Fair Debt Collection Practices ActDebt • Any obligation or alleged obligation of a consumer to pay...
Transcript of 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.”