Chapter 15 NC DEBT COLLECTION ACT VIOLATIONS

• Jurisdiction: North Carolina

15 NC DEBT COLLECTION ACT VIOLATIONS

A. Definition

The North Carolina Debt Collection Act (NCDCA) is found in article 2 of chapter 75, titled "Prohibited Acts by Debt Collectors."¹ It was added to chapter 75 in 1977, applies specifically to debt collectors, and, in general, forbids coercion to collect payments by "unfair acts."² The NCDCA provides a primary cause of action, but violations of the Act are often a counterclaim to an action on a debt.³

There are three other laws that may apply to debt collection, of which counsel should take note when considering how to proceed: two state and one federal. The federal law is the Fair Debt Collection Practices Act (FDCPA),⁴ a broad discussion of which is beyond the scope of this chapter, although some differences between the state and federal legislation are noted below. The federal law and case law interpreting it may be employed in construing the NCDCA.⁵ An action may arise for a claimant under either the NCDCA or the FDCPA, or both,⁶ but there are important differences between the acts; counsel should carefully examine the federal law to see if it will apply to a particular claim. Of special concern to attorneys collecting debts is that the FDCPA is more likely to cover their activities than is the state law.⁷

One of the state laws that overlaps with the NCDCA concerns collection agencies.⁸ It provides its own civil action⁹ and is discussed below in section (C)(3). The other state legislation is article 1 of chapter 75 — more specifically, section 75-1.1, North Carolina's "unfair trade practices" statute (UDTPA). The NCDCA specifically addresses the relationship between the two: "The specific and general provisions of this article [article 2 - the NCDCA] shall exclusively constitute the unfair or deceptive acts or practices proscribed by G.S. 75-1.1 in the area of commerce regulated by this article."¹⁰

Two decisions have interpreted that language. In Talbert v. Mauney, the North Carolina Court of Appeals said it means that, "though in the area of debt collection, unfair or deceptive acts in commerce are limited to those acts set out in article 2, those specific practices delineated as prohibited are examples of unfair practices within the broader scope of G.S. 75-1.1."¹¹ A North Carolina federal district court said that while the NCDCA provides the exclusive remedy for abusive conduct pertaining only to debt collection, acts that are prohibited by the NCDCA in the specific context of debt collection may also be prohibited as general business practices under the UDTPA.¹²

The federal court then went on to say:

The NCDCA . . . is found at article 2 of the UDTPA and applies only when unfair and deceptive conduct occurs in the specific context of debt collection. If the abusive conduct alleged pertains only to debt collection, the NCDCA provides a claimant's exclusive remedy. Claims can only be asserted under the UDTPA if there is some abusive conduct alleged to have occurred outside the realm of debt collection.¹³

B. Elements

Courts have said that to state a claim under the NCDCA, a claimant must first establish three elements:

(1) The alleged obligation is a "debt,"
(2) The claimant owing the obligation is a "consumer," and
(3) The party attempting to collect the obligation is a "debt collector."¹⁴

Then, once the threshold requirements are satisfied, the court applies the general requirements for all unfair or deceptive trade practice claims: an unfair act, in or affecting commerce, proximately causing injury.¹⁵

C. Elements Defined

1. Debt

A "debt" is "any obligation owed or due or alleged to be owed or due from a consumer."¹⁶ It includes homeowners association dues and assessments¹⁷ and late fees,¹⁸ but not an alleged theft¹⁹ or a court cost imposed by a trial court.²⁰ A North Carolina federal court also noted that the state statute does not expressly require that a "transaction" precede the creation of a debt.²¹

2. Consumer

A "consumer" is a natural person²² "who has incurred a debt or alleged debt for personal, family, household or agricultural purposes."²³ For example, a homeowner in a community association is a consumer because he or she incurs obligations (assessment fees) for family or household purposes.²⁴

Someone who incurs debt for a commercial purpose is not a consumer.²⁵ A person who did not actually incur the debt at issue — as in the case of mistaken identity — is generally not a consumer for purposes of the NCDCA.²⁶ However, a person can be a "consumer" even if he or she denies existence of the underlying debt or did not incur it, but the debt collector asserts that he or she is liable for that debt.²⁷

Bystanders or those who happen to accompany a consumer at the time of an alleged NCDCA violation are also not consumers for purposes of the Act.²⁸

