The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. Cal., ret.), analyzing a recent decision of interest:
In a matter of first impression, the Second Circuit Court of Appeals (the Court) held that a letter from a debt collector extending an offer to settle a credit card debt in full which failed to inform the consumer about potential accruing interest and fees was not a violation of section 1692e of the Fair Debt Collection Practices Act (FDCPA). Cortez v Forster & Garbus, 2021 WL 2274290 (2nd Cir. June 4, 2021).
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Plaintiff Cristian D. Cortez incurred credit card debt to Discover Bank, which placed Cortez’s debt with Forster & Garbus for collection. Forster & Garbus obtained a default judgment against Cortez in a New York state court in 2011. Over the years, Forster & Garbus mailed numerous collection notices to Cortez. One such notice, in 2017, advised Cortez of the debt balance and provided three payment options to pay the debt in full at a sharp discount. Two of the options were payable over time, but the notice did not mention accruing interest or fees.
Cortez sued Forster & Garbus in the district court, asserting that the Second Circuit in an earlier decision, Avila v Riexinger & Associates, LLC, 817 F. 3d 72 (2nd Cir. 2016), had held that the FDCPA’s prohibition in section 1692e against using “any false, deceptive, or misleading representation or means in connection with the collection of any debt” meant that debt collectors, when notifying consumers of their account balance, must “disclose that the balance may increase due to interest and fees.”
Forster & Garbus brought a motion for summary judgment, arguing that the notice did not violate section 1692e because under Avila “a debt collector will not be subject to liability” under the FDCPA if it makes a settlement offer “clearly stat[ing]that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date.” The district court denied the motion, reading Avila to require that such an offer must nevertheless be accompanied by a disclosure of whether interest would continue to accrue if the debtor did not make the payment by the specified date. Instead, finding no issues of disputed fact, the district court granted summary judgment on liability to Cortez.
Forster & Garbus appealed to the Second Circuit, which reversed and remanded.
In Avila, the Court held section 1692e, which prohibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt,” required “debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees.” In this appeal, the Court clarified whether the disclosure requirement applies to notices that extend offers to settle outstanding debt; it held that it did not.
The FDCPA requires a court to employ the least sophisticated consumer standard, under which a notice is deceptive or misleading if it is “open to more than one reasonable interpretation, at least one of which is inaccurate.” This objective standard is designed to protect both gullible and shrewd consumers, while at the same time shielding debt collectors from liability for unreasonable interpretations of collection notices. In Avila, the Court had reasoned that a consumer could pay the balance on the notice, thinking she was paying in full satisfaction, only to later learn that accruing interest and fees prevented that from being a full payment of the debt. This made the notice misleading.
However, the Court in Avila explained that a debt collector was not subject to liability for failure to disclose interest and fees if the notice (1) informed the consumer that the balance of the debt in the letter will increase over time or (2) clearly states that the holder of the debt will accept payment of that balance in full satisfaction of the debt if made timely. Finding that the collection notice at issue satisfied condition (2) above, the Court ruled that such notice presented no risk that a debtor might pay the listed balance only to find herself still owing more. Rather, as stated in the notice, such payment would fully satisfy the debt, eliminating the possibility of further debt to pay. Nothing was misleading about the statement, nor could it be misconstrued.
In a more general statement, the Court ruled that “section 1692e does not require that a collection notice anticipate every potential collateral consequence that could arise in connection with the payment or nonpayment of a debt.” The notice at issue was not deceptive, leading to reversal.
It is somewhat surprising to me that the district court here thought the holding in Avila required more disclosures in the notice at hand. The second condition for relief from liability articulated by the Court there fits this exact circumstance, where the notice said if you pay by [a date certain under three alternative scenarios], the debt will be settled. As the Court concluded, this sole interpretation was accurate and even the least sophisticated consumer would not be confused. That the matter needed to be clarified by the Circuit Court is instructive on how broadly the district courts will construe FDCPA claims in favor of debtors, and against debt collectors, which is consistent with the policies behind the Act. Debt collection agencies would be well served to run by their legal counsel any anticipated payment solicitation before sending it to a consumer.
This article was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. Cal., ret.), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.