A collection letter violated the Fair Debt Collection Practices Act (FDCPA) because it stated that the debtor could only dispute the debt in writing, the U.S. Court of Appeals for the Fourth Circuit has ruled. The Fourth Circuit joins two other circuits that have made similar rulings.

In Clark v. Absolute Collection Service, Incorporated, the Fourth Circuit vacated the district court’s dismissal of a putative class action complaint for failure to state a claim. Declining to “disregard the statutory text,” the court held that the FDCPA does not require a written dispute to avoid an assumption by the debt collector that the debt is valid. The Fourth Circuit distinguished language in different portions of FDCPA Section 1692g, with certain portions requiring written disputes or requests from debtors for various rights to apply and another portion dealing with when a debt will be assumed to be valid.

Section 1692g requires a debt collector to send a written “validation notice” to a consumer within five days of the collector’s initial collection attempt and specifies what information the notice must contain. This section requires the notice to include statements that if the consumer disputes a debt in writing or makes a written request for the name and address of the original creditor, the collector will provide verification of the debt or the requested information. This section also requires a debt collector to cease all collection efforts if it receives a written dispute or information request until the verification or information is provided.

Section 1692g also requires the validation notice to include a statement that the debt will be assumed to be valid by the debt collector unless the consumer disputes the debt within 30 days. It is silent, however, on what form the dispute must take to avoid that assumption.

The Fourth Circuit rejected the collector’s argument that, for consistency with Section 1692g’s other dispute mechanisms and to avoid consumer confusion, the section must be read to require a written dispute for a debt not to be assumed valid. It observed that an oral dispute triggers consumer protections that are independent of the protections triggered by other portions of Section 1692g that expressly require a written dispute. According to the Fourth Circuit, if a debt is orally disputed, a debt collector must disclose that the debt is disputed when communicating the debtor’s credit information to others. If the debtor owes multiple debts, the collector cannot apply a payment made by the debtor to the disputed debt.

The Fourth Circuit also found that its conclusion was consistent with “well-established principles of statutory construction” that required the court to “give effect, if possible, to every clause and word of a statute.” In the court’s view, it would violate those principles if the court were to rely on the written dispute requirement in certain portions of Section 1692g to read such a requirement into the portion of Section 1692g that addresses when a debt will be assumed valid.

Observing that the issue of whether the FDCPA requires a written dispute was one of first impression in the Fourth Circuit, the court noted that its decision was consistent with decisions of the Second and Ninth Circuits in 2013 and 2005, respectively. (The Second Circuit decision was the subject of a prior legal alert.) It also noted that the Third Circuit had reached the opposite conclusion in a 1991 decision, ruling that a debtor must send a written statement to effectively dispute a debt. (Based on that decision, the Third Circuit held in a March 2013 decision that a collection letter violated the FDCPA because its invitation to call a toll-free number could be read to permit the debt to be effectively disputed by telephone.)

Members of Ballard Spahr’s Consumer Financial Services Group regularly consult with their clients engaged in consumer debt collection on compliance with the FDCPA and state debt collection laws. The Group has created a team of lawyers who are helping debt collectors and debt buyers prepare for Consumer Financial Protection Bureau examinations and respond to CFPB civil investigative demands.

The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, John L. Culhane, Jr., at 215.864.8535 or culhane@ballardspahr.com, Collection Documentation Task Force Chair Christopher J. Willis at 678.420.9436 or willisc@ballardspahr.com, Glen P. Trudel at 302.252.4464 or trudelg@ballarspahr.com, Stefanie H. Jackman at 678.420.9490 or jackmans@ballardspahr.com, or Heather S. Klein at 215.864.8732 or kleinh@ballardspahr.com.


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