On March 29, 2018, the United States Court of Appeals for the Second Circuit rendered a long-awaited opinion in what is commonly called a “reverse-Avila” or “current account balance” case, holding that it is not a violation of the Fair Debt Collection Practices Act (“FDCPA”) for a debt collector to state a consumer’s balance without mentioning interest or fees, when no such interest or fees are accruing.

The case is Christine Taylor, et al. v. Financial Recovery Services, Inc. No. 17-cv-1650 (2d Cir. Mar. 29, 2018), and the opinion is available here.

Underlying Facts

In Taylor, both Plaintiffs incurred debts with a bank, which after default were placed with Financial Recovery Services (“FRS”) for collection. At the time of placement, the bank instructed FRS not to accrue any interest or fees on the accounts. FRS thereafter sent a series of collection notices to both Plaintiffs, each notice containing the identical balance due as the previous notice. None of the notices contained a disclosure that interest and fees may accrue on the balance of the account. Neither Plaintiff made any payments on their accounts and each ultimately filed for Chapter 7 bankruptcy protection.

Due to the lack of a specific disclosure regarding whether interest and fees were accruing, the Plaintiffs argued the letters could be interpreted to have more than one meaning, and they filed suit claiming violations of Section 1692e and 1692g of the FDCPA. Plaintiffs relied heavily on the Second Circuit’s holding in Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016), where the court held a debt collection letter violates the FDCPA if it states a “current balance” of a consumer’s debt without disclosing that interest and fees are accruing on that balance, when they are in fact accruing such that paying the balance listed on a letter would not pay a debt in full.

The District Court’s Decision Granting Summary Judgment in Favor of the Debt Collector

In May 2017, the District Court granted summary judgment to FRS, holding its letters did not violate the FDCPA and noting the collection notices were not false, misleading, or deceptive as a matter of law. The Court further found that the Plaintiffs failed to present evidence that the balances on the face of the notices were inaccurate. Since the balances were accurate, the Court found it “irrelevant” whether or not the balances, in fact, accrued interest or fees after being referred to FRS. Furthermore, the Court pointed out that the statements were not misleading because the balances owed were stated numerous times within each letter and the balances remained the same in successive letters.

In analyzing the “least sophisticated consumer” standard, the Court stated that “[t]he letters are not misleading to the least sophisticated consumer, who (i) might not understand or even consider the concept of interest and when it accrues; (ii) could reasonably take the language at face value as the amount owed; or (iii) might infer from the unchanging amount in each of the coupons and successive letters that interest was not accruing.” Importantly, the Court noted that “[o]nly a consumer in search of an ambiguity and not the least sophisticated consumer relevant here, would interpret the letters to mean that interest was accruing .” (emphasis added).

In distinguishing this case from the holding in Avila, the District Court recognized that the Plaintiffs provided no evidence that paying the balance on their respective letters would not satisfy their debts.

The Second Circuit’s Decision Rejecting the Plaintiffs’ Interpretations of the FDCPA

On appeal to the Second Circuit, Plaintiffs argued that FRS’s collection notices were misleading within the meaning of Section 1692e “because the least sophisticated consumer could have interpreted them to mean either that interest and fees on the debts in question were accruing or that they were not accruing.” Relying heavily on Avila, Plaintiffs argued a debt collector commits a per se violation of Section 1692e whenever it fails to disclose whether interest or fees are accruing on a debt. The Second Circuit made clear the Plaintiffs were mistaken, noting the violation in Avila arose 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” where such payment would not have settled the debt in that case.

In Taylor, however, the Court noted no interest or fees were accruing, so the balances included in the collection notices sent to Plaintiffs correctly stated the payment needed to satisfy the debt in full, and that no language regarding interest and fees was required. Unlike Avila where the Court found the message prejudicially misleading, in Taylor prompt payment of the stated balance would have satisfied Plaintiffs’ debts. In the words of the Court:

Thus, the only harm that Taylor and Klein suggest a consumer might suffer by mistakenly believing that interest or fees are accruing on a debt is being led to think that there is a financial benefit to making repayment sooner rather than later. This supposed harm falls short of the obvious danger facing consumers in Avila.

It is hard to see how or where the FDCPA imposes a duty on debt collectors to encourage consumers to delay repayment of their debts. And requiring debt collectors to draw attention to the fact that a previously dynamic debt is now static might even create a perverse incentive for them to continue accruing interest or fees on debts when they might not otherwise do so. Construing the FDCPA in light of its consumer protection purpose, we hold that a collection notice that fails to disclose that interest and fees are not currently accruing on a debt is not misleading within the meaning of Section 1692e.

Opinion at 6 – 7.

In holding Plaintiffs’ letters were not misleading under the FDCPA, the Court mirrored its decision with the Seventh Circuit’s holding in Chuway v. National Action Financial Services, Inc., which stated the following:

[I]f a debt collector is trying to collect only the amount due on the debt the letter is sent, then he complies with the [FDCPA] by stating that the creditor has “assigned your delinquent account to our agency for collection,” and asking the recipient to remit the balance listed and stopping there, without talks of the “current” balance.

362 F.3d 944, 949 (7th Cir. 2004) (Emphasis added).

The Second Circuit further read sections 1692e and 1692g of the FDCPA in harmony, meaning that if there is no interest and fees accruing on the balance, then collection notices are not misleading under section 1692e and the balance is accurately stated under section 1692g. Conversely, if interest and fees are accruing and no disclosure is given in the notice, then it would run afoul of both sections 1692e and 1692g.

Plaintiffs also unsuccessfully raised two additional arguments before the court. First, Plaintiffs argued the bank continued to accrue interest on Plaintiffs’ accounts even after they were placed with FRS for collection. The Court refused to consider this argument because Plaintiffs failed to raise this issue before the district court, so it could not be raised on appeal.

Second, Plaintiffs argued that even though the bank may not have accrued interest, it nonetheless retained the right to do so and could start adding interest onto the accounts at any point in the future. The Court rejected this argument because it would be so far in the future it would have no effect on the notice sent by FRS. Further, since nothing was being added to the account balances, Plaintiffs’ debts were static so they could satisfy them by prompt payment.

Take-Aways

The Taylor opinion is a response to the flood of “current account balance” lawsuits filed in the wake of the Avila decision. Its common-sense approach gives debt collectors a clear answer to what should be a straightforward question of statutory interpretation. It can also be interpreted as a statement by the Second Circuit regarding the confusing tangle of opinions that have come out of the Eastern District of New York on the issue. Debt buyers and collectors should be refreshed by any opinion that recognizes when an idiosyncratic interpretation of the FDCPA affects their business by encouraging consumers to delay repayment of their debts.