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When you think about it, nearly all attorneys are "collectors." Lawyers are hired to improve the state of their clients, usually through a transfer of funds or property. Although
we might not think of ourselves as "collection attorneys," those we pursue may disagree.
The Fair Debt Collection Practices Act or "FDCPA" has become a favorite day-time talk show topic. Each show features a poor soul appearing (with his attorney) to tearfully tell
his story of a collector committing unspeakable horrors in an attempt to collect a debt. The host, and of course the attorney, will invariably end each show with a discussion of that ray
of hope called the FDCPA and the money waiting for a debtor if a violation can be found.
When Congress targeted collection agency abuses in the 1970's, they sought to alleviate
criminal threats, harassing night time or repetitive calls, and efforts to collect debts through employer or neighbor contacts. As years passed and language was interpreted by the courts,
coverage appears to have expanded. And most notably, attorneys have lost their exempt status. Now, even the most careful attorney, one claiming never to have collected a debt, may find
himself in the cross hairs of that tearful debtor and his attorney.
The FDCPA attempts to bridle the collector in his efforts to collect a consumer, or retail, debt. It does so by providing specific disclosures to the debtor, by regulating contacts with
the debtor, and offering substantial remedies for the violation of these provisions.
Who and What Is Covered by the Act?
The Act defines a 'debt' as:
. . . any obligation or alleged obligations of a consumer to pay money arising out of a transaction in which Money, property, insurance, or services which are the subject of the
transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. (15 U.S.C. 1692a (5))
A 'debt' within the meaning of the FDCPA is a consumer debt only. It is a debt based on personal, family or household purposes. It is important to note that commercial debts are not
covered by the Act. However, this distinction is not always easy to draw as reflected in the numbers of appellate cases addressing the issue. To be safe, unless the collector knows
without any doubt that a debt is commercial and not consumer, the debt should be seen as a consumer or retail debt. Otherwise, the collector is taking a foolish risk.
The next threshold is the determination of who is a 'debt collector.' The Act covers:
. . . any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of debts, or who regularly collects
or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.
Until 1986, an attorney doing collections did not need to worry about the restrictions of the FDCPA. An attorney's concerns were limited to the representation of collection agency clients
who were being accused of harassment, vulgarities, or trickery. But in that year, attorneys lost their exemption through an amendment to section 1692a(6)(f) of the Act, forcing them to
come to grips with the restrictions imposed by the Act.
The key word for an attorney is "regularly." Does the attorney or firm regularly collect debts for another entity? If so, the Act applies and its restrictions are imposed. What
must be understood is that "regularly" does not equate with "a majority" or "substantial portion" of the practice. What will be looked at is the volume of
collection business performed by the firm even though the collection portion of the firm's entire practice may be relatively small.
Normally a creditor's own collection efforts would not be regulated by the Act. Its provisions are exclusively reserved for the third party collector. But a creditor can become liable for
violations if an employee of the creditor uses a name which would lead the debtor to think the debt is being collected by a third party. Certainly a creditor sending demands to its debtor
in the guise of a "collection agency" to create the false belief that the debtor is dealing with a collection agency, attorney, or credit bureau would violate the Act.
Additionally, an in-house counsel attempting to collect a debt for his employer by using letterhead designed to appear as an independent law firm would subject the creditor to the Act.
Permitted And Restricted Communications
Collectors are paid for results through commissions, bonuses, and increased benefits. But all too often a collection quota or other
expectation enticed a collector to use any method possible to obtain the financial award or other recognition. Many creditors ascended the ladder of their profession by deception,
threats, filthy language, and annoying calls. The FDCPA attempts to overhaul this system by specifying how far a collector can go in obtaining payment. And the overhaul truly is mammoth.
Debt collectors, including attorneys, can no longer send the office boilerplate demand letter to a consumer debtor with deadlines, demands, and the usual threat of suit. Either in the
initial communications or within five days of that contact, the collector must send a written notice to the debtor. The notice must conspicuously include:
1.The creditor's name;
2.The amount owed;
3.A statement indicating that unless the debtor disputes the debt within 30 days the collector will assume the debt is valid;
4.A
statement that the collector will obtain verification of the debt if disputed within the 30 day period and the verification or documentation will be provided to the debtor; and
5.A
statement that if written request is made within the 30 day period the collector will provide the name of the original creditor.
The language of this notice is not to be relegated to an inconspicuous corner of the communication. Nor is it to be placed on the back of the document or in translucent gray. It must be
legible and large enough to be read easily. Nor is it to be contradicted by language which would tend to downplay or detract from the language of this notice. Certain threats and
deadlines which previously defined a demand letter now bring the attorney or collector dangerously close to violating the Act. The test is whether the "least sophisticated"
debtor will recognize and understand the disclosure.
Although a decision to press forward with suit or further collection activities during the 30 day period can be supported by occasional commentators and governmental opinions, it is
general agreed that the cautious collector will wait patiently and silently during this period until a more definitive ruling defines what if any actions can be taken during the 30 days.
