Recent Seventh Circuit FDCPA Cases
Scott Frissell -- Law Clerk
One of the most litigated areas in collections law remains the application of and compliance with the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq. (FDCPA). The FDCPA was enacted in 19771 when Congress found “abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors.”2 The stated goal of the FDCPA is to "protect consumers from a host of unfair, harassing, and deceptive debt collection practices without imposing unnecessary restrictions on ethical debt collectors."3 Under the FDCPA, the term “debt collector” refers to “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”4 The FDCPA then sets forth specific rules which debt collectors must follow in connection with collecting debt incurred from purchases primarily for personal, family, or household purposes (i.e. consumer debt).5 The following is a review of recent Seventh Circuit cases addressing FDCPA compliance issues.
II. Venue – Suesz v. Med-1 Solutions, LLC (2014)
The FDCPA requires a debt collector to file suit in the “judicial district or similar legal entity” where the contract was signed or where the debtor resides.6 In Suesz v. Med-1 Solutions LLC, the Seventh Circuit took a renewed look at the issue of where suit must be filed for the collection of consumer debt under the FDCPA.7 In this case the plaintiff alleged the defendant violated section 1692i when it filed suit in Pike Township of the Marion County Small Claims Court when the defendant did not live in this township and the contract was not signed there.8 The Seventh Circuit granted debtors petition for rehearing en banc after the court previously followed the reasoning of Newsom v. Friedman9 and upheld dismissal of Suesz’s complaint on the basis that the township small claims courts in Marion County are not separate judicial districts and instead the entire county is the relevant district.10 On rehearing the court overruled Newsom and concluded “the correct interpretation of ‘judicial district or similar legal entity’ in § 1692i is the smallest geographic area that is relevant for determining venue in the court system in which the case is filed.”11 By over-ruling Newsom, the Seventh Circuit unquestionably changed what had been commonly understood by consumer collection attorneys concerning the venue requirements of the FDCPA.
III. “Bona Fide Error” Defense – Oliva v. Blatt, Hasenmiller, Leibsker & Moore, LLC (2016)
Under the FDCPA a debt collector can avoid liability for a violation of the Act if its violation was the result of a “bona fide error” despite the maintenance of reasonable procedures designed to avoid it.12 In Jerman v. Carlisle the Supreme Court held the “bona fide error” defense does not apply to "a violation resulting from a debt collector's mistaken interpretation of the legal requirements of the FDCPA."13 Therefore, FDCPA violations which are excusable as a “bona fide error” must result from “clerical or factual mistakes,” not mistakes of law.14
Following Suesz, the Seventh Circuit in Oliva v. Blatt, Hasenmiller, Leibsker & Moore, LLC addressed whether the FDCPA’s “‘bona fide error’ defense protects a debt collector from liability for engaging in conduct which was expressly permitted under the controlling law in effect at the time,” but was later prohibited in Suesz.15 In Oliva, the defendant debt collector filed a collection suit against the debtor in the first municipal district of the Circuit court of Cook County, Illinois.16 At the time of suit, the defendant’s choice of venue was expressly permitted by Newsom v. Friedman.17 Nevertheless, Newsom was subsequently overruled in Suesz.18 Following the courts holding in Suesz, Blatt voluntarily dismissed its action against Oliva without prejudice.19 Oliva then brought suit against Blatt for violating the FDCPA’s venue provision under section 1692i(a)(2).20 The court assumed without deciding that the Suesz holding applied retroactively to this case.21 Relying on the United States Supreme Court’s ruling in Jerman v. Carlisle, Oliva argued the “bona fide error” defense was not applicable because mistakes of law do not give rise to this defense.22 The court addressed Oliva’s argument: “In filing suit where it did . . . Blatt did not interpret the relevant venue provision of the FDCPA, mistakenly or otherwise, but simply abided by our interpretation in Newsom.”23 The court determined Blatt was shielded from liability by the “bona fide error” defense under section 1692k(c) stating “Suesz may have created a retroactive cause of action for violations that preceded it, but it does not retroactively proscribe the application of the bona fide error defense.”24 Blatt’s “failure to foresee the retroactive change of law heralded by Suesz was not a mistaken legal interpretation, but an unintentional bona fide error that precludes liability under the Act.”25 Additionally, the court stated:
[E]ven if Blatt's violation was the result of its own interpretation of the law, Jerman still would not apply, for Blatt's interpretation was not mistaken when it was made. That is, assuming Blatt independently interpreted the controlling law of Newsom before filing suit, its interpretation was undisputedly correct, since it relied on Newsom to file suit exactly where Newsom allowed. That Blatt's conduct would later be deemed a violation under Suesz is not the result of Blatt's mistaken interpretation of the FDCPA, but of a retroactive change of law that was entirely outside Blatt's control.26
