According to a collections industry source, 35 percent of U.S. consumers with credit have at least one account in collections (Credit & Collection News, June 17, 2015).
The collection of consumer debts is regulated by the federal Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. §1692 et seq.). The FDCPA generally applies to third-party debt collectors, which include the following:
•Collection agencies
•Collection lawyers—Lawyers were originally excluded from the definition of debt collector, but in 1986, Congress removed the attorney exemption, so lawyers are covered if they “regularly” collect consumer debts (Heintz v. Jenkins, 514 U.S. 291 (1995)). The “FDCPA does apply to a lawyer . . . with a general practice including a minor but regular practice in debt collection” (Crossley v. Lieberman, 90 B.R. 682, 694 (E.D.Pa. 1988), aff’d, 868 F.2d 566 (3d Cir. 1989)).
•Debt buyers
•Mortgage servicers that become involved with debts after they are in default (Oppong v. First Union Mortgage Corp., 407 F.Supp.2d 658, 662 (E.D.Pa. 2005), aff’d in pertinent part, vacated in part, 215 Fed.Appx. 114 (3d Cir. 2007))
•Foreclosure lawyers, at least if they attempt to collect money or seek personal judgments (Kaltenbach v. Richards, 464 F.3d 524 (5th Cir. 2006); Gburek v. Litton Loan Servicing LP, 614 F.3d 380 (7th Cir. 2010); Glazer v. Chase Home Finance, LLC, 704 F.3d 453 (6th Cir. 2013); Wallace v. Washington Mut. Bank, F.A., 683 F.3d 323 (6th Cir. 2012); Reese v. Ellis, Painter, Ratterree & Adams LLP, 678 F.3d 1211, 1217–18 (11th Cir. 2012); Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 376 (4th Cir. 2006); Brown v. Morris, No. 04-60526, 243 Fed. Appx. 31; 2007 U.S. App. LEXIS 15396 (5th Cir., June 28, 2007) (same); Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227, 233-36 (3d Cir. 2005))
•“Field agents” who work for creditors, particularly in connection with automobile and mortgage debts, and who visit consumers for the purpose of delivering communications and inducing them to communicate with the creditor (Siwulec v. J.M. Adjustment Servs., LLC, No. 11-2086, 2012 U.S. App. LEXIS 4201, 465 Fed.Appx. 200 (3rd Cir. March 1, 2012); Simpson v. Safeguard Properties, L.L.C., No. 13 C 2453, 2013 WL 2642143 (N.D.Ill., June 12, 2013))
With a couple of exceptions, the FDCPA does not apply to original creditors. The main exception is if the creditor misrepresents that a third party has become involved in the collection process.
The FDCPA also imposes certain restrictions on professional repossessors (15 U.S.C. §1692f(6), 15 U.S.C. §1692a(6)).
The FDCPA applies to collection of a debt, which is defined as “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” (emphasis added) (15 U.S.C. §1692a(5)). Debts under the FDCPA include credit card debts, mortgage debts, condominium and homeowners’ association assessments, rent for a residential apartment, charges for water and sewer service originally owed to a municipality and purchased by a buyer of bad debts, and dishonored checks (even if the claim against the consumer is based on a bad-check statute rather than the contract). On the other hand, it does not include business and agricultural loans, even if incurred by an individual; liabilities for property, income, and similar taxes imposed by law rather than agreement; and liabilities for child support obligations. Tort claims by a third party with which the consumer has no contractual relationship (e.g., damages arising out of an automobile accident) are not covered because there is no “transaction.” However, the fact that a claim against a consumer arising out of a transaction is phrased in terms of a statutory violation (e.g., bad-check statute) or tort (e.g., damage to a rental car may constitute the tort of negligence as well as a breach of contract) rather than breach of contract does not deprive the consumer of the protection of the FDCPA when collection agencies or collection lawyers ask the consumer to pay.
A majority of states also regulate debt collectors. The nature and scope of these restrictions vary widely. About half the states, New York City, and Buffalo, New York, impose licensing requirements. Most states impose restrictions on conduct similar to those of the FDCPA. Some state laws apply to original creditors as well as debt collectors.
