Collection Letter Containing Check Box to Dispute Debt Created Potential FDCPA Claims, Federal Court Rules

This article previously appeared on Ballard Spahr's Consumer Financial Services Legal Alerts and is republished here with permission.

A collection letter potentially violated the Fair Debt Collection Practices Act (FDCPA) because a box that the plaintiff could check to indicate that she disputed the validity of the debt was accompanied by a statement that a reason for the dispute was required, a federal magistrate judge ruled.

The decision serves as a reminder of the risks that a debt collector takes when designing collection letters that vary from the content of the validation notice required by the FDCPA, notwithstanding the similarity of the collector's form to the model validation notice that the Consumer Financial Protection Bureau (CFPB) included with its Small Business Regulatory Enforcement Fairness Act (SBREFA) proposal.

In Mikolajczyk v. Universal Fidelity, LP, filed in a Wisconsin federal district court, U.S. Magistrate Judge William E. Duffin denied the defendant's motion to dismiss, concluding that the plaintiff had stated a claim that the defendant had violated FDCPA Sections 1692e and 1692g. Section 1692e prohibits a debt collector from using any "false, deceptive, or misleading representation or means in connection with the collection of any debt." Section 1692g requires a debt collector to send a written "validation notice" to a consumer within five days of the collector's initial collection attempt and specifies what information the notice must contain. Such information includes "a statement that if the consumer notifies the debt collector in writing within the thirty-day period [after receipt of the notice] that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector."

In addition to the validation notice required by Section 1692g, the defendant's initial collection letter to the plaintiff included a box that she could check to indicate, "I am disputing the validity of this debt," and that was followed by the language, "Reason for Dispute (required):" and four blank lines on which a reason could be written. Citing case authority holding that the FDCPA does not require a consumer to provide a reason for disputing a debt to trigger the right to obtain verification, Magistrate Judge Duffin concluded that because the defendant's letter told the plaintiff she had to provide a reason, she had stated a claim under Section 1692e that the defendant used a "false, deceptive, or misleading representation or means" to collect the debt.

The court rejected the defendant's argument that the plaintiff had not adequately alleged that the statement requiring her to provide a reason was materially misleading. Magistrate Judge Duffin observed that if a consumer lacked a reason for wishing to dispute a debt, or was unclear whether her reason was relevant or sufficient, "being told that she must provide a reason may dissuade her from exercising her unfettered right under the FDCPA to dispute the debt." He also concluded that, although she had not disputed that the letter contained the required validation notice, the plaintiff had nevertheless stated a claim that the letter violated Section 1692g based on her allegation that the rights outlined in the notice were overshadowed by the letter's contradictory or inconsistent statement that she was required to provide a reason for her dispute.

The defendant's inclusion of a check box and space for the plaintiff to indicate the reason for her dispute is similar to the approach taken by the CFPB in designing a model validation notice. The model notice was included as an appendix to the outline of the debt collection rule proposals issued by the CFPB in August 2016 in preparation for convening a small business review panel under SBREFA. The CFPB's model notice contains a "tear-off" to appear on the bottom of the notice on which the consumer could respond to the question, "How do you want to respond to this notice?" by marking one or more check boxes to select from the following options:

• "I want to dispute the debt because I think:"
• "I want you to send me the name and address of the original creditor."
• "I enclosed this amount: $_____"

A consumer selecting the dispute option could then choose from various types of reasons for the dispute by marking a check box, such as, "This is not my debt" or "The amount is wrong."

The CFPB's model notice does not state that it is optional for a consumer to indicate a reason for a dispute, nor does it expressly state that a consumer is required to indicate a reason. However, the notice's design could readily lead a consumer to believe that a reason must be provided. In explaining its rationale for prompting the consumer to indicate a reason, the CFPB stated its belief that by using this approach, "debt collectors would experience less uncertainty about the basis for many disputes, allowing collectors to respond more efficiently to them."