Creditor Held Liable in FDCPA

Court Summons Ruled an "Initial Communication" Under FDCPA
by John S. Burnett

When does a debt collector create an "initial communication" about a delinquent debt, triggering the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. ?? 1692-1692o? Is an actual letter or formal notice required? Does the filing of a summons in a debt collection case create such a communication?

In Frank Thomas v. Law Firm of Simpson & Cybak, et al. the Seventh Circuit Court of Appeals reversed a decision of the lower court dismissing Thomas's suit, which alleged that GMAC, its law firm (Simpson & Cyback) and their employees failed to send him a debt validation notice advising him of his rights as a debtor within five days of their initial communication with him, as is required by the FDCPA.

The Facts
Thomas was employed by GMAC. Thomas bought an SUV from a Chevrolet dealership, and the installment contract was immediately assigned to GMAC. When Thomas lost his job with GMAC about two years later, he went into default on the loan. GMAC sent Thomas a default letter. Simpson & Cybak brought suit on behalf of GMAC in Illinois state court to recover the vehicle. A court summons was issued to Thomas informing him that the law firm was a debt collector.

Thomas sued GMAC and its attorneys in federal district court under FDCPA, claiming neither defendant had sent him a debt validation notice advising him of his rights as debtor (under 15 U.S.C. 1692g(a)). The district court found that neither GMAC's default letter nor the court summons qualified as an "initial communication" that would have triggered the need for the debt validation notice; the Seventh Circuit Court of Appeals found that the filing of the summons constituted an "initial communication," reversed the lower court, and remanded the case for further consideration.

The Court's Ruling
The Appeals Court ruled

• that GMAC was a creditor but not a debt collector under the FDCPA;
  
• that GMAC's default letter could not therefore qualify as a "communication" under the FDCPA (a fact agreed to by all parties);
  
• that GMAC's attorneys qualified as debt collectors under FDCPA, 15 U.S.C. ? 1692a(3) & (6);
  
• that the filing of the collection suit summons constituted an "initial communication" with Thomas concerning the delinquent debt;
  
• that the ruling of the lower court is reversed; and
  
• that the case is remanded to the lower court for further consideration of Thomas's claim.
  

According to the appeals court, the questions raised in the appeal had not been addressed by federal appeals courts prior to the Thomas case. The court took note of differing opinion at the district court level.

The court found no conflict between the "plain language" of the statute and the intentions of its drafters, and dismissed the defendants' contention that deeming the filing of a summons and complaint an "initial communication" would interfere with litigation by making debt collection suits more cumbersome for attorneys.

Judge Evans dissented from the majority opinion of the appellate court. His argument goes to the nature of the filing of a debt collection suit. He opined that such filings are not the dunning "communications" envisioned by the FDCPA. He further noted that the court footnoted its ruling, mentioning that the 108th Congress was considering a bill that would have specifically excluded formal pleadings from the "communication" definition in FDCPA. While the majority of the court opined that Congress's consideration of H.R. 3066 was an "indication that Congress considered the FDCPA's current definition ... to include the filing of a summons and complaint," Judge Evans argued that Congress's intent was to make explicit the implicit exception already there. It makes for some interesting reading . . .

In light of this decision, we imagine that creditors' attorneys will be reviewing their procedures to ensure that debt validation notices are delivered on the heels of filing debt collection suits -- at least in the Seventh District, or until Congress makes a change in the statute.

First published on BankersOnline.com 01/06/05