[Note: this post has previously appeared as an article authored by Tomio Narita published in the February 2010 MAP Bulliten]
In its recent opinion, Donohue v. Quick Collect, Inc., 592 F.3d 1027 (9th Cir. 2010), the Ninth Circuit joined the Seventh Circuit and the Sixth Circuit, holding that a false and misleading statement does not violate sections 1692e or 1692f of the FDCPA unless the statement is “material.” See Donohue, 592 F.3d at 1033-34. Does Donohue mark the end of the era of hyper-technical FDCPA violations? While it is probably too early for collection professionals to celebrate, the Donohue case provides strong additional support for notion that technical FDCPA violations are on their way out.
The plaintiff in Donohue asserted a highly-technical alleged violation of the FDCPA. She claimed the collector violated the Act by serving her with a state court complaint which sought the “sum of $270.99, together with interest thereon of 12% per annum . . . in the amount of $32.89.” The collector was entitled to collect the $32.89, but that figure did not actually reflect 12% interest on the principal balance due. Rather, the $32.89 figure was comprised of $24.07 in pre-assignment finance charges (properly assessed by the original creditor) and $8.82 in post-assignment interest calculated at the 12% annual rate. Thus, the statement in the collection complaint was technically false. Id. at 1032.
Despite this, the Ninth Circuit ruled that the collection complaint did not violate the FDCPA. The complaint “sought recovery of sums to which Quick Collect was clearly and lawfully entitled” even though it incorrectly labeled the $32.89 amount sought as 12% interest on principal, instead of finance charges imposed by the creditor and post-assignment interest. Id. at 1033. Following the Seventh Circuit’s decisions in Hahn v. Triumph Partnerships LLC, 557 F.3d 755 (7th Cir. 2009), and Wahl v. Midland Credit Mgmt., Inc., 556 F.3d 643, 646 (7th Cir. 2009), as well as the Sixth Circuit’s decision in Miller v. Javitch, Block & Rathbone, 561 F.3d 588, 596 (6th Cir. 2009), the Ninth Circuit held that a false and misleading statement is not actionable under the FDCPA unless it is “material.” The Court stated: “We now conclude that false but non-material representations are not likely to mislead the least sophisticated consumer and therefore are not actionable under §§ 1692e or 1692f.” See Donohue, 592 F.3d at 1033.
The Ninth Circuit’s holding that only material misstatements violate the FDCPA is consistent with the remedial nature of the Act, because “immaterial statements, by definition, do not affect a consumer’s ability to make intelligent decisions.” Id. The Court noted that:
"In assessing FDCPA liability, we are not concerned with mere technical falsehoods that mislead no one, but instead with genuinely misleading statements that may frustrate a consumer’s ability to intelligently choose his or her response. Here, the statement in the Complaint did not undermine Donohue’s ability to intelligently choose her action concerning her debt."
Id. at 1034. As the Ninth Circuit observed: “Even if the Complaint had separated $32.89 into interest and finance charges, we can conceive of no action Donohue could have taken that was not already available to her on the basis of the information in the Complaint—nor has Donohue articulated any different action she might have chosen.” Id.
Under Donohue, a consumer must demonstrate “materiality” by showing how an allegedly false or misleading statement could have impacted the least sophisticated debtor’s ability to make intelligent choices. Although the court stopped short of adding a “reasonable reliance” requirement, similar to common law fraud, Donohue does require plaintiffs to explain how the least sophisticated consumer might have changed their position as a result of the allegedly false and misleading statement. Highly-technical violations of the FDCPA will rarely qualify as “material” under Donohue because the language used by the collector will not “frustrate a consumer’s ability to intelligently chose a response” to the collector’s communication. Donohue, 592 F.3d at 1034.
The FDCPA was passed to prevent truly “abusive, deceptive and unfair debt collection practices” (see 15 U.S.C. § 1692(a)), not as method for consumers and their attorneys to seize upon meaningless misstatements contained in letters and collection complaints. Circuit courts across the country, including the Ninth Circuit, are recognizing this by holding that technically false statements do not violate the FDCPA unless they are “material” to the collection process. Collectors facing highly-technical FDCPA claims have a powerful new ally in Donohue.