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Involvement in “Hallmark” Debt Collection Activities Not Required for “Meaningful Participation” under FDCPA, Ninth Circuit Rules

A company did not violate the Fair Debt Collection Practices Act (FDCPA) by creating a false impression that it was meaningfully involved in a medical center’s debt collection, even though it “did not engage in many of the hallmark activities of debt collection,” the U.S. Court of Appeals for the Ninth Circuit recently ruled.

In Echlin v. PeaceHealth, the plaintiff had received two debt collection letters from Computer Credit, Inc. (CCI) seeking payment of two bills for medical treatment she received at PeaceHealth. CCI and PeaceHealth were parties to an agreement under which PeaceHealth would refer delinquent patient accounts to CCI and, for a fixed fee, CCI would perform various debt collection-related services, primarily mailing collection letters.

For each PeaceHealth account, CCI would mail up to two collection letters written on CCI letterhead. The first letter informed the debtor that CCI was a debt collector to which his or her account had been referred for collection and requested payment. If the debtor failed to pay or respond within two weeks, CCI would send a second letter, and if the debt still was not paid after another two to three weeks, CCI would refer the debt back to PeaceHealth and end its activity on the account. CCI also handled telephone calls and written correspondence from PeaceHealth debtors. Accounts sent back to PeaceHealth were often referred to another company for further action.

The plaintiff filed a putative class action against PeaceHealth and CCI, claiming that the collection letters she received from CCI violated FDCPA Section 1692j which makes it unlawful to “design, compile, and furnish any form knowing that such form would be used to create the false belief in a consumer that a person other than the creditor…is participating in the collection of [a debt owed to the creditor], when in fact such person is not so participating.” According to the plaintiff, the letters she received from CCI created a false or misleading belief that CCI was meaningfully involved in the collection of a debt before it was actually sent to collections, a practice commonly referred to as “flat-rating.” The district court granted both defendants’ motions for summary judgment, ruling that the undisputed evidence showed that CCI did meaningfully participate in the collection of the plaintiff’s debts.

In affirming the district court’s entry of summary judgment for the defendants, the Ninth Circuit began its analysis by observing that there was “no doubt that CCI furnished form letters that were used to create the belief—indeed that explicitly stated—that CCI was participating in an attempt to collect the debts [the plaintiff] owed to PeaceHealth.” Accordingly, the Ninth Circuit indicated that the question on appeal was “whether there is sufficient evidence in the record to support [the plaintiff’s] contention that this impression was false—that is, whether there is any genuine issue of fact as to whether CCI actually participated in PeaceHealth’s debt-collection efforts.” (emphasis included)

Observing that the FDCPA does not define what it means for a person to “participat[e]” in debt collection, the court looked to Second and Seventh Circuit precedent suggesting that to sufficiently “participate,” an entity must do more than mail form letters at the creditor’s direction and instead must “meaningfully” or “genuinely” participate in debt collection activities.

The plaintiff argued that CCI did not meaningfully participate because it did not engage in many of the “hallmark” activities of debt collection, such as negotiating or processing payments from debtors, receiving proceeds from payments that were made, and taking part in any further action pursued against debtors whose accounts remained delinquent. The Ninth Circuit rejected such a requirement, stating that it was “not persuaded that CCI must engage in such more central debt-collection activities in order to participate meaningfully” and that such participation “may take a variety of forms.”

Undisputed evidence in the record showed that CCI had:

  • Independently screened accounts for potential collection problems

  • Drafted and mailed collection letters without input from PeaceHealth

  • Invited debtors in the letters to contact CCI and trained its personnel to handle such inquiries, which included providing information to debtors about their debts and repayment

  • Received approximately 500 calls a week from debtors of its various clients and hundreds of pieces of mail from PeaceHealth debtors

  • Maintained a website where PeaceHealth debtors could access individualized information about their debts and submit documents to CCI

  • Forwarded payments to PeaceHealth that it sometimes received from debtors

Based on such evidence, the Ninth Circuit concluded that CCI’s efforts “went beyond acting simply as a mailing house for PeaceHealth” and “were enough to have participated meaningfully in the attempts to collect debts like [the plaintiff’s].”

Copyright © by Ballard Spahr LLP


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.

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.

Mr. Culhane addresses issues involving licensing, advertising and marketing, application processing, privacy, disclosure, pricing, substantive terms, servicing, collection, portfolio sales, and securitization. His regulatory practice includes preparing clients for banking agency and CFPB compliance examinations and assisting in the defense of attorney general investigations and banking agency and CFPB enforcement actions. His clients have ranged from a multibillion-dollar bank holding company, to one of the nation's largest residential mortgage lenders, to a leading provider of financial institution forms and documentation. Mr. Culhane is a member of the firm's Fair Lending Task Force.

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...

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...