Banking and Finance Law Daily Debt collector could demand interest after debt was written off, before sale
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Monday, June 22, 2020

Debt collector could demand interest after debt was written off, before sale

By Colleen M. Svelnis, J.D.

The 7th Circuit held that the district court properly dismissed a case involving a demand letter that asked for payment of interest accruing during the months between a debt being written off by the debt owner and the sale of the debt.

The U.S. Court of Appeals for the Seventh Circuit has affirmed a decision by the U.S. District Court for the Northern District of Illinois in dismissing a suit by Ricardo and Debora Gomez that claimed debt collection agency Cavalry Portfolio Services violated the Fair Debt Collection Practices Act by demanding interest on an unpaid debt covering the months between when the bank wrote off the debt and the debt sale. 15 U.S.C. §1692e prohibits false, deceptive, or misleading representations in collection of debt. The court found that the suit was timely and the demand for payment was not "false or misleading" as required under the statute (Gomez v. Cavalry Portfolio Services, LLC, June 19, 2020, Easterbrook, F. Circuit Judge.).

The original unpaid debt was $3,226.35. During 2013, Cavalry sent two letters seeking payment of about $5,800, of which roughly $1,600 was interest for months after the bank gave up billing the Gomezes. In March 2014, Cavalry verified the debt to the Gomezes’ lawyer and stated that the balance due was $6,320.13. The Gomezes contended that, by demanding interest during the months between the bank’s decision to write off the unpaid credit card debt its sale to debt collector Cavalry Portfolio Services, Cavalry violated §1692e, which prohibits "any false, deceptive, or misleading representation in connection with the collection of any debt."

The district court had concluded that the bank had waived interest during the months after the charge-off—despite a non-waiver clause in the contract—by not sending monthly statements. But the judge ultimately dismissed the suit as untimely under the one-year period of limitations, stating that the two letters had been sent more than a year before the suit began.

The 7th Circuit disagreed that the suit was untimely. On the question of subject matter jurisdiction, some decisions of the 7th Circuit and other appellate courts have found, or assumed, that standing exists when the dunning letter allegedly violates §1692e. Instead, the court found that the suit was timely with respect to the third letter, which was sent in 2014 to the Gomezes’ lawyer. According to the opinion, "It was a stand-alone response to a demand for verification."

The court did not find that this third letter violated the FDCPA and disagreed with the Gomezes’ contention that it is "false" or "misleading" to seek any amount greater than a court eventually finds to be due, stating that it "lacks support in the statute." The court held that the Gomezes promised to pay interest, and Cavalry’s computer used the correct rate. Further, the opinion states that such a demand for payment "cannot be called ‘false’ just because, several years later, a judge disagrees with a legal argument supporting the debt collector’s calculation of how much is due. A statement is false, or not, when made; there is no falsity by hindsight." According to Easterbrook, all the 7th Circuit decisions in which a letter was deemed to have falsely stated the amount of the debt "dealt with errors known or readily knowable when the letter was sent."

Regarding a post-argument submission by the Gomezes, where they asserted that a debt collector must openly state the legal position behind its calculation, if it wants to avoid having being misleading, the court stated that they did not need to decide this issue because Cavalry sent the third letter to a lawyer, not to a "potentially credulous" debtor. The court found that the third letter "would not have misled a competent lawyer, who also would not deem ‘false’ a demand by a potential opponent in litigation just because counsel believes that his client may be able to persuade a judge that there is a defense."

The case is No. 14-cv-09420.

Attorneys: Daniel A. Edelman (Edelman Combs Latturner & Goodwin, LLC) for Ricardo A. Gomez and Debora Gomez. Anna-Katrina S. Christakis (Pilgrim Christakis LLP) for Cavalry Portfolio Services, LLC and Cavalry SPV I, LLC.

Companies: Cavalry Portfolio Services, LLC; Cavalry SPV I, LLC

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