Appeals Court Rules Successive Debt Collectors Must Send Validation Notices

The U.S. Court of Appeals for the Ninth Circuit has issued a ruling that will require each successive debt collector to send out a validation notice to individuals when attempting to collect a debt. Historically, only the first collection agency trying to collect on an unpaid debt sent a validation notice.

The ruling in the case, Hernandez v. Williams, Zinman & Parham, went in favor of the plaintiff and the case has been remanded back to the District Court for the District of Arizona.

In this case, the plaintiff took out an auto loan and stopped making her payments. A collection agency was hired to collect the unpaid debt and sent the plaintiff a collection letter. When the plaintiff did not respond to the letter, the original collection agency placed the account with a collection law firm — the defendants. The law firm sent another collection letter, acknowledging that the debt could be disputed, but did not mention that the dispute had to be filed in writing.

The plaintiff sued, alleging a violation of the Fair Debt Collection Practices Act, saying that the initial communication from the law firm did not include the proper disclosures. The law firm alleged that it did not need to follow the disclosure requirements of the FDCPA, because its letter was not the “initial communication” as cited in the FDCPA.

The Consumer Financial Protection Bureau and the Federal Trade Commission each filed amicus briefs in the case, arguing that the law firm’s initial letter should have included the proper disclosures because it was the firm’s initial communication with the individual.

The issue at hand is the phrase “initial communication” in the FDCPA and whether it applies to the first letter sent by the first agency trying to collect a debt or the first letter sent by every agency trying to collect a debt.

Congress did not intend “to exempt successive debt collectors from their requirements. And the FDCPA’s broad definition of “debt collector” plainly encompasses those persons who take over debt collection efforts from another.”

Furthermore, as debts are transferred from one agency to another or bought and sold by debt buyers, the likelihood of problems with the documentation increases, the court argued.

As a consequence, the likelihood that a debt collector will seek to collect from the wrong consumer or in the wrong amount increases as the debt is resold. And the corresponding need for collectors to inform consumers of their validation rights and to respond to requests for verification becomes more acute as the debt changes hands. WZP is therefore incorrect when it argues that there is no salutary benefit to be gained by requiring each successive debt collector to send a new validation notice with its first communication.