This article addresses whether a debt collector must disclose to the consumer that it is attempting to collect interest on a debt.  The short answer is yes, a debt collector must make this disclosure.  This holds true in Missouri and in many other jurisdictions.

When a debt collector’s dunning letter seeks payment from a consumer, it must accurately state the amount of the debt; this includes providing at least some indication that the debt collector is trying to recover interest on the debt when that is the case.

Section 1692g(a)(1) requires that:

[w]ithin five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing…the amount of the debt.

(15 U.S.C. § 1692g(a)(1).)

To ensure that the amount stated is accurate, such a letter must warn the consumer if late charges, interest, and other fees that will accumulate after the date of the letter, increasing the actual balance due.  Jones v. Midland Funding, LLC, No. 3:08–CV–802 (RNC), 2012 WL 1204716, at *2 (D. Conn. April 11, 2012).  This “safe harbor” warning concerning future interest and fees “prevent[s] confusion by debtors for whom the ‘exact amount due’ is a constantly shifting target due to accruing interest and accumulating unpaid charges.”  Veach v. Sheeks, 316 F.3d 690, 693 (7th Cir. 2003).  The noted decision of the 7th Circuit in Miller suggested a template for a “safe harbor” clause:

As of the date of this letter, you owe $___ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1-800-[phone number].

Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, L.L.C., 214 F.3d 872, 876 (7th Cir. 2000).  Debt collectors need not use this precise language, but they must take steps notify consumers of any accruing fees and interest.  Id.  If a letter does not even hint at the accrual of interest, it is likely to mislead the unsophisticated consumer because “it would be possible to interpret ‘balance’ to mean that it was either a dynamic or static amount.”  Michalek v. ARS Nat. Sys., Inc., Civil Action No. 3:11–CV–1374, 2011 WL 6180498, *4 (M.D. Penn. Dec. 13, 2011).  A debt collector shirks its obligation to provide a “safe harbor” clause when it merely states a single “balance due” and fails to state “the effective date as of which [that] amount would suffice to pay off the debt in full.”  Dragon v. I.C. System, Inc., 483 F. Supp. 2d 198, 202 (D. Conn. 2007).

If a debt collector seeks to collect only the amount stated on its letter, it need not provide the Miller safe harbor warning.  See Curto v. Palisades Collection, LLC, No. 07–CV–529(S), 2011 WL 5196708, at *8 (W.D.N.Y. Oct. 31, 2011); Olson v. Risk Mgmt. Alternatives, Inc., 366 F.3d 509, 513 (7th Cir. 2004).  The Chuway court summarized this principle succinctly:

If the debt collector is trying to collect only the amount due on the date the letter is sent, then he complies with the Act by stating the “balance” due, stating that the creditor “has assigned your delinquent account to our agency for collection,” and asking the recipient to remit the balance listed—and stopping there, without talk of the “current” balance. If, instead, the debt collector is trying to collect the listed balance plus the interest running on it or other charges, he should use the safe-harbor language of Miller [v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C., 214 F.3d 872, 876 (7th Cir.2000) ].

Chuway v. National Action Fin. Svs., Inc., 362 F.3d 944, 949 (7th Cir. 2004); see also Brill v. Finan. Recovery Servs., Inc., No. 4:10–CV–3121, 2010 WL 5825480, at *4 (D. Neb. Nov. 10, 2010) (safe-harbor language “indicate[s] that the amount owed may vary if not paid immediately because of interest, late charges, or other charges”); Owens v. Howe, Cause No. 1:04–CV–152, 2004 WL 6070565, at *10 (N.D. Ind. Nov. 8, 2004) (no violation where the debt collector’s letter followed Miller’s safe-harbor language “faithfully”).