The FDCPA states that its purpose is "to eliminate abusive debt collection practices by debt collectors" (15 U.S.C. §1692(e)). It applies even if there is a valid debt. The FDCPA broadly prohibits unfair or unconscionable collection methods; conduct that harasses, oppresses, or abuses any debtor; and any false, deceptive, or misleading statements in connection with the collection of a debt; it also requires debt collectors to give debtors certain information.
The FDCPA requires debt collectors to make certain affirmative disclosures to debtors. These include the following:
•Identification of debt collectors during telephone calls. 15 U.S.C. §§1692d(6) requires “meaningful disclosure” of the identity of the debt collector. This means the correct or common name of the debt-collection entity, not the real or fictitious name of the individual caller (Edwards v. Niagara Credit Solutions, Inc., 586 F.Supp.2d 1346, 1352 (N.D.Ga. 2008)).
•A warning that a communication is from a debt collector and that any information provided may be used for that purpose (15 U.S.C. §1692e(11)). One reason for this requirement is to prevent debt collectors from sending people communications purporting to seek employment references, inviting the recipient to collect a prize, or otherwise disguising the true purpose of the communications (see, e.g., Mohr v. Federal Trade Commission, 272 F.2d 401 (9th Cir. 1959); In re Floersheim, 316 F.2d 423 (9th Cir. 1963)).
•A “notice of debt” containing certain information about the debt and the consumer’s right to dispute it (15 U.S.C. §1692g).
Failure to make any of these disclosures constitutes a violation of the FDCPA.
The FDCPA also prohibits a wide range of conduct, falling generally into four categories: (a) improper communications with the debtor and third parties; (b) harassing, abusive, or oppressive conduct; (c) the use of false and misleading representations; and (d) the employment of unfair practices. There is substantial overlap between categories (c) and (d), particularly in the area of amounts added to the principal amount of the debt and filing or threatening lawsuits that the collector knows or should know are subject to a defense, such as the statute of limitations.
One of the most important rights conferred by the Fair Debt Collection Practices Act is the debtor’s right to “validation” or “verification” of a debt (15 U.S.C. §1692g). Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing
1.the amount of the debt;
2.the name of the creditor to whom the debt is (presently) owed;
3.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;
4.a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
5.a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
If the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector (15 U.S.C. §1692g(b)). The debt collector does not violate the statute if it ceases all further collection activities without providing the information. An oral dispute does not entitle the consumer to verification, but the collector cannot assume the debt is valid, and if it is reported to a credit bureau, it must be reported as disputed.
The degree of evidence necessary to constitute “verification” depends on the specificity of the dispute. A dispute stating that the debt is the result of identity theft and providing a copy of a police report or a Federal Trade Commission (FTC) identity-theft affidavit is entitled to a different response than a letter merely stating “I dispute the debt” or “I disagree with the balance claimed.” The debt collector is required to fairly address any specific objection or item raised by the consumer. However, this does not require the collector or its client to agree with the consumer.
State law may give the consumer greater rights. If the debt has been sold or transferred, Section 9-406 of the Uniform Commercial Code (UCC) entitles the putative debtor to proof of the assignment. Most sales of receivables (debts) are subject to Article 9 of the UCC, dealing with secured transactions, even though they are not what normally would be thought of as a secured transaction.
State law may also give the consumer special rights in the case of identity theft (e.g., 225 ILCS 425/9.4), and many statutes regulating the extension of credit to consumers entitle a debtor to an accounting (e.g., 12 U.S.C. §2605(e) (Real Estate Settlement Procedures Act of 1974); 815 ILCS 375/15 (Motor Vehicle Retail Installment Sales Act), 815 ILCS 405/16 (Retail Installment Sales Act); 810 ILCS 5/9-210, 5/9-613 (UCC)).
The failure of a consumer to dispute the validity of a debt under the FDCPA may not be construed by any court as an admission of liability by the consumer (15 U.S.C. §1692g(c)). For example, it may not be alleged to create an account stated (Citibank (South Dakota) N.A. v. Jones, 184 Misc.2d 63, 706 N.Y.S.2d 301 (Nassau Cty. Dist Ct. 2000)).
