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6th Circuit Clarifies FDCPA’s Requirement to Cease Debt Collection Activities After Debt Collector Receives Dispute Letter

In an unpublished opinion, the U.S. Court of Appeals for the Sixth Circuit recently held that, under the FDCPA, once a debt collector receives a dispute letter from a debtor, it must stop all debt collection activities, including those by a third-party that were initiated by the debit collector prior to receiving the notice of dispute.

The main issue on appeal in Scott v. Trott Law, P.C., which involved a non-judicial foreclosure action in Michigan, dealt with the interpretation of the FDCPA’s requirement that a debt collector must “cease collection of the debt” when it receives a dispute letter from the debtor. In 2013, the Sixth Circuit joined the Third and Fourth Circuits in holding that a mortgage foreclosure was a debt collection activity under the FDCPA.  Under Michigan law, as part of the non-judicial foreclosure process, the debt collector must, in part, publish a notice for four consecutive weeks in a local paper; post a notice in a conspicuous place on the premises to be foreclosed; and send the debtor a Fair Debt Letter containing specific information about the debt, including the debtor’s right to contest the validity of the debt.  In this case, the debtor sent the debt collector a dispute letter and contested the validity of the debt, but weeks after the debt collector initiated the above actions.  Once the debt collector received notice that the borrower contested the debt, it ceased all of its activities pursuing the foreclosure, but took no affirmative steps to discontinue the newspaper publication or halt the third-party from posting the notice on the debtor’s property.  The lower court ruled in favor of the debt collector, finding that the FDCPA’s requirement to “cease collection activity” did not require the debt collector to intervene and halt the actions of third parties put in motion before the debt collector received the dispute letter from the debtor.

The Sixth Circuit reversed the lower court’s ruling, reasoning that such a holding would render the dispute letter a nullity.  The court explained that if the FDCPA did not require the debt collector to take affirmative action to stop not only its own activity, but also the activities that it set in motion, the FDCPA’s requirement to “cease collection activity” would have no power because most of the activities at issue would be carried out by third parties.  Additionally, the court stated that ceasing debt collection activities includes affirmatively stopping any activities that attempt to satisfy the statutorily required elements of the foreclosure process.

While the Sixth Circuit’s opinion is unpublished, it still is binding in certain situations.  Moreover, in January 7, 2019, note that the U.S. Supreme Court heard arguments in Obduskey v. McCarthy Holthus LLP on whether a foreclosure is a debt collection activity under the FDCPA, to resolve a circuit split created, in part, by the Sixth Circuit, but the Court has yet to issue a ruling on the matter.