Last week, in Ricco v. Sentry Credit, Inc., the U.S. Court of Appeals for the Third Circuit ruled that the Fair Debt Collection Practices Act does not require a written dispute to avoid an assumption by the debt collector that the debt is valid.  Declining the opportunity to be “the ‘legal last-man-standing’ among the courts of appeals,” the en banc decision ended a circuit split by overturning the contrary 1991 ruling of a Third Circuit panel in Graziano v. Harrison.  Since Graziano, all of the other circuits that have considered the issue have taken the position that a written dispute is not required.

FDCPA Section 1692g(a) requires a debt collector to send a written “validation notice” to a consumer within five days of the collector’s initial collection attempt and specifies what information the notice must contain.  Subsection (a)(3) requires the notice to include a statement that the debt will be assumed to be valid by the debt collector unless the consumer disputes the debt within 30 days.  It is silent, however, on what form the dispute must take to avoid that assumption.

In its en banc decision, the Third Circuit distinguished the language in FDCPA Section 1692g(a)(4) and (a)(5) and 1692g(b) from the language in Section 1692g(a)(3).  Subsections (a)(4) and (a)(5), respectively, require a consumer to notify a debt collector in writing of a dispute to trigger the collector’s obligation to mail documentation verifying the debt and to make a written request to trigger the collector’s obligation to provide the original creditor’s name and address, if different from the current creditor.  Subsection (b) requires a collector to stop collection efforts until verification is obtained if the debtor notified the collector in writing of a dispute or requested the creditor’s identity in writing.

Applying “one of the most venerable of our interpretative canons: the rule against surplusage,” the Third Circuit concluded that “injecting a writing requirement into (a)(3) effectively strikes that provision from the statute.  In its view, subsection (a)(3) merely restates the “truism” that:

[I]f the debtor disputes the debt, the collector must verify it at some point down the road.  But (a)(4) and (b) demand that if the debtor disputes the debt in writing, the collector must prove its validity immediately.  So if every dispute must be conveyed in writing, collectors must prove every dispute immediately—no collector can ever count on its future ability to prove a debt.  Put differently, inserting a writing requirement into (a)(3) means that every dispute triggers (a)(4) and (b).  That simply can’t be right. If every dispute triggers (a)(4) and (b), then (a)(3) has no meaning.

The Third Circuit observed that reading section 1692g(a)(3) to permit oral disputes “makes sense” because such reading “provides debtors multiple methods to dispute debts while assigning various rights depending on the method.”  For example, according to the court, an oral dispute can still defeat the presumption of validity and prevent collectors from reporting the debt without noting the dispute but, unlike a written dispute, does not force the collector to immediately stop collection efforts, verify the debt, and respond.  In addition, the Third Circuit determined that its reading of section 1692g(a)(3) was consistent with the provision’s plain meaning.

The Third Circuit also considered whether, despite its disagreement with Graziano, the principle of stare decisis would justify upholding that precedent.  The court first observed that various factors unique to courts of appeals supported overturning Graziano, namely its belief that the panel that decided Graziano would decide it differently now, that Graziano “was only a panel decision” and the en banc Third Circuit had never expressed a view on the issue presented, and that its reading of section 1692g(a)(3) would end a circuit split “and restore national uniformity.”  With regard to stare decisis considerations, the Third Circuit pointed to U.S. Supreme Court cases decided since Graziano that disfavor “atextual” interpretations of statutory language.  It also observed that “any legitimate reliance interests seem minimal,” because “overturning Graziano merely requires debt collectors to prospectively tweak their collection notice template.”

Finally, the Third Circuit rejected the plaintiff’s request for its decision not to be given retroactive effect, and held that because the collection letter she received tracked the language of section 1692g(a)(3)-(5) “nearly word-for-word,” she could not have been misled about her dispute rights.  While stating that its ruling should be applied retroactively in all open cases on direct review and to all events that predate or postdate the ruling, the Third Circuit commented that “we do not suggest that debt collectors who sent Graziano-compliant letters before today will be on the hook for failing to foresee our change in the law.”

The court expressed its “confidence” that district courts would appropriately exercise their discretion under various FDCPA provisions not to penalize collectors.  Citing the FDCPA provision that provides a collector who acts in good faith in conformity with an agency advisory opinion cannot be held liable if that opinion is changed, rescinded or judicially invalidated, the Third Circuit stated that “collectors should [similarly] not be penalized for good-faith compliance with then-governing caselaw.”  It also noted the FDCPA provisions that allow a district court to withhold damages for unintentional errors or trivial violations and award attorney’s fees to the collector if a debtor’s lawsuit was brought in bad faith for the purpose of harassment.