The Fair Debt Collection Practices Act Attorneys Beware
| Publication year | 1995 |
| Pages | 32 |
64 J. Kan. Bar Assn. December, 32 (1995). THE FAIR DEBT COLLECTION PRACTICES ACT ATTORNEYS BEWARE
December, 1995
Copyright (c) 1995 by the Kansas Bar Association; Laura L. Ice
In 1977, Congress passed the Fair Debt Collection Practices Act [FN1] (the Act) to protect consumers from "abusive, deceptive and unfair debt collection practices by many debt collectors." [FN2] Some of the abusive practices targeted by Congress included telephone calls at unreasonable hours; misrepresentation of consumers' legal rights; threats of violence; the use of abusive and obscene language; disclosing a consumer's personal affairs to friends, neighbors and employers; obtaining information about consumers through false pretenses; impersonating public officials and attorneys; and simulating legal process. [FN3]
Initially, the Act exempted attorneys collecting debts on behalf of their clients. [FN4] In 1986, Congress bowed to heavy lobbying from the debt collection industry -- which saw this exemption as unfair competition from attorneys -- and repealed the exemption. [FN5] Thus, the floodgates were opened and the problems began.
Attorneys argued that the Act was never intended to cover attorneys engaged solely in consumer debt litigation (e.g. filing and prosecuting lawsuits to reduce debts to judgment). The circuits split on this issue, with most circuits holding that attorneys are governed by the Act even if their collection practices are limited to legal activities. [FN6]
In April of this year, the United States Supreme Court issued its decision in Heintz v. Jenkins, [FN7] ruling that the Act applies to attorneys who regularly engage in consumer debt collection activity, even if that activity is limited to litigation. This article will examine the requirements of the Act and offer guidance in dealing with some of the problems that arise under the Act in the context of litigation.
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I. When is the Act Applicable?
A. Consumer Debt
The Act regulates the collection of consumer debts by debt collectors. [FN8] "Consumer" is defined in the Act as: "any natural person obligated or allegedly obligated to pay any debt." [FN9] Thus, the Act's protection does not extend to corporations, businesses, partnerships or other legal entities created by statute.
"Debt" is defined in the Act 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..." [FN10] The purpose of the transaction will determine whether the Act applies. [FN11] If the debt is incurred for business purposes, the Act should not apply, even if the debt is secured by the debtor's home. If, however, the debtor maintains a business line of credit, but uses the credit to fund personal expenses such as weddings, education, or medical costs, the Act may apply.
The Federal Trade Commission's Staff Commentary on the Act gives examples of consumer debt as:
. Overdue obligations such as medical bills that were originally payable in full within a certain time period (e.g. 30 days); . A dishonored check tendered in payment for goods or services acquired or used primarily for personal, family, or household purposes; and . A student loan, because the consumer is purchasing "services" (education) for personal use. Exclusions include:
. Unpaid taxes, fines, alimony, or tort claims; . A credit card that a cardholder retains after the card issuer has demanded its return. (But the account balance is covered); and . A non-pecuniary obligation of the consumer such as the responsibility to maintain adequate insurance on the vehicle. [FN12] In Zimmerman v. HBO Affiliate Group, [FN13] the court determined that the type of "transaction" which creates a "debt" covered by the Act is limited to transactions where credit is offered or extended, and payment is deferred, similar to those transactions covered by the state and federal Consumer Protection Acts. [FN14] Some types of transactions which have been found to be excluded from coverage under the Act are condominium assessments, [FN15] child support payments, [FN16] per capita tax assessments, [FN17] agricultural loans, [FN18] and forcible detainer actions. [FN19] Foreclosure actions are covered by the Act. [FN20]
B. Who is a "Debt Collector?"
The Act defines "debt collector" as: "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." [FN21] The Act does not cover creditors attempting to collect their own debts. Since the attorney exemption was removed in 1986, any attorney who fits the Act's definition of "debt collector" must comply with the Act. This article uses the word "attorney" interchangeably with "debt collector" in discussing the requirements of the Act.
A common issue is whether the attorney "regularly" collects debts covered by the Act. In Mertes v. Devitt, [FN22] the court refused to apply the Act to a lawyer who devoted less than one percent of his practice time to debt collection -- two collections a year over the previous ten years. On the other hand, in Stojanovski v. Strobl and Manoogian, P.C., [FN23] the court found that a law firm engaged in "regular" debt collection activity where its debt collection business was less than four percent of its total business. A law firm can be considered as a collective unit, and the collection efforts of an individual attorney's
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partners could cause the attorney's single collection effort to look like a regular practice of the firm. [FN24] Likewise, future collection efforts could cause past ones to look like a regular practice. [FN25] To be safe, attorneys should consider that the Act covers any collection effort of a consumer debt on behalf of a third-party client.
The Act does not apply if an attorney is attempting to collect a debt owed to that attorney. However, if the attorney uses any name other than his or her own which would indicate that a third person is attempting to collect the debt, the Act will apply. [FN26]
II. Compliance with the Act
Before reviewing the Act's requirements, an attorney should consider that most courts have adopted the "least sophisticated consumer standard" in determining whether provisions of the Act have been violated. [FN27] This interpretation is based on the assumption that "consumers of below-average sophistication or intelligence are especially vulnerable to fraudulent schemes." [FN28] The "least sophisticated consumer standard" serves a dual purpose: it 1) ensures the protection of all consumers, even the naive and the trusting, against deceptive debt collection practices, and 2) protects debt collectors against liability for bizarre or idiosyncratic interpretations of collection notices. [FN29]
A. Notice Requirements
The Act's notice requirements are the most likely problem areas for attorneys engaging in debt collection litigation. The Act requires two types of notices: 1) Verification notice; and 2) the "Mini-Miranda warning".
1. Verification Notice
The Act requires an attorney to make the following disclosures in writing to the consumer in the initial communication with the consumer, or within five days after the initial communication:
. The amount of the debt; . The name of the creditor; . A statement that the consumer has 30 days to dispute the debt or else the attorney will assume the debt is valid; . A statement that if the...
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