On August 18, 2017, the United States Court of Appeals for the Ninth Circuit published an opinion in a Fair Debt Collection Practices Act (FDCPA) case against a law firm that misstated the principal and interest due on a credit card loan in a collection effort.
While the defendant law firm received an unfavorable decision in regard to the FDCPA claim, the court provided a positive disposition for the defendant on the plaintiff’s claim under California’s Rosenthal Fair Debt Collection Practices Act (RFDCPA). The decision highlights the importance of the “Right to Cure” provisions of the RFDCPA. The case is Afewerki v. Anaya Law Group, (Case No. 15-56510) U.S. Court of Appeals, Ninth Circuit).
A copy of the court's order can be found here.
Los Angeles Federal Credit Union (“LAFCU”) was owed money by Plaintiff Robel Afewerki, a credit card customer of LAFCU who had fallen behind on payments. LAFCU hired Anaya Law Group to collect the debt and informed them that the principal due was $26,916.08, and that the debt was subject to a 9.65 percent interest rate.
Anaya Law Group filed a complaint on behalf of LAFCU against Afewerki on May 6, 2014 in Los Angeles County Superior Court, alleging that the principal of Afewerki’s debt was $29,916.08 ($3,000 more than he in fact owed) and that the debt was subject to an interest rate of 9.965 percent (a figure that was 0.315 percent too high).
Afewerki retained a lawyer, who sent a demand for a bill of particulars to Anaya Law Group on June 6, 2014. As she later set out in a declaration, an Anaya Law Group attorney discovered the errors in the complaint for the first time on June 16, 2014, while preparing a response to the demand. She asserted that the errors were inadvertent. Two days later, on June 18, 2014, Anaya Law Group filed a notice of errata correcting the errors.
The debtor sued the debt collector in federal court for violations of the FDCPA and of the RFDCPA, (Cal. Civ. Code § 1788 et seq.). Each of the parties moved for summary judgment.
Editor’s Note: A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. The summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial.
The district court granted summary judgment to the debt collector on both claims because it concluded that the errors in the complaint were not material.
The federal FDCPA, (15 U.S.C. § 1692 et seq.), prohibits debt collectors from making false statements when attempting to collect debts from consumers. However, not all false statements are actionable. To constitute a violation of the FDCPA, a false statement must be “material.”
The Court of Appeals succinctly described the issue presented:
What makes a false statement material or immaterial in the debt collection world? Material false statements, we have held, are those that could “cause the least sophisticated debtor to suffer a disadvantage in charting a course of action in response to the collection effort.” Tourgeman v. Collins Fin. Servs., Inc., 755 F.3d 1109, 1121 (9th Cir. 2014). This appeal requires us to consider the materiality of modest overstatements of an amount due and an interest rate.
As to the “materiality” issue, the court concluded:
“We conclude, however, that the false statements made by the debt collector in this case were material because they could have disadvantaged the least sophisticated debtor in responding to the complaint.
We agree and conclude that Anaya Law Group’s $3,000 overstatement of the principal due in the state court complaint, exacerbated by the statement of an inflated interest rate, was material."
As to the RFDCPA claim, the court wrote:
"Although we disagree with the district court’s conclusion that the misstatements were not material, which was the basis on which the district court granted summary judgment to Defendants, “[w]e may affirm on any basis supported by the record.” Fisher v. Kealoha, 855 F.3d 1067, 1069 (9th Cir. 2017). We conclude that Defendants are entitled to the benefit of a separate defense under the Rosenthal Act, and on that basis we affirm the district court’s grant of summary judgment to Defendants as to the Rosenthal Act claim."
California Civil Code § 1788.30(d) states:
A debt collector shall have no civil liability under this title if, within 15 days either after discovering a violation which is able to be cured, or after the receipt of a written notice of such violation, the debt collector notifies the debtor of the violation, and makes whatever adjustments or corrections are necessary to cure the violation with respect to the debtor.
The notice of errata was filed on June 18, 2014, which was within fifteen days of June 6, 2014, when the demand for a bill of particulars was served. Accordingly, Defendants satisfied the criteria to invoke the defense provided by § 1788.30(d).”
The “Right to Cure” provision in the RFDCPA is a very powerful provision, one that is often ignored by companies in the ARM space. On July 19, 2017, insideARM wrote an article about a similar provision enacted in West Virginia. The Consumer Relations Consortium has suggested that the Consumer Financial Protection Bureau (CFPB) consider a similar provision in their upcoming Notice of Proposed Rulemaking.
Finally, in last month’s version of the Moss & Barnett Debt Collection Drill podcast Moss & Barnett attorneys John Rossman and Mike Poncin discuss a new wave of lawsuits against debt collectors in California which focuses on the font size of certain disclosures. In that podcast, they also discuss the RDCPA “Right to Cure” provision.