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Appeals Court Overturns Dismissal Over Language in Letter

The Court of Appeals for the Third Circuit, in a non-precedential opinion, has reversed a lower court’s dismissal of a lawsuit and reinstated a lawsuit filed by an individual against a collection agency for allegedly violating the Fair Debt Collection Practices Act for the language it included in a collection letter.

A copy of the ruling in Knight v. Midland Credit Management can be accessed by clicking here.

The plaintiff had sued the defendant over the language in a collection letter, claiming it violated Section 1692e of the FDCPA because the claims were false, misleading or deceptive. A District Court judge in Pennsylvania ruled the letter would not be confusing to the least sophisticated consumer and dismissed the suit.

In the letter, the defendant wrote, “We can’t change the past, but we can help with your future.” Beneath that, the page was divided into two columns. The right-hand column was titled “KNOW YOUR OPTIONS” and provided three loan repayment options: Option 1 offered “40% OFF” if payment is made by a specified date, Option 2 provided for “20% OFF” if the debt was repaid over the course of six months, and Option 3 offered “Monthly Payments As Low As: $50 per month.” The other column stated that “Midland Credit Management believes that everyone deserves a second chance” and invited the plaintiff “to accept one of these discounts.” Later in the letter, Several lines later, it said, “After receiving your final payment, we will consider the account paid*.” At the bottom of the letter, the asterisk was explained: “*If you pay your full balance, we will report your account as Paid in Full. If you pay less than your full balance, we will report your account as Paid in Full for less than the full balance.”

The defendant argued that the Appeals Court lacked jurisdiction and that the District Court judge did not make a mistake in dismissing the suit. The defendant argued that the plaintiff did not file notice of the appeal in a timely fashion, which the Appeals Court rejected.

The plaintiff subsequently argued that the letter was false, misleading, or deceptive in four ways: a promise of financial benefit, an issue over to whom the payments will be reported to, when payments will be reported as “Paid in Full” versus “Paid in Full for less than the full balance,” and that “Paid in Full for less than the full balance” is confusing to the least sophisticated consumer.

“It is not ‘bizarre or idiosyncratic’ for the least sophisticated debtor to read the language Knight identifies to mean that payment would not hurt a debtor’s credit score and might even actually improve it. We recognize that this might not be the most appropriate reading of the Letter, but it is not our responsibility to determine whether one interpretation is more appropriate than another. Instead, analyzing the Letter as we must under the least sophisticated debtor standard, which protects “naïve and even gullible individuals,” we cannot conclude at this stage that the least sophisticated debtor could not have been misled by this language. Moreover, a debtor who falsely believes that making payment on her debt would not hurt her credit score and might improve it could be induced to make the payment. Therefore, this language could be found to be material.”

Ultimately ruling the language in the letter is ambiguous and contradictory, the Appeals Court overturned the lower court’s decision and remanded the case back to the District Court for further proceedings.


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