In Donohue v. Quick Collect, Inc., Case No. 09-35183 (9th Cir. Jan. 13, 2010), the Ninth Circuit interpreted two sections of the Fair Debt Collection Practices Act (“FDCPA”) and held that a collections agency did not violate the FDCPA because the original payment terms between the appellant and her dental practice did not constitute a forbearance agreement under Washington State law. Additionally, the court held that the collections agency did not violate the FDCPA when it mislabeled the interest owed on the debt. The court found that the overall amount owed by the appellant was correct and, therefore, the mislabeled interest was not “materially false.”
The appellant filed a class action lawsuit that asserted that the collections agency, which was trying to collect a debt owed by the appellant to a dental practice, violated the FDCPA by charging a usurious rate of interest and by violating the FDCPA’s prohibition against the use of false, deceptive, or misleading statements in connection with collecting a debt by “misrepresenting the amount of interest” that the appellant owed. The Eastern District of Washington ruled in favor of the collections agency on cross summary judgment motions, finding that the collections agency had not violated the FDCPA.
The two FDCPA provisions that were at issue in this case are 15 U.S.C. §§ 1692e and 1692f. Section 1692e(2) prohibits “[t]he false representation of…the character, amount or legal status of any debt.” Section 1692f prohibits a debt collector from using “unfair or unconscionable means to collect or attempt to collect any debt.” “The collection of any amount…unless such amount is expressly authorized by the agreement creating the debt or permitted by law” is a violation of § 1692f(1). Both sections are analyzed objectively. The relevant question in examining both sections of the FDCPA is whether “the least sophisticated debtor would likely be misled by a communication.” Guerreor v. RJM Acquisitions LLC, 449 F.3d 926, 934 (9th Cir. 2007) (internal quotation marks omitted).
The Ninth Circuit affirmed the lower court’s decision that the collections agency had not violated §§ 1692e and 1692f by charging more than 12% annual interest in contravention of Washington usury law. Washington law prohibits charging more than 12% annual interest “for the loan or forbearance of any money, goods, or things in action.” Wash. Rev. Code § 19.52.020. The Ninth Circuit found that the 90-day “grace period” in the original payment agreement between the appellant and her dental office was not a forbearance agreement.
The court relied on the Washington State Supreme Court’s definition of forbearance under Washington law, which defined it as “a contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower to pay a loan or debt then due and payable.” Whitaker v. Spiegel Inc., 623 P.2d 1147, 1152 (Wash. 1981). Based on that definition, the Ninth Circuit determined that the dental office’s payment arrangement was not a forbearance because the dental office had no contractual obligation to “refrain, during a given period of time, from requiring [appellant] to pay a loan or debt then due and payable.” Id. (emphasis added). Instead, the payment was “due to be paid in full within ninety (90) days of service.” The dental office did not agree to forbear and, therefore, the court concluded that the collections agency did not charge usurious interest in either the complaint or demand letter.
The Ninth Circuit also concluded that the collections agency’s complaint against the appellant did not violate the FDCPA because it did not contain a false, deceptive, or misleading representation. The complaint stated that the Appellant owed an interest payment of $32.89 calculated by applying 12% annual interest to the principal owed. It turned out that the $32.89 was actually made up of two components: $24.07 in pre-assignment finance charges assessed by the dental office and calculated at the rate of 1.5% per month, and $8.82 in post-assignment interest calculated at an annual rate of 12%. The Court also noted that the complaint contained the correct principal owed and the total non-principal amount owed was also correct.