The Risk Manager, Spring 2017
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)
Can You Answer These Questions About the FDCPA?
- What type of debt is covered by the FDCPA?
- Which lawyers are regularly engaged in debt collection as defined by the FDCPA? All lawyers? Only lawyers whose primary area of practice is debt collection? Lawyers who from time-to-time act as a debt collector?
- What is the FDCPA Mini-Miranda notice that is required in a collection letter? What happens if you leave out any of the statutory required notice information? Do additional written communications require a repeat of the notice requirements?
- What is the standard for determining whether a dunning letter could mislead an unsophisticated consumer?
- What is the “bona fide error” defense to a violation of the FDCPA?
What acts are required or prohibited under the FDCPA and by the Consumer Financial Protection Bureau?
Examples of FDCPA required or prohibited debt collector acts are:
- Validation of the debt requirement.
- Prohibition against harassing or abusive practices:
- Contacting consumers at atypical times, usually before 8 a.m. or after 9 p.m. in the consumer’s time zone.
- Using obscene or profane language; threatening or using violence; or falsely stating or falsely implying an affiliation with the United States or a state government.
- Contacting consumers at their place of work if the consumer has notified the debt collector that they cannot receive calls at work.
- Telling a consumer’s co-workers or friends about the consumer’s debt.
- Abusing or harassing a consumer by, for example, repeatedly calling their telephone or letting it ring continually.
- Prohibition against providing false or misleading information.
- Prohibition against using unfair or unconscionable means to collect a debt.
- Payments must be applied in accordance with the consumer’s instructions in the event of multiple debts.
- Prohibition against furnishing deceptive forms.
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.
- Collecting or assessing a debt and/or any additional amounts in connection with a debt (including interest, fees, and charges) not expressly authorized by the agreement creating the debt or permittedby law.
- Failing to post payments timely or properly or to credit a consumer’s account with payments that the consumer submitted on time and the charging late fees to that consumer.
- Taking possession of property without the legal right to do so.
- Revealing the consumer’s debt, without the consumer’s consent, to the consumer’s employer and/or co-workers.
- Falsely representing the character, amount, or legal status of the debt.
- Misrepresenting that a debt collection communication is from an attorney.
- Misrepresenting that a communication is from a government source or that the source of the communication is affiliated with the government.
- Misrepresenting whether information about a payment or nonpayment would be furnished to a credit reporting agency.
- Misrepresenting to consumers that their debts would be waived or forgiven if they accepted a settlement offer, when the company does not, in fact, forgive or waive the debt.
- Threatening any action that is not intended or the covered person or service provider does not have the authorization to pursue, including false threats of lawsuits, arrest, prosecution, or imprisonment for non-payment of a debt.
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.