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| Jurisdiction | United States,Federal |
| Citation | Vol. 8 No. 7 Pg. 16 |
| Pages | 16 |
| Publication year | 1995 |
August, 1995
Effectively Collecting a Debt — Part II Statutory Regulation of Debt Collection
Jeffrey Weston Shields, J.
In Part I of this article, we discussed basic debt collection procedure and tips for effective collection work. This part will address important statutory law governing debt collection practice.
A. Fair Debt Collection Practices Act. On September 20, 1977, Congress enacted the Federal Fair Debt Collection Practices Act, codified at 15 U.S.C. §1692 et. seq. ("Act"), and amended it in 1986.
1. Scope of the Act.
Despite the statement by Congress of the broad purposes of the Act, the Act extends its protections only to certain persons, and applies its prohibitions only to certain debt transactions and to a limited category of persons or entities collecting debts.
a. The Act protects only "consumers.
" The protections of the Act extend only to "consumers." "Consumer" is defined as "any natural person obligated or allegedly obligated to pay any debt." 15 U.S.C. §1692a(3). In other words, the protections of the Act do not extend to corporations, partnerships or other entities but include only natural persons.
b. The Act only applies to "consumer" debt.
The only type of "debt" to which the Act applies is "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 subject of the transaction are primarily for personal, family or household purposes, . . ." 15 U.S.C. §1692a(5). The Act does not apply to collection of business or commercial debt. See, e.g., Munk v. Federal Land Bank of Witchita, 791 F.2d 130 (10th Cir. 1986).[3]
c. The Act applies only to "debt collectors.
" The proscriptions of the Act apply only to a limited group of persons or entities which the Act labels "debt collectors." 15 U.S.C. §1692a(6). A "debt collector" is:
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 to another.
15 U.S.C. §1692a(6) (emphasis added). In other words, the Act applies only to those persons or entities to which a creditor assigns a debt for collection where the primary business of the assignee is the collection of debts for others, rather than for himself.[4] That Congress intended to target only third party collection agencies with the Act is explained by the statutory exceptions to the definition of "debt collector" in the Act which, in the 1977 version of 15 U.S.C. §1692a(6), included:
(A) Any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor;
(B) Any person while acting as a debt collector for another person both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts;
(C) Any officer or employee of the United States or any state to the extent that collecting or attempting to collect any debt is in the performance of his official duty;
(D) Any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt;
(E) Any non-profit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors;
(F) Any attorney at law collecting a debt as an attorney on behalf of and in the name of a client; (this exception was eliminated in the 1986 amendments — see discussion below);
(G) Any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to extent such activity (1) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangements; (2) concern a debt which was originated by such person; (3) concerns a debt which was not in default at the time it was obtained by such person; or (4) concern a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor. 15 U.S.C. §1692a(6)(A)-(G)(1977).
In other words, the Act excludes from the definition of "debt collector" people or entities essentially collecting their own claim. For example, neither a bank that issued a credit card nor a related service corporation that attempted to collect a debt owed on the credit card was a "debt collector" subject to the Act and, therefore, holders of a credit card had no claim under the Act for alleged improprieties in the service corporation's collection attempts. Meads v. CitiCorp Credit Services Inc., 686 F.Supp. 330 (S.D. Ga. 1988).
d. Lawyers Included as "Debt Collectors."
On July 9, 1986, Congress amended §1692a(6) by simply eliminating subparagraph (F) of the original §1692a(6) which, prior to the 1986 amendment, provided an exception to the definition of the term "debt collector" for "any attorney at law collecting a debt as an attorney on behalf of and in the name of a client ..." Other than the elimination of subsection (F) of §1692a(6) from the 1977 version by the 1986 amendment, § 1692a remains essentially the same.
There has been some misunderstanding caused by this amendment with respect to whether lawyers are always "debt collectors" under the Act. The 1986 amendments merely eliminated the specific exception of lawyers from the definition of "debt collector;" it did not enact new language to the effect that lawyers are always "debt collectors" under coverage of the Act. The lawyer must still meet the requisites of § L692a(6) to be considered a "debt collector, " i.e., that the lawyer be someone "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 to another. " In other words, a lawyer who rarely performs debt collection services for clients will presumably not be included under the definition of "debt collector." However, case law interpreting the Act following the 1986 amendment requires lawyers, in my view, to assume that they fall under the definition of "debt collector" unless they provide collection services only on very rare occasions. For example, in Scott v. Jones, 964 F.2d 314 (4th Cir. 1992), the court held that an attorney retained by a bank to represent the bankcard division in lawsuits based on delinquent credit card accounts was a "debt collector" under the Act despite the attorney's contention that he performed only legal work, since at least 70% of the attorney's legal fees were generated from collection of debts, the "principal purpose" of the work was collection of debt, and the filing of warrants constituted "indirect" means of a debt collection. In Stojanobski v. Strobl and Manoogian, P.C., 783 F.Supp. 319 (E.D. Mich. 1992), a law firm was held to be a person who "regularly" collected debts for purpose of the Act even though the firm's collection business was less than 4% of its total business; the court held that the law firm had an ongoing relationship with a corporate client with presumably many overdue accounts on its books. The District Court in Wisconsin reached an opposite result in Mertes v. Devitt, 734 F.Supp. 872 (W.D. Wis. 1990) when it held that an attorney did not regularly collect or attempt to collect debts of another and therefore was not a "debt collector" under the Act where the attorney averaged less than two collection matters per year and debt collection comprised less than one percent of his practice.
2. Specific Restrictions and Obligations of the Act.
The Act prevents certain collection activities by "debt collectors" collecting or attempting to collect "consumer debts" against "consumers" and obligates "debt collectors" to make certain disclosures and provide certain information in the course of their activities.
3. Limitation on Acquisition of Location Information.
Section 1692b of the Act requires that "any debt collector communicating with any person other than the consumer for a purpose of acquiring location information about the consumer shall"
a. Identify himself [or herself], state that he [or she] is confirming or correcting location information concerning the consumer and, only if expressly requested, identify his [or her] employer;[5]
b. Not state that the consumer owes any debt;
c. Not communicate with any such person more than once unless requested to do so by such person or unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has correct or complete location information;
d. Not communicate by post card;[6]
e. Not use any language or symbol on any envelope or in the contents of any communication effected by the mails or telegram that indicates that the debt collector is in the debt collection business or that the communication relates to the collection of a debt.[7]
f. After the debt collector knows that the consumer is represented by an attorney with regard to the subject debt and has knowledge of, or can readily ascertain, such attorney's name and address, not communicate with any person other than that attorney, unless the attorney fails to respond within a reasonable time to communication from the debt collector.[8]
4. Limitation on Communications With the Debtor and Certain Third Parties in Connection with Debt Collection.
With respect to communication with the consumer concerning...
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