Federal Court Rejects Class Action Claim that Offer to Settle Debt for 50% of Current Balance Due Violates Fair Debt Collection Practices Act (FDCPA)
Plaintiffs filed a consolidated class action complaint against Midland Credit Management, a debt collector that purchases debts from third-party creditors, alleging violations of the federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692 et seq. Midland sent letters attempting to collect outstanding debts; the class action complaint alleged that the letters violated the FDCPA because they contain false and misleading information. Defense attorneys filed a motion for summary, and plaintiffs followed with a cross-motion for summary judgment. The federal district court agreed with defense attorneys that the collection letters did not violate the FDCPA and granted summary judgment in favor of Midland and against the class action plaintiffs. Jackson v. Midland Credit Management, Inc., 445 F.Supp.2d 1015, 1017 (N.D. Ill. 2006).
Preliminarily, the district court noted that the Seventh Circuit “evaluates FDCPA claims through the eyes of an ‘unsophisticated debtor’” – it does not employ the “least sophisticated debtor” test adopted by some sister circuits. Jackson, at 1018-19. The court explained at page 1018 that, under this test,
“The unsophisticated debtor is regarded as ‘uninformed, naive, or trusting,’ but nonetheless is considered to have a ‘rudimentary knowledge about the financial world and is capable of making basic logical deductions and inferences.’” (Citations omitted.)
Because the court’s analysis requires an understanding of the specific language used in Midland’s letters, we provide the quoted language, including the emphasis in the original letters, as set forth by the district court at page 1017:
You won’t want to miss this settlement opportunity offered to you by Midland Credit Management, Inc, servicer of the above referenced account.
Recognizing that you may have gone through some financial difficulty and have been unable to satisfy your account we would like to offer you a positive and flexible option to resolve your account for 50% off the Current Balance.
If we receive payment by [one month after the date of the letter], in the amount of [50% of the current balance due], we will consider the account balance paid in full!
CALL NOW! To take advantage of this opportunity, please contact us TOLL-FREE at [providing 1 800 number] and any of our Account Managers will be able to assist you.
MAIL! You may prefer to settle your Current Balance by using the Acceptance Certificate below. Simply detach the form and enclose it with your [payment of 50% of the current balance due] in the envelope provided….
At page 1019, the federal court summarized the parties’ arguments as follows. Defense attorneys urged that the letters were entirely accurate and represented nothing more than an offer to settle the outstanding debt for 50% of the then current balance due. Plaintiffs argued that letters plainly violated the FDCPA
because the letters state that the defendant is offering a “one time only deal” when the reality is that the defendant is willing to make this same deal in the future. The letters are also allegedly false because they state that the defendant will only allow the plaintiff to pay 50% of the owed debt when the defendant would allow the plaintiff to pay a lesser amount.
The court rejected plaintiffs’ arguments, characterizing them as “an inappropriate application of the FDCPA,” Jackson, at 1020, and “[in] conflict of the decisions of almost every court … to consider this type of letter,” id., at 1019. In the court’s view, plaintiffs’ interpretation of the FDCPA “would require the defendant to list the lowest amount at which it is willing to settle in the original letter,” but the FDCPA does not require that. Id., at 1020.
At bottom, the district court held that the letter did not violate the FDCPA because it accurately reflected “an offer in which the plaintiff can pay off his or her debt at 50% of what is owed within approximately one month of the date of the letter.” Jackson, at 1019. If the debtor elects not to take advantage of the offer, then the amount of the debt will accrue interest thereby necessarily increasing the amount required in the future to pay 50% of the debt then owing. This means that even if the letters are viewed as presenting a “one time offer,” they remain nonetheless accurate because a 50% settlement offer in the future will be a higher amount in light of the accrued interest. Id., at 1021. Moreover, the letters do not require payment but on their face present a “settlement opportunity.” Id., at 1020.
In determining whether a debt collection letter withstands summary judgment, a plaintiff must do more than simply claim that it is confusing: “‘Rather, a plaintiff must demonstrate that the letter’s language unacceptably increases the level of confusion.’” Jackson, at 1019 (citation omitted). Midland’s letter did not create such confusion: “An unsophisticated debtor is aware of the effects of interest” and “is often aware that he or she is able to negotiate a better deal on his debt in the same way that a consumer negotiates a price below an automobile’s sticker price.” Id., at 1020. Because the letter was accurate, and did not create confusion, the district court granted the defense motion for summary judgment.
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