fair debt collection practices actdebt • any obligation or alleged obligation of a consumer to pay...

Fair Debt Collection Practices Act

October 30, 2014

Bruce Menkes

Mandell Menkes LLC

mandellmenkes.com

Congressional Intent

• Main goal: to eliminate “abusive debt collection practices by debt collectors”

• Was not supposed to control creditors

The Reality

• Growth of FDCPA industry

– Methods of obtaining clients

– Types of cases brought

• Exposure of creditors

• Changes to state court litigation practices

History of the FDCPA

• 1978-FDCPA becomes law

• 1986-Attorney’s exemption deleted

• 1995-Henitz v. Jenkins (514 U.S. 291)

• 2004-FACT Act passed

• 2006-Pleadings exempted from “initial

communication” rule

• 2010-Dodd-Frank Act passed; CFPB to write

rules, examine “larger participants” (> $10 MM in

receipts)

Application of FDCPA to

Collection Attorneys • Intent

• Not really a level playing field; for example

lawyers, unlike other debt collectors must review

files

• Heintz v. Jenkins, 514 U.S. 291 (1995)—

Surprisingly, and contrary to FTC interpretation,

found that the FDCPA applies to lawyers while

litigating.

Creditor Exception

• Affiliates of Creditors (Aubert)

• Flying under false colors; attorneys not

“meaningfully involved” (more on this later)

• State laws eliminating creditor exemption

The FDCPA Applies Only to:

• “Communications” from a

• “Debt Collector” to a

• “Consumer” (and sometimes others) made

as part of an attempt to collect a

• “Debt.”

“Communication”

• Includes all communications

• Telephone calls

• Telephone messages

• Most cases are generated from traditional

written letters

• Pleadings

“Debt Collector”

• The phrase “debt collector” is defined as any person “in any business the principal purpose of which is the collection of debt, or who regularly collects or attempts . . . debts owed or due . . . to another.” FDCPA § 1692a(6).

• Meaning of “regularly collects”

• Lawyers included

• Creditors and affiliates excluded (see below)

• But a creditor is a “Debt Collector” where the creditor uses a name other than its own (see below)

• Does not include debts which were not in default at the time servicing was assigned

“Consumer”

• Primary purpose test

• The same goods will be characterized

differently depending on the intended use

• Benefits of treating purchaser as

consumer in doubtful cases

“Debt” • “Any obligation or alleged obligation of a consumer to pay 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, whether or not such obligation has been reduced to judgment.”

• Must arise out of a “transaction”

• NSF checks are covered

• Fines, penalties and taxes are not covered

• Alimony and tort claims not covered

• Exception to rule: “Transactions” with expired credit cards are not covered

• Demand to turn over collateral was not considered an attempt to collect a debt –but some courts have now ruled otherwise

Application of the FDCPA to

Commercial Debt

• Calls to officers of commercial debtors at

home

• Debts which could be business or

personal

• Debts for business purposes, but secured

by personal property

Liability of Individuals

• Employees (Russell), but not shareholders

(White) of agencies

Location Information Debt Collector must:

• identify himself or herself, state that he or she is confirming or correcting location

information concerning the consumer, and, only if expressly requested, identify his or

her employer;

• not state that such consumer owes any debt;

• not communicate with any such person more than once unless requested to do so by

such person or unless the debt collector reasonably believes that the earlier response

of such person is erroneous or incomplete and that such person now has correct or

complete location information;

• not communicate by post card;

• not use any language or symbol on any envelope or in the contents of any

communication effected by the mails or telegram that indicates that the debt collector

is in the debt collection business or that the communication relates to the collection of

a debt; and

• after the debt collector knows the consumer is represented by an attorney with regard

to the subject debt and has knowledge of, or can readily ascertain, such attorney’s

name and address, not communicate with any person other than that attorney, unless

the attorney fails to respond within a reasonable period of time.

