On March 22, the United States Court of Appeals for the Second Circuit vacated a district court's dismissal of a Fair Debt Collection Practices Act ("FDCPA") complaint, finding instead that the plaintiffs had adequately stated a claim for relief under Section 1692e of the FDCPA.
In Avila v. Riexinger & Associates, LLC, Plaintiffs both received collection notices from Defendant, which stated each Plaintiff's "current balance" but did not disclose that this balance was continuing to accrue interest or that, if Plaintiffs failed to pay the debt within a certain amount of time, they would be charged a late fee. Plaintiffs claimed that they believed from reading the notice that the "current balance" was "static" and that their "payment of that amount would satisfy [the debt] irrespective of when [the] payment was remitted." In reality, however, the interest was allegedly accruing daily at a rate equivalent to 500% per year. Plaintiffs filed suit, arguing that Defendants violated the FDCPA by sending Plaintiffs a collection notice stating their "current balance" without disclosing that the balance might increase over time due to interest and fees.
The district court granted Defendant's motion to dismiss, recognizing that district courts are divided on the question of whether a debt collector must disclose that the amount of the debt will increase over time due to interest or fees. The Second Circuit, however, held "that section 1692e of the FDCPA requires debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees. Because plaintiffs allege that defendants failed to disclose that information here, they have stated a claim under the FDCPA."
The Court additionally adopted the "safe harbor" approach as fashioned by the Seventh Circuit in Miller v. McCalla, Raymer, Padrik, Cobb, Nichols & Clark, LLC. The Miller Court held that if a debt collector includes the following provision, it will have discharged its duty as a matter of law to state clearly the amount due:
As of the date of this letter, you owe $___ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1-800-[phone number].
Like the Miller court, the Second Circuit did not hold that debt collectors must use any particular disclaimer, but rather only held that the quoted language above will qualify for safe-harbor treatment.
The Troutman Sanders' Consumer Financial Services Law Monitor blog offers timely updates regarding the financial services industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business. To view the blog, click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.