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Smith v. Paramount Recovery Systems

2008 WL 4951227 (U.S. Dist. Ct. D. N.J. 2008) (Unpublished)

FDCPA — Where a party seeking to collect a debt sends a letter to the person allegedly owing money and that letter would confuse “the least sophisticated consumer” into believing the debt could be resolved through negotiations with an unrelated party, such as an insurance company, rather than directly with the creditor, the Fair Debt Collection Practices Act is violated and the alleged debtor may pursue its remedies under that Act.

A doctor’s patient received a dunning letter from a debt collection agency. Two weeks later, his attorney responded by disputing the debt and requesting that the agency no longer communicate with the patient. Three days later, the agency sent another letter to the consumer with information verifying the debt. It contained the following statement: “all questions regarding insurance filings should be directed to your insurance company.” The second letter also listed two insurers for the patient and detailed the amounts paid by one of the insurers. The patient filed a lawsuit under the Fair Debt Collection Practices Act (FDCPA) alleging that this second letter would cause an unsophisticated consumer to be unsure whether to dispute the debt with an insurer or with the debt collector. The collection agency moved to dismiss the suit for failure to state a cause of action.

The Court denied the motion, holding that under the FDCPA a debt collector is prohibited from sending any communication that would confuse the least sophisticated consumer, and that debt collectors must also refrain from overshadowing or contradicting a dunning notice by creating uncertainty as to a debtor’s rights.

Here, the Court found that where multiple insurers appeared on the second debt collection letter, the debt collector’s statement about insurance filings was capable of two or more interpretations, thus overshadowing the first validation notice. It found that “the least sophisticated consumer” could believe that debt collection could be resolved by pursuing the claim with an insurer. Thus, the Court found, as a matter of law, it was possible that such a communication could support a finding that the FDCPA was violated and the patient was entitled to pursue its claim.


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