The “Least Sophisticated Debtor” Is Getting More Sophisticated, And Has An Improved Memory Too

When collectors get sued in an FDCPA action, they face a steep uphill battle.  Courts apply the very pro-consumer “least sophisticated debtor” standard when evaluating a collector’s communications, and most violations of the Act are “strict liability” – meaning the debtor can win the case without proving the collector intended to violate the statute.  Recently, however, the “least sophisticated debtor” seems to have gotten more sophisticated, and his memory about his account and his past communications with the collector has improved.

Courts have gradually demanded more of the “least sophisticated debtor” and have rejected suits based on hypertechincal misstatements and strained interpretations of the Act.[1]  Even when a collector’s statement is false or misleading, it must also be “material” or it does not violate the FDCPA.[2]  And in a significant recent trend, courts have insisted that the challenged communication cannot be considered in a vacuum.  Even though the “least sophisticated debtor” standard is objective, that hypothetical debtor is charged with knowledge of the account’s history, and the communication at issue must be considered in the context of all other communications made to the plaintiff regarding the debt. [3]

A striking example of this trend is the Ninth Circuit’s decision in Davis v. Hollins Law Firm, _F.3d _, 2016 WL 4174747 (9th Cir. Aug. 8, 2016).  There, the collection law firm defendant communicated with plaintiff on a number of occasions, and each time the firm identified itself as a “debt collector,” as required by section 1692e(11) of the FDCPA.  Id. at *2.  In a subsequent voice mail message, however, the defendant’s employee stated only “Hello, this is a call for Michael Davis from Gregory at Hollins Law. Please call sir, it is important, my number is 866-513-5033. Thank You,” without specifically reciting he was a “debt collector.”  Id. at *3.  Although the trial court felt this was only a “de minimus” violation of section 1692e(11), it entered judgment in favor of Davis.  Id.  On appeal, the Ninth Circuit reversed.

The Court observed that the overarching purpose of the FDCPA “is to prevent debt collection actions that frustrate consumers’ ability to chart a course of action in response to a collection effort.”  Id. at *1.  The Court applies “an objective standard” to decide whether the “least sophisticated debtor” would be misled by the communication.  Id. at *4.  The standard presumes “that the debtor has a basic level of understanding, which does not include bizarre or idiosyncratic interpretations of the communication at issue.  We also must avoid taking a hypertechnical approach.”  Id. (citations, quotation marks omitted).

The Court emphasized that while the “least sophisticated debtor” standard protects consumers, it must be interpreted in a way that protects collectors from “bizarre or idiosyncratic” interpretations of collection communications.  The Court stated: “Even though the least sophisticated debtor may be uninformed, naive, and gullible, the debtor’s interpretation of a collection notice cannot be bizarre or unreasonable.  Courts have carefully preserved the concept of reasonableness and have presumed that debtors have a basic level of understanding and willingness to read [the relevant documents] with care in order to safeguard bill collectors from liability for consumers’ bizarre or idiosyncratic interpretations of collection notices.”  Id. at *1. (citations, quotation marks omitted).

In addition, a collector’s statement must be “material” in order to be actionable under the FDCPA.  Id. at *2.  This means a false or misleading statement does not violate the FDCPA, unless it also frustrates the ability of the consumer to intelligently choose an appropriate response.  “Immaterial errors, by definition, would not frustrate a debtor’s ability to intelligently choose an appropriate response to a collection effort.”  Id.

With this in mind, the Ninth Circuit concluded the failure to expressly state the voicemail was from a “debt collector” did not violate section 1692e(11).  Significantly, the Court noted that “given the extent of the prior communications” between Davis and the law firm, and given “the context,” the voice mail message complied with the Act: “We conclude, given the extent of the prior communications, that the voicemail message’s statement that the call was from “Gregory at Hollins Law” was sufficient to disclose to a debtor with a basic level of understanding that the communication at issue was from a debt collector.  Indeed, any other interpretation of Daulton’s voicemail message would be bizarre or idiosyncratic. Given the context, the call was not false, deceptive, or misleading, and would not frustrate consumers’ ability to intelligently chart a course of action in response to a collection effort.  Although Daulton’s voicemail message did not expressly state that Hollins Law is “a debt collector,” § 1692e(11) does not require a subsequent communication from the debt collector to use any specific language so long as it is sufficient to disclose that the communication is from a debt collector, as it was here.”  Id. at *4.

The decision in Davis continues an encouraging new trend for collectors.  Consumers cannot simply pluck a single communication out of a series of interactions with a collector and argue that, when read in isolation, a minor misstatement contained in it would be confusing to the least sophisticated debtor.  Rather, the challenged communication must be materially false or misleading when evaluated in the context of the entire account history and all prior communications relating to the debt.

^[1] See, e.g, Wahl v. Midland Credit Mgmt., Inc.,556 F.3d 643, 645 (7th Cir. 2009) (“The unsophisticated consumer isn’t a dimwit.  She may be uninformed, naive, and trusting, but she has rudimentary knowledge about the financial world and is capable of making basic logical deductions and inferences.”) (citations and internal quotations marks omitted); Campuzano-Burgos v. Midland Credit Mgmt., Inc., 550 F.3d 294, 299 (3d Cir. 2008) (“Even the least sophisticated debtor is bound to read collection notices in their entirety.”); Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360, 363 (2d Cir. 2005) (“[E]ven the least sophisticated consumer can be presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care.”) (citations and internal quotation marks omitted).

^[2] See, e.g.,  Donohue v. Quick Collect, Inc., 592 F.3d 1027, 1034 (9th Cir. 2010); Hahn v. Triumph Partnerships LLC, 557 F.3d 755 (7th Cir. 2009) (letter that accurately stated total amount due did not violate §§ 1692e or e(2)); Wahl, 556 F.3d at 646 (“If a statement would not mislead the unsophisticated consumer, it does not violate the FDCPA – even if it is false in some technical sense.”); Miller v. Javitch, Block & Rathbone, 561 F.3d 588, 596 (6th Cir. 2009).

^[3] See Wahl, 556 F.3d at 645-46 (the “unsophisticated consumer, with a reasonable knowledge of her account’s history, would have little trouble concluding that the ‘principal balance’ included interest charged by [the original creditor].”); McNair v. Maxwell & Morgan, P.C., 142 F. Supp. 3d 859, 871 (D. Ariz. 2015) (“ The least sophisticated debtor is charged with a reasonable knowledge of both communications between the debtor and the debt collector, and the account’s history.”) (citations omitted); Goodrick v. Cavalry Portfolio Services, LLC, 2013 WL 4419321 (D. Ariz. Aug. 19, 2013) (“[E]ven the most unsophisticated debtor would not have been confused by Defendant’s failure to say that Plaintiff’s longstanding loan was continuing to accrue interest.”).