Ellis Law Group


An Update on "Overshadowing"

Recently, my firm defended a class action purportedly brought on behalf of all persons in the State of California to whom form collection letters had been sent by a collection agency in an attempt to collect a debt. The lawsuit, entitled Renick v. Dun & Bradstreet Management Services, alleged claims under the Fair Debt Collection Practices Act ("FDCPA") and the California Unfair Business Practices Act ("UBPA"). The action was filed in the United States District Court, Northern District of California. The plaintiff claimed the collection letters were improper because the 30-day validation notice was "overshadowed" by other demands and language in the form letters. Because CAC members repeatedly ask me questions about "overshadowing" issues, I thought I would share the facts of this case and our success in defending the agency, which led to the dismissal of the plaintiff's claims.

The FDCPA requires that an initial communication with a consumer regarding a debt (the "validation notice") contain a statement which includes the following information: (a) the name of the creditor and the amount of the debt; (b) a statement that unless the consumer disputes the validity of the debt within 30 days of the date of receipt of the communication, the debt will be assumed to be valid by the debt collector; (c) a statement that if the consumer disputes the debt, or a part thereof, the debt collector will mail verification of the debt, and (d) a statement that, upon written request, the debt collector will provide the consumer with the name of the original creditor. See 15 U.S.C. §1692g(a).

In our case, on March 2, 1999, Dun & Bradstreet mailed the plaintiff its first collection notice, which stated, on the top of the front side of the letter, that "Our client has assigned your past due account to this agency for collection. Please send your check or money order. . .for the full amount indicated above. . .Use the tear-off portion of this letter. . .to send your payment, unless you contest the validity of this debt. Act promptly to avoid further collection activity." (Emphasis added.)

The bottom of the same front stated, in large print, as follows: "NOTICE: SEE REVERSE SIDE FOR IMPORTANT INFORMATION."

The reverse side of the collection letter stated: "YOUR PROMPT PAYMENT IS REQUESTED. IF YOU DISPUTE THE VALIDITY OF THIS DEBT OR ANY PORTION THEREOF, NOTIFY THIS OFFICE WITHIN THIRTY DAYS AFTER RECEIVING THIS NOTICE". In the same type size, the notice included the other information required by section 1692g to be included in a "validation notice".

Less than 30 days later, on March 22, 1999, the collection agency sent a second collection letter. The front page of the second letter directed any questions about the account to the agency and further added: "Use the tear-off portion of this letter and the enclosed return envelope to send your payment today." (Emphasis added.) The reverse side of the letter contained all the statutorily mandated validation information, but that language was preceded with the statement: "YOUR PROMPT PAYMENT IS REQUESTED." (Emphasis added.)

In filing the lawsuit against Dun & Bradstreet, the debtor contended that the collection agency's request for "prompt payment" and "payment today" in the March 22 collection letter would either (a) confuse the "least sophisticated debtor" or (b) contradict and overshadow the 30-day validation notice period required by section 1692g(a). The debtor claimed the language gave the impression that the recipient did not have the full 30-days to dispute the validity of the debt.

Courts have interpreted § 1692g to require the "effective" communication of the mandatory validation information to a debtor. This requires that validation information be presented in a non-confusing manner, and that nothing else in the collection letter "contradict" or "overshadow" the required information, including the 30-day period within which a debtor has to invoke his or her validation rights. See, e.g., Terran v. Kaplan, 109 F.3d 1428, 1432-33 (9th Cir. 1997); Mahon v. Credit Bureau of Placer County 171 F.3d 1197, 1202, 1203 (9th Cir. 1999) (validation request must be in writing and must be made within a 30-day period to be valid and to "trigger" validation obligation).

The basic test for determining whether language in a communication from a collector violates § 1692g of the FDCPA depends on whether it is "likely to deceive or mislead a hypothetical "least sophisticated debtor". Id. at 1431. In short, language of the validation notice:

. . . must be effectively conveyed to the debtor. It must be large enough to be easily read and sufficiently prominent to be noticed -- The notice must not be overshadowed or contradicted by other messages or notices appearing in the . . . communication from the collection agency. (Emphasis added.)

Swanson v. So. Oregon Credit Service, Inc., 869 F.2d 1222, 1225 (9th Cir. 1989). The question of whether other language in a collection letter overshadows or contradicts the validation notice so as to confuse a least sophisticated debtor is made by a court as a question of law. Terran, 109 F.3d at 1432.

In Swanson, the collection letter sent by the creditor to a debtor contained the following message: "IF THIS ACCOUNT IS PAID WITHIN THE NEXT 10 DAYS, IT WILL NOT BE RECORDED IN OUR MASTER FILE AS AN UNPAID COLLECTION ITEM. A GOOD CREDIT RATING - IS YOUR MOST VALUABLE ASSET". This language was in boldface type larger than the text of the validation notice. Below the above warning, in small, standard-face type, was the notice required by the statute. The court found that the letter was "misleading in both form and content". Swanson, 869 F.2d at 1225.

