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Knight v. Midland Credit Management Inc.

United States District Court, E.D. Pennsylvania

November 8, 2017

RENEISHA KNIGHT
v.
MIDLAND CREDIT MANAGEMENT, INC.

          MEMORANDUM

          KEARNEY, J.

         The Fair Debt Collection Practices Act prohibits a debt collector from using false, deceptive, or misleading representations in collecting a debt. The Act also prohibits unfair or unconscionable means to collect or attempt to collect a debt. To protect consumers, we evaluate the clarity of debt collection communications from the prospective of the "least sophisticated debtor." But we also presume a debtor with a basic level of understanding who has read the communication with care. A debtor cannot fabricate or imagine misleading permutations of clear representations. A debt collector could never communicate if it needed to eliminate all attenuated permutations and imagined ambiguities in its debt collection letter. The goal is to communicate clearly so the debtor understands her debt and how to resolve the debt. After careful review of the debt collection letter challenged by a debtor today, we grant the debt collector's motion to dismiss in part without prejudice for the debtor to timely file a third amended complaint under Fed. R. Civ. P. 11.

         I. Alleged facts.

         Reneisha Knight allegedly owed $944.08 on a personal credit card issued by Capital One Bank, N.A.[1] Midland Credit Management, Inc. sent a letter to Ms. Knight attempting to resolve her outstanding account balance by offering her three options: a discount of either 40% or 20% or a monthly installment payment plan.[2] The top of the letter reads "Did y u forg t somethi g?" in large print.[3] Ms. Knight's Midland current account balance is listed directly below.[4] The letter also lists the name of Ms. Knight's original creditor, Capital One, her original Capital One account number, and the name of the current owner of the account, Midland Funding, LLC.[5]

         The middle section of Midland Credit's letter is titled, "We can't change the past, but we can help with your future."[6]

         Midland Credit then advised Ms. Knight to "KNOW YOUR OPTIONS."[7] Option 1 offers Ms. Knight a 40% discount off her current balance with a payment due date on August 19, 2016.[8] Option 2 offers Ms. Knight a discount of 20% and requires payments to be made over a six month period.[9] Option 3 offers a monthly installment payment plan with payments as low as $50 per month.[10] Option 3 does not offer a percentage discount off Ms. Knight's current balance.[11]

         Midland Credit encouraged Ms. Knight to call to accept one of three payment options offered in the letter.[12] Midland Credit highlights one of the three options, a 40% discount off Ms. Knight's current balance.[13] The section concludes with Midland Credit explaining, "After receiving your final payment, we will consider the account paid.*"[14]The asterisk directs Ms. Knight to the bottom of the letter where Midland Credit explains, "If you pay your full balance, we will report your balance as Paid in Full. If you pay less than your full balance, we will report your account as Paid in Full for less than the full balance."[15]

         Ms. Knight now sues Midland Credit claiming its letter is false, deceptive, and misleading, and violates § 1692e(10) of the Act.[16]

         II. Analysis

         Midland Credit moves to dismiss Ms. Knight's Second Amended Complaint.[17] Midland Credit argues its letter is not misleading or deceptive to the "least sophisticated debtor." We grant Midland Credit's motion to dismiss because Ms. Knight fails to state a claim under the Act.

         A. We dismiss Ms. Knight's § 1692e(10) claim for failing to state a claim.

         Ms. Knight claims Midland Credit's letter violated § 1692e(10) because the letter is false, deceptive, and misleading. Ms. Knight claims the use of the word "report" is ambiguous as to who Midland Credit will report her account status. Ms. Knight claims the letter is ambiguous because it is unclear when Ms. Knight's debt would be categorized "Paid in Full" or "Paid in Full for less than the full balance." Ms. Knight claims the term "Paid in Full for less than full balance" is confusing. Ms. Knight also claims the language "We can't change the past, but we can help with your future" is false and misleading. Midland Credit argues its letter is not false, deceptive, or misleading to the "least sophisticated debtor."

         The Act prohibits the use of deception in the debt-collection process.[18] Section 1692e(10) prohibits "[t]he use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer."[19] Communications potentially giving rise to claims under the Act are analyzed from the perspective of the "least sophisticated debtor."[20] This standard is lower than the standard of a reasonable debtor.[21] "A communication that would not deceive or mislead a reasonable debtor might still deceive or mislead the least sophisticated debtor."[22] Although the "least sophisticated debtor" standard is a low standard, it "prevents liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness and presuming a basic level of understanding and willingness to read with care."[23] The least sophisticated debtor must read a debt collection notice in its entirety.[24] "A debt collection letter is deceptive where it can be reasonably read to have two or more different meanings, one of which is inaccurate."[25] Whether a communication violates the Act is a question of law.[26]

         1. Midland Credit's use of the word "report" is not false, deceptive, or misleading.

         Ms. Knight claims the word "report" is ambiguous as to who Midland Credit will report her account status at the time of her final payment. Ms. Knight claims "report" could mean Midland Credit will report the information to her original creditor, a credit reporting agency, or both. Ms. Knight claims this confusion is material because it affects the consumer's decision of whether to pay off the debt. Ms. Knight explains "one consumer may not be worried whether Capital One Bank learns of payment because the consumer does not intend to do business with this bank again, while another consumer may so intend."[27] Midland Credit argues when the letter is read in its entirety, "report" clearly means reporting account information to credit reporting agencies.

