Fair Debt Collecton Practices Act

As is the case with legislation designed to remedy and prevent certain abuses, the FDCPA has resulted in a variety of entanglements and conflicts not likely to have been envisioned by Congress when the legislation was adopted.

II. Scope
The FDCPA was designed to protect consumers against the abuses of professional debt collectors who were attempting to collect consumer or retail debts. It was never intended to apply to the collection of business or commercial debts. 15 U.S.C § 169a(6) refers to debt collectors and collection agencies as those whose principal business is the collection of debts, and who regularly collect debts owed to another. Therefore, creditors who are collecting their own debts are not subject to the requirement of the FDCPA, although abuses by these creditors could result in other liability. The term "debt" as defined by the FDCPA is "Any obligation or alleged obligation of a consumer to pay in 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....", 15 U.S.C § 169a(5). Therefore any indebtedness incurred by a business enterprise is beyond the scope of the FDCPA.

Although the FDCPA was intended to apply strictly to consumers, case law has expended the coverage. A consumer is defined as "any natural person obligated or allegedly obligated to pay any debt." 15 U.S.C. § 169a(3). However, recovery does not appear to be limited to "consumers" as 15 U.S.C. § 169k seems to impose liability when a debt collector violates the provisions of the Act with respect to "any person." Therefore, when a relative or an associate receives a letter it must comply with the FDCPA.

To come within the scope of the FDCPA, the individual who is collecting the debt must be a "debt collector" within the meaning of the Act for the Act to be applicable. 15 U.S.C. § 169a(6). A debt collector is defined as:

"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 to another....Any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate a third person is collecting or attempting to collect such debts.... and for the purpose of section 169f(6), any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests."

There is one exception that brings a nondebt collector within the purview of the Act. If any person furnishing a form with knowledge that the form would be used to create a false belief in a consumer regarding the identity of the person attempting to collect the debt from the consumer, that person engaged in such conduct is liable under the Act, although he is not a debt collector. 15 U.S.C. § 1692j.

Originally, attorneys engaged in the collection practice were excluded from the scope of the FDCPA. In 1986 that exclusion was repealed which has caused attorneys representing creditors in consumer collection cases great concern. There has been an attempt to differentiate based on the level of the attorney's activities in the collection practice. For example, in the case of Mertes vs. Devitt, 734 F.Supp. 872 (W.D.Wisconsin 1990) an attorney who had only a few collection matters each year that amounted to less than one percent of his practice was held not to be a debt collector under the FDCPA. In the case of Dorsey vs. Morgan, 760 F.Supp. 509 (D.Maryland 1991) in-house counsel was held not to come within the purview of the Act because he was an employee of the creditor.

Attorneys who practice in the collection area, as a practical matter, should assume that the FDCPA is applicable to them and that noncompliance can create serious consequences.

The Act does have certain exclusions exempting individuals from the debt collector status. An employee of the creditor who is collecting debts for the creditor in the name of the creditor is excluded. The Act also excludes persons acting for another where there is common or affiliated ownership and control. Federal or state employees attempting to collect a debt in the performance of official duties are excluded. Process servers or those engaged in judicial enforcement are also excluded. A person acting on behalf of a nonprofit consumer credit counseling organization is excluded. Finally, FDCPA excludes persons attempting to collect debts as part of or incidental to a fiduciary obligation.

III. Communications
The essence of FDCPA is its attempt to control communications between the debt collector and the debtor. 15 U.S.C. § 169c(a)(1) provides that a collector may not communicate with a debtor in connection with the collection of a debt "at any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer." It is assumed that the "convenient time" for communicating is between 8:00 a.m. and 9:00 p.m. The collector may not communicate directly with the consumer if he knows that the consumer is being represented by an attorney.

A collector may also not communicate with the consumer at the consumer's place of employment if the collector knows or has reason to know that the consumer's employer prohibits him from receiving communications. FDCPA also gives the debtor the ability to halt communication from the debt collector by notifying him in writing. 15 U.S.C. § 1692c(c). After the collector receives such notification, he may not further communicate with the debtor except to advise him that the collector's efforts are being terminated, to notify him that the collector or creditor may invoke special remedies, or where applicable, notify him that the collector intends to revoke a specific remedy. Of course, none of this applies to the consumer who has given consent directly to the debt collector, 15 U.S.C. § 1692c(a). Another critical portion of FDCPA is 15 U.S.C. § 1692d. This section prohibits a collector from engaging in conduct, the natural consequences of which is to harass, oppress or abuse any person in connection with the collection of a debt. This provision seems overly broad and gives the Court extremely wide latitude in looking at the conduct of any debt collector, creating a subjective analysis of the written or oral communication with the debtor. The statute gives the following examples of prohibited conduct, which are not exclusive:

1. "The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person."
2. "The use of obscene or profane language or language the natural consequences of which is to abuse the hearer or reader."
3. "The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements of 15 U.S.C. § 1681a(f) or § 1681b(3)."
4. "The advertisement for sale of any debt to coerce payment of the debt."
5. "Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with the intent to annoy, abuse, or harass any person at the called number."
6. "Except as provided in 15 U.S.C. § 1629b, the placement of telephone calls without meaningful disclosure of the caller's identity."

