PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

UNITED STATES OF AMERICA,
Plaintiff-Appellee,

v.

NATIONAL FINANCIAL SERVICES,
                                                                   No. 95-2796
INCORPORATED, a corporation;
ROBERT J. SMITH, individually and as
an officer of said corporation;
N. FRANK LANOCHA,
Defendants-Appellants.

Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Catherine C. Blake, District Judge.
(CA-91-226-L)

Argued: May 8, 1996

Decided: October 11, 1996

Before RUSSELL and ERVIN, Circuit Judges, and NORTON,
United States District Judge for the District of South Carolina,
sitting by designation.

_________________________________________________________________

Affirmed by published opinion. Judge Ervin wrote the opinion, in
which Judge Russell and Judge Norton joined.

_________________________________________________________________

COUNSEL

ARGUED: Matthew Scott Sturtz, Joseph William Hovermill, MILES
& STOCKRIDGE, P.C., Baltimore, Maryland, for Appellants. Jac-
queline H. Eagle, Office of Consumer Litigation, Civil Division,
UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellee. ON BRIEF: Christopher W. Keller, Thomas E.
Kane, Division of Credit Practices, FEDERAL TRADE COMMIS-
SION, Washington, D.C., for Appellee.

_________________________________________________________________

OPINION

ERVIN, Circuit Judge:

National Financial Services, Inc. (NFS), Robert J. Smith, and N.
Frank Lanocha are debt collectors who, primarily on behalf of compa-
nies selling magazine subscriptions, send out computer-generated
dunning letters en masse. They appeal the imposition of civil penal-
ties for violations of the Fair Debt Collection Practices Act (FDCPA),
15 U.S.C. § 1692 et seq., and the Federal Trade Commission Act
(FTCA), 15 U.S.C. §§ 45(m) and 53(b). The appellants object, first to
the grant of summary judgment against them, contending that they
raised material issues of fact for trial. Second, they argue that the dis-
trict court abused its discretion when it determined that NFS and
Smith must pay a civil penalty of $500,000 and that Lanocha must
pay $50,000. We affirm.

I. Background

NFS is a collection agency primarily serving magazine subscription
clearinghouses. According to Robert J. Smith, the owner and presi-
dent of NFS, the company handled about 2,200,000 accounts each
year in 1986 and 1987. About half of NFS's accounts were placed by
American Family Publishers (AFP). Every few weeks, AFP would
provide NFS with magnetic tapes containing the names, addresses,
and unpaid balances--averaging about $20.00--for 5,000 to 70,000
delinquent accounts. NFS fed that data into its computer, which
merged the customer information onto pre-printed collection notices,
or "dunning letters".

The text of the letters, prepared by Smith, varied over time. A rep-
resentative letter examined by the district court specified a deadline
for payment, and then stated:

                     2
          [I]t is now being processed by our NATIONWIDE COL-
          LECTION AGENCY DIVISION to enforce IMMEDIATE
          PAYMENT from you. Notification is hereby given that the
          date assigned above is your DEADLINE.

          If you fail to pay your bill by the DEADLINE, we will then
          take the appropriate action. Remember your attorney will
          also want to be paid. An envelope is enclosed for your pay-
          ment.

          Our AUDIOTEX telecommunications system remain on line
          to answer your inquiry, twenty-four hours per day, seven
          days per week. Call anytime (301) 366-3217.

          YOUR ACCOUNT WILL BE TRANSFERRED TO AN
          ATTORNEY IF IT IS UNPAID AFTER THE DEADLINE
          DATE!!!

The back of the letter included a "validation notice," which read:

          If you do not dispute the validity of this debt or any portion
          of it within 30 days after receipt of this notice, we will
          assume it is valid. If you dispute the validity of this debt or
          any portion of it in writing within 30 days we will mail veri-
          fication of the debt to you. At your written request, within
          the 30 days, we will provide you with the name and address
          of the original creditor if different from the current creditor.

Those consumers who contested the amount owed were removed
from the NFS system.

