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Summary of Judicial Consideration of Federal FDCPA Claims Based on Debt Collection Letters: Defense of Class Action Issues

To Defeat Federal Fair Debt Collection Practices Act Class Actions, Defense Lawyer Must Satisfy “Least Sophisticated Debtor” or “Unsophisticated Debtor” Standard

Class action lawsuits alleging violations of the Fair Debt Collection Practices Act (FDCPA) are commonplace. The class action defense lawyer frequently must defend against claims that the initial letter from the debt collector to the consumer failed to give the information required by 15 U.S.C. § 1692g. We discuss here the two main approaches taken by federal courts in determining whether such a violation occurred: the “least sophisticated debtor” standard, and the “unsophisticated debtor” standard.

We begin with the “least sophisticated debtor” approach because it is the most widely accepted. At least 6 courts have adopted this objective standard. See Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360, 365-66 (2d Cir. 2005); Wilson v. Quadramed Corp., 225 F.3d 350, 354-55 (3d Cir. 2000); United States v. National Fin. Serv., Inc., 98 F.3d 131, 136 (4th Cir. 1996); Smith v. Computer Credit, Inc., 167 F.3d 1052, 1054 (6th Cir. 1999); Terran v. Kaplan, 109 F.3d 1428, 1431-32 (9th Cir. 1997); Jeter v. Credit Bureau, Inc., 760 F.2d 1168, 1174-75 (11th Cir.1985). The least sophisticated debtor testis “lower than simply examining whether particular language would deceive or mislead a reasonable debtor.” Swanson v. Southern Oregon Credit Serv., Inc., 869 F.3d 1222, 1227 (9th Cir. 1998). Put another way, “The basic purpose of the least-sophisticated-consumer standard is to ensure that the FDCPA protects all consumers, the gullible as well as the shrewd.” Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir. 1993). But while this standard “protects naïve consumers,” Wilson, at 354, it also “prevents liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness and presuming a basic level of understanding and willingness to read with care.” National Financial Services, at 136 (citation omitted).

The bottom line is that “to comply with to comply with the requirements of section 1692g, more is required than the mere inclusion of the statutory debt validation notice in the debt collection letter – the required notice must also be conveyed effectively to the debtor.” Wilson, at 354 (citations omitted). “‘It must be large enough to be easily read and sufficiently prominent to be noticed . . . [and it] must not be overshadowed or contradicted by other messages or notices appearing in the initial communication from the collection agency.’” Terran, at 1432 (quoting Swanson, at 1225). If the debt collection letter is reasonably susceptible to two or more meanings, and if one of them is inaccurate, then the letter is deceptive within the meaning of the FDCPA. Russell v. Equifax A.R.S., 74 F.3d 30, 34-35 (2d Cir. 1996).

The Seventh Circuit, however, has adopted the “unsophisticated debtor” approach, Durkin v. Equifax Check Serv., Inc., 406 F.3d 410, 414 (7th Cir. 2005). The Court adopted this test “‘because we don’t believe that the unsophisticated debtor standard should be tied to “the very last rung on the sophistication ladder.’” Pettit v. Retrieval Masters Creditor Bureau, Inc., 211 F.3d 1057, 1061 (7th Cir. 2000) (quoting Gammon v. GC Servs., Ltd. Partnership, 27 F.3d 1254, 1257 (7th Cir.1994)). Like the “least sophisticated debtor” test, the Seventh Circuit views these FDCPA claims objectively, not subjectively, and “a statement will not be confusing or misleading unless a significant fraction of the population would be similarly misled,” Pettit, at 1061 (citations omitted, italics added). Pettit concisely summarized the Seventh Circuit’s standard at page 1061 as follows:

In attempting to describe this hypothetical debtor we have recognized that he is not as learned in commercial matters as are federal judges . . ., but neither is he completely ignorant. Thus, on the one hand, we have described an unsophisticated debtor as “uninformed, naive, or trusting.” . . . Instead, we and other courts have held that our uneducated debtor possesses rudimentary knowledge about the financial world, is wise enough to read collection notices with added care, possesses “reasonable intelligence,” and is capable of making basic logical deductions and inferences. . . . Furthermore, while our unwary debtor may tend to read collection letters literally, he does not interpret them in a bizarre or idiosyncratic fashion. . . . (Citations omitted.)

Again, in the Seventh Circuit the test is whether, objectively considered, “a significant fraction of the population” would be misled. If the letter is not plainly confusing on its face, then the plaintiff’s lawyer can satisfy his or her burden “through the use of a carefully designed and conducted customer survey” or through “an appropriate expert witness.” Durkin, at 415 (citations omitted).

NOTE: It is interesting that the Fifth Circuit appears to apply both standards, see, e.g., Goswami v. American Collections Enter., Inc., 377 F.3d 488, 495 (5th Cir. 2004).