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Wahl v. Midland Credit Management

February 23, 2009

BARBRA WAHL, ON BEHALF OF HERSELF AND CERTAIN CLASSES,
v.
MIDLAND CREDIT MANAGEMENT, INC., MIDLANDFUNDINGNCC-2 CORP., PLAINTIFF-APPELLANT, AND ENCORE CAPITAL GROUP INC., FORMERLY KNOWN AS MCM CAPITAL GROUP, INC., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 06 C 1708-Ruben Castillo, Judge.

The opinion of the court was delivered by: Evans, Circuit Judge.

ARGUED JANUARY 23, 2009

Before BAUER, EVANS, and WILLIAMS, Circuit Judges.

Congress passed the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692, to curb abusive methods of debt collection. Central to this objective is the Act's requirement that debt collectors state only truthful information. Today we decide whether this requirement is violated when a collector, although accurately stating the amount demanded, breaks down the principal and interest components of the debt in an arguably false manner.

The facts are largely undisputed. During the 1980s and 1990s, Barbra Wahl racked up a small debt on a credit card issued by BP Amoco (BP). As of 1998, the outstanding balance was a mere $66.98, and Wahl was no longer using the card. Unfortunately, though, Wahl was out of work at the time due to a stroke she suffered three years earlier, which also left her with exorbitant medical expenses, so the bill went unpaid. And with interest and late fees accruing every month, it soon spiraled out of control. By 2002, the bill was nearly $1000. Statements from 2002 to 2005 showed that, although the card was not being used, nearly $40 in interest and late fees were accruing every month. In 2005, the debt finally went into collection, and that's where the defendants in this case-Midland Credit Managing, Inc., Midland Funding NCC-2 Corp., and Encore Capital Group, Inc. (collectively Midland)-became involved.*fn1 Midland took title to the debt in January, purchasing the balance of $1149.09. Of course, the balance was comprised almost entirely of interest and late fees charged by BP, but that was a valid part of the money owed.

In early February 2005, Midland sent Wahl a letter demanding payment. Midland listed the "current balance" as $1,149.09 but offered Wahl a 25 percent discount if she payed within a month and a half (making the "amount due" only $861.82). Wahl didn't take the deal, but she has no beef with that letter. Instead, Wahl claims it was the next two letters that violated the FDCPA, because-ironically enough-they provided more information.*fn2

The next letter came on Tax Day, April 15, 2005. This time it was a two-sided document. The front side bore the same format as the previous letter but with higher figures. It listed both the "current balance" and "amount due" as $1,160.57. The back side, however, broke this sum down into its component parts, accounting for the increase since the previous letter. The "principal balance," or past due amount, was identified as $1,149.09. And the difference between that figure and the current amount due-$11.48-was attributed to "accrued interest," all leading to the "new balance" (called the "current balance" and "amount due" on the front side) of $1,160.57.

The final letter made its way to Wahl some four months later, in August 2005. It was drawn up in an identical format, but naturally Midland wanted more money. This time the "current balance" and "amount due" were $1,181.49, accounting for a total of $32.40 in "accrued interest" since Midland purchased the debt. As before, the interest was listed on the back side of the form, as was the "principal balance" of $1,149.09 and the "new balance" of $1,181.49.

At the risk of both repetition and stating the obvious, we emphasize that the amount designated as "principal balance" in both these letters ($1,149.09) included interest and late fees that accrued on the account under BP. In other words, the "principal balance" was what Wahl owed BP before BP transferred the account to Midland for collection.

Against this backdrop, and with no inclination to pay, Wahl filed a putative class-action complaint in the Northern District of Illinois. Though she asserted two counts under the FDCPA, only one of them-we'll call it the "principal-and-interest" count-is before us on this appeal. Here it is in a nutshell: Debt collectors need not say anything more than the amount sought, but if they do elect to specify principal and interest components, they must indicate the principal charges levied by the original account holder, the interest levied by the original account holder, and the interest levied by the debt collector. Otherwise, Wahl claims, the statement is false-because "principal" cannot include any amount of interest. Wahl says the collection letters in this case violated this rule because the "principal balance" included interest charged by BP, a fact that was not disclosed like the interest charged by Midland.

The court certified a class action under Rule 23 as to the principal-and-interest count, and the parties filed cross-motions for summary judgment. At that stage, the district court sided with Midland. Relying on Barnes v. Advanced Call Center Technologies, LLC, 493 F.3d 838 (7th Cir. 2007), the court held that the FDCPA was not violated because, regardless of the nature and amount of the debt owed to BP, Midland accurately stated the amount it was seeking. We agree. Even though we review a decision granting summary judgment de novo, drawing all reasonable inferences in favor of the losing party, Seeger v. AFNI, Inc., 548 F.3d 1107, 1110-11 (7th Cir. 2008), Wahl's claim is dead in the water.

Wahl contends that the letters in this case violated the FDCPA's prohibition against false or misleading information in collection notices. Codified at 15 U.S.C. § 1692e, that prohibition is unequivocal: "A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." Practices that run afoul of this command include "[t]he false representation of . . . the character, amount, or legal status of any debt," 15 U.S.C. § 1692e(2)(A), as well as "[t]he use of any false representation or deceptive means to collect or attempt to collect any debt," 15 U.S.C. § 1692e(10).

Wahl's argument under § 1692e-hypertechnical at best-is flawed from beginning to end. Initially, she misconstrues the statute. She says she is not arguing that the collection letters were "misleading" or "deceptive," but only that they were "false," and that the statute creates an important distinction between these concepts. Where a plaintiff alleges that a collection statement is false (rather than deceptive or misleading), Wahl contends, the only determination for the court is whether the statement is in fact false. "It is unnecessary to deter-mine whether the unsophisticated consumer would be deceived or misled or confused by the alleged false statement." That could not be further from the truth.

In deciding whether collection letters violate the FDCPA, we have consistently viewed them through the eyes of the "unsophisticated consumer." Barnes, 493 F.3d at 841; Fields v. Wilber Law Firm, P.C., 383 F.3d 562, 564 (7th Cir. 2004); Turner v. J.V.D.B. & Assoc., Inc., 330 F.3d 991, 995 (7th Cir. 2003). The "unsophisticated consumer" isn't a dimwit. She may be "uninformed, naive, [and] trusting," Veach v. Sheeks, 316 F.3d 690, 693 (7th Cir. 2003), but she has "rudimentary knowledge about the financial world" and is "capable of making basic logical deductions and inferences," Pettit v. Retrieval Masters Creditors Bureau, Inc., 211 F.3d 1057, 1060 (7th Cir. 2000). If a statement would not mislead the unsophisticated consumer, it does not violate the FDCPA-even if it is false in some technical sense. For purposes of § 1692e, then, a statement isn't "false" unless it would confuse the unsophisticated consumer. See Turner, 330 F.3d at 995 ("[O]ur test for determining whether a debt collector violated § 1692e is objective, turning not on the question of what the debt collector knew but on whether the debt collector's communication would deceive or mislead an unsophisticated, but reasonable, consumer."). So, while the FDCPA is a strict liability statute-a collector "need not be deliberate, reckless, or even negligent to trigger ...


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