seventh Circuit adopted 16 years earlier in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols & Clark, LLC.  Like Miller, Avila suggested a disclosure that interest was accruing and that so long as that disclosure was used (or something similar) there would be no liability.  What Avila did not hold however was that a debt collector was required to affirmatively state that interest had been waived or was otherwise not accruing.

 

Nevertheless, sophisticated consumers in the Second Circuit (primarily in the Eastern and Southern Districts of New York) seized upon this nonmaterial minutiae and repaired to their lawyers' offices en masse to file reverse-Avila cases.  The argument was that the debt collector violated the FDCPA by failing to inform the debtor that interest was not accruing.  The glut of cases was immediate and although collectors were generally successful in motions for summary judgment, the problem was that this claim could not be dismissed on a rule 12(b)(6) motion because plaintiffs pleaded that interest was actually accruing.

 

The facts of Taylor are similar to all of the reverse-Avila claims: debt collector sent a series of letters to the debtor, all of which demanded the same balance that never increased due to the imposition of interest or fees.  Discovery produced unrebutted evidence that the debt had not accrued interest or fees and the collector moved for summary judgment arguing that there was no obligation to affirmatively state that neither interest nor fees were accruing.  The district court agreed and granted summary judgment.

 

The plaintiffs argued that the collection letters were misleading however because without a disclaimer regarding interest, the least sophisticated consumer could interpret the letters to mean either that interest and fees were accruing or that interest and fees were not accruing and one of those interpretations necessarily has to be false.  They argued that Avila supported this interpretation.

 

The Second Circuit disagreed and referred back to the source of this problem, the actual facts of Avila, which were that interest was in fact accruing and thus "a reasonable consumer could read the notice and be misled into believing that she could pay her debt in full by paying the amount listed on the notice, whereas, in reality, such a payment would not settle the debt."  Here, however, on the facts of this case, the statement "was accurate: prompt payment of the amounts stated in Taylor's and Klein's notices would have satisfied their debts."  This is true in all of these reverse-Avila cases: prompt payment of the amounts stated will satisfy the debts.

 

The Second Circuit took it one step further though and noted that disclosing that interest was not accruing could have been advantageous to the debtors as it would have alerted them that they could delay repayment without their debts increasing.  Thus "it is hard to see how or where the FDCPA imposes a duty on debt collectors to encourage consumers to delay repayment of their debts."

 

The Second Circuit joined the Seventh Circuit once again and held that "a collection notice that fails to disclose that interest and fees are not currently accruing on a debt is not misleading. . . . if instead the notice contains no mention of interest or fees, and they are accruing, then the notice will run afoul of [the FDCPA]."

 

The Second Circuit also rejected the speculative argument that even though the current debt collector was not accruing interest or fees, they (or their successor) retained the right to do so and thus the letter was still false.  But reading the letters at issue like a normal person as opposed to the astuteness of a Philadelphia lawyer, the Court held that the plaintiffs could have satisfied their debts by making reasonably prompt payment of the amounts stated in the notices and thus they were not mislead.

 

But all is not lost for these sophisticated debtors.  The Second Circuit did not address the argument that the debts were in fact accruing interest even though no one was actually attempting to collect it.  This alternate pleading has been found in many a reverse-Avila complaint since Taylor was decided in the district court and it will likely take another Second Circuit opinion to place the final nail in the coffin of these claims.

 

The problem with that argument for plaintiffs is going to be proof.  The theoretical argument that a contract or statute permits the imposition of interest is one thing but when the actual collector has unrebutted evidence that the balance it is seeking to collect remains static, the Second Circuit has already shown us which way it is leaning on that argument.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Tuesday, March 27, 2018

FYI: SD Fla Holds No FDCPA Violation For Naming Payment Processor and Lender in Debt Validation Notice

The U.S. District Court for the Southern District of Florida recently granted summary judgment in favor of a defendant debt collector in a putative class action alleging violations of sections 1692g and 1692e of the federal Fair Debt Collection Practices Act ("FDCPA"), holding that the "debt validation notice" letter at issue was neither confusing nor misleading under the applicable least sophisticated consumer standard.

 

In so ruling, the Court held that naming the payment processing company with whom the consumer had dealt, as well as the bank that had actually issued the credit at issue, did not violate the FDCPA.

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff consumer sued a debt collector that sent him a demand letter, alleging that the letter failed to name the creditor to whom the debt was owed, and claiming abusive and misleading practices in supposed violation of FDCPA sections 1692g(a)(2) and 1692e.

 

The demand letter showed one entity as the "Client" on whose behalf the debt collector sent it, and another entity as the "Original Creditor."

 

The "Client" was the credit-arm of a national Internet-based payments company that "allows consumers to make online purchases without using a credit card by offering an open-ended credit plan" from the entity listed as the "Original Creditor".

