A recent decision out of the Eastern District of Wisconsin provides an important reminder to loan servicers that a statement in a debt collection letter could be considered misleading under the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., even if the letter is “literally correct.”
The case is Reitz v. Credit Sys. of Fox Valley, Inc., No. 20-C-196, 2020 WL 4753842 (E.D. Wis. Aug. 17, 2020). The Plaintiffs filed suit after the Defendant Credit Systems of the Fox Valley, Inc. sent them a collection letter that included the following statement:
***This account has been listed with our office for COLLECTION*** The ENTIRE BALANCE is due and payable to our office. Avoid errors and protect your CREDIT RECORD.
The Plaintiffs alleged this statement violated Sections 1692e and 1692f of the FDCPA because it “implies to the unsophisticated consumer that, if the debt were not paid promptly, [the Defendant] would report the debt to a credit reporting agency and their credit records would be damaged.” The Defendants moved to dismiss the FDCPA under Federal Rule of Civil Procedure 12(b)(6), denying the letter “contains any threat, express or implied[.]” The Defendants argued the letter “merely urges the debtor to pay the debt, ‘avoid errors and protect your credit record.’ ”
In considering the Defendants’ motion, the Court emphasized that “[a] debt collector’s communications are tested for compliance with the FDCPA under the ‘unsophisticated consumer’ standard.” Pursuant to this standard, a collection letter “must be clear and comprehensible to an individual who is ‘uninformed, naive, [and] trusting,’ but not without a rudimentary knowledge about the financial world or incapable of making basic deductions and inferences.”
Applying this standard, the Court ruled that even though the Defendants are “[l]iterally . . . correct” that [t]he letter does not make any express threat to report the debt to a credit reporting agency if it is not promptly paid[,]” the Court could not dismiss the FDCPA action because it was at least plausible that a significant fraction of debtors would be misled by the communication. In so ruling, the Court reaffirmed the significance of the least sophisticated consumer standard. This result signals that loan servicers must take care in drafting collection letters to consider whether it is at least plausible that a significant fraction of debtors will be misled by any communications contained therein.