The U.S. Court of Appeals for the Seventh Circuit recently held that a debt collection verification letter that sought to collect interest on a credit card debt for months after the time when the bank that issued the card did not send monthly statements was not false, and would not have misled their attorney, in violation of the federal Fair Debt Collection Practices Act ("FDCPA").
A copy of the opinion is available at: Link to Opinion
The consumers defaulted on their credit card debt. The Bank that issued the card determined that collection was unlikely and stopped sending monthly statements to the consumers, but never told them that "that they no longer owed the money."
The Bank sold the debt to a debt collector. In January 2013, the debt collector sent a letter to the consumers seeking to collect almost $5,800. The amount sought included about $1,600 in interest for months after the Bank stopped sending monthly statements to the consumers. In March 2013, the debt collector sent a second letter to the consumers demanding $6,200.
The consumers hired a lawyer to represent them with respect to the debt. The lawyer asked the debt collector to verify the debt. In March 2014, the debt collector sent a response to the lawyer verifying the debt stating that $6,320.13 was the balance currently due.
Although the letter did not break out the amount of interest owed, "since the original unpaid debt was only $3,226.35, the letter effectively claimed an entitlement to more than $3,000 in interest, including the $1,600" in interest that the debt collector claimed accrued before it purchased the debt.
Eight months after receiving the March 2014 response to their verification request, the consumers filed suit alleging that by demanding interest during the months when the Bank did not send monthly statements, "the debt collector violated 15 U.S.C. section 1692e, which prohibits "any false, deceptive, or misleading representation … in connection with the collection of any debt," including any "false representation of … the character, amount, or legal status of any debt".
The trial court found that the first two letters were untimely because they were sent more than a year before the borrower filed suit, and the FDCPA limitation period is one year. 15 U.S.C. §1692k(d). The debt collector sent the third verification letter within a year of the borrower filing suit, but the trial court found that this letter did not violate section 1692e because it was "factual and unproblematic."
Thus, the trial court entered a judgment in the debt collector's favor, and this appeal followed.
On appeal, the consumers argued that the letter was "false" or "misleading" because it sought to collect amounts greater than what the debt collector was entitled to collect. The Seventh Circuit disagreed.
Instead, the Seventh Circuit held that the consumers promised to pay interest on their credit card, and there is no evidence that the debt collector used the incorrect interest rate. The credit card agreement expressly "provided that the Bank's inaction or silence would not waive any of its rights." Thus, the claim that the debt collector pursued "is not one that any careful debt collector would know to be unenforceable."
Whether failing to send monthly statements together with 12 C.F.R. §1026.5(b)(2)'s requirement to mail or deliver a periodic statement for each billing cycle prevents collecting interest for the months before the Bank sold the debt is an unresolved "topic for litigation." However, a demand for payment is not "false" simply because a court may letter disagree with a debt collector's calculation of the amount owed. Instead a "statement is false, or not, when made; there is no falsity by hindsight."
The Seventh Circuit held that the letter also did not violate section 1692e because the debt collector sent it to the consumers' lawyer. Under Bravo v. Midland Credit Management, Inc., 812 F.3d 599, 603 (7th Cir. 2016), the test under section 1692e "for a letter to counsel is whether it would deceive or mislead a competent attorney."
Here, if the consumer's counsel disagreed with the amount claimed in the verification letter, then he could have followed up with the debt collector or told his clients not to pay the disputed amount. The Seventh Circuit noted that the debt collector "did not need to explain to a lawyer something that the first two letters revealed, and it certainly did not need to provide a disquisition on the non-waiver clause in the contract or [its] take on 12 C.F.R. §1026.5(b)(2)." This is because verifying a debt should "be a simple process, not an occasion for a legal brief."
The Seventh Circuit acknowledged a circuit split on this issue. The Second, Eight, and Tenth Circuit agree with the Seventh Circuit regarding the standard for evaluating correspondence sent to counsel. See, e.g., Kropelnicki v. Siegel, 290 F.3d 118, 128 (2d Cir. 2002); Powers v. Credit Management Services, Inc., 776 F.3d 567, 573–75 (8th Cir. 2015); Dikeman v. National Educators, Inc., 81 F.3d 949, 953–54 (10th Cir. 1996). The Third and Eleventh Circuits disagree. See, e.g., Simon v. FIA Card Services, N.A., 732 F.3d 259, 269–70 (3d Cir. 2013); Bishop v. Ross Earle & Bonan, P.A., 817 F.3d 1268, 1277 (11th Cir. 2016).
However, the Seventh Circuit saw no reason to abandon the standard it set it Bravo.
Here, the verification letter could not have misled a competent lawyer because a competent lawyer "would not deem false a demand by a potential opponent in litigation just because counsel believes that his client may be able to persuade a judge that there is a defense."
Thus, the Seventh Circuit affirmed the trial court's judgment order dismissing the suit.
Ralph T. Wutscher
Maurice Wutscher LLP
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