Don't Misstate or Overshadow Debt Validation Notice

Debt Collectors Misstate and Overshadow the Debt Validation Notice at Their Peril

Complying with the debt validation notice requirement of 15 U.S.C. § 1692g should be plain sailing for the experienced debt collector: make sure to send the notice within five days of the “initial communication,” track the statutory language, and don’t overshadow the notice by sending conflicting or confusing messages about how and when the consumer may challenge the alleged debt.  A recent decision from the United States Court of Appeals for the Seventh Circuit shows just how badly things can go wrong for debt collectors who fail to follow these essential rules.

In Marquez v. Weinstein, Pinson & Riley, P.S., --- F.3d ----, 2016 WL 4651403 (7th Cir. September 7, 2016), defendant law firm was retained to collect student debts.  It first sent demand letters to the plaintiffs containing debt validation notices that, based on the opinion, appear to have met the requirements of § 1692g.  For reasons not explained in the opinion, when the law firm filed complaints seeking judgments for the alleged debts it included paragraph 12 in the complaints intended as a debt validation notice:

Pursuant to 11 U.S.C. § 1692g(a), Defendants are informed that the undersigned law firm is acting on behalf of Plaintiff to collect the debt and that the debt referenced in this suit will be assumed to be valid and correct if not disputed in whole or in part within thirty (30) days from the date hereof.

Marquez at *1.  

The district court dismissed the putative class action complaint filed against the law firm and other defendants, which alleged a violation of 15 U.S.C. § 1692e.  This section provides that “[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt,” including, but not limited to the false representation of “the character, amount, or legal status of any debt.” § 1692e(2)(A).

On appeal, the Seventh Circuit first addressed the question whether statements made in the context of state court litigation could form the basis for a violation of 15 U.S.C. § 1692e, and adopted the position taken by nine other United States Circuit Courts that had held the FDCPA applies to statements contained in state court pleadings.  Based on the decision in Heintz v. Jenkins, 514 U.S. 291, 115 S.Ct. 1489, 131 L.Ed.2d 395 (1995), as well as on the amendment to the FDCPA that followed that decision, the Marquez court concluded that because § 1692e(11) explicitly excludes formal legal pleadings from the requirement to include the mini-Miranda warning, Congress necessarily intended that all other parts of the law should be applicable in the context of statements made in a legal proceeding.  Marquez at *2. 

The Court then turned to the substance of the complaint, which involved a consideration of the debt validation language included in paragraph 12 of the collection lawsuits and the language contained in the summons that was served on all the plaintiffs.  The Court observed that the summons and the debt validation notice serve two completely different purposes.  The summons informs the defendant served with the lawsuit of the requirements to properly assert a defense in court to the allegations and relief sought in the complaint, whereas the debt validation notice serves to inform the consumer of his rights to notify the debt collector that he disputes the debt or requires the debt collector provide validation of the debt.  The summons used in defendant’s collection cases had its own problems, in that it misidentified several subsections that provided instructions on what the defendant needed to do to assert a defense depending on the amount of money sought in the complaint.  Adding to the confusion, according to the Court, was that the debt validation language contained in paragraph 12 of the complaints misstated the required language.  Paragraph 12 stated:

Pursuant to 11 U.S.C. § 1692g(a), Defendants [consumers] are informed that the undersigned law firm is acting on behalf of Plaintiff [debt collector] to collect the debt and that the debt referenced in this suit will be assumed to be valid and correct if not disputed in whole or in part within thirty (30) days from the date hereof.

 Id. at *3 (bracketed language in original).  The Court made no reference to the apparent misidentification of the United States Code title that contains the FDCPA – Title 15, not Title 11 – so it is not known whether this is a typographical error in the opinion or yet another misstep by the debt collector.

The Court held that paragraph 12 was “misleading to the unsophisticated consumer both as to the proper timing to respond to the complaint and as to the manner of response.”  Id. at *4.  The consumer would read the summons and believe he had until the date stated therein to contest the claim, but beyond the 30-day period described in paragraph 12, he could no longer contest the debt.  And, because the 30-day period described in paragraph 12 expired before the answer due date, this would lead the unsophisticated consumer to believe he could no longer contest the debt in his answer.  Id.

Compounding the problem for the law firm was that paragraph 12 misstated the debt validation language.  In particular, the language failed to make clear who would assume the debt to be valid if the consumer did not dispute it:  the law firm or the court?  The language should have made clear that it was the debt collector that would assume the debt to be valid, but by failing to make this clear the unsophisticated consumer could be misled into believing that the court would assume the debt to be valid if the consumer did not dispute it with the debt collector within the requisite time period. Additionally, according to the Court, because paragraph 12 “mirrored the earlier demand letter to the consumers informing them of their rights to dispute the debt”, id. at *5, an unsophisticated consumer would believe he must dispute the debt through the procedures outlined in that letter rather than by contesting the complaint in court, and “[t]hat would place the consumers at risk of losing their rights in court if they disputed the debt through contact with the debt collectors rather than in the form of an answer.”  Id.

What lessons should debt collectors draw from Marquez?  First, unstated in the opinion, provide the debt validation notice only once.  No reason was offered as to why the law firm in this case provided a second debt validation notice, but it was the provision of that (incorrect) notice that landed it in hot water.  Second, track the statutory language as closely as possible, recognizing that § 1692g does not provide the exact template that should be used.  The debt collector should read and re-read its debt validation notices to make sure they are compliant.  Third, beware of overshadowing the debt validation notice.  Given that the notice is good for only 30 days, if the debt collector can wait until after the validation period expires before filing suit, there is no risk of overshadowing.  If, for whatever reason, the debt collector must send the validation notice at the same time as serving the complaint, separate the two and include anti-overshadowing language so that the least sophisticated consumer will understand the debt validation notice and the summons provide two discreet and entirely separate opportunities to challenge the alleged debt.  This applies equally to any other communication from the debt collector to the consumer during the validation period.

Published by Hutchens Law Firm on October 12, 2016