The U.S. Court of Appeals for the Second Circuit recently vacated the dismissal of a consumer's claim that the defendant debt collector's debt validation notice violated the federal Fair Debt Collection Practices Act ("FDCPA") by stating that a challenge to the validity of the debt must be made in writing. In so ruling, the Second Circuit followed the Ninth Circuit, and declined to follow the Third Circuit, on this issue.
A copy of the opinion is available here: Link to opinion
Plaintiffs-Appellants ("Debtors"), who had failed to make payments to purchase a timeshare, brought a putative class against Defendant-Appellee ("Debt Collector"), alleging that Debt Collector's notice ("Notice") violated the FDCPA. The Notice read, in relevant part:
UNLESS YOU NOTIFY US IN WRITING WITHIN THIRTY (30) DAYS AFTER RECEIPT OF THIS LETTER THAT THE DEBT, OR ANY PART OF IT, IS DISPUTED, WE WILL ASSUME THAT THE DEBT IS VALID. IF YOU DO NOT NOTIFY US OF A DISPUTE, WE WILL OBTAIN VERIFICATION OF THE DEBT AND MAIL IT TO YOU. ALSO UPON YOUR WRITTEN REQUEST WITHIN THIRTY (30) DAYS, WE WILL PROVIDE YOU WITH THE NAME AND ADDRESS OF THE ORIGINAL CREDITOR IF DIFFERENT FROM WYNDHAM.
Specifically, Debtor claims that the Notice violated 15 U.S.C. §1692g(a)(3) because it indicated that a "challenge to the validity of the debt must be made in writing and cannot be made orally." The trial court granted Debt Collector's motion to dismiss for failure to state a claim, holding that a debt validation notice requiring that disputes must be presented in writing does not violate §1692g(a)(3). See Hooks v. Forman Holt Eliades & Ravin LLC, No. 11 Civ. 2767, 2012 WL 3322637 (S.D.N.Y. Aug. 13, 2012). The Second Circuit Court of Appeals disagreed.
As you may recall, under §1692g(a), a debt collector must send consumer debtors a written notice that contains: (1) the amount of the debt; (2) the name of the creditor to whom the debt is owed; (3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, 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, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment 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. See 15 U.S.C. §1692g(a).
Additionally, §1692g(b) provides that if the consumer "notifies the debt collector in writing" of a dispute, then the debt collector must "cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt… and a copy of such verification…is mailed to the consumer by the debt collector." Id. at §1692g(b).
The issue considered by the Court, one of first impression for the Second Circuit, was whether a consumer debtor can only obtain her rights under §1692g(a)(3) by disputing the validity of the debt in writing.
Debt Collector argued that, because sections 1692g(a)(4), (a)(5), and (b) state that a consumer debtor can only obtain her rights by notifying the debt collector in writing, the writing is also required under §1692g(a)(3). Indeed, the Third Circuit has held that a consumer debtor must send a written statement to contest the validity of the debt under §1692g(a)(3). See Graziano v. Harrison, 950 F.2d 107 (3d Cir. 1991). According to the Third Circuit, to not impose a writing requirement under §1692g(a)(3) would result in an "incoherent…system" in light of the explicit writing requirements in sections 1692g(a)(4), (a)(5), and (b). Id. at 112.
However, the Second Circuit found the reasoning of the Ninth Circuit more persuasive. In Camacho v. Bridgeport Financial, Inc., 430 F.3d 1078 (9th Cir. 2005), the Ninth Circuit concluded that a debtor need not send a writing to contest the debt under §1692g(a)(3).
The Ninth Circuit in Camacho held that Congress did not intend to impose a writing requirement under subsection (a)(3) as evidenced by the explicit writing requirements of subsections (a)(4) and (a)(5). See id. at 1080. Significantly, the Ninth Circuit supported its interpretation in light of the other FDCPA protections, which depend only on "whether a debt was disputed, and not on whether there was a prior writing." See id. at 1081-82. For example, once a debt has been disputed, a debt collector cannot communicate the debtor's credit information to other without disclosing the dispute. See 15 U.S.C. §1692e(8). Also, if the debtor owes multiple debts and makes a payment, the debt collector cannot apply the payment to the disputed debt. See id. at §1692h.
Like the Ninth Circuit in Camacho, the Second Circuit held that, because the "right to dispute a debt is the most fundamental of those set forth in §1692g(a)," it is reasonable that it can be exercised by debtors "who may have some difficulty with making a timely written challenge." The Second Circuit noted the benefits of other FDCPA provisions which are triggered by a dispute, and not by a prior writing. See, e.g., §§1692e(8), 1692h. Additionally, the Second Circuit stated that, because the debtor's rights under sections 1692g(a)(4), (a)(5), and (b) are "more burdensome," it "makes sense to require debtor consumers to take the extra step of putting a dispute in writing."
Although Debt Collectors argued that this was a new legal rule and should be given "purely prospective effect," the Second Circuit disagreed. Because the Court interpreted its ruling as not "in tension" with any prior holding, and because many district courts in the Second Circuit have found that §1692g(a)(3) does not require a written notice, there was no "justifiable reliance" as is required for prospective application.
Accordingly, the Second Circuit vacated the lower court's dismissal and remanded for further proceedings.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
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Chicago, Illinois 60602
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Email: RWutscher@mwbllp.com
Admitted to practice law in Illinois
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