Ongoing Disclosures
As discussed, a debt collector must provide the consumer debtor with a notice in the initial contact. In addition, current law requires that the debt collect
or must include a "mini-Miranda warning." The debtor must be informed that "the debt collector is attempting to collect a debt and that any information obtained will be
used for that purpose."
Initially, all subsequent communications required the "mini-Miranda warning." But in 1996, an important amendment was signed into law which requires the "mini-Miranda
warning" to be included only in the initial communication. Subsequent communications must only cite that the communication is from a debt collector. Another important clarification
offered by the amendment was to remove the requirement of placing a "mini-Miranda warning" or debt collector notice on formal pleadings associated with legal action.
The FDCPA also provides restrictions as to when and where a debtor can be contacted. A debtor cannot be contacted at a time which is unusual or knowingly inconvenient. The hours of 8 a.m.
to 9 p.m. (at debtor's location) are recognized as reasonable. Nor can a debt collector contact a debtor who is known to be represented by legal counsel, unless the debtor's lawyer fails
to respond within a reasonable time. Of course, an attorney collector will be restricted to a stricter degree by his bar membership. Furthermore, a debtor may not be contacted at his work
place if the collector knows or should know that the debtor's employer forbids such contacts.
A collector is also prohibited from using post cards, see-through envelopes, or other stationery which could place a third party on notice that the sender is a debt collector or that the
addressee is the subject of debt collection.
Contacts with Third Parties
One of the major objectives of the Act is to eliminate harassing, damaging collection contacts with third parties. Unless given express authority by
the debtor, or the court, or unless otherwise allowed by the Act, a collector can only contact the debtor, the debtor's attorney, the creditor, the creditor's attorney, his own attorney,
and possibly a credit reporting agency, in reference to the debt. Otherwise, there can be no communications with third parties concerning the debt.
The Act recognizes that locating a debtor is an essential element of collecting a legitimate debt. But efforts to locate the debtor through third parties are severely limited.
First, the collector must identify himself and tell the third party he is trying to confirm the individual's location or address. Only if asked specifically can the collector identify his
employer.
Second, no reference or inference can be made to the debt.
Third, normally only one contact can be made with the third party.
Lastly, once the collector knows that the debtor is represented by legal counsel, all location questions must be addressed to that attorney unless all such communications are ignored.
Harassment and Abuse
Several collection tactics are cited in the FDCPA as being harassment or abuse and thus violative of the Act. The following list is not all inclusive:
- Obscene or profane language.
- Threats of violence or criminal conduct against anyone.
- Repeated telephone calls or allowing a phone to ring repeatedly with the intent to annoy or harass.
- Failure to identify the telephone caller (unless restricted by third-party provisions).
- Publishing a "deadbeat list".
False Representations
The collector must be truthful with the debtor. The FDCPA defines this duty by offering the following examples of "false, deceptive, or misleading"
conduct sanctioned by the Act. Again, the list is not exhaustive.
- Implying that the collector is sponsored by or affiliated with a governmental entity, a credit reporting agency, or is an attorney when such is not the case.
- Holding out documents as legal process or other governmental documents when they are not.
- Implying that documents are not legal process when they are.
- Using a false business name. (A person collecting a debt may use an alias if it is used consistently, the employer knows of the alias, and the collector can easily be identified by
that name).
- Using a deceptive means to assist in the collection of a debt or to gain information on the debtor.
- In an attempt to scare or humiliate a debtor, to imply he committed a crime.
- Threatening to take legal or other action which either legally cannot be taken or which is not intended. (See Newman v. Checkrite California, Inc., 912 F. Supp. 1354 (E.D. Cal 1995))
- Communicating credit information which is inaccurate.
- Failure to use the "mini-Miranda warning" in all communications.
Unfair Practices
15 U.S.C. 1692f provides a further list of violations which are deemed "unfair" when undertaken by a debtor collector. It is made clear that this is
not an exhaustive list of violations:
- Using post cards to communicate with the debtor regarding the debt.
- Corresponding with the debtor using envelopes which identify the sender as a debt collector.
- Collecting an amount which is neither expressly authorized by contract or by law.
- Causing the debtor to be charged for telephone calls or other communications incurred because the collector conceals the purpose of the communication.
- Threatening to deposit or depositing a postdated check prior to the appropriate date.
- Soliciting a postdated check with the intent to use the instrument to threaten or file a criminal action.
- Accepting a check or instrument which is postdated by more than five days unless the person offering the check is given written notice that the collector intends to deposit the check
not more than ten or less than three business days prior to deposit.
- Threatening to take through "self help" any property when the collector has no present right of possession, he has no present intent to take the property, or the property
has been exempted by law.
Venue
No longer can a collector force a debtor to defend a suit in a far off county or state either by whim or contract. That earlier practice was usually based on fine print
hidden in paragraphs or pages of boilerplate language in a consumer contract. That leverage disappears pursuant to the FDCPA.
Under the Act, if the action is based on an interest in real property or a security interest in that property, the suit must be filed in the county (or district) in which the property is
situated. Otherwise, the debtor must be sued where the contract was signed or in the county (or district) in which the debtor resides.
