The appellate court ruled in a “reverse-Avila” case, holding that a debt collector is not required to disclose that interest is not accruing – where no interest is accruing

The Second Circuit Court of Appeals issued a unanimous opinion today in favor of an ACA International member collection agency in the case of Taylor v. Financial Recovery Services, Inc., No. 17-1650, 2018 WL ——- (2d Cir. March 29, 2018). The issue in Taylor was “whether it is misleading within the meaning of Section 1692e for a debt collection letter to state the amount of a debt without disclosing that the debt, which once accrued interest or fees, no longer does so.”

The Second Circuit ruled “that a collection notice that fails to disclose that interest and fees are not currently accruing on a debt is not misleading within the meaning of Section 1692e.”

Given that consumer attorneys have filed hundreds of cases in federal courts against collection agencies (mostly ACA members) asserting that it is a violation of the Fair Debt Collection Practices Act for a debt collector to fail to disclose in a collection letter that interest is not accruing, ACA awarded Industry Advancement Funds to its member to help defray legal expenses associated with opposing the consumer’s appeal of the district court’s decision in Taylor, and filed an amicus brief with the Second Circuit January 22, 2018.

On March 22, 2016, the Second Circuit Court of Appeals issued its ruling in Avila v. Riexinger & Assocs, LLC 817 F.3d 72 (2d Cir. 2016), holding that a debt collector must disclose in collection letters that interest is accruing on an account. Following the Avila ruling, the consumer in the Taylor case filed a lawsuit against the collection agency claiming it violated the FDCPA by failing to disclose in collection letters that interest was not accruing on the consumer’s account. The U.S. District Court for the Southern District of New York ruled in favor of the collection agency on a motion for summary judgment, holding that a debt collector is not required to disclose that interest is not accruing (where no interest is accruing). The consumer appealed the order granting summary judgment to the Second Circuit. The consumer claimed that the Second Circuit’s holding in Avila supported her argument that a “debt collector commits a per se violation of Section 1692e whenever it fails to disclose whether interest or fees are accruing on a debt” because the least sophisticated consumer could interpret the lack of such disclosure to mean either that interest and fees on the debts in question are accruing or that they are not accruing.

On appeal, the Second Circuit affirmed the district court’s decision. In doing so, the Second Circuit rejected the consumer’s attempt to extend Avila’s holding. The appellate court explained, “[i]n Avila, we found a collection notice to be misleading because ‘[a] reasonable consumer could read the notice and be misled into believing that she could pay her debt in full by paying the amount listed on the notice,’ whereas, in reality, such a payment would not settle the debt. ‘The debt collector could still seek the interest and fees that accumulated after the notice was sent but before the balance was paid,’ as well as any interest or fees that accumulated thereafter. This was no theoretical concern. One of the plaintiffs in Avila had paid the stated balance of her debt only to find herself still on the hook for an unpaid balance that was accumulating interest at the alarming rate of 500% per annum. The collection notices FRS sent to Taylor and Klein, which stated their respective balances due without discussing interest or fees, could likewise have been read to mean that prompt payment of the amounts stated would satisfy the debts in question. The difference is that, while that message was prejudicially misleading on the facts of Avila, on the facts of this case it was accurate: prompt payment of the amounts stated in Taylor’s and Klein’s notices would have satisfied their debts.”

The Second Circuit concluded by expressly ruling that “if a collection notice correctly states a consumer’s balance without mentioning interest or fees, and no such interest or fees are accruing, then the notice will neither be misleading within the meaning of Section 1692e, nor fail to state accurately the amount of the debt under Section 1692g. If instead the notice contains no mention of interest or fees, and they are accruing, then the notice will run afoul of the requirements of both Section 1692e and Section 1692g.”

In its “friend of the court” brief, ACA argued that “[a] reversal [of the district court’s decision] would open the floodgates to a spate of litigation over such imaginary confusion by enterprising consumers (or, more likely, their enterprising attorneys). An affirmance [of the district court’s decision] will protect debt collectors’ due process rights, will help prevent in terrorem lawsuits against legitimate debt collectors who have not violated the law in any way, and will give effect to Congress’s purpose ‘to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged.’”

ACA is pleased it was able to help stop the consumer’s effort to create unfavorable precedent for the accounts receivable management industry by providing assistance to its member agency as it fought yet another uphill battle against aggressive consumer attorneys who will argue – as the consumer’s attorneys argued in Taylor – “that they or their clients are confused by words that are totally accurate and would not mislead even the least sophisticated consumer.”

As a result of the effort, the Second Circuit’s decision in Taylor is expected to have enormous positive litigation and financial impact for the many ACA members currently involved in the hundreds of copycat “reverse­-Avila” cases pending in federal courts throughout the Second Circuit. ACA is likewise delighted that the Taylor decision raises the industry-favorable decisions (wins) ACA has helped to achieve for its members through the Industry Advancement Program to 36 in just four years.

ACA International’s efforts to proactively support the accounts receivable management industry are part of the association’s Industry Advancement Program, and are made possible by funding through ACA’s Industry Advancement Fund.

To learn more about ACA’s Industry Advancement Fund visit the Industry Advancement Program website.

To read about the Victory for ACA as appeals court decision overturns the FCC’s expansive interpretation of the TCPA client click here.

Posted in Debt Collection.