Disclosure of Interest Accrual
The second hot topic issue is how debt collectors must disclose to the debtor the accrual of interest, if at all. Section 1692g(a)(1) of the FDCPA only requires the debt collector to state the “amount due” when communicating with debtors. Courts have been left to interpret how exactly the debt collector must disclose the accrual of interest. Various judges have reached opposite conclusions in interpreting this section.
A Pennsylvania judge in Jones v. Midland Funding, LLC, 755 F. Supp. 2d 393 (D. Conn. 2010), granted summary judgment to Jones, holding that Midland violated Section 1692g(a)(1) where Midland stated the “balance due” in its initial letter, the subsequent letter stated a “balance due” for a greater amount, and neither letter mentioned interest accrual. The court determined that only the initial letter violated the FDCPA because it failed to state that interest was accruing and the rate at which it was accruing. Another Pennsylvania judge in Lukawski v. Client Servs., Inc., 2013 U.S. Dist. LEXIS 124075 (M.D. Pa. Aug. 29, 2013), considered a case with slightly different facts and ruled that where the first letter discloses that interest will accrue, subsequent letters must also disclose the accrual of interest.
Certain federal judges in New York have not required debt collectors to disclose the interest accrual so long as the initial letter and subsequent letters state the correct balance due. However, some debt collectors have been exposed to liability when they attempt to explain the interest accrual. In Weiss v. Zwicker & Associates, P.C., 664 F. Supp. 2d 214 (E.D.N.Y. 2009), Zwicker & Associates sent an initial letter to Weiss stating:
[A]s of the date of this letter, the balance on your account is $30,982.09. Your balance may include additional charges including delinquency charges, as applied at the direction of American Express, if said charges are permissible in accordance with the terms of your agreement.
Zwicker & Associates sent another letter stating that the balance was $32,596.04, which is higher than the balance listed in the first letter. The court held that the initial letter violated Section 1692g(a)(1) of the FDCPA because it could be read by the least sophisticated consumer in two ways; one being that the amount included interest, the other that the amount did not include interest. Interestingly, the court found that the second letter was permissible under the FDCPA because a debt collector “has [no] obligation to explain why a consumer’s debt has increased.
The Weiss court did not consider the issue of whether a debt collector is obligated to inform the consumer in the initial letter that interest is accruing. However, the year after the Weiss decision, the judge in Pifko v. CCB Credit Servs., 2010 U.S. Dist. LEXIS 69872, at *10 (E.D.N.Y. July 7, 2010), addressed that exact issue. In Pifko, the debt collection letters simply stated the balance owed and the letters reflected a higher balance with each letter sent. The letters did not mention interest accrual. The court held that none of the letters violated Sections 1692g or 1692e(10), because the letters contained no confusing language. Certain federal judges in Arizona and Massachusetts have reached the same conclusion based on similar reasoning in cases with nearly identical facts and claims. (See Goodrick v. Cavalry Portfolio Servs., 2013 U.S. Dist. LEXIS 117171 (D. Ariz. Aug. 19, 2013); Schaefer v. ARM Receivable Mgmt, Inc., 2011 U.S. Dist. LEXIS 77828 (D. Mass. July 19, 2011.)
Taking a look back at Simkus v. Cavalry Portfolio Servs., LLC et al., 2014 U.S. Dist. LEXIS 9470 (N.D. Ill. Jan. 27, 2014), the same case as was discussed in the first section of this article pertaining to the waiver issue, the court also addressed how debt collectors must communicate interest accrual to debtors. The Simkus facts are the same as Pifko, Goodrick, and Schaefer, where the letters made no mention of whether interest had been added to the amount owed and simply stated the balance owed. In contrast to those cases, where the courts held that the collectors had no obligation to inform the debtors that interest was accruing, the Simkus court held that while the letters on their face did not violate Sections 1692e or 1692f because Cavalry was not required to itemize interest and principal, the parties had to brief the related issue of whether Simkus had extrinsic evidence to prove that the least sophisticated consumer would be confused by the letters.
Some courts have suggested particular safe harbor language that collectors may use in letters to debtors. For example, in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols and Clark, LLC, 214 F.3d 872 (7th Cir. 2000), the Seventh Circuit approved the following language:
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].
A Connecticut judge, in Jones v. Midland Funding, LLC, 755 F. Supp. 2d 393, 398 (D. Conn. 2010), suggested the following language:
As of today, [date], you owe $___. This amount consists of a principal of $___, accrued interest of $___, and fees of $___. This balance will continue to accrue interest after [date] at a rate of $___ per [day/week/month/year].
Debt collectors must carefully draft their letters based on the state and federal law in the jurisdiction where the debtor resides in order to lessen the chances of being held liable for an FDCPA violation regarding disclosure of interest. If the debt collector chooses to inform the debtor that interest is accruing, then using the safe harbor language suggested by courts within the jurisdiction may reduce the debt collectors’ exposure to FDCPA liability.
Certain judges have held that only a jury can decide the issue of whether a debt collector may charge interest in situations where the creditor stopped collecting interest after charging off the debt. Debt collectors must understand whether state laws restrict collectors from charging contractual or prejudgment interest. Additionally, courts have interpreted the FDCPA differently regarding whether a debt collector must disclose that interest is accruing on the account. Some judges require the debt collector to inform the debtor in the initial letter that interest may be accruing and the rate at which it is accruing. Other judges have determined that debt collectors have no obligation to disclose that interest is accruing, and that the debt collectors must only correctly state the total amount due. Many collectors are finding that attempting to collect post-charge off interest is too much of a risk and have been foregoing the practice in its entirety.