By Richard A. Roth, J.D.
A company that sent collection letters on behalf of a medical facility did not create a false impression that it was participating in collecting the debt, according to the U.S. Court of Appeals for the Ninth Circuit. The company did more than just mail letters, the court said—it screened accounts for collection problems, handled debt verification requests, fielded consumers’ telephone calls, and maintained a website where consumers could get more information and make payments. That was sufficient to constitute participating in collecting the debt under the Fair Debt Collection Practices Act (Echlin v. PeaceHealth, April 17, 2018, O’Scannlain, D.).
The consumer brought her principal claim under 15 U.S.C. §1692j, which bans what often is referred to as flat-rating. Flat-rating is the name commonly used for charging a flat fee to send consumers collection letters before those consumers’ debts actually are placed for collection. The FDCPA specifically bans the creation and use of any form that would mislead a consumer into believing that someone other than the creditor was participating in collecting the debt. The practice is of concern because of its perceived potential to intimidate consumers into abandoning a defense to a claimed debt, the court explained.
Debts and collection demands. According to the opinion, the consumer received medical care at PeaceHealth twice, but failed to pay either bill. PeaceHealth referred the delinquent accounts to Computer Credit Inc., which followed its routine collection practices. These consisted of first reviewing the account for possible collection problems and second, sending the consumer two demand letters, approximately two weeks apart. If the consumer took no action or rejected the payment demand, CCI then would refer the account back to PeaceHealth.
In this case, the consumer apparently ignored the two letters that resulted from her first visit to PeaceHealth. When she received the letter that related to her second visit, she contacted CCI and disputed the charge. CCI returned both accounts to PeaceHealth for further action.
The consumer claimed that CCI was engaged in flat-rating because it did nothing but send letters. Since CCI had no authority to take any other action, its letters created the misimpression that it was participating in collecting the debt, and that violated the FDCPA, she asserted.
Sufficient participation. CCI’s form collection letter clearly was a form, the court pointed out, and that form said explicitly that the company was engaged in debt collection. The question under the FDCPA was whether the company’s claim of participation was misleading. In other words, was CCI doing enough to constitute participating in collecting the debt?
Simply mailing form letters probably would not be enough, the court suggested. On the other hand, CCI did not need to have the authority to negotiate settlements. Screening accounts, drafting and mailing demand letters, dealing with consumers, and providing information by direct contact and the website were enough to constitute participating in collecting the debts. It was unimportant that the company was paid a flat fee rather than a portion of its collections or that it did not engage in collection steps beyond the two demand letters, the court added.
Other claims, that CCI misrepresented its activities in violation of the FDCPA’s general ban on misrepresentations and that PeaceHealth was liable for CCI’s flat-rating, were rejected in a footnote because there was no misrepresentation or misimpression.
Impermissible threats. The consumer also argued on appeal that by saying in its collection letters that payment needed to be made in order to "prevent further collection activity" by the company, CCI threatened to take action it could not, or did not intend, to take. CCI, after all, had no authority to take any collection steps beyond sending the two letters, she pointed out.
However, the complaint had never clearly asserted a violation of 15 U.S.C. §1692e(5), the FDCPA provision that bans such threats, the court said. Moreover, the consumer had asserted that CCI was not engaged in collecting the debt, which amounted to disavowing any claim relating to debt collector misbehavior.
There would be no point in allowing the consumer to amend her complaint to add the claim, the court then said, because the statute of limitations had run out. Also, since the impermissible threat claim would rely on facts in addition to those that were relevant to the flat-rating claim, it would not avoid the statute of limitations by relating back to the flat-rating claim.
The case is No. 15-35324.
This article previously appeared in the Banking and Finance Law Daily.
