THIRD CIRCUIT RULES THAT DEBT COLLECTION NOTICE DID NOT CONTAIN MISLEADING LANGUAGE

By: Louise Bowes

In Szczurek v. PMM, the United States Court of Appeals for the Third Circuit recently affirmed the United States District Court for Eastern District of Pennsylvania’s ruling that the Plaintiff Joseph Szczurek (“Plaintiff” or “Szczurek”) failed to establish that a debt collection notice he received from the Defendant was in violation of the Fair Debt Collection Practices Act (“FDCPA”). No. 14-4775 (3d Cir. filed October 1, 2015).

In June 2014, Szczurek received a one-page notice from Professional Medical Management, Inc. (“PMM”) advising him that Mercy Fitzgerald Hospital had referred his past due account balance of $19.70 to PMM for collection. In addition to the language required by the FDCPA, the notice stated, “To avoid further contact from this office regarding your past due account, please send the balance due to our office and include the top portion of this letter with your payment.” Id. at 2.   Szczurek received four more similar letters from PMM over the next month, and filed a purported class action in the District Court, alleging that PMM had violated Sections 1692(e) and 1692(f) of the FDCPA by including deceptive and misleading language in the debt collection notice.   Specifically, Szczurek asserted that the correspondence created the false impression that the only way to stop PMM from further contact was to pay the debt. PMM moved for judgment on the pleadings, arguing that it was entitled to judgment as a matter of law because its notices complied with the FDCPA. The District Court granted the motion and dismissed the case, and the Plaintiff appealed to the Third Circuit.

On appeal, the Third Circuit applied the “least sophisticated debtor” standard, as set forth in Brown v. Card Serv. Ctr. 464 F. 3d 450 (3d Cir. 2006). The Brown court previously held that communications between debt collectors and debtors should be analyzed using this standard, which is a lower standard than the standard of a reasonable debtor. Szczurek argued that the least sophisticated debtor may interpret the language in the notice to mean that the only way to stop the debt collection notices was to pay the debt, when, in fact, debtors have other options under the FDCPA to halt debt collection communications. The Court disagreed with the Plaintiff, and ruled that the purpose of the language in question was to advise the debtor that PMM will continue its collection efforts until successful, and not to notify him of the available methods debtors may use to halt debt collection communications under the FDCPA. The Court further held that PMM was under no obligation under the FDCPA to inform a consumer that he may ask a debt collector to cease further contact pursuant to the statute.

Third Circuit Clarifies FDCPA Restrictions on Third-Party Communication

By: Joshua A. Huber

In Evankavitch v. Green Tree Servicing, LLC, the Third Circuit considered, as a matter of first impression, which party bears the burden with respect to alleged improper third-party communications under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”). Evankavitch v. Green Tree Servicing, LLC, —F.3d—, 2015 WL 4174441, at *1 (3d Cir. Jul. 13, 2015). Put differently, the Court was asked to determine whether the debt collector must prove that allegedly improper third-party communications fall within § 1692b’s exception, or whether it is incumbent on the debtor to disprove the applicability of that exception as an element of his claim.   Id.

Under the FDCPA, a debt collector is liable to a consumer for contacting third parties in pursuit of that consumer’s debt unless the communication falls under a statutory exception. One such exception permits communication with a third party “for the purpose of acquiring location information about the consumer” but, even then, prohibits more than one such contact “unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has correct or complete location information.” 15 U.S.C. § 1692b.

The Third Circuit ultimately determined that the burden falls on the debt collector. Evankavitch, 2015 WL 4174441, at *10. Noting the “‘longstanding convention’ that a party seeking shelter in an exception . . . has the burden to prove it,” the Court held that Green Tree was required to prove that any alleged third party communications were only for purposes of obtaining location information about Evankavitch and therefore within the narrow exception to the FDCPA’s general prohibition on communications with third parties. Id. at *5.

Third Circuit Affirms Dismissal of RESPA Class Action against Bank of America

By: Louise Bowes

In Riddle v. Bank of America Corporation, et al., the United States Court of Appeals for the Third Circuit recently affirmed a lower court’s dismissal of a putative class action suit against Bank of America because the borrowers’ claims under Section 8 of the Real Estate Settlement Procedures Act (“RESPA”) were time-barred. 2014 U.S. App. LEXIS 19730 (3d. Cir. Oct. 15, 2014).

The putative class plaintiffs purchased homes in 2005 with mortgages obtained from Bank of America, and were required to obtain private mortgage insurance in connection with their loans. In 2012, the borrowers received advertisements from their legal counsel regarding possible causes of action they may have related to their private mortgage insurance. Although the borrowers had not previously investigated the reinsurance arrangement in connection with their mortgage insurance, they brought suit against Bank of America, alleging that the reinsurance arrangement between the bank and the insurer was in violation of RESPA.

The United States District Court for the Eastern District of Pennsylvania held that the plaintiffs’ claims were time-barred by RESPA’s one-year statute of limitations. The District Court also held that their claims did not meet the requirements for equitable tolling because the borrowers did not exercise reasonable diligence in investigating their claims, and the defendants did not mislead the plaintiffs.

On appeal, the Third Circuit affirmed the District Court’s decision, on the basis that the plaintiffs did “absolutely nothing” to investigate the reinsurance of their mortgage insurance during the seven-year period between when their claims arose and when they brought suit. The Court also noted that although the plaintiffs’ lack of reasonable diligence was a sufficient basis on which to deny equitable tolling, there was also inadequate evidence that the defendants misled the plaintiffs.

