Seventh Circuit Overturns Ruling; Agency Did Not Err in Keeping Debts Separate When Reporting to Credit Bureaus

The Seventh Circuit Court of Appeals has reversed a lower court’s ruling that a collection agency mis-stated the “character” of a debt by reporting to a credit bureau that an individual owed nine debts of $60 each instead of one debt of $540, even though each debt represented a separate visit to a physical therapy facility.

A copy of the ruling in Rhone v. Medical Business Bureau can be accessed by clicking here.

Diane Rhone made six visits to a physical therapy facility, and her insurance covered $74 of the $134 bill for each visit. Rhone did not pay the $60 she was billed for any of the visits, and the debt was placed with the defendant. The defendant sent collection letters for three years before finally reporting the nine debts to a credit bureau. Rhone subsequently sued, arguing that the defendant should have reported the aggregate debt and not each debt individually, an argument that a District Court judge agreed with. The District Court judge, however, did not explain how the difference between reporting one debt and reporting nine debts violated the Fair Debt Collection Practices Act by mis-stating the “character” of the debt.

There is no law or regulation that specifies whether debts owed to a creditor should be aggregated or kept separate, the Seventh Circuit noted in its opinion, and had the defendant reported the aggregate total, the plaintiff may have accused the defendant of violating the FDCPA by misleading the amount of the debt.

In researching its opinion, the Seventh Circuit noted a lack of precedent at the appellate level that speaks to whether “aggregation (or not) of all amounts owed to a single creditor concerns the “character” of a debt.”

The absence of authoritative or even persuasive guidance leaves us on our own. To our ears, “character” sounds like a reference to the kind of obligation. (That is essentially how Fields heard it, too.) A secured auto loan would be of one character, an unsecured credit-card debt another, a judgment debt a third, and a subordinated debenture (an instrument junior by contract) a fourth. Keeping these kinds of obligation distinct reduces the potential for confusion about their nature and relative priority. But the number of transactions between a debtor and a single merchant does not affect the genesis, nature, or priority of the debt and so does not concern its character. The statute names “character, amount, or legal status” as distinct attributes, and it would undercut this disjunction to treat arithmetic as concerning the debt’s “character” rather than its “amount.”