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Fair Debt Collection Practices Act Update
FAIR DEBT COLLECTION PRACTICES ACT UPDATE — 1999 *
DANIEL A. EDELMAN
September 25, 1999
Daniel A. Edelman 1999
*This article is reproduced here without the supporting footnotes. For the entire article with the supporting materials, please contact Edelman, Combs & Latturner .
TABLE OF CONTENTS
I. INTRODUCTION 1
II. STATUTORY COVERAGE AND DEFINITIONS 2
A. WHAT IS A “DEBT” 2
1. DISHONORED CHECKS 2
2. RENT, CONDOMINIUM ASSESSMENTS 10
3. TORT CLAIMS 13
4. DEBTS REDUCED TO JUDGMENT PARTY 14
5. TAXES, FINES, AND GOVERNMENTAL OBLIGATIONS 15
6. CHILD SUPPORT OBLIGATIONS 16
B. WHO IS A “DEBT COLLECTOR” SUBJECT TO THE ACT 16
1. CREDITOR WHO USES NAME INDICATING THIRD PARTY INVOLVEMENT AS DEBT COLLECTOR 20
2. AFFILIATES OF CREDITORS 22
3. APPLICATION OF DEFINITION TO CREDITOR USING ANOTHER NAME 26
4. WHAT CONSTITUTES “USE” OF THIRD PARTY’S NAME 32
5. PURCHASERS OF LOAN PORTFOLIOS INCLUDING DEFAULTED DEBTS 36
6. LAWYERS AS “DEBT COLLECTORS” 40
7. MASS MAILERS 43
8. CREDITORS THAT USE MASS MAILERS 43
9. OTHER “DEBT COLLECTOR” ISSUES 44
C. WHAT IS A “COMMUNICATION” 46
D. WHO IS ENTITLED TO SUE 46
III. VIOLATIONS 47
A. LEAST SOPHISTICATED OR UNSOPHISTICATED CONSUMER STANDARD 47
B. VALIDATION OR VERIFICATION NOTICE 50
1. RELATIONSHIP WITH 1692e(8) 52
2. OVERSHADOWING 53
3. OTHER 1692g VIOLATIONS 66
C. DEBT COLLECTION WARNING: 15 U.S.C. 1692e(11) 67
D. MISLEADING NOTICES OF RIGHTS 71
E. THREATS OF UNINTENDED, UNAUTHORIZED OR ILLEGAL ACTION 73
F. UNAUTHORIZED CHARGES: “DEBT PADDING” 78
1. BAD CHECK CHARGES 80
G. FALSE REPRESENTATION THAT COMMUNICATION IS FROM AN ATTORNEY 83
H. IMPROVEMENT OF CREDIT 90
I. FALSE REPRESENTATION OF NATURE OF COLLECTOR 91
J. OTHER FALSE OR MISLEADING REPRESENTATIONS 93
K. OTHER UNFAIR PRACTICES 95
L. HARASSMENT OR ABUSE 95
M. COMMUNICATIONS WITH THE CONSUMER 97
N. CONTACTS WITH THIRD PARTIES 98
O. ACQUISITION OF LOCATION INFORMATION 99
P. LEGAL ACTION BY DEBT COLLECTORS 99
Q. FURNISHING DECEPTIVE FORMS 102
IV. REMEDIES 103
A. PROCEDURE 104
B. ACTUAL DAMAGES 105
C. STATUTORY DAMAGES 106
D. VICARIOUS LIABILITY 109
E. ATTORNEY’S FEES 111
F. BONA FIDE ERROR DEFENSE 112
G. SUBJECT MATTER AND PERSONAL JURISDICTION 118
H. CLASS ACTIONS 119
I. LIMITATIONS 127
V. FTC OFFICIAL STAFF COMMENTARY 127
This article provides an overview of recent developments concerning the application of the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq. (“FDCPA”) (the full text is in an appendix). The statute regulates the conduct of “debt collectors” in collecting “debts” owed or allegedly owed by “consumers.” It is designed to protect consumers from unscrupulous collectors, whether or not there is a valid debt. The FDCPA broadly prohibits unfair or unconscionable collection methods; conduct which harasses, oppresses or abuses any debtor; and any false, deceptive or misleading statements, in connection with the collection of a debt; it also requires debt collectors to give debtors certain information. 15 U.S.C. 1692d, 1692e, 1692f and 1692g.
