Posted: April 8, 2016

FDCPA Requires Debt Collector to Disclose That Balance Due May Increase Due to Interest and Fees

On March 22, 2016, the Second Circuit issued a decision in Avila v. Riexinger & Associates, LLC, 15‐1584(L), reversing the EDNY and holding that a debt collector violates the Fair Debt Collection Practices Act if, when it notifies consumers of their account balance, it fails to disclose that the balance may increase due to interest and fees, explaining:

Section 1692e of the FDCPA provides that a debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. The sixteen subsections of Section 1692e set forth a non‐exhaustive list of practices that fall within this ban, including the false representation of the character, amount, or legal status of any debt. Because the list in the sixteen subsections is non‐exhaustive, a debt collection practice can be a false, deceptive, or misleading practice in violation of § 1692e even if it does not fall within any of the subsections of § 1692e. The question presented is whether the sending of a collection notice that states a consumer’s current balance, but does not disclose that the balance may increase due to interest and fees, is a false, misleading, or deceptive practice prohibited by Section 1692e. In considering this question, we are guided by two principles of statutory construction. The first principle is that, because the FDCPA is primarily a consumer protection statute, we must construe its terms in liberal fashion to achieve the underlying Congressional purpose. That purpose is to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses. We have consistently interpreted the statute with these congressional objects in mind.

The second principle is that, in considering whether a collection notice violates Section 1692e, we apply the least sophisticated consumer standard. In other words, we ask how the least sophisticated consumer—one not having the astuteness of a Philadelphia lawyer or even the sophistication of the average, everyday, common consumer—would understand the collection notice. Under this standard, a collection notice can be misleading if it is open to more than one reasonable interpretation, at least one of which is inaccurate.

Applying these principles, we hold that plaintiffs have stated a claim that the collection notices at issue here are misleading within the meaning of Section 1692e. A reasonable consumer could read the notice and be misled into believing that she could pay her debt in full by paying the amount listed on the notice. In fact, however, if interest is accruing daily, or if there are undisclosed late fees, a consumer who pays the current balance stated on the notice will not know whether the debt has been paid in full. The debt collector could still seek the interest and fees that accumulated after the notice was sent but before the balance was paid, or sell the consumer’s debt to a third party, which itself could seek the interest and fees from the consumer. Because the statement of an amount due, without notice that the amount is already increasing due to accruing interest or other charges, can mislead the least sophisticated consumer into believing that payment of the amount stated will clear her account, we hold that the FDCPA requires debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees. We think that requiring such disclosure best achieves the Congressional purpose of full and fair disclosure to consumers that is embodied in Section 1692e. It also protects consumers such as plaintiffs who may hold the reasonable but mistaken belief that timely payment will satisfy their debts.

(Internal quotations and citations omitted).

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