This article was originally published on the Maurice Wutscher blog and is republished here with permission.

A decision out of a district court in California continues the trend of holding appropriate interest rate disclosures to be within the bounds of the FDCPA and other consumer protection acts.  In Pavlovich vs. Account Discovery Systems, LLC, the U.S. District Court for the Southern District of California found no violation of the FDCPA, the California Rosenthal Act or the California FDBPA for an interest charge disclosure attached within the agency’s initial correspondence.

A copy of the opinion is available at:  Link to Opinion.

The plaintiff brought a putative class action suit alleging violations of the FDCPA and the Rosenthal Act against both a debt purchaser and the agency hired to attempt debt collection and asserted a third claim against the debt purchaser only for the alleged violation of the California FDBPA.  The alleged offending language included the following disclosure:

“If applicable” INTEREST CHARGES & SETTLEMENTS — At our discretion, a statement or correspondence may include post charge off interest and/or offer a settlement amount less than the legal now due balance.

The plaintiff alleged the interest/settlement disclosure violated the law because it was unclear and false, misleading, deceptive and confusing, could be reasonably read to have two or more different meanings, and thus violated 15 U.S.C. Sections g(a), e, e(2)(A) and 1692 e(10).

The debt collector moved for summary judgment arguing that the validation notice clearly provided the plaintiff with the amount of the debt as of the date of the validation notice and did not contain any language to lead the least sophisticated consumer otherwise.

The Court agreed with the plaintiff that the amount contained in the validation notice must not confuse the least sophisticated consumer. Clark vs. Capital Credit & Collection Serv., Inc, 460 F.3d 1162, 1171 (9th Cir. 2006).  In focusing on the phrase “may include post charge off interest,” the Court considered the plain meaning of the words but also looked at the context surrounding those words.  In overruling the plaintiff’s interpretation of the alleged offending disclosure, the Court found that to accept the plaintiff’s interpretation would mean reading other parts of the disclosure as unintelligible.

In reaching its decision, the Court reasoned that the plaintiff who owes a consumer debt and receives a validation notice with an exact amount owed is faced with three options: (1) this could be the exact amount owed since the notice so states; (2) the actual balance could be higher due to post charge off interest; (3) the balance could be lower due to a potential settlement.

In any event, the Court found the disclosure language appropriate as the debt collector never alluded to the potential of additional interest being charged.  The Court also found persuasive the fact that the letter never stated that the balance might change in the future or that the consumer should call to get the actual balance due.  Finally, in finding no ambiguity in the letter, the Court focused on the phrase “if applicable” and stated that the obvious intent was to make the disclosure note qualified.


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