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Must a Debt Collector Disclose Interest to a Consumer?

On Behalf of | Nov 12, 2014 | Uncategorized

This article addresses whether a debt collector must disclose to the consumer that it is attempting to collect interest on a debt.  The short answer is yes, a debt collector must make this disclosure.  This holds true in Missouri and in many other jurisdictions.

When a debt collector’s dunning letter seeks payment from a consumer, it must accurately state the amount of the debt; this includes providing at least some indication that the debt collector is trying to recover interest on the debt when that is the case.

Section 1692g(a)(1) requires that:

[w]ithin five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing…the amount of the debt.

(15 U.S.C. § 1692g(a)(1).)

To ensure that the amount stated is accurate, such a letter must warn the consumer if late charges, interest, and other fees that will accumulate after the date of the letter, increasing the actual balance due.  Jones v. Midland Funding, LLC, No. 3:08–CV–802 (RNC), 2012 WL 1204716, at *2 (D. Conn. April 11, 2012).  This “safe harbor” warning concerning future interest and fees “prevent[s] confusion by debtors for whom the ‘exact amount due’ is a constantly shifting target due to accruing interest and accumulating unpaid charges.”  Veach v. Sheeks, 316 F.3d 690, 693 (7th Cir. 2003).  The noted decision of the 7th Circuit in Miller suggested a template for a “safe harbor” clause:

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].

Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, L.L.C., 214 F.3d 872, 876 (7th Cir. 2000).  Debt collectors need not use this precise language, but they must take steps notify consumers of any accruing fees and interest.  Id.  If a letter does not even hint at the accrual of interest, it is likely to mislead the unsophisticated consumer because “it would be possible to interpret ‘balance’ to mean that it was either a dynamic or static amount.”  Michalek v. ARS Nat. Sys., Inc., Civil Action No. 3:11–CV–1374, 2011 WL 6180498, *4 (M.D. Penn. Dec. 13, 2011).  A debt collector shirks its obligation to provide a “safe harbor” clause when it merely states a single “balance due” and fails to state “the effective date as of which [that] amount would suffice to pay off the debt in full.”  Dragon v. I.C. System, Inc., 483 F. Supp. 2d 198, 202 (D. Conn. 2007).

If a debt collector seeks to collect only the amount stated on its letter, it need not provide the Miller safe harbor warning.  See Curto v. Palisades Collection, LLC, No. 07–CV–529(S), 2011 WL 5196708, at *8 (W.D.N.Y. Oct. 31, 2011); Olson v. Risk Mgmt. Alternatives, Inc., 366 F.3d 509, 513 (7th Cir. 2004).  The Chuway court summarized this principle succinctly:

If the debt collector is trying to collect only the amount due on the date the letter is sent, then he complies with the Act by stating the “balance” due, stating that the creditor “has assigned your delinquent account to our agency for collection,” and asking the recipient to remit the balance listed—and stopping there, without talk of the “current” balance. If, instead, the debt collector is trying to collect the listed balance plus the interest running on it or other charges, he should use the safe-harbor language of Miller [v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C., 214 F.3d 872, 876 (7th Cir.2000) ].

Chuway v. National Action Fin. Svs., Inc., 362 F.3d 944, 949 (7th Cir. 2004); see also Brill v. Finan. Recovery Servs., Inc., No. 4:10–CV–3121, 2010 WL 5825480, at *4 (D. Neb. Nov. 10, 2010) (safe-harbor language “indicate[s] that the amount owed may vary if not paid immediately because of interest, late charges, or other charges”); Owens v. Howe, Cause No. 1:04–CV–152, 2004 WL 6070565, at *10 (N.D. Ind. Nov. 8, 2004) (no violation where the debt collector’s letter followed Miller’s safe-harbor language “faithfully”).

Missouri has recently joined the host of states which support interest disclosure.  In Verna and Jerry Roach v. Miller and Steeno, P.C., Cause No. 13JE-CC00741, Defendant Miller and Steeno argued that there simply is no legal requirement that it disclose when interest is actually accruing on a consumer’s debt.  The court rejected that argument.  Judge Kramer recognized, for the first time in Missouri jurisprudence, that debt collectors must disclose when interest is in fact accruing on a consumer’s balance.  Id.  Likewise, Judge Bouchard rejected an identical argument made by debt collectors Consumer Adjustment Company, Inc. and Roger Weiss in Christopher Fisher v. Consumer Adjustment Company, Inc. et al., Cause No. 13JE-AC05847.  In his order, Judge Bouchard closely analyzed the Seventh Circuit’s decision in Miller, finding that “[t]he Miller Court, by means of actual holding, was telling debt collectors” that if they are attempting to collect interest, they “[have] a duty to use ‘some form of words’ to notify the debtor that the debt amount may vary from day to day.”  Judge Bouchard thus concluded that:

If a debt collector wants to collect interest that is accruing on a debt, then the collector must notify and disclose such to consumers like plaintiff with ‘safe harbor’ or similar ‘heads up’ language on its collection letters.  Should a debt collector fail to do so, then the collection letter does not correctly state the amount of the debt and violates the FDCPA.