Locke Lord QuickStudy: Are Debt Collectors Back Between a Rock and a Hard Place?

Locke Lord LLP
June 25, 2018

In March, Judge Sara L. Ellis of the United States District Court for the Northern District of Illinois dismissed a Fair Debt Collection Practices Act (FDCPA) lawsuit in which the plaintiff asserted that a debt collection letter that contained line items of $0.00 for interest and other charges was deceptive because it falsely implied that interest and other charges could accrue in the future. Judge Ellis found that any other ruling would “place[] debt collectors between a rock and a hard place, where they cannot simply list the amount owed, for fear of being misleading, but likewise, cannot breakdown the amount into categories either, for fear of being misleading.” We wrote about that decision, Delgado v. Client Services, Inc., 2018 WL 1193741 (N.D. Ill. Mar. 8, 2018), here.

It did not take long for Judge Ellis’s decision to be challenged in the increasingly consumer-friendly Northern District. On June 13, 2018 in Clarence Wood v. Allied Interstate, LLC, 17-cv-4921, Judge Gary Feinerman denied defendant Allied Interstate, LLC’s motion to dismiss a virtually identical FDCPA claim.
Allied sent Wood a debt collection letter on a defaulted debt that included an “account listing” indicating a principal balance of $2,827.24, interest of $0.00 with a 0% rate, fees of $0.00, collection costs of $0.00, and a total amount owed of $2,827.24. The interest, fees, and collection costs were $0.00 because, as both parties agreed, interest, fees, and collection costs were not recoverable.

Wood brought claims under the FDCPA and Illinois Collection Agency Act, contending that by including the $0.00 line items for interest, fees, and collections costs, Allied falsely and deceptively suggested that interest, fees, and collection costs would begin to accrue if Wood did not promptly pay the principal balance.

Allied moved to dismiss and appealed to common sense, arguing that an unsophisticated consumer would not see the balances of $0.00 and plausibly presume that those balances would increase upon non-payment. Judge Feinerman disagreed, noting that a “dunning letter is false and misleading if it impl[ies] that certain outcomes might befall a delinquent debtor when, legally, those outcomes cannot come to pass.” Here, Allied could have declined to separately itemize interest, fees, and collections costs, or stated “N/A” instead of “$0.00.”  Judge Feinerman inquired, “[w]hy, after all, would Allied include a column for fees and collection charges, and insert a dollar figure ($0.00), if not to suggest that such fees and costs might possibly accrue in the future?”

Were she able to respond to Judge Feinerman’s rhetorical inquiry, Judge Ellis may note that if Allied followed Judge Feinerman’s suggestion and removed any reference to interest, fees, and collection costs, it would likely have faced a slightly different FDCPA lawsuit alleging that its letter was deceptive because it omitted critical information and failed to provide Wood with a complete picture of his obligations. And while Judge Ellis may agree that “N/A” would be the more preferable description, she might also note (as she did in Delgado) that Congress did not intend the FDCPA to “essentially turn debt collectors into a modern-day version of Goldie Locks, who cast about searching for the letter that is just right, not listing too little information or too much.”

Continuing his FDCPA analysis, Judge Feinerman distinguished two Seventh Circuit decisions: Chuway v. National Action Financial Services, Inc., 362 F.3d 944 (7th Cir. 2004) and Field v. Wilber Law Firm P.C., 383 F.3d 562 (7th Cir. 2004). Allied argued that its letter complied with the Seventh Circuit’s suggested language for debts of fixed amounts set forth in Chuway, but Judge Feinerman held that Chuway “does not apply where, as here, the debt collector’s communications improperly imply that the ‘fixed amount’ it wishes to collect might increase.” Allied also argued that it complied with Field by itemizing the charges, but Judge Feinerman held that itemization is only necessary when there are various components to itemize, which was not the case here.

Judge Feinerman concluded his FDCPA analysis by finding that Wood plausibly pleaded that the deception was material because it was intended to induce him to pay the debt quickly. Judge Feinerman thus denied Allied’s motion to dismiss the FDCPA count.

Judge Feinerman’s decision is interlocutory and thus not immediately appealable to the Seventh Circuit. But Judge Ellis’s ruling in Delgado is already up on appeal, so debt collectors should not have to wait long for a resolution of this conflict. Nevertheless, in the interim, debt collectors will remain “between a rock and a hard place,” unsure of whether and how to specifically itemize a fixed debt. Our advice: continue to itemize the debt but if an item is zero and cannot increase in the future, denote it with an “N/A.”