Gonzales v. Arrow Financial Services

Debt collection practice will be judged by the least sophisticated debtor standard, which protects those of below average intelligence but presumes a basic level of understanding. Unfair collection practices may also be compensated under both federal and state law.

Arrow Financial Services (“Arrow”), a debt buyer and collector, sent a letter to more than 40,000 California residents of a past due balance to a health club. The debts were more than seven years old and according to the Fair Credit Reporting Act none of the debts could be reported to a credit agency. The letter stated if Arrow was reporting the balance to a credit agency, then when the account had been settled, Arrow would notify the agency that the account was settled. Summary judgment was entered against Arrow and the jury awarded damages under both the Fair Debt Collection Practices Act (“FDCPA”) and California’s Rosenthal Fair Debt Collection Practices Act (Rosenthal Act). The Court upheld both the summary judgment and the jury award because as read by the least sophisticated debtor, the letters impliedly threaten to take action, and were misleading since Arrow could not have legally taken any action. The least sophisticated debtor standard protects those who have below average intelligence but also “presumes a basic level of understanding and willingness to read with care.” The Court also held the provisions in the FDCPA did not prohibit additional damages under state law; nor did the provisions in the Rosenthal Act prohibit additional damages under the federal act. AFFIRMED.