FDCPA
This is from a seminar given for the benefit of foreclosure attorneys, but it should assist with your practice as well.
THE FAIR DEBT COLLECTION PRACTICES ACT
Douglas C. Howard
The Howard Law Group, PLLC
(502) 352-4950
A. STATUTORY BACKGROUND AND PREEMPTION
In 1977, Congress moved to protect the rights of the individual from abusive collection practices. Specifically, Congress found that “[a]busive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.” 15 U.S.C.A. §1692(a). Furthermore, it decided that the current laws were woefully inadequate in protecting the rights of the consumer. Thus, the Fair Debt Collection Practices Act (“FDCPA”) was adopted in 15 U.S.C.A. §1692.
The legislative history supports the contention that a debtor has standing to complain of violations of the Act, regardless of whether a valid debt exists. During the debate of this bill the chairman of the subcommittee reported “(t)hat every individual, whither or not he owes the debt, has a right to be treated in a reasonable and civil manner.” Baker v. G. C. Services Corporation, 677 F.2d 775, 777 (9th Cir. 1982). The Act, however, was “not intended to shield … consumers from the embarrassment and inconvenience which are the natural consequences of debt collection.” Dalton v. FMA Enterprises, Inc., 953 F.Supp. 1525, 1531 (Dist. Ct. M.D. Fla. 1997); citing Higgins v. Capitol Credit Services, Inc., 762 F.Supp. 1128, 1135 (D.Del. 1991) (cite omitted).
Finally, the FDCPA does state that it preempts any state law which is inconsistent with the mandates of the Act itself. 15 U.S.C.A. § 1692n. But that any state law that gives more protection than what is afforded by the Act is allowed.
A very good website and source of information from the Federal Trade Commission (“FTC”) is http://www.ftc.gov/os/statutes/fdcpajump.htm as it specifically goes over detailed questions regarding the FDCPA. This website has links to the official FTC commentary on the FDCPA as well as other information you may use. In addition, check out the National Consumer Law Center at www.consumerlaw.org for other resources that review the FDCPA and the Fair Credit Reporting Act.
B. SCOPE OF THE FAIR DEBT COLLECTION PRACTICES ACT
15 U.S.C.A. §1692a specifically states that the FDCPA only applies to a consumer debt. 15 U.S.C.A. § 1692 “Congressional findings and declaration of purpose” sets out a relatively narrow definition and statement of purpose. Specifically it states:
(e) Purposes It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.
Thus, Congress’s intent was to limit abusive behavior from debt collectors attempting to collect a consumer debt. A consumer debt arises out of a transaction in which the money, property, insurance or services are primarily personal, family, or household purposes. Thus, an entity collecting any business debt or other commercial debt is not subject to the FDCPA as we will see.
1. A “debt collector” does not include the creditor or a creditor’s employees. 
15 U.S.C.A. § 1692a (6), specifically states that the term “debt collector” does not include “(A) any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor.” Thus, a creditor and its employees are not debt collectors under the meaning of the FDCPA and the actions alleged in the Plaintiff’s Complaint do not violate the FDCPA. Case law is well settled on this issue. In Scott v. Wells Fargo Home Mortgage Inc., 326 F.Supp.2d 709 (E.D. Va. 2003), the Court succinctly stated, “creditors are not liable under the FDCPA” for communications with the debtor. Citing Perry v. Stewart Title Co., 756 F.2d 1197 (5th Cir. 1985); See Also Ray v. Citibank (South Dakota), N.A., 187 F.Supp.2d 719 (W.D. Ky. 2001).
While your client may be able to communicate with the debtor without violating the FDCPA, you cannot. Attorneys attempting to collect a debt are subject to the FDCPA provisions and you should make sure that all of your communications are in compliance with FDCPA requirements. The Federal Trade Commission has pushed for Congress to clarify that an attorney who only files court actions is not subject to the FDCPA, but until that clarification is codified, you would be best served to not violate the FDCPA.
2. The FDCPA does not encompass mortgage servicers.
Many of your clients are simply servicers for a “pool” of mortgages that have been securitized. While the servicer might not be the actual creditor, they are attempting to collect the debt in the creditors name. The FDCPA also specifically exempts a servicer. 15 U.S.C.A. §1692a(6)(F) states that “any person collecting or attempting to collect any debt owned or due or asserted to be owed or due another to the extent such activity … (iii) concerns a debt which was not in default at the time it was obtained by such person.” This provision specifically applies to servicing agents and has been upheld as long as the loan was not in default when it was transferred to the servicing agent to service.
