When Collecting Consumer Debts, Form Letters Can Present a Trap for the Unwary
In a recent opinion issued by the United States Court of Appeals for the Third Circuit, the court addressed whether a debt collector violated the federal Fair Debt Collection Practices Act (FDCPA) by including a seemingly innocuous statement in a collection letter that had no relevance to the debt. In this case, the debt collector sent several letters to a married couple in which it offered discounts if the subject debts were paid by certain dates. The letters, which likely were form letters, noted that the debt collector reports the forgiveness of debts as required by Internal Revenue Service (IRS) regulations and stated that a report is not required in every case and “might not be required in your case.” Unfortunately for the debt collector, IRS regulations require a report only when the amount forgiven is $600 or more. None of the plaintiffs’ debts met that dollar threshold (forgiven amounts on multiple debts to the same debtor are not aggregated for this purpose).
The debtors argued that the inclusion of a statement that the collector reports discharges as required by IRS regulations was, in their case, simply a scare tactic designed to convince them to pay the debts in full. The debt collector argued that there was nothing untrue or misleading about its statement because it does, in fact, report discharges to the IRS as required by law. The court sided with the debtors, however, and held that the inclusion of such a statement could cause the least sophisticated debtor (the pleading standard) to think that the discharge of any portion of his or her debt, regardless of amount, might be reportable. Because the FDCPA prohibits a debt collector from threatening to take any action that cannot legally be taken or that is not intended to be taken, the court held that the debt collector’s statement violated the FDCPA because it knew that any discharge would not – could not – result in a report to the IRS. The debt collector countered that the statement at issue must be read in concert with its qualifying statement that a report might not be required in the debtors’ cases, which it believed ameliorated the court’s concern. The court, however, disagreed and found that the qualifying statement actually made matters worse, because the use of “might not be required in your case” could lead the least sophisticated debtor to believe that reporting might be required and could happen.
In short, because none of the plaintiffs’ debts totaled $600 or more, it was not a question of “might not happen” but of “could not happen,” and the inclusion of any statement that could lead the debtor to think otherwise constituted the making of a false, deceptive, and/or misleading representation in violation of the FDCPA. The moral of this story – as is the case with most legal issues – is that words matter and, sometimes, less is more. It should be noted that the FDCPA applies only to a person who meets the definition of “debt collector,” which, subject to certain exceptions, includes only a person who collects debts owed or asserted to be owed to another person. Thus, a person who collects debts that it owns is not, as a general proposition, a debt collector subject to the FDCPA. It should also be noted, however, that the Maryland Consumer Debt Collection Act applies to creditors and collectors alike, and, similar to the provision of the FDCPA that was implicated in this case, it prohibits a person from claiming, attempting, or threatening to enforce a right with knowledge that the right does not exist. Please contact Andy Bulgin if you would like to discuss the implications of this case.