Consumer Finance Litigation

On October 5, 2012, the U.S. District Court for the Eastern District of Tennessee analyzed the interplay between the debt collection industry and certain provisions of the Truth-in-Lending Act ("TILA") that require "creditors" to send monthly account statements to borrowers. In King v. AllianceOne Receivables Mgmt., Inc., No. 2:12-CV-314, 2012 WL 4758220, at 2-3 (E.D. Tenn. Oct. 5, 2012), the defendant debt collector sent a collection letter on behalf of the creditor. The letter stated:

As of the date of this letter, you owe $888.45. Your account balance may be periodically increased due to the addition of accrued interest or charges if so provided in your agreement with your original creditor.

The plaintiff debtor alleged that the single letter violated both the Fair Debt Collection Practices Act ("FDCPA") and the TILA. In response to the Complaint, the defendant filed a motion to dismiss, pursuant to Fed. R. Civ. P. 12(b)(6), arguing that the Complaint failed to state a claim upon which relief could be granted. The district court first addressed the plaintiff's FDCPA claims, which were premised on the plaintiff's argument that it was:

impossible to determine from the letter the exact amount owed on [the date of the letter], given that it referenced additional interest or other charges, without stating any specific amounts, and did not expressly state as of what date the balance owed is due or what impact payment of the stated amount would have on the consumer's obligation to pay later-accruing interest or other charges.

See King, 2012 WL 4758220, at 1 (citing Plaintiff's Complaint, ¶ 17). The plaintiff argued that 15 U.S.C. § 1692g(a)(1) was violated, which requires the initial communication from the debt collector, or a follow-up notice written within five days thereafter, to contain "the amount of the debt." The court granted the defendant's motion to dismiss the FDCPA claims, relying on a quotation contained in its prior decision in Ivy v. Nations Recovery Ctr., No. 2:12-CV-037, 2012 WL 2049308, at 1-2 (E.D. Tenn. June 6, 2012): The requirement that a validation notice correctly state the amount of the debt has produced conflicting judicial opinions. Some courts have held that a validation notice fails to satisfy the statute unless it states the total amount due as of the date the letter is sent and also discloses whether the amount of the debt will increase due to interest.... [O]ther courts have held that a validation notice satisfies the statute if it states the total amount of the debt (including interest and any other charges) as of the date the letter is sent. Id. The King court stated that the defendant's letter satisfied both of the approaches articulated in the Ivy case. The defendant's letter had stated the sum owed as of the date the letter was sent and further stated that the debt may periodically increase due to the addition of accrued interest. The court also dismissed any claims under FDCPA § 1692e and f, holding that the letter contained no misrepresentations and did not constitute an unfair means to collect a debt. The court next addressed plaintiff's TILA claim, in which the plaintiff argued that, pursuant to 15 U.S.C. § 1637(b) of the TILA, the defendant was required to transmit monthly account statements to the plaintiff. Under the TILA only "creditors" are required to send consumers monthly billing statements. The plaintiff argued that the defendant became a creditor when it was assigned the plaintiff's account for collection. However, pursuant to the TILA's definition of "creditor," the defendant could only be a creditor if it either "issued a credit card" or was the issuer's "agent." 15 U.S.C. § 1602(n). While there was no allegation that the defendant actually issued the credit card, the plaintiff did allege in the complaint that the defendant was the "agent" of the card issuer. The court rejected this allegation, finding that it was a legal conclusion that the court was not bound to accept. The court stated that for § 1637(b) to apply to the defendant under an agency theory, there must have been an agreement under which the plaintiff could use a line of credit with the defendant to pay obligations incurred by use of the credit card. See King, 2012 WL 4758220, at 3 (citing Neff v. Capital Acquisitions & Mgmt., 352 F.3d 1118, 1120 (7th Cir. 2003), citing in turn 12 C.F.R. pt. 226, Supp. I, ¶ 2(a)(7)). Because the complaint did not allege that the defendant had granted the plaintiff any credit privileges, the court dismissed the complaint in its entirety. This case, along with Neff provides a very solid foundation for arguing, at the motion to dismiss stage, that a debt collector should never be required to send monthly billing statements to a consumer. As debt collectors are typically not in the business of extending credit to already-defaulted consumers, it is unlikely that there is any situation in which they would face liability under § 1637(b) of the TILA. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.