3rd Cir. Holds No FDCPA Violation When Non-Interest-Bearing Debt Itemized ‘$0.00’ for Interest

The U.S. Court of Appeals for the Third Circuit recently affirmed the dismissal of a class action complaint alleging that a collection letter’s itemization of a debt as including “$0.00” in interest and fees — when the debt could not accrue interest or fees — violated the federal Fair Debt Collection Practices Act.

In so ruling, the Third Circuit concluded that the inclusion of line items listing $0.00 in the form letter’s interest and fees columns did not mislead the consumer to believe that he may owe interest or fees in the future in violation of the FDCPA’s prohibition on deceptive (§ 1692e) and unfair or unconscionable (§ 1692f) means of collecting consumer debts, even under the court’s hypothetical “least sophisticated consumer” standard.

Of note, the federal Consumer Financial Protection Bureau filed an amicus brief in support of the debt collector and the creditor in this appeal. The Third Circuit noted that the CFPB’s recently finalized Regulation F to the FDCPA “seemingly condone[s] itemizing interest and fees as [the debt collector] did. … Under the pending rules, debt collectors must include in certain notices a table showing the interest, fees, payments, and credits that have been applied—even if none have actually been applied—to a consumer’s debt since the itemization date. … And ‘a debt collector may indicate that the value of a required field is ‘0,’ ‘none,’ or may state that no interest, fees, payments, or credits have been assessed or applied to the debt.’”

A copy of the opinion in Hopkins v. Collecto Inc. is available at:  Link to Opinion.

A consumer received a letter from a debt collector which sought to collect past due amounts on behalf of a creditor who acquired the debt. 

The letter included a table itemizing the debt into four columns providing (i) the principal balance of the debt ($1,088.34), (ii) interest ($0.00), (iii) “Fees Coll. Costs” ($0.00), and (iv) total balance ($1,088.34).  The letter concluded that the consumer owed $1,088.34 on the debt and offered to “resolve this debt in full” if he paid a reduced amount of $761.84.

The consumer filed a putative class action complaint against the debt collector and creditor (collectively, the “debt collectors”) alleging that the letter’s inclusion of the table with itemized columns for interest and fees violated sections 1692e and 1692f of the FDCPA, 15 U.S.C. § 1692, et seq. 

Specifically, the consumer claimed that because the debt was static and purportedly could not accrue interest or fees, that assigning a “$0.00” value to those columns falsely implied that interest and fees could accrue and increase the total debt over time.

Upon consideration of the debt collectors’ motion to dismiss, the trial court dismissed the consumer’s complaint with prejudice, reasoning that the letter neither “leave[s] the least sophisticated consumer in doubt of the nature and legal status of the underlying debt” nor “impede[s] the consumer’s ability to respond to or dispute collection.”  The consumer appealed.

On appeal, the lone issue before the Third Circuit was whether the letter’s inclusion of a table denoting “$0.00” in interest and collection fees falsely implied that interest and collection fees were materially likely to accrue in violation of FDCPA’s prohibitions on deceptive (§ 1692e) and unfair or unconscionable (§ 1692f) means of collecting consumer debts.

Initially, the Third Circuit noted that other federal appellate courts recently addressed similar claims. 

In Degroot v. Client Services, Inc., 977 F.3d 656 (7th Cir. 2020), the Seventh Circuit held that a collection letter that listed a debt as including $0.00 in interest and fees “mere[ly] rais[ed] . . . an open question about future assessment of other charges,” and did not mislead the unsophisticated consumer.  Id. at 660–61. 

Likewise, in Salinas v. R.A. Rogers, Inc., 952 F.3d 680 (5th Cir. 2020), the Fifth Circuit concluded that a dunning letter’s inclusion of $0.00 due in interest and fees and the statement that “in the event there is interest or other charges accruing on your account, the amount due may be greater than the amount shown above after the date of this notice” did not violate the FDCPA “from the perspective of an unsophisticated or least sophisticated consumer” Id. at 683–84 & n.3.

Here, the consumer attempted to distinguish these cases, arguing that the Third Circuit’s “least sophisticated debtor” standard is more forgiving than the “unsophisticated debtor” standard under which these cases were decided. 

The Third Circuit disagreed, noting that its framework is “functionally equivalent to the unsophisticated debtor standard on which claims like [the consumer’s] have foundered.  Jensen v. Pressler & Pressler, 791 F.3d 413, 419 & n.3 (3d Cir. 2015) (noting that it is “sometimes referred to as the ‘least sophisticated consumer’ or ‘unsophisticated debtor’ standard”). 

Finding the rationale of the Fifth Circuit in Salinas and Seventh Circuit in Degroot persuasive, the Third Circuit similarly concluded that the letter did not violate the FDCPA by itemizing $0.00 in interest and fees on his static debt.

The Third Circuit further concluded that affirmation of dismissal was appropriate even if confined to “least-sophisticated-debtor” case law which assumes that even naïve consumers possess a “quotient of reasonableness” consistent with “a basic level of understanding and willingness to read with care.”   Wilson v. Quadramed Corp., 225 F.3d 350, 354–55 (3d Cir. 2000) (citation omitted).  

First, the Court noted that the Second Circuit rejected similar claims under a “least sophisticated consumer” standard in Taylor v. Financial Recovery Services, Inc., 886 F.3d 212 (2d Cir. 2018), holding that letters seeking to collect static debts that “stated their respective balances due without discussing interest or fees” were not misleading to “the least sophisticated consumer.” 

Moreover, the Third Circuit reasoned that its “FDCPA case law does not support attributing to the least sophisticated debtor simultaneous naïveté and heightened discernment” as the consumer attempted here by acknowledging that the letter was a “mass-produced, computer-generated form letter[],” yet purportedly failing to understand that listing $0.00 in each of the form letter’s interest and fees columns was an “inapplicable vestige[] of a template letter.” 

Because the consumer failed to state an FDCPA claim under the court’s “least sophisticated debtor” standard, dismissal of the class action complaint was affirmed.