Customers who did not pay after receiving a series of the NFS
"deadline notices"--about 85% of the accounts--received one or
more form letters on the letterhead of "N. Frank Lanocha, Attorney
at Law." Lanocha was selected by Smith in response to AFP's sug-
gestion that attorney letterhead notices would increase collection
rates. Lanocha, who had no separate agreement with AFP relating to
collection letters, prepared the text and gave a copy to Smith. Smith
would feed the "attorney at law" dunning text into the NFS computer,

                    3
merge it with the AFP data, and mail out the letters. Several versions
of these letters were sent on AFP accounts between 1983 and 1991.
Four "Attorney at Law" letters contained in the record included the
following text:

          PLEASE NOTE I AM THE COLLECTION ATTORNEY
          WHO REPRESENTS AMERICAN FAMILY PUBLISH-
          ERS. I HAVE THE AUTHORITY TO SEE THAT SUIT IS
          FILED AGAINST YOU IN THIS MATTER. . . . UNLESS
          THIS PAYMENT IS RECEIVED IN THIS OFFICE
          WITHIN FIVE DAYS OF THE DATE OF THIS NOTICE,
          I WILL BE COMPELLED TO CONSIDER THE USE OF
          THE LEGAL REMEDIES THAT MAY BE AVAILABLE
          TO EFFECT COLLECTION. . . .

          ****

          I am the collection attorney hired by American Family Pub-
          lishers to protect their interests in the United States. I have
          filed suits and obtained judgments on small balance
          accounts just like yours. My authority to collect these
          accounts includes the enforcement of judgments . . .

          ****

          LAW OFFICES - DEMAND NOTICE. YOU HAVE TEN
          DAYS TO PAY YOUR BILL IN FULL. CONTINUED
          FAILURE TO PAY WILL RESULT IN FURTHER COL-
          LECTION ACTIVITY. ONLY YOUR IMMEDIATE PAY-
          MENT WILL STOP FURTHER LEGAL ACTION.

          ****

          YOUR ACCOUNT MAY NOW BE FOR SALE. . . .
          ACCOUNTS, LIKE YOURS, THAT ARE SOLD . . . RUN
          THE RISK THAT THE BUYER WILL FILE SUIT
          AGAINST THEM. JUDGMENT CAN RESULT IN
          ASSETS BEING SEIZED. INSTRUCTIONS HAVE BEEN
          GIVEN TO TAKE ANY ACTION, THAT IS LEGAL, TO
          ENFORCE PAYMENT.

                    4
The notices were not signed by Lanocha. Nor did he receive or
review the information on the AFP computer tapes--either in general
or in relation to any particular account. Lanocha did not read or
review the letters prepared by the NFS computers under his name. He
did not have a list of customers who received his letters. According
to AFP's Vice President of Finance, Stephen F. McCarthy, Lanocha
did not confer with AFP regarding the text of the letters and, in fact,
had no contact with AFP regarding any aspect of the collection activi-
ties from 1983 until 1990. McCarthy declared that AFP never paid
Lanocha any money for any purpose. Lanocha did not forward pay-
ments or reports on collections to AFP. Rather, NFS paid AFP half
of each account collected and, in its monthly performance reports to
AFP, made no distinction between payments received from the NFS
letters and payments from the "attorney at law" collections.

Although Lanocha filed fifteen lawsuits in 1984, he did not file any
lawsuits during the 1989 to 1991 period of time covered by this prose-
cution.

Smith and Lanocha have had a long history of dealings with the
Federal Trade Commission (FTC). In February 1980, in response to
consumer complaints, the FTC sent NFS an access letter seeking to
review the company's debt collection practices. After Smith and
Lanocha provided information and documents, the FTC recom-
mended the elimination of references to "legal proceedings," "legal
costs," "court costs," and the possibility that NFS and Lanocha would
"recommend court action." The FTC found that the letters created a
false impression that NFS played a role in whether a consumer was
sued and misrepresented Lanocha's role in the process. In September
1981, Smith wrote to the FTC that the attorney letters would be dis-
continued, and enclosed revised collection notices. The FTC
responded that the new notices still misrepresented the intent to sue,
and asked NFS to immediately implement the changes it suggested.
Smith responded that NFS would not purchase new forms until March
1992. The FTC began an investigation in 1987. On January 29, 1990,
the Commission informed counsel for Smith and Lanocha that it was
preparing to recommend a complaint be issued, and offered an oppor-
tunity to discuss settlement. The case was subsequently referred to the
Department of Justice. On January 25, 1991, the Government filed an
action for civil penalties and injunctive relief against NFS, Smith and

