Second Circuit tells debt collectors to notify debtors of interest, late fees

By Mark Powell | May 9, 2016

NEW YORK (Legal Newsline) - The U.S. Court of Appeals for the Second Circuit updated a section of the Fair Debt Collection Practices Act in a March ruling, prohibiting debt collectors from misleading consumers as it pertains to their debt and interest.

The court found in Avila v. Riexinger and Associates, LLC that debt collectors need to be more specific when notifying consumers of the impending monetary sum and must include up-to-date interest and fee amounts.

“I’m not sure I see a significant change in practices here except that debt collectors are now required to follow the law,” said Ira Rheingold, executive director of the National Association of Consumer Advocates.

“I’m glad they got it right, and I don’t think it’s too much of a burden to debt collectors.”

The Avila plaintiffs did not receive such a notice. They believed that the balance received on their mail was a standing, or static amount. They claimed they didn't know know that they were accruing more interest daily, as well as late fees.

A federal district court held with others that had decided to dismiss the plaintiff’s claim, saying that no such notice of outstanding interest was required.

The second court, however, dismissed this ruling, stating that because the FDCPA was written to protect consumers, it must act accordingly.

“I think the Second Circuit ruling is common sense,” Rheingold said. “It sits within the spirit of what the FDCPA is supposed to do.”

The court believes that section 1692e must specifically develop a standard that even the most inconclusive person can understand. That is, when notifying consumers of debt, collectors must now define specifically how much money is due on that date, including interest.

They must also include how much that interest will increase daily, monthly, etc., should the consumer not pay at the earliest possible date.

Section 1692e specifically dictates how companies should notify consumers on impending debt. The updated version is meant to protect debt collectors as well as consumers. The Second Circuit has developed a template for companies to follow when they are notifying consumers of debt. The notification is as follows:

“As of the date of this letter, you owe $____ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1-800-[phone number].”

New clarifications to the law could make it easier for debt collectors to avoid lawsuits. By following this model, the hope is that debtors will have transparency when making payments.

“We always talk about more transparency, and how having more of it is a good thing,” Rheingold said. “The court basically said, 'If you don’t want to break the law here’s what you can do.’”

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