No Need To Set Forth All Components That Constitute Amount Of Debt In Initial 1692g Letter

NL Member News, Vol. 72, January 2010

The Southern District of California recently issued an opinion clarifying the obligation to set forth the amount of the debt in the initial letter sent by a debt collector under 15 U.S.C. § 1692g. (See Hutton v. Law Offices of Collins & Lamore 2009 WL 3747226, *7-8 (S.D. Cal. 2009).) The FDCPA mandates that the initial 1692g letter set forth “the amount of the debt,” along with other information. The statutory language gives no insight as to what is meant by “the amount of the debt.” Courts have opined as to whether the initial letter must itemize principal, interest and other charges, or be a lump sum. Courts have also addressed how the language in the letter should be crafted if the amount increases day to day because of interest.

The Ninth Circuit appears to be in overdrive this year with respect to published Federal Debt Collection Practices Act (FDCPA) decisions. Over the last 25 years, the Ninth Circuit has averaged less than one published opinion regarding the FDCPA per year. Indeed, the Ninth Circuit has not issued a published FDCPA opinion in 10 of the last 25 years. But this year, the Ninth Circuit has issued four published FDCPA opinions, and there are still months to go until the end of 2009! This increase seems to be tracking the increase in FDCPA cases being filed in California and around the nation.

In the Ninth Circuit, whether a letter complies with section 1692g may be determined as a matter of law. (Terran v. Kaplan, 109 F.3d 1428, 1432 (9th Cir.1997).) The Hutton Court also used the “unsophisticated debtor” standard, which “assumes that the debtor is ‘uninformed, naive, or trusting,’ and that statements are not confusing or misleading unless a significant fraction of the population would be similarly misled.” (Hutton, supra, 2009 WL 3747226, at *4 (quoting Veach v. Sheeks, 316 F.3d 690, 693 (7th Cir.2003).) The unsophisticated consumer is still assumed, however, to have “rudimentary knowledge about the financial world, is wise enough to read collection notices with added care, possesses ‘reasonable intelligence,’ and is capable of making basic logical deductions and inferences.” (Hutton, supra, 2009 WL 3747226, at *4 (quoting Pettit v. Retrieval Masters Creditor Bureau, Inc., 211 F.3d 1057, 1060 (7th Cir.2000).)

The Law Offices of Collins & Lamore sent Mr. Hutton an initial letter which stated in relevant part:

Please be advised that this office has been retained by the above referenced client in regard to your outstanding balance due in the amount of $22,519.17, which may not include accruing interest (and does not account for changing exchange rates after the date of this letter, for accounts originated in a foreign country). As interest may continue to accrue, please call our office to verify current balance if payment in full is made more than 30 days after the date of this letter.

(Hutton, supra, 2009 WL 3747226, at *1)

Plaintiff filed a lawsuit alleging that the Law Offices had violated the FDCPA by failing to itemize principal and interest in the amount identified in the letter. The Law Offices moved to dismiss the claim because the letter did indeed state the amounts owing. Plaintiff argued that Seventh Circuit's decision in Miller v. McCalla, 214 F.3d 872 (7th Cir.2000), authored by Judge Posner, dictated finding the above language a violation. In Miller, the dunning letter at issue stated the “unpaid principal balance” was $178,844.65, and then stated, in pertinent part:

[T]his amount does not include accrued but unpaid interest, unpaid late charges, escrow advances or other charges for preservation and protection of the lender's interest in the property, as authorized by your loan agreement. The amount to reinstate or pay off your loan changes daily. You may call our office for complete reinstatement and payoff figures.

Judge Posner had held that the letter contained only part of the debt, the principal part, and held that the entire debt must be stated. Judge Posner explained: “that the ‘amount of the debt requirement’ under § 1692g(a)(1) is not met by providing the debtor with a phone number to call, nor is it an excuse that accruing interest causes the amount of the debt to change daily.” (Id. at 875.) “What they certainly could do was to state the total amount due-interest and other charges, as well as principal-on the date the dunning letter was sent. We think the statute required this.” (Id. at 875-76.) Finally, the Seventh Circuit drafted “safe harbor” language for satisfying the debt collector's duty to state the amount of the debt in a dunning letter:

As of the date of this letter, you owe $ ____ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1-800-[phone number].

The Law Offices of Collins & Lamore argued that Miller supported a dismissal of this claim. The Southern District of California was persuaded by the Seventh Circuit Miller decision and agreed with The Law Offices of Collins & Lamore. “Hutton was informed up front in his dunning letter that his ‘outstanding balance’ was $22,519.17. This leaves nothing to the imagination.” (Hutton, supra, 2009 WL 3747226, at *5.) The Hutton Court explained that to comply with section 1692g(a)1), a “dunning letter must state the amount of the debt ‘clearly enough that the recipient is likely to understand it.’” (Id. at * 6.) Plaintiff’s claim based on section 1692g(a) was dismissed.

Defendants also argued that the entire complaint should be dismissed because the debt at issue was a business loan, which is not covered by the FDCPA. (See 15 U.S.C. § 1692a(5). To demonstrate that the debt was a business debt, the Law Offices submitted a barely legible loan agreement. Remarking on the illegible document, the Court declined to rely upon the agreement for purposes of a motion to dismiss, which must be decided on the pleadings. There were insufficient allegations to support a finding that the agreement had been incorporated into the complaint.

The Law Offices of Collins & Lamore also filed a special motion to strike under California’s anti-SLAPP statute, arguing that the complaint must be stricken in its entirety because it arose from the collection lawsuit that was filed before the FDCPA complaint. To prevail on an anti-SLAPP special motion to strike, the defendant must demonstrate that the allegations against the defendant arose from protected activity, which in most instances is litigation. The Law Offices of Collins & Lamore argued that the FDCPA lawsuit was filed to chill the rights of the Law Offices to pursue the underlying collection lawsuit. The Hutton Court held that a prelitigation demand letter does not arise from subsequent collection litigation, and denied the Law Offices’ special motion to strike.