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5th Cir. Holds No FDCPA Violation When Collection Letter Stated That Amount Due ‘May’ Increase

The U.S. Court of Appeals for the Fifth Circuit recently affirmed entry of summary judgment against a consumer debtor who claimed that a collection letter’s language, implying that interest or other charges (which the debt collector did not collect on debts referred to it by the creditor and were not referenced in the subject credit agreement) could accrue in the event of a default, violated the federal Fair Debt Collection Practices Act (FDCPA).

In so ruling, the Fifth Circuit concluded that the subject language merely communicated that the balance “may” increase “in the event” such charges were accruing was not false, misleading or deceptive in violation of the FDCPA, 15 U.S.C. 1692, et seq., and did not disagree with the trial court’s ruling that the collection letter accurately conveyed that the creditor could elect to charge interest on the defaulted loan under Texas law. 

A copy of the opinion in Salinas v. R.A. Rogers, Inc. is available at:  Link to Opinion.

A consumer obtained a loan from a credit union (“creditor”) for personal, family or household use.  The debtor eventually defaulted, and a debt collection agency mailed a collection letter to the debtor listing $4,629.96 as the “Principal Balance” and “Total Amount Due” on the account, and “Interest” and “Fee[s]” as $0.

 The collection letter included a statement that “[i]n the event there is interest or other charges accruing on your account, the amount due may be greater than the amount shown above after the date of this notice.”

The debtor characterized the statement as an improper attempt to induce payment because the debt collector was not permitted to collect interest or other charges on debts owed to the creditor and the loan agreement “does not allow” for interest or other charges to be added.  

On this basis, the debtor filed a putative class action complaint in federal court alleging that the collection letter’s language was false, deceptive and misleading in violation of section 1692e of the FDCPA, and seeking certification of a class of “[a]ll consumers within the State of Texas that have received collection letters from [debt collector] concerning debts from [creditor] within one year prior to filing of this complaint which falsely represent to the consumer that interest or other charges may accrue.”

The parties did not dispute that (i) the debt collector did not collect interest or charges on debts referred to it for collection from the creditor; and, (ii) the subject credit agreement was silent as to whether interest or other charges could accrue in the event of a default. 

The debt collector moved for summary judgment on the basis that the collection letter “clearly and unambiguously state[d] the amount of the debt” in compliance with the FDCPA and that the “plain statement” that the total amount due is $4,629.96 and interest and fees are $0 “is not undercut by the contingent (but obviously inapplicable rather than ‘applicable’) language of the [challenged] sentence.”

The trial court granted summary judgment in the debt collector’s favor on different grounds, reasoning that the letter was not false, misleading, or deceptive because the creditor could have elected to charge interest on the defaulted loan under the Texas Finance Code section 302.002, and the letter was “not confusing on its face.”  Salinas v. R.A. Rogers, Inc., No. SA-18-CV-733-XR, 2019 WL 2465325, at *5 (W.D. Tex. June 13, 2019) citing TEX. FIN. CODE ANN. § 302.002 (“Texas law stipulates that a six percent interest rate may be applied to the principal balance of the loan starting thirty days after payment is due when the obligor has not agreed on an interest rate.”).  The debtor appealed.

On appeal, the debtor argued that reversal was warranted because (i) the collection letter’s “utterly false” conditional statement violated the FDCPA, and (ii) the trial court improperly drew one or more inferences in the debt collector’s favor by inferring that the debt collector would collect interest based on the fact that it could under Texas law, and improperly required evidence of “subjective confusion” on the part of the debtor.

Addressing these arguments in order, the Fifth Circuit first turned to the plain language of section 1692e of the FDCPA, which prohibits (i) “[t]he false representation of (A) the character, amount, or legal status of any debt; or (B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt” § 1692e(2), and; (ii) “any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.” § 1692(e)(10).

The debtor argued on appeal that the collection letter implied a false proposition that interest or other charges could accrue on the account in the absence of payment despite the fact that no circumstances would allow his debt to increase due to interest or other charges while being collected upon by the debt collector.

To the extent the debtor claimed that the collection letter’s language was “false,” the Fifth Circuit rejected this argument as “downright frivolous,” (see Taylor v. Cavalry Inv., L.L.C., 365 F.3d 572, 575 (7th Cir. 2004)), reasoning that the use of the term “in the event” merely expressed a truism the equivalent of “if,” and does not state that the lender or debt collector would or could collect interest.

Turning to whether the collection letter was “deceptive” or “misleading,” the Fifth Circuit concluded that reading the letter as a whole, even the ‘unsophisticated’ or ‘least sophisticated’ consumer (see Daugherty v. Convergent Outsourcing, Inc., 836 F.3d 507, 511 (5th Cir. 2016)) would not conclude that interest or other charges would accrue absent prompt payment, and instead merely warned of a possible outcome — an increase in the amount due — “in the event” interest or other charges are accruing.  

Moreover, the Fifth Circuit held, adopting the debtor’s argument “would lead to absurd results,” as even the mere mention of “interest” and “fees,” even if listed at $0 could suggest that these amounts may be accrued in the future and “force collection agencies to sift through applicable statutes and loan contracts to determine with absolute certainty, for each and every account, whether interest or other charges might possibly accrue, insofar as some debt collectors have been exposed to FDCPA liability for omitting statements similar to the one at issue here.” 

Thus, the Court concluded that because the collection letter’s language at issue “expresse[d] a common-sense truism” about borrowing and lending, it was not false, misleading or deceptive under the FDCPA.

Lastly, the Fifth Circuit declined to address the debtor’s argument that the trial court applied the wrong summary judgment standard by drawing inferences in the debt collector’s favor because its holding did not depend on either point raised by the debtor. 

Accordingly, the judgment of the trial court in favor of the debt collector and lender was affirmed.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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