Fair Debt Collection Practices Act and the ‘Overshadowing’ Demand Letter – Part II of II

Part II – 5.5.14 12:14 p.m.

In Vincent v. Chuhak & Tecson 2014 WL 1612697 (N.D.Ill. 2014) the Court denied the Firm’s motion to dismiss the plaintiffs’ FDCPA claims because it was at least plausible that the Firm’s demand letter was confusing and contradictory to the “unsophisticated consumer.”  All that’s required for a plaintiff to survive a Rule 12(b)(6) motion is that a Complaint allege facts that plausibly state a valid claim. 

The Court first noted that Section 1692g of the Act requires a debt collector, within five days of initial communication with a consumer, to provide a written “validation notice.”  The validation notice must contain (1) a statement that unless the consumer disputes the validity of the debt within 30 days after receipt of the notice, the debt will be assumed valid; and (2) a statement notifying the consumer that if he disputes the debt in writing within that 30-day period, the debt collector will obtain verification of the debt and mail a copy of it to the consumer.  The FDCPA cautions that collection activities and communications must not “overshadow” or be “inconsistent” with the disclosure requirements of the validation notice. 15 U.S.C. § 1692g(b); Vincent, *1.

In determining whether a creditor’s demand letter satisfies the FDCPA’s validation strictures, the court applies the “unsophisticated consumer” standard.  Whether a demand letter is confusing under the unsophisticated consumer standard is a fact-based inquiry decided on a case-by-case basis.  But if it’s plain from a reading of the demand letter that a significant fraction of the population wouldn’t be misled, the demand letter complies with the FDCPA.

The Northern District held that the Firm’s demand letter was confusing because there was an “apparent” contradiction between (a) allowing the unit owner to contest the validity of the debt, and (b) simultaneously stating that if the unit owner didn’t pay within 30 days, his right to possession of the condo would end. Vincent, *2-3. 

What Should Have the Demand Letter Said?

The Firm’s demand letter would satisfy the FDCPA if it included “safe harbor” language that explained the letter’s apparent inconsistencies.  The model “safe harbor” language suggested by the Seventh Circuit (a so-called “Bartlett letter”) provides that (1) the creditor doesn’t have to wait until the end of the thirty-day period before suing to collect this debt; but (2) if the debtor requests proof of the debt or of the name and address of the original creditor within that thirty-day period, (3) the creditor must suspend its collection efforts, and stop any litigation based on the debt.  Vincent, *3; Bartlett v. Heibl, 128 F.3d 497 (7th Cir. 1997).

The Court also rejected the Firm’s argument that the letter complied with the FDCPA because the 30-day letter was required by the Illinois Forcible statute.  735 ILCS 5/9-104.1 (30-demand notice on delinquent unit owner  requirement).  The Court held that when sending a demand letter to a debtor, the Firm still has a duty under the FDCPA to explain how the debt collector’s rights fit with the consumer’s.  And since the Firm failed to do this (reconcile the creditor’s and consumer’s rights), the Firm’s demand letter violated the Act and the plaintiffs’ FDCPA claims survived dismissal.

Notes: The case provides some much-needed guidance on the contents of a proper demand letter under the FDCPA in a delinquent condo assessment case.  In my practice, I always recommend that my association (or landlord) clients serve the 30-day (or 5-day) notice.  That way, the unit owner or tenant can’t claim a FDCPA violation since the landlord likely won’t qualify as a “debt collector” under the FDCPA (i.e. the landlord’s main business is renting properties; not collecting debts).