The court first noted the "form" of the letter was problematic; in this regard, it observed that the validation notice was "placed at the very bottom of the letter, in small, ordinary-face type", and it was "dwarfed by [the] a boldfaced, underlined message three times the size" which dominated the center of the page. More importantly, the court found that the "substance" or content of the language stood "in threatening contradiction to the text of the debt validation notice". The court believed the reference to a good credit rating as the "most valuable asset" was designed to threaten the least sophisticated debtor to the conclusion that: "he must ignore his right to take 30 days to verify his debt and act immediately. Id. at 1225-26. The court concluded that the letter, in substance and form, represented an attempt on the part of the collection agency to mislead the debtor into disregarding the 30-day validation period. Id. at 1226.

In Terran, on the other hand, the collection letter stated: "Unless an immediate telephone call is made. . .we may find it necessary to recommend to our client that they proceed with legal action. Unless you notify us within thirty (30) days after receipt of our initial notice that you dispute the validity of this debt, or any portion thereof, we will assume the debt to be valid".

Unlike the circumstances in Swanson, the Terran court found the content and form of the letter was designed to be informational and, hence, the letter's text did not overshadow the language in the validation notice. Significantly, the form of the letter did not emphasize payment to the disregard of the consumer's other rights. The letter was uniformly printed in ordinary, same-size font. No emphasis was placed on any particular statement, with the exception of the name of the creditor and the person to contact at the collection agency.

Equally important, the court found that the challenged language did not require payment "immediately" -- it merely requested a telephone call. The court thus concluded that the content of the request for a telephone call did not "threaten or encourage a least sophisticated debtor to waive his statutory right to challenge the validity of the debt". Id. at 1434.

In our case, the March 2nd letter from Dun & Bradstreet urged the plaintiff to "send your payment" and to "[a]ct promptly to avoid further collection activity". Likewise, the March 22nd letter merely requested that the plaintiff "[u]se the tear-off portion. . .to send your payment today". Neither of the letters, however, demanded payment within less than the statutory period; and neither letter threatened legal action or forecast any negative impact on plaintiff's credit record if the payment was not sent.

The question before the court was whether the words "send payment today" or "prompt payment" should be interpreted as merely encouraging the debtor to pay the debt sooner rather than later, which is permitted by the FDCPA, or whether the language should be characterized as demanding that he make payment within a time period less than the statutory thirty days, which is prohibited by the statute.

We acknowledged in our briefing that the March 22nd notice did request that plaintiff "[u]se the tear-off portion of the letter to send your payment today". However, we noted that the language was not in large type, and it carried no sense of urgency because it was in the nature of a request rather than a demand. The court agreed with our position, finding that such a request does not violate § 1692g, as that section has been interpreted by the courts. Consequently, the court ordered the class action dismissed.

The court found that the letter's language was not sufficiently contradictory to be confusing to the least sophisticated consumer. It wrote: " Section 1692g's validation requirement was designed to ensure that debt collectors give consumers adequate information about their legal rights. These rights, as set forth in section 1692g, include the right to dispute the validity of the debt within 30 days, and the right to receive a verification of the debt if the validity of the debt is disputed. Here, both the March 2nd and the March 22nd letters contained notices clearly conveying that information, and unambiguously advising plaintiff that he should contact D&B within 30 days of receipt of the March 2nd letter if he wished to dispute the validity of the debt". (Emphasis added.)

The point I want you to take away from this article is threefold. First, you can continue collection efforts within the 30-day validation period by either demanding payment or going forward with further collection or legal activity, so long as the debtor has not disputed the debt. See, e.g., Bartlett v. Heibl, 128 F.3d 497 (7th Cir. 1997) 1

Second, your letters may request payment during the 30-day period, so long as the substance or content of the letters encourages payment, rather than threatening specific consequences if payment is not forthcoming. As shown by our case, even letters that encourage "immediate" payment or payment "today" are likely to be found legal, where no definite consequence is threatened if payment is not made. Avoid language in your letters that threatens litigation, referral to credit bureaus, or other adverse action, if payment is not made during the 30-day validation period. The "threat" element is a key factor in the determination that overshadowing has occurred. See Swanson, supra, 868 F.2d at 1225.

Third, the form of your notices are important as the substantive language it contains. A request for payment should not be set forth in bigger or bolder type than the rest of the letter, particularly the validation notice. The location of the validation notice may also be important, and notices "hidden" on the backside of a form letter are more likely to lead to a finding of overshadowing. Letters with all the text in the same size type, with the same boldness, are more likely to be deemed valid. Any emphasis should be placed on the validation language. If you do place the validation notice on the backside of a collection letter, make sure that the front of the letter prominently informs the reader of that fact. See, e.g., Burns v. Accelerated Bureau of Collections, 828 F.Supp. 475 (E.D. Mich. 1993); Higgins v. Capitol Credit Services, Inc., 762 F.Supp. 1128 (D. Del. 1991); Colmon v. Payco-General American Credit, 774 F.Supp. 691 (D. Conn 1990).

If interested, you may contact my office for the slip opinion and order of dismissal in Renick v. Dun & Bradstreet Receivable Management Services, Case No. C-99-5283 PJH (Dec. 21, 2000).

1. See also FTC Formal Advisory Opinion, dated March 31, 2000 ("the Commission opines that section 809(b) (1692g(b)) does permit a collection agency to either demand payment or take legal action during the 30-day period for disputing a debt when a consumer from whom the collection agency is attempting to collect a debt has not notified the collection agency that the debt is disputed").

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This article is not to be considered legal advice by the author or Ellis Law Group, LLP. Any person or agency with specific legal questions must consult with the legal counsel of their choice.

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