District Court Judge Expresses “Judicial Displeasure” with Language in Validation Notice, Finds Plausible Claim for § 1692g(a)(2) Violation, but not § 1692g(a)(1)

 

By: Landon G. Van Winkle

 

The U.S. District Court for the District of New Jersey recently expressed “judicial displeasure” with the language in a collection letter when it granted in part and denied in part a debt collector’s motion to dismiss a putative FDCPA class action for failure to state a claim. Hopkins v. Advanced Call Ctr. Techs., LLC, No. Civ. No. 20-06733 (KM)(ESK), 2021 WL 1291736, 2021 U.S. Dist. LEXIS 67732, at *18 (D.N.J. Apr. 7, 2021).  The plaintiff received a collection letter from the defendant Advanced Call Center Technologies, LLC (“ACCT”), seeking to collect a credit card debt owed to Synchrony Bank for a JCPenney store card. Id. at *1–2.

The letter disclosed that the “total account balance” was $347.48, and that the “amount now due” was $175.00. Id. at *1. It further advised:

“If the Amount Now Due is paid to Synchrony Bank and your account is brought up to date, we will stop our collection activity. All payments should be made directly to Synchrony Bank using the enclosed envelope. Do not send payments to this office.”

 Id. at *2. Finally, it contained a detachable payment slip instructing the plaintiff to mail his payment to “Synchrony Bank/JCPenney Credit Services.” Id.

The plaintiff alleged that the letter was “confusing” as it purportedly failed to contain the amount of the debt owed and the name of the creditor to whom the debt was owed in violation of 15 U.S.C. § 1692g(a)(1) and (2), respectively. Id. at *2. The plaintiff also claimed that the letter’s purported failure to identify the creditor was both a false, deceptive, or misleading representation and an unfair or unconscionable means to attempt to collect a debt, and thus violated § 1692e and § 1692f, respectively. Id. at *15–16. The plaintiff sought to represent a class of similarly situated consumers, and also sought relief against two officers of ACCT personally. Id. at *1.

ACCT moved to dismiss all four claims, as well as the claim against the officers personally, for failure to state a claim pursuant to Rule 12(b)(6). Id. Judge McNulty began with the first § 1692g(a)(1) claim, that the letter allegedly failed to inform the plaintiff of the amount of the debt. Id. at *4. In rejecting the plaintiff’s argument that the “amount now due” was ambiguous, the Court reasoned that “[t]he phrase ‘Now Due,’ even to an unsophisticated consumer, simply means that the debt collector is willing to accept less than the total balance of the debt to bring the account to a current status.” Id. at *4–5 (quoting Reynolds v. Encore Receivable Management, Civ. No. 17-2207, 2018 U.S. Dist. LEXIS 83902, at*14 (D.N.J. May 18, 2018)). The Court reinforced its conclusion that the amount due now was not ambiguous because the letter contained an explanation of the action ACCT would take if the “amount due now” was paid to Synchrony (the account would be current and it would stop collection activity). Id. at *5. While Judge McNulty felt “constrained by the case law to grant the motion to dismiss” as to the § 1692g(a)(1) claim, he nevertheless could not “close this discussion . . . without expressing some judicial displeasure at the creditor’s seeming reluctance to just come out and say what it means . . . .” Id. at *6. The Court suggested that the following language would have made the letter more straightforward:

“The total balance is $347.48. If you pay $175 now, we’ll stop collection activities, but you will still owe us the remaining balance of $172.48. ($347.48 minus $175 equals $172.48.) We’ll bill you for that remaining balance later.”

Id. at *6. The Court expressed further frustration at what it perceived was debt collectors’ “insistence on going right up to the line,” which it saw as producing “seemingly endless litigation, flyspecking the precise wording of collection letters, in cases which have come to take up a disproportionate share of the federal docket.” Id.

