The Fair Debt Collection Practices Act
| Publication year | 1978 |
| Pages | 378 |
| Citation | Vol. 7 No. 3 Pg. 378 |
1978, March, Pg. 378. The Fair Debt Collection Practices Act
The federal Fair Debt Collection Practices Act ("the Act"),(fn1) which takes effect on March 20, 1978, proscribes numerous longstanding debt collection practices and establishes uniform standards of conduct for the industry. All of the approximately 5,000 independent debt collectors currently doing business will be subject to both private consumer suits and federal administrative actions if they violate the statute.
The Act was passed in response to may consumer complaints about debt collection tactics. The size and nature of the industry, combined with the absence of state regulation, indicated the need for federal legislation. More than $5 billion in debts were turned over to collection agencies in 1976.(fn2) The American Collectors Association, a major trade association of debt collectors, reported that its members alone contacted approximately eight million debtors.(fn3) Despite its size, the industry is largely unregulated. Proponents of the legislation contended that twenty-four states lack effective debt collection regulation. Only a small number of states were found to have comprehensive statutes that provide for civil remedies.
Although Colorado currently licenses and regulates debt collection agencies operating within the state,(fn4) the federal law places additional obligations, limitations and liabilities on Colorado collection agencies. Because the Act is quite complex, this article discusses only its main provisions. The article concludes by assessing the potential impact of the new law on debt collection practices in Colorado.
The Act was passed as Title VIII of the Consumer Credit Protection Act.(fn5) Unlike the Truth in Lending and Equal Credit Opportunity Acts, this Act does not provide for the issuance of administrative regulations. Instead, the Act contains explicit prohibitions and requirements. It limits the methods which may be used to acquire information regarding debtors' whereabouts, restricts the communications which may be made in connection with debt collecting, prohibits harassing, abusive and oppressive conduct, as well as false or misleading representations, proscribes the use of unfair or unconscionable collection methods, establishes
a procedure for validating debts, and limits the venues wherein debt collectors may file suits. The Act creates a private right of action for actual and punitive damages resulting from a violation of any of the statutory provisions. Moreover, the law authorizes the Federal Trade Commission ("FTC") to use all of its powers to enforce compliance with the Act, except that enforcement in some specified industries is delegated to other federal agencies. Finally, the Act permits the FTC to exempt any class of debt collection practices within any state from the requirements of the statute, if state law imposes substantially similar requirements.
Federal legislation regulating debt collectors was passed by the House of Representatives in 1976,(fn6) but was not acted upon by the Senate prior to adjournment of the 94th Congress. The House passed a similar measure in 1977.(fn7) Subsequently, the Senate replaced this bill with a compromise proposal which eliminated some of the more controversial sections of the House measure. A criminal liability provision and a section providing for a minimum recovery of $100 in a successful private action were deleted in the final version. The bill was passed by the Senate on August 5, 1977,(fn8) accepted by the House on September 9, 1977,(fn9) and signed by the President on September 20, 1977.
The scope of the legislation is determined by the Act's definitions of "consumer," "debt," "debt collector" and "creditor." By using the term "consumer" rather than "debtor," Congress sought to protect persons mistakenly dunned by debt collectors as well as those who truly owed debts.(fn10) A consumer is defined as "any natural person obligated or allegedly obligated to pay any debt."(fn11)
The Act applies only to debts arising out of consumer transactions. "Debt" is defined as "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."(fn12) Thus, the Act has no application to the collection of debts originating from business or agricultural transactions. The term does include non-credit consumer obligations which ordinarily are paid in full within thirty days, such as medical bills.(fn13)
"Debt collector" is the critical definition in the statute since the prohibitions and liabilities of the Act are, for the most part, restricted to persons so described. The term "debt collector" includes any person "who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of debts," or who "regularly collects or attempts to collect debts owed or due or asserted to be owed or due another."(fn14) Congress affirmed its intent to make the law applicable only to those principally or regularly engaged in the business of debt collecting (referred to as "independent debt collectors") by specifically excluding from this definition a variety of businesses and persons only occasionally engaged in collection activities.
The term "debt collector" does not include any employee of a creditor collecting debts for the creditor under the creditor's name.(fn15) The statute defines "creditor" as "any person who offers or extends credit creating a debt or to whom a debt is owed."(fn16) A person is not a creditor, however, if he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.(fn17) A
creditor is not excluded from the definition of debt collector if, in the process of collecting his own debts, he uses any name other than his own, indicating that a third person is collecting the debt.(fn18)
Since creditors and their employees are not included in the definition of debt collector, the Act does not apply to retail merchants who maintain their own collection departments. Creditors were excluded for several reasons. Unlike independent collectors, retailers need to protect community goodwill. A spokesman for the American Retail Federation testified that intense competition between retailers and their dependence on repeat consumer sales effectively deters abusive collection practices.(fn19) Additionally, a sponsor of the bill emphasized that independent debt collectors account for a disproportionate number of complaints regarding collection practices.(fn20) This result was attributed to the independent collectors' dependence on collections as their main source of income.
The Act does not apply to a host of other businesses engaged in collection activities. Finance companies and other purchasers of discounted consumer paper are excluded, as long as the debts they seek to collect were not in default at the time they were obtained.(fn21) The definition of "debt collector" also excludes: employees of the states or federal government, to the extent that debt collecting is part of their official duties; process servers; non-profit credit counseling services and their employees; and, attorneys attempting to collect debts for clients.(fn22) A person or company that collects debts for another person or company "related by common ownership or affiliated by corporate control" is excluded from the definition of debt collector, if the person or company collects only for the related person or company and the principal business of the person or company doing the collecting is not the collection of debts.(fn23) Furthermore, a person collecting a debt owed to another is exempt if the collection activity is: (1) incidental to a bona fide fiduciary obligation or escrow agreement (e.g., activities of trust departments or escrow companies); (2) concerns a debt originated by the person doing the collecting (e.g., collection of consumer, student and mortgage loans); or, (3) concerns a debt obtained by a person as a secured party in a commercial credit transaction (e.g., inventory financer).(fn24)
To reach the intrastate activities of debt collectors, Congress relied on its constitutional power to regulate the use of instrumentalities of interstate commerce. Virtually every debt collector uses either the telephone (an instrumentality of interstate commerce) or the mails. Congress therefore incorporated within the definition of the term "debt
collector" the practice of using instrumentalities of interstate commerce or the mails.(fn25) As a result, all of the acts and practices of any collection agency which falls within the definition of "debt collector" are regulated by the Act, regardless of whether a particular act is wholly intrastate. In addition, Congress granted enforcement authority to the FTC irrespective of whether the violator is engaged in commerce.(fn26)
The Act establishes guidelines for the acquisition of "location information," otherwise known as "skip-tracing." This section protects the consumer's right to privacy while also...
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