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7th Cir. Holds FDCPA Claims Failed Due to No Evidence of ‘Confusing or Misleading to Significant Fraction of Population’

debt collectionThe U.S. Court of Appeals for the Seventh Circuit recently affirmed entry of summary judgment in favor of a debt collector that its collection letter language was “false, misleading or deceptive” in violation of section 1692e of the Fair Debt Collection Practices Act.

In so ruling, the Seventh Circuit concluded that, although the language at issue in the collection letter was neither “plainly and clearly not misleading” nor “plainly false, deceptive or misleading” on its face, but could be construed so by the unsophisticated consumer, summary judgment in the debt collector’s favor was appropriate as a result of the debtor’s failure to present evidence that the language in question would be confusing or misleading to a significant fraction of the population, as required.

A copy of the opinion in Erin Johnson v. Enhanced Recovery Company, LLC is available at:  Link to Opinion.

A third-party debt collector mailed three dunning letters to the debtor dated March 8, 2016 (which the debtor claims to have never received), and two nearly identical letters dated April 21, 2016 and June 6, 2016, attempting to collect on delinquent cell phone bills.

The April 21, 2016 letter that formed the basis of this lawsuit (the “collection letter”) identified the cell phone provider as the creditor and offered three payment options to satisfy the outstanding debt.  The collection letter further included language informing the debtor that “This letter serves as notification that your delinquent account may be reported to the national credit bureaus,” followed by the statement that “[p]ayment of the offered settlement amount will stop collection activity on this matter.”

The debtor filed suit against the debt collector alleging that the collection letter violated section 1692e of the FDCPA, which prohibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt.”

The debt collector’s motion to dismiss was denied on the grounds that determination of whether a communication is confusing or misleading under § 1692e is ordinarily a question of fact.  After class certification and cross‐motions for summary judgment were filed, summary judgment was entered in the debt collector’s favor based upon the debtor’s failure to adduce necessary evidence that the language in question would be confusing or misleading to a significant fraction of the population.  

The debtor appealed the summary judgment rulings and the debt collector cross-appealed, claiming that the trial court erred in denying its motion to dismiss the complaint for failure to state a claim.

The Seventh Circuit first addressed the debt collector’s cross-appeal of the trial court’s order denying its motion to dismiss, initially collecting cases upholding the proposition that complaints alleging misleading communications under section 1692e are rarely subject to dismissal for failure to state a claim in the Seventh Circuit because whether a communication is false, deceptive or misleading under the FDCPA is a question of fact.  See Evory v. RJM Acquisitions Funding, L.L.C., 505 F.3d 769, 776 (7th Cir. 2007) (“[W]e treat issues of deception as ones of fact rather than of law.”); Zemeckis v. Glob. Credit & Collection Corp., 679 F.3d 632, 636 (7th Cir. 2012) (“As a general matter, we view the confusing nature of a dunning letter as a question of fact that, if well‐pleaded, avoids dismissal on a Rule 12(b)(6) motion.”) (internal citation omitted); McMillan v. Collection Prof’ls Inc., 455 F.3d 754, 760 (7th Cir. 2006) (noting that inquiries under § 1692e “are necessarily fact bound” and that in “most instances” application of Rule 12(b)(6) “will require that the plaintiff be given an opportunity to demonstrate that his allegations are supported by a factual basis responsive to the statutory standard”). 

However, dismissal of a claim under §1692e is appropriate when it is clear from the face of the communication that no reasonable person, however unsophisticated, would be deceived by the allegedly false or misleading statement. See Heredia, 942 F.3d at 814; Taylor v. Cavalry Inv., L.L.C., 365 F.3d 572, 574–75 (7th Cir. 2004) (“If it is apparent from a reading of the letter that not even ‘a significant fraction of the population‘ would be misled by it… the court should reject it without requiring evidence beyond the letter itself.”).

Here, the Seventh Circuit rejected the debt collector’s argument that the collection letter’s disputed language was not misleading because it tracks safe harbor model language found in Regulation V, which governs the Fair Credit Reporting Act (12 C.F.R. Part 1022, App. B, Model Notices of Furnishing Negative Information, Model Notice B‐1), holding that use of the model language does not eliminate the factual question of whether the debtor stated a claim under the FDCPA. 