The Court then turned to the plaintiff’s § 1692g(a)(2) claim, which is based on the statutory requirement that a validation notice contain “the name of the creditor to whom the debt is owed.” 15 U.S.C. § 1692g(a)(2). The Court declined to dismiss this claim because “the [l]etter mentions ACCT, JCPenney, JCPenney Credit Services, and Synchrony Bank, but does not specify which entity is owed the money.” Id. at *7. As the Court explained:

“[W]hen the Letter gets to payment, it says that the amount due must be paid to Synchrony Bank. But who is Synchrony Bank and what do they have to do with my JCPenney card? Finally, the detachable payment slip is addressed to ‘Synchrony Bank/JCPenney Credit Services’ with one PO Box number. Are Synchrony and JCPenney Credit Services the same thing? Related? A joint venture? Just PO Box buddies? The Letter does not say, which means that a consumer cannot discern who owns the debt.”

 

Id. at *8-9. The Court similarly declined to dismiss the § 1692e and § 1692f claims, reasoning that the failure to identify the creditor to whom the debt was owed could also constitute a violation of one or both of those statutes, and that it was too early in the case to rule out the apparently plausible claims. Id. at 15–16. Finally, the Court held that the complaint plausibly alleged that the two officers named individually as defendants had exercised control over the actions of ACCT and thus could be held liable, relying on Police v. Nat’l Tax Funding, L.P., 255 F.3d 379, 405 n.29 (3d Cir. 2000) for the proposition that general partners of a partnership can be liable for the partnership’s FDCPA violations, and noting that other courts in the Third Circuit had expanded the notion to other entities beyond general partnerships. Id. at *16–17.

While it may be true, as observed by Judge McNulty, that there are a disproportionate number of FDCPA cases occupying the federal docket, it is not clear that this deluge of litigation is solely attributable to debt collectors “going right up to the line.” Id. at 6. In fact, it bears observing that the language suggested by the Court as the appropriate language for ACCT to “say what it means” and avoid any confusion under § 1692g(a)(1) might have actually created a separate violation of the FDCPA under § 1692g(a)(2). Specifically, using the pronoun “we” in lieu of the identity of the debt collector or the original creditor raises ambiguity about who will “stop collection activities” and to whom the “remaining balance” would still be owed. Perhaps ironically, this same ambiguity was sharply at issue in the Court’s analysis of the plaintiff’s § 1692g(a)(2) claim, which it declined to dismiss. Under the Court’s preferred verbiage, the language would be ambiguous because the letter was sent by ACCT, but instructed the plaintiff to remit payment to Synchrony Bank (thus under these facts, if the plaintiff made the payment, ACCT would have stopped collection activities, but the remaining balance would have been owed to Synchrony Bank, not to ACCT). One thing appears likely, however: As long as consumers can maintain federal lawsuits with a prospective recovery of $1,000 in statutory damages plus attorneys’ fees simply because they were “confused” by a collection letter, the “seemingly endless litigation” over the FDCPA is not likely to abate in the foreseeable future, particularly where, as here “flyspecking the precise wording of collection letters” reveals the practical difficulties in drafting collection letter language that both adequately informs the consumer of his or her rights without running afoul of the FDCPA.

Landon Van Winkle is an attorney in the firm's Consumer Financial Services Litigation and Compliance group.

Finding Shelter in the Storm: Using the Bona Fide Error Defense with the Final Debt Collection Rule

 By Caren D. Enloe

The FDCPA provides a bona fide error defense for debt collectors who can show by a preponderance of the evidence that their violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.  15 U.S.C. §1692k(c).  Historically, debt collectors have been judicious in its use.  While it is a powerful tool, it shines a bright light on a debt collector’s policies and procedures and therefore, the stakes are high.  If a debt collector’s policies are adjudicated to be lacking, it can expose the debt collector to liability not only in the present action, but potentially to a swarm of further litigation. On the other hand, if the debt collector can safely navigate the defense with robust policies and procedures, it may fend off the present action, as well as future litigation. 

With the enactment of the Debt Collection Rule, debt collectors now have a map as to certain best practices which can help them better inform their policies and procedures. Assuming they mold their actions to comply with the same, the Rule may now provide a more effective shield in actions under the FDCPA.  Scattered throughout the Rule like little nuggets of gold, the CFPB has provided safe harbors which, when coupled with the bona fide error defense, should allow savvy debt collectors to better take advantage of the bona fide error defense. This article examines these nuggets which, if incorporated into a debt collector’s policies and procedures, may provide an effective bona fide error defense.

