Recently, the United States Court of Appeals for the Second Circuit vacated the dismissal of a complaint alleging a violation of 15 U.S.C. § 1692e when a debt collector that notified consumers of their account balance failed to disclose that the balance may increase due to interest and costs. Avila v. Riexinger, 2016 WL 1104776 (2d Cir. March 22, 2016). The Second Circuit oversees Connecticut, New York, and Vermont.
§ 1692e provides that a debt collector “may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” In Avila, because the collection notices stated the current balance but did not disclose the balance was continuing to accrue interest or that if debtors did not pay within a certain amount of time they would be charged a late fee, the Court found that the least sophisticated consumer could be misled into believing she could pay her debt in full by paying the amount in the notice even though if not paid until a later date there could be interest and fees added.
Avila followed the “safe harbor” approach adopted in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, L.L.C., 214 F.3d 872 (7th Cir. 2000). The Seventh Circuit covers Illinois, Indiana and Wisconsin. In Miller, involving the § 1692g(a)(1) “debt validation notice”, the notice stated only the unpaid principal balance and added that it did not include unpaid interest and fees. The notice violated § 1692g(a)(1) because stating only the principal balance was not “the [full] amount of the debt”. Judge Posner fashioned the following “safe harbor” statement (or similar language) debt collectors may use to comply with the section:
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].
Avila at *4, citing Miller at 876.
Federal district courts in Virginia have taken a different approach. In Kelley v. Nationstar, 2013 WL 5874704 (E.D. Va. October 31, 2013), the court considered the Miller “safe harbor” statement to be dicta (not part of the formal holding of the case) and concluded that stating the full amount of the debt as of a specific date, or as of the date of the letter, satisfied § 1692g(a)(1), noting the Fourth Circuit had not interpreted this section of the Act. “Nationwide's (sic) FDCPA Letter reads: “Your total debt as of 10/15/12 is $202,197.63.” If Nationstar had stopped with this sentence, it would have satisfied § 1692g(a)(1).” Kelley, at *5. Unfortunately for Nationstar, its debt validation letter also included an itemization of principal, interest, fees and expenses that did not add up to the statement of the total amount of the debt. Denying Nationstar’s motion to dismiss, the court found that the notice was confusing to the “least sophisticated consumer” because it was susceptible to two alternative interpretations of the amount of debt owed on the account.
Unhelpfully, the court also observed that Nationstar’s debt validation notice included the statement: “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”, but in its decision made no further reference to this language being either necessary or superfluous with respect to compliance with § 1692(a)(1).
The decision in Kelley found favor in Davis v. Segan, 2016 WL 254388 (E.D. Va. January 19, 2016). “The court in Kelley acknowledged the difficulty in conveying an amount due on a future date “[b]ecause of the nature of loans with daily compounding interest charges, in order to state the correct amount of the debt, the debt collector must state it as of a specific day.” Kelley, 2013 WL 5874704, at *5. “[A] collection letter which states either the amount due as of the date of the letter or as of a specific date is in compliance with § 1692g.” Id. (citation omitted).” Davis, at *3.
To remain compliant with FDCPA it is important that debt collectors track developments in the jurisdiction in which they do business or practice law, and be mindful that a decision in one circuit or district court may not be adopted – indeed may be rejected - in another.