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7th Circuit: Communications Were Not “False, Misleading, Or Deceptive To The Unsophisticated Consumer” In Violation of the FDCPA

Lesson. Per the Seventh Circuit, “Congress did not intend the FDCPA to require debt collectors to cast about for a disclosure formulation that strikes a precise balance between providing too little information and too much. The use of an itemized breakdown accompanied by zero balances would not confuse or mislead the reasonable unsophisticated consumer.”

Case cite. Degroot v. Client Servs. 977 F.3d 656 (7th Cir. 2020)

Legal issue. Whether allegedly false or misleading statements by a collection agency violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692e, by using false, deceptive, and misleading representations or means to collect a debt, or 15 U.S.C. § 1692g by failing to disclose the amount of the debt in a clear and unambiguous fashion.

Vital facts. Debtor defaulted on credit card debt, and the credit card company assigned the debt to Collection Agency. The Debtor sued Collection Agency following a couple of collection letters Debtor received. (The opinion details the letters.) Debtor claimed that the second letter “misleadingly implied that [the credit card company] would begin to add interest and possibly fees to previously charged-off debts if consumers failed to resolve their debts with [Collection Agency].” Specifically, Debtor alleged that he was "confused by the discrepancy between the [letter 1’s] statement that 'interest and fees are no longer being added to your account' and [letter 2's] implication that [credit card company] would begin to add interest and possibly fees to the Debt once [Collection Agency] stopped its collection efforts on an unspecified date."

Procedural history. The District Court granted the Collection Agency’s motion to dismiss. Debtor appealed.

Key rules. The FDCPA requires debt collectors to send consumers a written notice disclosing "the amount of ... debt" they owe. 15 U.S.C. § 1692g(a)(1).

This disclosure must be “clear.” "If a letter fails to disclose the required information clearly, it violates the Act, without further proof of confusion."

"A collection letter can be 'literally true' and still be misleading ... if it 'leav[es] the door open' for a 'false impression.'"

“A debt collector violates § 1692e by making statements or representations that ‘would materially mislead or confuse an unsophisticated consumer.’"

Holding. The Seventh Circuit affirmed the District Court and held that the Collection Agency’s communications “were not false, misleading, or deceptive to the unsophisticated customer.”

Policy/rationale. The key issue in Degroot was whether Collection Agency, by providing a breakdown of the debt that showed a zero balance for "interest" and "other charges," violated §§ 1692e and 1692g(a)(1) by implying that interest and other charges would accrue if the debt remained unpaid. The Court set out the test it faced:

To determine whether [Collection Agency’s] letter was false or misleading, we must answer two questions. The first is whether an unsophisticated consumer would even infer from the letter that interest and other charges would accrue on his outstanding balance if he did not settle the debt. If, and only if, we conclude that an unsophisticated consumer would make such an inference, then we move to analyze whether the inference is false or misleading.

The Court reasoned that the itemization (debt breakdown) at issue could not be construed “as forward looking and therefore misleading”:

That interest and fees are no longer being added to one's account does not guarantee that they never will be, because there is no way—unless the addition is a legal or factual impossibility—to know what may happen in the future. That is why a statement in a dunning letter that relates only to the present reality and is completely silent as to the future generally does not run afoul of the FDCPA. While dunning letters certainly cannot explicitly suggest that certain outcomes may occur when they are impossible … they need not guarantee the future. For that reason, the itemized breakdown here, which makes no comment whatsoever about the future and does not make an explicit suggestion about future outcomes, does not violate the FDCPA.

My practice includes the defense of mortgage loan servicers in consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.