On February 16, a judge in the Eastern District of New York denied a defendant collection law firm’s motion to dismiss, finding that its collection letter violated the federal Fair Debt Collection Practices Act because it did not clearly set out that interest and fees may accrue on the “current balance.”
In Polak v. Kirschenbaum & Phillips, P.C., consumer plaintiff Israel Polak incurred a debt to a creditor, which hired the law firm Kirschenbaum & Phillips to collect upon default. In turn, Kirschenbaum & Phillips sent Polak an initial collection letter referencing the amount due at the time of the charge off as $5,578.01 with a “Balance Due” of the same amount. Kirschenbaum & Phillips further listed “Interest Accrued Since Charge-off” and “payments and Credits made as of the date of charge off” as $0.00. The collection letter also contained the following statement:
“The amount reflected above is the amount you owe as of the date of this letter. This amount may vary from day to day, due to interest and other charges added to your account after the date of this letter. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check in which we will inform you of your balance before depositing the check.”
Polak filed suit, alleging that Kirschenbaum & Phillips should have disclosed that “interest was accruing” or in the alternative, that “the creditor and or [sic] Defendant has made the decision to waive the accruing interest.” Polak also alleged that the “threat of a balance increase” was coercive and constituted a “deceptive collection tactic” because the law firm knew that the balance would not vary at all during the collection of the debt.
Kirschenbaum & Phillips argued that the letter conformed to the safe harbor language approved in Avila v. Riexinger & Assoc., LLC. The law firm further argued that the letter was accurate because while the creditor chose not to collect interest on Polak’s debt at that time, the creditor may do so in the future. Therefore, Kirschenbaum & Phillips moved the Court to dismiss under Rule 12b(6), failure to state a claim.
In denying the motion, the Court held that a general disclosure that the balance may increase due to interest does not automatically shield a debt collector from liability when a different part of the collection letter provides inaccurate information, which makes the communication false, deceptive or misleading. The Court further found that even if a debt collector accurately conveyed the required information, a consumer may still state an FDCPA claim if she successfully alleges that the least sophisticated consumer would inaccurately interpret the message.
Further, the Court also found that since the creditor “elected” not to collect interest during the time of collection, the interest was still in fact accruing by law. According to the Court, Kirschenbaum & Phillips could have indicated that while no interest was being collected at that time, interest may accrue and could become due and owing at some point in the future. At least by providing that information, the consumer would be able to determine what he will need to pay to resolve the debt at any given time in the future.
Polak further reinforces that the safe harbor language articulated in Avila does not shield debt collectors from liability if other language in the letter renders it confusing or misleading. Collectors should review their letters for compliance in light of this judicial decision. We will continue to monitor this area of the law as it develops.