Will You Know A “Dispute” When You See It?

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Tomio Narita, Simmonds & Narita LLP

Tomio Narita,
Simmonds & Narita LLP

How can a collector accurately identify, track, and respond to consumer disputes when the FDCPA does not define what a “dispute” is?  When Supreme Court Justice Potter Stewart famously stated, “I know it when I see it,” in Jacobellis v. Ohio, 378 U.S. 184 (1964), he was not talking about consumer disputes.  But his catch phrase succinctly described how it can be a struggle to define common words in different contexts.  How exactly do you define a consumer “dispute”?  Are you sure you will know a dispute when you see it?

Collectors have to recognize when a consumer is disputing a debt so they can react appropriately.  But so far, nobody has managed to define what a “dispute” is under the FDCPA.  Consider for example whether any of the following statements qualify as a “dispute” by the consumer:

  • “I don’t remember this account.”
  • “I think I paid that one off.”
  • “The balance doesn’t sound right because I think my credit limit was only $500.”
  • “I don’t recognize the name of your firm or your client.”
  • “Do you have any proof that I owe this?”
  • “I’m not going to talk to you until you send me documents.”
  • “My ex-husband agreed to pay this as part of our divorce.”
  • “I think my insurance company was supposed to cover this.”
  • “I hired a debt consolidator who agreed to pay all my debts.”
  • “The television that I bought with the card never worked.”
  • “Stop calling me about this account.”

A consumer advocate might argue that some or all of the statements listed above qualify as a “dispute” by a consumer, but a collector could reasonably conclude that none are.  Some of the statements express uncertainty about whether the debt is due, or about the amount owed.  Others raise questions whether someone else agreed to pay the debt.  Some ask the collector for more information; others ask the collector to stop further contact.  But none of these statements provide the collector with specific information indicating why the consumer believes he may not be responsible for payment.

The context of these statements is also important.  Were these comments made during the course of a collection phone call, or in a letter sent to the collector?  What else was said during the call or in the letter?  How did the phone call end?  What else, if anything was included with the letter?

It is strange that Congress never bothered to define the term “dispute” in the FDCPA, given the important role that disputes play in the statute’s framework.  Collectors must notify consumers in writing of their right to “dispute” a debt, or any portion thereof, with their initial communication.  See 15 U.S.C. § 1692g(a).  Collection activity during the 30-day period after the notice is sent may not overshadow or be inconsistent with the disclosure of the consumer’s right to dispute the debt.  Id. § 1692g(b).

Collectors must treat disputed debts differently.  If a consumer verbally disputes a debt within thirty days of receiving the validation notice, the collector is not entitled to assume the debt is valid.  Id. § 1692g(a)(3).  If the dispute was in writing and within thirty days of receipt of the validation notice, the collector must cease all further collection activity until it mails validation of the debt to the consumer.  Id. § 1692g(b).

Even if the dispute is received outside of the thirty-day validation period, a collector violates the Act if it communicates or threatens to communicate “credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.” Id. § 1692e(8).  Where a consumer owes more than one debt and makes a single payment, the collector cannot apply the payment to any disputed debt.  Id. § 1692h.

In short, the word “dispute” appears in numerous places throughout the FDCPA, and the existence of a “dispute” imposes important obligations on collectors, but Congress never tells us what exactly qualifies as a “dispute” in these contexts.

Congress was more clear about disputes when it wrote the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. (the “FCRA”).  Under the FCRA, a furnisher of credit information must conduct a reasonable investigation of a direct dispute received from a consumer if it relates to 1) the consumer’s liability for the debt (e.g., identity theft, fraud); 2) the terms of the account (e.g., the balance, payment amount); 3) the consumer’s performance or other conduct concerning an account (e.g., current payment status, date, or amount of a payment), or 4) other information in a consumer report that bears on the consumer’s creditworthiness.  See 16 C.F.R. § 660.4(a).  A furnisher may deem a dispute to be “frivolous or irrelevant,” however, if the consumer fails to provide the furnisher with sufficient information to investigate.  See 15 U.S.C. § 1681s–2 (a)(8)(F)(i)(I); 16 C.F.R. § 660.4(f).  Given that the FCRA and the FDCPA are both part of the Consumer Credit Protection Act, it is reasonable to believe Congress would want a “dispute” to be defined the same way, and handled by collectors in the same way, under the FCRA and the FDCPA.

Consumer disputes are also a main focus of the CFPB, so maybe the Bureau will ultimately define what a “dispute” is.  The Bureau gathers information about consumer complaints, including complaints about collectors’ alleged failure to properly handle consumer disputes, and publishes reports about them to Congress.  See Fair Debt Collection Practices Act, CFPB Annual Report 2015.

The CFPB has also imposed new requirements for handling disputed debts in recent enforcement proceedings.   The September 2015 consent orders with Encore Capital Group, Inc. and Portfolio Recovery Associates, LLC provide that if a debt is “disputed” by a consumer, Encore and PRA must take additional steps to substantiate the debt before proceeding with collection.  See Encore Order, ¶ 129, PRA Order, ¶ 116.  The CFPB also required Encore to notify the collection agencies and law firms it retains whenever a debt has been previously disputed by the consumer.  See Encore Order, ¶ 134.

