The ARM industry has spent a lot of money in the past couple of years defending and settling cases involving what they are and are not disclosing in their letters sent to individuals, especially with respect to any interest or fees that may or may not be accruing. A case that the Second Circuit Court of Appeals ruled on last week shows that the efforts of collection agencies that stand up and fight is not wasted and the ruling will go a long way toward stemming the tide of plaintiff’s attorneys filing these kinds of lawsuits, according to a panel of legal experts who spoke about the case during a webinar yesterday.
While the ruling still may require collection agencies to do some work defending against cases claiming that agency did not disclose whether interest and fees were accruing on the unpaid debt, the ruling in Taylor v. Financial Recovery Services goes a long way toward outlining a strong defense strategy. The Appeals Court ruled in Taylor that collection agencies need not disclose whether interest and fees are accruing on an unpaid debt if they are not, in fact, accruing.
“When not accusing interest, you don’t need to disclose that you’re not, as long as paying the balance that is included in the letter satisfies the debt,” Maurice said during the webinar. “This doesn’t solve all of your problems, but if you have a series of letters that you have sent and you feel comfortable not accruing interest, this will help tremendously.”
Collection agencies still need to review their letters to make sure that the language that is being used does not make it appear as though the unpaid balance is dynamic, meaning it could change, and not static, Yarborough said. Such language could include words or phrases like, “current balance” or “the balance due as of…”
“There have been a lot of lawsuits under this theory that have cost collection agencies a lot of money,” Yarborough said.
The roots of this case go back nearly 18 years, Rosenkoetter said during the webinar, back to a case which ultimately led to a safe harbor disclosure for instances where interest is accruing known as the Miller disclosure, being used throughout the industry for nearly two decades, before the current crop of lawsuits came up over letters that did not include the language.
Plaintiff’s attorneys may next turn to whether the original agreement between the creditor and the individual references whether interest is allowed to accrue or not as their next legal strategy in attacking disclosures, the panel said.
There is still another case that is before the Second Circuit — DeRosa v. CAC Financial Corp. — which also deals with disclosure notices, of which the ruling could still impact what agencies should included in their collection letters, the panel mentioned during the webinar.
EDITOR’S NOTE: Eric Rosenkoetter and Brent Yarborough, the minds behind The Least Sophisticated Podcast, covered this ruling in their latest episode. You can access it here.