Collection Letter That Failed to State Interest or Fees No Longer Accruing Does Not Violate FDCPA

On May 18, 2017 a federal judge in New York ruled that a debt collector did not, as a matter of law, violate the Fair Debt Collection Practices Act (FDCPA) because its letter to the consumer “did not specifically state that interest or fees had stopped accruing on the account.” The case is Taylor v. Financial Recovery Services, Inc. (Case No. 15-4685, U.S.D.C Southern District of New York). A copy of the court’s opinion and order can be found here. 

Background 

In 2010 plaintiff Christine Taylor opened a credit card account, which she used to buy personal and household items. After she defaulted on her credit card payments in 2015, the balance due on her credit card statement increased each month due to interest and fees. 

In March 2016, the First National Bank of Omaha, which owned Taylor’s credit card debt, referred her account to Financial Recovery Services, Inc. (FRS) for collection. FRS sent Taylor three letters approximately one month apart regarding her credit card debt. None of the letters refers to interest or fees. 

FRS’s first letter to Taylor, dated March 8, 2016, states the amount $599.98 six times on the one-page document. The upper right hand corner contains information about the debt, including “AMOUNT DUE AS OF CHARGE-OFF: $599.98” and “BALANCE DUE: $599.98.”

The second and third letters, dated April 12 and May 10, 2016, respectively, each state the amount $599.98 multiple times. Like the first letter, both again say in the upper right corner “BALANCE DUE: $599.98.” The letter elaborates, “This settlement may have tax consequences. Please consult your tax advisor.” 

Plaintiff Christina Klein obtained a credit card from Barclays Bank (“Barclays”), which she used to make purchases for personal or household use. Around the beginning of 2014, she defaulted on her payments to Barclays. Klein attests that every month that she did not make a full payment, interest and late fees were added to the balance on her Barclays credit card statement. 

In October 2015, Barclays referred Klein’s account to FRS for collection. FRS sent Klein four letters, approximately one month apart regarding her credit card debt. None of the letters refers to interest or fees. 

FRS’s first letter to Klein, dated October 2, 2015, states in the upper right corner, “AMOUNT DUE AS OF CHARGE OFF: $3171.12” and “BALANCE DUE: $3171.12.” FRS also sent Klein letters in November 2015, December 2015 and January 2016. These subsequent letters state in the upper right corner “BALANCE DUE: $3171.12.”

The plaintiffs sued FRS under the FDCPA alleging that FRS violated 15 U.S.C. § 1692e, alleging that the letters were misleading as to whether or not each Plaintiff’s debt was accruing interest or fees. Count Two then claimed that the letter sent to Taylor violated 15 U.S.C. § 1692e, § 1692e(2)(A), § 1692e(5) and § 1692e(10) based on the sentence, “This settlement may have tax consequences,” alleging that it gives the misimpression that FRS would report the settlement to the IRS. The parties cross-move for summary judgment on both counts.

Editor’s Note: A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. The summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial. 

The Court’s Opinion 

Count One -- Lack of Statements Regarding Interest 

The court granted Summary judgment is granted in favor of FRS on Count One “because the letters’ failure to state that interest or fees had stopped accruing does not violate § 1692e as a matter of law.” 

In discussing this issue the court wrote (citations omitted) : 

“Pursuant to § 1692e, “[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” Whether a collection letter violates § 1692e “is determined from the perspective of the objective ‘least sophisticated consumer.” The “least sophisticated consumer” is a “naïve” and “credulous” person who possesses a “rudimentary amount of information about the world and a willingness to read a collection notice with some care.” “Under this standard, a collection notice can be misleading if it is open to more than one reasonable interpretation, at least one of which is inaccurate.” 

FDCPA protection, however, “does not extend to every bizarre or idiosyncratic interpretation of a collection notice[,] and courts should apply the standard in a manner that protects debt collectors against liability for unreasonable misinterpretations of collection notices.” 

Because the least sophisticated consumer standard requires an objective inquiry, it “may be applied as a matter of law and thus is an appropriate issue for disposition on a motion for summary judgment.”

The collection notices are not false, misleading or deceptive as a matter of law. First, Plaintiffs have failed to adduce evidence that the amount stated as due from each Plaintiff is factually inaccurate. The evidence shows that, at the time the debts were referred to collections, Plaintiffs owed $599.98 and $3171.12 respectively and that these amounts remained unchanged during the period the letters at issue were sent. 

Second, the statements of the amount due are not misleading or deceptive. By their terms, the letters neither state nor imply that interest or fees are accruing. Similarly, each successive letter states the same amount due as the prior letter. If anything, the letters imply that interest was not accruing. This is not a situation where the consumer was invited to call to obtain the most current balance, which might suggest that interest was accruing.

Only a consumer in search of an ambiguity, and not the least sophisticated consumer relevant here, would interpret the letters to mean that interest was accruing. Because the letters are not susceptible to more than one reasonable interpretation on the subject of interest or the amount due, they are not false, deceptive or misleading in this regard.” 

Count Two -- Statements Regarding Tax Consequences 

The court also ruled that “FRS’s statement in the Taylor letters that the “settlement” for less than the balance due “may have tax consequences” does not violate § 1692e as a matter of law.” 

On this issue the court wrote (citations omitted): 

“First, as Plaintiffs concede, the statement accurately states the law; a settlement would constitute a discharge of indebtedness, which the tax payer may be required to report regardless of amount, and which may result in taxable income. 

Second, courts that have addressed identical language to that in FRS’s letters have found the statement to be accurate, and held it to be otherwise non-actionable under § 1692e.” 

insideARM Perspective 

insideARM contacted FRS and the attorney that handled this case for comment. John Rossman, Attorney at Law with Moss & Barnett, provided the following reaction:

“These cases are being filed en masse in New York – similar to the wave of lawsuits on the envelope issue after the Douglass case a few years ago – and Taylor is the first definitive decision on the issue.  The decision follows a common sense approach and reading of the Avila decision.  The Plaintiffs appealed the ruling in Taylor to the Second Circuit Court of Appeals and we expect that the appellate court will affirm this ruling while we anticipate all of the other pending cases on this issue will likely be stayed.” 

This is a very positive result that may stem the tide referenced by Mr. Rossman.

insideARM has previously written about other cases involving the FRS and the statement regarding tax consequences. See our article on the Remington case here and our article on the Everett case here. Also, insideARM published a podcast on the issue recently. Click here to listen to the podcast.  

Finally, while this is a positive result for the ARM industry, tomorrow we will be publishing an article on another case from Missouri where the court did not grant summary judgment on the interest accrual issue. That case is Mygatt v. Medicredit, Inc. (Case No. 15-1947, US. D.C., Eastern District of Missouri).  In that case the court ruled that the matter was not clear as a matter of law and “defers to a factfinder to determine whether Medicredit violated the FDCP A.” 

However, Mygatt has some distinguishing facts.  Still the cases and stories should be considered together.