Thursday, July 7, 2011

FYI: 6th Cir Says Inaccurate Amount of Debt in Response to Debtor Inquiry Does Not Violate FDCPA

The U.S. Court of Appeals for the Sixth Circuit recently held that a debt
collector who filed a motion for default judgment prior to the borrower's
actual default may have violated the Fair Debt Collection Practices Act
("FDCPA"). The Sixth Circuit also held that a debt collector who
inaccurately stated the amount of the outstanding debt, in response to a
debtor's inquiry and not as part of a demand for payment, did not violate
the FDCPA. A copy of the opinion is attached.

Plaintiff debtor ("Debtor") fell behind on his medical bill payments. The
account was assigned to a collections agency, which hired a debt
collection law firm Collector Ingber & Winters PC ("Collector") to collect
the debt. Collector sued Debtor for the outstanding amount of the debt,
and served the Debtor with a document entitled "Combined Affidavit of Open
Account and Motion for Default Judgment."

At the time the Debtor was served with that document, he had not missed
any deadline for answering Collector's complaint. The Debtor called
Collector to verify his account balance, and in response was provided
inaccurate information both over the phone and in writing.

The Debtor sued Collector in federal court, alleging that the false
statements regarding his account balance and the motion for default
judgment were both actionable under the FDCPA. The district court granted
Collector's motion for summary judgment, and the Debtor appealed.

As you may recall, the FDCPA prohibits a debt collector from using "any
false, deceptive, or misleading representation or means in connection with
the collection of any debt." 15 U.S.C. §1692(e). In considering claims
of FDCPA violations, courts consider "whether there is a reasonable
likelihood that an unsophisticated consumer who is willing to consider
carefully the contents of a communication might yet be misled by them."
Miller v. Javitch, Block & Rathbone, 561 F.3d 588, 592 (6th Cir. 2009). A
true statement may violate the FDCPA if it is misleading. Id. at 591-92.

The Court held that filing a motion for default prior to the actual
default could be construed by a jury to be misleading. In so doing, it
noted that "a motion's factual basis usually precedes the motion itself,"
and thus an unsophisticated consumer served with a motion for default
"might well think that he has somehow already defaulted." Therefore, the
Court reversed the lower court's decision with regard to the Collector's
preemptive motion for default, and remanded the case for further
proceedings consistent with its opinion.

Collector argued that its preemptive motion for default requesting
judgment only "upon default" made it clear that the Debtor had not already
defaulted. The Court rejected that contention, reasoning that the words
"upon default" "merely recite the necessary condition for relief, rather
than saying anything about whether the condition has already occurred."

Next, the Court considered whether Collector's provision of inaccurate
information to the Debtor in response to the Debtor's inquiry constituted
an attempt to collect a debt -- and therefore, whether those statements
were actionable under the FDCPA. The Court began its analysis by holding
that, to determine whether a communication is made in connection with the
collection of a debt, "an animating purpose of that communication must be
to induce payment by the debtor." Based on that standard, Collector's
communications to the Debtor "were merely a ministerial response to a
debtor inquiry, rather than part of a strategy to make payment more
likely." Therefore, the Court held that those communications did not
violate the FDCPA.

Ralph T. Wutscher
McGinnis Tessitore 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

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