Debt Collectors Sued for Not Assessing Interest . . . Seriously?!? ("The Debt Collection Drill")
The issue of debt collectors assessing interest on accounts was contentious and extensively litigated over the past decade. Courts, regulators, and consumer advocates are uniformly opposed to debt collectors assessing interest except in specific circumstances. The Second Circuit Court of Appeals decision in Avila in 2016 further placed a requirement on debt collectors to disclose in a validation notice when interest is accruing on an account, similar to the requirements in the Seventh Circuit. Avila was not, however, the end of the discussion on disclosing that interest is accruing on an account; rather, it was the beginning of a new line of cases. Consumer attorneys are now filing and threatening dozens of cases (mostly in New York) asserting that if interest is not accruing on an account, the debt collector must disclose that interest is not accruing. Presently there are two reported decisions holding that a debt collector is not required to disclose when interest is not accruing and more decisions are pending.
In the latest episode of The Debt Collection Drill podcast, Moss & Barnett attorneys John Rossman and Mike Poncin are joined by Dave Cherner to discuss this recent spate of lawsuits and strategies for avoiding liability. The attorneys also discuss the recent addition of Mr. Cherner to the Moss & Barnett team and options for agencies to outsource their chief compliance officer needs.
- Mike Poncin: Hey everybody. Welcome again to another edition of the Debt Collection Drill. I'm Mike Poncin and with me is John Rossman Chair of our Creditors Remedies Practice Group here at Moss & Barnett. Along with a special guest that I will allow John to introduce.
- John Rossman: Thanks Mike. You know this is our seventh year that we've been doing the Debt Collection Drill podcast and in all those seven years we have never had a guest on the Debt Collection Drill but that all ends today because we do have a guest. Our guest is Dave Cherner. The latest member of Moss & Barnett. Dave was former Chief Compliance Officer for a major and very well respected national collection agency and decided to come over to Moss & Barnett. We are really excited to have him. Welcome Dave.
- Dave Cherner: Thank you John. Very happy to be here.
- John Rossman: Dave do you want to talk a little bit about some of the work you're going to be doing here at Moss & Barnett?
- Dave Cherner: Thanks John. I'm really excited to be a part of the Creditors Remedies Practice here at Moss & Barnett. My focus is going to be on operational compliance and risk management. As we all know, this industry is scrutinized at a variety of different levels and it's important to have a partner that can help to implement policies, procedures and controls to make them successful and I'm excited to help try to do that now being with the both of you.
- John Rossman: Thanks Dave. You know one thing that we're really excited about and one service we're really excited to offer to agencies stems from your chief compliance officer experience. I know there are a number of agencies out there that have a chief compliance officer. There are also a number of agencies that don't for a number of reasons. One of them may be cost and certainly if a company is at a size where it needs a chief compliance officer perhaps to compete for some of the work out there today but doesn't have the budget for it, outsourcing that chief compliance officer function is one really good option and that is something that we can offer here at Moss & Barnett through the incredible experience that Dave Cherner brings to our team. Let's shift now and talk a little bit about what has been the number one lawsuit in 2017. Since 2017 is only a few months old it really goes back to 2016 and that’s the issue of interest accruing on accounts. I know we had the Avila decision. Avila was 2016 and since then there have been a number of cases that have clarified that decision holding that when a debt collection agency is assessing interest on an account, that needs to be disclosed per the Second Circuit Court of Appeals in Avila but there have been a recent spate of cases that have arisen arguing that if no interest is accruing on an account, then that needs to be disclosed. Mike do you want to go into a little bit of detail on that and what you've seen in defending those cases?
- Mike Poncin: Yes, what I've seen is that if you try to collect on interest, you're going to get sued and if you don't try to collect on it, you're going to get sued. We've seen lots of litigation especially out on the East Coast. We're dealing with New York predominantly. Even though there is some case law we need more. Of course Avila copied basically the Miller McCalla case out of the Seventh Circuit where it had the disclaimer language saying that because of interest, fees and what not that may accrue the amount you pay today may be more or may not be enough to satisfy the debt and so Avila followed Miller McCalla and came out with some other safe harbor language that it had suggested and so, of course, the view of the industry was that okay if you're going to seek interest, you need to include that safe harbor language nothing new. But what we're seeing is a bunch of cases alleging that debt collectors are violating the FDCPA by not including an interest disclaimer when they are not seeking interest … or putting language down that we will not seek interest. And of course the safe harbor language didn't go to that so the argument is that Avila did not require it in instances where you are not seeking interest.
- John Rossman: Wait a minute. So debt collectors are getting sued for not disclosing what they are not doing?
- Mike Poncin: You are correct.
- John Rossman: So how far can we take this then if a debt collector is not charging interest it's going to get sued for that. What if a debt collector is not assessing fees? What if a debt collector is not adding on any other charges? Is that also required to be disclosed under this new line of thinking?
- Mike Poncin: Well, of course, we would say no and I believe the answer is no. Right now we do have about two or three cases that we're handling that are pending and I know other agencies are making the same fight and until we get a couple more cases. There is only the one case I think in New York that we know that has directly addressed Avila and held that there was no need to disclose that interest was not accruing. I think the important thing to keep in mind is you want to make sure your letter sets forth what the amount of the debt is and what it will take to resolve that debt and not give any implication that there may be a change in the amount and in many instances we've seen where clients have sent out two or three letters and the amount doesn't change and they're getting sued for failing to advise that the amount isn't going to change essentially. It seems like a pretty clear cut case but again multiple cases pending in New York and we'll hopefully have more answers to the question.
