The recent fiscal crisis and recession have accentuated debt collection issues, prompted federal regulatory and enforcement activities regarding the debt collection industry, and motivated
assessments of the effectiveness of the Fair Debt Collection Practices Act (FDCPA). The Consumer Financial Protection Bureau (Bureau or CFPB) and the Federal Trade Commission
(FTC), the two main agencies charged with regulating and/or enforcing the FDCPA, have identified debt buying, the use of litigation as a collection strategy, and the impact of current
technology on the debt collection industry as three major developments that did not exist when the FDCPA was enacted in 1977. They have conducted analyses of consumer complaints about FDCPA violations and studies and workshops to evaluate the debt-buying industry and the impact of technological developments such as social media, email, mobile phones, etc., on how debt collectors communicate with consumers and find information about consumer debts.
Fair Debt Collection Practices Act and its purpose
Almost all consumer debt collection practices in the United States are controlled by the FDCPA, which is a fairly terse and clearly written federal statute enacted by the United States Congress.
The purpose of the FDCPA is to eliminate abusive debt collection practices by debt collectors, to protect debt collectors who refrain from abusive practices from loss of a competitive advantage, and to promote consistent state action to protect consumers. For a company with reasonable business ethics and operational principles, the FDCPA is an ally and not an enemy. It allows a collector to use its best talents and abilities on a level playing field without having to be undermined by less ethical entities.
The FDCPA limits the number, types, timing, and content of “communications” that a “debt collector” may have with a “consumer” “debtor” concerning a “debt” as all of those terms are defined in the act.
- “Communication” means the conveying of information regarding a debt directly or indirectly to any person through any medium.
- “Consumer” means any natural person obligated or allegedly obligated to pay any debt.
- “Debt” means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the 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.
- “Debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. There are several exceptions to the term “debt collector,” but the only one that normally become applicable is the one that exempts an actual officer, employee, or extended business office servicer of a creditor while, in the name of the creditor, collecting the debts of such creditor.
As most proposed business opportunities involving delinquent debt do not fall within this singular exception, almost all collection activities of delinquent consumer debt are clearly subject to the limitations contained in the FDCPA.
Debt Collection Practice Limitations of the FDCPA
The debt collection practice limitations of the FDCPA are clearly defined in the statute; These limitations run from the moment the debt collector begins to contact a debtor or discover the whereabouts of the debtor from the debtor or a third party until the final collection, settlement or abandonment of the debt.
When a collector seeks to obtain information concerning the whereabouts of the consumer from anyone other than the consumer, the debt collector must, to the extent possible protect the privacy of the consumer by doing the following:
- identify himself, state that he is confirming or correcting location information concerning the consumer, and, only if expressly requested, identify his employer;
- not state that such consumer owes any debt;
- not communicate with any such person more than once unless requested to do so by such person or unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has correct or complete location information;
- not communicate by post card;
- not use any language or symbol on any envelope or in the contents of any communication effected by the mails or telegram that indicates that the debt collector is in the debt collection business or that the communication relates to the collection of a debt; and
- after the debt collector knows the consumer is represented by an attorney with regard to the subject debt and has knowledge of, or can readily ascertain, such attorney’s name and address, not communicate with any person other than that attorney, unless the attorney fails to respond within a reasonable period of time to the communication from the debt collector.
Once the consumer’s whereabouts have been legally obtained, the FDCPA further limits the communications with the consumer. A debt collector may not communicate with a consumer about the debt under the following conditions:
- at any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer, which is assumed to be from 8:00 a.m. until 9:00 p.m. “debtor standard time”;
- if the debt collector knows the debtor is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney’s name and address, unless the attorney fails to respond within a reasonable period of time to a communication from the debt collector or unless the attorney consents to direct communication with the consumer; or
- at the debtor’s place of employment if the debt collector knows or has reason to know that the debtor’s employer prohibits the debtor from receiving such communication.
The FDCPA prohibits a debt collector, unless expressly permitted by the debtor or a court of competent jurisdiction, from communicating about the debt with any person other than the debtor except:
- the debtor’s spouse,
- the minor debtor’s parent,
- the ward debtor’s guardian,
- the deceased debtor’s executor or administrator,
- the debtor’s attorney, but not an “attorney-in-fact”,
- a consumer reporting agency,
- the creditor,
- the attorney for the creditor, or
- the attorney for the debt collector.