The Court further agreed that the debtor’s interpretation of the collection letter’s statements following the settlement offers that the delinquent account “may be reported” to credit bureaus, but “[p]ayment of the offered settlement amount will stop collection activity on this matter,” stated a cause of action under section 1692e, and that the debtor did not argue that she believed payment of the settlement offer could prevent any collection activity, as the debt collector suggests.  Accordingly, the order denying the debt collector’s Rule 12(b)(6) motion to dismiss was affirmed.

Turning to the debtor’s argument that summary judgment in the debt collector’s favor was improper, the Seventh Circuit was tasked with determining whether the collection letter was deceptive from the objective standpoint of an “unsophisticated debtor” — one who is “uninformed, naive,” and “trusting,” but does possess “rudimentary knowledge about the financial world,” and “is wise enough to read collection notices with added care.” Boucher v. Fin. System of Green Bay, Inc., 880 F.3d 362, 366 (7th Cir. 2018) (quoting Williams v. OSI Educ. Servs., Inc., 505 F.3d 675, 678 (7th Cir. 2007) (citations and internal quotations omitted)).

Applying this standard, the Seventh Circuit has categorized §1692e cases into three groups to determine whether the disputed language “could well confuse a substantial number of recipients” (Pantoja v. Portfolio Recovery Assoc., LLC, 852 F.3d 679, 686 (7th Cir. 2017)):

(1) cases where the challenged language is obviously not misleading and no extrinsic evidence is required to demonstrate that a reasonable unsophisticated consumer would not be misled. (*Id. at 686–87.);

(2) cases where the debt collection language is not deceptive or misleading on its face, but could be construed so as to be confusing or misleading to the unsophisticated consumer, requiring plaintiffs to produce extrinsic evidence, such as consumer surveys, tending to show that unsophisticated consumers are in fact confused or misled by the challenged language. (Id.), and;

(3) cases involving language that is plainly false, deceptive, or misleading, and therefore requires no additional evidence for the plaintiff to succeed on her claim. (Id.).

The debtor took the position that no additional evidence was required beyond her own opinion that a reasonable but unsophisticated consumer would deem the collection letter as a “threat to engage in credit reporting” unless payment was made by the date listed with the first settlement offer.  However, the Court disagreed with the debtor’s claim that the phrase “may be reported to the national credit bureaus” conveyed a future possibility that her debt could be reported when, in fact, it already had been reported at the time the letter was generated (or shortly thereafter). The Seventh Circuit reasoned that “may” could refer to future events, as the debt collector argued, but by definition, could also be intended to notify the debtor that the debt collector is capable of reporting the outstanding debt. 

Thus, the collection letter did not fall into the first category as being “plainly and clearly not misleading,” nor the third category involving plainly false, deceptive or misleading language, but the second category for which the debtor bears the burden of producing evidence of confusion (beyond her own) using an objective measure such as “a carefully designed and conducted consumer survey.” Sims v. GC Servs. L.P., 445 F.3d 959, 963 (7th Cir. 2006).

The debtor’s reliance on cases from other circuits to support her contention that no further evidence was required when a communication has two possible readings — one of which is misleading — were inapplicable, as each of the cited circuits used the “least sophisticated consumer” standard expressly rejected by the Seventh Circuit to assess whether a communication is confusing under the FDCPA.  See Pettit v. Retrieval Master Creditor Bureau, Inc., 211 F.3d 1057, 1060 (7th Cir. 2000) (“[W]e have rejected the ‘least sophisticated debtor’ standard used by some other circuits because we don’t believe that the unsophisticated debtor standard should be tied to ‘the very last rung on the sophistication ladder.’”).

Without adequate proof that a significant — or any (beyond herself) — fraction would read the collection letter as misleading, the Seventh Circuit agreed with the trial court’s findings that the debtor failed to create a genuine issue as to whether a significant fraction of the population would reach such a conclusion.  Lox v. CDA, Ltd., 689 F.3d 818, 821 (7th Cir. 2012) (internal quotation omitted); Pettit, 211 F.3d at 1062. 

Accordingly, entry of summary judgment in the debt collector’s favor and against the debtor 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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