The FDCPA provides debtors the “extremely important protection” of prohibiting debt collectors from contacting third parties, including a debtor’s employer, relatives (other than the debtor’s spouse), friends, or neighbors, for any purpose other than obtaining “location information” (15 U.S.C. §1692c, described in S.Rep. No. 382, 95th Cong., 2d Sess. 4, reprinted in 1977 U.S.C.C.A.N. 1695, 1698–1699). There are a few highly regulated exceptions (15 U.S.C. §1692c(b)). Leaving messages with relatives (other than a spouse, guardian, or, in the case of a minor, parent), neighbors, credit references, employees, or coworkers is forbidden (Horkey v. J.V.D.B. & Associates, Inc., 333 F.3d 769 (7th Cir. 2003) (coworkers); West v. Costen, 558 F.Supp. 564 (W.D.Va. 1983) (relatives)). A debt collector may not contact the superior officer of a member of the military services. Leaving a message on an answering machine or voicemail system may result in an illegal third-party communication if a third party with whom the collector could not communicate directly accesses the device or system (Chlanda v. Wymard, No. C-3-93-321, 1995 U.S.Dist. LEXIS 14394 (S.D. Ohio Sept. 5, 1995)).
Communications by postcard are expressly prohibited because of the risk that third parties will inadvertently see the message (15 U.S.C. §§1692b(4), 1692f(7)).
Section 1692c is violated by any communication to a third party, even if the debt is not expressly referenced, other than one that strictly complies with the provision allowing location information to be gathered. Thus, a message left with a neighbor, friend, relative, or credit reference asking to have the debtor call regarding some urgent matter is illegal (West v. Nationwide Credit, Inc., 998 F.Supp. 642 (W.D.N.C. 1998)).
A debt collector may communicate with third parties for the purpose of determining the debtor’s residence, telephone number, and place of employment. The debt collector must identify himself or herself and state that he or she is confirming or correcting location information concerning the debtor. The debt collector may not identify his or her employer (the collection company) unless expressly requested to do so (15 U.S.C. §1692b(1)). However, the debt collector may not state or even imply that the debtor owes a debt (15 U.S.C. §1692b(2)). The collector also cannot request more information than specified in the statute (Shand-Pistilli v. Professional Account Services, Inc., 10cv1808, 2010 WL 2978029 at *4 (E.D.Pa. July 26, 2010) (“a debt collector may not seek additional information about the consumer’s job including earnings information or salary, or even ask whether an individual is currently employed because such information is beyond the scope of location information”)). Such a communication can be made only once unless requested by that third party 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” (15 U.S.C. §1692b(3)). If the consumer is represented by an attorney, the debt collector may not communicate with any other person to locate the debtor. Furthermore, if the collector already has the permitted information, he or she cannot request it in order to harass the debtor. The debt collector has the burden of showing that a third-party contact was permitted.
The FDCPA sets out strict rules relating to communications with the debtor:
•If the debtor requests the collector to cease further communication in writing or notifies the collector in writing that he or she refuses to pay the debt, the debt collector must essentially cease all further communications (15 U.S.C. §1692c(a)). The debt collector may file a lawsuit, advise the consumer that the debt collector’s further efforts are being terminated, and notify the consumer that the debt collector or creditor may invoke specified remedies that are ordinarily invoked by the debt collector or creditor or intended in the particular case. The debtor’s notice is effective upon receipt, so it should be sent by fax, certified mail, or other means providing proof of receipt.
•Many people send debt collectors letters stating that they only want to be contacted in writing. This is not authorized by the statutes. Under the FDCPA, you can tell a debt collector not to contact you at work. Under another law, the Telephone Consumer Protection Act, you can tell a debt collector not to use automated equipment to call your cell phone. However, although you can insist on no further communications at all, you cannot insist that all communications be in writing.
•A debt collector may contact the debtor by phone at the debtor’s residence, but only after 8:00 a.m. and before 9:00 p.m. local time at the debtor’s location, unless the debtor informs the collector that another time would be more convenient (15 U.S.C. §1692c(a)(1)).
•If the debt collector knows the debtor is represented by an attorney, the debt collector may not communicate with the debtor unless the attorney consents or unless the attorney fails to respond within a reasonable time to a communication from the debt collector (15 U.S.C. §1692c(2)).
•The debtor may be contacted by phone at his or her place of employment unless the debt collector knows or has reason to know, including from a statement by the debtor, that the debtor is not permitted to receive such communication at work (15 U.S.C. §1692c(a)(3)).
•The debt collector may not communicate by postcard, and the envelope cannot bear any indication that the collector is in the debt-collection business (15 U.S.C. §§1692f(7), 1692f(8)).