3. Debt Collector

A "debt collector" is a person "engaging, directly or indirectly, in debt collection from a consumer . . . ."²⁹ The NCDCA specifically excepts collection agencies³⁰ governed by article 70, chapter 58 of the North Carolina General Statutes. That article contains prohibitions that parallel those of the NCDCA³¹ and provides its own civil action.³²

Unlike the federal Act, the NCDCA does not limit its definition to those collecting debts on behalf of others, and thus, a homeowners association³³ attempting to collect assessments owed to it or a landlord³⁴ seeking to recover past-due rent and related charges are debt collectors within the meaning of the statute.³⁵ Attorneys who attempt to collect debts on behalf of their clients are debt collectors under the NCDCA, and because the Act—unlike the federal Act—has no regularity or primary purpose limitation, it does not matter how infrequently the attorney performs that type of work.³⁶

4. An Unfair Act In or Affecting Commerce Proximately Causing Injury

a. Unfair Act³⁷

Unfair or deceptive acts are, in the context of debt collection, set out in specific statutes prohibiting five broad categories of behavior by debt collectors: threats and coercion,³⁸ harassment,³⁹ unreasonable publication,⁴⁰ deceptive representation,⁴¹ and unconscionable means.⁴² The statute that seems to be the most frequent subject of litigation is the one prohibiting deceptive representations. In general, it precludes collecting or attempting to collect a debt by any fraudulent, deceptive or misleading representation. The claimant will ordinarily cite a specific subsection of the statute; however, the debt collector's actions may still be deceptive and misleading, even if not in violation of the specific prohibition cited.⁴³

One specific prohibition is that debt collectors may not falsely represent the character, extent or amount of a debt, or that an existing obligation may be increased by the addition of attorney's fees, investigation fees, service fees, or any other fees or charges.⁴⁴ Thus, where homeowners in a community association alleged the association represented that the amount needed to satisfy their assessment obligation included attorney's fees greatly in excess of the amount permitted by statute, they satisfied the unfair or deceptive act requirement.⁴⁵ Merely sending notices of past-due rent will not constitute an unfair and deceptive trade practice, but when a tenant showed her landlord requested, in three summary ejectment complaints, a late fee that violated another statute⁴⁶ and an "administrative fee" in excess of that provided for in the lease, the evidence could support a finding that the landlord falsely represented the amount of a debt.⁴⁷

Another misleading or deceptive practice that is prohibited is failing to disclose in communications attempting to collect a debt that the purpose of the communication is to collect a debt, unless the communication is made to a third party to obtain location information about the debtor.⁴⁸ The communication need not track the statutory language to avoid violating the Act.⁴⁹ The proscription is inapplicable if the communication at issue is not one "attempting to collect a debt."⁵⁰

The NCDCA also proscribes as misleading or deceptive, communications with a consumer other than in the name of the debt collector and the person or business on whose behalf the debt collector is acting or to whom the debt is owed.⁵¹ In one case, a hospital attempted to collect a debt through its holding company. Correspondence from that organization to the consumer was sent under the letterhead of its Vice President for Legal Affairs without indicating the affiliation between the holding company and the hospital. The consumers argued the communications led them to believe the matter had been turned over to an independent attorney or third-party collection agency for collection, thus misrepresenting the nature of the debt collector in violation of the Act. The court disagreed, noting the plain language of the specific statute only required communications to disclose the name of the debt collector, and the name of the person or business on whose behalf the debt collector was acting or to whom the debt was owed, which the communications from the holding company apparently did.⁵²

In 2009, a new statutory prohibition was added.⁵³ Neither public utilities⁵⁴ nor county⁵⁵ or city⁵⁶ government public enterprises may communicate with a consumer in violation of statutes that bar them from suspending or disconnecting service to a customer because of a past-due and unpaid balance for service incurred by another person residing with that customer after service has been provided to the household.⁵⁷

b. Commerce

The unfair act at issue must be one that is "in or affecting commerce."⁵⁸ "Commerce" includes "all business activities, however denominated."⁵⁹ "Business activities" are the normal, day-to-day activities regularly conducted by the business and for which it was organized.⁶⁰ The "act in or affecting commerce" requirement derives from the Unfair and Deceptive Trade Practices Act (UDTPA), specifically section 75-1.1, which exempts from the definition of...