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Hapin v. Arrow Financial: Defense Motion to Dismiss FDCPA Class Action Granted Because Debt Collector Letter Not Misleading California Court Holds

California Federal Court Finds Letter Referring to Debtor as “Customer” and to Debt Collector as “Account Representative,” and Offering to “Help” Resolve Debt, Not Misleading Under Fair Debt Collection Practices Act, But Allegation That Debt Collector Sought to Recover Excess Interest Sufficient to Survive Motion to Dismiss

In January 2006, a putative class action was filed in California federal court against Arrow Financial Services alleging violations of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq. (FDCPA), and its California equivalent, California Civil Code, §§1788 et seq. Hapin v. Arrow Fin. Serv., 428 F.Supp.2d 1057, 1059 (N.D. Cal. 2006). Plaintiff’s lawyer asserted that the debt collector letter from Arrow was “false, deceptive, and misleading” in that it (1) described plaintiff as a “customer,” (2) characterized the debt collector as an “account representative,” and (3) offered to “‘help Plaintiff regain his financial future . . . [and] by the false . . . characterization of debt as helping “regain his financial future.”’” Id. The complaint also alleged that Arrow sought to collect excessive interest, id. Defense attorneys filed a motion to dismiss the class action complaint, which the California federal court granted in part and denied in part.

First, the District Court held that the debt collection letter clearly revealed that the relationship between plaintiff and defendant was that of debtor and creditor. Hapin, at 1060-61. In fact, the letter (quoted in full in the opinion) “contains numerous other instances of debtor-creditor terminology, including repeated occurrences of the terms ‘past due balance’ and ‘collection of debt.’” Id., at 1061 n.2.

Second, the Court rejected plaintiff’s claim that satisfying his debt would not help him financially because he had several additional outstanding debts. The District Court held that the applicable standard “[does] not tak[e] into account Plaintiff’s particular financial circumstances,” Hapin, at 1061, and that informing a debtor that failing to pay a debt might adversely affect his or her credit, or that paying a debt might help restore credit, is not a misleading or abusive practice, id., at 1061-62 (citing Wade v. Regional Credit Ass’n, 87 F.3d 1098, 1099 (9th Cir. 1996).

The District Court found, however, that the allegations concerning Arrow’s “attempt] to collect interest in an amount not expressly authorized by the creditor agreement or permitted by the law,” satisfied the liberal notice pleading requirements and precluded dismissing the action under FRCP Rule 12(b)(6). Hapin, at 1062.