•The FDCPA prohibits the placement of calls with the intent to harass the consumer (15 U.S.C. §1692d). Courts look for such matters as whether the collector threatens to continue calling after the consumer refuses to pay or states his or her inability to pay the debt, whether calls are made immediately after the consumer terminates a conversation, whether calls are made after the consumer requests that they cease, whether the content of the calls is abusive or threatening, and the volume and pattern of the calls (Hoover v. Monarch Recovery Mgmt., Inc., 11cv4322, 2012 U.S. Dist. LEXIS 120948, 2012 WL 3638680 (E.D.Pa., Aug. 24, 2012); Roth v. NCC Recovery, Inc., 1:10cv2569, 2012 U.S. Dist. LEXIS 101592, 2012 WL 2995456 (N.D.Ohio July 23, 2012); Dudis v. Mary Jane M. Elliott, P.C., 11cv14024, 2012 U.S. Dist. LEXIS 108069, 2012 WL 3150821 (E.D.Mich., Aug. 2, 2012); Neu v. Genpact Services, LLC, 11cv2246, 2013 WL 1773822 (S.D.Cal., April 25, 2013)).
Special Rules Regulating Cell Phone Calls
The use of automated dialing equipment and prerecorded messages to contact debtors’ cell phones is also regulated by the Telephone Consumer Protection Act (TCPA) of 1991 (47 U.S.C. §227). The TCPA and implementing regulations issued by the Federal Communications Commission require consent for automated and prerecorded calls (“robocalls”) by a debt collector to a cell phone (not a landline). Providing the cell phone number as contact information to the creditor or a debt collector constitutes consent. However, consent can be revoked orally or in writing (a writing with proof of receipt is recommended for evidentiary purposes, though). There are statutory damages of $500 per call for violations, which may be trebled to $1500 if the violation is “willful.”
TIP
You are entitled to direct debt collectors not to robocall a cell phone. There are substantial damages for noncompliance.
The FDCPA prohibits a debt collector from engaging in any conduct that results in harassment, oppression, or abuse of the debtor in order to collect a debt (15 U.S.C. §1692d). Conduct that specifically is prohibited includes the use or threat of violence or criminal means, the use of abusive or profane language, and the publishing of a list of delinquent debtors (except to a consumer reporting agency). The list of prohibited conduct is not exclusive. Conduct that has been found to violate this prohibition includes threats of prohibited communications to third parties (Rutyna v. Collection Accounts Terminal, Inc., 478 F.Supp. 980, 981 (N.D.Ill. 1979)), name calling, ethnic or racial slurs, derogatory remarks, and obscene and profane language (Bingham v. Collection Bureau, Inc., 505 F.Supp. 864, 874 (D.N.D. 1981) (statement that debtor “should not have children if she could not afford them”); Horkey v. J.V.D.B. & Associates, Inc., 333 F.3d 769 (7th Cir. 2003); Jeter v. Credit Bureau, Inc., 760 F.2d 1168 (11th Cir. 1985)).
