Letters are a necessary evil for debt collectors – necessary because we are required to provide disclosure of the consumer’s right, and because communication with a consumer is necessary to collect a debt. They are evil because of the potential for FDCPA liability, even when the letter is straightforward and well-meaning. While 2016 was the year of the bar code cases on collection letters, 2017 can be characterized as the year of interest accrual disclosure cases. This article summarizes and cites some of the interest accrual disclosure cases from the second half of 2017.
Deciding whether or not to disclose in a collection letter that interest may or may not be accruing makes one feel as though he were watching a table tennis match at the Olympics. The pace is dizzying, the faults are frequent, and at the end of the day even the observers are likely to dissolve into a puddle of steaming sweat. The issue is simple: If interest is accruing on a consumer’s debt, disclose that fact to the consumer. The hang up is the serve – when should this be disclosed, how should it be disclosed, should the interest calculation be disclosed, what if you are collecting multiple debts with different interest rates? And if you are not collecting interest, should that fact be disclosed? Let’s try to organize our thoughts around some of these issues with a highly summarized look at recent decisions.
The Avila case (Avila v. Riexinger & Associates, LLC, 2nd Circuit, 2016) agreed with a much older case (Miller v. McCalla, 7th Circuit, 2000) by suggesting that collectors could achieve safe harbor by disclosing to consumers that the “amount of the debt stated in the letter will increase over time, or clearly states that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specific date.” The court further expresses a preference to advise the consumer of the specific rate of increase over time.
Reverse Avila cases generally assert that if the collector is required to inform the consumer the balance will increase over time due to the accrual of interest, then collectors must also inform consumers if the opposite is true – that is, that the balance will not increase because no interest will be charged. The basis of this argument stems from the fact that in some jurisdictions, it is possible for a debt collector to add interest, and this being the case, the collector is beholden to inform the consumer whether or not it will be taking advantage of the interest potential, because the least sophisticated consumer will be confused about the balance otherwise.
Another common argument stems from the fact that the original creditor added interest on the balance due, such as credit card issuers, leading to confusion among least sophisticated consumers as to whether the debt collector to whom the account is placed for collection will continue the original creditor’s practice related to the addition of interest. Several courts have disagreed with these arguments. In Derosa v. CAC Financial Corp. in the Eastern District of NY (9/28/17) the court, in reference to the consumer’s interpretation of the language in the collection notice to be the kind of “bizarre or idiosyncratic” interpretation that a court must not adopt when considering debt collection language under the FDCPA, quoting the Greco case decided in the Second Circuit in 2005.
Other reverse Avila cases finding no disclosure is required when no interest accrues include (not an all-inclusive list):
• Krause v. Professional Bureau of Collections of Maryland, U.S.D.C., EDNY, 12/27/2017
• Ozier v. Rev-1 Solutions, LLC, U.S.D.C, EDWI, 8/9/17
• Powers v. Capital Management Services, L.P., U.S.D.C, OR, 8/2/2017
Be aware problematic language in collection notices when the debt collector does not add interest has been defined: “As of the date of this letter.”(Fatema Islam v. American Recovery Service Incorporated, U.S.D.C., E Dist. NY, 10/31/17.) Interestingly, while the court found for the plaintiff in this case, Judge Brian M. Cogan provided interesting commentary about the state of FDCPA litigation: “The multitude of cases on postjudgment interest filed in this district since Avila suggest that the real beneficiaries are plaintiffs’ attorneys to recover a fee for going over collection letters with a fine-toothed comb to snag some technical argument about how the letter could have more clearly stated the interest component.” He cites another case (Ghulyani v Stephens v. Michaels Assocs., 2015) in which the court wrote “the interpretation espoused by Ghulyani is indeed idiosyncratic – much more likely to be arrived at by an enterprising plaintiff’s lawyer than by a least sophisticated consumer.” Judge Cogan further commented: “We are no longer deterring collection companies from abusing, tricking, and misleading debtors into making payments that they do not have to or would not want to make if they had the relevant facts. The courts are to some extent simply burdening the collection industry with a continuing portfolio of litigation that potentially raises the cost of credit for all consumers.”
The adage “say what you mean, and mean what you say” is a wise one to apply when composing collection letters. The next step is to analyze literally every word used in your letters to determine if there are multiple definitions that could possibly be applied to the word, and if so applied, would change the intended meaning in such a way to confuse the least sophisticated consumer. For example, labeling the balance due as the “current balance” can imply that the balance may change from what it is “currently.” The same applies with the label of “principal balance” which implies that there are other components to the balance, such as interest or fees. Maybe you have been lucky and your language has not been challenged. That fact does not mean that it might not be the subject of a lawsuit in the future. Get past the notion of “we’ve always done it this way and we have not had any problems” and reevaluate your notice language. The small cost of engaging expert counsel for a review of your notices is worth what it could save you later in defense costs should an “enterprising plaintiff’s lawyer” decide to practice his or her craft on your favorite notices.
Debra Ciskey is the Compliance Officer at Wakefield & Associates. Inc. She is a member of the board of directors and a certified instructor for ACA International.