Communications

• 8:00 am to 9:00 pm; no other time known to be

inconvenient

• No communications with 3d parties (other than location

information, or as reasonably necessary to effect post-

judgment remedy, or lawyer for debtor or credit

agencies)

• Must cease communications if debtor states in writing

that debtor refuses to pay or wishes debt collector to

cease, but debt collector can still state that collection is

terminated or invoke remedies; “consumer” includes

spouse, parent, guaradian, executor or administrator

Communications with Lawyers

• 4th Cir.—Communication with consumer’s lawyer is covered

• 2d and 9th Cir. Cases—Not a “communication”

• Evory v. RJM, 505 F.3d 769 (7th Cir. 2007)

– Competent (non-consumer debt) lawyer standard for legal issues

– Same as debtor for certain factual issues

– False vs. Misleading

Communications with Lawyers

(con’t) • Recent cases

– Allen v. LaSalle (3d Cir., 2011): f(1) (unauthorized fees) violated

where payoff letter directed to debtor’s counsel; “communication”

includes “indirect communication”

– Tinsley (7th Cir., 2011): debt collector requests payment from

debtor’s lawyer after lawyer sent letter demand that collection

activity stop; no violation of c(c) (cease communications)

because definition of “debtor” does not include “lawyer”

– O’Rourke v. Palisades (7th Cir. 2011): Communication to state

court judge not a violation of e (misleading statements);

concurrence affirms based on lack of evidence of deceptiveness,

but would have federal judges determine if a communication was

likely to deceive state judges

Harassment and Abuse

• Non-exclusive list from Section d: – Threated or actual violence or other criminal means to harm the

physical person, reputation, or property of any person

– Use of obscene or profane language or language the “natural

consequence” of which is to abuse the hearer or reader

– The publication of a list of consumers who allegedly refuse to pay debts,

except to a consumer reporting agency

– The advertisement for sale of any debt to coerce payment of the debt

– Causing a telephone to ring or engaging any person in telephone

conversation repeatedly or continuously with intent to annoy, abuse, or

harass any person at the called number

– Except for acquiring location information, telephone calls without

“meaningful” disclosure of the caller’s identity (more on this in

connection with voicemail messages later)

Prohibition of False or

Misleading Statements

• Flying under false colors – Pretending to be a governmental entity

– Pretending to be an attorney

– Pretending to be a purchaser

– Pretending to be a credit reporting agency

– Using a false name

• Mini-miranda warning—Section e(11) – Original communication (first written or oral if it is first)

– Subsequent communications

– Exception for “formal” legal pleadings

False or Misleading Statements

(Con’t)

• Flying under false colors: What is “meaningful

involvement?” – Cases focusing on “pre-collect” vs. “hardcore collect”

– Villareal v. Snow

• One minute per file OK

– Boyd v. Wexler

• Dist. Ct.: Judgment for debt collector; affidavit unrefuted

• Circuit Court: 480,000 in 8 1/2 month period = 51,718/mo. 3

lawyers could only review 1,000 files/mo. @ 15 min/file.

• OK to delegate tasks to “paralegals”

– Use of non-attorney disclaimer upheld by 2d Cir.

– CFPB action against Hanna & Associates—almost completely based on

insufficient time per file

False or Misleading Statements

(con’t)

• Circuit split on materiality

– Sayyed v. Wolpoff 485 F.3d 226 (4th Cir. 2007)

– Misstatements in pleadings

– Date of trial

– Debtor must state grounds for refusing to answer interrogatories

– Amount of debt

– Pleadings sent to attorney for debtor

– Compare with Donohue v. Quick

Collect 592 F.3d 1027 (9th Cir. 2010)(immaterial false statement

in complaint)

False or Misleading Statements

(con’t) • False statements in settlement process

• False statement in discovery requests

– McCollough v. Johnson, Rodenberg & Lauinger, LLC, 637 F.3d 939 (9th Cir.

2011)

– False statements about consequences of failure to provide answers

– RFAs

– Substantial damages ($250,000)

• How determination is made

– Majority view—determined by court

– Minority view—Plaintiff must present evidence. Johnson v. Revenue

Management,169 F.3d 1057 (7th Cir. 1999)(extrinsic evidence of confusion

required); But see Chuway v. Natl. Action Fin. Servs., Inc, 362 F.3d 994 (7th Cir.

