USFN | Disputing a Debt under the FDCPA

Disputing a Debt under the FDCPA

by Greg Ivester
Wilson & Associates, PLLC - USFN Member (AR, TN)

The Fair Debt Collection Practices Act, codified at 15 U.S.C. § 1692, is a law designed to regulate debt collection and to protect consumers from abusive and deceptive practices by third party debt collectors. It is also designed to ensure that debt collectors who do not use abusive practices are not put at a competitive disadvantage. The act regulates and restricts the collection of information about debtors, prohibits harassing, oppressive, or abusive collection practices, and bars the use of any false, deceptive, or misleading collection activities.

In order to address the problem of debt collectors attempting to collect from the wrong person or debts that have already been paid, the act gives consumers the right to dispute a debt claimed by a debt collector, and to seek verification of the validity of the debt. The act requires that when any debt collector is attempting to collect a debt, whether it be a collection agency or a law firm, that the debtor be provided in the initial written communication with the amount of the debt, the name of the creditor, a statement that the debtor has 30 days to dispute the debt or it will be assumed to be valid, and a statement that if the debtor notifies the debt collector in writing within the 30-day period that he disputes the debt or any portion thereof that the collector will obtain verification of the debt, and a copy of that verification will be mailed to the debtor.

The 30-day notice window is not a grace period. Unless the debtor sends a written dispute, the collector is allowed to demand immediate payment and to continue with collection activities so long as those activities do not overshadow the disclosure of the debtor’s right to dispute the debt. However, upon receipt of a written dispute, all collection activity must cease until the debt has been verified. In addition, the notice must contain a statement that the debt collector will provide the debtor with the name and address of the original creditor, if different from the current creditor, upon the debtor’s written request within the 30-day period.

Application by the Courts

The Least Sophisticated Consumer
Under the act, the debt collector may not use any false, deceptive, or misleading representation or means to collect the debt. In determining whether the communications used by a debt collector are deceptive or misleading, many courts use a “least sophisticated consumer” standard. This standard poses the question, “how would an unsophisticated consumer interpret the notice?” This standard is designed to protect naïve debtors, while at the same time protecting debt collectors from liability for bizarre or outrageous interpretations of collection notices. However, the least sophisticated consumer is presumed to possess a basic understanding about the world and be willing to read a collection notice with some care.

Using this standard, debt collectors are obligated to not only convey the information required under the notice requirements of the act, but to convey it clearly. This means that, even if an accurate debt dispute notice is sent, the collector might still be in violation of the act if the notice is overshadowed or contradicted by other language communicated to the debtor. The validation notice is overshadowed or contradicted when other communications would make the least sophisticated consumer uncertain about his rights. In addition, a notice may be found to be deceptive if it can be read to have two or more meanings, and one of those meanings is inaccurate.

For example, the Second Circuit Court of Appeals found no violation of the act where the debtor claimed that a paragraph stating “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” might lead the least sophisticated consumer to be unsure whether he had any right to dispute the debt before paying it.

In another case, the court found that there was a violation where the front of the notice letter stated “If you do not dispute this claim (see reverse side) and wish to pay it within the next 10 days we will not post this collection to your file.” The reverse side of the letter contained an accurate notice of the right to dispute the debt. Twenty days later the collector sent another letter demanding “payment in full within 5 days.” While the collector was technically within its rights to demand payment, the court found that both communications violated the act because they would leave the least sophisticated consumer uncertain whether he had the right to dispute the debt, and to refrain from submitting payment while disputing it.

Another violation was found where the front of the notice letter demanded immediate payment of the debt, and only informed the debtor of his right to dispute the debt on the back of the letter. The court concluded that such a letter would leave the least sophisticated debtor uncertain of his right to dispute the debt. However, the demand for immediate payment, standing alone, does not violate the act. The violation occurred because the demand was not accompanied by language explaining that the demand did not override the debtor’s right to seek verification of the debt.

The 30-Day Dispute Period
Another potential area of confusion is the actual dates on which the 30-day dispute period begins and ends. Under the plain language of the act, the dispute period begins only when notice is received, not when the collector mails the notice. The act is less clear, however, on when the dispute period ends. The question that arises is, must the debtor have until the thirtieth day to mail his dispute letter, or must the dispute be received by the debt collector by the thirtieth day in order to be valid?

While most court have not yet addressed this issue, the two that have done so, the Second and Seventh Circuits, have resolved this matter in favor of the debtors. Those courts held that the notice must inform the debtor that he has 30 days from receipt of the notice to mail a debt dispute. Informing the debtor that the dispute must be received by the debt collector within 30 days was found to be a violation of the act in those cases.

The Bottom Line

In short, it is important for debt collectors to ensure that debtors are provided notice of their right to dispute the debt in clear and concise language. The notice should not be contradicted by any other communication with the debtor during the 30-day dispute period, although normal collection practices can continue in the absence of a debt dispute. Any collection activities pursued during the dispute period must not overshadow or be inconsistent with the disclosure of the consumer’s right to dispute the debt or request the name and address of the original creditor. If the debtor sends a written debt dispute or a request for the name and address of the original creditor within the dispute period, the act requires that the debt collector must cease collection of the debt until it obtains verification of the debt or the name and address of the original creditor, and that information is mailed to the debtor.