                    5
Lanocha, alleging violations of 15 U.S.C. §§ 1692e(5), 1692e(10),
and 1692g. The defendants moved for summary judgment and, in
turn, the government moved for partial summary judgment. The dis-
trict court granted the government's motion, finding that the defen-
dants had improperly threatened consumers with legal action (under
§ 1692e(5)), had made false threats to sue (under § 1692e(10)), and
had sent notices containing contradictory information about a con-
sumer's time to dispute the debt (under § 1692g). The court then
ordered the parties to submit memoranda on the appropriate remedies
and what, if any, issues remained for a jury.

In response, the government asked for an injunction and at least
$1.5 million in civil penalties. The government also moved to reopen
discovery on remedies, and discovery was reopened for sixty days.
The government conducted additional discovery during that time, but
the defendants did not. The defendants also refused to provide any
financial information until after the court determined that they had the
requisite knowledge to support the assessment of penalties. The gov-
ernment moved to compel, and the court granted the motion.

On December 20, 1993, the court entered an order of permanent
injunction against the defendants. On November 18, 1994, a hearing
was conducted on the assessment of penalties. On July 20, 1995, the
court found that the defendants' actions were deliberate, repeated, and
numerous; that the violations produced substantial benefits to the
defendants; and that the conduct constituted violations of Lanocha's
professional responsibilities. Accordingly, the court imposed civil
penalties of $500,000 on Smith and NFS and $50,000 on Lanocha.

II. Summary Judgment

The defendants contend that they were entitled to a jury trial to
resolve disputed issues of material fact regarding whether their
notices improperly threatened debtors under #8E8E # 1692e(5) and (10),
and whether the debt validation notices were effectively conveyed
under § 1692g. We review the district court's grant of summary judg-
ment de novo. Pittman v. Nelms, 87 F.3d 116, 118 (4th Cir. 1996).
Summary judgments are appropriate in those cases where there is no
genuine dispute as to a material fact and it appears that the moving
party is entitled to a judgment as a matter of law. Fed. R. Civ. P.

                    6
56(c); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). On
summary judgment, any permissible inferences to be drawn from the
underlying facts must be viewed in the light most favorable to the
party opposing the motion. Matsushita Elec. Indus. Co. Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 587-88 (1986). However, where the
record taken as a whole could not lead a rational trier of fact to find
for the non-moving party, disposition by summary judgment is appro-
priate. Id at 587; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-
49 (1986).

A. 15 U.S.C. §§ 1692e(5), (10)

The FDCPA protects consumers from abusive and deceptive prac-
tices by debt collectors, and protects non-abusive debt collectors from
competitive disadvantage. 15 U.S.C. § 1692e. Section 1692e forbids
the use of "any false, deceptive, or misleading representation or
means" in debt collection, and provides a non-exhaustive list of pro-
hibited conduct, including:

          (5) The threat to take any action that cannot legally be
          taken or that is not intended to be taken.

          ****

          (10) The use of any false representation or deceptive
          means to collect or attempt to collect any debt or to obtain
          information concerning a consumer.

Thus, collection notices violate § 1692e(5) if (1) a debtor would rea-
sonably believe that the notices threaten legal action; and (2) the debt
collector does not intend to take legal action. Most courts that have
considered the issue have applied a "least sophisticated debtor" stan-
dard in evaluating violations of § 1692e(5). See Russell v. Equifax
A.R.S., 74 F.3d 30, 34 (2nd Cir. 1996); Smith v. Transworld Systems,
Inc., 953 F.2d 1025, 1028 (6th Cir. 1992); Graziano v. Harrison, 950
F.2d 107, 111 (3d Cir. 1991); Jeter v. Credit Bureau, 760 F.2d 1168,
1172, 75 (11th Cir. 1985) (deciding that Congress intended FDCPA
to apply same standard as FTC Act, which was enacted to protect
unsophisticated consumers, not only reasonable consumers who could

