Splitting with Eleventh Circuit, Seventh Circuit affirms debtors' rights.

When a debt collector sues a debtor, the complaint and summons serve as "initial communications" under the Fair Debt Collection Practices Act (FDCPA), triggering the collector's duty to send the debtor a debt validation notice within five days, the Seventh Circuit has ruled. The decision allowed the plaintiff to sue his debt collector for failing to send the notice. (Thomas v. Law Firm of Simpson & Cybak, 392 F.3d 914 (7th Cir. 2004).)

The ruling creates a split with the Eleventh Circuit, which held in Vega v. McKay that a summons and complaint do not constitute initial communications. (351 F.3d 1334 (11th Cir. 2003).)

Plaintiff Frank Thomas claimed violation of his "validation rights": The FDCPA requires that debtors be sent a debt validation notice advising them of their rights within five days of a creditor's or debt collector's initial communication. The notice must include the debt amount; the creditor's name; a statement that the debt will be assumed valid if the debtor does not dispute it within 30 days; and a statement that if the debtor does dispute it, the collector will send written verification of the debt.

The court agreed that a debt collector's service of pleadings against a debtor constitutes an initial communication. Otherwise, collectors could "avoid their obligation to advise debtors of their validation rights altogether by initiating litigation," Judge Ann Claire Williams wrote for the majority. "Such a loophole, creating an end-run around the validation notice requirement, is inconsistent with the [FDCPA] drafters' intention ... especially because many debtors cannot afford to hire attorneys to represent them in collection actions."

Atlanta lawyer Betty Morgan, chair-elect of ATLA's Business Torts Section, noted that "the FDCPA is incredibly complicated, and it's very difficult for consumers to understand what the requirements are. Notices are written in fairly dense legalese."

Thomas's case arose after he purchased a vehicle on an installment contract from General Motors Acceptance Corp. (GMAC). After losing his job, he received a default letter from GMAC saying his payment was past due. The company then sued him to recover the vehicle.

Thomas received a complaint from GMAC's Chicago law firm, Simpson & Cybak, including a statement that "pursuant to the [FDCPA], you are advised that this law firm is a debt collector attempting to collect a debt, and any information obtained will be used for that purpose." He also received a summons that included similar language.

Thomas sued GMAC and Simpson & Cybak for failing to send the debt validation notice, arguing that GMAC's letter and the summons and complaint qualified as initial communications. The district court dismissed Thomas's case for failing to properly state a claim, but it said the letter constituted an initial communication and the filing of the lawsuit did not.

The Seventh Circuit, reconsidering en banc an earlier decision by a three-judge panel, disagreed.

Because the FDCPA regulates debt collectors rather than creditors, GMAC's letter did not qualify as an initial communication, and "no obligation to inform Thomas of his validation rights arose upon the sending of the letter," Williams wrote. But the court ruled that the summons and complaint did count: "Viewing the service of a summons and a complaint as an 'initial communication' is consistent with the drafters' intent," which is to "protect consumers from a host of unfair, harassing, and deceptive debt collection practices."

The defendants argued that considering the summons and complaint an initial communication would make debt collection lawsuits more cumbersome. The act requires debt collectors to cease their collection efforts if the consumer seeks verification of the debt within 30 days of receiving the debt validation notice--so the consumer could stop a lawsuit by requesting verification.

To address that problem, the court said a debt collector could make the initial communication something other than the summons and complaint and send it more than 30 days before it initiates litigation. This would also avoid other complications, Williams wrote, including confusion over the deadlines a debtor must comply with. For example, the debtor has 30 days to dispute the debt, but 20 days to answer a complaint as a defendant in federal court.

Judge Terence Evans, in a dissent that was joined by three other judges, said the act's definition of communication could be read to include a summons and complaint--but it shouldn't be. To do so "runs counter to the intent of the statute and creates inconsistency," he wrote, agreeing with the Eleventh Circuit.

Morgan noted, "By virtue of the Pact that the opinion was a rehearing en banc, more courts are likely to look at this decision as being authoritative, even though the Eleventh Circuit decision is out there."

At press time, Congress was considering an amendment to the FDCPA to exclude formal pleadings from the definition of a communication. The Supreme Court could decide to take up the issue to resolve the split in the circuits, but a legislative fix is likely to happen sooner, Morgan said.

"It's one of those questions that at first blush looks like it's a technical legal issue, but it really does have practical implications for regular folks," she said. "To put all this information in a lawsuit is going to make it very complicated for most debtors who, through the loss of a job or something else, are facing hard times. It's bad enough to get a lawsuit, but this other complicating aspect--to figure out what you have to do when--is really sort of mind-boggling."