7th Circuit Finds Debt Collector Misused “Safe Harbor” Language in its Dunning Letter to Creditors
The Seventh Circuit Court of Appeals recently reversed a district court decision regarding a debt collectors’ use of “safe harbor language” in a dunning letter in a Fair Debt Collection Practices Act (FDCPA) class action lawsuit. Even though the Seventh Circuit set forth general safe harbor language for debt collectors to use in dunning letters in a previous FDCPA case, and the defendant “blindly copied and pasted it” here, the court held that misuse of the safe harbor language was false and misleading under the law.
As background, the debt collection agency attempting to collect a debt on medical services sent a letter to debtor-plaintiffs in this case. The letter stated an amount of money that the debtor owed as of a particular date, but, relying on the safe harbor language, also said, “Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater.”
Here, plaintiffs alleged that the debt collector could not lawfully impose “late and other charges” and that unsophisticated consumers might incorrectly believe they could avoid such charges if they paid immediately. The lawsuit claimed the letter was false, misleading, and deceptive in violation of the FDCPA.
In response, the debt collector argued that its letter mirrored the Seventh Circuit’s safe harbor language and that it was not misleading the debtors by telling them the amount of money they owed was variable. The circuit court found that plaintiffs must make a plausible allegation that a dunning letter materially misleads or confuses an unsophisticated consumer. And such a letter, in the court’s view, is false and misleading if it implies certain outcomes can happen to a delinquent debtor that legally cannot.
The court looked to the applicable state law of Wisconsin, which permits interest charges for medical debt creditors but does not allow “late charges and other charges” to be imposed. Thus, the court found the defendant’s claim that it could collect such additional charges to be false and misleading to an unsophisticated consumer. The defendant’s letter did not state the specific amount of late charges or what “other charges” might apply; it left too much guesswork to the consumer, and consequently, created a false incentive to pay immediately, when such an immediate payment did not necessarily have a financial benefit to the debtor.
Even though the defendant used the suggested language, it did so in an inaccurate and misleading manner, suggesting it could add charges to the consumer’s debt it had no legal right to impose. Thus, the court rejected the argument that debt collectors can immunize themselves with verbatim use of such safe harbor language. The language suggested by the court may not apply in all circumstances.