The FDCPA also limits communications with the debtor after the debtor notifies the debt collector in writing that the debtor refuses to pay the debt or that the debtor wishes the debt collector to cease further communication with the debtor. In such cases, the debt collector shall not communicate further with the debtor, except:
- to advise the debtor that the debt collector’s further efforts are being terminated;
- to notify the debtor that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or
- where applicable, to notify the debtor that the debt collector or creditor intends to invoke a specified remedy.
The specified remedies are usually reporting the debtor to credit reporting agencies or referral of the debt for legal prosecution. When making these notifications after receiving a cease and desist request, the debt collector needs to pay attention to the
limiting clause that the remedies that may be invoked are in fact those that are ordinarily invoked by the creditor or debt collector. Hollow threats are actionable under the FDCPA.
The FDCPA further prohibits general harassment or abuse. Several obvious examples of harassment and abuse are mentioned and include:
- Use or threat of violence or criminal means to harm the debtor’s person reputation or property
- Obscene or profane language
- Publication of “dead beat debtor” lists
- Repetitive communications
- Excessively ringing phone calls
- Any similar conduct likely to harass or abuse a debtor
The FDCPA also prohibits false, deceptive, or misleading representations or means used to collect a debt, including without limitation:
- Claims of governmental association
- Misrepresentations concerning the debt or collection services themselves
- Misrepresentation of the debt collector as an attorney or of the communication as being from an attorney
- Representations that failure to pay the debt or future actions of the debt collector will result in consequences that are unlawful or that the creditor does not intend to cause to happen
- Any other generally false or deceptive means.
A key false and deceptive practice that bears individual discussion is the failure to constantly remind the debtor that the present communication is an attempt to collect a debt and that any information obtained would be used for the purpose of collecting a debt.
- A debt collector must disclose in the initial written communication with the debtor and, in addition, if the initial communication with the debtor is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.
- A debt collector must also disclose in subsequent communications that the communication is from a debt collector. (Note that, nonsensical though it may be, the statute does not require this particular disclosure in the initial communication which must include the warning about attempting to collect a debt and any information obtained will be used for that purpose.)
The FDCPA also prohibits unfair practices such as:
- Collecting amounts not actually due (including interest, fees, charges and expenses not actually allowed by the credit agreement)
- Acceptance of checks postdated by more than five calendar days unless notice of intent to deposit them is delivered between three and ten business days prior to depositing them
- Premature deposit of postdated checks
- Taking or threatening dispossession or disablement of property unless one has the present ability and intention to lawfully do so
- Communicating with a debtor by postcard
- Use of any name on the outside of an envelope that indicates that the sender is a debt collector.
The FDCPA requires written or oral notice of the details of a debt and some advisory warnings either during the first oral communication or in writing within five days of the initial oral communication. The items required in the notice are:
- Name of the creditor
- Amount of the debt
- A statement that, unless the debtor expressly disputes the validation of debts within thirty days of receipt of the notice, the debt will be assumed to be valid
- A statement that, if the debtor disputes the debt in writing within thirty days of the receipt of the notice, the debtor will obtain verification of the debt and mail a copy of such verification
- A statement that, if the debtor requests from the debt collector the name of the original creditor, the debt collector will mail the debtor the name of the original creditor if different from the current creditor.
If the debtor makes a timely dispute, then the debt collector is required to cease collection activities until the debt collector verifies the debt and mails the details concerning the debt to the debtor.
The FDCPA requires that legal action on a debt be brought in the jurisdiction where either the contract supporting the debt was signed or where the debtor resides at the time of the commencement of the legal action.
The FDCPA is administratively enforced by the United States Federal Trade Commission. Many state attorneys general also enforce the FDCPA using the bootstrap that violation of the federal law is a violation of their states’ unfair trade practices laws. In addition, there is a vigorous bar of plaintiffs’ attorneys that make a good living suing even putative errant debt collectors.
Civil liability for violation of the FDCPA is:
- The amount of any actual damage sustained by a person (any person, not just the consumer) as a result of the violation, plus
- An additional amount that may be allowed by a judge up to a limit of $1,000.00 per individual plaintiff or,o in a class action $1,000.00 for each named plaintiff and the lesser of one percent (1%) of the net worth of the debt collector or $500,000.
- Costs of the legal action including reasonable attorneys’ fees.
The FDCPA has been referred to as a strict liability statute, meaning that intent is not an element of a claim and that mere unintentional violation of the statute can result in damages. There are, however, defenses to a claim for unintentional and erroneous results that violate the statute. Prior to availing oneself to these defenses, however, the debt collector or debt collection service must have had in place policies and procedures reasonably calculated to have prevented the error and the policies and procedures must have failed.