Court Rules FDCPA Applies to Communications with Debtor's Attorney

The U.S. Court of Appeals for the Third Circuit has ruled that the federal Fair Debt Collection Practices Act (FDCPA) applies to a debt collector’s communications with the debtor’s attorney.

In Allen v. LaSalle Bank, issued on January 12, 2011, the Third Circuit reversed the District Court, which had dismissed the plaintiff’s claims that letters sent to her attorney by a law firm representing the servicer of her defaulted home mortgage violated the FDCPA provision making it an “unfair or unconscionable” practice for a debt collector to collect or attempt to collect unauthorized amounts. The Third Circuit rejected the District Court’s holding that communications to a debtor’s attorney should be analyzed from the perspective of a competent attorney for purposes of determining whether they violate the FDCPA.

Characterizing the FDCPA as “a strict liability statute,” the Third Circuit observed that “it would undermine the deterrent effect of strict liability” if an otherwise improper communication could escape FDCPA liability because it was directed to the debtor’s attorney. The Court also rejected the collection law firm’s argument that New Jersey’s litigation privilege exempted its communications with the debtor’s attorney from FDCPA liability. The Third Circuit remanded the case to the District Court, indicating that whether the plaintiff had stated a viable FDCPA claim depended only on whether the amounts the collection firm attempted to collect on her mortgage were expressly authorized by the loan agreement or permitted by law.

The federal courts of appeals are split on the issue of whether the FDCPA applies to communications from a debt collector to a debtor’s attorney. In ruling that the FDCPA does apply, the Third Circuit joins the Fourth Circuit. The Second Circuit has stated in dicta and the Ninth Circuit has ruled that statements made exclusively to a debtor’s attorney are not actionable under the FDCPA.

Reprinted with permission from Ballard Spahr LLP

The onslaught of FDCPA claims in recent years and decisions such as Allen show, once again, the need for collection firms to exercise extreme caution in their operations. Ballard Spahr lawyers regularly consult with their clients engaged in consumer debt collection on the application of the FDCPA and state debt collection laws.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). For more information, please contact group Chair Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; John L. Culhane, Jr., 215.864.8535 or culhane@ballardspahr.com; Mercedes K. Tunstall, 202.661.2221 or tunstallm@ballardspahr.com; Barbara S. Mishkin, 215.864.8528 or mishkinb@ballardspahr.com; or Mark J. Furletti, 215.864.8138 or furlettim@ballardspahr.com.