Hopefully the End of the Debt Itemization Circus? 7th Cir. and CFPB Side with Debt Collector

We've seen a lot of court decisions on the interest disclosure claim over the past couple of years, but it's always noteworthy when a Circuit Court of Appeals and the Consumer Financial Protection Bureau (CFPB) speak on the issue. We've had many appellate decisions, including several out of the Second Circuit, denying almost every iteration of the interest disclosure claim that plaintiffs and their attorneys have cooked up. Examples include Taylor, DeRosa, Klobasyuk, Gissendanner, and Dow. The Seventh Circuit has generally held that so long as the Miller safe harbor language is used when appropriate, the claims fail. A recent Seventh Circuit decision—Degroot v. Client Servs.—sides with the industry in yet another meaningful way. This time, with the CFPB filing an amici brief that, in impact, sides with the debt collector.

Factual and Procedural Background

In DeGroot, the plaintiff defaulted on a debt owed to Capital One. Through the account's lifetime, it was placed with two separate debt collection agencies. The first agency sent the plaintiff a letter that stated:

The amount of your debt is $425.86. Please keep in mind, interest and fees are no longer being added to your account. This means every dollar you pay goes towards paying off your balance.

Subsequently, the bank reassigned the account to a second collection agency—the defendant-appellee in this case—that sent the plaintiff a letter that listed the same amount due but included an itemization of the debt that stated:

• Balance Due At Charge-Off: $425.86
• Interest: $0.00
• Other Charges: $0.00
• Payments Made: $0.00
• Current Balance: $425.86

The letter also stated:

[N]o interest will be added to your account balance through the course of Client Services, Inc. collection efforts concerning your account.

The plaintiff, through counsel, filed an FDCPA class action lawsuit against the second collection agency for allegedly failing to state the amount owed in a clear and meaningful way. According to the plaintiff, the inclusion of interest and other charges in the debt itemization—even though the amounts were listed as $0.00—could mislead a consumer to think that such items can still accrue on the account. This, allegedly, is at odds with the statement that interest will not accrue while with the second agency.

The district court dismissed the lawsuit, and the plaintiff appealed.

Seventh Circuit Decision

This is a decision that is best summarized in the court's own words.

Since the collection letter is true on its face—the debt was not accruing interest and charges and the amount accrued since charge-off was $0.00—the appellate court focused its analysis on whether the unsophisticated consumer would read the letter to imply what the plaintiff alleges. "If, and only if, we conclude that an unsophisticated consumer would make such an inference, then we move to analyze whether the inference is false or misleading."

Poignantly, the court looks to and agrees with the CFPB's amicus brief:

As the CFPB points out, the itemization of a debt is a record of what has already happened. It "discloses the interest or other charges that have been assessed between a date in the past (in this case, the date that the debt was charged-off) and the date of the notice." For that reason, the Bureau argues, such a breakdown cannot be construed as forward looking and therefore misleading. We agree.

What follows is a complete rejection of the plaintiff's argument and a rejection of conclusions from a few district courts within the Seventh Circuit's jurisdiction:

Degroot's insistence—apparently accepted by several district courts, see, e.g., Duarte v. Client Servs., Inc., No. 18 C 01227, 2019 WL 1425734 (N.D. Ill. Mar. 29, 2019)—that the inclusion of a zero balance for interest and fees naturally implies he could incur future interest or other charges if he did not settle the debt is unpersuasive. In line with Koehn, Degroot's mere raising of an open question about future assessment of other charges with a speculative answer does not make the breakdown misleading.

The court then concludes:

That interest and fees are no longer being added to one's account does not guarantee that they never will be, because there is no way—unless the addition is a legal or factual impossibility—to know what may happen in the future. That is why a statement in a dunning letter that relates only to the present reality and is completely silent as to the future generally does not run afoul of the FDCPA. While dunning letters certainly cannot explicitly suggest that certain outcomes may occur when they are impossible,  they need not guarantee the future. For that reason, the itemized breakdown here, which makes no comment whatsoever about the future and does not make an explicit suggestion about future outcomes, does not violate the FDCPA.

(Internal citations omitted.) The court reiterates this conclusion for the sister claim in this suit, which alleges that the interest disclosure in the letter was misleading or confusing.

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insideARM Perspective

What a decision! It goes a long way to show that a plaintiff's claim (oftentimes dreamed up by plaintiff's counsel) has gone too far when even the CFPB sides with the debt collector. To view more info about this and other decisions—such as who was the plaintiff's counsel, which judges issued the ruling, and other court decisions that have ruled similarly—iA Case Law Tracker subscribers can click here. Not a CLT subscriber? Try it for free or subscribe here.