Second Circuit Double-Hitter: Neither "$0.00" Nor "N/A" in Debt Itemization Confuses Consumers about Static Debts

The Second Circuit Court of Appeals must be thinking it's Groundhog Day with the number of times it has shot down plaintiffs’ counsels’ attempt to squeeze every last drop out of the interest disclosure and debt itemization claims. The Second Circuit has already issued decisions in Taylor, DeRosa, Kolbasyuk—all on the almost-identical interest disclosure issue—and now it can add two more cases to this list. 

In this newest iteration of the interest disclosure line of cases, the claims have revolved around the debt itemization that the New York Department of Financial Services (NYDFS) regulations require. Third-party debt collectors must include an itemization for charged off accounts that lists post-charge off interest, fees, charges, and payments, regardless of whether any of these are applicable to the account in question. NYDFS released an FAQ to clarify that a debt collector may list “0” or “N/A” in the itemization if the specific line item is not applicable to the account. 

True to form, none of this stopped a flood of lawsuits against debt collectors arguing that including “0” or “N/A” misleads consumers because it can be allegedly read to mean two things: that interest is accruing or interest is not accruing. The good news is that the Second Circuit shut both of these arguments down and found that neither “$0.00” nor “N/A” in the debt itemization—without an interest disclosure in the letter—implies that interest, fees, or charges will accrue on the account. 

Let’s dig into the details of the two cases.

Gissendanner v. Enhanced Recovery Co., No. 18-3842 (2d. Cir. Nov. 4, 2019): In this case, the consumer alleged that a debt itemization that included “N/A” could have two meanings: either the creditor forgave the previously-accrued interest, fees, and charges (which would be false) or that the creditor has not added interest, fees, and charges since placing the account in collections (which would be true). 

To say the Second Circuit was unamused by this argument is an understatement. Not only did the court find this potential confusion “immaterial”—thus not an FDCPA violation—the court also stated it already reviewed this scenario in Taylor:

[W]e expressly considered the plaintiff's argument that the debt collection notices were misleading because the least sophisticated consumer could have interpreted the absence of any information regarding interest in the notices to mean either that interest on the debts was or was not accruing. We recognized that plaintiffs were effectively arguing "that a debt collector commits a per se violation of Section 1692e whenever it fails to disclose whether interest or fees are accruing on a debt." Taylor rejected that argument because the only harm arising from the consumer's reasonably mistaken belief that interest was accruing on a static debt was not sufficiently serious to be actionable. 

Dow v. Frontline Asset Strategies, LLC, No. 18-3107 (2d. Cir. Nov 4, 2019): In this case, the consumer alleged that a collection letter which stated “as of the date of this letter, you owe $[amount]” and includes “$0.00” in the debt itemization could erroneously mislead a consumer that the debt was dynamic rather than static. 

Similar to the above, the Second Circuit relied on its prior decision in Taylor to shut this argument down:

Dow attempts to distinguish Taylor on the basis that the notice here includes separate line items for the interest and charges or fees accrued on the balance. We do not find the notice to be misleading here given that these lines reflect $0 in interest or fees and charges had accrued. Nor does language such as "as of this date, you owe $___" change our calculus. This stock language is present in a number of collection notices, including those considered not misleading in Taylor. Because there is no other information relating to interest, fees, or charges in the notice—a fact alleged in Dow's complaint—we cannot say that the least sophisticated consumer would read the collection notice here as suggesting their debt is dynamic.

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insideARM Perspective

After years of litigation, the Second Circuit is saying that using the NYDFS FAQ guidance is fine. It’s unfortunate that these decisions, which are based on minute modifications to allegations, are funded by debt collectors due to the one-sided nature of the FDCPA’s attorney fee provision. This is despite the fact that the courts have repeatedly ruled that the debt collector’s practices are not violations. Considering this, is it any wonder that the TransUnion/Aite Group report that insideARM wrote about yesterday found that debt collector's second-largest expense behind payroll is legal defense and settlements? 

The real question is this: does this type of litigation practice—flooding debt collectors with lawsuits despite district and circuit courts repeatedly finding that the practices in question are not violations—benefit or harm consumers? From here, it sure looks like an effort to strong-arm settlements out of debt collectors who cannot afford to defend each and every lawsuit that comes through their door since they will never recover their defense fees, as some courts have found.

Let's do some quick math. Per the TransUnion/Aite Group report, a whopping 10% of a debt collector's expenses is devoted to legal defense and settlements. Debt collectors can't afford to defend every single lawsuit, so a large chunk of this 10% is likely in settlements. Consumer recovery is limited to $1,000 under the FDCPA for an individual claim—although it is believed consumers receive much less than this in settlements. So, in the end, who actually benefits from this litigation practice? That's a rhetorical question because I think we all know the answer.

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