The five-day rule under the FDCPA, which requires a debt collector to provide the precise amount owed within five days of its initial communication with a borrower, often operates as a trap to debt collection firms. The lack of a statutory definition for “initial communication” means that courts are free to interpret what will qualify, leaving debt collection firms to make their own determinations as to what will sufficiently protect them from later lawsuits based on this section of the statute. Although pleadings are still a widely acknowledged exception, many states do not include pre-foreclosure notices.
In accordance with the majority of jurisdictions, the Second Circuit recently held that formal pleadings are excluded from the definition of “initial communication” under the FDCPA. This case arose from a mortgage foreclosure action in which a Complaint was filed by the law firm representing the mortgage holder. The borrower responded by sending a letter disputing the debt and demanding an exact dollar amount. The law firm then provided a payoff amount that included a statement that “fees and costs may be included” in the amount. The borrower sued the law firm under the FDCPA, alleging that either the Complaint, his debt dispute letter, or the response of the law firm triggered the five day clock within which time a debt collector is required to provide an exact dollar amount to a debtor.
The Second Circuit rejected the argument that the Complaint or any of its attachments qualified as an “initial communication” under the FDCPA. While no definition is provided in the statute for “initial communication,” the court noted that formal legal pleadings are excluded by the language of the FDCPA. While it also found that any documents attached to the pleading were similarly exempted, it did determine that the foreclosure firm’s response to the borrower’s debt dispute letter qualified. The court then concluded that this response was inadequate, as the reference to fees and costs possibly being included in the amount was insufficiently specific under the FDCPA.
While this decision is in line with the majority interpretation of the FDCPA, it is important to remember that it does not touch on the topic of pre-foreclosure notices, which are required in many of the states hit with the largest number of foreclosures. In such states, laws require that a notice be sent to any borrower prior to the institution of a foreclosure action, and these states often do not consider these notices “pleadings” under the FDCPA. Debt collection firms must therefore continue to be vigilant in determining what their states require, and remember that just because communication is sent by a law firm does not mean that it is exempted from the five day rule under the FDCPA.