- Dave Cherner: One decision from Oregon that recently was released seems to take the position that we have that it doesn't make sense to include this type of disclosure. In fact the Court there said that including information about interest when no interest is due carries a higher risk of confusing an unsophisticated consumer than simply stating the balance due. So that's an example where the judge looked at it pragmatically and understood that why would a debt collector need to disclose information about what they're not doing.
- Mike Poncin: Applying a common sense standard to the least sophisticated consumer standard. I like it.
- John Rossman: Is that something that we should be doing though? Mike this leads me to some additional concerns that I have. My thought is well perhaps collection agencies should start putting a disclosure in their letters when a collection agency is not accruing interest on accounts saying we are not accruing interest. Is that the solution to avoid what we've seen for at least the past six months and into the foreseeable future is going to be the number one lawsuit? Put some type of additional disclosure? Keep in mind we did that last podcast on the agency that got sued for putting too many disclosures in its letters. What do you think about the concept of putting an additional disclosure stating that interest is not accruing?
- Mike Poncin: I think there is definitely an argument to be made for including a disclosure if you're sure that interest isn't accruing or that your client has assured you that it's not accruing while you have it to put down language that you know this is the amount that we're seeking. No interest will accrue while we're working on the account but other claims we're going to see … we have a compliant right now that makes the arguments that you couldn't waive interest because the creditor never sent out a letter complying with Avila and what not. Advising that interest wasn't going to accrue and this was credit card debt therefore interest was accruing. So that argument would take the position that well you put that language on there. You didn't have a right to waive interest.
- Dave Cherner: As well as fees and John to your point what else in the collection process should you disclose you are not going to do. Are you not going to sue? Are you not going to add non-interest charges and fees? Are you not going to have any type of adjustments on the account at any point in time? And that's what makes it difficult regarding this particular line of argument and that's why a lot of courts have said that the debt collector needs to disclose or disclaim the information of what they are doing and not necessarily what they're not.
- John Rossman: You know the other concern that I have regarding this whole concept of including an additional disclaimer in the letters is it goes to the argument that we've seen in some of these out-of-statute cases where its well you said that interest isn't accruing now but what happens if someone takes a judgment on that account and statutory interest accrues by operation of law. So my concern is if you include some type of disclaimer to avoid this recent tidal wave of lawsuits we've seen particularly coming out of New York you're potentially setting yourself up for another lawsuit which Mike to your earlier point was you're going to be sued if you do assess interest and you're going to be sued if you don't. Mike let's talk a little bit about that case out of New York. I know that there was that one case that talked about the fact that there wasn't a requirement to state that interest was not accruing and I want to read just a quick quote from that here. It says the Plaintiff argues that the language of the letter could imply a future imposition of non-interest fees and charges. However, such interpretation contravenes the plain language of the letter which clearly sets forth the total amount of the debt and further provides an accounting of that debt. So in that particular case the letter stated interest and it stated an amount as being zero in the summary of the debt and the consumer argued that well this is a threat to add interest in the future. So the judge in New York rejected that decision but Mike we've seen a court particularly in Wisconsin accept that argument. That was the Tylke decision from a few years back. We've seen a number of lawsuits in Wisconsin that have argued that just putting some type of itemization in the letter and putting zero for the amount of interest is actually a threat to assess interest in the future.
- Mike Poncin: That's a very good point and it was nice to finally have a judge address that. Again, a common sense approach to give us some case law to use against the Tylke decision.
- John Rossman: Mike in looking at this from the point of view of a collection agency what's the best approach? I mean you certainly don't want to get sued. You certainly don't want to be in a situation where you're defending cases where we've got one case out of Oregon, we've got one case from New York but we really don't have a definitive court of appeals decision but at the same time you don't want to be putting some extra untested disclosure on there. Is there any middle ground? Is there any good path for an agency to take to avoid these lawsuits and really at the end of the day do right by the consumer. I mean look we're in the position where debt collectors have to make disclosures under 1692(g) of the amount of the debt. Are they complying with that by not stating that interest is not accruing when in fact interest is not accruing?
- Mike Poncin: Of course the disclaimer that you know you're going to want to check the individual facts, the contracts, etc. what not but I think right now based upon the case law you have to look at the Miller McCalla, the Avila disclosures and using those when you know that interest is going to accruing. And when interest isn't accruing, making sure there is no language that gives the inference or implication that interest may accrue. So making sure you have the total due or balance due and not limit it to a certain time period but leave it as the amount that would be acceptable to resolve the account going forward. So I think right now that's all we have and again in New York I know New York is a big district and it sometimes takes eight months to a year to get a decision so it could be a little bit of time before we have some actual relief from other courts in New York issuing how they read Avila.
- John Rossman: We are out of time for today. Mike and Dave I'd like to thank you both for a great episode. I'd also like to thank our Executive Producer Jodi Newsom and we look forward to speaking with you next time. Thank you.
Visit the website for this podcast at the Debt Collection Drill.com and follow us on Twitter @CollectDrill. This program does not create an attorney/client relationship between Moss & Barnett, a Professional Association, or any attorney appearing on this program and any listener. Please remember that we can only give general information and every case is unique. Always check with your individual attorney for any specific legal concerns.