A federal district court has ruled that a debt collector can violate the Fair Debt Collection Practices Act by sending a collection letter that gives the debtor the option of making payments by automated telephone system or on the Internet for an additional transaction fee.
In Shami v. National Enterprise Systems, filed on September 23, 2010, the U.S. District Court for the Eastern District of New York—despite language in the collection letter stating that the debtor was "not required to use the automated phone system or the internet to make payment"—denied the debt collector's motion to dismiss the plaintiff's FDCPA claims.
According to the Court, because the transaction fee was "incidental" to the underlying debt, it was subject to the FDCPA's prohibition against collecting amounts not expressly authorized by contract or permitted by law. The Court found that the plaintiff had stated a claim that the prohibition was violated because it was unclear whether the underlying contract between the plaintiff and the original creditor contemplated future transaction fees, and there was no evidence that the transaction fee at issue was simply a pass-through by the debt collector of third-party charges.
The Court found that the plaintiff had also stated a claim that the collection letter violated the FDCPA's prohibition against using false or deceptive representations, observing that if the transaction fee were unlawful the collection letter falsely represented the fee as permissible. In addition, the Court noted that the collection letter might mislead an unsophisticated consumer to conclude that phone or online payment methods were not optional.
The reasons the Court gave for its finding included the letter's failure to explicitly explain that another payment method, which did not impose a fee, was available and to include a mailing address to which checks could be sent. The Court also noted that the letter might confuse an unsophisticated consumer as to whether checks should be made payable to the debt collector or the original creditor, and that this confusion might be compounded by the fact that the letter contained only the 800 number for the automated payment system. As a result, a consumer attempting to contact the debt collector for clarification would automatically be directed to the automated system.