Third Circuit Holds that Envelope Revealing Consumer’s Account Number Violates the FDCPA

By:      Daniel A. Cozzi and Diana M. Eng

The Third Circuit Court of Appeals recently held that an envelope revealing a consumer’s account number through a clear plastic window constitutes a violation of the Fair Debt Collection Practices Act (“FDCPA”). In doing so, the Third Circuit reversed the District Court of the Eastern District of Pennsylvania’s holding that the disclosure of a consumer’s account number is not a “benign” disclosure and thus constitutes a violation of § 1692f(8) of the FDCPA.

In Douglas v. Convergent, the Third Circuit addressed the issue of whether “the disclosure of a consumer’s account number on the face of a debt collector’s envelope violates § 1692f(8) of the Fair Debt Collection Practices Act.” Douglass v. Convergent Outsourcing, No. 13-3588, 2014 WL 4235570 (3d Cir. Aug. 28, 2014); 15 U.S.C. § 1692 et seq.

The FDCPA prohibits debt collectors from using “unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. § 1692f. Further, Section 1692f(8) specifically limits the language that debt collectors may place on envelopes sent to consumers:

Using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business. (Emphasis added).

On May 16, 2011, Plaintiff/Appellant Courtney Douglass (“Plaintiff” or “Douglass”) received a debt collection letter from Convergent Outsourcing (“Convergent”) regarding the collection of a debt that Douglass allegedly owed to T-Mobile USA. The name Convergent, followed by Convergent’s account number for the alleged debt were visible on the letter, and through the clear plastic window of the envelope. In addition, the “quick response” (“QR”) code, which, when scanned, reveals the name Convergent, the account number and the monetary amount of Douglass’s alleged debt, was also visible through the envelope window.[1]

Douglass filed a lawsuit in the United Stated District Court for the Eastern District of Pennsylvania, alleging that Convergent violated the FDCPA by including a QR code and account number in a location visible through the clear plastic window of a collection letter sent to Douglass. Convergent moved for summary judgment, arguing that displaying such information in the window of the envelope was benign. The District Court granted summary judgment in favor of Defendant Convergent under a “benign language” exception. Douglass v. Convergent Outsourcing, 963 F. Supp. 2d 440 (E.D. Pa., 2013). The “benign language” exception to Section 1692f(8) is a judicially created exception to Section 1692f(8), which allows a court to forgive a technical violation of Section 1692f(8) if the violation is benign in nature. The District Court reasoned that although Convergent may have technically violated § 1692f(8), a strict interpretation of the statute would contradict Congress’ true intent.

To reach this conclusion, the District Court cited to Waldron v. Professional Medical Management, which held that a literal application of § 1692(8) “would produce absurd results.” No. 12-1863, 2013 WL 978933 (E.D. Pa., March 13, 2013). The District Court and the Waldron court relied on similar applications of the “benign language” exception to Section 1692f(8) in the Fifth Circuit, Eighth Circuit, District of Connecticut and the Central District of California.[2] Ultimately, the District Court held that “the mere presence of an account number does not show that the communication is related to a debt collection and “[i]t also could not reasonably be said to ‘humiliate, threaten, or manipulate’ the debtor.” Douglass v. Convergent Outsourcing, 963 F. Supp. 2d at 446. Further, the District Court found that “[s]ince the ‘random series of letters and numbers’ revealed through the QR code does not ‘clearly refer to a debt,’ or ‘tend to humiliate, threaten, or manipulate’” the consumer, Convergent did not violate the FDCPA. Id. at 448. Accordingly, the District Court granted summary judgment in favor of Convergent.

Douglass appealed the order granting summary judgment. On appeal, Douglass argued that an unambiguous reading of § 1692(8) explicitly bars the disclosure of account numbers. Douglass v. Convergent Outsourcing, 13-3588, 2014 WL 4235570 (3d Cir. Aug. 28, 2014). Convergent maintained that a plain reading of § 1692(8) would lead to absurd results and thus its disclosure of Douglass’ account number is allowed under a “benign language” exception. Id. at *3. In response, Douglass argued that, even if a “benign language” exception applies, the disclosure of an account number is never benign. Id.

The Third Circuit found that “the plain language of § 1692f(8) does not permit Convergent’s envelope to display an account number” but declined to evaluate whether Section 1692f(8) allows for a “benign language” exception. Instead, the Third Circuit determined that a debt collector’s account number is never benign. Id. at *4. Specifically, the Third Circuit held that “[t]he account number is a core piece of information pertaining to Douglass’s status as a debtor and Convergent’s debt collection effort. Disclosed to the public, it could be used to expose her financial predicament. Because Convergent’s disclosure implicates core privacy concerns, it cannot be deemed benign.” Id. Based on these considerations, the Third Circuit found that “Douglass’s account number is impermissible language or symbols under § 1692f(8)” in violation of the FDCPA. Id. at *6.

On September 10, 2014, Convergent filed a Petition for Rehearing En Banc or Panel Rehearing.     

In light of this decision, entities collecting consumer debt should avoid the use of account numbers and/or QR codes on envelopes or within the viewing area of clear plastic envelope windows. Revealing such information on envelopes or through clear plastic envelope windows may expose debt collectors to liability under the FDCPA.

[1] A “QR” Code is a barcode like image which can be read from a Cell Phone.

[2] Strand v. Diversified Collection Serv., Inc., 380 F.3d 316, 318–19 (8th Cir. 2008); Goswami v. Am. Collections Enter., Inc., 377 F.3d 488, 494 (5th Cir. 2004); Lindbergh v. Transworld Sys., Inc., 846 F. Supp. 175, 180 & n. 27 (D. Conn. 1994); Masuda v. Thomas Richards & Co., 759 F. Supp. 1456, 1466 (C.D. Cal. 1991).