In 1977, Congress passed the Fair Debt Collection Practices Act to regulate the conduct of third party collection agencies. The adage that “every vote counts” serves as the backdrop to the passage of this federal law. A little know historical footnote documents that the FDCPA passed the House of Representatives by a one vote margin (198-197). Now, consumer attorneys filed more than 10,400 FDCPA lawsuits against collection agencies and collection attorneys in federal courts in 2013; and experts predict that federal courts will see more than 12,000 cases this year.
Several important court decisions led to the explosive growth of lawsuits against debt collectors and will undoubtedly shaped the contours of what the Consumer Financial Protection Bureau will propose as administrative regulations interpreting the FDCPA. Any discussion about the expansive reach of the FDCPA must take into account these five decisions:
A COLLECTION NOTICE CAN BE DECEPTIVE IF IT FAILS TO DISCLOSE THAT THE DEBT IS TIME BARRED
McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir. 2014)
This decision held that a dunning letter offering to settle a claim without litigation could state a claim under the FDCPA where the debt was no longer legally enforceable due to the expiration of a statute of limitations. It is likely anticipated that the CFPB will propose rules requiring collectors to make specific disclosures when attempting to collect debts that are beyond the statute of limitations.
LAWYERS ENGAGED IN LITIGATION ARE SUBJECT TO THE FDCPA
Heintz v. Jenkins, 514 U.S. 291 (1995)
The Supreme Court held that the repeal of the attorney at law exemption passed by Congress in 1986 was intended to regulate conduct by lawyers engaged in litigating consumer debts. This decision greatly increased the number of lawsuits against collection lawyers based on purported false statements, misleading representations and unfair practices relating to debt collection lawsuits in state courts.
VERIFICATION OF DEBT IS NOT A CUMBERSOME PROCESS
Chaudhry v. Gallerizzo, 174 F.3d 394 (4th Cir. 1999)
The Fourth Circuit Court of Appeals held that a collector’s obligation to verify a debt involves nothing more than the collector confirming in writing that the amount being demanded is what the creditor claims is owed and that a collector is not required to keep detailed files of the alleged debt. This decision has been followed by other Circuit Courts including the Ninth Circuit in Clark v. Capital Credit & Collection Services, Inc., 460 F.3d 1162 (9th Cir. 2006) and the Eighth Circuit in Dunham v. Portfolio Recovery Associates, LLC, 663 F.3d 997 (8th Cir. 2011). These decisions defining a collector’s limited duty in providing verification of a debt may gave way to a more specific verification process in propose CFPB rules.
A SETTLEMENT LETTER CAN BE DECEPTIVE AND MISLEADING
Goswami v. American Collections Enterprise, Inc., 377 F.3d 488 (5th Cir. 2004)
This decision held that a collector who offered to settle a debt at 30 percent discount provided the claim was paid in within 30 days was false and deceptive where the creditor had provided settlement authority with no specific time limit. This decision resulted in many collection agencies being required to rewrite their settlement offers to either make the offer open-ended and/or to use other qualifying language so that the settlement offer would not be deemed a deceptive communication.
THE “IN WRITING” DISPUTE PROVISION IN SECTION 1692G IS SUBJECT TO DIFFERING COURT INTERPRETATIONS
Graziano v. Harrison, 950 F.2d 107 (3rd Cir. 1991)
In this case, the Third Circuit Court of Appeals discussed the two dispute mechanisms under 15 U.S.C. § 1692g. The first provides that if a consumer disputes a debt in writing within 30 days, the collector must obtain verification of the debt and provide that verification to the consumer before proceeding with further collection. Second, a collector has the right to assume a debt valid unless the consumer disputes the debt within 30 days after the initial notice. The Graziano case held that all disputes needs to be in writing. Other Circuit Courts of Appeal have disagreed with this decision, holding that if a consumer orally disputes a debt within the 30 day period, then the collector cannot assume the debt valid – even in the absence of a written dispute. Se,: Clark v. Absolute Collection Service, Inc., 741 F.3d 487 (4th Cir. 2014), Hawks v. Forman, Hawks, Elizdes & Ravin, LLC, 717 F.3d 282 (2nd Cir. 2013) and Camacho v Bridgport Fin., Inc., 430 F.3d 1087 (9th Cir. 2005). These conflicting decisions provide one area of the law where a CFPB interpretation may clarify exactly what language must appear in a §1692g notice.
Given these five legal precedents, what do you think are five directives the collection industry can expect from the CFPB as it looks to overhaul the FDCPA? Leave your feedback in the comments!
UPDATE: In a recent insideARM.com poll, nearly half of readers said they predicted time-barred debt would be the first thing addressed by the CFPB as it attempts to overhaul the FDCPA.
Ronald Canter is the founding member of The Law Offices of Ronald S. Canter, LLC of Rockville, Maryland. Join Mr. Canter, Kim Phan of Ballard Spahr and Anita Tolani of Weinberg, Jacobs & Tolani at ARM-U (October 14-15 in Washington, DC) for a panel discussion of what the regulatory future looks like for debt collectors – including the huge role the CFPB will play – and how agencies can prepare for the future right now. This exclusive event will bring together senior compliance and operations officers, collection attorneys and HR/training experts, and allow them to learn from each other, discuss pitfalls and identify areas of improvement.