In enacting the FDCPA, Congress recognized the “universal agreement among scholars, law enforcement officials, and even debt collectors that the number of persons who willfully refuse to pay just debts is minuscule [sic] … [T]he vast majority of consumers who obtain credit fully intend to repay their debts. When default occurs, it is nearly always due to an unforeseen event such as unemployment, overextension, serious illness, or marital difficulties or divorce.”
The FDCPA is liberally construed in favor of the consumer to effectuate its purposes.
Statutory damages are recoverable for violations, whether or not the consumer proves actual damages.
II. STATUTORY COVERAGE AND DEFINITIONS
WHAT IS A “DEBT”
“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, whether or not such obligation has been reduced to judgment.” 15 U.S.C. 1692a(5) (emphasis added). Business and agricultural loans are therefore not “debts” covered by the FDCPA. A personal guaranty of a business loan is also not covered.
The following are areas of recent litigation activity concerning what is a “debt”:
In recent years there has been a substantial amount of litigation concerning whether dishonored checks are “debts” within the meaning of the FDCPA. The statutory definitions clearly encompass dishonored checks, in that liability on such a check is an “alleged obligation . . . to pay money arising out of a transaction”, subject to the FDCPA if the “property . . . which [is] the subject of the transaction” was “primarily for personal, family, or household purposes.”
The only appellate courts to have addressed the issue have held that dishonored checks are debts. In Bass v. Stolper, Koritzinsky, Brewster & Neider, S.C., a divided Seventh Circuit held:
Resorting to legislative history is unnecessary here, however, because the language in the statute’s definition of “debt” is plain.
A “debt,” the collection of which is governed by the FDCPA, 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, whether or not such obligation has been reduced to judgment.
15 U.S.C. 1692a(5). Appellants would have us read into this definition the additional requirement that the debt flow from a specific type of consumer transaction — one involving the offer or extension of credit. However, we see no language in the Act’s definition of “debt” (or any other section of the Act) that mentions, let alone requires, that the debt arise from an extension of credit. Nor do we find patent ambiguity in the definition of “debt.” The definition is not “beset with internal inconsistencies [or] . . . burdened with vocabulary that escapes common understanding.” [citation] In the absence of ambiguity, our inquiry is at an end, and we must enforce the congressional intent embodied in the plain wording of the statute. [citation]
On the contrary, the plain language of the Act defines “debt” quite broadly as “any obligation to pay arising out of a [consumer] transaction.” In examining this definition, we first focus on the clear and absolute language in the phrase, “any obligation to pay.” Such absolute language may not be alternatively read to reference only a limited set of obligations as appellants suggest. [citation] As long as the transaction creates an obligation to pay, a debt is created. We harbor no doubt that a check evidences the drawer’s obligation to pay for the purchases made with the check, and should the check be dishonored, the payment obligation remains. [citation]
Bass was followed by a later Seventh Circuit decision, Ryan v. Wexler & Wexler, by the Ninth Circuit, in Charles v. Lundgren & Associates, P.C. by the Eighth Circuit, in Duffy v. Landber, and by the Tenth Circuit in Snow v. Riddle. The Sixth Circuit and the Ohio Court of Appeals, in two related cases, also held that a dishonored check is covered. Remarkably, the Sixth Circuit decision was marked not for publication.