Penalties Afforded by the Act
A technical violation of the Act can be a tragic lesson for an unsuspecting collector, including of course an attorney collecting a debt.
15 U.S.C. 1692k (a) allows damages to be awarded in the following forms:
a)Actual damages stemming from the violation;
b)Additional damages set by the court not to exceed $1,000.00;
c)If a class action, an additional amount not to exceed $500,000.00 or 1% of the debt collector's net worth (which ever is less) may be awarded; and
d)Costs and reasonable attorney fees.
The Act has generated an explosion of claims which some would argue are filed for the sole purpose of generating attorney fees. Often, the violations may seem small and the damages even
smaller. But there are still firms throughout the nation eager to provide legal representation to the injured victims even when the target is an attorney. This "boutique"
specialty saturates many areas of the country and Utah attorneys have not escaped pursuit.
Defenses
The collector is not without armor in such a suit. Under 15 U.S.C. 1692k(c), if a violation is found, the collector will not be held liable if he can show that the
violation was not intentional and was simple error. But in even in the presence of a bona fide error, the collector will also be required to show that the error was made despite
established procedures designed to avoid such an error. Courts will also look to the frequency of the violations and whether the violation was intentional.
In 1997, sensing the growing confusion of attorneys and collection agencies, the U.S. Seventh Circuit Court of Appeals expressed a need for a "safe harbor" demand letter designed
to comply with the Act and avoid further court challenges. The following is the text of that letter:
Dear [Consumer]:
I have been retained by Micard Services to collect from you the entire balance, which as of September 25, 1995, was $1,656.90, that you owe Micard Services on your
MasterCard Account No. 541470117068749.
If you want to resolve this matter without a lawsuit, you must, within one week of the date of this letter, either pay Micard $316
against the balance that you owe (unless you've paid it since your last statement) or call Micard at 1-800-221-5920 ext. 6130 and work out arrangements for payment with it. If you do
neither of these things, I will be entitled to file a lawsuit against you, for the collection of this debt, when the week is over.
Federal Law gives you thirty days after you
receive this letter to dispute the validity of the debt or any part of it. If you don't dispute it within that period, I'll assume that it's valid. If you do dispute it Ð by notifying
me in writing to that effect Ð I will, as required by law, obtain and mail to you proof of the debt. And if, within the same period, you request in writing the name and address of
your original creditor, if the original creditor is different from the current creditor (Micard Services), I will furnish you with that information too.
The law does not
require me to wait until the end of the thirty-day period before suing you to collect this debt. If, however, you request proof of the debt or the name and address of the original
creditor within the thirty-day period that begins with your receipt of this letter, the law requires me to suspend my efforts (through litigation or otherwise) to collect the debt
until I mail the requested information to you.
Sincerely,
[Collection Attorney]
At first glance, this letter appears to be of great value to the collector, as envisioned by the Court. However, before making the letter boilerplate for the office the practitioner should
consider:
- The letter infers the dispute or request must be made in writing.
- The letter does not include the "Mini-Miranda" warning.
- The letter appears to overshadow the 30 day allowance by demanding payment within a week.
Arguably, the main contribution of the letter is to underscore the need for even further clarification and simplification of the Act.
The Seventh Circuit recently gave attorneys even more to think about in Boyd v. Wexler, 2001 U.S. App. LEXIS 27262 (7th Cir. Dec. 28, 2001). Mr. Wexler, who practiced in the consumer
collection area, was sued based on an allegation that he sent out demands to consumers without personally reviewing the files. The debtor claimed Wexler created the false impression that
the letter came from an attorney when it was alleged he had not been involved. Claiming in an affidavit that he indeed reviewed each file, he was granted summary judgment. The Court of
Appeals disagreed finding that based on the sheer number of cases a jury could determine that no review took place. The Court noted that Wexler had dealt with approximately 100,000
collection files during a six month period and that a reasonable person could conclude that the attorney failed to conduct a meaningful review of each file based on the numbers. This case
is certain to give pause to an attorney with a volume consumer debt collection practice who is faced with the task of personally reviewing a huge number of files for accuracy.
The Future of the FDCPA
Since the courts have been less than successful in alleviating the confusion and complexity associated with the Act, critics have turned to the
legislative branch in seeking these clarifications and limitations. During 2002, Congress appears to have most interest in correcting the FDCPA's impact on mortgage foreclosure and
servicing, as well as a loosening of restrictions on lawyers in litigation. H.R. 3533 aims to exempt from "communication" attorney contacts based on the Federal Rules of Civil
Procedure or comparable state rules. Attorneys are also following H.R. 2014 which would allow collection efforts to continue during the 30 day validation period and would cap the award of
attorney fee awards. But the passage of these initiatives is far from certain.
So when another attorney announces in a telephone conversation that she is a "debt collector" or if her voice mail message proclaims the same, don't shake your head at the pride
in these odd individuals. Instead, take an inventory as to whether you, or someone in your firm, also qualifies for the "debt collector" moniker. A mistake could be costly. Wear
the name proudly!
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