Freyermuth v. Credit Bureau Services: the Eighth Circuit Incorrectly Interprets the Protections Afforded by the Fair Debt Collection Practices Act and Overestimates Consumers' Knowledge of Their Legal Rights

• Publication year: 2022

51 Creighton L. Rev. 169. FREYERMUTH V. CREDIT BUREAU SERVICES: THE EIGHTH CIRCUIT INCORRECTLY INTERPRETS THE PROTECTIONS AFFORDED BY THE FAIR DEBT COLLECTION PRACTICES ACT AND OVERESTIMATES CONSUMERS' KNOWLEDGE OF THEIR LEGAL RIGHTS

FREYERMUTH V. CREDIT BUREAU SERVICES: THE EIGHTH CIRCUIT INCORRECTLY INTERPRETS THE PROTECTIONS AFFORDED BY THE FAIR DEBT COLLECTION PRACTICES ACT AND OVERESTIMATES CONSUMERS' KNOWLEDGE OF THEIR LEGAL RIGHTS

I. INTRODUCTION

When the United States Court of Appeals for the Eighth Circuit addressed what debt collection practices and methods were prohibited by the Fair Debt Collection Practices Act(fn1) ("FDCPA"), it determined that creditors could attempt to collect time-barred debt without violating the FDCPA if legal action was not threatened or taken.(fn2) Congress enacted the FDCPA to protect consumers from creditors by prohibiting creditors from using false, misleading, and abusive debt collection practices.(fn3) Several portions of the FDCPA focus on a variety of prohibited debt collection practices.(fn4) Section 1692e(5) prohibits threats to take impermissible legal action and § 1692e(2)(A) prohibits the false and misleading representation of the legal status or character of debt.(fn5) In Freyermuth v. Credit Bureau Services,(fn6) the Eighth Circuit found that creditors did not violate the FDCPA, specifically § 1692e(5), when attempting to collect time-barred debt if creditors did not threaten to take impermissible legal action.(fn7) Since the Eighth Circuit's opinion in Freyermuth, several other United States courts of appeal have determined that another portion of the FDCPA, § 1692e(2)(A), is applicable to creditors' attempts to collect time-barred debt.(fn8) This provision prohibits such debt collection practices, even without the threat of legal action.(fn9)

In Freyermuth, the Eighth Circuit addressed whether Credit Bureau Services violated the FDCPA by sending collection letters in an attempt to collect time-barred debt from returned checks written by Troy Freyermuth to various merchants over several years.(fn10) The court ultimately held that if creditors did not threaten or take legal action, they could attempt to collect time-barred debt without violating the FDCPA.(fn11) The court reasoned that since the statute of limitations only limited judicial remedies to collect debt and did not eliminate the debt itself, creditors could seek voluntary repayment of that debt.(fn12)

This Note will first review the facts and holding of Freyermuth.(fn13) This Note will then examine the FDCPA and the purpose Congress wanted it to serve.(fn14) This Note will also examine the unsophisticated consumer standard used to evaluate debt collection practices and subsequent interpretations of the FDCPA by other United States courts of appeal.(fn15) This Note will argue that the Eighth Circuit's failure to interpret the protections afforded to consumers by the FDCPA led to the court's failure to effectuate the purpose Congress intended the FDCPA to serve.(fn16) This Note will then show that the Eighth Circuit failed to adequately apply the unsophisticated consumer standard when evaluating attempts to collect-time barred debt, and in doing so overestimated consumers' knowledge of their legal rights.(fn17) This Note will also demonstrate that the Eighth Circuit failed to address an applicable portion of the FDCPA when evaluating creditors' attempts to collect time-barred debt.(fn18) Finally, this Note will conclude that the Eighth Circuit incorrectly interpreted the FDCPA and the protections afforded to consumers in regards to the collection of time-barred debt.(fn19)

II. FACTS AND HOLDING

In Freyermuth v. Credit Bureau Services,(fn20) a debtor, Troy Freyermuth, brought an action against Credit Bureau Services Inc., doing business as Checkmate of Fremont ("Checkmate"), alleging Checkmate violated the FDCPA.(fn21) From May 11, 1990, to April 8, 1998, Troy Freyermuth wrote fourteen checks to various Nebraska merchants that were returned for insufficient funds.(fn22) The merchants referred Freyermuth's checks to Checkmate for collection.(fn23) Checkmate sent notices to Freyermuth's last known address, and the first notice informed him that an outstanding balance was due immediately.(fn24) The notice included an amount due, a service charge, and indicated the balance was payable to multiple merchants.(fn25) After receiving the first notice, Freyermuth paid the principal amount due but did not remit payment for the service charge.(fn26) Freyermuth received a second notice, dated May 6, 1998, indicating amounts due for unpaid service charges and an additional returned check.(fn27)

