Barbara Wahl v. Midland Credit Mgmt ( 2009 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-1517
B ARBRA W AHL, on behalf of herself
and certain classes,
Plaintiff-Appellant,
v.
M IDLAND C REDIT M ANAGEMENT, INC.,
M IDLAND F UNDING NCC-2 C ORP.,
and E NCORE C APITAL G ROUP 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.
A RGUED JANUARY 23, 2009—D ECIDED F EBRUARY 23, 2009
Before B AUER, E VANS, and W ILLIAMS, Circuit Judges.
E VANS, Circuit Judge. 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
2 No. 08-1517
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 out-
standing 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 spi-
raled 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 1 Midland)—became involved. 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”
1
No pun intended.
No. 08-1517 3
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 infor-
mation.
The next letter came on Tax Day, April 15, 2005. 2 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.
2
Actually, there was an intervening letter, but that’s not
relevant for our purposes.
4 No. 08-1517
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 com-
ponents, 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
No. 08-1517 5
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 deci-
sion 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 infor-
mation 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 con-
cepts. Where a plaintiff alleges that a collection state-
ment 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
6 No. 08-1517
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 unsophisti-
cated, but reasonable, consumer.”). So, while the FDCPA
is a strict liability statute—a collector “need not be de-
liberate, reckless, or even negligent to trigger liability,”
Ross v. RJM Acquisitions Funding LLC, 480 F.3d 493, 495 (7th
Cir. 2007)—the state of mind of the reasonable debtor is
always relevant. The upshot? Wahl can’t win simply by
showing that Midland’s use of the term “principal balance”
is false in a technical sense; she has to show that it would
mislead the unsophisticated consumer.
No. 08-1517 7
But even assuming Wahl’s construction of § 1692e to be
right, we see no falsity (technical or otherwise) in Mid-
land’s approach. Wahl says that it is false to describe as
a “principal balance” any sum of money that contains
interest. As the American Heritage Dictionary of the
English Language (3d ed. 1992) explains, when used as
an adjective, “principal” describes an original “sum of
money owed as a debt, upon which interest is calcu-
lated,” and a “balance” is the difference between “the
debit and credit sides of an account.” That admittedly
makes a “principal balance” the starting or original
amount owed, exclusive of interest. Now, with this, Wahl
would say she is vindicated. The starting or original
amount owed, she would say, was what she actually
charged on the BP card. It follows that none of the
interest, whether tacked on by BP or Midland, is part of the
“principal balance.” And since Midland included the BP
interest within the “principal balance” figure, it uttered a
falsehood. But this logic ignores Midland’s role in the
process entirely. The interest charged by BP was very
much part of the principal balance in Midland’s eyes.
Midland obtained the entire BP debt,3 including interest, so
the starting or original amount owed, as far as it was
concerned, was indeed $1,149.09.
Applying the true test, moreover, we see no way this
language would confuse the reasonable consumer, unso-
phisticated though she may be. Midland simply identified
the total amount it sought and then explained how it
3
Probably, we assume, for pennies on the dollar.
8 No. 08-1517
arrived at that sum (listing the debt it acquired from BP
and its own interest charges). The unsophisticated con-
sumer, with a reasonable knowledge of her account’s
history, would have little trouble concluding that the
“principal balance” included interest charged by BP.
Granted, Midland could have elected to go a step further,
disclosing the components of the debt it acquired—such
as what Wahl charged on the card versus the interest
and late fees levied by BP—but it wasn’t a matter of
compulsion. It was enough for purposes of § 1692e
that Midland’s statements were not false or misleading.
Finally, we agree with the district court that Wahl
cannot get past Barnes. Although that case dealt with a
different provision of the FDCPA, § 1692g rather than
§ 1692e, it involved a principle equally germane to Wahl’s
suit. In Barnes, we rejected a consumer’s argument that
a collector failed to state “the amount of the debt” as
required by § 1692g when the collector stated the
amount past due and in collection, but not the overall
credit card balance. Barnes, 493 F.3d at 839. We noted
that, while the amount of the debt from the perspective
of the credit card company might be the running balance,
the amount of the debt from the collector’s perspective
was what it was seeking. Id. at 840. Like Barnes, Wahl
“forget[s] who the defendant is.” See id. If BP authored a
letter identifying as the “principal balance” a sum con-
taining massive amounts of interest charged at its own
hand, that would have been misleading. But the nature
of the debt owed to BP “is of no consequence to this case.”
See id. The defendant here is Midland—the debt collector,
not the creditor—and that changes everything.
No. 08-1517 9
Wahl’s argument rests on empty semantics and conflicts
with Barnes. The judgment of the district court is A FFIRMED.
2-23-09