Make Sure Debt Itemization Adds Up, According to District of Connecticut

If a debt collector’s letter includes an itemization of the balance, the debt collector better have procedures in place to ensure it adds up, according to the District of Connecticut in Garcia v. Law Offices of Howard Lee Schiff, No. 3:16-cv-791 (D. Conn. Dec. 14, 2018).

Factual and Procedural Background

The Law Offices of Howard Lee Schiff (Schiff) sent a collection letter to plaintiff on an account owned by Midland Funding, LLC. The letter indicated that the current balance is $565.46. However, the letter also stated that the balance at charge off was $663.94 and contained no explanation for the discrepancy between the two numbers. The debt itemization in the letter listed no interest or charges were accrued since charge off nor were any payments made. Evidence presented showed that Schiff’s programmer inadvertently failed to include payments that plaintiff made to Midland when putting together the automation of the letter content.

Plaintiff filed a Fair Debt Collection Practices Act (FDCPA) lawsuit against Schiff, alleging that the letter was misleading and confusing due to the two different listed balances. The parties filed cross motions for summary judgment.

The Decision

The court ultimately denied both motions for summary judgment. While Schiff presented evidence that plaintiff himself was not confused by the letter -- in his deposition, he stated he understood that he owed the amount listed as the current balance -- the court said that what matters is if the least sophisticated consumer would be confused by the letter, not plaintiff.

Applying the least sophisticated consumer standard, the court found that the letter would indeed be confusing. Listing two different balances without any other information explaining the discrepancy might confuse the least sophisticated consumer as to which balance is owed, impacting his or her decision on how to proceed with the account.

Editor’s Note: Oddly enough, the court did not take into consideration that the plaintiff knew -- as would a least sophisticated consumer in this situation -- that he had made a payment to the creditor that would explain the discrepancy.

After the court found that the letter violated the FDCPA, the court then turned to determine whether the bona fide error defense applied in this situation. Plaintiff conceded that the error was inadvertent, however the crux of plaintiff’s argument was that Schiff did not have reasonable policies and procedures in place to prevent the error. Plaintiff reasoned that since he received a letter with an error, then the procedures were insufficient.

The court found that the failure of the fail-safe in plaintiff’s situation does not necessarily preclude the bona fide error defense. However, the court pointed to testimony of a Schiff employee who stated that the error would not have been detected during the printing and mailing process. This, as well as the credibility of the Schiff employee, are up to interpretation and should be decided by a jury, not at the summary judgment phase, according to the decision.

For these reasons, the court denied the summary judgment motions.

insideARM Perspective

The more variable information required on a debt collection letter, the more likely that an error such as the one that occured here will occur. Certain state regulators, such as the New York Department of Financial Services, require that debt collectors itemize the balance in the initial letter mailed to consumers. To do this, debt collectors rely heavily on the information sent to them by the creditor. One minor oversight or minor error in code on behalf of the debt collector or creditor could lead this issue occuring.

While the bona fide error defense might defendant when all is said and done, it is usually reserved for a jury and, according to the court, is not appropriate for summary judgment. At the end of the day, this usually means the debt collector defendant will spend more on legal defense fees and costs -- which it won't recoup even if successful -- to bring the case through trial.

This is especially important to keep in mind if the Bureau of Consumer Financial Protection’s (BCFP or Bureau) third party debt collection rules come out. The Bureau now has a new Director and the fate of the rules is yet to be determined. However, the outline of the proposed rules followed NYDFS’s example for debt itemization. If implemented, the requirement would be nation-wide rather than limited to certain jurisdictions, increasing the likelihood of an inadvertent errors simply by increasing the quantity of letters that will require itemization.

The court seems to suggest that a way to prevent these errors -- and thus having sufficient processes to prevent it in order to invoke the bona fide error defense -- would require some form of data validation to ensure the balance itemization adds up. Sounds like it’s time to take a look at those policies and procedures to make sure something like this is in there.