The U.S. Court of Appeals for the Second Circuit recently held that a collection notice that provided settlement payment options but did not state that the balance may increase due to interest and fees, did not violate the Fair Debt Collection Practices Act’s prohibition against false, deceptive, or misleading representation or means in connection with the collection of any debt.
In so ruling, the Second Circuit held that its requirement for debt collectors to disclose that the balance may increase due to interest and fees when they notify consumers of their account balance (Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016)) did not apply because the settlement offer unmistakably communicated that acceptance of one of the options would extinguish the debt, and could not mislead even the least sophisticated consumer.
A copy of the opinion in Cortez v. Forster & Garbus, LLP is available at: Link to Opinion.
A consumer’s outstanding credit card debt was placed with a debt collector for collection. After the debt collector obtained a default judgment in state court to collect on the debt, it sent a number of collection notices to the consumer over several years.
One such notice provided the consumer three payment options to settle the debt at a “substantial discount off the current balance due.” Notably, the notice did not disclose that interest was continuing to accrue on the debt.
The consumer filed suit against the debt collector in federal court alleging a violation of the FDCPA’s prohibition against “any false, deceptive, or misleading representation or means in connection with the collection of any debt,” 15 U.S.C. § 1692e, for failing to state whether interest was accruing on the account.
As you may recall, in Avila v. Riexinger & Associates, LLC, 817 F.3d 72, 76 (2d Cir. 2016), the Second Circuit held that section 1692e of the FDCPA requires “debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees.”
Relying upon Avila, the trial court denied the debt collector’s motion for summary judgment, observing that the notice did not state whether interest and fees were accruing on the consumer’s account as required.
In doing so, the trial court rejected the debt collector’s argument that the notice did not mislead the consumer because it “clearly stated that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date,” (Avila, 817 F.3d at 77), and read Avila to require that such a settlement offer must nevertheless be accompanied by a disclosure of whether interest would continue to accrue if the debtor “do[es] not make the payment by the specified date.” Deciding that no genuine issues of material fact existed, the trial court entered judgment in the consumer’s favor.
Following an unsuccessful motion for reconsideration, the debt collector appealed.
On appeal, the Second Circuit was tasked with applying Avila to the facts at bar under the least sophisticated standard, according to which a notice is deceptive or misleading in violation of section 1692e if it is “open to more than one reasonable interpretation, at least one of which is inaccurate.” Clomon v. Jackson, 988 F.2d 1314, 1319 (2d Cir. 1993).
The Court held in Avila that a collection notice that states a debtor’s current balance, but does not disclose whether interest or fees are accruing, was misleading because “[a] reasonable consumer could read the notice and be misled into believing that she could pay her debt in full by paying the amount listed on the notice” when, in fact, “if interest is accruing daily, or if there are undisclosed late fees, a consumer who pays the ‘current balance’ stated on the notice will not know whether the debt has been paid in full.” Avila, 817 F.3d at 76.
However, the Court further explained that no FDCPA liability would be imposed for failing to disclose such information if “the collection notice either (1) accurately informs the consumer that the amount of the debt stated in the letter will increase over time, or (2) clearly states that the holder of the debt will accept payment in the amount set forth in full satisfaction of the debt if payment is made by a specified date” (Id. at 77), reasoning that these safe harbors address a potential concern that a debtor might remit the listed balance without realizing it has not fully paid off the debt.
The Second Circuit noted that it applied the safe harbor exceptions in Taylor v. Financial Recovery Services, Inc., 886 F.3d 212 (2d Cir. 2018), holding that no section 1692e violation occurred where the debt collector defendant failed to disclose that interest and fees were not accruing on accounts whose balances were static but stated that “prompt payment of the amounts stated in [plaintiffs’] notices would have satisfied their debts.” Taylor, 886 F.3d at 214.
Reviewing the judgment here, the Second Circuit found that the lower court extended the application of Avila to hold that debt collectors extending offers of full satisfaction must also “advise consumers that their debt [is] still accruing interest and/or fees.” However, the appellate court noted that its opinion in Avila held only that a debt collector must “either” disclose that interest and fees continue to accrue “or” offer to extinguish the debt in exchange for a specified payment. 817 F.3d at 77.
Although the trial court concluded that it was “debatable” that the notice “`clearly state[d] that [the defendant would] accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specific date'” because the notice “[did] not state explicitly that the debt will be discharged fully upon receipt of payment,” Cortez, 382 F. Supp. 3d at 262 (alterations and emphasis in original) (quoting Avila, 817 F.3d at 77), the Second Circuit disagreed.
Reasoning that its findings in Taylor extended to a collection notice proposing to accept a specified amount in full satisfaction of a debt, the Second Circuit held that the notice’s language extending three “settlement choice[s]” at a “substantial discount off the current balance due” unmistakably extended an offer to clear the outstanding debt upon payment of the specified amount(s) by the specified date(s) — even when viewed from the perspective of the least sophisticated consumer.
As such, the appellate court clarified that Avila’s disclosure requirement does not apply to collection notices that extend offers to settle outstanding debt.
Accordingly, because the lone reasonable interpretation of the notice was not misleading or deceptive, the appellate court concluded that it did not violate the FDCPA and reversed and remanded the lower court’s judgment with directions to enter judgment in favor of the debt collector.