The U.S. Court of Appeals for the Sixth Circuit recently held that the inclusion of a demand for costs, in a dunning letter and before they had been awarded by a court, does not violate the federal Fair Debt Collection Practices Act (“FDCPA), if such costs are permitted by the relevant state law to a prevailing party in a lawsuit.
The Court also concluded that an affidavit from a debt collection company’s representative purporting to have “personal knowledge” of the business records of a third party does not constitute a materially false or misleading statement for purposes of the FDCPA, when in fact the affiant relied on records originally created by the third party.
A copy of the Court’s opinion can be found at: http://www.ca6.uscourts.gov/opinions.pdf/14a0069n-06.pdf.
After the plaintiff defaulted on a credit card, the creditor sold the account and the right to claim the balance owed to a collection company. The collection company then hired a law firm to recover the debt. In response to the plaintiff’s request of proof that she owed the debt, the law firm sent the plaintiff a packet that included an affidavit from a representative of the collection company.
The affidavit contained three statements that were the subject of the litigation. First, the representative affirmed that he had “personal knowledge” of the facts contained in the affidavit. Second, the representative stated that the facts contained in the affidavit were based upon the “electronic business records in question, which are part of the [company’s] regular business records.” Third, the affidavit stated the actual amount of the balance due and owing followed by the term “and costs.”
The collection company initiated a collection action in state court in Kentucky, requesting the outstanding balance and costs. Attached to the complaint was the same packet previously sent to the plaintiff, which included the affidavit of the representative of the collection company.
In response, the plaintiff filed a class action lawsuit against the collection company in federal court in Ohio, alleging that the company violated the FDCPA by “intentionally filing of false affidavits for the purpose of obtaining judgments against debtors in collection lawsuits and coercing debtors.” The district court granted the collection company’s motion for summary judgment, holding that the term “costs” was unclear but was not material. Likewise, the district court also held that an affiant’s assertion that he had personal knowledge of the debt based on business records of a third party was not a material violation of the FDCPA.
As you may recall, the FDCPA bars “conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.” 15 U.S.C. § 1692d. Section 1692e provides that “a debt collector may not use any false, deceptive, or misleading representation or means” in connection with the collection of a debt. Section 1692e(2)(A) prohibits a party from making a “false representation” of the “amount” of any debt. Section 1692e(10) prohibits a party from using “false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.”
On appeal, the issues related to the use of the terms “costs” and “personal knowledge” in the representative’s affidavit and whether those terms violated the FDCPA. The plaintiff argued that including the term “and costs” after the exact amount owed in the affidavit constituted violations of 15 U.S.C. § 1692e.
The Sixth Circuit acknowledged that in assessing whether a debt collector’s actions violate the FDCPA, the Sixth Circuit and other courts “apply an objective test based on the understanding of the least sophisticated consumer.” The Court also acknowledged that the FDCPA protects the “gullible and the shrewd,” but “also prevents liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness and presuming a basic level of understanding and willingness to read with care.”
The Sixth Circuit concluded that, because Kentucky law permits costs to be awarded “as of course to the prevailing party,” the affidavit accurately described the law when it referred to costs. The Court determined that the fact that costs had not yet been awarded was irrelevant, because neither had interest or the principal amount due, and no argument was raised that asserting those amounts were “due and owing” in the affidavit was unfair, false or deceptive. Therefore, according to the Court, “the simple request for costs in an unstated amount, where such costs are permitted by state law to the prevailing party, is not a false representation and does not violate” the provisions of the FDCPA.
The Court also analyzed the use of the term “costs” under 15 U.S.C. § 1692f, which prohibits the “use of unfair or unconscionable means to collect or attempt to collect any debt,” and proscribes “the collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” Based on the Court determined that seeking costs was permitted under Kentucky law, the Court concluded there was no violation. The Court also concluded that the plaintiff’s cardmember agreement with the original creditor permitted seeking costs. Thus, the Sixth Circuit held there was no violation of 15 U.S.C. § 1692f.
The Sixth Circuit then examined the use of the term “personal knowledge” in the company representative’s affidavit. The relevant portion of the statement at issue read “the facts recited herein are based upon the electronic business records of the account in question, which are part of [the company’s] regular business records.” The plaintiff argued that the statements were false because the president did not have personal knowledge of the data – he acquired the data from the original creditor. The Court rejected the plaintiff’s argument. As the Sixth Circuit noted, “multiple courts, including this circuit, have determined that an affiant’s statement of ‘personal knowledge’ regarding a record originally generated by a third party that the attesting party has subsequently reviewed does not violate the FDCPA.” The Court also determined that even if the affidavit statement was misleading, it was not material.
Ruling that the use of the term “and costs” as part of the amount due in a dunning letter, if costs were recoverable under the relevant state law, did not violate the FDCPA, and that an affiant is qualified to have personal knowledge of information contained in the records in a company’s file that were created by a third party, and that the related “personal knowledge” statement was not materially misleading or deceptive, the Sixth Circuit affirmed the district court’s ruling granting the collection company’s motion for summary judgment.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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