In a recent ruling, the Seventh Circuit Court of Appeals held that plaintiffs stated a viable claim under the Fair Debt Collection Practices Act by alleging that a collection letter which included the safe harbor language set forth in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, LLC, 214 F.3d 872 (7th Cir. 2000), was false and misleading. In reversing the lower’s court decision on which we previously reported, the Court of Appeals concluded that the letter’s reference to late and other charges was inaccurate, even though it came directly from the Miller safe harbor language, since the defendant could not lawfully impose such charges. A link to the Seventh Circuit’s decision can be found here.

The letter at issue was an attempt to collect medical debts. It recited verbatim the safe harbor language, including the statement of the amount of debt and a disclosure that “interest, late charges, and other charges … may vary from day to day … .” The plaintiffs filed a class action asserting that the letter was misleading because the collector could not lawfully or contractually impose “late charges or other charges.” In response, the collector argued that it was permitted to charge interest and that reference to late and other charges was not materially misleading. The trial court agreed because “the central purpose of Miller’s safe harbor formula is to provide debt collectors with a way to notify debtors that the amounts they owe may ultimately vary.” On appeal, the Seventh Circuit reversed dismissal of the plaintiffs’ claims.

In performing materiality analysis, the Court explained that, while debtors always have some incentive to pay variable debts quickly, the source of variability matters. The letter did not specify how much the “late charges” are or what “other charge” may apply, “so consumers are left to guess about the economic consequences of failing to pay immediately.” Because these additional fees and charges may be “a factor in [plaintiffs’] decision-making process,” the plaintiffs plausibly alleged that the letter was materially false or misleading.

The Court also found that the collector was not entitled to safe harbor protection because the Miller language was inaccurate under the circumstances in that the collector could not lawfully impose “late charges and other charges.” The Court rejected the collector’s reliance on the Court’s earlier decision in Chuway v. Nat’l Action Fin. Servs., 362 F.3d 944 (7th Cir. 2004), wherein the Court instructed collectors to use the safe harbor language if “the debt collector is trying to collect the listed balance plus the interest running on it or other charges.” Despite the apparent applicability of Chuway, the Court found that it was not persuasive because Chuway dealt with a fixed debt; therefore, the statement was arguably made in dicta. The Court further stated that “in any event, our judicial interpretations cannot override the statute itself, which clearly prohibits debt collectors from [making] false or misleading misrepresentations.” In support, the Court cited its recent controversial decision in Oliva v. Blatt, Hasenmiller, Leibsker & Moore LLC, 864 F.3d 492 (7th Cir. 2017), that effectively rejected the collector’s reliance on controlling law and found that the bona fide error defense did not apply.

Boucher highlights the need for customized compliance review of collection letters within the context of specific debts. Such review must take into account not only whether the amount of debt is static or variable but also the sources of variability to help avoid claims of confusion and deception.