Finally, an Eleventh Circuit decision addressing whether obligations arising from an auto rental are “debts” approved the reasoning of Bass and held that an extension of credit is not required under the FDCPA. A subsequent Eleventh Circuit decision states in dicta that a check is a debt.
The overwhelming majority of lower court decisions either hold that dishonored checks issued by the debtor for consumer goods or services fall within the FDCPA or apply the FDCPA to such debts. The legislative history of the FDCPA clearly states that dishonored checks are covered. The Report of the House Banking Committee accompanying H.R. 5294 states:
Opponents of this legislation claim that, regardless of the amount of consumer harassment or deception, there should be no legislation because the number of unpaid bills and bad checks keeps increasing. This reasoning is misleading. The issue is not one of uncollected debts, but rather whether or not consumers must lose their civil rights and be terrorized and abused by unethical debt collectors.
The House Report also stated that “the committee intends that the term ‘debt’ include consumer obligations paid by check or other non-credit consumer obligations.”
Similarly, the hearings on the FDCPA contain discussion of the effect of the proposed legislation on checks. Indeed, the American Collectors Association representative submitted a statement which complained that the proposed legislation “would make it more difficult for financial collection services to collect or attempt to collect bad checks.”
The Federal Trade Commission has also consistently held that checks are subject to the FDCPA. The FTC Staff Commentary on the FDCPA illustrates the definition of “debt” with the example of an NSF check used to purchase goods or services intended for household or personal use. The Commission itself has adopted this position in a ruling denying a petition to quash a subpoena served on a debt collector specializing in dishonored checks. The FTC has also brought several civil actions against debt collectors based on attempts to collect dishonored checks.
However, debt collectors persistently claim that a dishonored check is not a “debt,” and occasional cases have agreed with them. Their basic argument is that the definition of “credit” in the Truth in Lending Act (“TILA”) should be used to limit the definition of “debt” in the FDCPA. They rely on Zimmerman v. HBO Affiliate Group, for this proposition. In Zimmerman, the Third Circuit affirmed dismissal of plaintiff’s FDCPA complaint based on a demand letter sent to persons who allegedly intercepted cable signals. The court found that the illegal interception of signals was not a consensual “transaction” and therefore was not covered by the FDCPA’s definition of debt.
We find that the type of transaction which may give rise to a “debt” as defined in the FDCPA, is the same type of transaction as it dealt with in all other subchapters of the Consumer Credit Protection Act, i.e., one involving the offer or extension of credit to a consumer. Specifically it is a transaction in which a consumer is offered or extended to acquire “money property, insurance, or services” which are “primarily for household purposes” and to defer payment.
There was no issue as to whether issuance of a check to pay for goods or services is an FDCPA “transaction.”
The Zimmerman dicta regarding the extension of credit is wrong. While the Zimmerman court referred generally to FDCPA “transactions” as involving the same sort of circumstances as other matters regulated by the Consumer Credit Protection Act, the CCPA includes far more than just TILA and clearly encompasses consensual “transactions” that do not involve loans or credit sales. The FDCPA definition of “creditor” is clearly broader than the TILA definition, in that it includes not only someone who “offers or extends credit” but anyone to “whom a debt is owed.” For this reason, four other Courts of Appeals have disapproved the implementation of the above-quoted language in Zimmerman.
Check guaranty companies are statutory “debt collectors” because the check was in default at the time it was acquired by the guaranty company.
The statutory liability of a prior endorser on a check which is deposited or cashed and returned for insufficient funds may not be a “debt,” if there is no purchase of goods or services for consumer purposes.
RENT, CONDOMINIUM ASSESSMENTS
An issue closely analogous to the dishonored check issue is presented by attempts to collect rent and condominium assessments. There is no extension of credit in the sense of incurring an obligation and repaying it over time with interest. Nevertheless, the consumer incurs an obligation to pay money in the future as part of a consensual transaction.
