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Court Decision Raises Questions About Collecting in Validation Period Under FDCPA
An appeals court in New York has ruled that debt collectors need to go overboard on information notices if they continue to collect during the 30-day validation period.
A recent ruling by an appeals court in an FDCPA case brought by a consumer raises numerous questions that may not be settled until there is further court action, according to collection legal experts.
The Second Circuit Court of Appeals held in Ellis v. Solomon and Solomon P.C that a law firm and two of its lawyers violated the Fair Debt Collection Practices Act (FDCPA), when it filed suit against a debtor during the 30-day validation period without providing additional explanation to the debtor about how the lawsuit affected the notice.
Under the law, a debt collector must send a written communication to a consumer within five days of initial contact, which alerts the consumer to his or her right to dispute the debt. The consumer has 30 days to do so. The collector can continue to pursue the debt, but the collector’s methods must not overshadow or be inconsistent with the disclosures in the notice.
In the Ellis case, the defendants sent the plaintiff a validation notice, and two weeks later served her with a summons and a complaint. In affirming a previous district court’s award of summary judgment to the plaintiff, the Second Circuit held that the validation notice was “overshadowed” where a debt collector serves a consumer with a summons and complaint during the validation period without explaining that the lawsuit has no effect on the information conveyed in the validation notice.
The courts held that even though collection agents have a right to continue their efforts to collect debts during the validation period under the FDCPA, if they do not wait until the end of the 30-day period they must explain the lawsuit’s lack of impact on the disclosures to the consumer.
Barbara Sinsley, general counsel for debt buying trade group DBA International, said that the ruling basically calls for collection firms to tell the debtor in the initial validation notice and in a separate validation notice when filing the lawsuit. However, the 30-day period still starts with the initial validation notice.
“The court is advising [collection firms] to be redundant,” Sinsley said. However, she doubted the ruling would have much impact outside of the area served by the Second Circuit, which consists of Connecticut, New York and Vermont.
A major problem with the ruling, according to Tomio B. Narita, partner with Simmonds & Narita LLP, San Francisco, Calif., is that the court didn’t specify what needed to be included in the validation notice accompanying a lawsuit. So another court case is likely to be needed to decide that. Narita, an associate member of the National Association of Retail Collection Attorneys, had filed an amicus brief for NARCA on behalf of the defendant.
“The court says you have to provide this additional notice, something that is not specified by the Fair Debt Collection Practices Act,” Narita said. “Usually when the court goes down that road, they provide Safe Harbor language. The court has left you guessing, it doesn’t tell you exactly what to do.”
Therefore, Narita advises collection firms to seek the advices of their respective attorneys in developing the wording for any validation notices to accompany lawsuits.
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Comment from CEO on February 3, 2010 at 11:55AM EST
Narita seems ignorant of the court's purpose. This seems to be to shield the debtor by rewriting the law.
It seems elementary that the courts should protect the lender. Without lenders the liberals will not get any more loans than the conservatives. Not clear to some though.
Comment from DONALD DALY on February 3, 2010 at 12:03PM EST
As if this crazy world isn't already nuts, throw in a case like this to really go overboard to "protect" the debtor and cause further expense to the tax payer, the court system, the A/R industry and the creditors. Meanwhile the debtor sits back and watches the action, free of charge. If the 30 day notice was already provided to the consumer and the service of a summons followed two weeks later it would seem to me that the consumer was just allowed an additional 4 days over and above the 30 days imposed by the FDCPA to respond. Looks like the court of appeals is looking for stuff to keep busy.
Comment from Eric Berman on February 4, 2010 at 12:39PM EST
The reality of the Court's decision is that suing during the validaion period is problematic. It is better to wait if possible. Courts across the country are requiring that we provide so many notices and so much information to debtors that it can appear that we represent the debtors, not our clients.
Comment from Jeffrey Deutsch on February 4, 2010 at 12:52PM EST
Hello,
On this one, I think the courts and the debtors are right.
The courts have already ruled, and I don't see anyone disputing, that debtors in fact must be given at least 30 days to dispute.
Plus, we have a responsibility to make sure that the least sophisticated consumers - this is a legal term referring to the reality that many debtors are undereducated and naive - aren't given false impressions. For example, if the dispute provisions are on the back of the collection letter, we need to put on the front something like "See Reverse Side for Important Information."
I could understand how many debtors, first getting an ordinary collection letter and then getting court papers, forgetting about the original letter and focusing only on the new summons and complaint. Especially since, ordinarily, new terms supersede old terms: the debtors could easily assume the collectors had changed their minds or that now that it's in court the old rules no longer apply.
Therefore, I completely agree that any collection lawsuit papers served on debtors should include the reassurance that the debtors still have until 30 days from the original collection notice to dispute their debts and that no default action shall be taken in court up to that date.
Of course, any collection attorney not wanting to bother with extra disclosures can always wait 30 days from the original collection notice, and then if there's no dispute go ahead and sue. For that matter, I'm surprised that it isn't already SOP.
What do you think?
Jeff Deutsch
Comment from DONALD DALY on February 4, 2010 at 3:53PM EST
JEFF, THE DATES INVOLVED IN THIS CASE EXTEND 34 DAYS FOR DEBTOR RESPONSE, 4 MORE THAN REQUIRED. 30 DAYS IN THE INITIAL NOTICE AND 20 MORE WITH A SUMMONS. I CAN'T UNDERSTAND HOW THIS VIOLATES ANY DEBTOR, EDUCATED OR OTHERWISE.
Comment from Peter Hoyt on February 11, 2010 at 6:58PM EST
The court was almost right on this one, and was trying to do the right thing, but missed the most important point.
First consider that, for any debt, an attorney can skip the collections process and just file a lawsuit. Then all the validation issues get settled in court. This is not a consumer friendly process, nor is it a good business idea, but it is legal.
Now consider the situation mentioned in the case. If the consumer responds to the validation notice by either paying or asserting the debt is not owed to the agency, the lawsuit still remains in effect. So the consumer also has to answer in court. It is almost like double jeopardy.
Requiring that the agency send a clarifying letter doesn't solve the double jeopardy or debtor confusion issue.
The proper ruling should have been that you can sue or you can issue a 30 day notice. If you choose to issue a 30 day notice, you should be prohibited from suing until the debtor has responded or 30 days have passed.
PDH
Comment from Anonymous on March 16, 2010 at 5:24PM EST
The courts should continue to provide protection against the debt collectors who don't follow the laws set forth by the FDCPA.It is a well known fact that debt collectors have repeatedly violated the laws and this MUST stop now.Consumers aren't taking the abuse anymore and are fighting back.Seems like most of these posts that I've read are from debt collectors,GO FIGURE!!!!