2004) (plaintiff can make out prima facia case, and avoid summary judgment, by

using her own testimony that she was confused)

Recent Trends in Section e

Violations

• Incorrect statements in affidavits

• Incorrect statement of amount of debt

• Statute of limitations

• Characterization of debt

• Choice of law

• Threats to violate discharge injunction

• Automatic Stay violations

Restrictions on

“Unfair” Practices

• Section f gives a non-exclusive list – Collection of unauthorized amounts

– Certain post-dated checks

– Threating action which cannot be taken

– Post cards/symbols

• Can attorneys’ fees be added which have not

been approved by the court?

• Flat fees

• Risk that fees will be found to be

“unreasonable.”

Validation of debts required

• Preliminary notice of availability of validation – Actual amount of debt owed

• Problem where debt accrues interest

• See safe harbor language of Miller v. McCalla

– Name of current creditor

– Format; written or oral

– Referral to second collector

– Legal action during period to request validation

• Validation where consumer disputes debt – Action required where debt is disputed

– Cease collection until after validation is given

– Continued dispute after validation

• Failure to dispute debt is not an admission of liability

Validation of Debts (con’t)

• Overshadowing

• Circuit split over oral disputes

– Where oral dispute sufficient, violation to state

that dispute must be in writing

– Where oral dispute is insufficient, it may be

overshadowing to request call from consumer

• Unless dispute is in writing, collector does not

have to verify

Limitation on Legal Actions

• Place of filing suit

• County where debtor lives or where contract is

made

• County or district where real estate is located

• Does not apply to certain judicial subdivisions;

for example Cook County Illinois divisions

• Circuit split over whether rule applies to suits to

collect judgments

Flat-rating

• Selling of forms

• Suggests that someone other than the

creditor is collecting the debt

Statute of Limitations

• General Rule under § 1692k(d)—one year

from date “violation occurs.”

• Majority Rule--Statute runs from collector’s

last chance to comply (so date of mailing

or date of filing, not date of receipt or

service controls)

• Minority Rule—date of service controls

FDCPA lawsuits and damages

• Evaluation of cases and strategy

• Rule 68 and mootness

• Individual cases

• Class actions

Evaluation of cases and strategy

• Types of class actions likely to be filed

• Types of individual cases likely to be filed: Riddle & Associates v. Kelly

• Choice of state of federal court – Defendant’s ability to remove to federal court

– Attorney’s fees

– Notice pleading

– Trend towards federal court disapproval of settlements; effect of CAFA

• Decision of whether to settle or litigate

Offers of Judgment and

Mootness • Rule 68; does it apply to class actions?

• How to handle attorneys’ fees in offers of

judgment

• Mootness

Individual cases

• Damages – Statutory damages

– Actual damages • Non-economic damages

• Damages resulting from failure to validate

• Unauthorized fees or charges

– Attorney’s fees • Friedman v. Tolentino

• Offers of judgment

• Fees for appeals

• Does $1,000 ceiling on statutory damages apply to each plaintiff or to each violation?

Class Actions

• State and federal class action statutes – Certification criteria

– Judicial approval

– Class notice

• Damages – Actual

– Statutory • Rules for calculating 1%; effect on creditors

• Criteria for determining – Nature of violation

– Frequency of violation

– Whether non-compliance was intentional

– Resources of the defendant debt collector

– Attorney’s fees

S. Ct. Decision on Costs

• Marx v. General Revenue Corporation, __

U.S. __, 133 S. Ct. 1166 (2013)—Costs

can be awarded to prevailing defendants

under Fed. R. Civ. Pro. 54(d)(1),

notwithstanding FDCPA Section

(k)(3)(defendant must show bad faith)

Methods of Minimizing Exposure to

Lawsuits

• Identifying possible litigants at the

validation stage

• Responses to pre-litigation settlement

demands; Riddle

• Use of safe harbor language

• Adding extra days when giving validation

notice

Defenses-Overview

• Bona Fide errors (discussed below)