                    7
otherwise protect themselves in the market place); Baker v. G.C. Ser-
vices Corp., 677 F.2d 775, 778 (9th Cir. 1982); Dutton v. Wolhar, 809
F. Supp. 1130, 1141 (D. Del. 1992) (applying least sophisticated
debtor standard to section 1692e(10) claim); Wright v. Credit Bureau
of Georgia, Inc., 555 F. Supp. 1005, 1007 (N.D. Ga. 1982) (adopting
"least sophisticated" reader test of the FTCA rather than the "reason-
able consumer" test developed under the Truth in Lending Act);
Bingham v. Collection Bureau, Inc., 505 F. Supp. 864, 870 (D.N.D.
1981) (least sophisticated reader); see also Bustamante v. First Fed.
Sav. & Loan Ass'n, 619 F.2d 360, 364 (5th Cir. 1980) (applying "rea-
sonable consumer" standard includes protection for the "unsophisti-
cated or uneducated consumer"). But see Swanson v. Southern
Oregon Credit Service, Inc., 869 F.2d 1222, 1227 (9th Cir. 1988);
Blackwell v. Professional Business Services, of Georgia, Inc., 526 F.
Supp. 535, 538 (N.D. Ga. 1981) (applying "reasonable consumer"
test). In the instant case, the district court preferred the "least sophisti-
cated debtor" standard.1 As the Second Circuit has explained, evaluat-
ing debt collection practices with an eye to the"least sophisticated
consumer" comports with basic consumer-protection principles:

          The basic purpose of the least-sophisticated-consumer
          standard is to ensure that the FDCPA protects all consumers,
          the gullible as well as the shrewd. This standard is consis-
          tent with the norms that courts have traditionally applied in
          consumer-protection law. More than fifty years ago, the
          Supreme Court noted that,

        [t]he fact that a false statement may be obviously
        false to those who are trained and experienced
        does not change its character, nor take away its
        power to deceive others less experienced. There is
        no duty resting upon a citizen to suspect the hon-
        esty of those with whom he transacts business.
        Laws are made to protect the trusting as well as the
        suspicious.
_________________________________________________________________
1 However, the court also found that the appellants' notices violated the
FDCPA when viewed under a slightly higher, "reasonable debtor" stan-
dard.

                      8
Clomon v. Jackson, 988 F.2d 1314, 1318 (2nd Cir. 1983) (quoting
Federal Trade Commission v. Standard Education Society, 302 U.S.
112, 116 (1937)). While protecting naive consumers, the standard also
prevents liability for bizarre or idiosyncratic interpretations of collec-
tion notices by preserving a quotient of reasonableness and presuming
a basic level of understanding and willingness to read with care. Id.
at 1319.

The district court first examined the collection notices to assess
whether they threatened legal action. Looking at the NFS notices, the
district court found that both a reasonable and the"least sophisti-
cated" debtor would perceive the language, "YOUR ACCOUNT
WILL BE TRANSFERRED TO AN ATTORNEY IF IT IS UNPAID
AFTER THE DEADLINE DATE," to mean that the account would
receive different treatment from an attorney than it did from NFS.
Because to most consumers, the relevant distinction between a collec-
tion agency and an attorney is the ability to sue, the court reasoned
that the debtor would understand the disparate treatment to be the
institution of suit. Similarly, the court found that the language, "re-
member your attorney will want to be paid," implies that the con-
sumer will need a lawyer to defend himself or herself against a debt
collection law suit.

Turning to the Lanocha letterhead notices, the district court con-
cluded that they also threatened legal action.

The court further found that NFS and Smith had no intention of
taking legal action at the time the notices were sent, because NFS had
no internal procedure to get authorization to file suit. "In fact," the
court found, based on Smith's testimony, "NFS repeatedly conveyed
its belief in the impracticality of filing suit when pressed by AFP to
do so." Although there occurred some discussion with AFP regarding
the general merits and mechanics of instituting legal actions, such
conversations never concerned any particular debtor. Thus, the district
court concluded that NFS's notices violated section 1692e(5) of the
FDCPA.

