The United States Court of Appeals for the Second Circuit has ruled that Section 1692(e) of the Fair Debt Collection Practices Act (FDCPA) requires debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees. The case, Avila v. Riexinger & Associates, LLC et. al., (Case No. 15‐1584) arose out of an appeal from an April 14, 2015 judgment of the United States District Court for the Eastern District of New York, dismissing plaintiffs’ claims under the FDCPA. The Court of Appeals opinion was published on March 22, 2016.

A copy of the opinion can be found here.


Plaintiffs Annmarie Avila and Sara Elrod both received collection notices from defendant Riexinger & Associates, LLC. The notices stated that plaintiffs’ accounts had been “placed with [the firm] for collection and such action as necessary.” The notices stated each plaintiff’s “current balance” but did not disclose that this balance was continuing to accrue interest or that, if plaintiffs failed to pay the debt within a certain amount of time, they would be charged a late fee. The bottom of the notices contained a detachable section for plaintiffs to provide their credit card information to pay the debt. On Avila’s notice, this section again stated her “current balance.”

Plaintiffs filed this lawsuit, alleging that the collection notices violated the FDCPA. They claimed, among other things, that the collection notices were misleading because they stated the “current balance,” but did not disclose that the balance might increase due to interest and fees. They alleged that they believed from reading the notice that the “current balance” was “static” and that their “payment of that amount would satisfy [the debt] irrespective of when [the] payment was remitted.” Avila alleges that in fact interest was accruing daily at a rate equivalent to 500% per year and that defendants have tried to collect this interest from her.

Defendants moved to dismiss the complaint, and the district court granted the motion. The court recognized that district courts are divided on the question whether a debt collector must disclose that the amount of the debt will increase over time due to interest or fees. But. The district court sided with those courts that have held that no disclosures about interest or fees are required.

Plaintiffs appealed the district court’s judgment granting the motion to dismiss.

Court of Appeals Discussion of Standard for Review and Decision

The question presented to the court was whether the sending of a collection notice that states a consumer’s “current balance,” but does not disclose that the balance may increase due to interest and fees, is a “false, misleading, or deceptive” practice prohibited by Section 1692(e).

The court discussed its standard for review: “In considering whether a collection notice violates Section 1692(e), we apply the “least sophisticated consumer” standard. In other words, we ask how the least sophisticated consumer—“one not having the astuteness of a ‘Philadelphia lawyer’ or even the sophistication of the average, everyday, common consumer”—would understand the collection notice. Under this standard, a collection notice can be misleading if it is “open to more than one reasonable interpretation, at least one of which is inaccurate.”

After applying the above standard of review the court held that plaintiffs had stated a claim that the collection notices at issue here are misleading within the meaning of Section 1692(e). The court held,

“A reasonable consumer could read the notice and be misled into believing that she could pay her debt in full by paying the amount listed on the notice. In fact, however, if interest is accruing daily, or if there are undisclosed late fees, a consumer who pays the “current balance” stated on the notice will not know whether the debt has been paid in full. The debt collector could still seek the interest and fees that accumulated after the notice was sent but before the balance was paid, or sell the consumer’s debt to a third party, which itself could seek the interest and fees from the consumer.

Because the statement of an amount due, without notice that the amount is already increasing due to accruing interest or other charges, can mislead the least sophisticated consumer into believing that payment of the amount stated will clear her account, we hold that the FDCPA requires debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees. We think that requiring such disclosure best achieves the Congressional purpose of full and fair disclosure to consumers that is embodied in Section 1692(e). It also protects consumers such as plaintiffs who may hold the reasonable but mistaken belief that timely payment will satisfy their debts.”

The Second Circuit went even further.  The court chose to adopt the “safe harbor” approach adopted by the Seventh Circuit in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, L.L.C., 214 F.3d 872 (7th Cir. 2000).

The Miller court had fashioned a “safe harbor” formula for complying with Section 1692g(a)(1). In that case the Seventh Circuit court held that the following statement would satisfy a debt collector’s duty to state the amount of debt in cases where the amount varies from day to day:

As of the date of this letter, you owe $___ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1–800– [phone number].

The Second Circuit held: “A debt collector will not be subject to liability under Section 1692(e) for failing to disclose that the consumer’s balance may increase due to interest and fees if the collection notice either accurately informs the consumer 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 specified date.”

Like the Miller court, the Second Circuit did not hold that a debt collector must use any particular disclaimer.

insideARM Perspective

Debt Collectors now have suggested safe harbor language for letters in both the Seventh and Second Circuits. Though, as with many FDCPA issues, it is possible — and likely probable — that a company could get sued in other circuits with allegations that suggest the safe harbor language “approved” in the Seventh and Second Circuits is misleading to the least sophisticated consumer in that other circuit.

I believe the applicable phrase here is, “Damned if you do, Damned if you don’t.”

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