The U.S. Court of Appeals for the Sixth Circuit recently articulated a standard for verifying a debt under the Fair Debt Collection Practices Act (FDCPA) in Haddad v. Alexander, Zelmanski, Danner & Fioritto, PLLC. The FDCPA requires that if a consumer notifies the debt collector of a disputed debt, or some portion of that debt, then the debt collector must cease all collection activity until it obtains verification of the debt. The FDCPA does not specify what constitutes “verification”; however, the court determined that it is generally helpful for creditors to compile a detailed list of transactions constituting the debt.
In this case, a condominium owner disputed certain amounts assessed against him by the condominium’s property manager. The property manager responded by providing the owner with a copy of an account ledger listing the original amount owed as $75 plus late charges and legal fees. The owner agreed to pay the $25 fine for a hot water heater, but withheld payment on the remaining $50 until the property manager could provide a detailed description of every charge that amount contained.
Despite letters from the property manager with details about late charges and legal fees, the owner never received any information verifying the $50 balance, which was apparently carried over from the records of the prior property management company. Instead, the property manager filed a lien against the condominium. Although the lien was later released, the Sixth Circuit observed that the owner was faced with a catch-22 choice between paying an unknown debt or dealing with an encumbrance of the owner’s property rights.
The Sixth Circuit observed that the FDCPA is intended to protect consumers, so the verification requirement “must be interpreted” to provide consumers with sufficient notice so that they can dispute a payment obligation. The court acknowledged that what constitutes baseline information for adequate verification will vary depending on the facts of a particular situation, but the court noted that an itemized accounting detailing the transactions in an account that have led to the debt would often be the best means of providing verification. At a minimum, the court stated that debt collectors should provide information about the date and nature of the transaction that led to the debt. The court provided the following examples of information that would constitute verification under the FDCPA:
A purchase on a particular date
A missed rental payment for a specific month
A fee for a particular service provided at a specified time
A fine for a particular offense assessed on a certain date
The Sixth Circuit commented on its own holding, stating that this interpretation of the FDCPA verification requirement establishes a “clear standard” that other courts can apply easily. The court also asserted that the information that would be considered sufficient to put consumers on notice about the origins of a debt does not have to be extensive, so “in today’s world of computerized records management, it would not be a significant burden to debt collectors or creditors to provide such a record.”
While the court may be taking too simplistic a view of the complexities of the relevant information systems, its message is clear—the burden to explain the existence and the amount of a debt lies with creditors and debt collectors, not consumers. In that regard, banks and other creditors refinancing loans or transferring account balances may want to confirm that their records will allow them to identify the opening balance on an account.