Fair Debt Collection Practices Act's "Debt Validity Notice Requirement

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".