If the CFPB ultimately promulgates debt collection rules, it may finally provide a definition of a “dispute” under the FDCPA.  In numerous questions posed by the CFPB in its Advanced Notice Of Proposed Rulemaking relating to potential rules under the FDCPA, the Bureau strongly suggests it is considering rules that would define a “dispute” and further regulate the handling of disputes by collectors.  See ANPR, Questions Nos. 2, 5, 20, 31-53.

At this point, it is unclear when the CFPB will publish rules, or whether those rules will include a clear definition of what a “dispute” is.  Until then, collectors will have to refine their own definition of disputes so they can implement procedures for tracking and responding to them.

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Posted in CFPB, Collection Laws and Regulations, Fair Credit Reporting Act (FCRA), FDCPA, Featured Post, Opinion .

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  • avatar Ivan Martin says:

    I agree it would have been very helpful if Congress had been clearer in what it wanted to be counted as a “dispute” under the FDCPA. I think it’s likely that the CFPB will eventually define “dispute,” but I think when they do, we’ll all be wishing that Congress had done it first. The idea that the definition of “dispute” in the FCRA was meant to apply has some merit, and seems reasonable to me, but I doubt the CFPB will see that the same way.

    I do have a mild disagreement with one statement in this article, though. At the end of the list of statements offered as examples to consider whether or not the statement was a “dispute,” you wrote:
    “A consumer advocate might argue that some or all of the statements listed above qualify as a “dispute” by a consumer, but a collector could reasonably conclude that none are.”

    My objection is to the word “reasonably,” because there are two statements in the list that I do not think a collector could reasonably conclude were not disputes, regardless of the context in which the statements were made, and those were the fifth and sixth example statements:
    •“Do you have any proof that I owe this?”
    •“I’m not going to talk to you until you send me documents.”

    To me, those two statements, in any context, are clear indications that the consumer is questioning the validity of the debt or of something related to the debt, and is requesting proof of the debt’s validity. If I were performing quality assurance on a call in which a consumer made either of those statements, and the collector concluded those statements were not disputes and thus the appropriate dispute-related actions were not required, I would make a heavy deduction to the score for that call.

    I’m not saying a collector couldn’t reach the conclusion that those statements were not disputes – only that I don’t think such a conclusion is reasonable for those two specific statements.

    Despite that, the examples were all good, as they are statements that most collectors with any experience at all have doubtless heard numerous times. And as you quite rightly note in the article, context plays a part in determining whether or not a statement is a “dispute” or just a question.

  • avatar Sisko says:

    >>To me, those two statements, in any context, are clear indications that the consumer is questioning the validity of the debt or of something related to the debt

    In my experience, it doesn’t. It’s just a stall tactic, or an inquiry to determine whether the consumer can avoid payment. This is often demonstrated by responding “Yes I do have proof. If I send you the proof/documents will you pay the debt?”

    With regard to the article, I think there’s a problem of defining whether there is a -valid- dispute. A consumer could say “I dispute the debt, and I’m telling you that I don’t owe this debt because the sky is blue”. The consumer could say that over the phone, or mail a letter, and I suppose that if they’re serious then it IS a dispute. However, it doesn’t change the fact that the debt is still owed, because the dispute is invalid. So how do you draw the line?

  • avatar mike kaufmann says:

    I really enjoyed the article and agree that it would have been best if Congress defined what a dispute is. I fear the CFPB defining what is considered a dispute simply because of their current definition of a complaint ” Any expression of discontent”. If the definition of a dispute is as broad as the definition of a complaint we are going to be spending most of our time responding to these “disputes”.

  • avatar Ivan Martin says:

    Mike – I share your fear of letting the CFPB define what “dispute” means. I think it is likely to end up being a very broad definition, and is going to result in a lot of extra work for everybody. And consumer experience in the dispute review and resolution process is also going to generate a lot more complaints as well – both from those that aren’t satisfied with the result of their dispute, and from those who run into companies that aren’t ahead of the ball on having a clear and open dispute review process in place, or whose review process is lengthy or cumbersome.

    Sisko – I think it will be necessary to make a distinction between a frivolous dispute and an invalid dispute. I don’t believe there is such a thing as an invalid dispute – I think there are 3 types of disputes – frivolous, malicious, and legitimate.

    If a consumer says they don’t owe the debt because the sky is blue, that’s a frivolous dispute. Sadly, a collector may still be required to respond to a frivolous dispute.

    If a consumer knows a debt is valid, but thinks the collector will be unable to prove it, and thus they can possibly escape having to pay the debt, that is a malicious dispute. That is the type of dispute that I think poses the most danger, and can best be prevented or swiftly resolved by means of good record retention and documentation.

    If a consumer does owe a debt, and disputes the debt because they honestly believe they have previously paid it off, that is a legitimate dispute, even if the debt is, in fact, valid.

    A dispute, in my opinion, isn’t so much a single event that can be measured as valid or invalid, as it is a process that starts when a consumer initiates a dispute and continues through the process of reviewing documents and records, and finally ending with a resolution to the dispute – with the resolution being either proof that the debt is valid, or an inability to prove the validity of the debt.

    I hope that the CFPB will not place 100% of the burden upon the collectors in the event of a dispute, but given their “guilty until proven innocent” approach to complaints, I fear that they will take a similar approach that all consumer disputes are valid unless proven otherwise by the collector. Consumers who are claiming they have resolved or paid a debt should be required to provide some level of proof of that. But even if the CFPB does require consumers to cooperate in the dispute review process by providing some documentation, the majority of the burden for documentation to resolve a dispute (if not all of the burden) is likely to remain with the collector.

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