Court: District Court, E.D. New York; January 25, 2018; Federal District Court
Barouk Maleh initiated a putative class action against United Collection Bureau, Inc. (UCB), alleging violations of the Fair Debt Collection Practices Act (FDCPA). UCB filed a motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Court assumed the truth of the Complaint's factual allegations for the motion's resolution.
Prior to August 31, 2016, Maleh incurred a debt to Citibank, N.A., linked to personal transactions. Citibank subsequently hired UCB to collect the debt. UCB sent a collection letter on August 31, 2016, detailing the debt amount of $26,658.34 and referencing the creditor. Maleh claimed that UCB's collection efforts, particularly the inclusion of "post charge-off interest," breached sections 1692e and 1692f of the FDCPA. He also argued that the letter did not adequately disclose the possibility of additional interest and fees, violating section 1692g. Maleh sought damages, along with declaratory and injunctive relief.
In deciding the motion to dismiss, the Court highlighted the standard of review, emphasizing that a complaint must contain sufficient factual details to make a claim plausible. Legal conclusions and mere recitations of statutory elements without factual support do not suffice to meet this standard. Ultimately, the Court granted UCB's motion to dismiss the Complaint.
Congress enacted the Fair Debt Collection Practices Act (FDCPA) to eliminate abusive debt collection practices, ensure fair competition among debt collectors, and promote consistent state action to protect consumers. The FDCPA provides a private right of action for debtors harmed by such practices, requiring plaintiffs to demonstrate three elements: 1) the plaintiff must be a 'consumer' who owes or is perceived to owe a debt; 2) the defendant must be a 'debt collector'; and 3) the defendant must have violated FDCPA requirements.
A key aspect of the FDCPA is its definition of 'debt,' which includes any obligation of a consumer arising from transactions primarily for personal, family, or household purposes. The defendant contends that the plaintiff has not adequately alleged that the debt falls under the FDCPA's protection. The plaintiff's claim lacks necessary factual support, as it only asserts that the debt arose from a transaction for personal purposes without providing sufficient details. This mirrors a previous case where the Second Circuit dismissed similar FDCPA claims because the alleged debt was tied to a business account, thus categorizing it as a commercial debt outside the FDCPA's protections. The court rejected the plaintiff's conclusory statement regarding the debt's personal nature, emphasizing the need for factual substantiation to support claims under the FDCPA.
The Court indicates that the Plaintiff has not sufficiently alleged facts demonstrating that the debt is commercial or outside the reach of the Fair Debt Collection Practices Act (FDCPA). The Plaintiff's claim relies on conclusory statements mirroring the statutory definition of 'debt,' lacking specific factual support necessary to establish the nature of the debt. Numerous precedents, including Garcia v. Primary Fin. Servs. and Shetty v. Lewis, highlight that mere recitation of statutory language does not meet the pleading requirements for an FDCPA claim. The Court emphasizes that such legal conclusions are not entitled to presumption of truth and are insufficient for establishing a valid claim. Even with a hypothetical adequate allegation of debt under the FDCPA, the Plaintiff fails to assert claims under sections 1692e and 1692f.
Plaintiff asserts that Defendant's attempt to collect post charge-off interest of $2,522.04 violates the Fair Debt Collection Practices Act (FDCPA), specifically sections 1692e and 1692f. The Plaintiff argues that this collection breaches section 1692f(1) because the interest is not expressly authorized by any agreement with the original creditor or permitted by law. Additionally, Plaintiff contends that Defendant unlawfully retains a portion of this interest without authorization from the agreement with Citibank.
Furthermore, Plaintiff claims that statements in the Collection Letter regarding the post charge-off interest violate several provisions of sections 1692e and 1692f by: (1) utilizing unfair means to collect the debt, (2) misrepresenting lawful compensation, (3) providing false and misleading representations, (4) threatening an unauthorized fee, and (5) employing deceptive means without justifying the added fee.
Defendant counters that the Card Agreement allows for post charge-off interest and that South Dakota law permits Citibank to impose such charges. The Court will evaluate the claims under section 1692f, which prohibits unfair or unconscionable means of debt collection. It notes that section 1692f(1) specifically disallows the collection of amounts not authorized by the debt agreement or law. South Dakota law supports the notion that interest stipulated by contract remains chargeable post-breach until replaced by a new obligation.
