Must a Transferee Debt Collector Send a New Debt Validation Notice to the Consumer in NC or SC?

In a case of first impression for the United States Court of Appeals for the Ninth Circuit, and as the first published opinion in any circuit court, the Court in Hernandez v. Williams, --- F.3d ---, 2016 WL 3913445 (9th Cir. July 20, 2016) held that even when a debt collector has already sent the consumer the debt validation notice required by 15 U.S.C. § 1692g, a successor debt collector collecting the same debt who fails to send a new notice to the consumer within 5 days of the successor’s initial communication with the consumer violates § 1692g.

The facts of the case are simple.  Maria Hernandez purchased a car on credit.  When she defaulted, Thunderbird Collections Specialists, Inc. (a debt collector) sent her a letter seeking to collect the debt.  Getting no response, Thunderbird retained the law firm of Williams, Zinman & Parham, PC (“Williams”).  Williams sent Hernandez a collection letter and included an incomplete debt validation notice. The letter informed Hernandez that she could dispute the debt or request additional information about the original creditor, but omitted informing her that she could do so only in writing.

In the putative class action suit filed by Hernandez, the parties filed cross-motions for summary judgment.  Williams contended it was not required to send any debt validation notice because Thunderbird had made the “initial communication” with Hernandez and had timely provided the debt validation notice.  The district court agreed and granted summary judgment for Williams. 

The Court of Appeals reversed.  The Court acknowledged § 1692g(a) was ambiguous with respect to whether it applied only to the first debt collector seeking to collect the debt from the consumer or whether it applied to each subsequent debt collector that took on the function of collecting the debt.  Id. at *3-*5.  To resolve this ambiguity, the Court reviewed the broader structure of the Act to answer the question and held that only by requiring each subsequent debt collector to provide the notice could “substantial loopholes” around both the validation notice requirements of § 1692g(a) and the debt verification requirements of § 1692g(b) be avoided.  Id. at *5.  By way of example, the Court posited that if the collection function was transferred within 30 days after the prior debt collector had sent the debt validation notice, and the consumer had not yet requested validation, the consumer’s ability to seek validation may be adversely affected if he had not received a new validation notice from the transferee debt collector.  The Court also observed that the very act of transferring the collection function could result in the loss of information or documents concerning the debt resulting in the transferee debt collector having a different understanding of the amount or nature of the debt.  Only by permitting the debtor to seek validation of the debt from the transferee debt collector could the consumer discover the nature and amount of the debt the transferee debt collector contended the debtor owed.  The Court was also concerned that if the transferee debt collector did not have to send the debt validation notice this could undermine the consumer’s right to have the debt collector cease collection efforts until the debt was verified.  

It is important to recognize that both the Consumer Financial Protection Bureau and the Federal Trade Commission filed an amicus curiae brief, in this case, strongly supporting Hernandez’s position. As the Court noted, the CFPB has “delegated rulemaking authority under the FDCPA and the Federal Trade Commission… shares concurrent authority to enforce the FDCPA with the Bureau.”  Id. at *3, fn4 (citations omitted).  

This is now the law in those states over which the Ninth Circuit has jurisdiction:  Alaska, Arizona, California, Hawai’i, Idaho, Montana, Nevada, Oregon, and Washington.  But what about the Carolinas?

The Fourth Circuit Court of Appeals has not addressed this question.  Of the other two circuit courts that have addressed it, neither has issued a published decision although both held that one, initial, debt validation notice was sufficient.  In Lee v. Cohen, McNeile & Papas, P.C., 520 Fed.Appx. 649, 2013 WL 1240812 (10th Cir. March 28, 2013), the Court affirmed the dismissal of a consumer’s claims that a law firm debt collector violated 15 U.S.C. § 1692g(a) by failing to provide a debt validation notice after the firm had been forwarded the account to collect from another law firm that had already sent a debt validation notice and responded to a validation request.  The Court did not explain its decision other than to state it had reviewed the record and that plaintiff had provided “no meaningful support for his contention that Cohen was required by law to validate his debt.”  Id, at *2.

The Sixth Circuit Court of Appeals offered more substance for its decision in Oppong v. First Union Mortgage Corp., 566 F.Supp.2d 395, aff'd, 326 Fed.Appx. 663 (3d Cir.2009).  Oppong held that when the responsibility for the collection of a debt is transferred to successive debt collectors, each new debt collector is not required to send a new debt validation notice.  Providing the first debt collector sent the consumer a valid notice, that suffices to meet the obligations of § 1692g.  The Court relied on cases from other jurisdictions: 

Nichols v. Byrd, 435 F.Supp.2d 1101, 1106 (D.Nev.2006) (holding that if Congress had intended to obligate every subsequent debt collector beyond the first to provide validation notice it would have explicitly called for it in § 1692g); see also Senftle v. Landau, 390 F.Supp.2d 463, 473 (D.Md.2005) (holding that there is only one “initial communication” with a debtor on a given debt under § 1692g(a), even though subsequent debt collectors “may enter the picture.”); Ditty v. CheckRite, 973 F.Supp. 1320, 1329 (D.Ut.1997) (holding that after a validation notice has been timely sent, a subsequent collector does not need to provide additional notice and another thirty-date validation period). 

To the extent that there is authority to the contrary, see, e.g., Griswold v. J & R Anderson Bus. Serv., 1983 U.S. Dist. LEXIS 20365 (D.Or. Aug. 11, 2005) (holding that each collector must provide information required by § 1692g); see also Turner v. Shenandoah Legal Group, P.C., 2006 WL 1685698, 2006 U.S. Dist. LEXIS 39341 (E.D. Va. June 12, 2006) (stating that every debtor is owed the same duty from each and every debt collector, lest an “end-run around the validation notice requirement” be created), it is not persuasive. Under the FDCPA, the goal of the initial communication is to advise the debtor of his rights and obligations to his creditor. Once the validation information is provided in the initial communication, and once the debtor is made aware of his rights at the time the collection process begins, it would serve no purpose to require that the same information be given, again and again, each time the servicing function was passed from one creditor to another.  

Oppong, 556 F.Supp.2d at 404 (footnote omitted).

In the states covered by the Fourth Circuit, as indicated above, federal district courts have gone both ways.  Senftle v. Landau, 390 F.Supp.2d 463, 473 (D.Md.2005) (no second notice required).  Turner v. Shenandoah Legal Group, P.C., 2006 WL 1685698, 2006 U.S. Dist. LEXIS 39341 (E.D. Va. June 12, 2006) (subsequent notices required).

Conclusion

Given the first reported decision on this issue in a Circuit Court, that the CFPB and the FTC appear to clearly support the interpretation of § 1692g as held in Hernandez, that federal courts in North Carolina and South Carolina have not opined on the issue in any reported or unreported decisions, and that providing a subsequent validation notice is not likely to cause substantial delays in foreclosure proceedings, the Firm believes it would be prudent to do so.  This will not be an issue for most foreclosure cases because for most referrals the Firm already sends the initial debt validation notice as part of its standard procedure.  For practical purposes, a subsequent debt validation notice will be required only for transfer files.  When a servicer transfers a foreclosure, or other debt collection file, from a law firm to the Hutchens Law Firm, the Firm will send a new notice within 5 days of its initial communication with the consumer.  Depending on the status of the transferred foreclosure or collection file, the Firm may need to suspend collection activity in the event the consumer requests debt validation.