5th Cir. Holds Debt Collector’s Obligation to Report Debt as Disputed Not Limited By § 1692g

The U.S. Court of Appeals for the Fifth Circuit recently affirmed summary judgment under the Fair Debt Collection Practices Act (FDCPA) in favor of the debtor and against a debt collector, where the debt collector failed to mark the debtor’s account as disputed when it credit reported the account.

The debt collector admitted that it had not marked the account as disputed because it incorrectly believed that credit reporting a debt as disputed was subject to the requirements of 15 U.S.C. § 1692g, which governs validation of a debt and the treatment of disputed debts.

In so ruling, the Fifth Circuit also rejected the debt collector’s Spokeo argument, holding that the alleged violation provided sufficient standing.

A copy of the opinion in Sayles v. Advanced Recovery Systems is available at:  Link to Opinion.

The debt collector sent two letters to the debtor about a debt.  Nearly a year later, the debtor ran his credit report and discovered a debt that he did not recognize.  He sent a letter to the debt collector disputing the validity of the debt but got no response.  The debtor ran his credit report again six weeks later and found that the debt collector had updated the trade line to reflect some of the information from his letter but had failed to mark the account as disputed. The debtor sued the debt collector asserting that it had violated section 1692e(8) of the FDCPA.

As you may recall, section 1692e(8) of the FDCPA (15 U.S.C. § 1692e(8)) prohibits a debt collector from communicating or threatening to communicate false credit information, which includes the failure to communicate that a disputed debt is disputed.

Entirely separate from that prohibition are the requirements in section 1692g of the FDCPA (15 U.S.C. § 1692g) concerning the validation and verification of debts.  Section 1692g(b) requires, among other things, that a consumer must dispute the debt in writing within 30 days after receiving the validation notice from a debt collector.

The debt collection agency admitted that it had not reported the account as disputed to the credit reporting agencies, but argued that it was not required to do so because the debtor had not disputed the debt in writing within 30 days after receiving the validation notice.  The debt collector reasoned that section 1692e(8) incorporates the requirements of section 1692g, perhaps because both address “disputes.”

However, the Fifth Circuit held that is where the debt collector went wrong.

The Court held that the requirements of section 1692g are unique to the validation process in which the debt collector validates the debt and the debtor has the opportunity to get additional information to verify the debt.  The debt validation process does not apply to credit reporting of disputed debts, the Fifth Circuit held.  Under section 1692e(8), disputed debts, no matter how or when they are disputed, must be credit reported as disputed.

The Fifth Circuit held that a debtor can contact a debt collector at any time in any manner to state that the debtor disputes the debt and the debt collector will have to credit report it as disputed.  Thus, the Court held, if the debtor calls the debt collector months or years after the validation letter has gone out and disputes the debt, the debt collector does not have to verify the debt under section 1692g but it does have to mark that debt as disputed in its credit reporting.

The Court went a step further and explained that the language of section 1692e(8) “requires no notification by the consumer, written or oral” for the requirement to credit report a debt as disputed to kick in.  The Fifth Circuit noted that section 1692e(8) states that a debt collector must report a debt as disputed where it “knows or should know” that the debt is disputed.

The Court explained that this means that if the debt collector has any information or knowledge that a debt is disputed, even if the knowledge did not come from the debtor, the debt collector must report it as disputed.  While it may be difficult to imagine what knowledge a debt collector might have that could independently inform it of a dispute apart from some type of communication from the debtor, this ruling makes clear that it is something debt collectors should be on the lookout for.

The Fifth Circuit also rejected the debt collector’s Spokeo argument finding that the stated violation provided sufficient standing. Accordingly, the Court affirmed summary judgment in favor of the debtor and against the debt collector.

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Amy Jonker is a commercial litigator whose practice focuses on defending consumer financial services companies in class actions, individual matters, and regulatory investigations, representing employers in investigations and litigation, and successfully resolving commercial disputes. She has extensive experience delivering positive outcomes in complex commercial litigation in state and federal courts across the country, including for many financial institutions and law firms for claims filed under the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit Transactions Act (FACTA), the Telephone Consumer Protection Act (TPCA), UDAAP and state consumer protection laws, under the Family and Medical Leave Act (FMLA), Title VII, the Americans with Disabilities Act (ADA), whistleblower claims, and in complex insurance disputes. Her experience covers all phases of litigation at both federal and state levels, including obtaining dismissals of complaints, obtaining summary judgment on claims and defenses, handling all phases of discovery in both individual and class actions, negotiating individual and class action settlements, preparing for and participating in trials and arbitrations, conducting oral arguments, and federal and state court appellate work.