The Fair Debt Collection Practices Act (“FDCPA”) requires a debt collector attempting to collect a debt to notify a consumer that (1) “unless the consumer . . . disputes the validity of the debt. . . the debt shall be presumed valid by the debt collector” and (2) if the consumer disputes the debt, “the debt collector shall obtain [and send to the consumer] debt verification. . . .” 15 USC § 1692g(a)(3) and (4). The Second Circuit recently ruled that compliance with these provisions does not insulate debt collectors from claims alleging they violated the FDCPA by misrepresenting debts.
In Vangorden v. Second round, limited partnership, a creditor has agreed to settle a debtor’s credit card debt for less than the amount owed by the debtor. Five years later, a debt collector redeemed the debtor’s settled debt and sent him a letter asking him to pay the “current outstanding balance” on his credit card of approximately $1,300. Pursuant to § 1692g(a), the letter notified the debtor that she had the right to challenge the validity of the debt and that the debt collector would verify the debt if she did. The debtor did not dispute the debt. Instead, she sued the debt collector alleging that he violated several provisions of the FDCPA by misrepresenting the existence, amount, and legal status of the debt. The debt collector requested that the suit be dismissed on the grounds that the debtor had not exercised her right to dispute the debt, and the trial court granted the request.
On appeal, the second circuit reversed. Join the Third Circuit and Fourth Circuitthe Second Circuit held that “nothing in the text of the FDCPA suggests that a debtor’s ability to declare a [claim under the Act] ‘depends on the debtor first challenging the validity of the debt in accordance with § 1692g.’”
In reaching its decision, the Second Circuit relied in part on the FDCPA’s “honest error” defense. Section 1692k(c) of the FDCPA provides that a debt collector “shall not be liable . . . if the debt collector demonstrates by a preponderance of evidence that [a] breach was unintentional and resulted from an honest mistake notwithstanding the maintenance of reasonably adequate procedures to avoid such mistake. The Court held that when debt collectors make mistakes in good faith, “the protection the FDCPA affords debt collectors . . . is the affirmative defense set forth in § 1692k(c), not an immunity from prosecution inferred from the notice of dispute provision of § 1692g.
Practitioners can learn a number of lessons from Vangorden: 1) At least in the Second, Third, and Fourth Circuits, debt collectors are unlikely to prevail over requests to dismiss FDCPA claims on the basis that the debtor has not disputed the debt at issue. 2) Where the facts warrant, debt collectors should invoke § 1692k(c) as an affirmative defense to avoid possible waiver arguments. 3) When a debt collector intends to invoke the defense of “good faith error”, he must endeavor to develop facts on record to support the defence, since the burden of proof will be on the debtor. debt collector both at the summary judgment stage and at trial. .