Everything's harder in New
York, even collecting a debt.
In Hooks v. Forman, Holt,
Eliades & Ravin, LLC, --- F.3d ---, 2013 WL 2321409 (May 29, 2013), the
Second Circuit Court of Appeals ruled that letters stating that debtors could
only dispute debts in writing and not orally violated the Fair Debt Collection
Practices Act, 15 U.S.C. §§1592, et seq.
("Act") "debt validity notice provision".
Thus, unlike Third Circuit
states like Pennsylvania and New Jersey, New York debtors may derail debt
collection efforts with a phone call or voice mail arguing that they don't owe
any money.
Because this Second Circuit
holding contradicts the Third Circuit's "consumer debtor must send a
written statement to contest debt's validity" requirement, until issue is
resolved by the United States Supreme Court mayhem will ensue.
Act's "Disputing
Validity of Debt" Notice Requirement
The Act regulates "debt
collection activity" on "family, personal or household purposes"
transactions and defines a “communication” as the “conveying of information
regarding a debt directly or indirectly to any person through any medium. 15 U.S.C. §1692(a).
The Act requires a debt
collector to send a written notice to any consumer debtor with whom it
communicates in connection with the collection of a debt containing “a
statement that unless the consumer, within thirty days after receipt of the
notice, disputes the validity of the debt, or any portion thereof, the debt will
be assumed to be valid by the debt collector.” 15 U.S.C. §1692g(a)(3).
Although it fails to specify
whether the consumer's disputation must be written, the Act provides that if
the consumer “notifies the debt collector in writing” that the debt is disputed,
the debt collector must “cease collection of the debt, or any disputed portion
thereof" until the debt collector mails verification of the to the debt
collector and, upon the consumer's "written request", provide the
original creditor's name and address if different from the current
creditor. 15 U.S.C. §1692g(a)(4)&(5).
Hooks v. Forman Opinion
After failing to make
timeshare mortgage payments, the Hooks v. Forman consumers received a
collection notice letter setting forth that unless "written notice"
disputing the debt was received within 30 days, the debt collector would
presume the debt was valid ("Notice").
The consumers sued the debt
collectors in the United States District Court for the Southern District of New
York alleging that because it required that a challenge to the debt's validity be
made in writing, the Notice failed to comply with §1692g(a)(3) of the Act. The District Court granted the debt collector's
dismissal motion concluding that a notice requiring that disputes must be
presented in writing does not violate §1692g(a)(3).
In vacating the district
court’s complaint dismissal, the Second Circuit held that under the statute's “straightforward
language”, the Act does not require a written dispute to avoid an assumption by
the debt collector of the debt's validity.
The Second Circuit
distinguished language in different portions of §1692g, some portions of which require
written disputes or requests from debtors for various rights to apply, from
that which deals with a debt's presumed validity holding that because “[t]he
right to dispute a debt is the most fundamental” of those set forth in §1692g
and “it was reasonable to ensure that it could be exercised by consumer debtors
who may have some difficulty with making a timely written challenge”, requiring
consumers to take extra step of putting a dispute in writing before claiming
“the more burdensome set of rights” afforded by §1692g (like requiring all debt
collection efforts to cease) made sense.
Circuit Split Requires Supreme Court "Debt
Disputation" Clarification
While whether a "debt
disputation" may be oral or must be in writing is an issue of first
impression for the 2nd Circuit, two (2) other circuits have considered the
issue reaching different conclusions.
In Graziano v. Harrison,
950 F.2d 107 (3d Cir. 1991), the Third Circuit concluded that a consumer debtor must send a written statement
to contest the debt's validity holding that "reading §1692(a)(3) not to
impose a writing requirement would result in an incoherent. system in light of
the explicit writing requirements in §§ 1692g(a)(4), 1692g(a)(5), and 1692g(b)".
Conversely, in Camacho v.
Bridgeport Financial, Inc., 430 F.3d 1078 (9th Cir. 2005), the Ninth
Circuit concluded that a consumer debtor need not send a writing to contest the
debt under §1692g(a)(3) for reasons including that the Act's contrasting
explicit writing requirements "showed that Congress did not intend to
impose a writing requirement".
