The U.S. Court of Appeals for the Seventh Circuit recently held that factually accurate collection letters that did not make explicit or implicit suggestion about future outcomes did not violate the FDCPA as they would not confuse or mislead the reasonable unsophisticated consumer.
A copy of the opinion is available at: Link to Opinion
A consumer defaulted on a debt which was then placed with a collection firm. The first collection firm handling the debt sent a collection letter to the consumer stating "The amount of your debt is $425.86. Please keep in mind, interest and fees are no longer being added to your account. This means every dollar you pay goes towards paying off your balance."
The consumer understood this to mean that the debt had been "charged-off" and would no longer accrue late charges, or other fees for any reason.
The debt was then placed with a second collection firm who mailed the consumer a letter informing him of the new placement and providing an itemized balance along with an offer to resolve the debt which included a notice that stated "no interest will be added to your account balance through the course of [collection firms] collection efforts concerning your account." The itemized breakdown showed a zero balance for "interest" and "other charges."
Upon receipt of the letter, the consumer filed suit alleging the letter misleadingly implied that the creditor would begin to add interest and possibly fees to the previously charged-off debt if the consumer failed to resolve his debt with the collection firm.
Specifically, he alleged that he was confused by the discrepancy between the first collection firm's letter that "interest and fees are no longer being added to your account" and the second collection firm's implication that the creditor would begin to add interest and possibly fees to the debt once the second collection firm stopped its collection efforts.
The consumer alleged the letters violated the FDCPA by supposedly using false, deceptive, and misleading representations or means to collect a debt, and by supposedly failing to disclose the amount of the debt in a clear and unambiguous fashion.
The trial court granted the collection firms' motion to dismiss finding that the second letter had accurately and correctly disclosed the amount of the debt, and did not imply fees or interest would be added to the debt in the future. In addition, the trial court noted that even if the second letter did imply that fees and interest would begin to accrue at a later date if the debt remained outstanding, the statement was not false or misleading given that Wisconsin law provided for the assessment of fees and interest on "static" debts in certain circumstances.
The consumer appealed.
The Seventh Circuit began its review noting the FDCPA requires debt collectors to send consumers a written notice disclosing "the amount of … debt" they owe. 15 U.S.C. § 1692g(a)(1). This disclosure must be clear. See Janetos v. Fulton Friedman & Gullace, LLP, 825 F.3d 317, 319 (7th Cir. 2016) ("If a letter fails to disclose the required information clearly, it violates the Act, without further proof of confusion.").
The Seventh Circuit acknowledged there is no dispute that the letter disclosed the amount owed, but rather the pertinent question was whether the second letter, by providing a breakdown of consumer's debt which showed a zero balance for "interest" and "other charges," violated 15 U.S.C. §§ 1692e and 1692g(a)(1) by implying that interest and other charges would accrue if the debt remained unpaid.
The Court noted that a debt collector violates § 1692e by making statements or representations that "would materially mislead or confuse an unsophisticated consumer" defined as a consumer who is "uninformed, naïve, or trusting" but "nonetheless possesses reasonable intelligence, basic knowledge about the financial world, and is wise enough to read collection notices with added care." Koehn v. Delta Outsource Grp., Inc., 939 F.3d 863, 864 (7th Cir. 2019).
The Seventh Circuit then examined its ruling in Koehn where it found a similar claim could not proceed. In Koehn, the consumer claimed the phrase "current balance" was misleading because it implied that her balance could grow even though her account was actually "static."
Rejecting this argument, the Court explained that "dunning letters can comply with the Fair Debt Collection Practices Act without answering all possible questions about the future. A lawyer's ability to identify a question that a dunning letter does not expressly answer ("Is it possible the balance might increase?") does not show the letter is misleading, even if a speculative guess to answer the question might be wrong."
The Seventh Circuit applied this logic to the letter at issue here noting that it merely detailed, correctly, that no interest or other charges had accrued from the date the creditor charged off the debt to the date of the letter. Except for the accrual of interest, the letter was totally silent as to the future and any inference made by the consumer was entirely speculative.
Moreover, the consumer's complaint relied heavily on the first collection firm's statement that "interest and fees are no longer being added," and the Court noted that even that statement did not say that interest and fees could never be added to the account.
Therefore, the Seventh Circuit found that the itemized breakdown, which made no comment whatsoever about the future and did not make an explicit suggestion about future outcomes, did not violate the FDCPA.
Next, the Seventh Circuit applied the same analysis to the consumer's argument that the letter attempted to mislead him when it stated "Please note that no interest will be added to your account balance through the course of [the second collection agency's] collection efforts concerning your account."
The Seventh Circuit held that the letter simply informed the consumer that no interest would accrue while the collection firm pursued its debt collection efforts but did not address in any way whether interest would accrue in the future after it no longer controlled the debt. The fact that a debtor may incorrectly speculate as to a possible outcome does not render a letter misleading. Instead, it is only when a letter at least implicitly points to a possible outcome that it can become misleading.
Accordingly, the Seventh Circuit found that the letter complied with both §§ 1692e and 1692g and affirmed the judgment of the trial court.
Ralph T. Wutscher
Maurice Wutscher LLP
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