False, Misleading, and Unfair Acts and Practices
The FDCPA prohibits deceptive (15 U.S.C. §1692e) and unfair (15 U.S.C. §1692f) acts and practices in collecting debts or obtaining information about debtors. Conduct that has been found to be violative of one or both of these provisions includes the following:
a.Threatening criminal prosecution when collecting bad checks, if prosecution is not legally permissible or regularly initiated (Alger v. Ganick, O’Brien & Sarin, 35 F.Supp.2d 148 (D.Mass. 1999); Davis v. Commercial Check Control, Inc., 98 C 631, 1999 WL 89556 (N.D.Ill. Feb. 16, 1999))
b.Threatening to file suit in a forum where suit cannot legally be filed (Wiener v. Bloomfield, 901 F.Supp. 771 (S.D.N.Y. 1995))
c.Threatening to contact employers, family members, or others under circumstances prohibited by the FDCPA or other law (Swanson v. Southern Oregon Credit Service, Inc., 869 F.2d 1222, 1226–27 (9th Cir. 1988))
d.Misrepresenting the legal responsibility of family members for debts (Dutton v. Wolhar, 809 F.Supp. 1130 (D.Del. 1992))
e.Demanding payment of a debt discharged in bankruptcy (Turner v. J.V.D.B. & Associates, Inc., 330 F.3d 991 (7th Cir. 2003))
f.Obfuscating the addition of add-on expenses such as attorney’s fees or collection costs (Fields v. Wilber Law Firm, P.C., 383 F.3d 562 (7th Cir. 2004))
g.Seeking payment of fees and charges that are not authorized by a valid contract or by state law in the absence of a contract, such as collection charges, usurious interest, or attorney’s fees where no contract or statute authorizes them (Seeger v. AFNI, Inc., 548 F.3d 1107 (7th Cir. 2008) (collection charges); In re Scrimpsher, 17 B.R. 999 (Bankr. N.D.N.Y. 1982) (unauthorized "service charge" on NSF checks); Pollice v. National Tax Funding, L.P., 225 F.3d 379, 408 (3rd Cir. 2000) (“[D]efendants presumably have violated section 1692f(1) regardless of the presence of any agreement authorizing the rates of interest and penalties, because state law specifically prohibits charging interest in excess of ten percent on the assigned claims”); Strange v. Wexler, 796 F.Supp. 1117 (N.D.Ill. 1992) (attorney fees); Lox v. CDA, Ltd., 689 F.3d 818 (7th Cir. 2012) (attorney fees))
h.Offering to settle debts that are so old that they are beyond the statute of limitations, without disclosing that they are time-barred (McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir. 2014))
i.Sending letters purporting to come from an attorney, where no attorney has actually had any professional involvement with the matter, at least if that fact is not disclosed (Clomon v. Jackson, 988 F.2d 1314, 1321 (2d Cir. 1993); Avila v. Rubin, 84 F.3d 222 (7th Cir. 1996); Nielsen v. Dickerson, 307 F.3d 623 (7th Cir. 2002); United States v. National Financial Services, Inc., 98 F.3d 131 (4th Cir. 1996); Taylor v. Perrin, Landry, DeLaunay & Durand, 103 F.3d 1232 (5th Cir. 1997); Bitah v. Global Collection Servs., 968 F.Supp. 618 (D.N.M. 1997); Masuda v. Thomas Richards & Co., 759 F.Supp. 1456, 1461-2 (C.D.Cal. 1991))
Where Collection Lawsuits May Be Filed
The FDCPA provides that debt collectors must bring suit in the judicial district or similar legal entity where the consumer signed a written contract or where the consumer resides at the time the suit is filed. In the case of an action to enforce an interest in real property securing the consumer’s obligation, the action must be brought in the judicial district or similar legal entity in which the real property is located (15 U.S.C. §1692i).
Unsophisticated or Least Sophisticated Consumer Standard
Whether a debt collector’s conduct violates the FDCPA is judged from the standpoint of a “least sophisticated consumer” or an "unsophisticated consumer" (Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993); Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232 (5th Cir. 1997); Graziano v. Harrison, 950 F.2d 107, 111 (3d Cir. 1991). Gammon v. GC Services Limited Partnership, 27 F.3d 1254, 1257 (7th Cir. 1994); McKenzie v. E.A. Uffman & Associates, Inc.,119 F.3d 358 (5th Cir. 1997)). The statute is liberally construed in favor of the consumer to effectuate its purposes.
The FDCPA provides for both statutory and actual damages. Statutory damages are an amount not exceeding $1000 in an individual case. In a class action, the plaintiff gets the same amount and the class an amount not exceeding the lesser of $500,000 or 1 percent of the defendant’s net worth. Statutory damages are recoverable for violations, whether or not the consumer proves actual damages, and class actions are specifically authorized. It is not necessary to show that the plaintiff was actually misled by a collection notice in order to recover statutory damages (Avila v. Rubin, 84 F.3d 222, 227 (7th Cir. 1996); Bartlett v. Heibl, 128 F.3d 497 (7th Cir. 1997)). There is a short, one-year statute of limitations. A person who suffers actual damages can recover those, and the FDCPA provides for an award of attorney’s fees against the defendant so that consumers do not have to pay for their own attorneys.
In addition, the FDCPA is enforced by the Consumer Financial Protection Bureau and the Federal Trade Commission.
Summary
The Fair Debt Collection Practices Act protects consumers against abusive and deceptive practices by third-party debt collectors, debt buyers, and collection lawyers, and it allows consumers to recover damages if their rights are violated.