A Comment on the Second Circuit’s Arias FDCPA Decision

by Jeff Sovern

I am very late to this particular party, but back in November, the Second Circuit decided ARIAS v. GUTMAN, MINTZ, BAKER & SONNENFELDT LLP, an important FDCPA case dealing with a collector-law firm's attempt to collect funds that were exempt from collection. After the firm froze the money in the consumer's bank account, the consumer twice sent the collector documentation establishing that the funds were exempt, but the firm claimed he had not supplied adequate documentation. At a later hearing, a firm lawyer reviewed the documents the consumer had twice sent, agreed that they showed that the funds were exempt, and released the funds in the account. The Second Circuit held that the complaint stated a claim under both the FDCPA prohibitions on unfair and unconscionable conduct and misrepresentation, saying:

We hold that a debt collector engages in unfair or unconscionable litigation conduct in violation of section 1692f when, as alleged here, it in bad faith unduly prolongs legal proceedings or requires a consumer to appear at an unnecessary hearing.

One comment: a while ago, I wrote an article, Towards a New Model of Consumer Protection: The Problem of Inflated Transaction Costs, 47 William & Mary Law Review 1635 (2006), arguing that one way companies take advantage of consumers is by making it expensive for consumers to assert their rights. Arias provides an example of a company doing just that, and getting in trouble because of it. A recurring phenomenon in debt collection cases is that consumers don't show up to court hearings on their claims. Collectors claim that's because the consumers owe the money and so know they will lose; consumer advocates argue it's because consumers can't afford to take a day off from work. Whatever the merits of such claims, the firm should have accepted the consumer's documentation in Arias the first time the consumer submitted it and has paid a price for not doing so. But probably many consumers in Arias's position would not have attended the hearing, and would have lost. In other words, I suspect that many collectors in the firm's position would have won this case they should have lost simply by increasing the consumer's cost by forcing the consumer to choose between attending an unnecessary hearing or taking a day off from work. I hope now they will think twice before doing so.