Similarly, the court further found that Lanocha did not intend to
take legal action against any debtor who received one of his letters.
Lanocha had filed no lawsuits during the period of time covered by

                     9
this lawsuit.2 Although Lanocha had had discussions with AFP
regarding the mechanics of suing on a large-scale, and actually inves-
tigated various state small-claims procedures, Lanocha admitted that
he had concluded that such an endeavor was not feasible. No evidence
showed that Lanocha discussed with AFP which accounts warranted
legal action. Thus, the district court concluded that Lanocha's letter
also violated section 1692e(5) of the FDCPA.

On appeal, the defendants argue that their notices did not threaten
legal action because they never state that a suit"will be" filed, or "is
going to be" filed. All of their statements were open to interpretation,
they contend. With regard to the NFS notices, they argue, for exam-
ple, that referring a matter to an attorney does not necessarily imply
that a legal action will be filed, but merely implies that the lawyer will
consider whether to institute a proceeding against a consumer.3 The
defendants aver that a reasonable consumer might conclude that he
would not be sued because of the small balance involved.4 Concern-
ing the statement, "remember your attorney will want to be paid," the
defendants assert that they simply stated an irrefutable fact: a debtor
weighing the risks of nonpayment may need to consult counsel, who
will charge a fee. And if the debtor is sued, he or she will incur legal
fees. While the defendants are literally correct, we do not believe that
any consumer could reasonably believe that NFS intended to provide
a public service by informing him about the basic functions and fee
requirements of attorneys.

With regard to the Lanocha letters, the defendants argue that they
_________________________________________________________________
2 Lanocha filed actions against fifteen debtors in 1984, but was unable
to recall whether they resulted in payment.
3 Throughout their brief, the defendants seem to argue that they did not
threaten to sue, rather they threatened to consider to sue. In light of the
fact that no suit was ever filed, and Lanocha never reviewed any file, that
threat was also false.
4 This argument does not help the defendants, because it implies that
although a suit was threatened, a consumer might disregard it in realiza-
tion that the small balance makes a suit unlikely. In fact, some of the lan-
guage in the Lanocha letters seems to be aimed at preventing that
reasonable conclusion. For example, "I have filed suits and obtained
judgments on small balance accounts just like yours."

                     10
never say that a suit "will be" filed, or"is going to be" filed, but sim-
ply that Lanocha had the authority to do so. Their argument contin-
ues, he simply states that he will "consider" bringing a suit, not that
he will do so. The statement, "only your immediate payment will stop
further legal action," was used by Lanocha only after AFP advised
him that it wanted to sue all the debtors across the country. And
Lanocha's statements that, "I have filed suits . . ." and "I will consider
the use of legal remedies . . ." were merely factual statements of the
common tasks performed by attorneys. Based on these assertions,
they contend that this disagreement as to the meaning of the language
of the notices is a question of fact for the jury. We disagree. The let-
ters connote that a real attorney, acting like an attorney, has consid-
ered the debtor's file and concluded in his professional judgment that
the debtor is a candidate for legal action. Using the attorney language
conveys authority, instills fear in the debtor, and escalates the
consequences.5

The defendants also insist that the letters were sent with the inten-
tion of bringing suit. They protest that NFS was simply a conduit for
the desires of its client, and that it reasonably believed that AFP might
take legal action against the debtors. AFP repeatedly stated its desire
to sue the delinquent customers. Discussions between AFP and Smith
and AFP and Lanocha concerned filing thousands of lawsuits. At one
point, AFP indicated that it intended to sue all of the debtors. The
defendants concede that NFS never intended to file suit, and indeed
could not file suit against AFP's debtors. But the defendants argue
that NFS was merely conveying the intentions of its client, AFP. A
jury could reasonably conclude, the argument runs, that NFS reason-
_________________________________________________________________

5 Because we affirm the district court's finding that Lanocha violated
§ 1692e(5) and (10), we do not address the alternative ground that he
violated § 1692e(3), which prohibits "[t]he false representation or impli-
cation that any individual is an attorney or that any communication is
from an attorney." See Avila v. Rubin, 84 F.3d 222 (7th Cir. 1996) (hold-
ing that mass-produced dunning letters bearing facsimile of attorney's
signature created false and misleading impression that communications
were "from" attorney); Clomon v. Jackson , 988 F.2d 1314 (2d Cir. 1993)
(where attorney had no direct personal involvement in the mailing of col-
lection letters, use of his letterhead and facsimile of his signature violated
the FDCPA).

