Second Circuit Seeks to Provide Clarity as to Interest Disclosure

Last week, the Second Circuit attempted to clarify its position emanating from its decisions in Avila v. Riexinger & Assocs, 817 F.3d 72 (2^nd Cir. 2016) and Carlin v. Davidson Fink LLP, 852 F.3d 207 (2^nd Cir. 2017).  Taylor v. Financial Recovery Services, Inc., No. 17-1650 (2^nd Cir. Mar. 29, 2017).  In Taylor, the issue before the court was whether a collection notice violates 15 U.S.C. §1692e when it fails to disclose that interest or fees are not currently accruing on a debt.  The court held that it did not.

In Taylor, the creditor instructed the debt collector not to accrue interest of fees on the debts at issue.  Each letter the debt collector sent, therefore, disclosed the same static balance.  None of the notices provided a statement disclosing whether those balances were accruing fees or interest and unrebutted evidence reflected that neither debt accrued interest or fees while placed with the debt collector. 

The consumers filed suit alleging that the debt collection letters violated §1692e and were false, deceptive or misleading and arguing that the court’s prior holding in Avila should be expanded. In Avila, the collection letter disclosed the “current balance” of the debt, but did not disclose that after the date of the collection letter, the account was continuing to accrue interest and late fees.  Avila, 817 F.3d at 75-76.  The Second Circuit held that because the collection notice “did not disclose that the balance might increase due to interest and fees,” it was a “deceptive [or] misleading representation” of the amount due under the general prohibition of 15 U.S.C. § 1692e.  Id.

Dismissing the consumers’ argument that a debt collector commits a per se violation of §1692e when it fails to disclose if interest or fees are accruing on a debt, the court declined to expand its holding in Avila and explained that, quite simply, the cases were factually dissimilar.  

In Avila, the collection notice was misleading because “’[a] reasonable consumer could read the notice and be misled into believing that she could pay her debt in full by paying the amount listed on the notice,’ whereas, in reality, such a payment would not settle the debt.  The debt collector could still seek the interest and fees that accumulated after the notice was sent but before the balance was paid.”  Taylor, Slip Op. at 5.  Moreover, in Avila, the damage was not theoretical, but in fact, one of the consumers had paid the stated balance of the debt only to find herself still obligated to pay a remaining balance with accruing interest.   In contrast, in Taylor, no interest or fees accrued while the account was assigned to the debt collector and had the consumers paid the balance reflected on the collection notices (which they didn’t), it would have paid the account in full.  In short, the statements were accurate and no harm befell the consumer.  “The difference is that, while the message was prejudicially misleading on the facts of Avila, on the facts of this case it was accurate: prompt payment of the amounts stated in Taylor’s … [notice] would have satisfied their debts.”  Id. at p. 6.

The court also went on to make the practical observation that had the debt collector informed the consumer that interest or fees were not accruing, the consumer would have been alerted to the fact that they could delay payment without their debt increasing.  “It is hard to see how or where the FDCPA imposes a duty on debt collectors to encourage consumers to delay repayment of their debts.”  Id.

The court also reconciled its decision in Avila, which reviewed collection notices under Section 1692e, with Carlin which reviewed a collection notice under Section 1692g.  Importantly, the court stated:

[I]f a collection notice correctly states a consumer’s balance without mentioning interest or fees, and no such interest or fees are accruing, then the notice will neither be misleading within the meaning of Section 1692e, nor fail to state accurately the amount of the debt under Section 1692g.  If instead the notice contains no mention of interest or fees, and they are accruing, then the notice will run afoul of the requirements of both Sections 1692e and Section 1692g.

Id. at pp. 7-8. 

The decision is good news for debt collectors. Since the Second Circuit’s opinion in Avila, numerous suits have been filed seeking to use Avila to support the proposition that it is a violation of the FDCPA to fail to disclose interest is not accruing.  The Court’s decision in Taylor should help quell those suits, as well as reflecting a pragmatic approach to interest disclosures which should prove helpful to debt collectors litigating this issue in other circuits.