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Financial Services Law Insights and Observations

10th Circuit says materiality is determined through the perspective of the “reasonable consumer”

Courts Appellate FDCPA Debt Collection Tenth Circuit Consumer Finance


On August 8, the U.S. Court of Appeals for the Tenth Circuit upheld the dismissal of an FDCPA action, concluding that an alleged false or misleading communication must be material in order to be considered a violation of the statute, and that materiality is determined through the perspective of the “reasonable consumer.” The plaintiff, a student loan debtor, alleged that he received a letter attempting to collect on debt from the defendant. The defaulted debt in question had been sold to a federal student-loan guaranty agency (creditor), which contracted with the defendant to collect the debt. According to the plaintiff, the letter appeared as if it were sent by the creditor, primarily because the letter displayed the guaranty agency’s name and logo instead of the defendant’s own information. According to the plaintiff, the letter violated several sections of the FDCPA, which prohibit the use of false representations or deceptive means to collect a debt or obtain information concerning a consumer and require a debt collector to use their “true name.” The district court dismissed the action for failure to state a claim, ruling that the letter in question was not misleading and that the plaintiff failed to establish that the defendant used materially misleading, unfair, or unconscionable means to collect the debt.

On appeal, the 10th Circuit held that “a reasonable consumer would not be misled,” because the letter (i) identifies the creditor as “the holder of a defaulted federally insured student loan”; (ii) states that the letter “is an attempt, by a debt collector, to collect a debt”; and (iii) clarifies that the defendant “is assisting [the creditor] with administrative activities associated with this administrative wage garnishment.” Moreover, “[e]ven assuming a reasonable consumer would believe [the creditor] and not [the defendant] sent the letter, [the plaintiff] fails to demonstrate how that would frustrate the reasonable consumer’s ability to respond intelligently,” the appellate court wrote.

In its determination, the 10th Circuit also considered differences related to the “least sophisticated consumer” and a “reasonable consumer” in determining how materiality should be measured. According to the appellate court, even the courts that apply the least sophisticated consumer standard tend to agree that the consumer’s interpretation must be reasonable, thereby incorporating aspects of the reasonable consumer standard. The 10th Circuit pointed out that while many courts have referenced the “least sophisticated consumer” in their rulings, few actually use that perspective. “In applying the least sophisticated consumer standard, courts typically begin by noting the least sophisticated consumer is not an expert but then quickly explain he is not actually the least sophisticated consumer,” the 10th Circuit said, adding that “[i]n reality, the nebulous least sophisticated consumer standard is simply a misnomer. A few circuits, recognizing problems with the least sophisticated consumer standard, instead look to the ‘unsophisticated consumer.’” The appellate court concluded that, assuming “the reasonable consumer would read a communication in its entirety and make sense of a communication by assessing it as a whole and in its context,” no reasonable consumer would have been materially misled.

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