U.S. Second Circuit - The FindLaw 2nd Circuit Court of Appeals Opinion Summaries Blog

Failing to Warn Debtors of Fees Is a Violation of FDCPA, 2nd Circuit Rules

The Second Circuit Court of Appeals just ruled in favor of a pair of debtors who successfully argued that FDCPA requires creditors to inform debt-holders that their balances could increase due to interest and fees.

This is a relieving bit of case law that will surely give people with accounts payable some additional respite from worries of imbalances in their books.

"Current Balance": Enough Information?

The case involves Annmarie Avila and Sara Elrod (plaintiffs) who sued the firm Riexinger and Associates, LLC (defendant). Defendant sent the plaintiffs each a notice for collection on their accounts which had a balance owing.

In the notices, the firm printed out their "current balance" but did not disclose the fact that their balance with the firm was, as they were reading it, increasing due to fees, fines, interest, costs and other add-ons. The bottom of the notices contained a detachable section to provide their credit card information which also did not contain any disclosure about accruing fees.

FDCPA

The plaintiffs sued under the Fair Debt Collection Practices Act and claimed that the firm had violated the law because it had engaged in misleading practices to collect on its debt. Plaintiffs alleged that they had believed that "current balance" meant that their balances were static and that a full payment of the number printed would clear their debts with the firm. Defendants moved to dismiss the complaint. The District court ruled for the defendants.

Consumer Protection

FDCPA, 15 USC Section 1692e, prohibits creditors from employing "false, misleading, or deceptive" practices in recouping debts. The legal issue was whether or not the firm's failure to disclose accruing fees fell under this description (because it didn't fall under the law's other expressly prohibited practices).

The Second Circuit vacated FDCPA ruling in favor of the firm because it felt that it had violated FDCPA. It relied on the theory that FDCPA is, overall, a law driven by consumer protection. The court cited relevant case law and stated that the law should be liberally construed to "achieve the underlying Congressional purpose" of protecting consumers. It noted too that FDCPA was enacted the 'eliminate abusive debt collection practices by debt collectors.' Whether or not the firm's practices were "abusive"? Difficult to say, but debtors were certainly not being protected.

The "Least Sophisticated Consumer" Test

Further, the court relied on the principle that the Act was intended to protect the dumbest in society, those persons who fall below the reasonable person standard. The Circuit felt that the Congressional purpose of the Act was to protect the "least sophisticated consumer" -- that person who certainly is below the "Philadelphia lawyer" in financial and legal smarts, and even below that of the average consumer. And since the "least sophisticated consumer" could understandably be led into thinking that she would clear her debt with a firm if she paid the "current balance" on a collection notice, this test had been failed by the firm.

Warn Your Clients

We hope practitioners don't have to remind their clients to pay up. But if you are ever in that position, please make it clear to them that fees may accrue if they fail to pay a balance by a clearly stated date. You need to make these things so clear that even someone high and drunk could understand it. Don't risk a FDCPA suit.

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