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From Banking and Finance Law Daily, January 18, 2018

Misused safe harbor language gives debt collector no safety

By Richard A. Roth, J.D.

Language created by a court specifically to be used by debt collectors to tell consumers how much they owe does not protect debt collectors from Fair Debt Collection Practices Act liability if that language is inaccurate under the circumstances, the U.S. Court of Appeals for the Seventh Circuit has decided. The safe harbor language cannot simply be copied and pasted, the court said; rather, it provides safety only if it gives consumers accurate information (Boucher v. Finance System of Green Bay, Inc., Jan. 17, 2018, Flaum, J.).

Debt collector Finance System of Green Bay was hired to collect overdue bills for medical services. The amount owed would increase over time due to continuing interest charges. This situation creates a problem for debt collectors because they are required by the FDCPA to tell consumers the amount of the claimed debt, and disclosing in a collection letter a precise amount owed is difficult when the amount is not fixed.

In an effort to help debt collectors meet their FDCPA duties, the Seventh Circuit devised the safe harbor 17 years ago in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C. Debt collectors that need to state accurately an increasing amount owed can do so by saying:

As of the date of this letter, you owe $ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1-800-[phone number].

FSGB used that language, nearly word-for-word.

Claimed inaccuracy. The problem, according to the consumer, is that state law prohibits the imposition of late charges or other charges on unpaid medical bills. Interest can be added, but nothing else. An unsophisticated consumer who was told that late fees and other charges could be imposed might be induced to make an immediate payment in order to avoid an increase in the debt.

That meant FSGB’s letter violated the FDCPA because it failed to state the amount owed and misrepresented the amount of the debt, even though the debt collector used the language specified by the court, the consumer said.

Misrepresentation. The appellate court chose to address the claimed FDCPA violation before considering the applicability of the safe harbor. The first conclusion was that the collection letter was a material misrepresentation of the amount of the debt.

The core question for the court was whether the letter would "materially mislead or confuse an unsophisticated consumer." The letter met that standard because: (a) it implied that late fees or other charges could be imposed even though doing so was illegal; and (b) an unsophisticated consumer’s considerations about whether and when to pay the medical bill could be influenced by a misunderstanding that immediate payment would eliminate or reduce the additional, illegal charges.

Safe harbor applicability. Initially, the appellate court noted that Miller had created the safe harbor to protect debt collectors from claims that they had not accurately stated the amount owed, which would violate 15 U.S.C. §1692g. That was a different claim from one that a debt collector had made a material misrepresentation in violation of 15 U.S.C. §1692e. However, the requirements of the two sections overlapped to such a degree that it would make no sense for the safe harbor to apply to one claim but not the other, the court said.

No safe harbor here. FSGB did use the safe harbor language established by Miller, the court conceded. However, that was not enough. The safe harbor would protect a debt collector only if the information it included actually was accurate; otherwise, the safe harbor language itself would be misleading.

Since the safe harbor included a warning that late fees and other charges could be imposed when doing so was forbidden, it was inaccurate, the court concluded. The debt collector could have, and should have, deleted the inaccurate part of the language. Having failed to do so, FSGB had no protection.

The case is No. 17-2308.

Attorneys: Francis R. Greene (Edelman, Combs, Latturner & Goodwin, LLC) for Ryan Boucher. Brett B. Larsen (Hinshaw & Culbertson LLP) for Finance System of Green Bay, Inc.

Companies: Finance System of Green Bay, Inc.

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