In Newman v. Boehm, Pearlstein & Bright, the Seventh Circuit had no difficulty in concluding that condominium assessments were FDCPA “debts:”
By paying the purchase price and accepting title to their home, the Riters became bound by the Declaration of Covenants, Conditions, and Restrictions of their homeowners association, which required the payment of regular and special assessments imposed by the association. . . . It is therefore clear that the obligation to pay in these circumstances arose in connection with the purchase of the homes themselves, even if the timing and amount of particular assessments was yet to be determined. . . . Because the statute’s definition of a “debt” focuses on the transaction creating the obligation to pay (Bass, 111 F.3d at 1325), it would seem to make little difference under that definition that unit owners generally are required to pay their assessments first, before any goods or services are provided by the association. That would only be important if the statute required a credit obligation, which Bass says it does not. 111 F.3d at 1326. Regardless of whether the assessment or the service comes first, the obligation to pay is derived from the purchase transaction itself. The assessments at issue in this case therefore qualify as “obligations of a consumer to pay money arising out of a transaction.” 15 U.S.C. 1692a(5).
Other recent decisions reach the same conclusion.
Other claims for money pursuant to a lease are also covered. In Brown v. Budget Rent-A-Car Systems, Inc., the Eleventh Circuit held that a claim by a car rental company against a consumer renter for property damage to the rented vehicle was covered by the FDCPA, even though no extension of credit was involved:
Does a “debt” require the extension of credit? We start with the plain language of the statute. See Holly Farms Corp. v. NLRB, 517 U.S. 392 (1996). The only relevant reference to an extension of credit in the Act is in the definition of “creditor.” The Act defines “creditor” in the disjunctive. As “a general rule, the use of a disjunctive in a statute indicates alternatives and requires that those alternatives be treated separately. Hence, language in a clause following a disjunctive is considered inapplicable to the subject matter of the preceding clause.” Quindlen v. Prudential Ins. Co. of America, 482 F.2d 876, 878 (5th Cir. 1973).
The Seventh Circuit recently provided a thorough analysis of the definition of debt as used in the FDCPA. In Bass v. Stolper, Koritzinsky, Brewster & Neider, S.C., 111 F.3d 1322 (7th Cir. 1997), the parties disputed whether a dishonored check created debt that would invoke the protections of the FDCPA. The Bass court found that the payment obligation which arose from a dishonored check constitutes a debt as defined in the Act. Id. at 1325. The court commented on the broad definition of debt in the Act and reasoned that “as long as the transaction creates an obligation to pay, a debt is created.” Id. We agree with that reading of the statute. Extension of credit is not a prerequisite to the existence of a debt covered by the FDCPA. Budget’s assertion that Brown is obligated as a result of consumer transaction suffices to bring the obligation within the ambit of the FDCPA. See 15 U.S.C. 1692a(5)
It should be noted that the claim was against the renter: claims against tortfeasors who have no contractual relationship with the creditor are generally not thought to be covered by the FDCPA.
In Romea v. Heiberger & Associates, the court held that unpaid apartment rentals were a “debt,” no extension of credit being necessary under Bass. The court further held that a statutory eviction notice is subject to the Act:
Defendant argues also that the Section 711 notice was not a communication to collect a debt within the meaning of the statute. Section 1692a(11) defines “communication” as “the conveying of information regarding a debt directly or indirectly to any person through any medium. In view of the fact that the Section 711 notice demanded payment on pain of the commencement of eviction proceedings, there is no colorable argument that it does not satisfy the FDCPA’s sweeping definition of communication.
In Travieso v. Gutman, Judge Weinstein of the Eastern District of New York likewise held that apartment rent was a “debt” to which the FDCPA applied. “Rent clearly fits the definition of debt embodied in the FDCPA.” However, there are several district court decisions and a Florida appellate decision to the contrary.
A tort claim arising from an auto accident is not a “debt”. Thus, a claim for property damage to a car is a debt if asserted by a lessor’s debt collector or collection attorney against a consumer lessee, but not if asserted by the representative of an accident victim or his subrogated insurance carrier against a tortfeasor with whom he has had no contractual dealings.