                     11
ably believed that lawsuits might be instituted if the account was
turned over to Lanocha. Similarly, the defendants aver that a jury
could reasonably find that Lanocha believed that AFP intended to file
suit against some or all of its debtors, because he had discussions with
AFP regarding the mechanics of filing suits on small balances in vari-
ous states.

The fact that Lanocha filed 15 suits in 1984 (before the period cov-
ered by this lawsuit) means nothing in the context of the literally mil-
lions of notices sent out for years afterward. Lanocha had no real
involvement with sending the letters. He never reviewed the files and
he wasn't involved in deciding when or to whom letters were sent. He
exercised no judgment with regard to the files, he didn't see the let-
ters, didn't sign them, and didn't even know their identities. Likewise,
even if Lanocha tossed around the idea with AFP of singling out some
debtors for suit in particular regions in order to make examples out
of them, there is no evidence that a determination to sue was actually
made or even considered with regard to any of the millions of custom-
ers who received the N. Frank Lanocha correspondence. And even if
it were remotely credible that AFP intended to sue every debtor, there
is no evidence that AFP ever took any step toward that goal. An
inchoate "intention" to someday sue "all debtors" cannot establish
blanket justification for six years of sending millions of threatening
letters. There must be a particularized intention to sue a particular
debtor if he or she does not pay.

Smith knew that filing lawsuits was not viable, and knew that nei-
ther NFS, nor Lanocha, nor AFP would in fact file lawsuits against
the customers receiving the notices. Likewise, Lanocha knew that fil-
ing suit would be impracticable and burdensome. He knew that AFP
had no intention, because he in fact filed no suits.

With these arguments, the defendants ask this court to adopt a
hyper-literal approach which ignores the ordinary connotations and
implications of language as it is used in the real world. We decline
to do so. We concur with the district court's analysis of the notices,
and conclude that the defendants' notices threatened to take legal
action which they had no intention of taking, in violation of
§ 1692e(5). No reasonable juror could conclude that those statements
were not meant to make debtors fear that they would be sued. To find

                    12
otherwise would undermine the consumer protection goals of the stat-
ute and permit debt collectors to get away with accomplishing the
threat under the flimsy disguise of "statements of fact." As we have
said before in the context of § 1692g, "[t]here are numerous and inge-
nious ways of circumventing [the law] under a cover of technical
compliance. [The defendants have] devised one such way, and we
think that to uphold it would strip the statute of its meaning." Miller
v. Payco-General American Credits, Inc., 943 F.2d 482, 485 (4th Cir.
1991). Here, we have an obvious intention to make debtors afraid that
they would be sued, an effective tactic no doubt, but one which vio-
lates the law.

Because we concur with the district court's finding that the notices
falsely threatened legal action, we concur with the court's conclusion
that the defendants also violated § 1692e(10), which prohibits "the
use of any false representation or deceptive means to collect or
attempt to collect any debt . . . ." Courts have consistently found that
falsely representing that unpaid debts would be referred to an attorney
for immediate legal action is a deceptive practice. Jeter v. Credit
Bureau, Inc., 760 F.2d 1168, 1175 (11th Cir. 1985). Reference to an
attorney in a letter to a debtor is a false threat of suit where the attor-
ney has not been retained to collect a particular debt and has reached
no determination that a suit would be filed if payment is not made.
Masuda v. Thomas Richards & Co., 759 F. Supp. 1456, 1459-61
(C.D. Cal. 1991). The false representation that a lawyer may be called
in may unjustifiably frighten an unsophisticated consumer into paying
a debt that he or she does not owe. Id. Of course, the test is the capac-
ity of the statement to mislead; evidence of actual deception is unnec-
essary. The district court considered the impact of the defendants'
notices on the "least sophisticated consumers," and correctly con-
cluded that the false threats that legal action would be taken also vio-
lated § 1692e(10).