• In the case of Rosa vs. Gaynor, 784 F.Supp. 1 (D.Conn. 1989) the Court held that the collector's letter stating that if payment is not made the creditor would be forced to proceed with the lawsuit, and after judgment would proceed with any available post-judgment remedies including garnishment, levy on real or personal property or the debtor's examination. The Court in that case applied the "least sophisticated consumer" standard and stated that the letter violated the FDCPA by making the unsophisticated debtor feel unduly threatened.
• A collection letter which was misstated that the creditor had given the collector authority to initiate legal proceedings against the debtor violated 15 U.S.C. § 1692e(5), Bentley vs. Great Lakes Collection Bureau, 6 F.3d 60 (2nd Cir. 1993).
• Letters overstating the amount owed violated 15 U.S.C. § 1692e(2). Cacace vs. Lucas, 775 F.Supp. 502 (D.Conn. 1991). Any an attorney who filed suit for attorney's fees where there was no underlying right for those fees also violated this section as held in Strange vs. Wexler, 796 F.Supp. 1117 (N.D.Illinois 1992).
• In Button vs. Wolmar, 809 F.Supp. 1130 (D.Delaware 1992) a collector sent a letter stating that "once judgment is obtained, we will...." The Court held that this created an implication that judgment was inevitable and again relied on the "least sophisticated debtor" standard in finding that this intimidation violated the Act.
• Emanuel vs. American Credit Exchange, 870 F.2d 805 (2nd Cir. 1989) is an important case in that a practice standard was established by the Court finding a violation when the collector failed to state that the only letter sent was a collection letter or that any information obtained by the collector would be used to collect the debt. The Court stated that although there was no requirement that a collection letter recite the statutory language verbatim, the collector did have to disclose that information provided by the debtor would be used to collect the debt. As a result of Emanuel and its progeny, attorneys and collectors have established the practice of stating on all communications, including pleadings, what is sometimes referred to as the "Miranda Warning", that "...this communication is an attempt to collect a debt and any information obtained will be used for that purpose." The cautious attorney or collector will use this language when communicating with the debtor by telephone.

IV. Practice Prohibited by the FDCPA
The FDCPA codifies unfair, misleading practices for which a remedy in many instances was available prior to the passage of Act. 15 U.S.C. § 1692f. The following are some examples:

• A collector sent a form letter that had been signed by an attorney demanding payment. The attorney had no knowledge of the actual case and had not conferred with the collector.
• Filing suit on a debt that was barred by the statute of limitations, without reasonable inquiry regarding the limitations was held to be unfair and an unconscionable means of collecting the debt.
• Using a false return address was held to be a violation of the Act.

V. Debt Verification
Within five days after first communicating with the debtor, a collector must send a written notice of the debtor's rights to verify the validity of the debt. Notice must contain the following information:

1. The amount of the debt;
2. The name of the creditor to whom the debt is owed;
3. A statement that unless the consumer disputes the validity of the debt within 30 days it will assume that the debt is valid;
4. A statement that if the consumer notifies the collector within that 30-day period that the debt is disputed, the collector will obtain verification or a copy of the judgment; and
5. A statement that upon the debtor's written request within that 30-day period, the collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

VI. Liability
The collector's liability is not predicated on actual damages. The Court can award "additional" statutory damages based upon frequent, persistent and intentional acts by the collector.

The real financial gain intended by the Act not only includes the statutory civil liability but the award of attorney's fees when a violation has been committed. In Emanuel vs. American Credit Exchange, supra, the debtor established a violation of the Act by the collector and the Court awarded attorney's fees, while at the same time holding that the debtor was not entitled to either actual damages or additional statutory damages.

VII. Conclusion
Whether the FDCPA falls short of its legislative intent or is a case of overkill depends upon the individual's perspective. However, there can be little disagreement among consumers, debt collectors, and attorneys that the Act present a quagmire of technicalities. Many of its provisions are totally subjective and have caused the Courts to rely on such concepts as the "least sophisticated debtor standard."

Although everyone involved in the collection practice will have a different opinion as to "where the pendulum has swung," it would appear from the creditor's perspective that the most reasonable approach in living with the FDCPA is "balance." Obvious abusive and unreasonable practices that may have formerly been present in the collection industry should be easily recognized as "a thing of the past." Reason and a degree of civility should be exercised. At the same time to be so overly cautious that effective communication is destroyed means that the creditor is not being adequately represented.

Perhaps the best method in dealing with the FDCPA from the attorney's standpoint is to ask the questions, "How would it sound to a jury?" If it wouldn't sound reasonable, then don't do it. By utilizing caution and reasonableness most problems in this area should be avoided.