The Fair Debt Collection Practices Act (FDCPA) provides consumers with a tool to dispute and request validation of a debt. However, section 1692g of the FDCPA states that if a consumer does not dispute the debt within thirty days of receiving notice of these rights, then the debt collector may assume the debt is valid.

Does this mean that a consumer is barred from suing a debt collector for collecting on a previously-settled debt if the consumer failed to dispute through his or her 1692g rights? According to the Second Circuit Court of Appeals’ decision in Vangorden v. Second Round, LP, 17-cv-2186 (Jul. 27, 2018), the answer is no.

Factual and Procedural Background

At some point in 2011, Plaintiff incurred a personal credit card debt with Synchrony Bank. Plaintiff settled the account for less than the full balance directly with Synchrony. Five years later, Synchrony sold Plaintiff’s account to Second Round. Second Round then sent a collection letter to Plaintiff that included the required 1692g validation rights disclosure.  

Notably, Plaintiff never informed Second Round that this debt was previously settled nor did Plaintiff dispute the debt in any other way.

Plaintiff went on to file a lawsuit against Second Round alleging several violations of the FDCPA, including using false representations to collect the debt and attempting to collect a debt not expressly authorized by agreement or law. The district court granted Second Round’s motion to dismiss these claims because Plaintiff failed to dispute the debt despite receiving the notice of her validation rights. Plaintiff appealed this decision to the Second Circuit.

The Decision

The Second Circuit disagreed with the district court, vacated the decision, and remanded the case back to the lower court.

The Second Circuit found that Plaintiff sufficiently stated a claim upon which relief can be granted regarding the letter sent by Second Round. Applying the standard of review required for a motion to dismiss, the court took as true the facts that Plaintiff previously settled the debt and that the letter sent by Second Round was attempting to collect the previously-resolved account. Since the letter sought to collect an amount that was not owed, the court found that it was plausible that the letter violated the FDCPA.  Since this plausibility existed, it was improper for the district court to grant the motion to dismiss.

The court agreed with the Third and Fourth Circuits in finding that a consumer’s ability to bring an FDCPA claim is not in any way contingent upon the consumer exercising the 1692g validation rights. The court looked to the conditional language of 1692g and noted that it is an option for consumers, not a requirement. The court also found that other sections of the FDCPA, such as 1692g (c) (“a failure... to dispute the validity of the debt may not be construed by any court as an admission of liability by the consumer”), support the court’s decision. The court stated that the FDCPA provides an avenue for debt collectors in situations such as these in the bona fide error affirmative defense.

The court also discussed whether the claims meet the least sophisticated consumer standard. The court stated that the letter’s “only interpretation is misleading; it told [Plaintiff] that she had an outstanding debt obligation. In fact, that obligation had been settled some five years ago.” Thus, since there could only be one interpretation, the court found that even the least sophisticated consumer would view this letter as an attempt to collect a previously paid debt.

insideARM Perspective

This decision is not so bad in theory, but practically speaking it will be a thorn in the side of debt collectors.

The Second Circuit reviewed this decision using the legal standard for a motion to dismiss. A decision on a motion to dismiss is not a decision on the merits of the case. Instead, the court looks to see whether the Plaintiff alleged facts in his or her complaint sufficiently to show that it is plausible -- as opposed to probable -- that a violation occured. The scope of facts reviewed when deciding a motion to dismiss is generally limited to the facts alleged in or attached to the pleadings of a lawsuit.

Theoretically, the court did not find that Second Round's letter violated the FDCPA. The court simply found that the complaint sufficiently stated facts to show that a FDCPA violation could have occured.

Practically speaking, this means that a case like this would need to be decided on a motion for summary judgment or by a trial. This typically requires months, at times years, of active litigation and significant defense costs. Unlike the plaintiff, a debt collection agnecy is not entitled to an award of its legal defense fees if they win a lawsuit. A debt collector in this situation is left with limited choices in a jurisdiction notorious for high volumes of FDCPA litigation.

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