Missouri has recently joined the host of states which support interest disclosure.  In Verna and Jerry Roach v. Miller and Steeno, P.C., Cause No. 13JE-CC00741, Defendant Miller and Steeno argued that there simply is no legal requirement that it disclose when interest is actually accruing on a consumer’s debt.  The court rejected that argument.  Judge Kramer recognized, for the first time in Missouri jurisprudence, that debt collectors must disclose when interest is in fact accruing on a consumer’s balance.  Id.  Likewise, Judge Bouchard rejected an identical argument made by debt collectors Consumer Adjustment Company, Inc. and Roger Weiss in Christopher Fisher v. Consumer Adjustment Company, Inc. et al., Cause No. 13JE-AC05847.  In his order, Judge Bouchard closely analyzed the Seventh Circuit’s decision in Miller, finding that “[t]he Miller Court, by means of actual holding, was telling debt collectors” that if they are attempting to collect interest, they “[have] a duty to use ‘some form of words’ to notify the debtor that the debt amount may vary from day to day.”  Judge Bouchard thus concluded that:

If a debt collector wants to collect interest that is accruing on a debt, then the collector must notify and disclose such to consumers like plaintiff with ‘safe harbor’ or similar ‘heads up’ language on its collection letters.  Should a debt collector fail to do so, then the collection letter does not correctly state the amount of the debt and violates the FDCPA.

 

Consumers who are dealing with debt collectors may want to check with several free resources provided by governmental agencies before contacting an attorney.  The FTC publishes an excellent resource at http://www.consumer.ftc.gov/articles/0149-debt-collection.  In addition, many state-level Attorneys General publish consumer-friendly resources.  For example, the Missouri Attorney General’s Office has http://ago.mo.gov/consumercomplaints/topten/index.htm available to consumers.  It is possible to file a short and simple complaint against a debt collector online at the Attorney General’s website.

Consumers should know that if they consult with a debt collection attorney, they should not be required to pay anything up front to the attorney.  The FDCPA’s fee statute, 15 U.S.C. 1692k (you can see the full statute here: http://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text) allows a consumer to collect a statutory penalty of up to $1,000 and the debt collector, not the consumer, is responsible for paying the consumer’s attorney.

In July of 2014, the 11th Circuit Court of Appeals confirmed, in Crawford v. LVNV Funding, that a debt collector can be liable under the FDCPA for misconduct in connection with a consumer’s bankruptcy.  In the Crawford case, LVNV Funding submitted a “proof of claim” on a debt that was time barred.  The Court held that this behavior was actionable.  The full opinion is available for free at http://law.justia.com/cases/federal/appellate-courts/ca11/13-12389/13-12389-2014-07-10.html

Consumers who are dealing with debt collectors may want to check with several free resources provided by governmental agencies before contacting an attorney.  The FTC publishes an excellent resource at http://www.consumer.ftc.gov/articles/0149-debt-collection.  In addition, many state-level Attorneys General publish consumer-friendly resources.  For example, the Missouri Attorney General’s Office has http://ago.mo.gov/consumercomplaints/topten/index.htm available to consumers.  It is possible to file a short and simple complaint against a debt collector online at the Attorney General’s website.

Consumers should know that if they consult with a debt collection attorney, they should not be required to pay anything up front to the attorney.  The FDCPA’s fee statute, 15 U.S.C. 1692k (you can see the full statute here: http://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text) allows a consumer to collect a statutory penalty of up to $1,000 and the debt collector, not the consumer, is responsible for paying the consumer’s attorney.

Consumers should realize that they have thirty days to dispute the debt pursuant to the FDCPA (15 U.S.C. 1692g).  The following is an excerpt from a brief I filed citing to the relevant law on the issue.  A debt collector may not demand payment from a consumer during the thirty days after the consumer receives the initial collection letter.

Defendant overshadowed Plaintiff’s Section 1692g rights when it demanded Plaintiff pay the debt immediately during the March 21, 2014 call.  Section 1692g(b) provides in relevant part:

Any collection activities and communication during the 30-day period [after the debt collector’s written notice under Section 1692g(a)] may not overshadow or be inconsistent with the disclosure of the consumer’s right to dispute the debt….

