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Second Circuit Holds that Letter Need Not Reference Nonexistent Interest

The U.S. Second Circuit Court of Appeals has issued its decision in Taylor v. Fin. Recovery Services, Inc., affirming that a debt collector’s letters did not violate the FDCPA by failing to state affirmatively that interest was not accruing.

Taylor sued FRS asserting that it violated the FDCPA because its initial collection letter stated the amount of Taylor’s debt without disclosing that the debt, which at one point in time accrued interest or fees, no longer did so. Relying upon the Second Circuit’s 2016 decision in Avila v. Riexinger & Associates, LLC, Taylor argued that a debt collector violates the  FDCPA by sending a validation notice which states the current balance of a consumer’s debt but does not affirmatively disclose that the balance is not increasing due to the accrual of interest or fees.  Since Avila, hundreds of FDCPA claims have been asserted in New York asserting the same or similar theories.

In Taylor, the Court of Appeals clarified that in Avila, the collection notice was misleading because Avila’s debt was accruing interest, and “‘[a] reasonable consumer could read the notice and be misled into believing that she could pay her debt in full by paying the amount listed on the notice,’ whereas, in reality, such a payment would not settle the debt.” The distinguishing factor in Avila, according to the Court, was that the debt collector could still seek the interest and fees that accumulated after the initial notice was sent. In fact, one of Avila the plaintiffs had paid the stated balance, “only to find herself still on the hook for an unpaid balance that was accumulating interest at the alarming rate of 500% per annum.”

In contrast, FRS’ letters, which stated the balances due without discussing interest or fees, did not prejudicially mislead consumers because paying the balances stated would have satisfied the debts.  The Court held:

It is hard to see how or where the FDCPA imposes a duty on debt collectors to encourage consumers to delay repayment of their debts. And requiring debt collectors to draw attention to the fact that a previously dynamic debt is now static might even create a perverse incentive for them to continue accruing interest or fees on debts when they might not otherwise do so. Construing the FDCPA in light of its consumer protection purpose, we hold that a collection notice that fails to disclose that interest and fees are not currently accruing on a debt is not misleading within the meaning of Section 1692e.

The Court of Appeals also rejected the argument that FRS’ letters were misleading because the creditor retained the right to charge interest, even if it was not doing so at the time of the letters.  “Even if such a right existed, FRS’s collection notices were not misleading because no interest or fees were being charged and Taylor and Klein could have satisfied their debts by making reasonably prompt payment of the amounts stated in the notices.”  The key fact was that the debts remained static long enough for the plaintiffs to satisfy them through prompt payment of the balances stated.