B. § 1692g

Section 1692g requires a debt collector to provide, in its initial
communication with a consumer or within five days of that time, a
debt validation notice informing the consumer of his or her right to
dispute the validity of the debt. The statute requires the written notice
to include, among other information:

                     13
          a statement that unless the consumer, within thirty days after
          receipt of the notice, disputes the validity of the debt, or any
          portion thereof, the debt will be assumed to be valid by the
          debt collector.

15 U.S.C. § 1692g(a)(3). To be adequate, the"validation notice" must
be placed in such a way to be easily readable, and must be prominent
enough to be noticed by an unsophisticated consumer. The notice also
must not be overshadowed or contradicted by other messages. The
district court held that the NFS deadline notice and two of the
Lanocha letterhead notices,6 violated § 1692g(a) because they either
demanded payment in ten days, or demanded "immediate payment."
The deadlines--generally ten days from the date of the notice--
conflicted with the thirty days allowed in the validation notice itself,
which was printed on the back of the form. The court also noted that
the bold commanding type of the dunning text overshadowed the
smaller, less visible, validation notice printed on the back in small
type and light grey ink.

The district court's decision was compelled by Miller v. Payco-
General American Credits, Inc., 943 F.2d at 484.

The defendants raise no issue of fact concerning the district court's
determination that the conflicting time requirements in the text of the
notice and the validation notice violate the Act.

III. Civil Penalties

The FDCPA provides for enforcement as though it were an FTC
rule. 15 U.S.C. § 1692l(a). Thus FDCPA violations can be punished
under the Federal Trade Commission Act, which provides that the
Government may impose civil penalties of up to $10,000 per each
violation on
_________________________________________________________________

6 The district court denied the government's motion for summary judg-
ment with regard to certain other of the Lanocha letters, which the court
found did not contain the contradictory language and misleading type
disparity.

                       14
          any person, partnership or corporation which violates any [ ]
          rule . . . with actual knowledge or knowledge fairly implied
          on the basis of objective circumstances that such act is
          unfair or deceptive and is prohibited by such rule.

15 U.S.C. § 45(m)(1)(A). The United States sought civil penalties
totalling $1,500,000.

The defendants argue that they had no actual notice that the precise
language they were using violated the FDCPA. Whether a defendant
has violated a rule with actual or implied knowledge is based on
objective factors. A defendant is responsible where a reasonable per-
son under the circumstances would have known of the existence of
the provision and that the action charged violated that provision. S.
Rep. No. 1408, 93rd Cong., 2nd Sess. 4, 1974 U.S.C.C.A.N. 1772. It
is undisputed that the defendants were aware of the relevant provi-
sions of the FDCPA and had extensive interaction with the FTC con-
cerning how to comply with it.

The defendants argue that they were entitled to a jury trial on "the
disputed question of their state of mind." Smith testified that he did
not believe that the notices violated the Act. The defendants concede
they knew that the FDCPA prohibited threats of legal action not
intended to be taken, but claim that they honestly believed that the
NFS letters were compliant, and believed that AFP intended to take
legal action. Smith submitted an affidavit attesting that the FTC saw
"nothing wrong" with his notices. The FTC did not inform them that
the letters violated the Act until three years after the investigation
began. Similarly, the defendants argue that there is a genuine issue of
material fact about whether Lanocha knowingly violated the Act, and
they assert that he honestly believed that his notices accurately
reflected AFP's intentions.

Civil penalty assessments are reviewed for abuse of discretion.
United States v. Reader's Digest Ass'n, 662 F.2d 955, 969 (3d Cir.
1981).

The district court considered: (1) the good or bad faith of the defen-
dants, (2) the injury to the public, (3) the defendants' ability to pay,
(4) the benefits derived from the violations, and (5) the necessity of

                     15
vindicating the authority of the FTC. F.T.C. v. Hughes, 710 F. Supp.
1524, 1529 (N.D. Tex. 1989).