• Lack of standing of Chapter 7 debtors

• Rooker-Feldman Doctrine – Prevents lower federal courts from “reversing” state

court rulings

– Applies only to claims actually raised in state court

– Only after final judgment issued

– Does not apply to injury which state court failed to

remedy

Elements of BFE Defense

• 1. Violation was not intentional

• 2. Resulted from “bona fide error”

• 3. Collector maintained procedures

reasonably adapted to avoid error

BFE Defense Prong 1—Not Intentional

• Distinction between violation being unintentional

vs. communication being unintentional. – Lewis v. ACB Bus Serv., 135 F.3d 389, 402 (6th Circuit 1998)—to hold

the latter would effectively negate the BFE defense

– Kort v. Diversified, 394 F.3d 530, 537 (7th Cir. 2005)(“debt collector need only show that its FDCPA violation was unintentional, not that its actions were unintentional”)

BFE Defense (con’t) Not Intentional (con’t)

• Can “systematic” errors be unintentional?

• Foster v D.B.S. Collection Agency, 463 F. Supp.

2d 783 (S.D. Ohio 2006)—lawyer routinely

requested attorney fees

• Newman v. Checkrite Cal., Inc., 912 F. Supp.

1354 (E.D. Cal. 1995)– bfe not intended to

protect “those who implement routine but illegal

office procedures”

BFE Defense (con’t)

Prong 2—Error “Bona Fide”

• Must have been made in good faith

• “Sincere”

• Said to be objective test

• McCorriston v. L.W.T., 536 F. Supp. 2d

1268 (M.D. Fla. 2008)—fact that

defendant’s legal contention is “weak”

does not preclude good faith

BFE Defense (con’t)

Particular Types of Measures Taken

• Written Violation Prevention Plan/Training Manuals

• Reliance on statements of client

– Unsuccessful: Reichert v. Nat’l Credit Systems, 531

F.3d 1002 (9th Cir. 2008)—claims that 7th, 8th and 10th

Circuits have said reliance not reasonable

– Successful: Charbonneau v. Elliott (611 F. Supp. 2d

736 (E.D. Mich. 2009)); other cases

BFE Defense (con’t) Prong 3—Reasonably Adapted

• Cost benefit analysis

• Ross v. RJM Acquisitions Funding, LLC,

480 F.3d 493 (7th Cir. 2007)

• Analysis followed by Thomas v. Bowman,

2009 U.S. Dist LEXIS 77305 (S.D. Ind.,

August 28, 2009)

BFE Defense (con’t) Errors of Law

• Early circuit split

– Comparisons with identical TILA provision (15 U.S.C.

Section 1640(c))

• S. Ct.’s decision in Jerman v. Carslile, McNellie,

Rini, Kramer & Ulrich, LPA (130 S. Ct. 1605,

2010)

– Role of FTC opinions

– Does not resolve underlying issue re: whether

verification must be requested in writing

– Ignores strict liability aspect of FDCPA

BFE Defense (Con’t)

• Timing of assertion of defense

• Failure to raise defense at time of answer;

Fed. R. Civ. Pro. 8(c)

• Failure to raise defense in status report

• Prejudice to plaintiff

State Debt Collection Laws

– California -- North Carolina

– Arizona

– California

– Colorado

– DC

– Florida

– Georgia

– Idaho

– Louisiana

– Maryland

– Massachusetts

– Virginia

– Washington State

Characteristics of State

Mini-FDCPA Laws • Distinguish state laws regulating debt collection agencies

• Mini-FDCPA laws generally similar to federal FDCPA

• Many remove creditor exemption, or include lawyer

exclusion

• Some allow greater or double penalties (for example

California)

• Many have no private right of action

• Some (often those with private rights of action) are

criminal

UDAPP

• What is UDAAP?

• Difference from UDAP

• Applies to debt buyers and original

creditors

• May effectively allow CFPB to regulate

smaller participants and entities outside

definition of “debt collector.”