2nd Circuit: Payment demand in debt collection letter overshadows validation notice

Courts Appellate Second Circuit FDCPA Debt Collection

On November 5, the U.S. Court of Appeals for the Second Circuit reversed a district court’s dismissal of an FDCPA action, concluding that warnings in a defendant’s debt collection letter “could have created the misimpression that immediate payment is the consumer’s only means of avoiding a parade of collateral consequences, thereby overshadowing the consumer’s validation rights.” The defendant sent a debt collection letter to the consumer warning that it was instructed to commence litigation in order to collect a debt. The plaintiff was told he could avoid consequences such as paying attorneys’ fees if he made a payment or made suitable payment arrangements. The letter also contained a validation notice, which apprised the plaintiff of his right to dispute the debt within 30 days. The plaintiff filed a complaint alleging the letter violated the FDCPA because it included language that overshadowed the required disclosure of his right to demand that the debt be validated. The district court granted the defendant’s motion to dismiss, ruling that the plaintiff failed to adequately allege an FDCPA violation based on either (i) “the interaction between the letter’s payment demands and its validation notice,” or (ii) the letter’s statement that the plaintiff may be liable for attorneys’ fees in the event of litigation.

On appeal, the 2nd Circuit disagreed with the district court’s conclusions, holding that the complaint stated an FDCPA violation because, among other things, the letter’s payment demand overshadowed its validation notice. The appellate court found that the complaint also adequately stated an FDCPA violation based on the letter’s statements that the plaintiff “may be liable for attorneys’ fees where no such fees could be recovered.” Furthermore, the appellate court determined that the defendant’s introduction of an unsigned form contract supporting its claim to attorneys’ fees “at most raises a factual dispute about whether [the plaintiff] ever signed a contract providing for attorneys’ fees,” and concluded that this factual dispute should not have been resolved at the motion to dismiss stage.