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In Afewerki v. Anaya Law Firm Grp., 9th Cir., 15-cv-56510, 8/18/17, a law firm named Anaya Law Group filed suit in state court in an attempt to collect an alleged unpaid credit card debt owed by a consumer, Afewerki. The initial complaint overstated both the debtor’s principal sum due and applicable interest rate by $3,000 and .315 percent, respectively. The debtor then filed a complaint in federal court against the Anaya Law Group alleging violations of the Fair Debt Collection Practices Act (FDCPA) and California’s Rosenthal Fair Debt Collection Practices Act.

Anaya Law Group’s filed a Motion for Summary Judgment, arguing that the mistakes in the complaint were not “material” because, had a default judgment been granted against the debtor, the creditor would still have needed to establish the amount owed prior to the entry of judgment. The district court agreed and granted summary judgment in the Defendant’s favor. However, the Ninth Circuit Court of Appeals overturned the district court’s decision by ruling that the false statements made by the debt collector were, in fact, material because they could have disadvantaged a hypothetical debtor in deciding how to respond to the complaint. In this case, the principal issue of contention was the materiality of the modest overstatements of the amount due and the applicable interest rate.

The Court began by acknowledging the difference between a material and immaterial false statement within the debt collection world, holding that “[m]aterial statements, we have held, are those that could cause the least sophisticated debtor to suffer a disadvantage in charting a court of action in response to the collection effort.”

The Court then established that the FDCPA asks the objective question of whether the hypothetical least sophisticated debtor would likely have been misled. Accordingly, “if the least sophisticated debtor would likely be misled by a communication from a debt collector, the debt collector has violated the [FDCPA].” Guerrero v. RJM Acquisitions LLC, 499 F.3d 926, 934 (9th Cir. 2007). The Court clarified that the “least sophisticated debtor” may be uninformed, naïve, and gullible.

Furthermore, the Court recognized its recent adoption of a materiality requirement as a corollary to the least sophisticated debtor requirement. The Ninth Circuit cited its more recent opinion of Donohue v. Quick Collect, Inc. 592 F.3d at 1033-34 in recognizing “that false but non-material representations are not likely to mislead the least sophisticated consumer and therefore are not actionable”. Id. at 1033. The Court explained that since the FDCPA was designed to provide information that helps consumers to choose intelligently, immaterial information neither contributes to that objective nor undermines it. Immaterial false information is therefore information that is literally false, but meaningful only to a hyper-technical reader.

In consideration of the foregoing, the Ninth Circuit Court of Appeals held that the overstatements of the principal due and the applicable interest in the state court complaint was material. The fact that the debt collector corrected its mistake after the debtor challenged the amounts did not mean that a less sophisticated debtor would have been so lucky. Instead, the least sophisticated debtor in Afewerki’s position may well have paid the amount demanded with the alleged interest and substantially overpaid.

When retaining counsel to collect consumer debts for your company, make sure you select a law firm with substantial experience in this arena. Contact our office with any questions about consumer debt collection and effective representation.

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