Court Decision Raises Questions About Collecting in Validation Period Under FDCPA

A recent ruling by an appeals court in an FDCPA case brought by a consumer raises numerous questions that may not be settled until there is further court action, according to collection legal experts.

The Second Circuit Court of Appeals held in Ellis v. Solomon and Solomon P.C. that a law firm and two of its lawyers violated the Fair Debt Collection Practices Act (FDCPA), when it filed suit against a debtor during the 30-day validation period without providing additional explanation to the debtor about how the lawsuit affected the notice.

Under the law, a debt collector must send a written communication to a consumer within five days of initial contact, which alerts the consumer to his or her right to dispute the debt. The consumer has 30 days to do so. The collector can continue to pursue the debt, but the collector’s methods must not overshadow or be inconsistent with the disclosures in the notice.

In the Ellis case, the defendants sent the plaintiff a validation notice, and two weeks later served her with a summons and a complaint. In affirming a previous district court’s award of summary judgment to the plaintiff, the Second Circuit held that the validation notice was “overshadowed” where a debt collector serves a consumer with a summons and complaint during the validation period without explaining that the lawsuit has no effect on the information conveyed in the validation notice.

The courts held that even though collection agents have a right to continue their efforts to collect debts during the validation period under the FDCPA, if they do not wait until the end of the 30-day period they must explain the lawsuit’s lack of impact on the disclosures to the consumer.

Barbara Sinsley, general counsel for debt buying trade group DBA International, said that the ruling basically calls for collection firms to tell the debtor in the initial validation notice and in a separate validation notice when filing the lawsuit. However, the 30-day period still starts with the initial validation notice.

“The court is advising [collection firms] to be redundant,” Sinsley said. However, she doubted the ruling would have much impact outside of the area served by the Second Circuit, which consists of Connecticut, New York and Vermont.

A major problem with the ruling, according to Tomio B. Narita, partner with Simmonds & Narita LLP, San Francisco, Calif., is that the court didn’t specify what needed to be included in the validation notice accompanying a lawsuit. So another court case is likely to be needed to decide that. Narita, an associate member of the National Association of Retail Collection Attorneys, had filed an amicus brief for NARCA on behalf of the defendant.

“The court says you have to provide this additional notice, something that is not specified by the Fair Debt Collection Practices Act,” Narita said. “Usually when the court goes down that road, they provide Safe Harbor language. The court has left you guessing, it doesn’t tell you exactly what to do.”

Therefore, Narita advises collection firms to seek the advices of their respective attorneys in developing the wording for any validation notices to accompany lawsuits.