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7th Cir. Holds Separately Reporting Debts to Same Creditor Not ‘Unfair or Unconscionable’ Under FDCPA 

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The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of consumers’ claims that a debt collector’s separate reporting of debts accrued for medical services, rather than aggregated together, violated the federal Fair Debt Collection Practices Act (FDCPA). 

In so ruling, the Seventh Circuit held that separately reporting individual debts to a single creditor does not constitute an “unfair or unconscionable” means to collect or attempt to collect a debt in violation of the FDCPA.

A copy of the opinion in Zablocki v. Merchants Credit Guide Co. is available at:  Link to Opinion.

A medical services provider administered x-rays and billed the services to a patient (“debtor”).  After the debtor’s insurance provider covered some of the costs, amounts due to the provider remained outstanding. 

The provider eventually retained a debt collector who reported the debtor’s four outstanding debts for separate x-ray charges to a consumer reporting agency (CRA) after two years of unsuccessful collection attempts. 

A similarly situated patient (“debtor 2”) received medical services from a different provider and was also eventually referred to the debt collector for collection.  After two years passed without collecting the debts, the debt collector reported debtor 2’s 10 outstanding debts to the CRA for the unpaid medical service charges. 

Debtor 1 filed suit in federal court alleging that the debt collector’s reporting of the obligations separately, rather than aggregated together, violated subsections 1692e(2)(A) and 1692f of the FDCPA.   Shortly after the debtor’s complaint was filed, the Seventh Circuit held in Rhone v. Medical Business Bureau, LLC, 915 F.3d 438 (7th Cir. 2019), that reporting debts separately, rather than aggregated together, does not misrepresent the “character” of a debt in violation of 1692e(2)(A). Id. at 440.  Accordingly, debtor 1 filed an amended complaint with debtor 2 (collectively, “the debtors”) dropping the 1692e claim and asserting only a violation of section 1692f.

The debt collector moved to dismiss, and the motion was granted.  Rather than file an amended complaint, the debtors appealed. 

After confirming jurisdiction, the issue before the Seventh Circuit was whether the debtors’ complaint stated a claim under section 1692f of the FDCPA.  As you may recall, section 1692f prohibits “unfair or unconscionable means to collect or attempt to collect any debt.”  15 U.S.C. 1692f.  Here, the debtors argued that the debt collector’s reporting of separate amounts on each medical-service charge was “unfair or unconscionable” and supposedly resulted in further lowering of their credit scores than if the charges were reported as a single aggregated debt. 

The Seventh Circuit initially noted a discrepancy between the debtors’ allegations that they each owed a “single debt” to a “single medical provider” and their acknowledgment that the FDCPA defines “debt” on a per-transaction — and not a per-creditor — basis.  15 U.S.C. 1692a(5).  The debtors further acknowledged that the obligations reported to the CRA correspond to individual medical-service charges, and their credit report documents reflect each charge with separate dates when the debt was placed for collection and when they will be removed from the report. 

Thus, the Seventh Circuit rejected the debtors’ allegations that the separately reported obligations owed to each medical-service provider comprised a “single debt”, as defined under the FDCPA. Cf. Rhone, 915 F.3d at 439 ($60 co-pay per physical therapy session, which added up to $540 owed to a creditor, constituted nine debts of $60 each).

The Court next addressed the debtors’ allegations concerning their tradelines and accounts.  Specifically, debtor 1 claimed that the debt collector reported his unpaid charges as separate “accounts,” and that for both debtors’ debts, the separate reporting of unpaid charges caused their credit reports to display multiple “tradelines,” instead of a single “tradeline” and total sum owed to a creditor. 

Acknowledging that these terms used by the CRA are not specifically defined under the FDCPA, the debtors’ claims therefore rested upon whether section 1692b’s prohibitions against “unfair or unconscionable” debt-collection practice requires collectors, when reporting debts to a consumer reporting agency, to aggregate together multiple debts owed to a single creditor.  

The Seventh Circuit was compelled to evaluate the phrase through the eyes of an unsophisticated, but reasonable consumer.  See Turner v. J.V.D.B. & Assocs., Inc., 330 F.3d 991, 997 (7th Cir. 2003).

The FDCPA does not define “unfair” or “unconscionable,” and the eight enumerated examples of “unfair or unconscionable means” to collect or attempt to collect a debt do not address separate-versus-aggregate reporting.  The FDCPA specifies that the examples do not “limit[] the general application” of what might constitute “unfair or unconscionable means” to collect a debt, leaving the full list of permissible applications unannounced. 

The debtors argued that the seventh and eighth examples under 1692f — prohibiting “[c]ommunicating with a consumer regarding a debt by post card” (15 U.S.C. 1692f(7)) and “[u]sing any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram” (15 U.S.C. 1692f(8)) — relate to their theory and show that the debt collector’s separate reporting of debts falls within the general provision’s reach. 

However, the Seventh Circuit rejected the debtors’ arguments that these examples relate to a person’s image or credit reputation, and that listing the obligations separately makes a debtor looks less creditworthy. 

The Seventh Circuit further noted that it could not locate any advisory or enforcement opinions bearing on the specific question before it, nor any applicable rules prescribed by the Consumer Financial Protection Bureau (CFPB) under its authority to enforce FDCPA compliance, thus leaving the Court “on [its] own” in answering whether debts owed to a single creditor should be reported in the aggregate.  Rhone, 915 F.3d at 440. 

Viewing the debt collector’s separate reporting of debts from the perspective of an unsophisticated but reasonable consumer, the Court concluded that the alleged conduct fell outside the scope of “unfair” or “unconscionable” based on the terms’ ordinary meanings, and it was reasonable and perhaps preferable to certain consumers that a collector individually report debts that correspond to different charges to truthfully communicate the amount owed on each debt.  See Rhone, 915 F.3d at 439 (recognizing that aggregated reporting could be misleading); Cf. Fields v. Wilber Law Firm, P.C., 383 F.3d 562, 566 (7th Cir. 2004) (concluding that collector’s failure, in a dunning letter, to separate attorney fees from other obligation was misleading and unfair to consumers, impairing their ability to knowledgeably assess debt validity). 

Accordingly, the trial court’s dismissal of the debtors’ complaint for failure to state a claim under section 1692f of the FDCPA was affirmed.

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Christopher P. Hahn practices in Maurice Wutscher’s Commercial Litigation, Consumer Credit Litigation and Insurance Recovery and Advisory groups. Prior to joining Maurice Wutscher LLP, he served under the General Counsel at the Florida Office of Financial Regulation. He also obtained extensive experience litigating property insurance claims through all phases of discovery, motion practice and other pre-trial activities. Christopher obtained his Bachelor of Science degree in Business Administration from the University of Southern California, followed by his Juris Doctorate degree from the University of Miami School of Law. He is also a graduate of the University of Miami’s Masters of Business Administration program, completing his degree with an emphasis on finance and mergers and acquisitions. For more information, see https://mauricewutscher.com/attorneys/christopher-p-hahn/

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