Oregon’s District Court: Collection Agencies’ Omissions Don’t Automatically Equal Malevolence

A district court judge in Oregon has dismissed a plaintiff’s complaint that a letter she received from a debt collector did not disclose that interest was not accruing, and also that using an abbreviated account number was misleading. The case is Powers v. Capital Management Services, LP.

You can read the full Order here.

Editor’s Note:  A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. The summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial.

Background

Powers alleged that the defendant, a debt collector, violated the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (FDCPA) by not disclosing that interest was not accruing on the debt balance she owed, and by using only four digits to identify the account, in alleged violation of the ‘false representation’ clause of §1692e(10).

The original debt at the center of the case was a delinquent U.S. Bank account owed by plaintiff. Capital Management sent powers a letter listing the original and current creditor as U.S. Bank, the account number as 5702 (the last 4 digits of the US Bank account number placed with Capital for collection), and the amount of debt to be $565.91. During the attempts to collect the debt, Capital was not adding interest to the amount owed.

Capital sent one letter to Powers, and closed and returned the account to US bank on November 3, 2016, at U.S. Bank’s request.

Decision

Duty to Disclose Interest Accrual

In Santibanez v. Nat’l Credit Systems, Inc., 2017 WL 126111 (D. Or. Jan. 12, 2017), the judge ruled that a debt collector does not have a duty to affirmatively state that no interest is accruing or to warn the consumer that interest could accrue if the account is sold to another creditor in the future. The judge in this case agreed, explaining that it is “only in instances when interest is accruing on a debt does Section 1692g(a)(1) require a debt collector to disclose that fact and include both principle (sic) and interest when stating the amount due.”

In her response, Powers argues that while Capital demonstrated it was not accruing interest, there was no evidence about whether US Bank was or wasn’t adding interest. The judge was not moved by the argument because the record showed that US Bank assigned the debt to Capital, and Capital held the debt during the time it was in collections.

Since a debt collector is not required to inform the debtor that interest is not accruing on the principle when that is the case, Capital Management deemed to have fulfilled its obligations under the FDCPA by sending a letter to plaintiff clearly stating the amount of the delinquent debt to be $565.91.

Misrepresentation of Account Number

Capital’s collection letter set forth, on its face:

“Original Creditor: U.S. Bank
Current Creditor: U.S. Bank
Account #: 5702
Amount of Debt: $565.91”

5702 were the last 4 digits of the plaintiff’s U.S. Bank account number, and Powers did not dispute her knowledge of that. She still argued that Capital Management’s use of the last four numbers of her account was a misrepresentation, and that Capital should have conveyed, by preceding the 4 digits with Xs, for example, that 5702 was not her entire account number.

Did Capital Management use any “false, deceptive, or misleading representation or means in connection with the collection of any debt” (15 U.S.C. §1692e) or “any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.” 15 U.S.C. § 1692e(10)? Judge McShane said no: If a false but non-material representation is not likely to mislead the least sophisticated consumer, it is not actionable under the FDCPA. In this case, there was no showing that the defendant was false or misleading, and the letter did not generate four random, untraceable numbers. Because the numbers could be associated with the US Bank account, and the letter contained the exact outstanding debt amount, the court found that a very unsophisticated consumer could still understand and identify the account in question.

The fact that the Defendant maybe had other, and perhaps better, options in how to represent the account number doesn’t equal bad “malevolence,” the court found.

The FDCPA was designed to “eliminate abusive debt collection practices by debt collectors” (15 U.S.C. § 1692(e)), and the court reflected that as a matter of law, there was no basis in this case to find that Capital had used false or deceptive tactics.

insideARM Perspective

Every bit of case law holds a nugget of wisdom for the ARM industry. As companies begin to plan for the future, make investments in technology, and look for ways to efficiently partner with clients and abide the law, Powers v. Capital Management can be seen as a case study in designing future best practices, and avoiding costly litigation.

Creditors and the collection agencies they partner with might consider/ask:

1. Balance reporting: What systems are in place to keep itemized, real-time balances reporting on all the communications that may be rendered to consumers? Helping consumers fully understand what they’re being asked to pay, and reminding them exactly how the debt was incurred is helpful to all parties and can help reduce complaints and litigation.
2. Auditing vendors: In vendor audits, issuers should ask to see templates of all communications sent, and have those templates reviewed by your in-house counsel. Be sure you understand exactly how variable fields will populate. See our vendor audit checklists for more information on how to perform and document a thorough vendor audit.
3. Identifying accounts: There are many ways to associate collections accounts with original creditor accounts, but it’s worthwhile to go the extra mile and use as many explicit account markers as you can. In a world where the same consumer can have two credit cards issued by the same bank, or have multiple hospital visits with different doctors to cope with a chronic illness, it makes sense to create as much transparency as possible. Use the “least sophisticated consumer” lens on everything you do. There’s no worthwhile reason not to.

Technology can help get a lot of these issues handled efficiently, but nothing beats routine check- ins with vendors, and manual, in-person vendor and internal audits. It’s important to not only look for ways to improve, but also get into the habit of creating formal audit reports with any hotspots identified and plans to cure explored. Then, document your corrective actions. It’s a good way to keep records you can share with future potential vendors, and if you find yourself defending a lawsuit, it may also demonstrate your good faith and desire to act in line with federal law and the laws in your state.