7th Cir. Holds Debt Collector Violated FDCPA Despite Using Miller Safe Harbor Language

This article previously appeared on the Maurice Wutscher Consumer Financial Services Blog and is republished here with permission.

The U.S. Court of Appeals for the Seventh Circuit recently held that “debt collectors cannot immunize themselves from FDCPA liability by blindly copying and pasting the Miller safe harbor language” where that language is inaccurate under the circumstances.

Accordingly, the Seventh Circuit reversed the trial court decision granting the debt collector’s motion to dismiss.

A copy of the opinion in Boucher v. Finance System of Green Bay, Inc. is available here.

The plaintiff debtors were Wisconsin residents who incurred and defaulted on debts for medical services.  Their creditors sold those debts to the defendant collection agency, which in turn sent the debtors a letter with the following statement:

“As of the date of this letter, you owe $[a stated amount].  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.  Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check.  For further information, write to the above address or call [phone number].”

The debtors filed a complaint alleging the letter was false because under Wisconsin law, the agency could not lawfully or contractually impose “late charges and other charges.”  The debtors further alleged that the letter “causes unsophisticated consumers to incorrectly believe that they will avoid such charges, and thus benefit financially, if they immediately send payment.”  The debtors claimed the letter was therefore false, misleading, and deceptive in violation of section 1692e of the Fair Debt Collection Practices Act.

The agency filed a motion to dismiss arguing that it complied with the FDCPA as a matter of law because the allegedly false statement tracked the safe harbor language provided by the Seventh Circuit in Miller v. McCalla, Raymar, Padrick, Cobb, Nichols, & Clark, LLC, 214 F.3d 872 (7th Cir. 2000).  The agency further argued that although it was not lawfully entitled to impose “late charges and other charges,” reference to such charges was not materially misleading because it was entitled to charge interest.

The trial court granted the motion to dismiss, and the debtors appealed.

On appeal, the Seventh Circuit first analyzed whether the letter was “materially false, misleading, and deceptive” in violation of section 1692e.  In determining that it was, the court first looked to the language of the letter, which provided: “[b]ecause 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.”

Although it did charge interest, the agency admitted that it could not impose “late charges or other charges” under Wisconsin law.  “Therefore, the dunning letter falsely implies a possible outcome – the imposition of ‘late charges and other charges’ – that cannot legally come to pass.”  Thus, the statement was “misleading to an unsophisticated consumer because ‘[t]his is not the type of legal knowledge we can presume the general public has at its disposal.’”

The Court next analyzed the issue of whether the challenged statement was material – i.e., whether it “would influence an unsophisticated consumer’s decision to pay the debt.”  The agency argued that it was not, because the debt was variable, and “[a]ny consumer who owes a variable debt must decide whether to pay sooner than later to avoid that variance, regardless of whether any increase in the amount of the debt is due to the addition of interest, late charges, other charges, or some combination thereof.”

The Seventh Circuit disagreed, ruling that “an unsophisticated consumer understands that these additional charges could further increase the amount of debt owed, thus potentially making it ‘more costly’ for the consumer to hold off on payment.”  Thus, “it is plausible that the fear of ‘late charges and other charges’ might influence these consumers’ choices,” and therefore the statement is material.

Next, the Court addressed the issue of whether the Miller safe harbor applied.  In deciding the issue, the court first discussed the Milleropinion, which dealt with a violation of section 1692g(a)(1) of the FDCPA, which requires debt collectors to send consumers written notice containing “the amount of the debt.”  The Miller court determined that debt collectors are not excused from the requirements of section 1692g(a)(1) simply because the amount of the debt might change daily, but “in an effort to minimize litigation,” the court fashioned “safe harbor” language for debt collectors to use if the amount is variable.

The Miller court ruled that although debt collectors are not required to use the language, “[a] debt collector who uses this form will not violate the ‘amount of debt’ provision, provided, of course, that the information he furnishes is accurate and he does not obscure it by adding confusing other information (or misinformation).”

However, as the Miller case only dealt with section 1692g(a)(1), there was initially a question of whether it even applied to section 1692e.  The Seventh Circuit agreed with numerous district court decisions, and determined that the safe harbor language does apply to section 1692e.

Still, the Court then noted that “even if a debt collector may generally rely on the safe harbor language to avoid liability under § 1692e, Miller’s accuracy requirement still applies.”

In this instance, the agency’s “use of the safe harbor language was inaccurate because [the agency] could not lawfully impose ‘late charges and other charges.’”  Thus, the agency was not entitled to safe harbor protection under Miller.

Accordingly, the Seventh Circuit held that “debt collectors cannot immunize themselves from FDCPA liability by blindly copying and pasting the Miller safe harbor language without regard for whether that language is accurate under the circumstances.”  The Court therefore reversed the decision of the trial court.