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From Banking and Finance Law Daily, June 26, 2014

Consumer could sue over dunning letter he didn’t know about

By Richard A. Roth, J.D.

A consumer could sue a debt collector over misleading collection letters even though he did not learn that the letters had been sent until well after a subsequent collection suit was filed, the U.S. Court of Appeals for the Ninth Circuit has decided. The consumer had suffered an injury in fact that gave him standing to sue under the Constitution even though he suffered no pecuniary injury, and the Fair Debt Collection Practices Act applied even though the consumer never received the collection letters, the court said (Tourgeman v. Collins Financial Services, Inc., June 25, 2014, Friedman, U.S. District Judge sitting by designation).

Origin of the claims. The undisputed facts were that the consumer bought a computer from Dell, and the company’s financing arm arranged a loan through CIT Online Bank. The consumer believed he had repaid the loan, but Dell Financial did not agree. It charged off the debt and sold it, along with thousands of others, to Collins Financial Services. Collins passed the accounts along to Paragon Way, Inc., its affiliated collection agency.

Paragon Way sent the consumer three demand letters, after which Collins referred the account to a law firm for collection. The law firm sent a fourth demand letter and then filed suit.

Unfortunately, the demand letters were not sent to the consumer, who lived in Mexico. Instead, they were sent to the California addresses of his parents. The consumer did not learn of the dispute until a summons was served at his father’s address, at which point the consumer hired an attorney.

During the collection suit, which eventually was dismissed, the consumer learned for the first time of the collection letters. He also learned that all four had misidentified the original lender, claiming that financing had been arranged by American Investment Bank, N.A. He sued Collins, Paragon Way, and the law firm, claiming in part that that this misidentification was a misrepresentation that violated the FDCPA.

The federal district court judge entered summary judgment against all of the consumer’s claims.

Consumer’s ability to sue. Before considering whether the collection letters had violated the FDCPA, the appellate court had to resolve whether the consumer had standing to sue over possible violations in collection letters that never were delivered to him. Two issues were involved in the inquiry: did the Constitution give Congress the ability to create a cause of action for a consumer who suffered only a violation of his statutory rights, and had Congress done so in the FDCPA?

Constitutional standing. The Constitution requires a person bringing a suit in federal court to have a direct stake in the result of that suit, the court began; he must have standing to sue. Having standing requires the person to describe an injury in fact—harm to a legally protected interest that is:

  • both concrete and particularized, and either actual or imminent;

  • caused by the conduct complained of; and

  • capable of being redressed by a court judgment.

Congress can create a statutory right and provide that a violation of that right is an injury in fact, the court continued. However, Congress can only give a person standing to sue over an invasion of his rights, not an invasion of the rights of another person. Also, the congressionally-created right must protect against individual harm, not collective harm.

The debt-collecting law firm contested the first of those limits, asserting that a person who did not receive dunning letters would not have suffered any actual injury. He could not be suing over an invasion of his right to be free from misrepresentations, the firm claimed.

The problem with the law firm’s argument, the court said, was that neither pecuniary nor emotional harm are requirements. Pointing to precedents involving suits under the Fair Housing Act and the Real Estate Settlement Procedures Act, the court observed that consumers had been permitted to sue even when the violations they claimed did not cost them any money or deny them an apartment they actually wanted.

Congress could create a statutory right not to be targeted by misleading debt collection letters, the court said. Sending letters containing misrepresentations would have caused a violation of that right, and statutory damages would redress the violation. So, the three criteria for constitutional standing were met, the court decided.

Statutory standing. Had Congress actually given consumers the right to sue if they did not actually receive the misleading letters? It had, the court said.

The text of the FDCPA is broad, the court noted. It imposes liability on “any debt collector” who violates the law and prohibits the use of misrepresentations “in connection with the collection of any debt” (15 U.S.C. §1692e). The text imposes no requirement that a misrepresentation actually be received by the person to whom it is sent.

The FDCPA prohibits the use of a misrepresentation, and the debt collector would have used a misrepresentation even if some intervening factor rendered that misrepresentation ineffective, the court reasoned. The goal of the act was to regulate debt collectors’ conduct, and that goal would be better achieved by allowing any consumer who was the target of impermissible conduct to sue.

Misrepresentations. For purposes of deciding whether the misidentification of the original creditor was a misrepresentation, details in the contents of the documents led the court to separate its discussion of the letters sent by the collection agency, the letter sent by the law firm, and the law firm’s collection suit complaint. However, in the end, all were decided to have violated the FDCPA.

The debt collector’s letters gave the wrong name for the creditor and an incorrect account number, although two of the three letters did include “Dell Computer Corporation” in a description line. That was enough to be a misrepresentation, the court decided. The creditor’s identity was “a critical piece of information,” and getting it wrong would be likely to mislead some consumers materially. Perhaps a consumer could have cleared up any confusion by making a telephone call, but consumers have no obligation to cure debt collectors’ violations, the court pointed out.

The collection suit complaint was infected by the same problem and violated the FDCPA for the same reason, the court continued. In fact, the complaint could be a more severe violation because the consumer might be unable to fill his attorney in on the situation. The possibility of a default judgment, as opposed to more collection letters, raised the stakes as well, the court said.

The problems with the law firm’s collection letter were somewhat different, but still violations, the court said. The letter mentioned American Investment Bank without describing the bank’s relationship to the firm, and it gave the same incorrect account number. The information in the letter actually could make it more difficult for a consumer to sort out the debt and creditor, the court observed.

The case is No. 12-56783.

Petitions for certiorari addressing comparable constitutional standing issues have been filed with the Supreme Court in the Court’s current term. The Court denied the petition in First National Bank of Wahoo v. Charvat, a suit from the U.S. Court of Appeals for the Eighth Circuit under the Electronic Fund Transfer Act. The petition in Spokeo Inc. v. Robins, a suit from the U.S. Court of Appeals for the Ninth Circuit under the Fair Credit Reporting Act, remains pending. In both cases, the appellate courts found that consumers had established standing.

For details about these and other petitions and cases pending before the Supreme Court, please consult this list of selected banking and finance law cases awaiting decision in the 2013 term.

Attorneys: Brett M. Weaver (Johnson & Weaver, LLP) for David Tourgeman. Tomio B. Narita (Simmonds & Narita LLP) for Nelson & Kennard.

Companies: CIT Online Bank; Collins Financial Services, Inc.; Collins Financial Services USA Inc.; Dell Financial Services, LP; Nelson & Kennard; Paragon Way, Inc.; Precision Recovery Analytics, Inc.

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