The Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act

It is 10:30 p.m. and you have finally settled down to sleep after a long day, when the telephone rings. You think to yourself, “Who is calling this late?” You answer. (It might be an emergency.) On the line is a debt collector from your credit card company. The same company has called five times already today, and the collector says he will keep calling until he gets what is owed. He has threatened to tell your employer that you cannot be trusted, because you do not pay your debts, and once threatened to have you arrested. When you ask who he represents, he refuses to give specifics, and curses at you to just “pay up”.

This may seem extreme, but it is just a taste of what many have faced at the hands of aggressive debt collectors. Congress enacted the Fair Debt Collection Practices Act (FDCPA) in March of 1978 to “eliminate abusive debt collection practices” and to protect debt collectors who followed the law from being undercut by less scrupulous collectors.[1] Debtors faced the kinds of interactions described and presented every day, even those debtors who were willing to pay the debts they owed.

Coverage

Not every kind of debt or every kind of debtor is covered. Two questions must be answered to determine whether the FDCPA applies. The first question is: was the debt incurred by a consumer for primarily personal, family, or household purposes? The FDCPA only applies to debts incurred by a consumer for the aforementioned reasons. These debts may include car purchases, credit card bills, household purchases, and some student loans, among many others.[2] Debts of a commercial nature are not covered by the act. For example, collection of debt taken on by a business would not be subject to the strictures of the FDCPA.[3]

The second question that must be answered is: what type of entity seeks to collect on the debt? The FDCPA only applies to “a debt collector,” defined as an entity “who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”[4] For example, this definition would include a business which is paid to collect debts for a credit card company, but is not a part of that company. This means that if the credit card company itself seeks to collect on the debt it is owed, its actions are not subject to the rules of the FDCPA. The United States Supreme Court has held that attorneys who regularly collect debts are “debt collectors” for purposes of the act, and are therefore subject to its provisions.[5]

Communications in Connection with Debt Collection

The FDCPA is not intended to provide individuals who owe a debt a way out, but simply to protect them from abusive collection practices. The FDCPA lays the legal framework for how debt collectors may communicate with debtors. This list permits and prohibits certain activities, such as:[6]

            · Stops a debt collector from contacting a person who is known to be represented by an attorney

           · Forbids calls to the debtor’s workplace if the debt collector knows or should know that the employer forbids such contacts

            · Bans the use of profane or obscene language

            · Forbids harassment and misrepresentations: i.e. repeat telephone calls, lies to convince a debtor to pay

            · Limits the time of day during which phone calls may be made from generally 8:00 a.m. to 9 p.m. in the debtor’s time zone

            · Prevents threats of violence against the debtor or the debtor’s property

            · Prohibits one from publishing a list of individuals who have not paid their debts

            · Prohibits one from making false or misleading statements to collect the debt

This is a non-exhaustive list that does not cover each and every kind of communication that may violate the act. Debt collectors who are subject to the provisions of the act must proceed with caution to avoid any conduct which may cross the line, as courts will analyze that conduct in subsequent lawsuits.

Debt collectors are also required to make certain disclosures, beyond the simple “THIS IS AN ATTEMPT TO COLLECT A DEBT” provision added to most notices. Within five days of an initial contact with a debtor, the collector must send a written notice which contains:

(1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that the consumer may dispute the debt within thirty days or the debt will be assumed to be valid;

(4) a statement that the debt collector will obtain verification of the debt if the consumer disputes the debt within thirty days; and

(5) a statement that upon the consumer’s request, he or she will be provided with the name and address of the original creditor.[7]

If a debt collector fails to provide this information within the proscribed time, it may be subject to sanctions under the FDCPA.

When a debtor refuses, in writing, to pay a debt or asks that the debt collector stop attempting communicating, the debt collector must cease their contact efforts. This does not mean, however, that the debt collector is without recourse. At this point the debt collector may use other legal methods, such as filing a lawsuit, to collect on the debt. Through the supervision of the judicial system, debtors are protected from harassment, while the rights of creditors are also maintained.

Damages

The FDCPA sets forth specific damages to which a debtor may be entitled to if a debt collector violates the act’s tenets. Any debt collector who breaches the provisions of the act is liable for (1) actual damages sustained by the debtor, (2) additional damages as the court allows not to exceed $1,000; or in a class action not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector; (3) and the costs of the action and reasonable attorney’s fees.[8]

In many cases, the potential that attorney’s fees may be imposed drives FDCPA litigation. For example, in a case in Greensboro, North Carolina, the debt collector was ordered to pay $37,500 in damages, but was also responsible for nearly $150,000 in attorney’s fees.[9] The significant and often unpredictable cost of attorney’s fees deters debt collectors from engaging in illegal behavior, even when the risk of actual damages is relatively low.

Additionally, any debt collector who fails to comply with any provision of the FDCPA is liable for up to $1,000 in punitive damages per individual up to $500,000 or 1 percent of the debt collector’s net worth.[10] While this seems significantly less onerous of a penalty than the imposition of attorney’s fees, this punitive damage amount can quickly add up in class action lawsuits, which are very often the method of choice for pursuing claims under the FDCPA. In considering punitive damages, a court must consider the frequency, persistency, and nature of the violations, and to what extent they were intentional.[11]

Intent is an important consideration in determining the amount of damages appropriate under the FDCPA or whether damages may be granted at all. “A debt collector may not be held liable in any action under [the FDCPA] if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.”[12]This means that a debt collector must prove that although a violation of the act occurred: (1) the violation was not intentional, and (2) that the debt collector had put in place mechanisms or procedures which sought to prevent the kind of conduct which constituted a violation. A debt collector may also argue that it relied, in good faith, on an advisory opinion of the Federal Trade Commission in performing the conduct which was a violation of the FDCPA.

Horror Stories

            While the FDCPA does prevent a great deal of abuse from occurring, debt collection harassment may still occur. A Texas-based debt collector, Goldman Schwartz, was shut down by the Federal Trade Commission in 2013 for multiple offenses. There, collectors from the company called constantly, threatening alleged debtors with arrest or sending the local sheriffs to their place of employment if they did not pay the debt.[13] A debtor cannot be arrested for failure to pay a consumer debt, and companies which claim otherwise are using false and deceptive tactics to induce payment.

Pretending to have legal authority above is a popular tactic employed by debt collectors. The Pennsylvania Attorney General filed a lawsuit against Unicredit America Inc., a debt collector, which was charged with decorating its office to look like an official courtroom and dressing individuals in the black robes of a judge.[14] Unicredit even went so far as to hold fake court sessions with the goal of deceiving debtors into believing they were court-ordered to pay particular debts. The judge closed Unicredit in November of 2010 and the company filed bankruptcy shortly thereafter.

One of the most egregious studies in deceptive debt collector conduct occurred in California. The debt collector, Rumson, Bolling & Associates, was fined more than $700,000 in 2013 for a litany of violations. In some instances, debt collectors threatened to dig up the bodies of a debtor’s deceased children, hang them from a tree, or drop them outside their front door for failing to pay funeral bills. One collector even threatened the pet of a debtor by stating he would have the dog “arrested … shoot him up and …eat him,” after which he would send the police to arrest her.[15]

Conclusion

While most debt collectors will act in a legally acceptable manner, violations do occur. Debtors have rights under federal law. Additionally, most states have written statutes similar to the FDCPA to protect their citizens. A debtor who knows his rights under state and federal law prevents harassment and abuse by debt collectors, and protects those debt collectors who are honestly, morally, and legally conducting their work.