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Third Circuit Resolves Circuit Split on FDCPA by Reversing Itself

Nearly 30 years after authoring an opinion that has been rejected by the Second, Fourth and Ninth Circuits and ignored by the First, Fifth, Sixth and Seventh Circuits, the Third Circuit finally acknowledged that its original interpretation of 15 U.S.C. 1692g(a)(3) of the Fair Debt Collection Practices Act was wrong. 

 A copy of the opinion in Riccio v. Sentry Credit, Inc. is available at: Link to Opinion. 

One of the basics that gets covered in FDCPA 101 is what is commonly known as the validation notice of 1692g(a).  The validation notice requires a debt collector to provide the consumer a notice containing: 

  1. the amount of the debt; 
  2. the name of the creditor to whom the debt is owed; 
  3. 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;  
  4. 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; and 
  5. a statement that, upon the consumer’s written request within the 30-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor. 

Long before the growth of the cottage industry of litigation under the FDCPA, the Third Circuit considered 1692g(a)(3) in a case where a collector sent a letter advising a consumer that his dispute must be in writing.  In Graziano v. Harrison, the Third Circuit held that “given the entire structure of section 1692g, subsection (a)(3) must be read to require that a dispute, to be effective, must be in writing.”  The court reasoned that:  

Adopting [a contrary] reading of the statute would thus create a situation in which, upon the debtor’s non-written dispute, the debt collector would be without any statutory ground for assuming that the debt was valid, but nevertheless would not be required to verify the debt or to advise the debtor of the identity of the original creditor and would be permitted to continue debt collection efforts. We see no reason to attribute to Congress an intent to create so incoherent a system. We also note that there are strong reasons to prefer that a dispute of a debt collection be in writing: a writing creates a lasting record of the fact that the debt has been disputed, and thus avoids a source of potential conflicts. 

Notwithstanding this reasoning, most courts outside of the Third Circuit simply read the statute as it was written and did not require a debtor to dispute a debt in writing under 1692g(a)(3).  Further, so long as a collector copied and pasted the text of 1692g(a) into their letters, courts within the Third Circuit were not concerned with the notice itself but rather other language within letters overshadowing the requirement that disputes be in writing.  In the Third Circuit, this led to the decision in Caprio v. Healthcare Revenue Recovery Group where language in the letter inviting a debtor to call the collector if it had any disputes triggered a violation of the FDCPA.  Based on the reasoning from GrazianoCaprio held that inviting a debtor to call a collector to make a dispute contradicted the requirement that all disputes had to be in writing.  The Caprio letter was specific in that it invited a debtor to call if she had a dispute which was a no-no according to the Third Circuit. 

Things deteriorated quickly within the Third Circuit under Graziano/Caprio much like they did in the Second Circuit under Avilla.  In the beginning, the cases were confined to the Caprio overshadowing type claims but eventually the plaintiff’s bar reasoned it might just be possible to claim that a letter sent to a consumer quoted verbatim the language of the FDCPA, actually violated the FDCPA.  This is exactly what happened in Riccio.  The collector’s letter included that express notice required by 1692g(a) and Riccio filed suit arguing that the letter did not explicitly require disputes to be in writing. 

Sentry Credit moved for judgment on the pleadings and its motion was granted.  Because the cottage industry is largely a copycat industry, Riccio was not the only case of its kind as nearly every district court judge in the District of New Jersey and many in the Eastern District of Pennsylvania authored an opinion on this issue, most of whom sided with the collector holding that following the text of the FDCPA could not possibly violate the FDCPA.  But there were a few opinions going the other way leading to even more filings. 

Finally, the Third Circuit decided to revisit Graziano when Riccio was presented on appeal.  Interestingly, the court succinctly explained that the plain reading of 1692g(a)(3) confirmed that disputes did not have to be in writing unlike 1692(g)(4) and (5) which specifically have “in writing” requirements.  The court noted that the Second, Fourth and Ninth Circuits previously split with the Third Circuit and its holding in Graziano in finding that there was no requirement for disputes to be in writing and also that the First, Fifth, Sixth and Seventh Circuits did not require a written dispute either. 