Statutory liability under an Ohio statute for civil damages arising from alleged shoplifting is not a “debt” within the coverage of the FDCPA. Tort claims arising from the illegal reception of microwave television signals are also not within the definition of “debt”.
However, the fact that the law requires purchase of the goods or services that are the subject of a transaction does not mean that the transaction is not a “debt.”
DEBTS REDUCED TO JUDGMENT
Consumer debts reduced to judgment are covered by the FDCPA. However, a District of Maryland case held that a settlement agreement resolving a lawsuit brought to collect a consumer debt was not covered because the plaintiff “did not incur this obligation to receive consumer goods or services.” This is clearly wrong, since 1692a(5) does not require that the obligation be incurred to receive consumer goods or services. It defines “debt” to include “any obligation . . . 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 . . . .” Furthermore, it covers such an obligation “whether or not such obligation has been reduced to judgment.” There is no reason that a judgment resulting from a consumer contract should be covered but an equivalent settlement agreement should not be covered.
1. DEBTS EXPECTED TO BE PAID BY A THIRD PARTY
An Eastern District of Pennsylvania decision rejected a debt collector’s contention that a medical bill was not a “debt” because it should have been paid by the patient’s insurance carrier. “Mr. Adams was the party ultimately liable for retiring the debt. Whether he retires the debt with funds from his checking account or pursuant to his contract with a health insurance carrier is of no moment.”
A questionable District of Connecticut case holds that an attorney sending a notice of a mechanics’ lien to a homeowner on behalf of a subcontractor (rather than the contractor with whom the homeowner had a contractual relationship) is not a “debt collector”. The decision appears to be wrong because the debt arises argues out of a transaction (that between the consumer and the contractor) including the consumer and entered into for personal, family or household purposes.
TAXES, FINES, AND GOVERNMENTAL OBLIGATIONS
Liabilities for taxes are not considered “debts” within the FDCPA. A fine for failing to return a library book is not a debt.
In Pollice v. National Tax Funding, LP, the court held that charges for water and sewer service originally owed to a municipality and purchased by a buyer of bad debts were “debts” subject to the FDCPA, even though tax liens are not.
CHANGE IN PURPOSE OF DEBT
A questionable Northern District of Illinois decision holds that where an individual obtains a mortgage to finance purchase of his residence and later rents the property, and a debt collector sent a collection letter after he began renting it our, the transaction was for business and not personal purposes. It is on appeal.
CHILD SUPPORT OBLIGATIONS
Liabilities for child support obligations are not considered “debts” within the FDCPA.
WHO IS A “DEBT COLLECTOR” SUBJECT TO THE ACT
Generally, the FDCPA covers the activities of a “debt collector.” There is a two-part definition of “debt collector”: “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 collect or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. 15 U.S.C.
1692a(6). The creditor itself is excluded from the definition of “debt collector”, unless it uses a name which suggests that a third-party debt collector is involved in the collection process.
Also excluded from the definition of “debt collector” are the following:
Officers and employees of the creditor while collecting the debt in the creditor’s name.
Affiliates of the creditor. Section 1692a(6)(B) creates an exemption for “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.” Courts have disagreed as to whether the collector, the creditor, or both must not be principally engaged in the collection of debts.
Officers or employees of the United States or any state. Private debt collectors collecting student loans and other obligations which meet the definition of a “debt” and were originally owed to a governmental unit do not qualify for this exemption.
Bona fide non-profit debt counselors.
Persons who service debts which are not in default (e.g., services of mortgages and student loans). This exemption does not operate in favor of such entities when they acquire a loan after default. However, where a loan is restructured and the restructured loan is not in default, the fact that the loan was in default prior to being restructured does not make entities purchasing or servicing the loan FDCPA debt collectors.