Limited Content Messages.  “Limited Content Messages” are a new concept introduced by the Rule in its definitional section (1006.1) and are intended to provide a safe way for debt collectors to leave non-substantive messages for a consumer requesting a return call while not inadvertently disclosing the debt to third parties.  The Rule and its Comments make clear that Limited Content Messages are not communications regarding a debt.  To qualify as a Limited Content Message, the message must be left by voice mail and only contain the specified limited content set forth explicitly in Section 1006.1(j). A Limited Content Message can only include: (a) a business name for the debt collector that does not indicate that the debt collector is in the debt collection business; (b) a request that the consumer reply to the message; (c) the name or names of one or more natural persons whom the consumer can contact; (d) a telephone number or numbers the consumer can use to reply to the debt collector; and (e) certain very limited and specified optional content.  Communications are distinguished as they convey information regarding a debt.

While not a per se safe harbor, the Rule’s Official Comments contain sample scripts which, if used, would comply with the Rule.  Using those scripts, therefore, may provide an implied safe harbor. Debt collectors should consider incorporating these scripts into their best practices to help mitigate risk with respect to 15 U.S.C. §§1692c and 1692e(11).    See, e.g., Comment 2(j)(1)-1; Comment 2(j)(2)-2.

Electronic Communications. As a general notion, the Rule provides a general road map for compliance with the FDCPA with respect to electronic communications in Section 1006.6.  Specifically, the Rule sets forth specific procedures which, if followed (including provisions for consumer opt outs), provide the debt collector with a safe harbor with respect to electronic communications and unintentional third party electronic communications. 

The Rule allows for the use of email and text message communications and sets forth procedures which provide the debt collector with a safe harbor if followed.  Specifically, Section 1006(d)(4) allows for email communications to the consumer: first, by allowing the use of an email address the consumer has either used to communicate with the debt collector (and has not subsequently opted out) or the consumer has provided prior express consent to use and second, by allowing an email address used previously by the creditor or a prior debt collector subject to certain limitations and conditions.  Section 1006(d)(5) allows for text messaging subject to similar conditions.  Additionally, the Official Comments contain sample language for opt out notices where, if used, are likely to provide an implied safe harbor.  See, e.g., Comment 6(d)(4)(ii)(C)-2)(i) – (ii); Comment 6(e)-1(i)-(ii). Debt collectors contemplating the use of electronic communications should incorporate these into their policies and procedures to mitigate risk.

Unintentional Third Party Communications. On a related note, what happens when the communication is received by an impermissible third party? Section 1006.6(d)(3) provides a bona fide error defense in those instances where the debt collector can satisfy two conditions.  First, there must be procedures in place to reasonably confirm and document that the communications complied with 1006.6(d)(4) or (5) (see above discussion).  Secondly, the debt collector’s procedures must include steps to reasonably confirm and document that the debt collector did not communicate with the consumer at an email address or telephone number that the debt collectors knows has led to an impermissible third party communication. Moreover, Section 1006.22(g) provides a safe harbor under 15 U.S.C. §1692f for emails and text messages which are sent in accordance  with 1006.6(d)(3) that reveal the debt collector’s name or other information indicating the communication relates to the collection of a debt.

Time and Place. With the advent of new technologies, preventing communications at a time and place which is known or should be known to be inconvenient has become challenging for debt collectors.  The Rule attempts to address these challenges in Section 1006.6 and its Official Comments.  Section 1006.6 provides that an inconvenient time for communication with the consumer is before 8:00 AM and 9:00 PM local time at the consumer’s location.  The Official Comments then provides a safe harbor and guidance as to how to handle conflicting or ambiguous information regarding a consumer’s location.  In those instances and in the absence of knowledge to the contrary, Comment 6(b)(1)-2 provides that the debtor collector complies with the Rule (specifically, 1006.6(b)(1)(i)) if the debt collector communicates or attempts to communicate with the consumer at a time that would be convenient in all of the locations at which the debt collector’s information indicates the consumer might be located. 

