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Federal Court Holds 30-Day Validation Notice Language Violates FDCPA

A federal district court in Pennsylvania recently granted summary judgment to a debtor in a lawsuit filed against a collection law firm under the Fair Debt Collection Practices Act (FDCPA). Specifically, the debtor alleged that the validation notice contained within the firm's collection letter violated the FDCPA in two ways: first, in stating that the collection firm must "hear from" the debtor within 30 days to dispute the underlying debt; and also in demanding that the collection firm must "receive" the debtor's dispute within 30 days. The District Court for the Eastern District of Pennsylvania agreed with the debtor on both issues.

In Homer v. The Law Offices of Frederic I. Weinberg & Assoc., the court stated that The Law Offices of Frederic I. Weinberg & Associates, P.C., sent a collection letter to a Pennsylvania consumer, which contained the following validation notice:

Unless this office hears from you within thirty (30) days after receipt of this letter that you dispute the validity of the debt, or any portion thereof, this office will assume the debt is valid. If you notify this office in writing within thirty (30) days of your receipt of this letter that the debt or any portion thereof is disputed, this office will obtain verification of the debt or, if the debt is founded upon a judgment, a copy of the judgment will be obtained and this office will mail to you a copy of such verification or judgment.

The debtor asserted that this paragraph violated the FDCPA. In response, the collection firm, argued that the letter's language was merely "colloquial" and "mirror[ed] the statute and [did] not limit the time the debtor ha[d] to dispute the debt." The court disagreed and granted summary judgment to the debtor.

The court first considered whether the language in the validation notice violated the FDCPA. Under Section 1692g(a)(3), a debt collector’s validation notice must include "a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt . . . the debt will be assumed to be valid by the debt collector." 15 U.S.C. § 1692g(a)(3). Noting that this section of the FDCPA "does not mention the words 'in writing,'" the court nevertheless held that informing a debtor that a debt collector must "hear from" them within 30 days violates the law under existing precedent set by the U.S. Court of Appeals for the Third Circuit (as opposed to the language of the FDCPA itself).

Specifically, the court explained that in Graziano v. Harrison, the Third Circuit previously held that Section 1692g(a)(3) is ambiguous—i.e., that the statute does not expressly indicate whether a debtor may dispute a debt in writing or orally. Because of this ambiguity, the Graziano court held that "a valid dispute ha[s] to be in writing even though subsection (a)(3) does not state it explicitly." In holding this way, the Third Circuit split from its sister courts in the Second, Fourth, and Ninth Circuits, which all hold that a "debtor need not provide written notice to dispute the validity of [a] debt."

Accordingly, the court held that, because the Third Circuit requires that a debtor dispute a debt "in writing" under Section 1692g(a)(3), "[t]he 'hears from you' language was deceptive because it suggested that the dispute may be made orally." The court noted that its holding flows from the Graziano court's decision and, importantly, "[i]n those circuits that interpret the statute as allowing a debtor to dispute [a] debt orally, the notice [at issue] would pass muster." However, in the Third Circuit, under the least sophisticated consumer standard, "the notice is not effective" because "[i]f courts reading the statutory language interpret it differently, how could the least sophisticated debtor not?" For these reasons, the court granted summary judgment on this issue to the debtor, and rejected the collection firm’s arguments.

The court next considered whether the collection firm's validation notice "impermissibly shortened the time [the debtor] had to dispute the debt" under the FDCPA. The letter advised the debtor that he must contact the collection firm "within thirty (30) days after . . . receipt . . . to dispute the validity of the debt." (emphasis added) The debtor argued that he only needed to send his written dispute within thirty days under the statute, whereas the collection firm argued that it must receive the written dispute within such time for it to be valid.

After determining that this was an issue of first impression in the Third Circuit, the court adopted the reasoning of the Second and Seventh Circuits, holding that "language shortening the dispute period violates the FDCPA." In particular, the court relied on the Second Circuit's decision in Jacobson v. Healthcare Fin. Servs., Inc., which reasoned that a validation notice "shortens the period during which the recipient may seek verification of [a] debt" where the notice "require[es] the [the debtor's dispute] to be received by the debt collector within thirty days[.]" The court agreed with the Jacobson court that, under Section 1692g(a)(3), "the FDCPA gives the consumer thirty days to mail the notice." The court also cited the Seventh Circuit's decision, in Chauncey v. JDR Recovery Corp., for the same proposition.

Accordingly, the court held that the FDCPA only "requires [a] debtor to send [his or her] written dispute within thirty days after receipt of the collection letter." Thus, in this case, because the collection firm's collection letter "required [the debtor] to act sooner than the [FDCPA] requires," the court concluded that the letter “violates section 1692g(a)(3) of the FDCPA.”

The result of this decision highlights two key issues involving validation notices. First, the decision underscores the extreme sensitivity with which courts will read validation notices when testing their compliance with the FDCPA. Second, the decision demonstrates that merely copying the text of the FDCPA may not be enough to avoid liability. Thus, debt collectors will need to evaluate whether the language used in their validation notices complies with the decisional law of each jurisdiction in which they do business. In the Third Circuit, this means that debt collectors must specify that a debtor must notify the debt collector, in writing, of his or her dispute.

While we note that the Homer decision is recent and has not received any appellate review, to mitigate potential risk, debt collectors and law firms operating within the Third Circuit may want to review their validation notices to ensure that they comply with this recent decision.

Copyright © by Ballard Spahr LLPNational Law Review, Volume VII, Number 335


About this Author

Kaplinksy, partner, New York, finance

Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

Christoper Willis, Partner, Ballard Spahr law firm, Consumer Financial Services Litigation attorney

Christopher J. Willis is Practice Leader of the firm's Consumer Financial Services Litigation Group. He devotes his practice to assisting financial services institutions facing government investigations and examinations, counseling them on fair lending risk and compliance assessments, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.

Mr. Willis also chairs the firm's Fair Lending Task Force. His clients span the financial services industry and include banks and non-banks, mortgage banking lenders and servicers, debt collectors and buyers, third-party service providers, student lenders and servicers, and auto finance companies.

Culhane, Ballard, Partner

John L. Culhane, Jr., is known for his work advising on interstate direct and indirect consumer and residential mortgage loan and leasing programs, through both traditional brick-and-mortar facilities and e-commerce. Before joining Ballard Spahr, Mr. Culhane was associate counsel with Mellon Bank, N.A.; associate counsel with Bank of America NT&SA; and senior attorney (section chief) with the National Credit Union Administration, the federal agency regulating federal credit unions.

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Stefanie Jackman, Ballard Spahr law firm, Partner, financial services institutions lawyer

Stefanie H. Jackman devotes her practice to assisting financial services institutions facing government investigations and enforcement actions, as well as defending them in individual and class action lawsuits. Ms. Jackman regularly handles matters arising under an array of federal and state consumer financial laws, including UDAP/UDAAP statutes, FDCPA, FCRA, TCPA, EFTA, SCRA, and TILA. Ms. Jackman represents clients across the financial services industry, including banks and nonbanks, mortgage banking lenders and servicers, debt collectors and buyers, third-party...

Matthew Howard, Ballard Spahr Law Firm, Atlanta, Finance Litigation Attorney

Matthew Howard represents and advises bank and nonbank lenders and other financial institutions on a variety of federal and state matters, including litigation and enforcement actions arising out of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the regulations promulgated by the Consumer Financial Protection Bureau, and other consumer protection entities. His practice also concentrates on representing the financial services industry with respect to federal and state consumer protection laws, including the Federal Truth in Lending Act, the Real...