The Plaintiff's claim under section 1692f is dismissed because the collection of post charge-off interest is allowed under the Agreement and South Dakota law, which governs the Agreement. South Dakota law authorizes Citibank to set interest rates by agreement and to continue charging interest until a new obligation occurs, neither of which have been alleged to have happened. The Plaintiff does not contest that South Dakota law permits this collection but claims the Agreement does not explicitly authorize post charge-off interest. However, key provisions in the Agreement indicate that Citibank may continue to charge interest and fees as permitted by law and until the total amount owed is paid, which the Plaintiff does not dispute. The Plaintiff is bound by the Agreement due to credit card usage and lacks grounds to claim unlawful post charge-off interest collection. Additionally, the Court finds that the Agreement does not need to govern the relationship between the Plaintiff and Defendant, given that the Defendant was contracted by Citibank to collect the debt under the previously established lawful terms. As such, the Plaintiff has not adequately stated a claim for a violation of section 1692f.
Violation of 15 U.S.C. 1692e pertains to the prohibition of "false, deceptive, or misleading representations" in debt collection practices. Section 1692e explicitly disallows debt collectors from making false representations regarding the character, amount, or legal status of any debt, as well as threats to take actions that aren’t legally permissible. Notably, it lists prohibited actions including: (1) misrepresenting the debt's character or lawful compensation for collection (15 U.S.C. 1692e(2)); (2) threatening illegal actions (15 U.S.C. 1692e(5)); and (3) using false or deceptive means in debt collection (15 U.S.C. 1692e(10)). A representation is considered 'deceptive' if it can be reasonably interpreted in multiple ways, at least one of which is inaccurate, with the interpretation assessed from the viewpoint of the 'least sophisticated consumer.' The court found that the defendant's collection of post charge-off interest was lawful, leading to the conclusion that the plaintiff did not adequately plead violations of sections 1692e(2), (5), or (10). Consequently, the court granted the defendant's motion to dismiss the complaint but allowed the plaintiff thirty days to amend the complaint to provide facts demonstrating that the debt falls under the FDCPA and that the defendant was unauthorized to impose post charge-off interest. "Charging off a debt" is defined as treating an account as a loss due to unlikely payment, while "post charge-off interest" refers to interest accrued after the debt has been charged off.
Defendant acknowledges that Plaintiff qualifies as a "consumer" and Defendant as a "debt collector" under the Fair Debt Collection Practices Act (FDCPA). The case Munroe v. Nationstar is referenced but deemed distinguishable due to its focus on whether a loan was a "debt" under the FDCPA; in that case, an Investment Purpose Affidavit was not properly considered on a motion to dismiss. While Plaintiff's Complaint includes allegations that the debt was for personal purposes and arose from a relevant transaction, the additional statutory language does not provide the needed factual support.
Plaintiff also claims Defendant failed to disclose potential increases in the debt due to interest and fees, allegedly violating section 1692g by not clearly conveying the debt amount. The debate centers on the implications of the Second Circuit’s ruling in Avila v. Riexinger, which states that misleading collection letters violate section 1692e if they imply a consumer can pay off their debt with the listed amount, ignoring accruing interest and fees. There is disagreement on whether Avila requires debt collectors to specify that interest isn't accruing when it isn't.
The Court notes varying interpretations among district courts regarding Avila’s application, and that the Second Circuit is currently reviewing this issue. The Court refrains from addressing Plaintiff's section 1692g claim and recognizes that overstating interest charges could support a section 1692f(1) claim. However, Plaintiff appears to argue that any post-charge-off interest is unlawful, aligning with concerns Congress had in enacting Section 1692f regarding attempts to collect amounts beyond what was initially stated.
The Plaintiff's opposition brief focuses solely on the legality of post charge-off interest, not on its calculation's accuracy. The Court is permitted to consider the Agreement attached to the Defendant's motion to dismiss under Rule 12(b)(6), which allows for the examination of the complaint's face, related documents, and judicially noticeable facts. The Agreement is deemed integral to the Complaint because the Plaintiff relies on its terms to assert that the post charge-off interest is unlawful and not authorized by any agreement with the original creditor.
While some cases have deemed post charge-off interest unlawful if the original creditor waived that right, the Plaintiff has not provided facts supporting a waiver claim. Relevant case law indicates that for a claim to stand, the incorporated material must typically be a contract that underpins the complaint, even if not attached. The Plaintiff also alleges the Defendant's use of false representations to collect an additional fee without proving its basis. However, this claim's validity is uncertain as the Plaintiff did not elaborate on whether it depends on the unlawfulness of the post charge-off interest. The Court notes that there is no precedent indicating that a debt collector violates the Fair Debt Collection Practices Act (FDCPA) for failing to provide the basis for a lawful fee unless it leads to ambiguous interpretations. A contrasting case is cited where a collection letter’s failure to clarify differing balances was deemed problematic.
