Dunning letters held not confusing

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It does not violate the Fair Debt Collection Practices Act (FDCPA) for a dunning letter to state the balance due, and also state that the overdue account may accrue interest, the Seventh Circuit held on April 22.

Three debtors brought suit against Academy Collection Service, Inc., which was hired by credit card companies to collect debts. Academy sent each of its debtors a letter, setting forth the amount owed, allocated as the “Principal Bal,” “Interest Owing,” and “Total Bal Due.”

The letter goes on to say, “if applicable, your account may have or will accrue interest at a rate specified in your contractual agreement with the original creditor.” The basis for the statement was that every day that the debt remained unpaid, the debtor may be accruing interest for which he might later be billed, as in fact happened with one of the debtors. In the case of the other two debtors, the creditors had closed their accounts and upon doing so stopped adding interest, although they could have continued doing so until the debts were paid.

A different debtor brought suit against another debt collector, Cavalry Investment, L.L.C. Cavalry’s dunning letter also clearly stated the principal balance, the interest due, and the total balance. It then stated, “your account balance may be periodically increased due to the addition of accrued interest or other charges as provided in your agreement with your creditor.”

The letter also provides a phone number the debtor can call “to resolve your account,” and states, “Act now to satisfy this debt.”

Both cases were heard in Illinois federal court, and the judge granted summary judgment for the collectors. The debtors appealed, and the cases were consolidated in the Seventh Circuit. The court affirmed in both cases, in a decision by Judge Richard A. Posner.

Academy

In the first case, the court found that the dunning letter was not confusing.

The court set forth the legal standard: “the benchmark is the understanding of unsophisticated debtors, who are frequent targets of debt collectors. But a debtor cannot create a triable issue just by submitting an affidavit in which he says that he misunderstood the dunning letter.”

The court added that, if it is apparent from reading of the letter that not even “a significant fraction of the population” would be misled by it, or the interpretation urged by the plaintiff is a “fantastic conjecture,” the claim can be rejected without requiring evidence beyond the letter itself.

Turning to the letter at issue, the court concluded, “The fact that a lawyer has found three people who are willing to sign affidavits drafted by him stating that they were confused will not create an issue for trial unless the judge reading the letter reasonably concludes that it could well confuse a substantial number of recipients.”

Distinguishing its opinion in the recent case of Chuway v. National Action Financial Services Inc., No. 03-2158, 2004 WL 614760 (7th Cir. Mar. 30, 2004), the court found, “Unlike the letter at issue in the Chuway case, there is nothing in the statement complained of in the letter to Schletz and his coplaintiffs to confuse anyone.”

The court acknowledged that a judge may be mistaken in supposing that a letter that is clear to him is clear to unsophisticated debtors, as well. Thus, the court held that it is open to plaintiffs, in all but the clearest cases, to present objective evidence of confusion, such as results of a consumer survey.

The plaintiffs presented no such survey results, however, so the only evidence was the insufficient affidavits.

The court also rejected the plaintiffs’ alternative claim as “downright frivolous” — that the statement in the dunning letter is false, and so violates 15 U.S.C. 1692e, because two of the creditors were not accruing additional interest. The court noted, “The letter didn’t say they would, only that they might.”

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Cavalry

Turning to the other case, the court found the dunning letter was no more confusing than in the first case.

Discus
sing the effect of the statement, “Act now to satisfy this debt,” the court rejected the argument that this constitutes “overshadowing,” of the debtor’s statutory entitlement to a 30-day period in which to dispute the debt and compel the debt collector to verify it.

The court concluded, “‘Act now to satisfy your debt’ is in the nature of puffing, in the sense of rhetoric designed to create a mood rather than to convey concrete information or misinformation (‘Buy Now!’ ‘Best Deal Ever!’ ‘We Will Not Be Undersold!’), as it is perfectly obvious to even the dimmest debtor that the debt collector would very much like him to pay the amount demanded straight off, sparing the debt collector any further expense.”

Accordingly, the court affirmed the grants of summary judgment to both debt collectors.

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David Ziemer can be reached by email.