3. The FDCPA does encompass an attorney performing a foreclosure.
The Fourth Circuit in Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373 (4th Circ. 2006) clarified that a foreclosure firm is attempting to collect a debt, even though the foreclosure file was in rem and they were attempting to foreclose on a deed of trust. The debtor filed suit against the law firm that had filed the foreclosure action alleging several violations of the FDCPA. Specifically the debtor alleged that the law firm failed to verify the debt, even though she had requested verification in writing; the law firm continued its collection efforts even though the debt had been contested and that the firm communicated with the debtor even though she was represented by counsel. Id. at 375.
The law firm filed a motion to dismiss arguing that it was not acting in connection with a “debt” and that it was not a “debt collector” with in the definition of the statute. Id. Specifically, the law firm argued that it was a substitute trustee for a deed of trust and that it was acting at the trustee, therefore, it was not a “debt collector”. However, the Fourth Circuit ruled that the law firm was attempting to collect a debt and that it did fall under the definition of a debt collector. Specifically, the Court stated that “[s]ince a foreclosure is a method of collecting a debt by acquiring and selling secured property to satisfy a debt, those who engage in such foreclosures are included within the definition of debt collectors if they otherwise fit the statutory definition.” Id. at 379, citing Shapiro & Meinhold v. Zartman, 823 P.2d 120 (Colo. 1992). Further, the Court stated that while not every law firm filing foreclosure actions may fall under the FDCPA, it is well-established that the Act applies to Lawyers “who ‘regularly’ engage in consumer-debt-collection activity, even when that activity consists of litigation.” Id. at 379, citing Heintz v. Jenkins, 514 U.S. 291, 115 S.Ct. 1489 (1995).
While this decision simply clarifies a split within the Fourth Circuit, it is the overwhelmingly majority view throughout the Circuits and it is the most recent decision to discuss how a law firm performing foreclosures should consider itself to be a debt collector.
C. UNDERSTANDING THE ACTIONS PERMITTED OR RESTRICTED BY THE ACT.
1. Communication with the Debtor
Your initial communication with the debtor must include a notice that you are a debt collector attempting to collect a debt. Generally, this warning, or “mini-Miranda” is listed at the beginning of any letter demanding the debt, any pleading that is sent, and any other document that is mailed to the debtor. It must be placed conspicuously on your document and be written in such a way so as the “least sophisticated consumer” would understand it. You also must state that they are entitled to dispute the debt and that they must do so in writing within thirty (30) days of receipt of the document. Normally, the mini-Miranda will state the following:
THIS COMMUNICATION IS AN ATTEMPT TO COLLECT A DEBT AND ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE. UNLESS YOU, WITHIN 30 DAYS AFTER RECEIPT OF THIS DOCUMENT, DISPUTE THE VALIDITY OF THE DEBT, OR ANY PORTION THEREOF, THIS FIRM WILL ASSUME THAT THE DEBT IS VALID. IF YOU NOTIFY ME IN WRITING WITHIN THE ABOVE 30 DAY PERIOD, THAT THE DEBT, OR ANY PORTION THEREOF, IS DISPUTED, I WILL OBTAIN VERIFICATION OF THE DEBT AND A COPY OF SUCH VERIFICATION WILL BE MAILED TO YOU BY THIS FIRM. IF YOU SO REQUEST WITHIN THE ABOVE 30 DAY PERIOD, THIS FIRM WILL INFORM YOU OF THE IDENTITY OF THE ORIGINAL CREDITOR, IF DIFFERENT FROM THE CURRENT CREDITOR.
Any subsequent communication with the debtor should also include a statement to the effect that
“This Communication is from a Debt Collector” or “This Communication is from a Debt Collector and any information you provide can be used for the purpose of collecting that debt.” This is provided mainly because you do not know when and if they have received your prior communication. So it is always better to play it safe.
Finally, your communication with the debtor may not take place during odd hours, typically 8:00 a.m. to 9:00 p.m. are acceptable hours. You may not communicate with the debtor if you know they are represented by counsel, all communication from you or from your client must cease. And third, you may not contact the debtor at their place of employment if you know or may reasonably know that the employer prohibits such communication.
