From the inception of the federal Fair Debt Collection Practices Act to the advent of the Consumer Financial Protection Bureau, debt collections rose from routine boilerplate demands on debtors to a multiple of technical requirements. The omission of any one can result in strict liability, statutory damages up to $1,000, and reasonable attorney’s fees.
The Consumer Financial Protection Bureau in CFPB Bulletin 2013-07 gave this warning to debt collectors:
In addition to the prohibition of UDAAPs (Unfair, Deceptive, or Abusive Acts or Practices) Collection of Consumer Debts under the Dodd-Frank Act, the Fair Debt Collection Practices Act (FDCPA) also makes it illegal for a person defined as a “debt collector” from engaging in conduct “the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt, to “use any false, deceptive, or misleading representation or means in connection with the collection of any debt,” or to “use any unfair or unconscionable means to collect or attempt to collect any debt.” The FDCPA generally applies to third-party debt collectors, such as collection agencies, debt purchasers, and attorneys who are regularly engaged in debt collection. All parties covered by the FDCPA must comply with any obligations they have under the FDCPA, in addition to any obligations to refrain from UDAAPs in violation of the Dodd-Frank Act. (emphasis added; footnotes omitted)
Examples of FDCPA required or prohibited debt collector acts are:
Source: IBS, DCPA Compliance: 5 Debt Collection Basic and a Checklist; Experian, FDCPA Compliance
The following are examples of Consumer Financial Protection Bureau Unfair, Deceptive, or Abusive Acts or Practices included in CFPB Bulletin 2013-07:
“Depending on the facts and circumstances, the following non-exhaustive list of examples of conduct
related to the collection of consumer debt could constitute UDAAPs. Accordingly, the Bureau will be watching these practices closely.
Again, the obligation to avoid UDAAPs under the Dodd-Frank Act is in addition to any obligations that may arise under the FDCPA.”
We hope that we have left little doubt in your mind about the complexity of debt collections. The irony is that actual damages in FDCPA malpractice claims are usually minor, but lawyers’ fees can be a multiple of the actual damages. For this reason, a cottage industry developed for making claims against debt collection lawyers that often have little or no merit. Even if you are not covered by the FDCPA because you are not a lawyer regularly engaged in debt collection, you may get a claim for failing to comply with the FDCPA. The nuisance value of defending such a claim often leads to a grudging decision to just pay it.
In our risk management program we now place debt collection along with bankruptcy, trusts and estates, and taxation as areas of law you should never dabble in – you must know what you are doing. A cardinal principle of lawyer risk management is:
Malpractice Avoidance: Steps taken to evaluate substantive areas of practice or methods of practice and to make decisions about whether to avoid or eliminate certain areas of law because of the malpractice risks and exposure involved.