UPDATE ON THE FAIR DEBT COLLECTION PRACTICES ACT AND THE EIGHTH CIRCUIT COURT OF APPEALS

I last wrote on the Fair Debt Collection Practices Act in 2001. In this article I am going to briefly discuss some of the Eighth Circuit cases that have come down since then. Since a number of cases have come down, I was planning to devote a number of pages to this discussion. As it turned out, however, few of the cases are worth mentioning. Several are not designated for publication.

Others are not establishing helpful guidelines to follow. Below is a quick discussion of the cases that are more interesting. I was hoping I had some basis for arguing that the decisions are wrongly decided. However, this is not the approach here. One observation is warranted, I think. In my 1996 article, I noted that there was a trend nation-wide that when plaintiff's claims were dismissed at the trial level or in summary judgment these decisions were often reversed on appeal. That has not been the case since 2001. Since 2001, when a case was dismissed or summary judgment was entered for the Debt Collector this was affirmed by the Eighth Circuit. Does this suggest an increase of conservative thought on the bench? I do not think so. But you will see based on my discussion on the cases below that a number of them could have come out on the other side.

Fundamental to the Fair Debt Collection Practice's Act is that a debt collector cannot assert a right or threaten to take any action that under state of federal law could not be taken. Two cases illustrate this rule. First is Freyermuth v. Credit Bureau Services, Inc. [FN1] In this case the debtor argued that the debt collector was trying to collect a debt that was barred by the running of the statute of limitations. The Eighth Circuit, however, held that it did not violate the Act because the running of the statute of limitations only precludes judicial enforcement of the debt. It does not extinguish the debt. Howard Brill agrees. He points out that it is not unethical to file a lawsuit trying to collect a debt on which the statute of limitations has run. [FN2] This is based on the fact that the running of the statute of limitations is an affirmative defense. If it is not raised by the defendant the defense is deemed waived. The debtor collector in Freyermuth was not using the legal process or threatening to use it.

Even if it would not be unethical to file a lawsuit under these conditions, would the filing of the lawsuit on a debt the collection of which was barred by the statute of limitations violate the Fair Debt Collection Practices Act? I do not know the answer *176 to this. Under the least sophisticated consumer test which many circuits, including the eighth use, the threat to drag the debtor into court would be a lever that was likely to force the debtor to pay. It was similar levers used by debt collectors that were one of the reason the statute was passed.

Compare the Freyermuth case with DuBois v. Ford Motor Credit Company. [FN3] In this case the debtors were leasing a car from Ford. They filed a Chapter 7 Bankruptcy petition. They continued to make their payments to Ford and filed with the court an intention to keep the car and continue payments. [FN4] After the debtors received their bankruptcy discharge of their debts they continued to make payments to Ford and eventually turned the car back to Ford intending to lease another vehicle. When they were signing the paper work, Ford assessed a $2,800 charge on the first lease for excessive mileage and wear. [FN5] This cost was rolled into the cost for the second lease. Later the debtors sued for violation of the FDCPA. The debtors lost before the trial court and with the eighth circuit. The DuBois court emphasized that the debtors did all of this voluntarily under no threat from Ford Credit.

Although this was not before the court, I would think that any attempt by Ford Credit to collect the discharged debt would violate the Act. Unlike the running of the Statute of Limitations, the bankruptcy discharge extinguishes the personal liability of the debtor to pay the debt. Since Ford had possession of the first car, it would have no rights to threaten to collect the $2,800. What would be the outcome if Ford had said that they would not lease another car to the debtors unless they agreed to pay the $2,800. Would this violate the Act? After all, Ford has no obligation to do business with the debtors. Withholding the new lease, until the debtor agrees to pay the charge seems something the creditor could do. In any event, these were not the facts before the court.

The threat to take action that is not allowed to be taken because of state or federal law is a false or misleading representation under section 1692e. [FN6] It is also a false or misleading statement that misleads the least sophisticated consumer. Another example is in Peters v. General Service Bureau. [FN7] In this case, a debt collector said in a voluntary appearance letter that if the debtor did not come to court in the next five days their "only alternative" was to have a constable serve summons on the debtor at his home or his place of employment. The issue before the eighth circuit was whether this was false. The court did not see it as false. However, under Nebraska law, service could be accomplished by using certified mail or an authorized agent. [FN8]

The debtor argued that a false statement is a per se violation of the FDCPA. The court found the phrase was not false. But then went on to say that even if it were considered false, it was not misleading. This is because the debt collector testified that it rarely used any type of service other than service by the sheriff. Thus, the court is adding a requirement that the false statement actually mislead. [FN9]

The court also rejected the other false statement *177 argument made by the debtor. The voluntary appearance letter also said that if the debtor did not "appear" and "deny" or "otherwise plead", a default judgment would be entered against him. [FN10] The debtor argued that this was false because he did not need to appear in court but could send a responsive pleading instead. The court said the language was not troublesome because the "otherwise plead" language indicated that voluntary appearance was not a requirement. I question this because the court is using the unsophisticated consumer test. [FN11] I would think the combination of the five-day period and the appear and deny or default language would confuse an unsophisticated consumer about what was demanded of him or going to happen. The court said any confusion could be taken care of by the statement on the voluntary appearance letter that any questions should be directed to the debtor's attorney.