Addressing the defendants' good faith, the district court found that
the defendants' actions were knowing and deliberate. They engaged
in multiple violations over many years, knowing that the Act prohibits
threats of legal action not intended to be taken. Lanocha admitted that
he concluded that a plan to sue all the AFP debtors would be too bur-
densome, and Smith testified that he was aware of the economic
impracticality of filing suit.

The defendants contend that there is abundant evidence of their
good faith, including consulting an attorney to ensure their compli-
ance, cooperating with the FTC, compliance with industry standards
concerning the validation notices, and relying on the statements by
AFP's vice-president that AFP intended to file suit against every
debtor.

Turning to injury to the public, the government need not prove
actual harm to consumers in order to assess penalties. United States
v. Reader's Digest Ass'n Inc., 494 F. Supp. 770 (D. Del. 1980), aff'd,
662 F.2d 955 (3d Cir. 1981), cert. denied, 455 U.S. 908 (1982).
Threats of legal action are likely to be intimidating to consumers, and
cause distress and anxiety. Stress resulting from false threats of suit
has been recognized as a compensable injury in private suits under the
FDCPA. See e.g., Carrigan v. Central Adjustment Bureau, 502 F.
Supp. 468 (N.D. Ga. 1980). Consumers might elect to pay a debt that
they do not owe in order to avoid the threatened lawsuit. The court
concluded that the millions of notices sent out bearing the violative
language caused significant injury to the public. Injury also could
result from the failure to supply proper validation notices adequately
advising of the right to challenge a debt.

The government submitted evidence establishing that the defen-
dants sent out millions of notices containing the offending language,
including the records of UARCO, a printing company that supplied
NFS with many of its debt collection forms, and the declaration of
David Dammen, UARCO's district manager. (J.A. 808). From
UARCO, NFS purchased nearly 3,000,000 NFS deadline notice forms
pre-printed with language the district court found violated the

                    16
FDCPA, and from 1986 to 1990, it purchased more than 9,000,000
Lanocha Letterhead forms. The government also submitted AFP per-
formance data indicating that NFS mailed millions of notices to con-
sumers whose names were supplied by AFP. (J.A. 771). These
figures, which were not disputed by defendants, do not include
notices mailed to consumers on other accounts. (J.A. 1149, 1155-58,
1161, 1164-65). The defendants submitted no documentation of how
many collection notices were sent and did not challenge UARCO's
records. In response to government requests for actual figures regard-
ing the number of notices sent, Smith and Lanocha provided nothing.
Their failure to rebut creates an adverse inference. Vodusek v. Bay-
liner Marine Corp., 71 F.3d 145, 156 (4th Cir. 1995).

Turning to the benefits received by the defendants, the defendants
assert that it is "unclear" how much income each defendant earned
from the AFP-related collection activities. But they offered no decla-
rations or documents to establish the amounts of income each
received.

The FTC Act authorizes a civil penalty of up to $10,000 for each
violation of the FDCPA. A separate violation occurs every time a pro-
hibited threat or misrepresentation is made, or each time the required
validation notice is not provided. Thus, each of the millions of collec-
tion letters that threatened suit was a separate violation of 15 U.S.C.
§§ 1692e(5) and (10), and each letter with a defective validation
notice was a separate violation of § 1692g. The government requested
a penalty of at least $1,500,000. In light of the millions of accounts
involved, and the fact that most accounts received more than one let-
ter, the district court would have been within its discretion to impose
penalties far greater than $550,000. Although the penalty was larger
than in most other FDCPA cases, the large scale of the violations jus-
tifies the penalty. Without a real sting, the defendants would be
unlikely to be deterred from violating the Act, in light of the substan-
tial profit to be made using aggressive and improper collection prac-
tices.

IV.

The district court was correct in finding that the defendants were
guilty of violating the applicable laws and did not abuse its discretion

                    17
in awarding civil penalties in the amounts imposed upon NFS, Smith,
and Lanocha. Accordingly, the decision of the district court is

AFFIRMED.

                   18