“[A]ny person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity . . . is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement . . . .” The fiduciary relationship must exist for purposes other than debt collection. Thus, a receiver or trustee of a corporate creditor or the personal representative or trustee of an individual creditor are treated as if they were the original creditor. The fact that a collection attorney or agency is the agent, and therefore the fiduciary, of the creditor does not give rise to an exemption.
Persons who collect debts “originated by such persons”. An “originator” is one who played a significant role in originating the obligation.
A secured party in a commercial credit transaction involving the creditor that takes possession of the creditor’s receivables by enforcing its security interest. That is, if consumer lender ABC pledges its consumer receivables to commercial lender XYZ and XYZ, pursuant to its rights under the security agreement, directs the consumer to pay XYZ, XYZ is not a “debt collector”.
CREDITOR WHO USES NAME INDICATING
THIRD PARTY INVOLVEMENT AS DEBT COLLECTOR
Creditors may become “debt collectors” by using names in collecting their debts which falsely suggest the involvement of third party debt collectors or attorneys. The simplest situation covered by the “other name” exception of 1692a(6) is that where creditor ABC sends its debtors letters which demand payment in the name of XYZ Collection Agency, XYZ either being a totally fictitious entity or a real entity which has no significant involvement in the actual collection of ABC’s debts. On its face, such conduct makes ABC a “debt collector” under 1692a(6) and simultaneously violates the prohibition against deceptive collection practices, 1692e. Numerous pre-FDCPA cases held that this practice violated 5 of the FTC Act.
The FTC has stated that a creditor is using a name “other than [the creditor’s] own” if the creditor is using a name which on its face it “would indicate that a third person is collecting or attempting to collect [the creditor’s] debts” and no disclosure is made of the relationship between the name used in dealing with the consumer prior to default and the name used in attempting to collect after default, even if the creditor or an affiliate lawfully owns the name used to make collection.
In Maguire v. Citicorp Retail Services, Inc., the Second Circuit reversed a summary judgment for the defendant in a case where Citicorp Retail Services sent out letters under the letterhead of “Debtor Assistance” to collect private label credit card debts:
At the summary judgment stage, we can not find as a matter of law that a least sophisticated consumer would have known that the Debtor Assistance letter was from Citicorp. The letter Maguire received bore the letterhead “Debtor Assistance” creating the impression that a third party, Debtor Assistance, was collecting its debts. Citicorp had not consistently used the name Debtor Assistance from the beginning of the credit relationship so that the plaintiff could have known “at all times that [she was] dealing with the same entity.” Dickenson, 770 F. Supp. at 1127 n.5 (no FDCPA liability because store used same name from the beginning of the credit relationship). To the contrary, plaintiff had never received correspondence from Debtor Assistance, nor has she ever been contacted by someone from Debtor Assistance. Maguire testified in her deposition that she had “no clue” as to the identity of Debtor Assistance and that she did not understand that the letter she received was from Citicorp.
The prior correspondence between Citicorp and Maguire did not establish or even suggest, that Citicorp was affiliated with Debtor Assistance. Cf. Olga Button v. GTE Serv. Corp., 1996 U.S. Dist. LEXIS 16971 (W.D. Mich. 1996) (relatedness apparent from the course of communications because of stationery used, return address of the envelopes, address to which payment was to be returned, and text of correspondence). A consumer would not be aware that Debtor Assistance is a unit of Citicorp from the address on the letter because, although Debtor Assistance actually shares the same address as Citicorp, the monthly billing statements from Bradlees do not disclose Citicorp’s address. Moreover, while the phone number listed in the Debtor Assistance letter is issued to Citicorp and Citicorp pays all bills and costs associated with the phone number, the letter does not reveal those facts and a consumer would not be aware that Citicorp operates the phone lines because all phone calls are answered by personnel who identify themselves as employees of Debtor Assistance.
