Third Circuit Extends Protections Afforded Debtors Under the Fair Debt Collection Practices Act
 
December 19, 2006
 
Karen Gossman - Chicago

In a recent decision, the Third Circuit extended the protections afforded debtors from deceptive and misleading debt collection practices under the Fair Debt Collection Practices Act (FDCPA) by vacating and remanding a district court decision dismissing an alleged violation of the FDCPA in collection letters warning of legal action that could be taken against the debtor. Brown v. Card Serv. Ctr., 464 F.3d 450 (3rd Cir. 2006). Analyzing the collection letters from the viewpoint of the least sophisticated debtor, the Third Circuit stated that if the plaintiff could prove that the debt collector had no intention of following through on the described legal action, the plaintiff had stated a cause of action under the FDCPA.

The FDCPA is designed to protect consumers from abusive debt collection practices and specifically prohibits the use of deceptive or misleading communications in the collection of a debt. 15 U.S.C. § 1692(a). The FDCPA states:

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(5) The threat to take any action that cannot legally be taken or that is not intended to be taken.

15 U.S.C. § 1692(e). To determine whether a communication is misleading under the FDCPA, the Third Circuit has adopted the “least sophisticated debtor” standard, analyzing the communication from the perspective of the least sophisticated debtor. A lesser standard than that of the reasonable consumer, the use of the least sophisticated debtor standard ensures that “the FDCPA protects all customers, the gullible as well as the shrewd.” Brown, 464 F.3d at 454 (quoting Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir. 1993).

The Third Circuit’s decision in Brown is consistent with prior decisions of the Third Circuit and those of other federal courts of appeal which have approached consideration of matters under the FDCPA from the perspective of the least sophisticated debtor. Brown involved the content of a debt collection letter sent to debtor Brown by Card Service Center and Cardholder Management Services (collectively, CSC). In an attempt to recover a balance owed by Brown on a credit card account, CSC sent Brown a letter demanding payment of the balance and warning that “You now have five (5) days to make arrangements for payment of this account. Failure on your part to cooperate could result in our forwarding this account to our attorney with directions to continue collection efforts.” Id. at 451-52. Brown did not make arrangements to pay the debt within five days, and CSC did not bring suit or refer her case to an attorney. CSC did, however, continue sending debt collection letters to Brown.

One year later, Brown filed a class action against CSC claiming that CSC’s collection letter contained “‘false and misleading statements designed to coerce and intimidate the consumer ... by false threat’” because CSC never intended to bring suit against her or refer her debt to an attorney. Id. at 452. The United States District Court for the Eastern District of Pennsylvania dismissed Brown’s complaint stating that because CSC’s letter “neither states nor implies that legal action is imminent, only that it is possible,” the complaint failed to state a claim under the FDCPA. Id. at 454-55.

Brown appealed the District Court’s dismissal of her complaint, and the Third Circuit vacated the District Court’s judgment and remanded it for further proceedings. Analyzing the language of CSC’s letter from the perspective of the least sophisticated debtor, the Third Circuit stated that “upon reading the CSC Letter, the least sophisticated debtor might get the impression that litigation or referral to a CSC lawyer would be imminent if he or she did not respond within five days.” Id. at 455. Therefore, the Court held that “it would be deceptive under the FDCPA for CSC to assert that it could take an action that it had no intention of taking and has never or very rarely taken before.” Id. (emphasis in original). Because the least sophisticated debtor might read CSC’s collection letter as implying an action that CSC had no intention of taking, the Third Circuit determined that Brown had pled sufficient facts which, if proven, state a claim upon which a court might grant relief.

Conclusion

The Brown decision represents a natural extension of existing case law protecting debtors from deceptive and misleading debt collection practices. Under Brown, a debt collector is not protected from violation of the FDCPA by simply setting forth actions the collector could take (as opposed to would take) in the event of continued default by the debtor. Instead, Brown imposes an obligation on debt collectors to analyze their collection communications from the viewpoint of the least sophisticated debtor and ensure that any actions that could be interpreted as likely to occur are actions the collector intends to take if the debtor remains in default.
 

For more information, e-mail Karen E. Gossman at karen.gossman@hklaw.com or call toll free, 1-888-688-8500.