By Chris Bruce
A federal appeals court Aug. 18 reinstated a Fair Debt Collection Practices Act suit against a law firm that misstated the principal and interest due on a credit card loan in a collection effort ( Afewerki v. Anaya Law Group , 9th Cir., 15-cv-56510, 8/18/17 ).
Although the FDCPA bars debt collectors from making false statements when collecting debts, any such false statement must be “material” — a term the FDCPA itself doesn’t define. The ruling by the U.S. Court of Appeals for the Ninth Circuit focused on that question in connection with efforts by the Anaya Law Group of Westlake Village, Calif., to collect on a debt owed by Robel Afewerki, who owed $26,916.08 on a loan with a 9.65 percent interest rate.
The Anaya Law Group sued Afewerki in state court, saying he owed $29,916.08 ($3,000 too much). The firm also misstated the interest rate, saying incorrectly that it was 9.965 percent (0.315 percent too high). Afewerki sued the firm under the FDCPA, but a district court held for the firm on summary judgment, saying the misstatements weren’t material.
The Ninth Circuit disagreed and vacated that ruling, saying the misstatements were material based on how the “least sophisticated debtor” might react to the misstatements. The least sophisticated debtor in Afewerki’s position, the court said, “may well have simply paid the amount demanded in the complaint and would have overpaid by approximately $3,000.”
“For these reasons, we conclude that the incorrect statement of the principal due in the state court complaint, which was further inflated by the incorrect interest rate, was material,” Judge Richard R. Clifton said for a three-judge panel that includes Judges John B. Owens and John Antoon II.
However, the panel agreed with the district court’s ruling for the law firm on a separate claim under California’s Rosenthal Fair Debt Collection Practices Act. The firm was able to mount a defense under the state law because it corrected the misstatement within 15 days of discovering the error and served Afewerki with notice of the correction.
Afewerki said California lawmakers had repealed the 15-day grace period in 1999, but the court disagreed. According to the Ninth Circuit, the California Supreme Court hasn’t addressed whether the grace period was repealed, nor have the California Courts of Appeal done so in a published opinion.
In an email to Bloomberg BNA, Alana B. Anaya of the firm called the ruling “a good decision in part,” citing the firm’s arguments that the 15-day grace period hadn’t been repealed. That’s a victory for creditors “which have been litigating this issue for some time,” Anaya said.
“Our office believes that allowing the 15 day grace period serves public policy well as it can avoid a myriad of lawsuits for items that have been promptly corrected,” Anaya told Bloomberg BNA. “Our office will continue to litigate these cases on behalf of Creditors.”
To contact the reporter on this story: Chris Bruce in Washington at email@example.com
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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