7th Circuit’s FDCPA “safe harbor” language does not save debt collector

In Boucher v. Financial System of Green Bay, Inc., No. 17-2308 (7th Cir. Jan. 17, 2018), the plaintiff-debtor sued a debt collector under the FDCPA alleging that debtor’s dunning letters were false and misleading because they threatened to impose “late charges and other charges” that could not lawfully be imposed under Wisconsin law. The debtors also alleged the letter would cause unsophisticated consumers to incorrectly believe they will avoid such charges, and thus benefit financially, if they immediately send payment.

The debt collector moved to dismiss arguing that it complied with the FDCPA as a matter of law because the challenged statement mirrored the safe harbor language that the Seventh Circuit instructed debt collectors to use in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, LLC, 214 F.3d 872 (7th Cir. 2000). In Miller, the Court held that a debt collector violates the FDPCA where the stated debt amount does not include accrued but unpaid interest and other charges. In an effort to minimize litigation, the Court fashioned safe harbor language which takes into account the amount of the debt and that it may be greater on the day it is paid. A debt collector who uses this language will not violate the “amount of debt” provision, provided, of course, the information furnished is accurate.

The debt collector also argued that although it may not lawfully impose “late charges and other charges,” the reference to such charges was not materially misleading because it was still entitled to charge interest which would change the amount owed. The district court agreed with both arguments and dismissed the suit.
Debtor appealed and the Seventh Circuit reversed. It found the challenged statement was misleading to an unsophisticated consumer. While creditors of medical debts may charge interest, it cannot impose “late charges and other charges” under Wisconsin law. Therefore, the dunning letter falsely implied a possible outcome that cannot legally come to pass.

The challenged statement was also material because it would influence an unsophisticated consumer’s decision to pay the debt. “Of course, debtors always have some incentive to pay variable debts as quickly as possible, regardless of the source of variability” but this incentive is even greater if the debt collector threatens to impose “’late charges and other charges’” in addition to interest. Regardless of the amount, an unsophisticated consumer would understand that additional charges could further increase the amount of debt owed, thus potentially making it more costly for the consumer to hold off on payment. Because defaulted consumers must often make difficult decisions about how to use scarce financial resources, it is plausible that the fear of “late charges and other charges” might influence these consumers’ choices. Thus, even if these additional charges were minimal, they are still material because they would be a factor in the decision-making process.

Regarding the debt collector’s safe harbor argument, the Court held that it immunizes debt collectors from liability not only under § 1692g(a), but also under § 1692e. But it does not immunize the debt collector from liability where the letter is otherwise inaccurate. In this case, the use of the safe harbor language was inaccurate because the debt collector could not lawfully impose “late charges and other charges.” It is no answer to simply cut and paste the boilerplate language into a debt collection letter to secure immunity, the debt collector must still assure that the information provided in the letter is accurate.

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