Further, the Second and Seventh Circuit also have adopted safe harbor language to add the validation notice:
THIS ADVICE PERTAINS TO YOUR DEALINGS WITH ME AS A DEBT COLLECTOR. IT DOES NOT AFFECT YOUR DEALINGS WITH THE COURT, AND IN PARTICULAR IT DOES NOT CHANGE THE TIME AT WHICH YOU MUST ANSWER THE COMPLAINT. THE SUMMONS IS A COMMAND FROM THE COURT, NOT FROM ME, AND YOU MUST FOLLOW ITS INSTRUCTIONS EVEN IF YOU DISPUTE THE VALIDITY OR AMOUNT OF THE DEBT. THE ADVICE IN THIS LETTER ALSO DOES NOT AFFECT MY RELATIONS WITH THE COURT. AS A LAWYER, I MAY FILE PAPERS IN THE SUIT ACCORDING TO THE COURT’S RULES AND THE JUDGE’S INSTRUCTIONS.
This type of additional language, absent some clarification from Congress, could start to be a trend, especially with court filings.
2. Telephonic Communication. 
If the debtor contacts via telephone and you are not sure that they have received another form of communication from you or your office, it safest to proceed to tell them that “I work for a debt collector and any information we discuss over the phone can be used for the purposes of collecting that debt.” While there is no requirement to warn the debtor, you must assume that they have not received any prior warnings. You may wish to even state this on your voice mail message since a debtor could conceivably leave a message without realizing that you are a debt collector.
3. Harassment or Abuse prohibited.
A debt collector may not harass or abuse a debtor. More specifically you may not:
(1) The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person.
(2) The use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader.
(3) The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements of section 1681aill or 1681b ill of this title.
(4) The advertisement for sale of any debt to coerce payment of the debt.
(5) 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.
(6) Except as provided in section 1692b of this title, the placement of telephone calls without meaningful disclosure of the caller’s identity.
While your client may use some coercion in attempting to collect the debt, you may not proceed with anything that is intended to harass or abuse the debtor. The safest way to avoid any of these practices is to communicate with the debtor via written materials and make sure they understand that your are a debt collector attempting to collect a debt.
4. 15 U.S.C.A. §1692f “Unfair Practices”
15 U.S.C.A. §1692f lists the “unfair practices” that cannot be used to attempt to collect a debt. Specifically this section states:
A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
(1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.
(2) The acceptance by a debt collector from any person of a check or other payment instrument postdated by more than five days unless such person is notified in writing of the debt collector’s intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit.
(3) The solicitation by a debt collector of any postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution.
(4) Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument.
(5) Causing charges to be made to any person for communications by concealment of the true purpose of the communication. Such charges include, but are not limited to, collect telephone calls and telegram fees.
(6) Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if
(A) there is no present right to possession of the property claimed as collateral through an enforceable security interest;
(B) there is no present intention to take possession of the property; or
(C) the property is exempt by law from such dispossession or disablement.
(7) Communicating with a consumer regarding a debt by post card.
(8) Using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.
D. LIABILITY AND DEFENSES
1. Avoiding Counterclaims
Your client most likely does not fall under the narrow definition of a debt collector as a creditor may continue to collect a debt. Generally, if your client is attempting to collect a debt, they may continue to do so. However, once it is turned over to you, you should take every effort to comply with the FDCPA. If in doubt whether your actions do or do not violate the FDCPA, then always play it safe and comply regardless.
However, should you find yourself having committed some questionable act, you should take steps to avoid a counterclaim. First, to establish a prima facie case for a violation of the FDCPA, a plaintiff must show the following:
1. That he or she is a consumer.
2. That the Defendant is a “debt collector” under the definition of a debt collector.
3. That the debt in question is a consumer debt.
4. That the debt collector violated an FDCPA provision either by act or omission.[1]
Once the debtor alleges violations, find out if they are a consumer. If the equipment involved was purchased for their business, then most likely they are not a consumer. Second, are they making allegations that your client violated the FDCPA? If so, most likely your client is not subject to the Act and therefore, may be exempt. Finally, find out what conduct was involved and determine if it definitely violates the FDCPA.
Counsel your client that they should be aware of the FDCPA and attempt to comply with its tenets as often as possible so as to avoid any type of counterclaim or initial suit against them. Most importantly though, make sure that all of your employees are well aware that they must comply with the FDCPA so as not to cause an actionable offense. If the debtor is successful in bringing the counterclaim, you could potentially be hit with the following as listed in 15 U.S.C.A. §1692k:
(a) Amount of damages
Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of
(1) any actual damage sustained by such person as a result of such failure;
(2)
(A) in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000; or
(B) in the case of a class action, (i) such amount for each named plaintiff as could be recovered under subparagraph (A), and (ii) such amount as the court may allow for all other class members, without regard to a minimum individual recovery, not to exceed the lesser of$500,000 or 1 per centum of the net worth of the debt collector; and
(3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney’s fee as determined by the court. On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.
