Arrow Financial Services Loses 9th Circuit Appeal Because the Truth Can Be Misleading

The 9th Circuit US Court of Appeals recently found that “a literally true statement can still be misleading” and therefore a violation of the Fair Debt Collection Practices Act. Arrow Financial Services (a Sallie Mae Company) sent a consumer a letter stating that if Arrow were reporting the debt to a credit reporting agency, it might submit negative information to that credit agency. However, Arrow could not have submitted the underlying debt to any credit reporting agency.

Gonzales, the consumer in this case, sued because Arrow implied a threat of negative credit reporting when it did not have the right to report the debt in the first place. The 9th Circuit agreed.

This decision (PDF) suggests that debt collectors cannot simply use a form that says if and leave it up to consumers to determine whether they are subject to the negative side of the if. In the 9th Circuit, at least, debt collectors may not threaten—even conditionally—unless they actually do have the right to do what they are threatening to do.

(Thanks for the tip, Randall!)