In May 2016, the United States Court of Appeals for the Seventh Circuit
affirmed that the FDCPA does not contain a requirement that a debt collect
must intend to proceed to trial when it files a lawsuit to collect a debt.
The case was appealed from the United States District Court for the Northern
District of Illinois. The defendants in this case are debt collectors
who filed suit in the Illinois state court to recover on the plaintiff’s
delinquent credit card accounts. The debt collectors voluntarily moved
to dismiss without prejudice and the actions were dismissed prior to trial.
The plaintiffs then sued the debt collectors in federal court alleging
violation of the FDCPA.
The issue on appeal is whether the debt collectors violated §1692e(5)
of the FDCPA by initiating the state court proceedings with no intention
of going to trial. The FDCPA prohibits debt collectors from using “any
false, deceptive, or misleading representation or means in connection
with the collection of any debt.” The plaintiff’s argued on
appeal that by filing a collection lawsuit without intending to go to
trial violates the FDCPA because the debt collectors “threatened”
to take an action it did not intend to take.
The Seventh Circuit concluded that the plaintiffs failed to state a viable
claim under §1692e(5). The Court rejected the plaintiffs’ claim
that the filing of a lawsuit was an implied representation that trial
was imminent. A threat has been defined as a declaration of intention
to take some action. Here, the mere filing of a civil action was not found
to include a declaration that debt collectors intended to advance the
action to trial. The Court stated, “Litigation is inherently a process
[and] recovery through that process may be achieved in many ways, and
at different stages, of which trial is often not the most cost-effective
or desirable.” The Court held that debt collectors are no different
than any other plaintiff and similarly must weigh out the costs of litigation
when deciding whether to pursue a trial. A decision not to proceed to
trial was found to be a legitimate exercise of discretion.
Ultimately, the Seventh Circuit held that “an unsophisticated consumer
could not reasonably conclude that a debt collector implicitly threatens
to proceed to trial simply by filing a lawsuit to recover a debt.”
The Seventh Circuit’s decision will have an effect on both debt
collectors, borrowers, and consumer attorneys. It has been a commonplace
for consumer attorneys to urge courts to treat debt collector litigants
differently in regards to the way they litigate claims. This case confirms
that the FDCPA was not intended to and does not serve to bar a debt collector
from recourse to the courts. Debt collectors are entitled to the “typical
and customary cost-benefit analysis when conducting litigation”
as other non-debt collector litigants without the fear of FDCPA litigation.