Consumer Finance Litigation

In Hernandez v. Williams, Zinman & Parham PC, No. 14-15672, -- F.3d --, 2016 WL 3913445 (9th Cir. July 20, 2016), the Ninth Circuit Court of Appeals held that each subsequent debt collector is required to send a § 1692g(a) validation notice within five days of its initial communication with a consumer, even if the validation notice has been previously provided to the debtor by another debt collector for the subject debt. The Ninth Circuit's ruling is the first published opinion by a federal court of appeals addressing this issue.[1]

The ruling interpreted section 1692g(a) of the Fair Debt Collection Practices Act ("FDCPA"), which requires debt collectors to send consumers a written validation notice "[w]ithin five days after the initial communication with a consumer in connection with the collection of any debt." See 15 U.S.C. § 1692g(a). The validation notice must inform consumers that, among other things, the debt collector will verify the debt if the consumer disputes it in writing and that, upon the consumer's written request, the debt collector will provide the name and address of the original creditor. See 15 U.S.C. § 1692g(a)(4)-(5).

Hernandez alleged that the law firm Williams, Zinman & Parham PC ("WZP") violated § 1692g by failing to state in its validation notice that any dispute or request for information had to be in writing. WZP argued that it was not subject to the requirements of § 1692g(a) because there could only be one "initial communication" to a debtor about any given debt, and a prior debt collector had already sent a validation notice after its initial communication with Hernandez. Therefore, WZP argued, WZP was not subject to the validation notice requirement. The district court agreed, and granted summary judgment in favor of WZP.

On appeal, the Ninth Circuit reversed, holding that each and every debt collector is required to send a validation notice following its first communication with a consumer, and this duty extends to each subsequent collector that collects on the same debt. The court found the phrase "the initial communication" to be ambiguous as to whether it "refers to the first communication ever sent about the debt or the first communication sent by each and every debt collector seeking to collect it." Id. at *5. When considered in the context of the entire FDCPA, however, the Ninth Circuit found that § 1692g(a) clearly applies to each debt collector anew. The court explained that Congress intended "to impose obligations and restrictions on all debt collectors throughout the entire debt collection process." Id. at *6. Had Congress desired to differentiate between the obligations of the first debt collector and all debt collectors, Congress would have made the distinction explicit. See id. The court found the lack of such a distinction to be "consistent with the FDCPA's broad imposition of requirements on all debt collectors throughout the lifecycle of a debt." Id. at *7.

The Ninth Circuit further determined that WZP's interpretation of §1692g(a) "create[d] a significant structural problem in the [FDCPA]." Id. The court explained that under WZP's interpretation, once a debtor disputed the debt with the initial debt collector, the initial debt collector could sell the debt to another debt collector who was not bound by the validation notice requirement of § 1692g(a). Once the debt was sold, "the consumer would be effectively unable to obtain the information necessary to verify or dispute [the] debt," which "would render §1692g almost a nullity." Id. The court also found that requiring all debt collectors to send validation notices is "more in keeping with the FDCPA's declared purpose of protecting consumers from abusive debt collection practices." Id. *8. The court explained that the FDCPA's purpose is advanced when consumers have more than one opportunity to verify, dispute, and review their debts. In other words, requiring each new debt collector to send a validation notice helps to ensure that information is neither lost nor incorrectly added to the record of a debt.

The Ninth Circuit therefore concluded "that the FDCPA unambiguously requires any debt collector-first or subsequent-to send a § 1692g(a) validation notice within five days of its first communication with a consumer in connection with the collection of any debt." Id. at *10. The court's ruling will require debt collectors to make sure that they independently comply with the requirements of § 1692g, even if they are the last in a long line of debt collectors who have already provided the validation notice to the same consumer regarding the same debt. Given that the Ninth Circuit was the first to address this issue, debt collectors will have to wait and see if other circuit courts of appeals will follow suit, or whether the Ninth Circuit will be an outlier on this issue.

[1] Two federal circuit courts of appeals have held in unpublished decisions that the requirements of § 1692g do not apply to a subsequent debt collector. See Lee v. Cohen, McNeile & Pappas, P.C., 520 F. App'x 649 (10th Cir. 2013) (unpublished); Oppong v. First Union Mortg. Corp., 326 F. App'x 663 (3d Cir. 2009) (per curiam) (unpublished).