Banking and Finance Law Daily Consumer’s FDCPA claims against debt buyer go forward
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Monday, June 4, 2018

Consumer’s FDCPA claims against debt buyer go forward

By Nicole D. Prysby, J.D.

A consumer’s Fair Debt Collection Practices Act claims against a debt buyer and debt collector for their attempts to collect legally unenforceable debts may go forward, held a federal district court in Pennsylvania. The court rejected the debt buyer’s argument that it was not a debt collector under the FDCPA, because the company’s business was purchasing defaulted debts. Therefore, the court found, it fit under the FDCPA "principal purpose" definition of debt collector. The court also found that the consumer had adequately alleged that the language in the debt collection letters was misleading and failed to communicate her rights to dispute the debts. The letters invited the debtor to settle the claims, which could mislead an unsophisticated debtor into believing that the creditor could enforce the debt in court. They also contained no statement reconciling the demand for immediate payment with the consumer’s rights to dispute the debt (Norman v. Allied Interstate, LLC, May 25, 2018, McHugh, G.).

Background. The consumer received two letters from a debt collector, each attempting to collect on an alleged debt from a debt buying company. The debt buyer had purchased the consumer’s debts to a third-party creditor, incurred approximately seven years prior. The consumer had defaulted on those debts and by the time the debt collector sent the collection letters, the statute of limitations had run on both debts, rendering them legally unenforceable. The consumer brought claims under the FDCPA against the debt collector and the debt buyer, alleging that the letters contained misleading representations in violation of 15 U.S.C. §1692e, which prohibits misleading representations. She also alleged violations of the protections and notice procedures in §1692g of the FDCPA. The debt collector and debt buyer moved for dismissal.

Debt buyer was a debt collector under FDCPA. The court first considered whether debt buyers who have acquired defaulted (and potentially time-barred) debts in order to collect upon them qualify as debt collectors under the FDCPA. The consumer argued that the debt buyer fell under the FDCPA’s definition of debt collector in §1692a(6) as "any business the principal purpose of which is the collection of any debts." The debt buyer asserted that as a debt buyer, it could not be a debt collector. The court reviewed the history of the issue, noting that recently, in Henson v. Santander Consumer USA Inc. (see Banking and Finance Law Daily, June 12, 2017), the U.S. Supreme Court determined that debt buyers did not necessarily fall under the alternate definition of a debt collector in the FDCPA (an entity that "regularly collects or attempts to collect, directly or indirectly, debts owed... [to] another"). The Henson Court expressly declined to decide whether debt buyers fall within the first definition of debt collector (the "principal purpose" definition). Since Henson, the majority of courts in the Third Circuit have held that Henson only applies to FDCPA claims brought under the "regularly collects" definition and not to claims brought under the "principal purpose" definition. The court concluded that it should join that majority, and found that the debt buyers can be debt collectors under the "principal purpose" definition of the FDCPA.

The court then turned to the classification of the debt buyer in this case, and determined that the buyer is a debt collector under the FDCPA. The consumer’s evidence on this point was limited but she alleged that debt collection was the principal purpose of the debt buyer and attached the debt collection letters, which stated that the debt was being collected on behalf of the debt buyer and that the debts were originated by third parties. It was undisputed that the debt buyer’s business was debt buying and the court took judicial notice of the fact that the debt buyer’s website described it as a buyer of consumer debt with no reference to any other commercial activity. The court rejected the debt buyer’s argument that it could not be liable under the FDCPA because it did not send the letters, stating that vicarious liability is permitted under the FDCPA, as long as both entities are debt collectors.

FDCPA violations. The debt collector and debt buyer also argued that the consumer had not pleaded a violation of the FDCPA. The consumer alleged that the debt collection letters were misleading in that unsophisticated consumers could be misled into thinking that the debt collector could legally enforce the debt. The specific language in the letter stated that the debt collector’s client "is interested in resolving" the account, would consider payment for less than the amount owed to satisfy the obligation, and asked the consumer to telephone the debt collector to "discuss potential settlement options." The court found that the use of the term "settlement," under Third Circuit precedent, is sufficient to mislead a debtor into believing that the creditor could enforce the debt in court. Therefore, the consumer had adequately alleged a violation of §1692e of the FDCPA.

As to the alleged violation of §1692g of the FDCPA—the dispute and verification and notice of rights requirements—the consumer argued that while the debt collection letters included the required information, it was overshadowed by the remainder of the letter. First, she pointed out that the required provisions were not in a separate font, set apart from the rest of the text of the letter. The court found that to be an insufficient allegation because a validation notice is not overshadowed merely because it is in the same font as the rest of the letter. But the court was persuaded by the consumer’s second argument, that the other language in the letter rendered the validation notice unclear. For example, the letter stated that checks to the debt collector would be debited immediately and the checks would not be returned. This statement overshadowed the validation notice because it would leave an unsophisticated consumer uncertain as to whether sending a payment would affect her dispute rights. Although a request for immediate payment does not necessarily overshadow a validation notice, where there is a contradiction between the payment request and the consumer’s dispute rights, the letter must contain language reconciling the two. In this case, the debt collector’s letter contained no reconciling language and, therefore, the consumer adequately alleged a violation of 15 U.S.C. §1692g.

The case is No. 2:17-cv-05181-GAM.

Attorneys: Michael P. Forbes (Law Office of Michael P. Forbes, PC) for Darla Norman. Laura K. Conroy (Reed Smith LLP) for Allied Interstate, LLC and LVNV Funding, LLC.

Companies: Allied Interstate, LLC; LVNV Funding, LLC

MainStory: TopStory ConsumerCredit DebtCollection PennsylvaniaNews

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