15 U.S.C. § 1692g(b).

If a debt collector asserts that payment must be made within the dispute period without explaining that the consumer retains her dispute and verification rights, the collector has, by definition, overshadowed those rights.  Johnson v. Evans & Dixon, LLC, No. 4:13-cv-00671-NAB, at *7–16 (E.D. Mo. April 8, 2014) (attached as Exhibit 5); Glackin v. LTD Finan. Servs., L.P., No. 4:13–CV–00717 (CEJ), 2013 WL 3984520, at *2–3 (E.D. Mo. Aug. 1, 2013); McCafferty v. Schwartzkopf Law Office, Case No. 4:10 CV 1401RWS, 2011 WL 4916382, at *4 (E.D. Mo. Oct. 17, 2011); Ellis v. Solomon & Solomon, P.C., 591 F.3d 130 (2d Cir. 2010), cert. denied, 130 S. Ct. 3333 (2010); Robinson v. Transworld Sys. Inc., 876 F. Supp. 385, 391 (N.D.N.Y. 1995); Savino v. Computer Credit, Inc., 164 F.3d 81, 85 (2d Cir. 1998).  A collection communication overshadows the consumer’s validation right if it is made during the dispute and validation period and if “it fails to convey the validation information clearly and effectively and thereby makes the least sophisticated consumer uncertain as to her rights.”  Savino, 164 F.3d at 85.

The burden on the debt collector to comply with Section1692g is featherweight; if the collector simply waits thirty days before making a payment demand it will be in compliance with the statute.  Even if the debt collector wants to contact the consumer and make collection attempts within the thirty-day dispute period, it can comply with the statute by making it clear to the consumer that the consumer still retains their Section 1692g dispute and verification rights.  Defendant failed to do either.

In a recent case, Judge Jackson of this Court found that the defendant’s demand for creating payment arrangements within the dispute period overshadowed the consumer’s Section 1692g rights.  See Glackin, 2013 WL 3984520, at *3.  There, the plaintiff called the defendant to inquire about the status of her debt that the defendant was trying to collect.  Id. at *2.  The call occurred during the plaintiff’s thirty-day dispute period.  Id. at *2–3.  During the call, the defendant demanded that the plaintiff make payment arrangements before the expiration of the plaintiff’s dispute period.  Id.  Judge Jackson found that this payment demand overshadowed the plaintiff’s dispute and verification rights, reasoning that

[f]rom the standpoint of an unsophisticated consumer, defendant’s instruction to make a payment or arrange a payment plan on or before March 29, 2013 is confusing when compared to the 30–day dispute period, which would have run until April 10, 2013.  See Bartlett v. Heibl, 128 F.3d 497, 501 (7th Cir. 1997) (When a due date is set within the 30–day dispute period, the “net effect … turn[s] the required disclosure on its head.”).  For instance, if plaintiff made payment arrangements on or before March 29, 2013, it is unlikely that plaintiff, an unsophisticated consumer, would understand that she could still dispute the debt despite making such arrangements.

…

[A]n unsophisticated consumer would likely believe that setting up payment arrangements would act as a waiver of the right to dispute the debt.  Accordingly, the Court finds that defendant’s request for plaintiff to make a payment or make payment arrangements on or before March 29 improperly overshadowed and was inconsistent with the validation notice.

Id. at *3.

Likewise, Judge Baker’s very recent order in Johnson underscores the varied ways in which debt collectors overshadow a consumer’s dispute rights.  Johnson, Exhibit 5, at 14.  There, the consumer, Johnson, called the debt collector during her dispute period to inquire about the amount of the alleged debt.  Id. at 2.  During the call, the debt collector made repeated demands for payment of the debt.  Id.  For example, the debt collector stated that it “need[ed] to know if [Johnson] [was] interested in paying” the debt immediately.  Id.  The debt collector also requested that Johnson set up payment arrangements during the call to avoid the debt being forwarded to an attorney in the debt collector’s firm.  Id.  Finally, the debt collector flatly stated that the debt was “due immediately.”  Id. at 3.

