Identifying Some Trouble Spots in the Fair Debt Collection Practices Act:a Framework for Improvement

• Publication year: 2021

83 Nebraska L. Rev. 762. Identifying Some Trouble Spots in the Fair Debt Collection Practices Act:A Framework for Improvement

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Elwin Griffith*

Identifying Some Trouble Spots in the Fair Debt Collection Practices Act:A Framework for Improvement

TABLE OF CONTENTS

I. Introduction ..................................................... 762
II. Defining "Debt" ................................................. 765
III.The Meaning of "Default" in the Definition of "Debt
Collector" ...................................................... 775
IV. Validating the Debt ............................................. 784
A. The Problem of Competing Messages ............................ 784
B. The Requirement of a Writing ................................. 798
C. The Reference to Documentation ............................... 802
D. Disputing the Debt or Any Part Thereof ....................... 805
E. The Amount of the Debt ....................................... 807
V. Bona Fide Error Defense .......................................... 814
VI. Conclusion ...................................................... 825

I. INTRODUCTION

Debt collectors have an unenviable task. They must zealously pursue delinquent debtors, while being careful not to let their enthusiasm lead them to excesses. In the past, collectors did not enjoy a sterling reputation.(fn1) Some of them believed that delinquent debtors wanted to

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evade their responsibilities and that the debt collector's job was to make sure that the debtors did not succeed in doing so.(fn2) With this mindset, some debt collectors were not inhibited in their collection efforts, and there was little state legislation in place to control them.(fn3) The congressional hearings preceding the enactment of the Fair Debt Collection Practices Act ("FDCPA") exposed the tactics that debt collectors used to achieve their objective.(fn4) It was not unusual for them to make telephone calls at all hours of the night, issue threats to the consumer, or divulge a consumer's confidential information to friends and neighbors, all in the quest to collect outstanding debts.(fn5) It was

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clear that Congress had to do something about these disturbing practices. In response thereto, it enacted the FDCPA(fn6) in 1977.

The FDCPA defines a 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."(fn7) One issue that has bothered courts over the years is the definition of "debt."(fn8) Most courts have taken the position that a debt need not result from an extension of credit,(fn9) but see the necessity of having a consensual transaction between the parties.(fn10) This Article will examine the judicial approach to the term "debt." Along the same lines, this Article will examine the specific language in the definition of "debt collector" that exempts a person from coverage because the debt is obtained before it is in default.(fn11) This Article will demonstrate that just be

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cause a debt is delinquent does not mean that it is in default, although debt collectors frequently confuse the two situations.(fn12)

Finally, this Article will consider the intricacies of the validation notice and the problem that a collector faces in trying to give equal billing to its collection message, while informing the debtor about his rights to seek verification of the debt.(fn13) One may conclude that the statute puts the debt collector in an impossible position. This is especially so in light of the judicial disagreement over the application of the bona fide error defense to mistakes of law.(fn14)

II. DEFINING "DEBT"

Congress has tried to give a clear and comprehensive definition of terms in the FDCPA. Despite those grand efforts, one cannot help noticing that the definition of "debt" has created difficulties for courts in determining whether the statute applies in certain transactions. The definition seems simple enough.(fn15) One early case, Zimmerman v. HBO Affiliate Group,(fn16) seemed to be on the right track when it found that there was no debt flowing from a demand for payment for television signals that were illegally obtained.(fn17) It was clear that there was no debt, because the claim arose from a party's tortious conduct rather than from a consensual transaction.(fn18) The Third Circuit was not content to stop there; instead it went further to point out in dictum that a transaction must involve an offer or extension of credit.(fn19)

