Second Circuit Rules Debt Collector did not Violate FDCPA by Sending Settlement Offer Without Disclosing Interest Would Continue to Accrue if Consumer did not Meet Payment Deadline

The U.S. Court of Appeals for the Second Circuit has ruled that a debt collector did not violate the Fair Debt Collection Practices Act by sending the plaintiff a settlement offer that did not disclose that his balance could increase due to interest and fees. 

In Cortez v. Forster & Garbus, LLP, the debt collector sent a collection notice to the plaintiff offering various options for settling his account for less than the full balance owed if he made the payments indicated by the dates specified in the notice. The plaintiff alleged that the debt collector violated the FDCPA by failing to disclose that interest was continuing to accrue on his balance.

In its 2016 decision in Avila v. Riexinger & Associates, LLC, the Second Circuit held that a collection letter that states a debtor’s current balance but does not disclose whether interest and fees are accruing is misleading in violation of FDCPA Section 1692e.  However, the Second Circuit also provided two safe harbors from liability under Section 1692e for failing to make such a disclosure.  A debt collector would not be liable if the letter either (1) accurately informs the consumer that that the amount of the debt stated in the letter will increase over time, or (2) clearly states that the holder of the debt will accept payment in the amount set forth in the letter in full satisfaction of the debt if payment is made by the specified date.

In reversing the district court and directing it to enter summary judgment in favor of the debt collector, the Second Circuit disagreed with district court’s reasoning that a settlement offer could be misleading if it contained a payment deadline but did not disclose whether interest or fees would accrue if payment were tendered after the deadline.  According to the district court, the least sophisticated consumer could interpret such an offer to imply either that interest and/or fees would accrue after the deadline or that the balance would remain the same after the deadline.

However, in the Second Circuit’s view:

Section 1692e does not require that a collection notice anticipate every potential collateral consequence that could arise in connection with the payment of a debt.  Instead, the FDCPA merely requires that a collection notice, by its terms, not be susceptible of a reasonable but inaccurate interpretation.  Therefore, a settlement offer need not enumerate the consequences of failing to meet its deadline or rejecting it outright so long as it clearly and accurately informs a debtor that payment of a specified sum by a specified date will satisfy the debt. (citations omitted, emphasis included).

Applying these principles, the Second Circuit held that the debt collector’s notice did not violate Section 1692e because “even when viewed from the perspective of the least sophisticated consumer, the [collector’s] notice could only reasonably be read one way: as extending an offer to clear the outstanding debt upon payment of the specified amount(s) by the specified date(s).”  Since the only reasonable interpretation was accurate, there was no FDCPA violation.