Banking and Finance Law Daily Incomplete balance due description violates consumer debt collection act
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Wednesday, March 23, 2016

Incomplete balance due description violates consumer debt collection act

By Richard A. Roth, J.D.

A debt collector’s dunning letter that specified a current balance but did not add that the balance would increase due to interest and fees would have made a “false, deceptive, or misleading representation” that violated the Fair Debt Collection Practices Act, the U.S. Court of Appeals for the Second Circuit has decided. The least sophisticated consumer could have been led to believe erroneously that paying the stated current balance at any time would satisfy the debt (Avila v. Riexinger & Assoc., March 22, 2016, Pooler, R.).

According to the proposed class action, the demand letter stated a specific amount as the “current balance,” but made no mention of possible additional interest or late fees. The consumers claimed this made them think the balance was fixed when it actually was growing. One of the consumers asserted that her account was accruing interest at a rate of 500-percent annually and that the debt collector had tried to collect the ever-increasing amount.

Misleading statement. Tested against the benchmark of the least sophisticated consumer, the failure to warn about ongoing interest and fees made the letter misleading, the court said. If a debt collector stated an account balance, it had to disclose that the balance could increase over time.

Safe harbor. Conceding that language about an ever-increasing balance could be used to coerce consumers into paying a claimed debt, the court told debt collectors they would be in a safe harbor if they used language created by the U.S. Court of Appeals for the Seventh Circuit more than 15 years ago. In Miller v. McCalla, Raymore, Padrick, Cobb, Nichols & Clark, L.L.C., the Seventh Circuit recommended telling consumers:

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].

An alternative that disclosed the specific rate of increase might be even better, the court added. Also, a debt collector could, if relevant, tell a consumer that payment of a specific amount by a set deadline would satisfy the debt, assuming the statement was true. In that case, however, the possibility of an increase after the date must be disclosed.

Debt collectors are not required to use any specific language, the court made clear. However, the described disclosure gave them a safe harbor—a guarantee that they would not be liable for misrepresenting the amount of the debt.

The case is No. 15-1584(L) and No. 15-1597(Con).

Attorneys: Philip D. Stern (Stern Thomasson LLP) for Annmarie Avila and Sara Elrod. William G. Ballaine (Landman Corsi Ballaine & Ford P.C.) for Riexinger & Associates, Crown Asset Management, LLC, Stephen P. Riexinger, and Bureaus Investment Group Portfolio No. 15.

Companies: Bureaus Investment Group Portfolio No. 15; Crown Asset Management, LLC; Riexinger & Associates

MainStory: TopStory ConnecticutNews DebtCollection NewYorkNews VermontNews

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