As Matter of First Impression, FDCPA Permits Consumers to Notify Debt Collectors of Dispute Within 30 Days of Receiving Debt Collectors’ Letter Necessitating Reversal of Summary Judgment in Favor of Defense in FDCPA Class Action Second Circuit Holds
Plaintiff filed a putative nationwide class action complaint against Healthcare Financial Services (HFS), a “debt collector” within the meaning of the federal Fair Debt Collection Practices Act (FDCPA), alleging that a debt collection letter he received from HFS violated the FDCPA by failing to advise debtors of their right to dispute the validity of the debt. Jacobson v. Healthcare Fin. Servs., Inc., 516 F.3d 85, 2008 WL 383060, *1 (2d Cir. 2008). The class action complaint did not allege that plaintiff suffered any actual loss, limiting recover to statutory damages and attorney fees. Id. Defense attorneys moved to dismiss the class action, or in alternative sought summary judgment, on the ground that the debt collection letter did not violate the FDCPA; the defense also sought attorney fees from plaintiff, arguing that he had filed the class action “in bad faith and for the purpose of harassment,” see 15 U.S.C. § 1692k(a)(3). Id. The district court granted summary judgment in favor of HFS and awarded HFS attorney fees and costs, id. The Second Circuit affirmed in part and reversed in part.
The FDCPA provision at issue provides that a debtor has the right to dispute a debt and seek verification of the validity of the debt by notifying the debt collector of the right to dispute the debt. Jacobson, at *2. The Second Circuit recognized that it must view the issue from the perspective of the “least sophisticated consumer,” see id., at *3 (citing Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir. 1993)), but observed also that “the objective test we apply [also] protects debt collectors from unreasonable constructions of their communications,” that the Second Circuit has “carefully preserved the concept of reasonableness,” and that “the FDCPA does not aid plaintiffs whose claims are based on ‘bizarre or idiosyncratic interpretations of collection notices.’” Id. (citations omitted). So viewed, the Circuit Court held that the letter sent by HFS clearly advised debtors of their right to dispute the validity of the alleged debt.
First, plaintiff argued that the paragraph at issue – which provided, “If your payment or notice of dispute is not received in this office within 30 days, we shall recommend further action be taken against you to collect this outstanding balance.” – may have confused the “least sophisticated consumer” as to whether they “had any right to dispute the debt at all before paying it.” Jacobson, at *4. The Circuit Court disagreed. Contrasting this case with other opinions that have found such confusion, the Second Circuit explained at page *5: “The letter sent by HFS to Jacobson, though it demanded payment, adequately explained that the recipient had the right to seek verification of the debt. It presented Jacobson with two alternate ways of avoiding ‘further action’: either pay the debt ‘within 30 days,’ or submit a notice of dispute, ‘within 30 days.’” The relevant language was not buried or on the back of the demand letter but rather was “on its face, below the initial statement, and in clear terms.” Id. Accordingly, the Circuit Court held that “even the least sophisticated debtor would understand that she had the option to submit a notice of dispute, rather than pay the claimed sum.” Id.
Second, plaintiff argued that the debt collection letter created confusion as to the “start date” of the 30-day window to dispute the debt. Jacobson, at *5. Specifically, did the 30 day period begin on the date of the letter or on the date the debtor received the letter (as required by FDCPA Section 1692g(a)(3))? Id. Again, the Second Circuit agreed with the district court that “even the least sophisticated consumer would understand that the thirty-day period began only when the notice was received” because it “contains a clear and accurate statement of the starting date, informing Jacobson that he has ‘30 days from receiving this notice’ to submit the notice of dispute.” Id. Accordingly, the lower court did not err in rejecting this challenge to the debt collection letter, id., at *6.
Finally, plaintiff argued that the debt collection letter created confusion as to the “end date” of the 30-day window to dispute the debt. Jacobson, at *6. Specifically, did the 30 day period require that HFS receive the notice that the debt was disputed within 30 days, or need the debtor merely send notice of the dispute within the 30-day time period? Id. The letter sent by HFS “explicitly requires either payment, or a notice of dispute, to be ‘received in [HFS’s] office’ within thirty days, if the recipient wants to avoid ‘further action.’” Id. This was a matter of first impression in the Second Circuit, but the Court noted that the Seventh Circuit had sided with the consumer on the subject. Id. (citing Chauncey v. JDR Recovery Corp., 118 F.3d 516, 519 (7th Cir. 1997) (holding that consumers have “the full thirty dates” to send notice to the debt collector)). The Second Circuit recognized that the statute was unclear on the matter and that the legislative history as equally unhelpful. Id., at *7. It concluded that “the underlying purposes of the statute” were better served if consumers were given additional time to send a notice to the debt collector, id., at *7-*8, particularly “given the vagaries of the mails,” id., at *8. Accordingly, as a matter of first impression in the Second Circuit, the Court held “that the recipient of a debt collection letter covered by the FDCPA validly invokes the right to have the debt verified whenever she mails a notice of dispute within thirty days of receiving a communication from the debt collector.” Id. Because HFS’s letter required that the notice be received within the 30-day window, it violated the FDCPA and required reversal of the district court order granting summary judgment on this issue, id.
The Circuit Court also reversed the award of attorney fees against plaintiff not only because the third claim “was in fact meritorious,” Jacobson, at *9, but also because the district court abused its discretion in determining that plaintiff had filed the class action “in bad faith and for the purpose of harassment,” id., at *8. Specifically, the facts relied upon by the district court – viz., “Jacobson’s acknowledgment that the underlying debt was valid, and his admission that he did not feel ‘harassed, threatened or misled by the letter’” – are “irrelevant to the question of whether Jacobson brought the action ‘in bad faith and for the purpose of harassment,’ and it was legally erroneous for the district court to base its conclusion on them.” Id., at *9. Accordingly, the Second Circuit affirmed the summary judgment in part, but denied it in part and vacated the award of attorney fees and costs. Id.