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Financial Services Law Insights and Observations

3rd Circuit says collector itemizing zero-balance interest and fees did not mislead

Courts FDCPA Appellate Third Circuit Debt Collection Consumer Finance

Courts

On April 12,  the U.S. Court of Appeals for the Third Circuit affirmed dismissal of an FDCPA action, concluding that itemized breakdowns in collection letters that include zero balances for interest and other fees would not confuse or mislead the reasonable “unsophisticated consumer” to believe that future interest or other charges would be incurred if the debt is not settled. The defendant management company sent a letter to the plaintiff claiming he owed amount $1,088.34 and offered to “resolve this debt in full” with a payment of $761.84. The plaintiff filed a putative class action against the defendant alleging that by itemizing interest and collection fees for his “static debt,” and by assigning “$0.00” interest, the letter falsely implied—in violation of § 1692e and § 1692f of the FDCPA—that “interest and fees could accrue and thereby increase the amount of his debt over time.” The defendants moved to dismiss for failure to state a claim. The district court dismissed the complaint with prejudice, declining “to require assurances by debt collectors that itemized amounts ‘will not change in the future,’ reasoning that doing so would lead to ‘complex and verbose debt collection letters’ that would confuse consumers.”

On appeal, the 3rd Circuit agreed with the district court. Specifically, the appellate court concluded that the “complaint fails to state a claim, whether our court’s ‘least sophisticated debtor’ standard is functionally the same as the ‘unsophisticated debtor’ standard applied by other Circuits or is instead an independent and less demanding framework.” Moreover, the appellate court noted even the least sophisticated debtor understands that “collection letters—as reflected by their fonts, formatting, content, and fields—often derive from templates and may contain information not relevant to his or her particular situation.” According to the 3rd Circuit, “FDCPA case law does not support attributing to the least sophisticated debtor simultaneous naïveté and heightened discernment. Were we for some reason constrained to consider only the law of Circuits that employ the word “least” in their FDCPA standards, we would still affirm.”

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