From there though, the Third Circuit thrilled law school professors and scholars with an in-depth discussion of stare decisis and whether it could or should overturn Graziano before ultimately deciding to end the Circuit split.  And the fun did not stop there.  Realizing that the gravy train was coming to an end, plaintiff’s counsel at oral argument asked the court for a prospective ruling so that the Graziano reasoning would apply to Riccio’s claim and all of the other countless claims still pending or stayed in district courts below.  The Third Circuit declined to do so noting that “our holding today is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open on direct review and as to all events, regardless of whether such events predate or postdate our announcement of the rule.” 

With the “in writing” debate resolved once and for all, the Third Circuit also added a footnote that any collector who had previously sent “Graziano-compliant letters” should not be liable based on today’s decision because they had relied upon then-existing case law.  The court relied on 1692k(e) reasoning that “Just as collectors who act ‘in good faith in conformity with any [agency] advisory opinion’ cannot be liable if that ‘opinion is amended, rescinded, or’ judicially invalidated, § 1692k(e), collectors should not be penalized for good faith compliance with then-governing caselaw.”   

This begs two questions.  First, what is a “Graziano-compliant letter?”  Second, did the Third Circuit just create a new Circuit split by acknowledging errors of legal interpretation of the FDCPA can form the basis of a bona fide error defense?  In Jerman v. Carlisle, the Supreme Court held that an error of legal interpretation of the FDCPA does not fall within the bona fide error defense.  Ironically, the defendant’s error in Jerman was that it relied on Graziano in its interpretation of 1692g(a)(3) but found out the hard way that the Sixth Circuit was on the other side of the Circuit split.  Because FDCPA case law is constantly evolving in the absence of Circuit level guidance, can a collector in the Third Circuit now reasonably rely on a district court opinion in its favor and avoid future liability until that opinion is “judicially invalidated?”  That may be an expensive lesson to learn as it was for the Carlisle firm.

Or, if you are a glass-half-full kind of person it may be a light at the end of the tunnel for some of these oddball plaintiffs’ theories.  The Third Circuit also noted that district courts are well within their authority to “withhold damages for unintentional errors, § 1692k(b), award no damages for trivial violations, § 1692k(a)(1), and even award attorney’s fees to the collector if the debtor’s suit ‘was brought in bad faith and for the purpose of harassment,’ § 1692k(a)(3).”  Coming on the heels of opinions from district courts within the Second Circuit referencing “lawyer’s cases” and the “cottage industry” maybe the Riccio opinion will be a signal to focus more on the stated purpose of the FDCPA “to eliminate abusive debt collection practices” instead of focusing on minutiae and creative lawyering. 

On the other hand, if you are a glass-half-empty kind of person you may wonder what exactly the Third Circuit means when it says that “if the debtor merely disputes the debt orally, the collector can continue attempts to collect the debt. It will, though, eventually have to prove the debt’s validity.”  1692g(a)(4) and (5) specifically require a collector to send the debtor a response in writing before continuing to collect (or just cease collecting all together).  The plain text of 1692g(a)(3) only says “unless the consumer, within thirty 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” and does not require any action on the part of the collector and it certainly does not require the collector to “prove the debt’s validity.”

If, like Michael Scott of Dunder Mifflin fame, the debtor yells at the collector “I DISPUTE” what does that mean for the collector?  If the debtor tells the collector “this is not my debt” or “I paid this already” or “the amount is wrong” then the collector has some guidance and can actually investigate the dispute and should no longer assume that it is presumptively valid pending its review.  But the concern of course is when and how collectors are to “eventually prove the debt’s validity.” 

For now, however, the collection industry can all breathe a sigh of relief knowing that the plain text of 1692g(a)(3) means the same thing in all Circuits.  Or does it?


Maurice Wutscher’s team of seasoned FDCPA defense attorneys will present a webinar examining the issue, “Riccio: The Good, the Bad and the Ugly” on April 22. Click here to register.

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Tom Dominczyk is based in Maurice Wutscher's New Jersey office and supports the firm's matters in its New York and Pennsylvania offices, practicing in the firm's Commercial Litigation, Consumer Credit Litigation and Bankruptcy groups. Tom has successfully represented financial institutions and law firms throughout the country for claims filed under the Fair Debt Collection Practices Act, Fair Credit Reporting Act and various state consumer protection statutes. In addition to his litigation practice, Tom represents national, regional and local creditors in a variety of bankruptcy matters ranging from the defense of adversary actions to complex non-dischargeability litigation and preference defenses. He served as a Judicial Clerk to the Honorable Graham T. Ross, P.J.F.P., Superior Court of New Jersey, Somerset County. For more information, see

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