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7th Cir. Holds FDCPA Consumer’s Confusion and Hiring Attorney Not Enough for Article III Standing

debt collectionThe U.S. Court of Appeals for the Seventh Circuit recently vacated judgment in favor of a debt collector against putative class action claims raised by a consumer that its collection letter violated the federal Fair Debt Collection Practices Act (FDCPA) by threatening action that could not legally be taken and amounting to a false representation.

In so ruling, the Seventh Circuit concluded that dismissal for lack of subject matter jurisdiction was appropriate because the collection letter did not include a false statement, and that the consumer conceded that the letter had not injured her, instead only causing “confusion” that led to her retaining counsel, all of which was not sufficient as a concrete injury to confer standing under Article III.

A copy of the opinion in Brunett v. Convergent Outsourcing Inc. is available at:  Link to Opinion.

A consumer received a letter from a debt collector demanding repayment of outstanding debt.  In the letter the debt collector offered to accept 50 percent of the balance in satisfaction of the debt and invited the consumer to contact it to discuss other options if this was unaffordable. 

The letter further informed the consumer that if more than $600 of the debt was forgiven, it would be required to report the forgiven amounts to the Internal Revenue Service as taxable income on a Schedule 1099-C in accordance with federal law.  Thus, because the consumer’s debt of $1,012 exceeded $600, a report would be required if the debt collector accepted $412 or less as full payment. 

The consumer filed a putative class action complaint against the debt collector on behalf of herself and all other recipients of similar letters, alleging that the statement about reporting to the IRS violates sections §1692e(5) and (10) of the FDCPA, 15 U.S.C. § 1692, et seq., as threatening action that could not be legally taken, amounting to a false representation.  

At summary judgment, the trial court considered the consumer’s offer to pay the debt collector $5 a month — an amount less than the interest accruing on the debt.  Because this amounted to a request that the whole debt be forgiven, thus opening a possibility of reporting to the IRS, the trial court held that the consumer failed to proffer evidence owing that she had been misled to her detriment.

The trial court granted summary judgment in the debt collector’s favor.  The instant appeal ensued.

As in every other federal suit, as a threshold issue, the Seventh Circuit discussed the consumers’ Article III standing to bring their claims in federal court, citing several decisions holding that a plaintiff who lacks a concrete injury cannot sue under the FDCPA or a similar statute just because a statement in a letter is incorrect or misleading.  See, e.g., Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016); Casillas v. Madison Avenue Associates, Inc., 926 F.3d 329 (7th Cir. 2019)

Here, the consumer testified at her deposition that the letter had not injured her, and it is undisputed that she did not pay any amounts not owed (or anything at all), and the statement about the possibility of reporting to the IRS did not affect her credit rating or creditworthiness. 

Nevertheless, she argued that Spokeo and Casillas were not controlling because they concern “procedural” rights rather than “substantive” rights — which is how she characterizes her claim for alleged violation of § 1692.

The Seventh Circuit rejected this argument citing the U.S. Supreme Court’s decision in Thole v. U.S. Bank N.A., 140 S. Ct. 1615 (2020), a case in which the plaintiff asserted the violation of a substantive right, found no standing using the approach of Spokeo, and its own recent holding that the asserted violation of a substantive right conferred by the Fair Debt Collection Practices Act does not guarantee the plaintiff’s standing, and a concrete injury still must exist. See Larkin v. Finance System of Green Bay, Inc., No. 18-3582 (7th Cir. Dec. 14, 2020).

Turning then to the question of whether the consumer suffered an injury, the Seventh Circuit noted that while a debtor confused by a dunning letter may be injured if she acts, to her detriment, on that confusion, that the state of confusion is not itself an injury. See, e.g., Trichell v. Midland Credit Management, Inc., 964 F.3d 990 (11th Cir. 2020).

The Court reasoned that if that were the case, “everyone would have standing to litigate about everything.” 

The Seventh Circuit further reasoned that the fact that the consumer’s confusion led her to retain counsel did not change its evaluation, as a desire to obtain legal advice is not a reason for universal standing, and the plaintiffs in Thole, Spokeo and related decisions all had counsel, nor did her claims that the letter was “intimidating” or “confusing.”

For these reasons, the Seventh Court concluded that the consumer lacked Article III standing and vacated the trial court’s judgment with instructions to dismiss for lack of subject-matter jurisdiction.

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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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