Consumer Finance Litigation

Imagine your company or client was sued for an alleged violation of the Florida Consumer Collections Practices Act ("FCCPA"). The plaintiff has an outstanding debt that is greater than the damages sought in the FCCPA action. Consequently, you want to know if you can counterclaim to setoff (or "offset") the damages sought in the FCCPA lawsuit from the underlying debt. Though the Eleventh Circuit does not provide steadfast answers, it sheds some light on the topic, albeit in a bankruptcy context. In Brook v. Chase Bank USA, N.A., 566 F. App'x 787 (11th Cir. 2014), the Eleventh Circuit held that a bankruptcy court acted within its discretion in refusing to allow a credit card issuer to setoff its obligation to the debtor for damages under the FCCPA against prepetition credit card debt that was ultimately discharged in the debtor's Chapter 7 case. In doing so, the Eleventh Circuit reversed Judge Merryday's district court ruling in In re Acosta-Garriga, 506 B.R. 149 (M.D. Fla. 2013), which held that, among other reasons, the bankruptcy court had no right to disallow, on public policy grounds, Florida's preference for the entry of a single judgment through a setoff. The Eleventh Circuit agreed with the district court that while the allowance of a setoff lies within the discretion of a bankruptcy court, substantive state law determines the validity of the right to setoff under the Bankruptcy Code. In addition, all three courts agreed that Florida law is silent as to whether an obligation incurred under the FCCPA can be set off against a pre-petition debt. The disagreement between the courts occurs when they try to interpret this silence in the law. Where the district court interpreted the silence to mean that any FCCPA obligation must be setoff against pre-petition debt, the Eleventh Circuit explained that "[a]s long as Florida law neither mandates nor prohibits set off under the FCCPA - and it does not - it is entirely within the bankruptcy court's discretion whether to allow set off under the circumstances of the case." The Appellate Court noted the policy reasons as to why the bankruptcy court declined to setoff the FCCPA award against the credit card debt. The bankruptcy court reasoned that the FCCPA is a penal statute designed to deter bad collections practice, and if a creditor can simply set off an FCCPA award against the outstanding debt, there would be little to no incentive to comply with the FCCPA. Further, the bankruptcy court was concerned that allowing a creditor a setoff in this circumstance would "reward" the creditor's illegal actions by giving it a "shortcut in the collection process." Though this case arose in a bankruptcy context, it may have an impact in non-bankruptcy actions because setoff is a state right, the FCCPA is a state statute, and because the bankruptcy court primarily relied on policy arguments that would be applicable in non-bankruptcy actions. It remains to be seen if Florida state courts will accept policy arguments rejecting setoff counterclaims in an FCCPA action. For what it is worth, federal courts in the Eleventh Circuit have mostly rejected similar policy arguments concerning the Fair Debt Collection Practices Act, thereby demonstrating a willingness to accept jurisdiction over setoff counterclaims, which are permissive in federal court.