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What was the justification for this? The court was led astray by the fact that the FDCPA was part of the Consumer Credit Protection Act ("CCPA").(fn20) It seemed reasonable to the court that a transaction should be understood to have some relationship to credit in light of the FDCPA's statutory context.(fn21) The court's confidence about this aspect seemed misplaced, for another statute that had nothing to do with credit also found its way into the CCPA. The Electronic Fund Transfer Act ("EFTA")(fn22) was simply another of those statutes that Congress enacted as part of the CCPA, with the objective of protecting consumers across the board from abusive consumer transactions.(fn23) In some cases it was credit,(fn24) in others it was the collection of debts.(fn25) It is understandable that the Zimmerman court may have been led astray by the CCPA's title, which, taken by itself, gives the impression that credit is an essential element of the legislation. Had the court taken a hard look at the various parts of the CCPA, it would have noticed the differences in congressional purpose behind the enactments. For example, the Truth in Lending Act ("TILA")(fn26) was intended to "assure a meaningful disclosure of credit terms,"(fn27) while the FDCPA was geared toward eliminating "abusive debt collection practices by debt collectors."(fn28) Therefore, although the CCPA's original focus may have been on credit-related transactions,(fn29) that is no longer the case. Its reach is broader than that, because Congress wanted to extend protection to other transactions that were unrelated to the extension of credit, but that were nevertheless subject to abuse in the marketplace.(fn30)

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There was nothing that compelled the court in Zimmerman to emphasize the absence of the credit element, for it was already on solid ground in rejecting the application of the FDCPA to a tortious transaction relating to the misuse of television signals.(fn31) Although the statute covers any obligation to pay money in consumer transactions, the court wanted to restrict its application to transactions involving an extension of credit. The Zimmerman court was therefore not satisfied with the plain meaning of the statute.(fn32) It was left to the Seventh Circuit in Bass v. Stolper, Koritzinsky, Brewster and Neider, S.C.(fn33) to set the record straight by giving the statutory language its ordinary meaning. A consumer's obligation to pay, therefore, was not restricted to credit-related transactions.(fn34) Even if it was arguable that the definition of "debt" was so unclear that the court needed some help from the FDCPA's legislative history, reference to that source only served to strengthen the court's position that Congress did not intend to restrict the statute to such transactions.(fn35) While early versions of the FDCPA did contain some reference to the extension of credit,(fn36) the final version lacked any such reference in the definition of "debt." The committee report revealed the statutory intent that the term "debt" should include "consumer obligations paid by check or other noncredit consumer obligations."(fn37)

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After Bass, other circuits joined the Seventh Circuit in rejecting the Zimmerman dictum.(fn38) When the Third Circuit itself returned to the issue in Pollice v. National Tax Funding, L.P.,(fn39) it expressed its dissatisfaction with Zimmerman and clarified once and for all that no extension of credit was necessary for the creation of a debt. The relevant consideration was whether there was an obligation to pay that arose from a consensual consumer transaction.(fn40)

Although the element of credit no longer played any role in the definition of "debt," queries still remained about the kind of transaction that satisfied the definition. The Zimmerman court recognized the requirement of an underlying consensual exchange for the FDCPA to apply.(fn41) The question that continued to confront the courts was whether any obligation that resulted from a consensual arrangement constituted a debt. In Bass, the collector tried to recover on a dishonored check.(fn42) The debt collector did not limit its defense to the creditrelated element, but argued for the exclusion of dishonored checks from the definition of "debt" on the ground that the tender of a worthless check was a criminal act.(fn43) This seemed to be a sweeping generalization, for as the court pointed out, dishonored checks do not result only from transactions where the consumer intends to defraud the payee.(fn44) Congress was convinced that most defaulting debtors intend to honor their obligations, and that most delinquencies flow from unforeseen and unpredictable circumstances.(fn45) Even though some defaulting debtors do not deserve protection because of their fraudulent motives, there is no evidence that Congress intended to make the FDCPA inapplicable when debt collectors try to collect on the dishonored checks of such debtors.(fn46) The FDCPA was intended to curb abusive collection practices, and the relevant question is whether the

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consumer gave the check in payment of a consumer obligation. It is no secret that a check represents the drawer's obligation to pay for his purchases and...