Call Frequency. Section 1692d(5) of the FDCPA prohibits a debt collector from causing a telephone to ring and from engaging a person in telephone conversations repeatedly or continuously with the intent to annoy, abuse, or harass. Section 1006.14 establishes a bright line by placing numeric limitations on the placing of telephone calls.  In doing so, the Rule creates presumptions of compliance and violation. While not a safe harbor per se, Section 1006.14 creates a presumption of compliance with 15 U.S.C. §1692d(5) where the debt collector complies with the call limitations set forth in §1006.14(b)(2).  Of course, this will require documentation of policies and procedures which set forth frequencies consistent with the Rule’s requirements.

Debt Validation Notice. Section 1692g of the FDCPA requires debt collectors provide consumers with a validation notice which includes the name of the creditor, the amount of the debt and the disclosure of certain statutorily prescribed consumer protection rights. Section 1006.34 of the Rule reinvents the Debt Validation Notice by requiring significantly more robust disclosures. These disclosures fall roughly into three categories: (a) information to help consumers identify the debt; (b) information about consumer protections; and (c) information to help consumers exercise their rights, including a tear off dispute form with prescribed prompts.

The Rule provides safe harbors for compliance with the information and form requirements set forth in Section 1006.34(c) and (d)(1) for debt collectors who use the model validation notice, specified variations of the same, or a substantially similar notice.  Additionally, debt collectors using the model validation notice are provided with a safe harbor as to 15 USC §1692g(b)’s overshadowing prohibition.  See 1006.38(b).  Further, assuming the debt collector does not receive a notice of undeliverability, Comment 42(a)(1)-3 makes clear that a debt collector has sent the required disclosures for purposes of the Rule if the debt collector mails a printed copy of any required disclosures to a consumer’s last known address unless the debt collector, at the time of mailing, knows or should know that the consumer does not currently reside at, or receive mail at, that location.

Credit Reporting.  While Section 1692d(3) of the FDCPA allows for credit reporting, the Rule now limits the circumstances and timing for credit reporting and prohibits the practice of passive debt collection through credit reporting. Section 1006.30(a) prohibits debt collectors from furnishing information to a consumer reporting agency about a debt before the debt collector either speaks to the consumer about the debt in person or by telephone or sends its validation notice and then waits for a reasonable period of time to receive a notice of undeliverability.  Comment 30(a)(1)-2 provides a safe harbor for debt collectors as to what constitutes a “reasonable period of time.”  Specifically, Comment 30(a)(1)-2 provides a safe harbor by construing a “reasonable period of time” to mean a period of 14 consecutive days after the date that the debt collector places a letter in the mail or sends an electronic message.

While the CFPB intends to push back the effective date of the Rule sixty (60) days, compliance teams should be reviewing the Rule and Comments to assess what changes will need to be made to the agency’s practice and procedures.  As part of this process, debt collectors should be considering incorporating the safe harbors, implied and express, set forth within the Rule to allow for future mitigation of risk.

CFPB Proposes Delaying Effective Date of the Debt Collection Rule

By Caren D. Enloe

On April 6th, the CFPB announced its proposal to postpone the effective date of the Debt Collection Rule.  Originally scheduled to take effect November 30, 2021, the CFPB now proposes that the Rule become effective on January 29, 2022.  According to the CFPB, the "proposed delay would allow stakeholders affected by the pandemic additional time to review and implement the rules."   A thirty day comment period will open once the Notice of Proposed Rulemaking (the "NPRM") is published in the Federal Register.  A couple of quick takeaways:

• While the CFPB notes that debt collectors can choose to implement the Rule prior to the effective date, as of now, the safe harbors and presumptions will not be in effect until the effective date; 

• No other proposed changes to the Debt Collection Rule are suggested in the NPRM; however, that does not mean proposed substantive changes won't be forthcoming after confirmation is completed as to the new Director of the CFPB; and 

• Debt Collectors should keep an eye on this development but continue forward with their assessment of their policy, procedures and practices to ensure timely compliance with the Rule whenever the effective date.