Further, this is not a situation where the relatedness of the two entities would be apparent from the similarity of the creditor’s and its affiliate’s name. Cf. Young v. Lehigh Corp., No. 80C4376, 1989 WL 117960, at *22 [1989 U.S. Dist. LEXIS 11525, 1989-2 Trade Cas. P 68,790] (N.D. Ill. 1989) (finding that plaintiff could not have been “duped into believing that Lehigh Corporation was not affiliated with Lehigh Country Club, Inc.”)
“[T]he scope of creditor liability under 1692a(6) goes beyond the creditor’s use of aliases or pseudonyms to instances where the creditor merely implies that a third party is collecting a debt when in fact it is the creditor that is attempting to do so.”
AFFILIATES OF CREDITORS
A number of cases address the situation where ABC incorporates a wholly-owned subsidiary, XYZ, and then has it engage in collection activities. This requires consideration of the “affiliate exemption” in 1692a(6)(B), and its relationship with the other provisions of 1692a(6).
Section 1692a(6) provides that the term “debt collector” does not include:
(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 . . . .
If the affiliate’s business consists primarily or solely of debt collection, the affiliate is subject to the FDCPA. The questions are then presented whether (i) it is deceptive for the affiliate to engage in debt collection activities without disclosure of the fact that it is an affiliate of the creditor and (ii) the creditor is liable for the affiliate’s deceptive practices.
If the affiliate’s business does not consist principally of debt collection (for example, if the affiliate services current accounts as well as those in default), the question is whether the provision in 1692a(6) that a creditor who uses the name of a third party in collecting its own debts is a debt collector is applicable to an affiliate of the creditor.
In Aubert v. American General Finance, Inc., the Seventh Circuit answered the last question in the negative. Aubert obtained a credit card from American General Financial Center. The account became delinquent. Aubert then received a letter from the “AGFC Collection Group.” AGFC Collection Group is an internal corporate division of Service Bureau of Indiana, Inc. (“SBI”). SBI and AGFC, the company that issued Aubert’s credit card, were both wholly owned subsidiaries of American General Finance, Inc. (“AGF”). SBI came within the affiliate exemption because (i) its principal business was not the collection of debts (it also performed various servicing functions for current AGFC credit card accounts) and (ii) it did not provide collection services to any non-affiliated corporate entities. The court concluded that SBI came within the affiliate exemption and that a disclosure obligation would not be superimposed on it:
SBI was collecting a debt “owed or due or asserted to be owed or due another.” Therefore, when read alone, 1692a(6)’s definition of a “debt collector” indicates that SBI’s collection activities on behalf of AGFC are covered by the Act. After defining “debt collector,” however, the statute excludes from its definition 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. 15 U.S.C. 1692a(6)(B). Thus, a corporate affiliate is excluded from the Act’s coverage so long as it satisfies two conditions: (1) the affiliate collects debts only for entities with which it is affiliated or related; and (2) the principal business of the affiliate is not debt collection. [citations] As we indicated above, Aubert does not dispute that SBI, AGFC’s corporate affiliate, satisfies both of these conditions.
In support of his claim against SBI, Aubert does not argue that the language of 1692a(6)(B) compels a contrary reading. Instead, he argues that a “plain meaning” interpretation of the affiliate exclusion would create a loophole that is inconsistent with the intent and purposes of the Act: While a creditor that collects its own debts under “any name other than [its] own” is considered a “debt collector” under 1692a(6), our reading of 1692a(6)(B) enables an affiliate of that creditor to collect debts under any name that it chooses, so long as the affiliate otherwise satisfies the conditions required for exclusion from the Act. Therefore, an affiliate could collect debts under an assumed name without regard for protecting corporate goodwill. Aubert argues that this loophole enables creditors, acting through their affiliates, to engage in the same abusive practices that Congress intended to eliminate by enacting the FDCPA. To avoid the loophole, Aubert asks us to read an additional condition into 1692a(6)(B): that corporate affiliates must collect debts in the name of the creditor.
