By Nicole D. Prysby, J.D.
Because a debt collector received and read letters sent from a legal clinic on behalf of debtors that stated that the debt amount reported was "not accurate," the debt collector violated the Fair Debt Collection Practices Act when it subsequently communicated the debts to credit reporting agencies without noting that the debts were disputed, held the federal Seventh Circuit Court of Appeals. The court affirmed summary judgment for the debtors, rejecting the argument from the debt collector that the debtors had no standing, as the debtors suffered a real risk of financial harm. The court also found that the letters to the debt collector qualified as raising a dispute, even though they did not use the word "dispute." The court also rejected the debt collector’s argument that it was entitled to a "bona fide error" defense. Because the debt collector received and read the letters but allegedly believed they did not constitute a dispute, the mistake was a mistake of law, not fact (Evans v. Portfolio Recovery Associates, LLC, May 2, 2018, Flaum, J.).
Background. The cases involved four debtors who defaulted on their credit cards. A debt collection agency bought the accounts for collection. A legal clinic sent letters on behalf of each debtor to the debt collector, stating that the amount of the reported debt was not accurate. After receiving the letters, the debt collector reported each debt to credit reporting agencies without noting that the debt was disputed. The debt collector admitted that it received the letters, but asserted that it did not believe the letters communicated disputes. Each debtor filed a lawsuit against the debt collector for violations of the FDCPA, alleging that the company communicated their debts to credit reporting agencies without indicating that the debts were disputed. The district courts granted summary judgment to the debtors, and the cases were consolidated for the appeal by the debt collector.
Standing. The debt collector argued that the debtors had no standing because they did not suffer an injury in fact. The court disagreed, finding that the failure to report that the debts were disputed caused the debtors real risk of financial harm, because an inaccurate credit report produces a variety of negative effects. And, the debtors had specifically alleged a risk of concrete harm by pointing to the potential effects of credit reporting agencies lowering their credit scores.
Communication of a disputed debt. The court also rejected the debt collector’s argument that the letters did not qualify as raising a dispute about a debt. While the statute does not define "dispute," under the plain meaning of the word ("called into question"), the letters disputed the debt because they stated that "the amount reported is not accurate." Although the letters did not use the word "dispute," they were not required to do so. And the fact that "disputed debt" is defined in the FDCPA with respect to cessation of debt collection is irrelevant to the FDCPA provision regarding debt reporting. The court also rejected the argument that a violation depends on whether the dispute is valid, finding that the FDCPA provides that a violation occurs when a debtor makes it clear that he or she disputes the debt; there is no requirement that the dispute be reasonable.
Materiality. The debt collector also argued that even if it had technically violated the FDCPA, the violation was immaterial. But the court found that any materiality requirement about a misleading communication only applies with respect to communications made to consumers, not to credit reporting agencies. In other words, if a debt collector makes a false statement to a consumer, it must be material to violate the FDCPA. But if the debt collector decides to communicate credit information about a consumer to a credit reporting agency, it must not omit a piece of information that is always material—namely, that the consumer has disputed the debt.
Bona fide error. Finally, the court rejected the debt collector’s argument that it was protected from liability because it did not intend to violate the FDCPA or ignore a dispute. Under the FDCPA, the burden was on the debt collector to show that the violation resulted from an error and was not intentional, and that it maintained procedures reasonably adapted to avoid such errors. Crucially, the bonafide error defense only applies to errors of fact, not as a result of the debt collector incorrectly interpreting the statute. A fact mistake (for example, if the debt collector had misplaced the letters or not read them) might provide the basis for a bonafideerror defense. But in this case, there was a mistake of law because the debt collector did not believe that the language of the letter constituted a dispute under the FDCPA.
The consolidated cases are Nos. 17-1773, 17-1860, 17-1866, 17-2622, 17-2756, and 18-1374.
Attorneys: Bryan Paul Thompson (Wood Finko & Thompson PC) for Katherine Evans. David M. Schultz (Hinshaw & Culbertson LLP) for Portfolio Recovery Associates, LLC.
Companies: Portfolio Recovery Associates, LLC
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