USFN | FDCPA & Dunning Letter: 2nd Circuit Finds “Overshadowing and Contradicting” Language of the Validation Code

FDCPA & Dunning Letter: 2nd Circuit Finds “Overshadowing and Contradicting” of the Validation Language

by Chris Picard
Hunt Leibert – USFN Member (CT)

In Jacobson v. Healthcare Financial Services, Inc., Docket No. 06-3147-cv, __ F. 3d. __ (2^d Cir., 2008), the debtor, Jacobson, received a dunning letter from HFS demanding payment from Jacobson within 30 days or to otherwise notice HFS of a dispute. Jacobson filed suit in the U.S. District Court for the Eastern District of New York, alleging various violations of the Fair Debt Collections Practices Act based upon the language of the letter.

Jacobson claimed, “HFS violated the FDCPA by ‘divest[ing] the consumer of his rights to dispute the debt for thirty days after receipt of the collection letter.’ ” HFS, in turn, filed for dismissal or alternatively for summary judgment. Additionally, HFS sought attorneys’ fees, contending that the suit was brought in bad faith and was meant to harass. Judge Glasser agreed with HFS and granted summary judgment, awarding attorneys’ fees and costs to HFS.

Upon appeal, Jacobson claimed the validation notice overshadowed or contradicted the FDCPA in three ways: (1) that the letter demanded payment prior to the expiration of the 30-day dispute period; (2) that the letter did not clarify when the 30-day period began; and (3) that the letter did not clarify when the 30-day dispute period ran. As it illustrates Jacobson’s claims, the language of the letter is necessary to review. It states:

THIS ACCOUNT HAS BEEN ASSIGNED TO OUR OFFICE FOR COLLECTION.

IF YOUR PAYMENT OR NOTICE OF DISPUTE IS NOT RECEIVED IN THIS OFFICE WITHIN 30 DAYS, WE SHALL RECOMMEND FURTHER ACTIONS BE TAKEN AGAINST YOU TO COLLECT THIS OUTSTANDING BALANCE.

NOTE: THAT WE HAVE THE RIGHT TO REPORT THIS DEBT TO THE APPROPRIATE CREDIT BUREAU WHICH MIGHT HAVE A NEGATIVE IMPACT ON YOUR CREDIT RATING. MAKE YOUR CHECK OR MONEY ORDER PAYABLE TO HEALTHCARE FINANCIAL SERVICES.

PLEASE READ BELOW

THIS COMMUNICATION IS AN ATTEMPT TO COLLECT A
DEBT AND ANY INFORMATION OBTAINED WILL BE
USED FOR THAT PURPOSE.

IN COMPLIANCE WITH THE PROVISIONS OF PARAGRAPH 809 OF THE CONSUMER PROTECTION ACT, AMENDMENTS, YOU ARE HEREBY NOTIFIED OF THE FOLLOWING:

UNLESS YOU NOTIFY THIS OFFICE WITHIN THIRTY DAYS AFTER RECEIVING THIS NOTICE THAT YOU DISPUTE THE VALIDITY OF THIS DEBT OR ANY PORTION THEREOF, THIS OFFICE WILL ASSUME THIS DEBT IS VALID.

IF YOU NOTIFY THIS OFFICE IN WRITING WITHIN THIRTY DAYS FROM RECEIVING THIS NOTICE, THIS OFFICE WILL OBTAIN VERIFICATION OF THE DEBT OR OBTAIN A COPY OF A JUDGMENT AND MAIL YOU A COPY OF SUCH JUDGMENT OR VERIFICATION.

IF YOU REQUEST FROM THIS OFFICE IN WRITING, WITHIN 30 DAYS AFTER RECEIVING THIS NOTICE, THIS OFFICE WILL PROVIDE YOU WITH THE NAME AND ADDRESS OF THE ORIGINAL CREDITOR, IF DIFFERENT FROM THE CURRENT CREDITOR.

The Second Circuit (comprising Connecticut, New York, and Vermont) analyzed the language of the FDCPA and quickly dispensed of Jacobson’s first two arguments. First, Jacobson claimed under the FDCPA that the creditor is not entitled to make demand for payment prior to the expiration of the 30-day dispute period. The court disagreed, setting forth that HFS could make an immediate demand because the letter adequately provided notice that Jacobson could seek validation of the debt. Next, Jacobson argued that the letter did not provide sufficient notice of when the 30-day dispute period started. The court, however, found the letter clearly set forth that the debtor had 30 days from the receipt of the notice to challenge the validity of the debt.

The final argument presented concerned the end of the dispute period. Jacobson claimed that the letter did not comport with the requirements of the FDCPA because the first portion of the demand overshadowed and contradicted the validation notice. Here, the court agreed with Jacobson.

The first portion of HFS’ letter states, “IF YOUR PAYMENT OR NOTICE OF DISPUTE IS NOT RECEIVED IN THIS OFFICE WITHIN 30 DAYS … .” After this statement, the HFS letter does include the validation notice required under the FDCPA. In fact, the court noted that Jacobson acknowledged the validation notice satisfied the requirements under the FDCPA. Despite Jacobson’s concession, the court set forth that Jacobson was acting as a private attorney general on behalf of the least sophisticated consumer and focused on how such a letter would impact a consumer. Jacobson claimed that he was bringing the action on behalf of himself and all others similarly situated, despite never moving for class certification.

In considering Jacobson’s third argument, the court found that the least sophisticated consumer would be confused by the letter because the demand notice required that the consumer either make payment or dispute the debt before the 30-day dispute period ran. As set forth above, the court did not prohibit HFS from making a demand for payment prior to the 30-day dispute period running, rather the court focused on the end date of the period.

This led the court to view the language in the demand portion as overshadowing and contradicting the validation language because the demand language shortened the period in which a consumer could dispute the debt. As a result, the court overturned the district court decision and remanded the case for further findings.