Appeals Court Reverses Lower Court Ruling, Affirms Avila Disclosure Not Required When Making Settlement Offer

The Second Circuit Court of Appeals has overturned a lower court’s decision and remanded a case back to a District Court judge to enter judgment in favor of a defendant in a Fair Debt Collection Practices Act case, ruling that the defendant did not have to notify the plaintiff that the balance owed may be increasing due to interest and fees when making a settlement offer in a collection letter.

A copy of the ruling in the case of Cortez v. Forster & Garbus can be accessed by clicking here.

The plaintiff incurred a credit card debt that was placed with the defendant for collection. Among the actions taken by the defendant to attempt to collect on the debt was to send a collection letter offering to settle the account for less than than the full balance owed. The plaintiff sued, alleging the letter violated Section 1692e of the FDCPA because it did not clearly indicate that interest was accruing on the balance, as required by Avila v. Riexinger & Associates. The defendant moved for summary judgment, which was denied by a District Court judge, as was a motion for reconsideration, leading the defendant to appeal the ruling to the Second Circuit, which issued its precedential decision on Friday.

Under the ruling in Avila, the Second Circuit noted two exceptions to the requirement to disclose that interest may be accruing, one of which is if the letter “clearly states that the holder of the debt will accept payment in the amount set forth in full satisfaction of the debt if payment is made by a specified date.”

As noted by the Second Circuit, “payment of an amount that the collector indicates will fully satisfy a debt excludes the possibility of further debt to pay.”

The District Court judge was concerned about a least sophisticated consumer who might wonder if interest would begin to accrue if a payment was made after the specified date in the collection letter, but Section 1692e of the FDCPA “does not require that a collection notice anticipate every potential collateral consequence that could arise in connection with the payment or nonpayment of a debt,” the Appeals Court wrote. ” … a settlement offer need not enumerate the consequences of failing to meet its deadline or rejecting it outright so long as it clearly and accurately informs a debtor that payment of a specified sum by a specified date will satisfy the debt.”

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