Essentially, if the debtor can show that they have been harmed in a specific manner, they could collect those damages. Generally, though, these are hard to prove and they will only receive the statutory amount of $1,000.00; however, the attorney’s fees provision will certainly be an issue and cause a substantial amount of more damage. In this respect, the FDCPA is much like the Truth in Lending Act (“TILA”), in that it strives to protect a consumer and is not intended for consumers to use as a proactive measure to sue debt collectors.
2. Bona Fide Error Defense
15 U.S.C.A. §1692k(c) states:
(c) Intent
A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
The Sixth Circuit addressed this provision in Lewis v. ACB Business Services, Inc., 135 F.3d 389 (6th Circ. 1998) and ruled that “the debt collector must only show that the violation was unintentional, not that the communication itself was unintentional.” Id. at 402. If the debt collector can show that it has implemented measures and procedures to avoid a violation of FDCPA, such as initiating all communications with “This Communication is from a Debt Collector”, or ceasing all contact with the debtor once an attorney enters an appearance, or some other type of procedure, it is vitally important for your staff to maintain this procedures so you can legitimately state you error was a bona fide one. Further a debt collector must specifically show by a preponderance of the evidence that:
1. The error was unintentional;
2. The error was made in good faith;
3. The error resulted from a mistake; and
4. The collector maintained procedures reasonably adopted to check for and avoid such errors.
This defense was successfully used in Smith v. Transworld Systems, Inc., 953 F.2d 1025 (6th Circ. 1992). The consumer brought a law suit against Transworld Systems, Inc. on several allegations of violating the FDCPA. The consumer owed money to Ryder Truck Rental, Inc. and it attempted to collect the debt. Upon written verification from the creditor, the consumer forwarded the funds and paid off the account. Ryder, however, inadvertently sent the account to the collection agency Transworld and never indicated that the account had been paid in full. Transworld sent out a demand letter to the consumer requesting immediate payment. The consumer promptly sent a “cease and desist” letter to Transworld and indicated what he thought were violations of the FDCPA. Transworld had received the cease and desist letter, but failed to stop a second letter from being sent to the consumer. In each letter the amount listed was different from the original amount that the consumer had ultimately paid to Ryder. Id. at 1027.
Shortly thereafter, the consumer initiated a federal action alleging that Transworld twice misrepresented the amount of the debt owed, in violation of 15 U.S.C.A. §1692e(2)(A); twice demanded more than what was owed; that it failed to give notice of a consumer’s right to dispute a portion of the debt, in violation of 15 U.S.C.A. §1692g(a)(3); that it failed to cease and desist collection activities after being requested to do so; and that Transworld failed to verify the debt, in violation of 15 U.S.C.A. §1692g(b). Id.
Transworld contended that the second mailing resulted from a bona fide error as did its action since they resulted from an erroneous referral from the original creditor. Transworld supported its position with two employee affidavits explaining why the second letter was sent erroneously, along with a five-page instruction manual that is given to each of the Transworld clients that describes its collection procedures. The federal district court found that Transworld did not intentionally pursue collection efforts after the consumer had requested that it cease and desist, stating that at most it was a clerical error. The court found that Transworld’s procedures were reasonably adapted to avoid such an error. Id. at 1031.
The consumer also alleged that Transworld had a duty to independently verify the amount it was attempting to collect for Ryder as the amount was different in the letters Transworld sent and what was actually owed to Ryder. The district court addressed this issue and ruled that the FDCPA does not require a debt collector to independently verify the amount of the debt. The FDCPA only requires “the maintenance of procedures reasonably adapted to avoid any such error.” 15 U.S.C.A. §1692k(c). Again the court ruled that it was a bona fide error since the amount was listed in the referral from the original creditor. Id. at 1032.
In summary, have procedures set in place so that if you are accused of violating the FDCPA, you can show by a preponderance of the evidence that you were acting in good faith and that any error on your part was a bona fide error.
[1] Creighton v. Emporia Credit Service, Inc., 981 F.Supp. 411 (E.D. Va. 1997)
