FDPCA: If You Want to Collect Debts from a Consumer, You Better Know What You Are Doing

Murray v. Revenue Mgmt. Corp. (In re Murray), 552 B.R. 1 (Bankr. D. Mass. 2016)

A chapter 13 debtor sued a debt collector based on a letter sent to the debtor alleging violations of the Fair Debt Collection Practices Act (FDPCA). The bankruptcy court granted summary judgment to the debtor on one claim and summary judgment to the debt collector on a second claim.

The debtor alleged that sending the letter gave rise to three violations of the FDPCA:

  • The heading in the upper right corner of the letter (a copy of which was appended to the opinion) stated: “Re: [creditor] vs.: [debtor]” (referred to by the court as the “versus language”). The debtor alleged that this language was a false representation that the debt was the subject of pending litigation.
  • The debtor also contended that the versus language implied that the letter was legal process even though it was not.
  • There was a third claim that was not dealt with in the opinion based on a threat to report the debtor’s account to credit bureaus if he failed to pay.

As background, the court noted that the goal of the FDPCA is to eliminate abusive collection practices in order to protect consumers and to prevent abusive debt collectors from gaining a competitive advantage. Section 1692 of the FDPCA provides that a debt collector “may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” The act contains a broad definition of debt collector, including anyone who “regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”

To prevail, a plaintiff must prove (1) the plaintiff was the object of debt collection activity arising from consumer debt, (2) the defendant is a debt collector as defined in the act, and (3) the defendant has done something prohibited by the act.

In evaluating whether that has been a violation, the First Circuit applies an “unsophisticated consumer” standard, while other Circuits apply a “least sophisticated consumer” standard. Both standards describe “the hypothetical consumer whose reasonable perceptions will be used to determine if collection messages are deceptive or misleading.” The standard protects naïve consumers, but also “prevents liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness.”

This is an objective rather than subjective standard. Some courts conclude that the determination includes both fact-finding and questions of law, while others find that it is purely a question of law. In this case, the letter did not send mixed signals and was not inherently confusing, so the court concluded the violation issues were a question of law.

Under the act a “false representation of … the character, amount, or legal status of any debt” is a violation. It turns out that this debtor is not the first to claim that use of “versus language” is a false representation of the legal status of a debt. As explained in one opinion: “placing an adversary styling at the top of a collection letter would create in the mind of a reasonable consumer a false impression that a judicial action is pending.”

After reviewing several of the cases the court concluded the common theme was that (1) a letter with versus language in a case where there is no pending litigation violates the statute unless (2) there is other language in the letter sufficient to counteract the false impression. In one case language in the letter to the effect that a lawsuit would be instituted if payment was not made within 30 days was sufficient to counteract the versus language. However, in another case the court found that language referring to court costs and a proposed consent judgment negated the potential curative effect of a statement that “we will file suit in seven (7) days.” In yet another case a court found for the debt collector when the letter included language that “we may proceed with suit against you without waiting the 30 days.”

In this case the court concluded that use of the versus language was sufficient to cause even a relatively sophisticated consumer to conclude that a lawsuit had been initiated, and there was nothing in the letter to counteract that impression. The court emphasized that it was irrelevant whether the debtor himself was or was not misled since this is an objective test.

As for the second claim, the act also provides that the “false representation or implication the documents are legal process” is a violation. The court determined that “legal process” involves a court compelling compliance. Since there was nothing in the letter that suggested it was issued by a court, this claim failed.

Accordingly, the court granted summary judgment in favor of the debtor on the claim that the versus language misrepresented that litigation was pending, but granted summary judgment in favor of the debt collector on the claim that the letter implied that it was legal process.

This case illustrates why it is not a good idea to dabble in collecting debt from consumers. It is not intuitively obvious that merely identifying a matter as the creditor “vs.” the debtor could be a violation of law.

Vicki R Harding, Esq.

Note: The Eighth Circuit reached a similar conclusion in Nelson v. Midland Credit Mgmt., Inc., 828 F.2d 749 (8th Cir. 2016). This decision was being appealed to the U.S. Supreme Court as of early 2017.

About BankruptcyRealEstateInsights

Vicki R. Harding was a partner in the Detroit office of Pepper Hamilton LLP who moved to Arizona seeking warmer weather. Ms. Harding continues to handle commercial transactions with an emphasis on real estate and bankruptcy issues (but no longer owns a snow shovel).
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