IV. Validation Notice Requirements and Vicarious Liability
A. Janetos v. Fulton Friedman & Gullace, LLP (2016)
The FDCPA requires, among other things, “a debt collector to disclose to a consumer ‘the name of the creditor to whom the debt is owed,’ either in its initial communication with the consumer or in a written notice sent within the next five days.”27 The Seventh Circuit deems a debt collector to have violated the FDCPA when its communications are materially misleading or confusing to an “unsophisticated consumer”.28 The Seventh Circuit recently addressed whether a debtor must present extrinsic evidence of confusion to survive summary judgment on an allegation the debt collector violated section 1692g(a)(2) of the FDCPA.29 In Janetos, the defendant Fulton Friedman & Gullance, LLP sent out a collection letter which identified Asset Acceptance as the “assignee” of the original creditors but failed to explicitly identify Asset Acceptance as the current creditor.30 The debtor sued arguing the debt collector violated section 1692g(a)(2) by failing to disclose the current creditor’s name.31 The debt collector filed a motion for summary judgment and the district court held the debtor must present extrinsic evidence of confusion to survive summary judgment.32 The Seventh Circuit reversed the district court and held that any debt collector who fails to clearly disclose the required information in their communications with a debtor violates the FDCPA without a further showing of confusion.33 The court noted “[s]ection 1692g(a) also does not have an additional materiality requirement, express or implied. Congress instructed debt collectors to disclose this information to consumers, period, so these validation notices violated § 1692g(a).”34 Additionally, “[t]o satisfy § 1692g(a), the debt collector's notice must state the required information ‘clearly enough that the recipient is likely to understand it.’”35 Because the debt collector’s letter failed to disclose the current creditor, it failed to satisfy the requirements of section 1692g(a)(2).36
The Seventh Circuit further addressed whether Asset Acceptance could be held vicariously liable for the letters the debt collector sent out.37 Following the Third Circuit decision in Pollice v. National Tax Funding, L.P.,38 the court held that debt collectors who are subject to FDCPA requirements and who contract with another debt collector “should not be able to avoid liability for unlawful debt collection practices simply by contracting with another company to do what the law does not allow it to do itself.”39 The court held “[l]ike the Third Circuit, we think it is fair and consistent with the Act to require a debt collector who is independently obliged to comply with the Act to monitor the actions of those it enlists to collect debts on its behalf.”40 Therefore, because “Asset Acceptance is itself a debt collector, . . . it may be held liable for Fulton’s violations of the Act in the course of activities undertaken on its behalf.”41
B. Gruber v. Creditors Prot. Serv. (2014)
The Seventh Circuit addressed another FDCPA issue dealing with the initial debt collection letter in Gruber v. Creditors Prot. Serv.42 In a consolidated appeal of four separate cases, the court was tasked with determining whether a minor deviation from the phrase “that the debt, or any portion thereof, is disputed” in the debt collection letter was a violation of section 1692g(a)(4) of the FDCPA.43 The four notices provided: “If you notify this office in writing within 30 days from receiving this notice, this office will obtain verification of the debt or obtain a copy of the judgment and mail you a copy of such judgment or verification.”44 Therefore, all four notices failed to include the phrase “that the debt, or any portion thereof, is disputed.”45 The consumers argued this omission created the “risk that an unsophisticated consumer who may wish to exercise his or her rights would fail to properly do so”, and may be misled to request verification instead of disputing the debt.46 The court rejected this argument and determined the statements satisfied § 1692g(a)(4) because “if a consumer wrote and sought verification, he would be disputing the debt for the purposes of the Act, and would be entitled to all of the same protections afforded under the Act as if he had written to dispute the debt.”47
One of the debtors also argued the notice’s statement “[w]e believe you want to pay your just debt” immediately before the section 1692g language violated the FDCPA.48 The debtor argued the phrase “just debt” misleads an unsophisticated consumer into believing a judgment has already been obtained against the consumer.49 The court disagreed with the debtor’s arguments and found the phrase “just debt” “[c]onsidered in the context of the notices in this record, . . . is a congenial introduction to the verification notice and is best characterized as ‘puffing, in the sense of rhetoric designed to created a mood . . . .’”50 The court concluded “[p]uffery does not violate § 1692g(a)(4).”51 Therefore, the court held this statement did not violate the FDCPA.52