 

The "Original Creditor" was a bank that offered the line of credit, but the product was branded on the "Client" company's website with the name of the "Client." In this case, the bank named as the "Original Creditor" was still the entity to whom the debt was currently owed.  Just like an ordinary credit card, the Original Creditor company paid the merchant for the consumer then looked to the consumer for repayment.

 

The plaintiff alleged that only by clicking through to an "FAQ" link could a consumer understand that the actual creditor providing the line of credit was the bank, not the website owner "Client." Other "FAQ's" and screens throughout the online application process mentioned only the "Client's" name. The terms and conditions did, however, state that while the product was called by the "Client's" name, the consumer's agreement was with the bank.

 

The consumer made payments through the website or by mailing a check to the "Client" rather than the bank.

 

The debt collector moved for summary judgment, arguing that "the demand letter does not fail to name the creditor to whom the debt is owed under § 1692g(a)(2) and it does not otherwise contain any misleading or false statements in violation of § 1692e."

 

The Court first explained the purpose of the FDCPA as eliminating "abusive debt collection practices to ensure that debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent state action in protecting consumers against debt collection abuses." It then explained that "[i]n an FDCPA claim, a plaintiff must prove that: '(1) the plaintiff has been the object of collection activity arising from consumer debt; (2) the defendant is a debt collector as defined by the FDCPA; and (3) the defendant has engaged in an act or omission prohibited by the FDCPA.'"

 

Because the first two elements were undisputed, the only issue before the Court was whether the defendant debt collector "engaged in an act or omission that the FDCPA prohibits."

 

The Court next explained the legal standard applied in evaluating FDCPA claims as requiring the Court to adopt "the 'least sophisticated consumer' perspective, which assumes the consumer 'posses[es] a rudimentary amount of information about the world and a willingness to read a collection notice with some care.' … Using this standard, the FDCPA protects 'na├»ve consumers' while at the same time 'prevent[ing] liability for bizarre or idiosyncratic interpretations of collections notices by preserving a quotient of reasonableness.'"

 

The Court then addressed each claim.

 

As to the section 1692g claim, the Court rejected the plaintiff's argument that defendant debt collector violated this section because the demand letter failed to identify the "current creditor," instead agreeing with the defendant that the letter disclosed the actual creditor -- the bank -- while also describing the "Client" as the party the consumer would recognize.

 

Reasoning that because when "[c]onfronted with whether a creditor's identity was adequately disclosed under the FDCPA, the Eleventh Circuit recently held that 'a debt collector may use the creditor's full business name, the name under which the creditor usually transacts business, or a commonly used acronym[,]" the Court concluded that "from the perspective of the least sophisticated consumer receiving the demand letter at issue, [the defendant debt collector] identified the name under which [the bank] transacted business with [the "Client's"] account holders, such as Plaintiff."

 

The Court relied upon a 2015 Southern District of Florida case in which the creditor issued a "private-label" credit card that the plaintiff used to purchase tires. The demand letter listed the tire retailer/seller as the creditor instead of the card issuer, but the Court in that case granted summary judgment in the debt collector's favor because the least sophisticated consumer would understand that the reference to the tire retailer meant that the debt collector was trying to recover the consumer's debt arising from his or her purchase of tires.

 

Because the demand letter at issue "allowed the consumer to easily identify the nature of the debt by disclosing [the online payments company] as [the debt collector's] client, [the bank] as the original creditor, the amount of the debt, and the [online payment company's] account number[,]" it "left no room for confusion in eyes of the least sophisticated consumer."

 

The Court rejected the plaintiff's argument that the debt collector violated section 1692g by not disclosing the name of the "current creditor" because "[n]owhere in §1692g is there a requirement that such verbiage be used.  All that is required is that the debt collector disclose the creditor to whom the debt is owed and … the Court finds that [the debt collector] adequately satisfied this requirement."

 

Turning to the section 1692e claim, the Court reasoned that, because it had already found that "the demand letter adequately identified the creditor to whom the debt is owed" and under the case law only abusive and material misrepresentations or omissions are actionable rather than "mere technical falsehoods that mislead no one[,] … even accepting that there exists a hyper-technical violation FDCPA violation here, the Court's review of the demand letter leads it to conclude that it is not material as there is nothing misleading about its content. There is nothing that would influence the consumer's decision to pay the debt or otherwise cause an unsophisticated consumer to be concerned about paying the incorrect creditor."

 

This was particularly true, the Court noted, because since the beginning of the relationship, the consumer dealt only with the "Client" online payment provider, not the bank. "For that reason, the least sophisticated consumer receiving the letter at issue would not be concerned about the possibility of being defrauded or paying the incorrect creditor." 

 

Because the letter was "neither confusing or misleading to the least sophisticated consumer[,] … the Court [found] as a matter of law that there does not exist a violation of § 1692g."

 

The Court accordingly granted defendant debt collector's motion for summary judgment.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments