Civil Litigation, Bankruptcy, and Administrative Law

Materiality Standard Applies to False and Misleading Statements under the FDCPA

Earlier this summer, in a per curiam opinion, the Fourth Circuit confirmed that a false or misleading statement under 15 U.S.C. § 1692e must be material in order to violate the FDCPA.  See Lembach and Lembech v. Bierman, et al., 2013 U.S. App. LEXIS 12094 (4th Cir. 2013).  The case at issue involved a challenge to a residential foreclosure in which the homeowners alleged the law firm appointed as substitute trustee failed to personally execute documents that were required to initiate foreclosure proceedings under Maryland law.   Instead, the plaintiffs alleged that employees had signed on behalf of the lawyers handling the foreclosure.  The Maryland District Court dismissed the claim that §1692e of the FDCPA was violated because the plaintiffs failed to show that the alleged misrepresentations were not material.

In affirming the District Court’s holding, the Court of Appeals held that even under the “least sophisticated consumer” standard, a statement must be materially false or misleading to violate the FDCPA.  Id. at *9.  In this case, the misrepresentations of the law firm handling the foreclosure were not material because they “had no connection to the debt.”  Id. at *11–12.  Regardless of the deceptiveness of the signatures, the Court held that the plaintiffs were “unquestionably” in default of their loan and the foreclosure documents stated the debt accurately.  Id. at 12.  Further the plaintiffs failed to allege how the least sophisticated consumer would be mislead by the alleged false signature.  As a result, the plaintiffs’ allegation failed to meet the materiality standard necessary to allege a violation of §1692e of the FDCPA.

The Court’s holding puts the Fourth Circuit in line with other Federal Circuits including the Sixth, Seventh, and Ninth.  Debt collectors who are accused of violating the FDCPA’s prohibition on deceptive statements should review the allegations carefully to assess whether the statements are in fact material.

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