A false statement by a debt collector must be “material” to be actionable under the FDCPA. This principle has been recognized by the United States Courts of Appeals for the Second, Third, Fourth, Sixth, Seventh, Eighth, and Ninth Circuits. On August 18, the Ninth Circuit clarified its interpretation of materiality.
In Afewerki v. Anaya Law Grp., the defendant law firm filed a state court complaint to collect an unpaid credit card debt. The complaint overstated the principal due by $3,000 and the applicable interest rate by 0.315 percent. After being served, Afewerki retained a lawyer, who sent a demand for a bill of particulars. Anaya then discovered the errors in the complaint, and it filed a notice of errata correcting the errors. Afewerki sued, claiming that Anaya violated the FDCPA and California’s Rosenthal Fair Debt Collection Practices Act (RFDCPA) by overstating the balance due.
Anaya moved for summary judgment, arguing that the errors in the complaint were not material. The district court agreed and granted Anaya’s motion, concluding that even if Afewerki had not appeared and the creditor had been granted a default judgment, the creditor would have been required to prove the amount owed prior to entry of judgment. This, the court reasoned, meant that the judgment ultimately entered would have been in the correct amount. In addition, the district court noted that Afewerki had not presented evidence that he would have proceeded differently had the complaint alleged the correct principal amount and interest rate.
The Court of Appeals reversed, holding that the statements at issue were material because they could have disadvantaged the hypothetical least sophisticated debtor in deciding how to respond to the complaint. Emphasizing that “the materiality requirement remains a fairly narrow exception to the general rule requiring accuracy in communications from debt collectors,” the court provided definitional clarity:
Material false representations, then, are those that could “cause the least sophisticated debtor to suffer a disadvantage in charting a course of action in response to the collection effort.” . . . Immaterial false representations, by contrast, are those that are “literally false, but meaningful only to the ‘hypertechnical’ reader.” To the extent that a Rosenthal Act claim is derivative of a 15 U.S.C. § 1692e claim, as is true in this case, false statements are also subject to the materiality requirement for purposes of the Rosenthal Act claim.
The district court determined that Afewerki would not have proceeded differently absent the error. The Court of Appeals noted that while that might mean Afewerki did not suffer and thus could not recover actual damages, that determination does not render an overstatement of the balance due a “mere technical falsehood.” Because the materiality inquiry focuses on the objective question of how the least sophisticated debtor could have reacted to a misstatement, the question of what Afewerki himself would have done differently had Anaya Law Group not misstated the amount of his debt was irrelevant in determining materiality.
The Ninth Circuit concluded that the overstatements might lead the least sophisticated consumer to decide to pay far more than (s)he otherwise would have paid. Noting that the Appellate Division of the Los Angeles County Superior Court has held that a credit card company need not submit documentary evidence in order to obtain a clerk’s default judgment for a definite sum, the court further concluded that the state court case could have proceeded to a default judgment without Anaya’s client being required to submit copies of its accounts or otherwise prove that the amount it sought was correct. Therefore, the court found the misrepresentations to be material.
The Afewerki decision leaves room for the possibility that in jurisdictions in which the requirements to prove up a default judgment are more stringent, or where the overstated amount is not so large, a different outcome might result. Even as a negative outcome for the defendant debt collector, the opinion nonetheless reaffirms the Ninth Circuit’s commitment to the materiality doctrine.