Wednesday, June 13, 2012

FYI: 9th Cir Holds No FDCPA Violation When Debt Validation/1692g Notice Implies Disputes Must Be in Writing

The U.S. Court of Appeals for the Ninth Circuit recently held that a debt collector's debt validation/1692g notice did not violate the federal Fair Debt Collection Practices Act or California's Rosenthal Act, where the notice implied, rather than expressly stated, that the debtor must dispute the debt in writing.
A copy of the opinion is available at: 
Plaintiff-borrower purchased a car under a retail installment contract that was later assigned to a successor creditor.  After Plaintiff- borrower failed to keep up with the payments, the creditor repossessed and sold the car, and hired the defendant debt-collection law firm ("Law Firm") to collect the remaining balance due.
The Law Firm sent a debt validation notice to Plaintiff-borrower requesting repayment of the debt.  Based on the federal Fair Debt Collection Practices Act ("FDCPA") and California's Rosenthal Act (the state equivalent of the FDCPA), the notice read in part:  "if you notify [creditor's] attorneys in writing within 30 days that all or part of your obligation or judgment . . . is disputed, then [creditor's attorneys] will mail to you written verification of the obligation or judgment and the amounts owed to the [creditor].  In addition and upon your written request within 30 days of receipt of this letter, [Law Firm] will provide you with the name and address of the original creditor, if different from the current creditor."
The Plaintiff-borrower never contacted the Law Firm or made any payments on the debt and, after settling one action brought against her in state court by the Law Firm, Plaintiff-borrower filed suit in federal court.  Plaintiff-borrower alleged that the Law Firm's validation notice violated the FDCPA and the Rosenthal Act by: (1) requiring the Plaintiff-borrower to dispute her debt in writing; and (2) misrepresenting Plaintiff-borrower's right to dispute the debt validation. 
The Law Firm moved to dismiss and, in the alternative, for partial summary judgment.  Ruling that the Law Firm's validation notice did not impermissibly require the Plaintiff-borrower to dispute her debt in writing or falsely misrepresent her right to dispute the debt, the district court partially granted the Law Firm's motion to dismiss.  The district court also granted partial summary judgment in favor of the Law Firm.  Plaintiff-borrower appealed the district court's summary judgment order. 
The Ninth Circuit affirmed the lower court's ruling.
As you may recall, Section 1692g(a) of the FDCPA requires a debt collector to send  a consumer debtor a written validation notice containing among other things:  "[ . . . ] (3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, . . . the debt will be assumed to be valid by the debt collector; (4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt . . . is disputed the debt collector will obtain verification of the debt . . . and a copy of such verification . . . will be mailed to the consumer by the debt collector; and (5) a statement that upon the consumer's written request within the thirty-day period the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.  15 U.S.C. § 1692g(a)(3)-(5).
In addition, the FDCPA provides that a "debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. § 1692e. 
Noting that in the Ninth Circuit the law is settled that the FDCPA allows debtors to dispute debts either orally or in writing, the Court focused on whether the validation notice in this case expressly required the Plaintiff-borrower to dispute the debt in writing.  See Camacho v. Bridgeport Fin. Inc., 430 F.3d 1078, 1081-82 (9th Cir. 2005)(to the extent that a validation notice requires that a dispute be in writing, the notice violates section 1692g(a)(3) of the FDCPA).
Next, in applying the "least-sophisticated consumer test," the Ninth Circuit concluded that such a consumer could understand the Law Firm's notice to imply that a debt dispute must be in writing.  The Ninth Circuit nevertheless ruled that there is no FDCPA violation where validation notices merely imply that disputes must be in writing. 
In so ruling, the Court noted the lack of clarity in the FDCPA itself as to when a consumer must do certain things in writing.   The Ninth Circuit observed that subsection 1692g(a)(4) expressly requires a consumer to "'notif[y] the debt collector in writing . . that the debt [. . .] is disputed,' in order to obtain verification, while subsection (a)(3) is silent as to what form a general dispute of an alleged debt must take."  The Court pointed out that, taken together, the various dispute provisions in the FDCPA could imply that a debtor must dispute a debt in writing. 
Reasoning that "a validation notice . . . like [the Law Firm's], which more or less reverses the order of the § 1692g (a)(3)-(5) advisories, cannot be unlawful merely because it allows for the same implication,"  the Court ruled that a debt validation notice violates section 1692g(a)(3) only where it expressly requires a written dispute.
The Ninth Circuit also ruled that because there was no violation of section 1692g(a)(3), the Plaintiff-borrower failed to establish a claim based on an alleged "false representation" in the validation notice as to her right to dispute the debt. 

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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