Judge Baker found that these statements, made during Johnson’s dispute period, overshadowed her dispute rights.[1]  Id. at 5.  Judge Baker reasoned that although debt collectors are “perfectly free to demand payment” during the dispute period, such demands cannot “obscure” a consumer’s dispute rights.  Id. at 11 (emphasis omitted).  In particular, the court found that the debt collector’s statement that payment was “due immediately” would “certainly” be viewed by the unsophisticated consumer as a demand for immediate payment.  Id. at 14.  Even though the debt collector did not set a discrete deadline that truncated the dispute period, as in Glackin, the collector’s repeated requests for payment and its implied threat of suit indicated to the unsophisticated consumer that she must pay “immediately or very soon.”  Id. at 15.  As a result, the collector’s statements “were confusing, obscured Johnson’s rights under the FDCPA, and clouded the amount of time remaining for Johnson to dispute the debt.”  Id. at 16.[2]

Defendant overshadowed Plaintiff’s dispute rights by making demands for immediate payment within Plaintiff’s dispute period.  Plaintiff’s thirty-day dispute period as provided by Section 1692g(b) was ongoing at the time of the March 21, 2014 call for both debts at issue in this case.  SOF, ¶¶ 4–7.  In contravention of Plaintiff’s dispute rights, Defendant repeatedly stated during the March 21, 2014 call that the balance was due immediately and that Plaintiff should pay in full that day.  SOF, ¶ 8.  Specifically, Defendant stated that “once [the debts] get in collections, the balance is really due that day, so as soon as you can pay [the balance] would be the best.”  SOF, ¶ 9.  Further, Defendant stated that “the best thing for you to do is [pay] the full amount.”  SOF, ¶ 10.  Defendant also stated that Plaintiff could make arrangements during the call to pay the balance in two payments.  SOF, ¶ 11.  Finally, Defendant stated that Plaintiff should “try paying [the balance] off today” in order to avoid “continued action” with respect to the debts.  SOF, ¶ 12.  Defendant never explained to Plaintiff during the call that despite Defendant’s payment demands, Plaintiff retained her dispute and verification rights.  SOF, ¶ 13.

These demands for payment overshadowed Plaintiff’s dispute rights.  There was an explicit demand for immediate payment in full.  Such a direct request to pay within Plaintiff’s dispute period undeniably overshadows her dispute and verification rights.  See, e.g., Johnson, Exhibit 5, at 15–16; Glackin, 2013 WL 3984520, at *3.  As in Johnson, here Defendant’s repeated statement that the balance was due “today” would undeniably be viewed by the unsophisticated consumer as a demand for immediate payment.  Johnson, Exhibit 5, at 14.  Additionally, Defendant’s repeated demands for either immediate payment or payment arrangements, coupled with the threat of “continued action,” would obscure the unsophisticated consumer’s dispute rights and confuse her about the remaining time to dispute the debt.  Id. at 16.  Further, under Glackin, Defendant’s demand that Plaintiff set up payment arrangements immediately was inconsistent with her right to dispute the debt even if Plaintiff was not required to pay in full right away—such arrangements would be seen by the unsophisticated consumer as a “waiver” of her dispute rights.  Glackin, 2013 WL 3984520, at *3.

To an unsophisticated consumer, these payment demands within the dispute period were directly contrary to her rights under Section 1692g.  The unsophisticated consumer, viewing Defendant’s letters, would think that she had thirty days to gather information about the debt and dispute it, but Defendant’s demands in the call would lead her to believe that she either had no dispute rights or that Defendant would not honor those rights.

[1] Judge Baker noted that while the Eighth Circuit has not squarely addressed the issue, its prior opinions strongly suggest that applying the unsophisticated consumer standard is a question of law, not of fact.  Id. at 9–11.

[2] Judge Baker also observed that there is no requirement under Section 1692g(b) that the consumer dispute the debt before an overshadowing violation can occur.  Id. at 8.