The proliferation of lawsuits filed in federal courts in the United States is burgeoning. According to WebRecon, LLC, a respected company tracking FDCPA lawsuits filed in the United States, lawsuits alleging violations of the FDCPA rose from 3,710 in 2006 to 10,914 in 2010. Reasons for this significant increase vary depending on the source.
Regardless of the reasons, lawsuits alleging technical violations of the FDCPA and conduct in which debtors do not even claim actual damages as a result of communications with debt collectors are rising. By its express terms, the purpose of the FDCPA is to eliminate abusive debt collection practices by debt collectors. See, 15 U.S.C. § 1692(e). However, an equally important purpose as set forth by Congress is that the FDCPA is also designed to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged. Id.
The FDCPA is a "strict liability" statute, see Russell v. Equifax A.R.S., 74 F.3d 30, 33 (2d Cir. 1996) and a “Plaintiff need only prove one violation to trigger liability.” See Cavallaro v. Law Office of Shapiro & Kreisman, 933 F. Supp 1148, 1153 (E.D.N.Y. 1996). With the FDCPA being a technically vague statute in many respects and with seemingly contradictory provisions providing traps for both the learned and unwary, defensible cases are being settled and the consumer filing mills are emboldened by the mandatory attorney's fee provision of the FDCPA. See, 15 U.S.C. § 1692k(a)(3).
However, in the past few years, the industry is beginning to see federal courts giving FDCPA cases greater scrutiny. Beginning in 2009, courts which have considered a "materiality defense" have granted summary judgment for defendants and have dismissed debtors' cases in which a violation of the FDCPA has allegedly occurred, but has not been considered material. These courts have held that a false but non-material statement is not actionable under the FDCPA.
The first reported decision was Hahn v. Triumph Partnerships, LLC, 557 F.3d 755, 758 (7th Cir. 2009). This case was followed by Miller v. Javitch, Block & Rathbone, 561 F.3d 588 (6th Cir. 2009), Neill v Bullseye Collection Agency, Inc., 2009 U.S. Dist. Lexis 41931 (D.Minn. 2009) and Donohue v. Quick Collect, Inc., 592 F.3d 1027 (9th Cir. 2010). The most recent court to follow this trend was a district court in the Northern District of Florida in the case of VanGlider v. Lazarus Financial Group, Inc., Case No. 4:10-cv-527-RH/WCS (April 8, 2011).
As the courts in Hahn and Donohue noted, materiality is an ordinary element of any federal claim based on a false or misleading statement. Hahn, 557 F.3d at 757 citing Carter v. United States, 530 U.S. 255 (2000); Neder v. United States, 527 U.S. 1 (1999). In accordance therewith, the materiality element was made applicable to FDCPA actions.
The court in Donohue noted, “In assessing FDCPA liability, [courts] are not concerned with mere technical falsehoods that mislead no one, but instead with genuinely misleading statements that may frustrate a consumer's ability to intelligently choose his or her response.” Donohue, 592 F.3d at 1034.
In Neill v. Bullseye Collection Agency, Inc., the plaintiff received three separate collection letters from the defendant, spread over a period of time. The third letter “contained the phrase ‘SECOND NOTICE!!!’” Id., 2009 U.S. Dist. LEXIS 41931 (D. Minn. May 14, 2009). The plaintiff filed suit alleging “that the phrase ‘SECOND NOTICE!!!’ in the October 21 letter addressed to him constitute[d] a false, deceptive, or misleading representation…because he had previously received two letters regarding his alleged debt, making the October 21 letter his third notice from Bullseye.” Id. at 6-7. Although conceding that the statement was false, the court nonetheless dismissed the case stating that as “matter of law any misrepresentation was immaterial and therefore not actionable.” Id.
In Donohue v. Quick Collect, Inc., the debtor filed suit claiming that a complaint filed by the debt collector was misleading. Id., 592 F.3d 1027 (9th Cir. 2010). Specifically, the plaintiff alleged that statement in the complaint that she “owed an interest payment of $32.89 calculated by applying 12% annual interest to the principal owed.” Id., at p. 1031. The court found this statement misleading since “$32.89 is actually comprised of two components: $24.07 in pre-assignment finance charges assessed by Children's Choice and calculated at the rate of 1.5% per month, and $8.82 in post-assignment interest calculated at an annual rate of 12%.” Id. Nonetheless, the court found no FDCPA violation. In reaching its decision, the court relied on the fact that the misstatement was not “material.” The court stated that “the purpose of the FDCPA, to provide information that helps consumers to choose intelligently, would not be furthered by creating liability as to immaterial information because by definition immaterial information neither contributes to that objective (if the statement is correct) nor undermines it (if the statement is incorrect).” Id. (internal citations omitted). While the complaint did contain a misrepresentation, that misrepresentation was not material.
In VanGlider, the plaintiff asserted the initial dunning letter violated the FDCPA since the letter stated that verification would be "furnished" to the debtor instead of "mailed" to the debtor. See, 15 U.S.C. § 1692g(a)(4). The court held the difference in wording was not material and the least sophisticated debtor would not be confused or mislead by the language and dismissed plaintiff's case.
Armed with this line of cases, defendants can utilize the "materiality" defense in many FDCPA cases. As with other federal statutes, debtors should, and are required to prove materiality of the violation. Whether conduct violates the FDCPA requires an objective analysis that considers whether the “least sophisticated debtor would likely be misled by a communication.” Donohue, 592 F.3d at 1034, citing Guerrero v. RJM Acquisitions, LLC, 449 F.3d 926, 934 (9th Cir. 2007). “In assessing FDCPA liability, [courts] are not concerned with mere technical falsehoods that mislead no one, but instead with genuinely misleading statements that may frustrate a consumers ability to intelligently choose his or her response.” Donohue, 592 F.3d at 1035.
Debtors should be put on their proof to show, by a preponderance of the evidence that their ability to intelligently choose his or her response was negatively impacted by a defendant's conduct. Absent this proof, violations of the FDCPA cannot be found.
Certainly, the materiality defense is not a panacea for all the explosion of FDCPA cases. However, it is one more tool to use to obtain a just, equitable result in accordance with the legislative purpose behind the FDCPA.
