New York Court Says No Disclosure Needed When No Interest Added to a Debt

Agencies operating in New York are well aware of the complicated situation when collecting debt that is not accruing interest. 

On September 29, 2017, a federal judge in New York granted a debt collector's motion for summary judgment in a case that alleged the Defendant's lack of disclosure regarding interest on a debt that was not accruing interest was not a violation of the Federal Debt Collection Practices Act (FDCPA), 1692 et seq.  The case is Derosa v CAC Financial Corp. (Case No. 16-cv-1472, U.S.D.C., Eastern District of New York). 

The court issued a Memorandum and Order, a copy of which can be found here. 

Background 

Plaintiff alleged that Defendant violated section 1692e by sending deceptive and misleading collection notices based on two arguments: First, Plaintiff argued that pursuant to Avila & Riexinger & Associates, LLC 817 F.3d 72 (2d Cir. 2016), Defendant was required to notify consumers of whether their stated balance would increase due to the addition of interest or fees and second, that because there was no disclosure, the letter could be "reasonably read to have two or more different meanings, one of which is inaccurate." 

Defendant brought a motion for summary judgment under Federal Rule of Civil Procedure 56. 

Editor’s Note: A motion for summary judgment is based upon a claim by one party (or, in some cases, both parties) that contends that all necessary factual issues are settled or so one-sided they need not be tried. The summary judgment is appropriate when the court determines there no factual issues remaining to be tried, and therefore a cause of action or all causes of action in a complaint can be decided upon certain facts without trial. Fed. R. Civ. P. 56(a). 

The Court's Order 

The court granted Defendant's motion for summary judgment. 

From the court's order: 

"The question raised here is straightforward, but has not yet been directly addressed by the Second Circuit:  if a debt amount is static and not subject to increase through imposition of fees or accumulation of interest by the debt collector, must the collection notice affirmatively state as much for the debt collector to avoid liability under the FDCPA? Put differently, is the least sophisticated consumer confused by an unadorned statement of the actual balance owed?" 

The court's answer:  "No." 

The court briefly addressed Plaintiff's claim that the letters could have two different meanings, by stating that "both letters sent to plaintiff stated the identical amount due as the balance … The least sophisticated consumer would reasonably believe that she needed to pay the balance indicated in the notice and not more, and this reasonable assumption that the balance stated was the balance due would be correct." 

The court then addressed Plaintiff's invocation of Avila: 

Plaintiff argues that Avila is both controlling and analogous. It is neither. Clearly, Avila and its progeny require inclusion of explanatory language in a notice letter where the balance due is subject to increase through the accrual of interest or imposition of fees. Those cases do not, however, require a debt collector to advise a consumer that the balance may increase due to interest or fees where there is not a possibility of that occurring. Post-Avila cases addressing a static balance have found that a debt collector need not advise the consumer of the fact that the balance will not change. See, e.g., Taylor v. Fin. Recovery Servs., --F. Supp. 3d--, 16 Civ. 4685, 2017 WL 2198980, at *6 (S.D.N.Y. May 18, 2017) (distinguishing Avila where there was no evidence that payment of the stated balance would not satisfy the debt), appeal docketed, No. 17-1650 (2d Cir. 2017); Dick v. Enhanced Recovery Co., 15-CV-2631, 2016 WL 5678556, at *5 (E.D.N.Y. Sept. 28, 2016) (noting that "there is no requirement that every statement in a debt collection notice include an extra assurance that the fact stated will not change in the future" (emphasis in original)). Indeed, language suggesting that the balance may increase where it will not could itself be misleading or confusing and thus arguably a violation of§ 1692e. 

The court concluded that "while a clear statement that the balance owed would fully satisfy the debt might have saved this defendant from litigation, the absence of such language does not, in and of itself, constitute a violation of the FDCPA." 

insideARM Perspective

The debate over whether a “no interest” disclosure is required chalks a decision in favor of the industry. Meanwhile, the matter is on appeal before the Second Circuit in Taylor v. Financial Recovery Services, which insideARM wrote about here. 

insideARM also published a podcast on the topic which you can listen to here.