Another Industry Win in the Battle Over Interest Disclosures in Second Circuit

It seems there is a decision every 7-10 days from the Second Circuit regarding the battle over whether and when a disclosure as to interest (or no interest) is required.

On November 8, 2017, a federal judge in New York granted a debt collector's motion to dismiss in two identical cases that alleged the defendant's lack of disclosure regarding pre-judgment interest pursuant to NY C.P.L.R. § 5001 was not a violation of the Federal Debt Collection Practices Act (FDCPA). The cases are Cruz v. Credit Control Services, Inc. (CCS) d/b/a Credit Collection Services (Case No. 17-cv-01994, U.S.D.C., Eastern District of New York) and Cruz v. Credit Control Services, Inc. (CCS) d/b/a Credit Collection Services (Case No. 17-cv-2590, U.S.D.C., Eastern District of New York). 

The court issued a Memorandum of Decision and Order, a copy of which can be found here. 

Background 

Defendant sent the plaintiff, a consumer in New York, a collection letter to attempt to collect on a Geico account. The letter listed the amount of the debt, $166.97, and also stated, “Once full payment has been posted by this office, your account will be closed and returned to your creditor as paid-in-full.” A subsequent letter was sent to the plaintiff offering a settlement. 

The plaintiff alleged in both lawsuits that defendant violated section 1692e by sending deceptive and misleading collection notices based on two arguments. First, plaintiff argued that pursuant to Avila & Riexinger & Associates, LLC 817 F.3d 72 (2d Cir. 2016), defendant was required to notify consumer of whether their stated balance would increase, in particular due to the possible addition of pre-judgment interest under NY C.P.L.R. § 5001 and second, that defendant improperly used its tradename to attempt to collect the debt. 

Defendant, in case no. 17-cv-1994, brought a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). 

The Court's Order 

The court granted defendant's motion to dismiss and as the second Cruz matter was deemed duplicative by the court, it was also dismissed with prejudice. 

Plaintiff's claims that a disclosure was required regarding pre-judgment interest under NY C.P.L.R. § 5001 were firmly rejected by the court. The defendant argued that pre-judgment interest may only be awarded by a court. Nevertheless, plaintiff argued that the Avila decision required defendant to make a disclosure about whether the account could increase. 

The court concluded that, as a matter of law, an award of pre-judgment interest under NY C.P.L.R. § 5001 is not considered a part of the “amount of the debt” under the FDCPA if there has been no request of a court for such amount. The court further highlighted that any allegation that an agency could assess pre-judgment interest, without a request to the court, is “speculative at best” and a mis-statement of the law at worst as only a court can award such interest.

Turning to Avila, the court had no issue distinguishing the case at hand, finding the debt at issue in Avila was substantially different than the debt at issue here and therefore the Second Circuit's decision in Avila had no bearing on this case. Pre-judgment interest is only awarded through a petition from the court and if CCS were to have included this disclosure, the court stated that it would, in fact, be misleading to the least sophisticated consumer, as CCS made no petition for judgment. 

Moreover, the court concluded that Avila does not apply because the plaintiff did not allege that the account at issue was accruing interest. 

The court briefly addressed plaintiff's second argument by stating that as it is a licensed debt collector, it is not prohibited from using its registered tradename which was included in the license. 

The court also declined to permit plaintiff to amend the complaint. 

insideARM Perspective 

Reacting to the decision, Michael Kraft, General Counsel for Credit Control Services, Inc. stated: 

"While this decision will probably be appealed, it sends a clear message that erroneous interpretations of the law will not succeed in this court. We are very grateful for the efforts by our counsel at Marshall Dennehy, led by Matthew Johnson and support from Joe Hess and, of course, Andrew Schwartz."

We can only hope that judges in the New York federal district courts are taking notice of the volume of cases regarding this issue. We also know that a few decisions are on appeal, including one that we wrote about previously here. But we are also hearing of these types of claims being alleged outside of the Second Circuit.