Second Circuit Resolves Lower Court Split over Interest and Late Charges in FDCPA Claims

Whenever a consumer’s current balance increases with time because of interest and late charges, a personal debt collection notice must disclose these details, the U.S. Court of Appeals for that Second Circuit has ruled.

In Avila v. Riexinger & Associates, LLC, the plaintiffs received collection notices in the defendant, a personal debt collector. As the notice mentioned a “current balance,” it didn’t disclose the balance ongoing to accrue interest, or the plaintiffs might be billed late fees if they didn’t pay promptly.

The plaintiffs introduced claims under Section 1693e from the Fair Business Collection Agencies Practices Act (FDCPA) alleging these notices were misleading simply because they believed the present balance was “static.” Section 1693e broadly prohibits collectors by using “any false, deceitful, or misleading representation or means regarding the the gathering associated with a debt.” The district court granted your debt collector’s motion to dismiss, holding that failure to reveal that the debt may accrue interest with time or might be susceptible to charges wasn’t deceitful or misleading.

The 2nd Circuit corrected. Observing it had become resolving a split one of the district courts inside the Circuit, the Avila court held when a consumer’s balance increases with time because of interest and late charges, a group notice must disclose this fact. In visiting this conclusion, the 2nd Circuit reiterated the concepts the FDCPA ought to be liberally construed like a consumer protection statute which courts should use the “least sophisticated consumer standard” to find out whether a challenged practice breaks the FDCPA.

To relieve the “legitimate concern” that customers might be forced into having to pay financial obligations under the specter of interest and charges, the Avila court adopted the “safe harbor” approach established through the Seventh Circuit in Burns v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C. There, a legal court held that the collection notice violated the FDCPA because, although it mentioned that interest and charges were owed additionally towards the “delinquent principal balance,” the notice didn’t include the quantity from the delinquent interest and charges. To reduce similar future lawsuit, the Seventh Circuit approved safe harbor language to be used in collection notices when interest and charges could vary the quantity owed daily. A Legal Court found the next language acceptable:

As of the date of this letter, you owe $___ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1-800- [phone number].

Though use of this specific disclaimer wasn’t mandatory, Burns held that it is use would discharge your debt collector’s duty ought to be law to properly condition the quantity due.

As with Burns, a legal court in Avila didn’t require that collection notices contain specific safe harbor language, but came to the conclusion your debt collectors could avoid future liability if your collection notice “precisely notifies the customer that the quantity of your debt mentioned within the letter increases with time, or clearly claims that the holder from the debt need payment from the amount established entirely satisfaction from the debt if payment is created with a specified date.”