February 5, 2023

Volume XIII, Number 36

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February 03, 2023

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February 02, 2023

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Second Circuit Reverses Ruling in FDCPA Case

The U.S. Court of Appeals for the Second Circuit recently held that a debt collector’s settlement offer must indicate whether interest and fees are continuing to accrue on the outstanding debt, or alternatively, whether payment of the settlement amount by a specified date will constitute full satisfaction of the debt.  The plaintiff allegedly incurred credit card debt that was placed with defendant debt collection company.  The defendant mailed plaintiff a collection notice offering to settle the debt.  The plaintiff sued the debt collection company by claiming that the notice violated Section 1692e of the Fair Debt Collection Practices Act (FDCPA) “by failing to disclose that interest was continuing to accrue on his balance.”

In ruling in favor of the debt collection company, the appellate panel:

  • Acknowledged the district court’s appropriate reliance on Avila v. Riexinger & Associates, a Second Circuit decision holding that a debt collector violates the FDCPA if it identifies the “current balance” of a debt without disclosing that such balance could increase due to the accrual of interest or fees.

  • Clarified that Avila also provided two safe harbors from liability under Section 1692e for failing to make such a disclosure. A debt collector would not be liable if the letter either (i) “accurately informs the consumer that the amount of the debt stated in the letter will increase over time,” or (ii) “clearly states that the holder of the debt will accept payment in the amount set forth in full satisfaction of the debt if payment is made by a specified date.”

  • Concluded that the debt collector’s notice did not violate Section 1692e because “even when viewed from the perspective of the least sophisticated consumer, the notice could only reasonably be read one way: as extending an offer to clear the outstanding debt upon payment of the specified amount(s) by the specified date(s).”

Putting it Into Practice:  This decision strengthens the precedent established in Avila seeking to minimize litigation under FDCPA by providing for the use of safe harbor to shield debt collectors from FDCPA claims based on the failure to provide additional detailed disclosures.  It also serves as a reminder that the safe harbor language will not stave off liability for debt collectors in every instance, but merely in cases where the language is clear and accurate.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 167

About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

Brandon Faus Finance Lawyer Sheppard Mullin

Brandon Faus is an associate in the Finance and Bankruptcy Practice Group in the firm's Los Angeles office. 

Areas of Practice

Brandon represents lenders and borrowers in secured and unsecured debt transactions across a variety of industries. He focuses on both new originations and workouts for bi-lateral and syndicated loan structures.

Prior to joining Sheppard Mullin, Brandon enjoyed a decade-long career as a banker serving in both a business development and credit risk management capacity. He...