Disputing Debts under the FDCPA – The Effect of the Fourth Circuit’s Opinion in Clark v. Absolute Collection Service, Inc.

by Spilman Thomas & Battle, PLLC

In January of this year, the United States Court of Appeals for the Fourth Circuit (“Fourth Circuit”) decided the case of Clark v. Absolute Collection Service, Inc. (741 F.3d 487, 4th Cir. 2014). The question of first impression before the Court was whether Section 1692g(a)(3) of the Fair Debt Collection Practices Act (“FDCPA”) requires a consumer to dispute a debt in writing to gain the protections afforded by the FDCPA. The Fourth Circuit held that, for purposes of § 1692g(a)(3), a dispute need not be in writing, a consumer can dispute a debt orally. Although businesses engaged in debt collection in the Fourth Circuit should take note of this decision and evaluate applicable procedures, the ultimate impact may be limited.

The FDCPA creates certain protections for a consumer when a consumer disputes a debt being collected. For example,

Section 1692g(a)(4) provides that:

if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; . . . (emphasis added)  

Section 1692g(a)(5) provides that:

upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor. (emphasis added)
And, Section 1692g(b) provides that:
if the consumer notifies the debt collector in writing within the thirty-day period . . . . that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of [the same] is mailed to the consumer by the debt collector. (emphasis added)

Notably, each of these sections states specifically that the dispute must be in writing to trigger the protection(s) provided to the consumer.

In contrast, Section 1692g(a)(3) of the FDCPA simply states that:

unless the consumer, within thirty days after receipt of the notice [of debt], disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector.

In Clark, the consumer plaintiff sued Absolute Collection Service, alleging it violated the plaintiff’s right to challenge plaintiff’s debt orally under section 1692g(a)(3) because the collection notice stated the debt would be “assumed valid unless disputed in writing.” Plaintiff argued Absolute’s imposition of a writing requirement amounted to the use of a false representation or deceptive means of collecting the debt in violation of section 1692e(10) of the FDCPA.

In response, Absolute argued that a writing requirement was implied in the statute, following an opinion by the Third Circuit Court of Appeals. But, the Fourth Circuit disagreed. Unlike the other provisions cited above, the language of § 1692g(a)(3) does not specify the dispute must be in writing. Further, the Court noted other protections can be triggered solely by a dispute under § 1692g(a)(3). Hence, § 1692g(a)(3) is interpreted separately from the other debt collection provisions, and a debt need not be disputed in writing for purposes of § 1692g(a)(3).

Commentators have cited the Clark opinion as holding that consumers may dispute their debts orally. But, this statement is overbroad. The Fourth Circuit’s opinion did not change the writing requirement for all disputes under the FDCPA. Rather, its holding appears to be limited to § 1692g(a)(3).

If a debt collector violates the protections that can be triggered solely by an oral dispute under § 1692g(a)(3), then it could face a claim for violating the FDCPA. Specifically, if a consumer orally disputes the validity of a debt when a debt collector communicates credit information about the debt, the debt collector must also note the debt is disputed (§ 1692e(8)). Also, when a debt collector receives a payment on multiple accounts, it cannot apply any portion of the payment to an account that is disputed (§ 1692h).

Aside from these two provisions, the opinion does not appear to change the framework for disputing a debt or responding to the dispute. A debt collector is not required to cease collection activity based solely on the consumer’s oral statement that the debt is disputed. Of course, pursuing collection of a disputed debt is likely to prompt a written dispute (or lawsuit or counterclaim). However, this is no different from what is currently required.

A debt collector should be careful to report a debt as disputed if the consumer challenges the validity of the debt – even orally. And, a consumer’s payment for multiple accounts should not be applied in part to the disputed debt. Otherwise, the Fourth Circuit’s decision does not appear to mandate a change in the debt collector’s procedures for responding to disputed debt claims.

The Fourth Circuit, which covers West Virginia, Virginia, North Carolina, South Carolina and Maryland, joined the Second and Ninth Circuits in deciding Clark. In contrast, the Third Circuit, which covers Pennsylvania, New Jersey and Delaware, implies a requirement for written notice under Section 1692g(a)(3).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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