Editor's note: This article has been revised from an eariler version, to more clearly differentiate the explanations of the Seventh Circuit's decision offered by the interviewed attorneys from the opinions of the attorneys themselves, and to clarify the attorneys' note concerning the future use of this decision by the plaintiffs' bar, and not individual plaintiffs themselves.
CHICAGO — A federal appeals panel has affirmed a judgment for debtors in a dispute with a debt collector over whether a debt was actually disputed, and the decision only continues a trend within Chicago's federal courts of moving the needle in such cases in favor of those owing disputed debts, said lawyers following such cases.
“The decision itself does not radically change the playing field for debt collectors or consumers,” said attorney Doug Sargent, of the Chicago firm of Locke Lord, who has been following the underlying case and others like it. “The playing field has been tilting away from debt collectors in the Northern District of Illinois and the Seventh Circuit for some time, and this decision is just a continuation of this trend.”
In the case docketed as Evans v. Portfolio Recovery Associates LLC, a three-judge panel of the U.S. Court of Appeals for the Seventh Circuit affirmed a summary judgment in favor of debtors who claimed a debt collector violated the Fair Debt Collection Practices Act (FDCPA) when it communicated the debts to credit reporting agencies without noting the debts were disputed.
The debt collector had received letters from a legal clinic representing the debtors stating the amounts allegedly owed were not accurate, but the collector allegedly did not make this known to the credit agencies.
Sargent and his colleague at Locke Lord, Ryan Holz, said the appeals court affirmed a lower court's decision because the consumers in the case faced the risk of “real financial harm.”
“The ... case involved four district court cases in which four consumers sent Portfolio Recovery Associates a letter about an outstanding debt, each indicating they could not pay the debt because they were insolvent and the amount reported is not accurate,” said Sargent. “Portfolio Recovery did not deem the letters to dispute the outstanding debts and did not report the debts as disputed to the consumer reporting agencies. Each consumer sued Portfolio Recovery for violation of the FDCPA.”
Sargent said the Seventh Circuit found the letters constituted a debt dispute under the rules of the FDCPA.
He noted the court found "the failure to report a debt as disputed is always a 'material' violation of the FDCPA" and “Portfolio Recovery’s violation was not a bona fide error because it was an error in the legal interpretation of the dispute letters, not an error of fact.”
Sargent said the decision complicates affairs for debt collectors because it lowers the bar for what is required to dispute a debt under the FDCPA.
Holz said legal challenges like this case is simply part of the business of debt collection.
“The issue is... predictability,” he told the Cook County Record. “Debt collectors are always going to be sued, but if the laws are clear and consistently applied, debt collectors can build the inherent litigation into their business model.”
Holz said the decision does not mean debtors should expect to "avoid paying an otherwise valid and enforceable debt."
“The decision may, however, embolden the plaintiffs bar to bring new legal theories to challenge debt collection practices," he said.
Holz said debt collectors should carefully scrutinize communications for any hint of a disputed debt.
“Debt collectors should err on the side of caution and report any such debts as disputed to the consumer reporting agencies,” he said.