This does not seem to comply with the statute. The unsophisticated consumer should not have to pay an attorney to understand a letter from the debt collector. The prohibition of false, harassing, and unfair practices is designed to make communications from the debt collector easily understood by the unsophisticated consumer. The voluntary appearance letter in this case looks threatening. By including the five-day period, never mentioning the thirty-day period and adding the "appear" and "deny" or "otherwise plead" language with default language this letter is both threatening and unclear what the debtor has to do. It can be read as requiring an appearance in court in five days or a default judgment would result.

I assume this is not the validation notice that must sent from the debt collector to the debtor. Within five days of the initial communication, the debt collector must send a validation notice to the debtor. [FN12] This notice give the debtor certain rights they can assert within the next thirty days. A number of courts have held that the thirty-day period in the validation notice cannot be confused by language that tries to get the debtor to take action more quickly that this or different action within the thirty days. The courts stress that the validation notice should be clear, not confusing. [FN13] The validation notice also must state specific things outlined in the statutory section. The validation notice must be clear because the FDCPA provides some debtor rights. Why should the validation notice be the only letter from the debt collector that has to be clear? The debt collectors can provide clear letters. The only reason they do not, I suspect, is the hope that the consumer will misread the letter.

The last case worth mentioning is Schmitt v. FMA Alliance L.P. [FN14] Under the FDCPA., once a debt collector knows that the debtor is represented by an attorney they can no longer contact the debtor directly. [FN15] This proscription is also under the ethical rules. In the Schmitt case, the debtor's lawyer sent two letters to the creditor letting the creditor know of the representation. Then, the creditor assigned collection of the debt to FMA Alliance, the debt collector. FMA then contacted the debtor directly. The debtor sued FMA for a violation of the FDCPA. FMA asserted that it never knew the debtor was represented by an attorney. The debtor argued that the principal's knowledge should be imputed to their agent. This would eliminate the need to prove that the debt collector actually received the information and protect the consumer better.

*178 The court, however, noted that under agency law knowledge of the principle is not imputed to the agent. Knowledge of the agent is imputed to the principle, but not from the principle to the agent. [FN16] The debtor argued that the FDCPA changes this agency rule. The debtor relied on two cases from district courts in New York. [FN17] The eighth circuit refuses to follow these cases and follows the seventh circuit in refusing to impute the knowledge of the principle to the agent. Thus, the debt collector did not violate the statute. This rule just raises the costs for the debtor. Why should the attorney for the debtor have to notify both parties. The attorney will not be informed when the debt is assigned to a debt collector. This rule insures that the debt collector will be able to bother the debtor even after the debtor has had the attorney write to the creditor.

Perhaps the debt collector should not be liable if they truly did not know about the attorney. The creditor should be liable, however. The creditor should bear the loss unless it can prove that it conveyed the knowledge to the debt collector. Under the eight circuit's ruling the creditor need not convey the information and the debt collector can claim ignorance. After all, attorneys are expensive. The debtor may decide to pay the money despite a defense to payment just to get the debt collector off of his back. There are other eighth-circuit opinions that have come down since I last wrote in 2001. The cases discussed above contain cases that could have come out differently. I hope you can add this article to my other articles for a better understanding of the Fair Debt Collection Practices Act.

[FN1]. 248 F.3d 767 (8th Cir. 2001).

[FN2]. ABA Comm. On Prof'l Ethics and Grievances, Formal Opinion 348 (1994).

[FN3]. 276 F.3d 1019 (8th Cir. 2002).

[FN4]. Keep in mind that the recent Bankruptcy Abuse Prevention and Consumer Protection Act which will become effective October 17, 2005 will not allow the debtors to do this any longer. This requirement is to be placed in 11 U.S.C. § 521(a)(6).

[FN5]. DuBois v. Ford Motor Credit Co., 276 F.3d at 1021.

[FN6]. 15 U.S.C. § 1692e.

[FN7]. 277 F.3d 1051 (8th Cir. 2002).

[FN8]. Id. at 1053.

[FN9]. Id. at 1055-56. The debtor tried to amend his motion for summary judgment by adding the affidavits of eight people who said that they were mislead by the statements in the voluntary appearance letter. The court said that the debtor tried to do this too late. The court noted that evidence that could have been presented earlier in the litigation could not be added later under Fed. R. Civ. P. 59(e) motion. Id. at 1057.

[FN10]. Id. at 1056.

[FN11]. Id. at 1055.

[FN12]. 15 U.S.C.§ 1692(g) (2000).

[FN13]. Gervais v. Riddle and Assoc., 363 F. Supp. 2d 345, 352-55 (D. Conn. 2005) (finding a violation of the FDCPA when the validation letter had, in addition to the mandatory information, a statement that the debtor could settle the debt for 50% of the debt if paid within thirty days and the thirty-day periods were calculated differently).

[FN14]. 398 F.3d 995 (8th Cir. 2005).

[FN15]. 15 U.S.C. § 1692(c)(2) (2000).

[FN16]. Schmitt, 398 F.3d at 997.

[FN17]. Micare v. Foster & Garbus, 132 F. Supp. 2d 77 (N.D.N.Y. 2001); Powers v. Prof'l Credit Servs., 107 F. Supp. 2d (N.D.N.Y. 2000).