The U.S. Court of Appeals for the Seventh Circuit recently ruled in Horia v. Nationwide Credit & Collection, Inc. that a consumer was not precluded from bringing a second FDCPA lawsuit against a debt collector for failing to notify a credit reporting agency that the debt was disputed even though the first lawsuit brought by the consumer against the debt collector alleging the same FDCPA violation in connection with a different debt had been settled and dismissed with prejudice.

The district court dismissed the second lawsuit on the grounds of issue preclusion, finding that the consumer had impermissibly split his claims.  Reversing the dismissal, the Seventh Circuit found that although both lawsuits involved the same FDCPA requirement and the same debt collector, the wrongs differed and the consumer’s injuries differed.  According to the Seventh Circuit, “[e]ach failure to notify could have caused an additional harm to credit score or peace of mind.”  It concluded that “[e]ach time a debt collector fails to give a credit agency the required notice for a debt is a stand-alone wrong.  Disputes that have an independent existence may be litigated separately.”

While ruling in favor of the consumer, the Seventh Circuit offered advice for how “bill collectors can protect themselves.”  First, it observed that the debt collector could have negotiated a broader release that covered all disputes between the same parties and not just the dispute already in court.  (The court noted that while it was possible the release did cover the second lawsuit, “release is an affirmative defense.”)

Second, referencing the FDCPA provision that allows a court to award additional damages of up to $1,000 per case, the Seventh Circuit indicated that a debt collector could argue, and district court judges would have discretion to conclude, that “a debtor who has already collected $1,000 in statutory damages should not receive more from the same defendant for the same sort of wrong.”  It stated that “[d]ebt collectors are also free to contend, and judges to find, that the second suit entails the same ‘actual damage’ (§1692k(a)(1)) as the first, so that an additional award on that front is inappropriate.  If a bill collector’s first failure to notify a credit bureau damages a debtor’s credit score and causes emotional distress, a second suit based on a second failure to notify the same credit bureau allows the debtor to collect only the marginal loss caused by the second wrong.”

Third, the Seventh Circuit referenced the FDCPA provision that allows a debt collector to collect its attorneys’ fees from the consumer if it can show a lawsuit was brought in bad faith and for the purpose of harassment.  It stated that the FDCPA “thus provides debt collectors with tools to discourage abusive litigation.”