The U.S. Court of Appeals for the Seventh Circuit recently affirmed a trial court's ruling granting summary judgment in favor of two debt collectors for alleged violations of the federal Fair Debt Collection Practices Act (FDCPA) and federal Fair Credit Reporting Act (FCRA) relating to their attempts to collect a debt resulting from identify theft.
A copy of the opinion is available at: Link to Opinion
The appeal arises out of a lawsuit brought against a debt buyer and debt collecting agency ("Creditors") for alleged violations of the FDCPA and FCRA. The lawsuit stemmed from an airline credit card which was opened in plaintiff's name ("Alleged Debtor") and used to make a single purchase for a one-way airline ticket.
Alleged Debtor did not become aware of the debt until Creditors attempted to collect.
Alleged Debtor disputed the debt, and Creditors found the debt to be valid multiple times and reported the delinquent debt to credit reporting agencies. Alleged Debtor also contacted the airline who initially determined the debt to be valid and owing by Alleged Debtor.
Shortly after filing suit, the airline concluded that Alleged Debtor was not responsible for the unpaid charges and Creditors asked the credit reporting agencies to stop reporting the account.
Alleged Debtor alleged that Creditors violated the FDCPA by using "false representation[s] or deceptive means to collect or attempt to collect any debt." 15 U.S.C. § 1692e(10). Alleged Debtor reasoned that the debt reported by Creditor was literally false, as the debt had been determined by the airline not to be his.
The trial court granted summary judgment in favor of Creditors finding that Alleged Debtor had not met the threshold burden of showing that the airline ticket was a "consumer debt" and that an unsophisticated consumer would not have been deceived by the collection letters.
Alleged Debtor also claimed that Creditors violated the FCRA by failing to conduct a reasonable investigation into his fraud claims. See 15 U.S.C. § 1681s-2(b)(1)(A).
The trial court granted summary judgment in favor of Creditors on this count as well, finding that Creditors "closely examined" his claim, immediately noted the dispute and asked for more information and documents to help resolve the matter.
Alleged Debtor appealed.
On appeal, the Seventh Circuit first reviewed Alleged Debtor's claim under the FDCPA.
The FDCPA protections apply only to consumer debts, which are defined as any obligation to any money "arising out of a transaction" entered into "primarily for personal, family, or household purposes." 15 U.S.C. §1692a(5). The trial court reasoned that because there was no way to know for sure whether the one-way flight was purchased for business or consumer purposes, Alleged Creditor had failed to meet his burden.
The Court however, noted that there is no requirement of absolute certainty as to the purpose of the purchase. There would only need to be sufficient evidence for a jury to find it more likely than not that the balance was a consumer debt. See Burton v. Kohn Law Firm, S.C., 934 F.3d 572, 584–85 (7th Cir. 2019). The question is fact-intensive and highly contextual.
The Seventh Circuit found the context to point in Alleged Debtor's favor. The Court again referred to Burton, nothing that it teaches that "the types of purchases made on the credit card may be relevant" to the question whether they were consumer or business purchases. Id.at 584.
Here, the Seventh Circuit found it unlikely that a business traveler would purchase a one-way airline ticket and that a reasonable jury could conclude that the odds that the purchase was made for consumer purposes were better than a coin flip.
The Creditors argued that Alleged Debtor was required to do more, such as subpoena the airline for the information of the person who took the flight, but the Seventh Circuit disagreed. The Court found that Alleged Debtor had met his burden under § 1692a(5), as the nature of a disputed debt permitted a reasonable inference that it was undertaken "for personal, family, or household purposes."
The Seventh Circuit next examined Alleged Debtor's claim that Creditors used "false representation[s] or deceptive means to collect or attempt to collect any debt." 15 U.S.C. § 1692e(10).
Alleged Debtor argued that, because the airline eventually determined that the debt was not his, the information in Creditors' letters was literally false.
However, the Seventh Circuit pointed out the standard under § 1692e is not literal falsity. Instead, "[i]f a statement would not mislead the unsophisticated consumer, it does not violate the FDCPA – even it is false in some technical sense." Wahl v. Midland Credit Mgmt., Inc., 556 F.3d 643, 645–46 (7th Cir. 2009).
Despite Alleged Debtor's arguments to the contrary, the Seventh Circuit reiterated its prior holdings that the FDCPA only imposes strict liability in the sense that "a collector need not be deliberate, reckless, or even negligent to trigger liability" but that "the state of mind of the reasonable debtor is always relevant. Id. at 646.
The Court found that an unsophisticated consumer, upon receiving these letters, would have known the account was not his and known the letters were sent in error, as Alleged Debtor did. As the statements in the letters were not ones that would "influence a consumer's decision…to pay a debt," Muha v. Encore Receivable Mgmt., Inc., 558 F.3d 623, 628 (7thh Cir. 2019), they were not "false" within the meaning of § 1692e(10).
The Seventh Circuit thus affirmed the trial court's entry of summary judgment in favor of Creditors on the FDCPA claim.
The Court next examined Alleged Debtor's FCRA claim.
The Seventh Circuit noted that the reasonableness of an investigation of a credit dispute depends on the content of the Automated Credit Dispute Verification ("ACDV") the furnisher receives. In Westra, the Court found that a furnisher's limited investigation, in which it "verified [the plaintiff's] name, address, and date of birth," was reasonable beyond question. Westra v. Credit of Pinellas, 409 F.3d 825, 827 (7th Cir. 2005).
The Westra court left open the possibly that if the ACDV indicated the dispute concerned fraud or identify theft, "a more thorough investigation" may have been required. Id.; see also Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1157 (9th Cir. 2009).
Alleged Debtor argued that, because the ACDV here included the police report filed by Alleged Debtor which indicated that "someone had obtained a credit card [in] his name and had made charges", further investigation was required.
However, the Seventh Circuit noted that because the police report also contained additional information, namely that Alleged Debtor had received two letters from the airline "stating that they had completed an investigation and they determined that it was in fact [Alleged Debtor]" who made the purchase, Creditor was within its rights to rely on this representation to some degree.
In addition, the Court noted that the debt collector sent another letter inviting additional information and attaching a blank identity theft affidavit for Alleged Debtor to complete. Alleged Debtor failed to respond to this communication and did not inform Creditor of the use of an out-of-date address and bogus email to open the credit card.
Under the circumstances, the Seventh Circuit refused to find that Creditors' investigation was unreasonable.
Therefore, the Seventh Circuit affirmed the trial court's judgment in its entirety.
Ralph T. Wutscher
Maurice Wutscher LLP
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