Creditor’s Claim That It May Recover Attorney Fees Violated FDCPA Where Recovery Of Fees Was Not Authorized By The Agreement Or Under The Law

In Lox v. CDA, Ltd. (No. 11-2729, 7th Cir., August 2, 2012), a consumer sued a debt collector alleging that the collector included a warning in a dunning letter for unpaid doctor’s fees that if the consumer failed to pay his debt within 48 hours a lawsuit could be brought against him and if the court awarded judgment, the court could allow court costs and attorney fees. The consumer claimed that representing that fees may be recoverable was false and misleading under section 15 U.S.C. 1692e of the Fair Debt Collection Practices Act (FDCPA). Following discovery both parties moved for summary judgment. The consumer argued that his agreement to pay the doctor’s fees did not authorize recovery of attorney fees. Under the American Rule, a losing party cannot be charged with the winning party’s attorney fees without a contract provision or a statute explicitly allowing fees. Therefore, the collector’s threat that the court could award attorney fees was false and misleading. The trial court denied the consumer’s motion for summary judgment and granted summary judgment to the collector, finding that: (1) the letter did not state a specific amount of attorney fees that would be owed; and (2) based on the conditional language used in the letter no reasonable consumer could have believed that he owed more than the debt due. The consumer appealed. In reversing the trial court the appellate court accepted the consumer’s argument that the statement in the dunning letter that the court could award fees was false because the agreement with the doctor did not allow for fees. The collector could not show that it could have been awarded attorney fees if it were successful in a lawsuit to recover the debt. The appellate court also found that the statement was misleading on its face because an unsophisticated consumer is likely to believe that attorney fees were a potential consequence of nonpayment. The misleading statement was material because the statement influenced the consumer’s decision whether to pay immediately or to contest the debt, i.e., because it required the consumer to consider that if he lost contesting the debt he would have had to pay the collector’s attorney fees.

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