Triple-Whammy Petition Before U.S. Supreme Court: Written Requirement for Disputes, Reason for Dispute, and Whether “Least Sophisticated Consumer” is a Question of Law or Fact

There seems to be a flurry of petitions for the U.S. Supreme Court (Supreme Court) to hear cases related to debt collection, but the most recent one takes the cake for having the likelihood of most impact to debt collectors. On December 17, 2018, a consumer -- who just so happens to be a practicing attorney -- filed a request for the Supreme Court to review Huebner v. Midland Credit Management, on appeal from a Second Circuit decision. The case was docketed at the Supreme Court as case no. 18-991 on January 30, 2019, and a response to the petition is due March 1, 2019.

The petition seeks input from the Supreme Court on three questions:

Whether a consumer’s dispute needs to be in writing in order for it to trigger the Fair Debt Collection Practices Act (FDCPA);
Whether a debt collector can inquire about the reason for the consumer’s dispute; and
Whether the least sophisticated consumer standard is a question of law or a question of fact.

If the Supreme Court grants the petition and hears the case, its decision will be binding nation-wide.

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Written v. Oral Dispute

As previously reported on insideARM, there is a jurisdictional split about whether all subsections of 1692g require a dispute to be made in writing. According to the Third Circuit in Graziano v. Harrison, all disputes need to be in writing in order to trigger the FDCPA -- an issue that prompted an open letter to the Consumer Financial Protection Bureau. However, according to the petition, the majority of circuits have rejected Graziano. Specifically, the First, Second, Fourth, Sixth and Ninth Circuits all found that an oral dispute can trigger FDCPA protection. The First, Fifth, and Seventh Circuits have gone even further and found that there is a “know or should know” standard for disputes -- if the debt collector has any reason to know that the account is in dispute, regardless of whether the consumer communicated the dispute to the debt collector, then the FDCPA is triggered.

The petition notes that the Supreme Court recognized the conflict when it reviewed Jerman v. Carlisle back in 2010, but the court did not rule on the issue, which persists to this day.

Reason for Dispute

Some debt collectors ask “probing questions” in order to better respond to a consumer’s dispute. The petition argues that debt collectors usually receive little more than a spreadsheet of basic information about accounts (names of consumers, addresses, amounts owed, etc.). If a debt collector, who is the more knowledgeable party, asks for a reason for the dispute, the debt collector could use it to harass the consumer and convince the consumer that the debt is owed.

Per the petition, the underlying Second Circuit decision created yet another jurisdictional split. The First, Second (pre-Huebner), Fifth, and Seventh Circuits preclude a debt collector from requiring the consumer to disclose why he is disputing. However, in the underlying Second Circuit case, the court found the opposite -- some questions to determine the reason for dispute are okay if they are not harassing or abusive.

Question of Law or Fact

The final jurisdictional split mentioned in the petition relates to whether the evaluation of the least sophisticated (or unsophisticated) consumer standard is a question of fact or a question of law. According to the Sixth, Seventh, and Eleventh Circuits and the States of New York, Maryland, and California, it is a question of fact. On the other hand, the Second, Third, Fourth, Fifth, Ninth, and Tenth Circuits and the State of Oklahoma treat it as a question of law.

insideARM Perspective

If the Supreme Court decides to review this case, it would have a significant impact on the industry for two different reasons.

First, it would provide clarity to the dispute process under the FDCPA -- a process complicated by the Third Circuit and a flurry of court decisions in the Eastern District of Pennsylvania. The Supreme Court's decision would alleviate the current confusion about whether or not a dispute under 1692g, specifically under subsection (a)(3), needs to be in writing. It would also help set the path for what a debt collector can and cannot do once a dispute is received.

Second, it could have an impact on FDCPA litigation defense costs. Whether or not the least sophisticated consumer evaluation is a question of law or fact will ultimately determine at what stage of litigation certain FDCPA cases can be disposed of. If it is a question of fact, then whether or not a communication is deceptive or misleading needs to be decided at trial, usually by a jury. If it is a question of law, then the judge can decide it as early as at the Motion to Dismiss stage. The earlier the stage of litigation, the less it costs for a debt collector to defend against FDCPA litigation.

Now we wait to see if the court accepts the case.