Second Circuit Sides with CAC Financial on Reverse Avila Issue, Unpersuaded By Argument that Previous Accrual of Interest is Confusing to Consumer

On Monday, the Second Circuit issued a summary order in DeRosa v. CAC Financial Corp., No. 17-3189 (2d Cir. Oct. 29, 2018), upholding the district court’s summary judgment in favor of CAC Financial Corp. (CAC). The Second Circuit shot down the issue it did not address in Taylor v. Financial Recovery Services, Inc.: whether interest is still technically accruing for Avila purposes if the original creditor charged interest and the underlying credit agreement states that interest would accrue even in default.

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Factual and Procedural Background

insideARM previously published an article discussing what occured in the district court case. To summarize, CAC sent a collection letter to the consumer without a disclosure that interest is or is not accruing. The consumer filed a Fair Debt Collection Practices Act (FDCPA) lawsuit against CAC alleging that failure to include an interest disclosure did not accurately convey the amount of the debt. The district court granted summary judgment in favor of CAC stating that there was no need to include an interest disclosure if the balance was static. The consumer appealed to the Second Circuit.

While this case was on appeal, the Second Circuit sided with the debt collector in Taylor v. Financial Recovery Services. In Taylor, the court found that debt collection letters are not false or misleading if the balance is static and the letters are silent as to interest.

According to this case’s PACER docket, counsel for the consumer did not appear for oral arguments before the Second Circuit.

The Decision

The Second Circuit affirmed the district court’s decision, finding that the consumer failed to raise a genuine issue of fact about interest continuing to accrue on the account.

The court stated that CAC put forth sufficient evidence to show that interest was not accruing on the account while it was placed with CAC. This evidence included a declaration from CAC stating that the amount on the account remained static and two collection letters that show the balance did not increase between the months of June and August.

The consumer's argument relied on two pieces of evidence. The first piece of evidence was the consumer provided a personal declaration stating that the account previously accrued interest. The second piece of evidence was the credit card agreement indicating that interest and fees would continue to accrue even in default.

The court did not find either of these pieces of evidence persuasive, stating:

The fact that the account accrued interest and fees when being administered by the original creditor is not indicative of how the account would function when transferred to a debt collection agency like CAC. It is thus speculative to claim that the underlying account would continue to accrue interest and fees when the account had been transferred or assigned to another party for collection. Speculation alone is not enough to defeat a motion for summary judgment.

insideARM Perspective

Avila-related interest disclosure cases were filed in mass quantities against debt collectors over the past couple of years. A disclosure that interest is accruing on an account makes sense. However, the “reverse Avila” argument -- that debt collectors need to explicitly state that interest is not accruing for static accounts -- baffled many, including the courts.

The district court’s opinion in the Taylor case was among the first to find that a debt collector need not include any sort of interest disclosure for static accounts. That decision came out in June 2017. Shortly after this, court opinions siding with debt collectors come out one after the other, including, but not limited to:

• October 2017: The underlying district court decision in DeRosa.
• November 2017: Cruz v. Credit Control Services, Inc., finding pre-judgment interest does not trigger Avila disclosure requirements.
• December 2017: Altieri v. Overton, Russell, Doerr, and Donovan, LLP, coming to the same conclusion on pre-judgment interest as the Cruz case above.
• December 2017: Kraus v. Professional Collections Bureau of Maryland, Inc., where the Eastern District of New York ripped into the plaintiff’s bar on the absurdity of the reverse Avila claims.
• March 2018: The Second Circuit’s decision in Taylor v. Financial Recovery Services.
• May 2018: The Second Circuit’s refusal to rehear the Taylor case en banc.

Considering the Second Circuit's DeRosa decision, it is difficult to see how plaintiffs who still have outstanding reverse-Avila claims can continue fighting them. It’s time for these claims to be voluntarily dismissed and this issue to be put to bed once and for all.