A collection letter violated the Fair Debt Collection Practices Act (FDCPA) because it stated that the debtor could only dispute the debt in writing, the U.S. Court of Appeals for the Second Circuit has ruled.
In Hooks v. Forman, Holt, Eliades & Ravin, LLC, the Second Circuit vacated the district court’s dismissal of the complaint for failure to state a claim. Applying the “straightforward language of the statute,” the court held that the FDCPA does not require a written dispute to avoid an assumption by the debt collector that the debt is valid. The Second Circuit distinguished language in different portions of FDCPA Section 1692g, with certain portions requiring written disputes or requests from debtors for various rights to apply and another portion dealing with when a debt will be assumed to be valid.
Section 1692g requires a debt collector to send a written “validation notice” to a consumer within five days of the collector’s initial collection attempt and specifies what information the notice must contain. This section requires the notice to include statements that if the consumer disputes a debt in writing or makes a written request for the name and address of the original creditor, the collector will provide verification of the debt or the requested information. This section also requires a debt collector to cease all collection efforts if it receives a written dispute or information request until the verification or information is provided.
Section 1692g also requires the validation notice to include a statement that the debt will be assumed to be valid by the debt collector unless the consumer disputes the debt within 30 days. It is silent, however, on what form the dispute must take to avoid that assumption.
According to the Second Circuit, “giving effect to the difference creates a sensible bifurcated scheme,” because “[t]he right to dispute a debt is the most fundamental” of those set forth in Section 1692g, and “it was reasonable to ensure that it could be exercised by consumer debtors who may have some difficulty with making a timely written challenge.” In the court’s view, it made sense for the FDCPA to require debtors to take the “extra step” of putting a dispute in writing before claiming “the more burdensome set of rights” afforded by Section 1692g (such as requiring all debt collection efforts to cease).
Observing that the issue of whether the FDCPA requires a written dispute was one of first impression in the Second Circuit, the court noted that the Third and Ninth Circuits, the only circuits to have considered the issue previously, had reached opposite conclusions. The Third Circuit, in its 1991 decision in Graziano v. Harrison, ruled that a debtor must send a written statement to effectively dispute a debt. (Based on Graziano, in a March 2013 decision that was the subject of a prior legal alert, the Third Circuit held that a collection letter violated the FDCPA because its invitation to call a toll-free number could be read to permit the debt to be effectively disputed by telephone.)
In the Second Circuit’s view, the Ninth Circuit’s reasoning in Camacho v. Bridgeport Financial, Inc., a 2005 decision holding that Section 1692g does not require a written dispute, was more persuasive. The Second Circuit noted that, in its decision, the Ninth Circuit had provided examples of the protections that apply when a debt collector cannot assume a debt is valid. According to the Ninth Circuit, the collector must disclose that the debt is disputed when communicating the debtor’s credit information to others, and, if the debtor owes multiple debts, the collector cannot apply a payment made by the debtor to the disputed debt.
Editor’s Note: To learn more about the legal pitfalls in written communications with debtors, check out To the Point: Written and Verbal Communications, a distillation of questions and answers from insideARM’s Ask the Attorney webinar series. This volume focuses on issues arising in both written and verbal communications. Learn more.
Alan S. Kaplinsky is a senior partner in the Business and Finance Department at Ballard Spahr LLP and Chair of the Consumer Financial Services Group. He is also a member of the Higher Education, Mortgage Banking, and Bank Regulation and Supervision Groups.
Members of Ballard Spahr’s Consumer Financial Services Group regularly consult with their clients engaged in consumer debt collection on compliance with the FDCPA and state debt collection laws. The Group has created a team of lawyers who are helping debt collectors and debt buyers to prepare for their first Consumer Financial Protection Bureau examinations. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).
The group also produces the CFPB Monitor, a blog that focuses exclusively on important CFPB developments.