*64 THOMAS: ANOTHER TWIST IN THE FAIR-DEBT-COLLECTION KNOT

Nine years ago, the United States Supreme Court held that lawyers who regularly attempt to collect their clients' debts through litigation constitute "debt collectors" within the meaning of the Fair Debt Collection Practices Act, 15 USC sections 1692-1692o. Heintz v Jenkins, 514 US 291 (1995). Now, sitting en banc, the seventh circuit has held that the service of a summons and complaint by a debt collector constitutes an "initial communication" under the FDCPA.

Attorneys who file such suits, therefore, must take care to send or have sent to each debtor a written validation notice containing certain information about the debt. The case is Thomas v Law Firm of Simpson & Cybak, 2004 WL 2930975 (7th Cir 2004).

The FDCPA
The Fair Debt Collection Practices Act was enacted to curtail the abusive, deceptive, and unfair practices used by many debt collectors. The statute prohibits debt collectors from, among other things, making false statements in connection with the collection of any debt.

The FDCPA defines the term "communication" as "the conveying of information regarding a debt directly or indirectly to any person through any medium." 15 USC section 1692g(a) provides that, either in the debt collector's initial communication with a consumer or within five days, the collector must send the consumer written notice of the amount of the debt and the name of the creditor.

In addition, the notice must state that the collector will assume that the debt is valid if the debtor does not dispute it within 30 days of receipt of the notice. The notice must also say that if the consumer notifies the debt collector in writing within the 30-day period that he or she disputes the debt or any portion of it, the collector will mail to the consumer verification of the debt or a copy of a judgment against the consumer. The notice must also state that upon the consumer's written request within the 30-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

Sec 1692g goes on to provide, at subsection (b), that if the consumer invokes the right to dispute the debt or to request the name and address of the original creditor, the collector must cease attempts to collect the debt until the collector sends the consumer what he's requested. The FDCPA provides powerful incentives to comply with its terms; under section 1692k, a debt collector who violates any of its provisions may be required to pay not only actual damages but also potentially sizable additional damages as the court sees fit, as well as court costs and attorney's fees.

Thomas facts and holding
The root of the Thomas case was the purchase of an SUV under an installment contract on which the buyer allegedly defaulted two years later. In March 2000, through its attorneys, Simpson & Cybak, General Motors Acceptance Corporation sued the buyer, Thomas, in the Circuit Court of Cook County to recover the vehicle. Both the complaint and summons included a statement to the effect that "pursuant to the FDCPA, you are advised that this law firm is a debt collector attempting to collect a debt, and any information obtained will be used for that purpose."

Thomas then sued GMAC and its attorneys in federal district court, claiming that neither party had sent him a debt validation notice advising him of his rights as a debtor, as required by 15 USC sec 1692g(a). The district court granted the defendants' motions to dismiss the case. The seventh circuit reversed.

The court began its analysis by noting that GMAC's own letter to Thomas informing him that his payment on the vehicle was past due did not constitute an "initial communication" within the meaning of the FDCPA, because GMAC itself was Thomas's creditor and did not fall within the statute's definition of "debt collector." GMAC, therefore, did not incur any obligation under the FDCPA to inform Thomas of his validation rights when it sent that letter.

GMAC's attorneys, however, did fall within the definition of "debt collector." Rejecting opinions from federal courts in other circuits to the contrary, the seventh circuit found that the FDCPA's broad definition of "communication" encompassed the service of a summons and complaint. Therefore, said the court, it was the law firm's service of the lawsuit attempting to collect the debt allegedly owed to GMAC that constituted the "initial communication" with Thomas and triggered the obligation to send a validation notice.

The court showed little sympathy for the defendants' argument that the court's holding would interfere with litigation by making debt collection lawsuits more cumbersome. To stop consumers from halting a lawsuit by requesting verification of the debt just before a court filing deadline, the court said, attorneys for creditors might send the validation notice 30 days or more before initiating litigation. Doing so would reduce the risk of confusing the debtor, who must comply with court deadlines such as filing *63 an answer within 20 days even if he has requested verification of the debt within 30 days, the court wrote.

The court recognized that "there may be instances when a debt collector believes delay in initiating a lawsuit is unwise, such as when it fears the debtor will dissolve assets." To avoid confusing the consumer/debtor, the court said, collectors should include in the complaint, or send shortly thereafter, explanatory language of the kind counsel should use in a validation notice. In its opinion, the court suggested some sample "safe harbor" language for a validation notice to be included with or shortly after the summons or complaint that, in the court's view, would permit the attorney to comply with the FDCPA without disrupting the litigation process. Slip op at 9-10.

What's a lawyer to do?
The Thomas opinion has ISBA discussion group participants scratching their heads. When should the validation notice be sent? Before filing the complaint, which would clearly comply with the statute but would also give the debtor notice and the opportunity to shift assets? After filing the complaint, in which case the lawyer-collector must take more than usual care to monitor the exact date of service so as to comply with the five day rule? With the complaint, thereby risking that the debtor will argue confusion or otherwise put brakes on the litigation's orderly progress? In the latter case, is it really safe to use the court's "safe harbor" language?

Rockford attorneys Timothy Miller and John Rearden believe they're taking the safe route by sending out validation notices 30 days before they intend to commence litigation, certified mail, return receipt requested. While Miller acknowledges the risk that debtors may use the advance notice of the possibility of being sued to shift their assets out of reach, he believes that complying with federal law is too important to take any chances.

Rearden and Miller are also skeptical of the utility of the court's "safe harbor" language. "An attorney has to be very careful to comply with the FDCPA. Even the seventh circuit's 'safe harbor' provisions do not necessarily address all of the FDCPA requirements with which the attorney must comply."

Miller points out that at least one federal court in another circuit has found that attorneys who used "safe harbor" language suggested by the seventh circuit nevertheless violated the FDCPA because other language in their communications overshadowed or contradicted it. See Johnson v Equifax Risk Management Services, 2004 WL 540459 (SDNY 2004).

Miller doesn't insist, however, that all attorneys should follow his firm's practice. He also notes that the seventh circuit has decided a number of other cases that have presented different facets of the FDCPA that can be pitfalls for attorneys. In the final analysis, advises Miller, "every attorney should read the Thomas case, determine how to handle the validation notice issue in your own cases - and be prepared to defend your position."

[FNa1]. Helen W. Gunnarsson, a member of ISBA's Administrative Law Section Council, is an attorney and writer in Highland Park. She also writes ISBA's weekly e-mail Practice Updates (see ) and can be reached at .