ED NY Dismisses FDCPA Claim Based on Non-Disclosure of Potential Fees, Costs

The day before the Second Circuit shut down reverse-Avila claims with its decision in Taylor v. Financial Recovery Services, Inc., the U.S. District Court for the Eastern District of New York dismissed an FDCPA Avila claim involving potential future fees and costs in Derosa v. Computer Credit, Inc.

A copy of the opinion is available at:  Link to Opinion.

This recent chapter in the post-Avila saga involves a consumer who incurred a small hospital debt. A collector sent a letter that used the words “PAST DUE AMOUNT: $174.15” to inform the consumer of the balance. The letter contained no mention of interest, fees, or other charges.

The consumer, apparently baffled by this straight-forward recitation of the amount owed, filed suit alleging that the collector violated the Fair Debt Collection Practices Act (FDCPA), 15 U. S.C. § 1692 et seq., by failing to inform him of potential future attorney’s fees and court costs that his creditor could claim under its agreement with him. The consumer also alleged that the letter did not disclose that the creditor could add statutory pre-judgment interest.

Of note, the consumer did not allege that interest and fees were actually accruing at the time the letter was mailed. Instead, he alleged that the collector was obligated to disclose that these items could accrue at some point in the future.

The Court granted the collector’s motion to dismiss, finding that the letter did not violate 15 U.S.C. § 1692e, which prohibits false and misleading representations by debt collectors, or 15 U.S.C. § 1692g(a), which requires collectors to include certain information in their initial written communication to the consumer.

The Court held that collectors are not required to notify consumers of unaccrued attorney’s fees and court costs that are contingent upon future events. The Court noted that attorney’s fees and court costs could only be applied to the debt if the creditor retained an attorney, commenced a lawsuit, incurred those fees and costs, and had a court deem those fees and costs reasonable.

To the contrary, the Court warned that the mention of speculative future fees and costs could mislead the least sophisticated consumer and thus violate the FDCPA. The Court also noted that the Second Circuit’s 2017 decision in Carlin v. Davidson Fink LLP prohibits the inclusion of estimated future fees and costs in a collection notice.

The consumer argued that the Second Circuit’s holding in Avila v. Riexinger & Assocs., LLC requires collectors to disclose potential increases to the amount of the debt, but the Court rejected this argument and declined to extend Avila in this manner.

The Court noted that the Avila panel was concerned about the adequacy of collection notices with respect to the amount of the debt. Such a notice is inadequate if it fails to inform the consumer that the amount of the debt is increasing due to the “mere passage of time.” In the absence of this information, the least sophisticated consumer would believe that payment of the stated balance would satisfy the debt in full, but this is incorrect if the amount is already increasing due to interest or other charges.

This concern was not present in Derosa because the debt was not increasing due to the passage of time and any increase was contingent upon events that had not occurred at the time the letter was mailed. Thus, the least sophisticated consumer would be correct in assuming that payment of the “past due amount” would fully satisfy the debt.

In other words, the Court found that Avila’s rationale does not apply to static balances, even if there is a possibility that an increase could be triggered by some future event.

Likewise, the Court found that statutory interest under N.Y. C.P.L.R. § 5001 does not accrue until it is awarded by a court. The consumer did not allege that a court had awarded this interest, thus the debt remained static at the time he received the letter.

The Court cited other recent district court opinions holding that Avila does not require the disclosure of prejudgment interest under the New York statute when there is no allegation that a legal action has been commenced to collect the debt. See Cruz v. Credit Control Services, No. 2:17-cv-1994, 2017 WL 5195225 (E.D.N.Y. Nov. 8, 2017); Altieri v. Overton, Russell, Doerr, and Donovan, LLP, 281 F.Supp.3d 254 (N.D.N.Y. 2017).

In a footnote, the Court noted that the consumer previously lost a similar case in the Eastern District of New York. That case, Derosa v. CAC Fin. Corp., is currently on appeal to the Second Circuit.

On March 29, 2018, the Second Circuit handed down its much-anticipated decision in Taylor v. Financial Recovery Services, Inc., holding that the FDCPA does not require collectors to disclose that a debt is no longer accruing interest or fees. Time will tell whether the Second Circuit will provide additional guidance following review of this other Derosa case.

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Brent Yarborough practices in Maurice Wutscher's Birmingham office in its Appellate, Commercial Litigation, Consumer Credit Litigation and Regulatory Compliance groups. He has substantial experience representing financial institutions, debt buyers and law firms. He has defended cases involving the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Truth In Lending Act, and various state law claims asserted against lenders and their assignees. He has also provided compliance advice on matters related to the FDCPA, UDAAP, and state debt collection laws. He is a frequent speaker to national audiences and publishes on topics related to consumer financial services regulation and litigation. For many years Yarborough has served on the Executive Board of the Birmingham Bar Association’s Bankruptcy and Commercial Law Section. He also serves on the Legislative Task Force of the Creditor Attorney Association of Alabama and is the immediate past president of the Birmingham-Southern College National Alumni Association. In October 2015, he was elected Secretary of NARCA – The National Creditors Bar Association, after serving on its Board of Directors for the previous eight years. In addition, he chairs NARCA’s Government and Regulatory Affairs Committee. Yarborough earned his B.A., cum laude, from Birmingham-Southern College and his J.D. from Cornell University, where he was Secretary/Treasurer of the Cornell Law School Moot Court Board.