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Home / Compliance / Appeals Court Rules on How & When Collectors Should Reveal Debt Totals

Appeals Court Rules on How & When Collectors Should Reveal Debt Totals

The U.S. Court of Appeals for the Second Circuit has ruled in favor of the plaintiff in a case where the defendant was accused of not providing enough information to meet the “amount of the debt” threshold of the Fair Debt Collection Practices Act.

The case, Carlin v. Davidson Fink, has been remanded back to the District Court.

Davidson Fink is a law firm that offers a “wide-range of debt collection services,” and offers “immediate and inexpensive options to recover unpaid funds with a comprehensive collection process.” This, according to the Appeals Court, is enough to establish that the firm is a debt collector, as defined by the FDCPA.

In this case, the law firm filed a foreclosure complaint against the plaintiff on June 24, 2013. The summons included the language “this action may be deemed to be an attempt 29 to collect a debt.” The firm also attached a document to the foreclosure complaint, “Notice Required by the Fair Debt Collection Practices Act,” which

stated that “the amount of the debt is stated in the complaint hereto attached,” and also that “the debt . . . will be assumed to be valid . . . unless the debtor, within thirty (30) days after receipt of this notice, disputes the validity of the debt.”

The first problem, as far as the Appeals Court was concerned, was the the amount of the debt was not stated in the foreclosure complaint. The plaintiff subsequently disputed the debt on July 12, 2013, and requested a verification of the amount owed. Davidson Fink sent a payoff notice on August 9, 2013 with a total amount due of $205,261.79 and indicated the amount due was good for five days. The payoff notice also included the following text:

To provide you with the convenience of an extended “Statement Void After” date, the Total Amount Due may include estimated fees, costs, additional payments and/or escrow disbursements that will become due prior to the “Statement Void After” date, but which are not yet due as of the date this Payoff Statement is issued. You will receive a refund if you pay the Total Amount Due and those anticipated fees, expenses, or payments have not been incurred.

The payoff statement did not indicate what the additional fees, costs, and payments were, or how they were determined.

The plaintiff subsequently filed a suit against Davidson Fink. The Appeals Court noted the text of the FDCPA, which states:

Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing—

(1) the amount of the debt . . . .

The plaintiff is trying to use three different arguments to make his case.

  1. The filing of the foreclosure complaint served as the initial communication and because the total amount due was not provided within five days, the defendant is liable under the FDCPA.
  2. The defendant was required to respond with the amount of the debt within five days of receiving the July 2013 letter.
  3. The August letter that included the payoff statement did not satisfy the amount of the debt provision because it included unaccrued and unspecified fees and costs.

The District Court granted a motion from the defendant to dismiss the case, which was appealed by the Plaintiff.

The Appeals Court ruled that neither the initial complaint nor the July letter were initial communications within the definition of the FDCPA, but the August letter was an initial communication and “did not adequately state the amount of the debt.”

The FDCPA does not define what constitutes an initial communication.

Using the “least sophisticated consumer” requirement of the FDCPA, the court said it was “unclear” whether the payoff notice accurately conveyed the necessary information.

Absent fuller disclosure, an unsophisticated consumer may not understand how these fees are calculated, whether they may be disputed, or what provision of the note gives rise to them. Because the statement gives no indication as to what the unaccrued fees are or how they are calculated, she cannot deduce that information from the statement.

The Appeals Court concluded:

It is no great chore for Davidson Fink and other debt collectors to revise their standard payoff statements to clarify the actual amount due, the basis of the fees, or simply some information that would allow the least sophisticated consumer to deduce the amount she actually owes.

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