Breaking Down the Second Circuit’s Recent Decision Re Disclosure Disputes Under FDCPA’s 1692g(a)(3): What Debt Collectors Need to Know

The Second Circuit’s recent decision in Hooks v. Forman 1 has received quite a bit of attention since it was handed down May 29.  The case held that a disclosure made pursuant to 1692g(a) violated the Fair Debt Collection Practices Act when it instructed the recipient of the letter that if she wished to dispute the debt, she could only do so in writing. The decision recognized that under section 1692g, some disputes can be verbal. It also recognized that under other sections (particularly sections 1692g(a)(4) and 1692g(b), a dispute must be in writing to be effective.US-CourtOfAppeals-2ndCircuit-Seal

Most debt collectors have 1692g disclosures that closely track the language of the statute. Hooks  provides an example of the bad things that can happen when a debt collector makes 1692g disclosures that do not track the statutory disclosures.

Let’s break down the court’s decision.

First, the decision is addressing whether a disclosure violated only section 1692g(a)(3)That section requires a debt collector to disclose within five days of its initial communication with the consumer the following:

a statement that unless the consumer, within 30 days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector.

Looking at the text of section 1692g(a)(3), there is no mention that a dispute must be in writing to prevent a debt collector from  presuming a debt to valid, so long as the dispute is made within the 30-day period. Because there is no writing requirement, a disclosure which states that a 1692g(a)(3) dispute must be in writing, the Second Circuit held, violates the FDCPA. This holding interprets section 1692g(a)(3) similar to the Ninth Circuit’s rationale in Camacho v. Bridgeport 2  and, as the Hooks decision noted, in a manner consistent with interpretations by district courts within the Second Circuit.

Contained within section 1692g(a) is another type of dispute, one made under section 1692g(a)(4), which requires the debt collector to provide the consumer with:

a statement that if the consumer notifies the debt collector in writing within the 30-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector [emphasis added].

Under section 1692g(a)(4), to obtain verification of a debt, a consumer must dispute a debt in writing within 30 days. If the debtor disputes the debt in writing within that 30-day period, it triggers section 1692g(b), requiring a debt collector to provide verification of the debt before it continues its debt-collection efforts.

The  Hooks decision does not change the writing requirements of section 1692(a)(4) or 1692g(b) and debt collectors should continue to make the 1692g(a)(4) disclosure as requiring a written dispute. Several courts have held that removing the writing requirement from the section 1692g(a)(4) disclosure is a violation of the FDCPA. 3

It does seem strange that section 1692g allows one type of dispute to be made either verbally or in writing, while another can only be made by a writing. The Third Circuit, in Graziano v. Harrison  4, found this odd and held that all disputes under section 1692g must be in writing. But, no other Circuit Court of Appeals has adopted Grazianothe Ninth and now the Second have rejected it, and many district courts outside the Third Circuit do not follow it.

Hooks, like Camacho from the Ninth Circuit, explains that the difference between the two section 1692g disputes reflects the different protections 1692g(a)(3) and 1692g(a)(4) afford debtors, as well as the different requirements they impose on debt collections. A writing is required under section 1692g(a)(4) because only a writing can trigger section 1692g(b) and cause a cessation of collection efforts until verification is provided. That is a powerful protection.  A verbal dispute will not stop debt-collection efforts, and does not require verification to continue collection. But, if timely made, a verbal dispute (and, of course, a written dispute) prevents a debt collector from assuming a debt is valid under section 1692g(a)(3).

The section 1692g disclosure made by the defendant in Hooks would probably be found compliant by a court within the Third Circuit. The defendant law firm was based in New Jersey, which lies within the Third Circuit, and offers an explanation as to why they made this type of disclosure in the first place. It also underscores the terrible state of conflicting decisional law construing the FDCPA. 5 The close proximity of the Defendant law firm to New York (which is within the Second Circuit and is where the collection activity was directed), ultimately led to a bad day for this debt collector. Hooks may ultimately be certified as a class.

The lesson here is that no matter where you might be located, make sure your 1692g disclosures closely track the language of the statute. 6

 

 

 

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Notes:

  1. Hooks v. Forman, Holt, Eliades and Ravin, LLC, 12-3639 (2nd. Cir. May 29, 2013). A copy of the decision is available here.
  2. Camacho v. Bridgeport Financial Inc., 430 F.3d 1078, 1081 (9th Cir. 2005)
  3. Camacho v. Bridgeport Financial Inc., 430 F.3d at 1081 ; McCabe v.Crawford & Co., 272 F. Supp. 2d 736, 743 (N.D. Ill. 2003); Bicking v. Law Offices of Rubenstein & Cogan, 783 F. Supp. 2d 841, 845 (E.D. Va. 2011)
  4. Graziano v. Harrison, 950 F.2d 107, 112 (3d Cir. 1991)
  5. The Circuit split was recognized by the Supreme Court in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA,     U.S.    , 130 S. Ct. 1605, 1610, & nn.2-3, 176 L. Ed. 2d 519 (2010), but the issue was not before it. Also, the defendant in Jerman had made the same disclosure as the defendant in Hooks – requiring all disputes to be in writing. Even though the error was made on a good-faith mistaken interpretation of the FDCPA (since the law firm relied upon Graziano in fashioning its disclosure), an error of that type did not protect the law firm from liability under the FDCPA’s bona fide error provision.
  6. See, Riggs v. Prober & Raphael, 681 F.3d 1097 (9th Cir. 2012) where although the disclosures were provided in an order different than that laid out in the statute, the disclosures were still compliant because they closely tracked the statutory text.

Donald Maurice provides counsel to the financial services industry, successfully litigating matters in the state and federal courts in individual and class actions. He has successfully argued before the Third, Fourth and Eighth Circuit U.S. Courts of Appeals, and has represented the financial services industry before several courts including as counsel for amicus curiae before the United States Supreme Court. He counsels clients in regulatory actions before the CFPB, and other federal and state regulators and in the development and testing of debt collection compliance systems. Don is peer-rated AV by Martindale-Hubbell, the worldwide guide to lawyers. In addition to being a frequent speaker and author on consumer financial services law, he serves as outside counsel to RMA International, on the governing Board of Regents of the American College of Consumer Financial Services Lawyers and on the Governing Committee of the Conference on Consumer Finance Law. From 2014 to 2017, he chaired the ABA's Bankruptcy and Debt Collection Subcommittee.