         Midland Credit sent Ms. Knight the letter in an attempt to encourage her to make payments on her Capital One debt. Depending on Ms. Knight's payment selection, Midland Credit explained it would report her account as "Paid in Full" or "less than the full balance." Read in context, it would be a "bizarre and idiosyncratic interpretation" to conclude Midland Credit would report the satisfaction of Ms. Knight's debt to anyone other than a credit reporting agency. Even the "least sophisticated debtor" understands outstanding debts and payments on those debts impact a debtor's credit report. Ms. Knight's argument a debtor may be more or less inclined to pay a debt depending on whether a report is sent to a creditor or credit reporting agency is entirely speculative. We have no basis, and Ms. Knight offers none, to find a debtor would more likely pay a bill based on who she pays. In an era of general awareness of credit scores, including nationally broadcast advertising and applications for mobile devices providing instantaneous credit scores, we have no reason to find the recipient of a paid bill will make a difference. This is not a decision as to whether to pay cash to one handyman vendor over another hoping one will come back the next time you need help. Ms. Knight is facing a credit card debt to Capital One. In this context, the least sophisticated debtor standard recognizes the recipient of the payment will report the payment for credit purposes. Ms. Knight's challenge to the word "report" fails.

         2. Midland Credit describes when Ms. Knight's debt will be reported "Paid in Full" or "Paid in Full for less than the full balance."

         Ms. Knight argues Midland Credit's letter is false, deceptive, and misleading because it is ambiguous when her account will be reported as "Paid in Full" or "Paid in Full for less than the full amount." Midland Credit argues its letter is clear as to which payment options allow Ms. Knight to settle her debt by paying less than her full account balance and which option requires Ms. Knight to pay her full account balance. We agree with Midland Credit.

         A debt collection letter which offers a debtor the chance to settle debts by paying less than the full account balance and offers to report such discounted settlements as paid in full is misleading.[28] In Michael, the plaintiff received a debt collection letter which stated he could settle his debt by paying an amount less than the full balance, and this payment would be considered settlement in full for the accounts.[29] The plaintiff claimed this statement was false and misleading as debts settled for less than the full amount are reported to credit bureaus as settled for less than the full amount. The court found the plaintiffs allegation sufficient to survive dismissal.[30]

         Unlike the letter in Michael, Midland Credit's letter clearly and correctly distinguishes when a debt will be reported "Paid in Full."[31] Midland Credit's letter explains the account will be reported "Paid in Full" if Ms. Knight pays her "full balance."[32] Ms. Knight's current balance is specifically identified in the top center of the letter.[33] Midland Credit further explains if less than the full balance is paid, the account will be reported "Paid in Full for less than the full balance."[34] Critically, Midland Credit connects these explanations to the sentence providing, "After receiving your final payment, we will consider the account paid.[35] The status of the account as "Paid in Full" or "less than the full balance" is determined at the time of Ms. Knight's final payment.[36]

         Options 1 and 2 offer discounts from Ms. Knight's current balance of 40% and 20% off respectively.[37] These offers clearly allow Ms. Knight to settle her account at less than her current balance. At the time of final payment under these options, Ms. Knight will have paid 40% or 20% less than her current balance, and her debt would be "Paid in Full less than the full balance." Option 3 offers Ms. Knight a monthly installment payment plan.[38] Unlike Options 1 or 2, Option 3 does not have language indicating a percentage discount off Ms. Knight's balance.[39] At the time of final payment under Option 3, Ms. Knight's account will be paid in its entirety.

         We would be reaching a "bizarre and idiosyncratic interpretation" of Midland Credit's letter to conclude Option 3 allowed payment less than the full balance when Option 3 lacks any discount language as included in Option 1 and Option 2. The only reasonable interpretation for the least sophisticated consumer is Options 1 and 2 will result in Ms. Knight's account being reported as "Paid in Full for less than the full amount" and Option 3 will result in Plaintiffs debt being reported as "Paid in Full." Ms. Knight's challenge to the language "Paid in full" or "Paid in full for less than the full amount" fails.

         3. Midland Credit's use of the phrase "Paid in Full for less than the full balance" is not false, deceptive, or misleading.

         Ms. Knight argues Midland Credit's use of the phrase "Paid in Full for less than the full balance" is "a center of confusion" for a debtor. Ms. Knight claims the least sophisticated debtor does not understand the phrase and "does not ...


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