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Ninth Circuit Affirms FDCPA Victory on Summary Judgment for Misleading Letters - Gonzalez v. Arrow Financial Services

October 4, 2011

Our Riverside County fair debt collection attorneys were interested to see a rare victory at the appeals court level for victims of fair debt collection violations. In Gonzalez v. Arrow Financial Services LLC, a class of people who had received a letter from Arrow Financial Services sued it for misrepresentations in that letter. Johnny Gonzalez and others alleged that the letters misleadingly represented that Arrow could report obsolete debts to credit agencies and implicitly threatened to make such reports. The trial court agreed and granted summary judgment on liability; after a trial, it awarded damages under both the federal Fair Debt Collection Practices Act and the California state-law version, the Rosenthal Act. The Ninth U.S. Circuit Court of Appeals ultimately affirmed both decisions.

Arrow buys written-off debts and attempts to collect them. The debts in this case are debts owed to health clubs, all of which were more than seven years old at the time of Arrow's purchase. This made the debts too old to report to a credit agency; the debt collector may still collect them, but the debtor can safely ignore this, because it may not be reported to debt collectors. However, in a group of 40,000 letters sent to Californians in 2004, Arrow wrote that it was willing to settle the debt for half price, at which time "if we are reporting the account, the appropriate credit bureaus will be notified that this account has been settled." A notice required by California law also said failure to "fulfill the terms of your credit obligations" may be reported to credit agencies. Gonzalez looked into it and realized that Arrow could not legally report any debt to credit bureaus, so he filed a putative class-action lawsuit under both the FDCPA and the Rosenthal Act. He won summary judgment on liability in district court, and a jury trial awarded a total of $500 per plaintiff in statutory damages, under both laws.

On appeal, the Ninth Circuit was unimpressed by Arrow's arguments. Both the FDCPA and the Rosenthal Act prohibit, among other things, threatening action that is not intended or cannot legally be taken. Furthermore, caselaw says the standard in FDCPA cases is that language should not be misleading even for the "least sophisticated debtor." Arrow argued that its use of the word "if" in the offending passages makes the statement literally true, but the Ninth has ruled in the past that literally true statements can still be misleading, particularly under the least sophisticated debtor standard. For such a person, the Ninth said, the statement was clearly misleading, and the promise to report a debt paid off in full was a threat because it implied a negative report if the debtor did not pay. On the Rosenthal Act claim, the Ninth found Arrow was simply wrong in arguing that the Rosenthal Act does not permit class actions; the Legislature authorized them in 1999. Finally, it held that recovery has long been possible under both the Rosenthal Act and the FDCPA, and nothing in the FDCPA suggests preemption of state laws. Thus, it upheld the trial court.

As Irvine predatory lending lawyers, we're pleased to see the Ninth Circuit set these two unambiguous precedents. By ruling that the Rosenthal Act allows class actions, the Ninth can clear up any ambiguity that the California courts have not laid to rest. By allowing parallel recoveries under both the FDCPA and the Rosenthal Act, it gave victims of predatory debt collecting more weapons. Modern consumer protection groups agree that the maximum statutory damages of the laws, both adopted in 1977, are too low at a maximum of $1,000 per debtor. Inflation has made this sum in 1977 dollars worth nearly four times the amount today. Of course, plaintiffs still must prove both laws were violated to collect from both -- but as Corona FDCPA attorneys, we prefer to have that option.

If you were misled, outright lied to, threatened or harassed by debt collectors, you have the legal right to fight back. Call Howard Law, P.C., for a free consultation on your case and your options. You can send us a message online or call toll-free at 1-800-872-5925.

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