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Spring 2004-08 A tale of two circuits

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Number 55
Spring 2004
"It was the best of times, it was the worst of times . . ." - Charles Dickens

A tale of two circuits

A split in the United States Circuit Court of Appeals appears to be emerging on the issue of whether a complaint and summons is an initial communication under the Fair Debt Collection Practices Act.

In 1977, Congress enacted the FDCPA to eliminate abusive collection practices. 15 U.S.C. §1692 et seq. This law applies only to debt collectors in the context of consumer transactions. The law does not apply to commercial transactions nor to creditors who are engaged in collection activities of their own consumer accounts. However, those creditors that acquire consumer accounts that are in default at the time of their acquisition and engage in collection activity will be considered "debt collectors" for the purposes of the Act.

Originally, attorneys who engaged in debt collection were excluded from the requirements of the Act. However, in 1986 Congress amended the law to include them. Moreover, in 1995, the United States Supreme Court, in Heintz v. Jenkins, held that an attorneys who regularly engages in debt collection activity, even litigation activity, is a "debt collector" under the FDCPA.

Warnings and notices

As the most detailed federal consumer regulation, FDCPA sets out certain requirements that must be complied with by debt collectors or face lawsuits for damages. The Act requires a debt collector to warn the consumer in his initial communication (verbal or written) and in all subsequent communication, except for court pleadings, that he is a debt collector attempting to collect a debt, and that any information obtained will be used for that purpose.

Another mandate imposed by the Act requires a debtor collector to provide the consumer with a validation notice. Within five days after the initial communication with a consumer, a debtor collector must send the consumer a written notice containing the following:

the amount of the debt;

the name of the creditor;

that the debt will be assumed to be valid unless it is disputed in full or in part in writing within 30 days;

if the debt is disputed, the debt collector will obtain a verification of the debt;

if requested in writing within 30 days, the debt collector will provide a copy of the judgment and the name and address of the original creditor;

if the debt is disputed or if a request is made for a copy of the judgment or the name and address of the original creditor, the debtor collector will cease all collection activity until verification or submission of requests is performed.

It is important to note that this validation notice cannot be overshadowed or contracted. Many crafty debt collectors highlight their demands for immediate payment in dark, large letters, but place their validation notice in a lighter shade. Others create confusion by demanding payment before the 30-day period to dispute the debt. A debt collector will be held liable to the consumer for overshadowing and contracting the validation notice.

It is clear that if an attorney sends a collection letter to a debtor regarding a consumer transaction, the attorney must advise the consumer of his rights under the Act by providing a validation notice and by providing a warning that all information obtained by the consumer will be used for that purpose. However, this is not clear in the situation in which the attorney does not send a collection letter to a consumer, but his intervention in the collection process commences with the filing of a judicial complaint. Does said attorney have to provide a validation notice when his first contact with the consumer is serving the summons and a copy of the complaint? The answer to this question may create the best of times or the worst of times for attorneys merely engaged in litigating collection cases.

Two Circuits

This question was posed to the U.S. Court of Appeals for the Eleventh Circuit in Vega v. McKay, 351 F.3d 1334 (11th Cir. 2003). The facts of the Vega case were as follows: Vega leased a property at a resort area. He stopped paying the lease. The landlord, through his attorney, filed a lawsuit. The debtor received a copy of the complaint, the summons and a FDCPA notice. Vega argued that the attorney violated the Act because the 30-day validation notice was contradicted and overshadowed the 20-day period to answer the complaint.

The Eleventh Circuit found that the summons and complaint were not an initial communication under the Act, and therefore the attorney did not have send a validation notice. The court reasoned that it was "far more consistent with the purpose of the Act that the term 'communication' as used does not include a 'legal action or pleading.'" In rendering its decision, the court relied heavily on an interpretative statement of the Federal Trade Commission on the issue. The FTC is the agency in charge of enforcing the provisions of the Act, and has an expertise in this area.

From the attorney's perspective, the Eleventh Circuit may have made the best decision on this issue, but the Seventh Circuit may have made the worst decision in a recent opinion in Thomas v. L.F. of Simpson & Cybak, 354 F.3d 696 (7th Cir. 2004). Although the Seventh Circuit initially rendered a decision contradicting the Eleventh Circuit opinion in Vega, it subsequently vacated the same and stated that a new opinion would be issued at a later date. 358 F.3d 446 (7th Cir. 2004).

The facts in Thomas are as follows: Thomas purchased a car by obtaining financing from a creditor. That creditor immediately assigned the account to GMAC when Thomas was current on his car loan. Later Thomas stopped making payment. GMAC sent Thomas a default letter. Sixty days later, GMAC's attorneys sued to recover the vehicle. The attorneys served a copy of the complaint and summons upon Thomas. The complaint included a "statement that pursuant to the [FDCPA], you are advised that this law firm is a debt collector attempting to collect a debt, and any information obtained will be used for that purpose." The summons included similar language. However, the complaint and the summons did not have a validation notice, nor did one follow within five days of the notification of the complaint and summons. Thomas sued both GMAC and the attorneys, arguing that the summons and the complaint were an initial communication which required a validation notice within five days.

In its initial opinion the Seventh Circuit disagreed with Thomas with respect to GMAC because the Act only applies to debt collectors, and not to creditors. But with respect to the law firm the appellate court noted that the Act defines "communication" broadly because it covers "the conveying of information regarding a debt directly or indirectly to any person through any medium." By its definition, the appellate court found that a summons and a complaint were "communication" under the Act. The court pointed out that in Heinz v. Jenkins the Supreme Court rejected the argument that attorneys engaged in litigation activities were excluded from the requirements of the Act. The court found that the filing of a summons and complaint by a debt collector constituted an initial communication under the Act. Because this decision has been vacated, it now is unclear whether the Seventh Circuit will continue to adhere to this position.

Congressional bill

The Seventh Circuit noted that there is a bill pending in Congress to exclude formal pleadings from the definition of a communication for purposes of the Act. H.R. 3066, 108th Cong. (2003). We will have to wait and see whether Congress will clarify this issue or whether the upcoming decision of the Seventh Circuit will create judicial consensus or division at the appellate level. However, whatever decision is rendered or law is passed will certainly create the best of times and the worst of times, depending on whether you are the attorney or the consumer.


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