V. Untimely FDCPA Claims – Gajewski v. Ocwen Loan Servicing (2016)
The FDPCA requires a debtor to bring suit against a debt collector who violates the Act within one year from the date of the violation.53 In Gajewski v. Ocwen Loan Servicing, the Seventh Circuit addressed whether new violations of the FDCPA would resurrect prior, untimely claims based on a continuing violation theory.54 The court in Gajewski “presume[s], as do the plaintiffs, that collection activity within or related to pending litigation may lead to new, and separately prosecutable, violations of the FDCPA.”55 The court nonetheless refused to hold that new violations will resurrect prior, untimely claims based on a “continuing violation” theory.56 Instead the court concluded the “statute of limitations begins to run upon injury . . . and is not tolled by subsequent injuries.”57 The court noted: “[t]he continuing violation doctrine, which actually concerns cumulative violations, does not apply to a series of discrete acts, each of which is independently actionable, even if those acts form an overall pattern of wrongdoing."58 Accordingly, any actions which occurred more than a year prior to suit were barred by the one-year statute of limitations.59
VI. Communications with a Debtor – Bravo v. Midland Credit Mgmt. (2016)
Section 1692c(a)(2) of the FDCPA prohibits a debt collector from communicating with a debtor when the “debt collector knows that the consumer is represented by an attorney with respect to such debt . . . .”60 In Bravo v. Midland Credit Mgmt., the court addressed whether a debt collector violated section 1692c(a)(2) of the FDCPA for communicating with a represented debtor.61 In Bravo, the defendant’s attorney sent Bravo’s attorney two letters in the name of Kaliuska Bravo C/O David J. Philipps, requesting payment of two debts which were resolved in a prior settlement.62 Bravo sued arguing the debt collector violated section 1692c by contacting her when it knew she was represented by counsel.63 The court determined the debt collector’s letters did not violate section 1692c because “[a] consumer's name on an envelope does not equate to communication with that consumer when it is sent in ‘care of’ and to the address of an attorney.”64
VII. Attempted Collection of Time-Barred Debts – McMahon v. LVNV Funding, LLC (2014)
A particularly oft-litigated issue lately has been whether attempting to collect on debts for which the statute of limitations has passed is a violation of the FDCPA. In McMahon v. LVNV Funding, LLC, the Seventh Circuit addressed whether collection letters purporting to collect time-barred debts violated the FDCPA as such letters could mislead an unsophisticated consumer into believing the debt is enforceable in court.65 The debtor in McMahon received a collection letter fourteen years after the original bill was received.66 The letter provided information about the creditor, the previous creditor, the total due of $584.98, a section giving the debtor “an opportunity” to pay the debt at a 60% discount, and other required language.67 However, the letter failed to disclose the four year statute of limitations had expired.68 McMahon responded to the letter requesting verification of the debt.69 The defendant responded stating they owned the debt, they acquired the debt from Nicor, and the amount owed on the debt.70 However, the defendant kept quiet about the age of the debt.71 In the consolidated Delgado case, the debtor received a similar letter offering a settlement for 30% of the amount owed.72 Both individuals sued, arguing the letters violated the FDCPA.73
The Seventh Circuit held an attempt to collect a time-barred debt is not automatically improper as some debtors may feel a moral obligation to repay the debt even though there is no enforceable legal remedy for the debt.74 Nevertheless, the court held such actions can violate the FDCPA “if the debt collector uses language in its dunning letter that would mislead an unsophisticated consumer into believing that the debt is legally enforceable, regardless of whether the letter actually threatens litigation . . . the collector has violated the FDCPA.”75 As a result, the court concluded “it is plausible that an unsophisticated consumer would believe a letter that offers to ‘settle’ a debt implies that the debt is legally enforceable . . . .” and therefore affirmed the district court’s denial of defendant’s motion to dismiss in Delgado and reversed and remanded McMahon for further proceedings.76
This article is designed to provide a basic understanding of concepts of the law. The law, however, is very much subject to change and to interpretation by different courts. Additionally, the applicable law varies from situation to situation. Accordingly, this article should be viewed as educational in nature, and not to be considered as either legal advice or a substitute for competent advice from a qualified attorney. Rubin & Levin, P.C., and the authors of this material encourage that you seek independent legal counsel to address any questions pertaining to particular issues or situations which you may encounter.
