2nd Cir: Debtor’s Failure to Contest Debt Does Not Insulate Debt Collector from Liability under FDCPA

By Stephen J Shapiro

The Fair Debt Collection Practices Act (“FDCPA”) requires that a debt collector attempting to collect a debt notify a consumer that (1) “unless the consumer . . . disputes the validity of the debt . . . the debt will be assumed to be valid by the debt collector,” and (2) if the consumer disputes the debt, “the debt collector will obtain [and send to the consumer] verification of the debt . . . .”  15 U.S.C. § 1692g(a)(3) and (4).  The Second Circuit recently held that compliance with these provisions does not insulate debt collectors from claims alleging that they violated the FDCPA by making false representations about debts.

In Vangorden v. Second Round, Limited Partnership, a creditor agreed to settle a debtor’s credit card debt for less than the amount the debtor owed.  Five years later, a debt collector purchased the debtor’s settled debt and sent the debtor a letter requesting that she pay the “current outstanding balance” on her credit card of about $1,300.  In compliance with § 1692g(a), the letter notified the debtor that she had the right to dispute the validity of the debt and that the debt collector would verify the debt if she did so.  The debtor did not dispute the debt.  Instead, she sued the debt collector alleging that it violated several provisions of the FDCPA by falsely representing the existence, amount and legal status of the debt.  The debt collector moved to dismiss the suit on the grounds that the debtor did not exercise her right to dispute the debt, and the trial court granted the motion.

On appeal, the Second Circuit reversed.  Joining the Third Circuit and Fourth Circuit, the Second Circuit held that “nothing in the text of the FDCPA suggests that a debtor’s ability to state a [claim under the Act] ‘is dependent upon the debtor first disputing the validity of the debt in accordance with § 1692g.’”

In reaching its decision, the Second Circuit relied in part on the FDCPA’s “bona fide error” defense.  Section 1692k(c) of the FDCPA provides that a debt collector “may not be held liable . . . if the debt collector shows by a preponderance of the evidence that [a] violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.”  The Court held that, where debt collectors make honest mistakes, “the protection the FDCPA affords debt collectors . . . is the affirmative defense stated in § 1692k(c), not an immunity from suit inferred from the dispute notice provision of § 1692g.”

Practitioners can draw a number of lessons from Vangorden:  1) At least in the Second, Third and Fourth Circuits, debt collectors are unlikely to prevail on requests to dismiss FDCPA claims on the ground that the debtor did not contest the debt at issue.  2) Where the facts so warrant, debt collectors should plead § 1692k(c) as an affirmative defense to avoid potential waiver arguments.  3) Where a debt collector intends to invoke the “bona fide error” defense, it should make efforts to develop record facts to support the defense, since the burden of proof will fall on the debt collector at both the summary judgment stage and at trial.

 

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