Freyermuth paid the principal balance on half of the returned checks but never remitted payment for the service charges in the initial or follow-up notices.(fn28) Freyermuth requested the names of the original creditors and the principal amount for each returned check.(fn29) Within two weeks, Checkmate provided a list of eleven creditors and the principal amount due for each creditor but did not list the dates the checks were written or received.(fn30) Eleven months later, Freyermuth filed a claim alleging that Checkmate violated the FDCPA by using abusive debt collection practices.(fn31)

Freyermuth filed his claim in the United States District Court for the District of Nebraska claiming Checkmate violated the FDCPA by attempting to collect service fees.(fn32) Checkmate moved for summary judgment.(fn33) In response, Freyermuth added another claim that alleged Checkmate violated the FDCPA by attempting to collect time-barred debts.(fn34) The district court granted Checkmate's motion for summary judgment, holding that both of Feyermuth's claims were barred by the FDCPA's one-year statute of limitations.(fn35)

Freyermuth appealed the district court's grant of summary judgment to the United States Court of Appeals for the Eighth Circuit.(fn36)Freyermuth argued his claim was not barred by the statute of limitations because Checkmate sent the follow-up notices on May 6, 1998, and the action was filed on May 5, 1999.(fn37) The Eighth Circuit recognized that the FDCPA prohibited creditors from using deceptive or misleading practices to collect debt; however, the court asserted that a violation of the FDCPA occurs the date an initial collection notice is sent.(fn38) Accordingly, the court determined Freyermuth's action was barred because Checkmate had sent the last initial notice more than one year before Freyermuth filed the action.(fn39)

Although the Eighth Circuit determined that Freyermuth's claims were barred by the FDCPA's one-year statute of limitations, the court addressed the merits of Freyermuth's claims.(fn40) In regards to Freyermuth's first claim, the court recognized that § 1692f(1) of the FDCPA prohibited debt collectors from imposing service charges unless such charges were expressly authorized under agreements creating debt or permitted under state law.(fn41) The court found that service charges were not authorized under the agreement between Checkmate and Freyermuth, but Nebraska law authorized incidental damages resulting from a buyer's breach.(fn42) The court concluded that incidental damages included commercially reasonable charges, so Nebraska law allowed Checkmate to impose service charges and the FDCPA did not prohibit the inclusion of those charges.(fn43)

In addressing Freyermuth's second claim, the court narrowed its focus to a portion of the FDCPA that prohibits creditors from threatening impermissible legal action.(fn44) The court noted the standard for determining whether debt collection practices violate the FDCPA is to view creditors' communications through the eyes of the unsophisticated consumer.(fn45) The Eighth Circuit acknowledged several cases where creditors allegedly violated the FDCPA by attempting to collect time-barred debts.(fn46) In those cases, the court determined the focus was on whether the debt collectors had threatened to file, or filed, litigation in order to find a violation of the FDCPA.(fn47) The court then recognized that Checkmate did not take or threaten legal action in its collection letters to Freyermuth.(fn48) Accordingly, the court determined that Checkmate did not violate the FDCPA when attempting to collect time-barred debt, and affirmed the district court's grant of summary judgment.(fn49) The Eighth Circuit held that a creditor does not violate the FDCPA if it does not take or threaten legal action.(fn50)

III. BACKGROUND

A. CONGRESS INTENDED THE FDCPA TO PROVIDE PROTECTION FOR CONSUMERS FROM WIDESPREAD DEBT COLLECTION ABUSE

Congress enacted the FDCPA in response to growing concerns regarding abusive collection practices employed by third-party debt collectors.(fn51) The Senate Committee on Banking, Housing, and Urban Affairs submitted a report to the Senate addressing the widespread extent and detrimental effects of abusive debt collection practices on consumers.(fn52) The report accompanied House of Representatives Bill 5924, which sought to amend the Consumer Credit Protection Act(fn53) to prohibit creditors' use of abusive debt collection practices.(fn54) The report outlined the purpose of the FDCPA, addressed the need for the legislation, and provided an explanation of the legislation.(fn55) After considering the proposed legislation and supporting committee report, Congress enacted the FDCPA in September, 1977.(fn56)

The Banking, Housing...