1 Pub. L. No. 95-109, 91 Stat. 874 (codified as amended at 15 U.S.C. §§1692-1692p).
2 15 U.S.C. § 1692(a).
3 S. Rep. No. 95-382 at 1 (1977).
4 15 U.S.C. § 1692a(6).
5 15 U.S.C. § 1692a(5).
6 15 U.S.C. § 1692i.
7 Suesz v. Med-1 Solutions, LLC, 757 F.3d 636, 637 (7th Cir. 2014).
8 Id. at 637-38.
9 See Newsom v. Friedman, 76 F.3d 813, 819 (7th Cir. 1996) (holding a municipal department district of the Cook County Circuit Court in Illinois is not a “judicial district or similar legal entity” under section 1692i(a)(2)).
10 Suesz, 757 F.3d at 638.
12 15 U.S.C. § 1692k(c).
13 Jerman v. Carlisle, 559 U.S. 573, 577 (2010).
14 Id. at 587.
15 Oliva v. Blatt, Hasenmiller, Leibsker & Moore, LLC, No. 15-2516, 2016 U.S. App. LEXIS 10780, at *1 (7th Cir. June 14 2016).
18 Id. at *2.
19 Id. at *4.
20 Id. at *2.
21 Id. at *4.
22 Id. at *2.
23 Id. at *8.
24 Id. at *7.
26 Id. at *9-10.
27 Janetos v. Fulton Friedman & Gullace, LLP, No. 15-1859, 2016 U.S. App. LEXIS 6361, at *1-2 (7th Cir. April 7, 2016).
28 Wahl v. Midland Credit Mgmt., Inc., 556 F.3d 643, 645 (7th Cir. 2009).
29 See Janetos, 2016 U.S. App. LEXIS 6361, at *2.
33 Id. at *3.
35 Id. at *7 (quoting Chuway v. Nat'l Action Fin. Servs., 362 F.3d 944, 948 (7th Cir. 2004)).
36 Id. at *8.
37 Id. at *18.
38 Pollice v. National Tax Funding, L.P., 225 F.3d 379, 404-06 (3rd Cir. 2000).
39 Janetos, 2016 U.S. App. LEXIS 6361, at *19.
41 Id. at *20.
42 Gruber v. Creditors Prot. Serv., 742 F.3d 271 (7th Cir. 2014).
43 Id. at 272-73.
44 Id. at 273.
46 Id. at 274.
53 15 U.S.C. § 1692k(d).
54 Gajewski v. Ocwen Loan Servicing, No. 15-3849, 2016 U.S. App. LEXIS 9548, at *4-5 (7th Cir. May 25, 2016).
55 Id. at *5.
57 Id. (citing Limestone Dev. Corp. v. Vill. Of Lemon, Ill., 520 F.3d 797, 801 (7th Cir. 2008)).
58 Id. at *5-6 (internal quotations omitted).
59 Id. at *6.
60 15 U.S.C. § 1692c(a)(2).
61 Bravo v. Midland Credit Mgmt., 812 F.3d 599, 601 (7th Cir. 2016).
64 Id. at 602.
65 McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1012 (7th Cir. 2014).
66 Id. at 1013.
72 Id. at 1014.
73 Id. at 1015.
74 Id. at 1020.