Sixth Circuit Reverses Lower Court, Offers Warning of Dangers of Collecting During Validation Period

Manny Newburger from Barron & Newburger has published a summary of a case where The Sixth Circuit Court of Appeals has reversed a lower court’s summary judgment ruling that had dismissed a case filed by an individual who sued a collection law firm for allegedly violating the Fair Debt Collection Practices Act by not stopping all of the foreclosure proceedings it had put into motion when the plaintiff filed a dispute notice with the defendant.

A copy of the ruling in Scott v. Trott Law can be accessed by clicking here.

The defendant had sent a validation notice to the plaintiff on Sept. 20, 2016 and subsequently began foreclosure proceedings during the 30-day window afforded to the plaintiff to dispute the validity of the debt. On Oct. 5, 2016, the defendant began arranging for a sheriff’s sale of the property, preparing a notice of foreclosure sale to be posted on the property, as well as contacting the local newspaper to have the notice published for four consecutive weeks, as required under Michigan law. On Oct. 8, 2016, the plaintiff filed his dispute notice, which the defendant received three days later.

However, the foreclosure notice was published on the property on Oct. 14, and the notice was published in the newspaper on Oct. 14, 21, and 28. The plaintiff subsequently filed suit, alleging the defendant violated the FDCPA by not ceasing the collection activities until the debt had been validated.

A District Court granted summary judgment in favor of the defendant, but Friday’s ruling from the Appeals Court determined the District Court judge “erred in interpreting” the FDCPA.

As Newburger points out, the Sixth Circuit’s ruling requires a collector to not only cease its collection activities upon receipt of a dispute notice, but cease all collection activities until the debt has been validated.

Because the FDCPA does not define “cease” or “collection of the debt,” the Sixth Circuit created its own interpretation.

Within § 1692g(b), the noun subject of the verb “cease” is the “debt collector.” The direct object of the verb “cease” is “collection of the debt.” It follows then that the statute imposes on the “debt collector” an obligation to stop the “collection of the debt.” This is more obviously true when the debt collector has been the one to initiate the “collection of the debt.” This obligation exists only until the debt collector “obtains verification” of the debt and sends it to the debtor, after which the debt collector is free to resume collection of the debt.