Consumer Finance Litigation

In Tavernaro v. Pioneer Credit Recovery, Inc., No. 2:20-CV-02141-KHV-ADM, 2022WL3153234 (10th Cir. Aug. 8, 2022), the Tenth Circuit recently held that violations of the Fair Debt Collection Practices Act (“FDCPA”) are to be evaluated through the perspective of a reasonable consumer rather than the “least sophisticated consumer” standard adopted by other circuits. The court first established that a debt collector’s communications violate the FDCPA when the false or misleading communications are material. The court then articulated that materiality is measured by whether “a reasonable consumer would have his ability to respond [to the communication] frustrated.”

The issue before the court was whether a student loan debt collector violated the FDCPA by sending a wage garnishment order and accompanying letter to the plaintiff’s employer. The plaintiff alleged the letter was deceptive because it used the creditor’s name, letterhead, and signature rather than those of the debt collector that the creditor contracted with to assist in collections. Before evaluating the merits of the plaintiff’s claims, the court announced the standard that the Tenth Circuit would use for FDCPA claims.

Materiality

First, the Tenth Circuit held that a consumer must demonstrate materiality. In other words, only materially false or deceptive communications are actionable under the FDCPA. Although the FDCPA does not use the word “material,” the court still construed the FDCPA to require materiality based on language in the statute and consensus among the other circuits.

The Reasonable Consumer Standard

Then, the Tenth Circuit held that the reasonable consumer standard would be used to assess whether an allegedly false or deceptive communication was material. In reaching this decision, the court rejected the “least sophisticated consumer” standard used in other circuits. The court weighed both options, concluding that the “least sophisticated consumer” standard was too nebulous and vague.

Looking to decisions in the Eleventh and Seventh Circuit, the court emphasized that the phrase “least sophisticated consumer” was a misnomer. The court observed that “least sophisticated” was not applied literally in the Eleventh and Seventh Circuits because both courts incorporated some aspects of reasonableness. Ultimately, the court rejected this approach because it was unclear how much reasonableness should be attributed to consumers under the “least sophisticated consumer” standard.

In contrast, the Tenth Circuit felt the “reasonable consumer” standard was more straightforward and familiar. The court explained that judges could look to other areas of law, including other consumer protection laws, for guidance on how a reasonable consumer should act. The court concluded a reasonable consumer would read a communication in its entirety and assess it as a whole. If a reasonable consumer interprets the communication to be misleading, then materiality is assessed by asking whether the reasonable consumer would have his ability to intelligently respond frustrated.

Application

Finally, the Tenth Circuit applied the “reasonable consumer” standard to the facts at issue. The court first analyzed the contents of the letter to the plaintiff’s employer to determine whether it was deceptive or misleading. The court noted the letter used the creditor’s logo, letterhead, and signature rather than those of the debt collector. The court then emphasized that use of the logo, letterhead, and signature was undermined by the creditor identifying the name, address, and telephone number of the debt collector with instructions to remit payment to the debt collector only. The letter also informed the plaintiff’s employer to call the debt collector if it had any questions about wage garnishment. The court held the letter was not misleading because it made clear the debt collector was assisting the creditor with collections.

Then, the court rejected plaintiff’s claims that the letter was materially misleading by including the creditor’s logo, letterhead, and signature. The Tenth Circuit held the use of the creditor’s logo, letterhead, and signature was not materially misleading because, in reading the letter as a whole, a reasonable consumer would know to contact and only remit payment to the debt collector rather than the creditor. Accordingly, the plaintiff’s FDCPA claims were dismissed.