It’s the season to go back to school and learn something new. When I was growing up we learned the long multiplication algorithm where you multiply numbers from right to left, insert zeros along the way, write some first few digits on top instead of bottom, add some of those numbers for a intermediate answer, and then add these intermediate answers together to get the final answer. For those of a certain age, this is a familiar method that eventually gets you to an answer despite the fact that the process is a bit unclear. I recently learned that there is what some tout as an easier way to solve a multiplication problem by breaking it down into one operation at a time. Although you’ll probably get the same answer, this method gives you better visibility into each step.
Likewise, a recent 10th Circuit decision gives debt collectors the opportunity to learn an easier method to determine whether a consumer debtor has been misled in violation of Section 1692e of the Fair Collections Practices Act. of receivables.
Jason Tavernaro defaulted on his federal student loan, which was later sold to Educational Credit Management Corporation. ECMC has retained the services of Pioneer Credit Recovery, Inc., a collection agent, to assist in collecting debt from Tavernaro. Pioneer sent Tavernaro’s employer a withholding order directing the employer to garnish Tavernaro’s wages and remit them to Pioneer.
The subject of Tavernaro’s subsequent lawsuit is the two-page letter from the OWE package. The front page “prominently displayed” the ECMC logo and the title of the letter – “Income Withholding Order” – and identified ECMC as “the holder of federally insured student loan debt in default due to ECMC by the employee referenced below”. The first page also provided a mini-Miranda warning and asked the employer to see the following page for “important information”.
Halfway down the second page, the letter identified Pioneer as the company “assisting ECMC in the administrative activities associated with this administrative wage garnishment.” The letter directed the employer to remit payments to Pioneer and provided Pioneer’s mailing address. The letter then advised the employer that any questions should be directed to Pioneer and again provided Pioneer’s mailing address and telephone number. The signature line of the letter identified ECMC.
After receiving the OWE, Tavernaro’s employer garnished his wages, which he then turned over to Pioneer. Tavernaro sued Pioneer, claiming on behalf of itself and a putative class that Pioneer violated Section 1692e of the FDCPA’s prohibition against the use of “false, misleading, or deceptive representations” or “unfair means or unreasonable” to attempt to collect a debt. The trial court granted Pioneer’s motion to dismiss. Tavernaro appealed, arguing that the letter appeared to have been sent by ECMC, not Pioneer. The United States Court of Appeals for the Tenth Circuit upheld the trial court’s decision.
The federal appeals courts agree that to violate section 1692e, a “misrepresentation” must be material, meaning the statement must be “capable of influencing the consumer’s decision-making process.” If a statement does not affect the consumer’s choice, it is irrelevant and cannot form the basis of a cause of action under section 1692e.
But how is materiality measured? It is here that the 10th Circuit’s ruling forces debt collectors to go back to school and relearn the applicable standard.
The United States Supreme Court did not rule on the applicable standard. Some Courts of Appeals, including the 2nd and 9th Circuits, apply a “least sophisticated consumer” standard. According to this standard, a consumer “may be misinformed, naïve and gullible”, but “their interpretation of a notice of collection cannot be bizarre or unreasonable”. The 3rd Circuit view of a “less informed consumer” is one who may be deceived or misled by communication that might not deceive or mislead a “reasonable consumer”. The “uninformed consumer” standard, applied in the 7th, 8th and CC circuits, is functionally the same as the “less sophisticated consumer” standard, but more precise in terms of description.
The 10th Circuit, reviewing other consumer protection laws and wishing to provide a clear and easily enforceable standard, has determined that the correct measure of materiality is the “reasonable consumer” standard. To apply the standard, a court should “assume that the reasonable consumer would read a communication in its entirety and make sense of a communication by evaluating it as a whole and in its context”. First, the court must answer “whether the reasonable consumer could reasonably construe the representation as having multiple meanings, one of which is false.” If the reasonable consumer’s interpretation is correct, then Section 1692e has not been violated because the representation is not misleading. However, if a reasonable consumer could understand a representation as misleading, then the next question in the analysis is “whether the reasonable consumer would find their ability to respond intelligently frustrated”.
The Tavernaro The court reviewed the entirety of the letter to conclude that a reasonable consumer would not be misled as to the sender of the letter, as its express language made it clear that the ECMC owned the debt, Pioneer is the debt collector who was assisting the ECMC in collecting the debt, and the letter was an attempt to collect that debt. However, even if a reasonable consumer was misled as to the sender of the letter, the appeals court determined that such an interpretation would not impede Tavernaro’s ability to respond intelligently. A reasonable consumer would not be confused as to whom to contact with questions or concerns about the letter, as the letter clearly and repeatedly instructed the reader to contact Pioneer.
In light of this case, debt collectors engaged in consumer collection within the jurisdiction of the 10th Circuit should review all of their debt collection communications and ask themselves the two questions set out in the Tavernaro Case. Although the answer may be the same as under the “less informed consumer” or “uninformed consumer” standards, debt collectors may find this method easier to understand and apply and, therefore, be better able to minimize risk.
Tavernaro v Pioneer Credit Recovery, Inc., 2022 US app. LEXIS 21914 (10th Cir. (D. Kan.) Aug. 8, 2022).