On May 18, 2016, the Seventh Circuit ruled in St. John v. CACH, LLC, Nos. 14-2760, 14-3724, & 15-1101, 2016 U.S. App. LEXIS 9117 (7th Cir. 2016), that debt collectors do not have to intend to go to trial when filing complaints in order to comply with the Fair Debt Collection Practices Act (“FDCPA”). Section 1692e(5) of the FDCPA states that “[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt,” and “[t]he threat to take any action that cannot legally be taken or that is not intended to be taken” is a violation of the act.
In St. John, individual consumers sued debt collection companies for violations of the FDCPA, claiming that the companies filed lawsuits with “no intention of going to trial.” Id. at *2. The companies initially filed suit to recover on credit card accounts held by the consumers, but ultimately dismissed their actions voluntarily. Id. The consumers then asserted that this voluntary dismissal prior to trial violated Section 1692e(5)’s prohibition against “[t]he threat to take any action that…is not intended to be taken.”
The Seventh Circuit disagreed and held that the consumers did not show that the companies “did not intend to keep their supposed threat of going to trial,” nor that the companies ever threatened to go to trial in the first place. Id. at *6. The court pointed out that there was no allegation (nor proof) that the companies planned or intended to go to trial; rather, the consumers merely claimed that the companies “implicitly communicated an intention to go to trial simply by filing the complaints.” Id. at *5. Ultimately, this argument was insufficient to support the consumers’ allegations and constitute a violation of the FDCPA.
In reaching its decision, the Seventh Circuit noted that “debt collectors who sue to recover a debt are no different from any other plaintiff.” Id. at *7–8. This reasoning in itself was helpful for the financial services industry because consumers and their attorneys often argue that debt collectors should essentially be held to a higher standard when they engage in litigation. Now, though—at least in the Seventh Circuit—debt collectors in the industry will not be held liable under the FDCPA “just for filing a complaint.” Id. at *8. They can “weigh the anticipated costs of trial against the potential benefits when considering how far to advance the litigation,” just like any plaintiff in any legal action. Id. Because “litigation is inherently a process,” parties may come to a resolution that is more efficient and practical than taking a case all the way through trial. Id. at *7.
In fact, the court noted, settlements and pre-trial dismissals may benefit defendants in debt collection actions as well. Id. n.2. A collector may be willing to settle a case for much less than the consumer owes to avoid the time, cost, and uncertainty of trial. Id. In St. John, there was no contention that the consumers didn’t owe the money; they did not deny that they owed the debts or claim that the debts weren’t legally enforceable. Id. at *5. Avoiding a trial may have actually benefited the consumers who brought suit.
The court also discussed the true scope and purpose of the FDCPA. Although the FDCPA was created to protect consumers from deceptive or unfair practices by debt collectors, it does not punish them for “engaging in a customary cost-benefit analysis when conducting litigation.” Id. at *8. To force debt collectors—unlike any other plaintiff—to see their cases all the way to trial would extend far beyond the requirements of Section 1692e(5).
The St. John ruling may create a continuum on which debt collection actions are enforceable. Complaints must be filed in good faith with some basis for verifying the legitimacy of debts owed; however, a debt collector is not required to go to trial in order to show that the debt is valid or risk running afoul of the FDCPA. Id. at *5, 8. The Act was not established to effectively bar debt collectors from recourse simply because it is not in the collector’s best interest to go to trial, “even when its claim is unquestionably legitimate, and even when no other recourse is left.” Id. at *8. Debt collectors, as long as their actions are in good faith, can have the same array of litigation options as any other plaintiff.