While Aubert raises a strong policy argument in support of his position, our role, when the language of a statute is plain, is to enforce that statute according to its terms. [citation] Legislation is frequently the product of compromises that are not readily apparent to the judiciary. Therefore, “invocation of the ‘plain purpose’ of legislation at the expense of the terms of the statute itself takes no account of the processes of compromise and, in the end, prevents the effectuation of congressional intent.” [citation] As this case demonstrates, many corporations operate under names that are not readily identifiable with those of their affiliates. Yet while Congress prescribed two conditions for the exclusion of corporate affiliates under 1692a(6)(B), it did not prescribe the third condition that Aubert asks us to read into the statute. Should Congress desire to eliminate this loophole, it is, of course, free to amend the FDCPA and add conditions to the 1692a(6)(B) exclusion. We, however, do not enjoy that freedom. “We are bound by the particular rules enacted by Congress and are not free to carve out our own exceptions merely because we believe that they would best serve Congress’ policies and goals.” [citation] We therefore hold that the district court appropriately granted summary judgment in favor of SBI.
Finally, the court held that no basis had been shown for disregarding the corporate formalities of the three defendants and holding them jointly responsible under the FDCPA because they engaged in a single economic enterprise.
Similarly, in Harrison v. NBD, Inc., the court held that a parent corporation that had a subsidiary collect its debts was not subject to the FDCPA unless it controlled the debt collector’s activities:
ICS is the entity which extended the credit to the plaintiff and on whose behalf NBD attempted to collect the debt. Although a creditor is generally not covered by the FDCPA, the plaintiff reasons that ICS is subject to the FDCPA because it attempted to collect the debt under a different name, NBD, indicating that a third party was collecting the debt. The corporate affiliation between ICS and NBD is not disclosed in the letter. Therefore, the plaintiff maintains that ICS is a “debt collector” subject to the FDCPA. The court finds this argument unpersuasive.
In cases where a creditor collected its own debts by using a different name, thus implying that a third party was the debt collector, the creditor controlled almost all aspects of debt collection, or used an alias . . . .
The plaintiff alleges that NBD and ICS are subsidiaries of NEC. NBD and ICS are two distinct entities. Nowhere in the plaintiff’s amended complaint is it alleged that the two corporations are, in reality, one single economic entity or that ICS controls NBD’s collection process. The alleged “approval” by ICS of NBD’s collection practices is insufficient as a matter of law, to convert ICS’ status as creditor to that of “debt collector.”
On the other hand, in order to prevent evasion of the law, the Federal Trade Commission and other courts have applied the “other name” proviso 1692a(6) to more complex situations where a creditor uses, or authorizes the use of, a name other than the one under which the creditor dealt with the consumer, and which is likely to lead the consumer to believe that a third party is attempting to collect the debt.
The FTC Staff Commentary expressly imposes this standard on “affiliates” of the creditor. The FTC Official Staff Commentary to the FDCPA, 53 Fed.Reg. 50097, 50102, states:
1. APPLICATION OF DEFINITION TO CREDITOR USING ANOTHER NAME
Creditors are generally excluded from the definition of “debt collector” to the extent that they collect their own debts in their own name. However the term specifically applies to “any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is” involved in the collection.
A creditor is a debt collector for purposes of this act if:
o He uses a name other than his own to collect his debts, including a fictitious name.
o His salaried attorney employees who collect debts use stationery that indicated that attorneys are employed by someone other than the creditor or are independent or separate from the creditor [the same should apply to salaried nonattorney employees, as herein]. . . .
o The creditor’s collection division or related corporate collector is not clearly designated as being affiliated with the creditor; however, the creditor is not a debt collector if the creditor’s correspondence is clearly labeled as being from the “collection unit of the (creditor’s name),” since the creditor is not using a “name other than his own” in that instance. (Emphasis added.)
Some courts have similarly indicated, sometimes relying on 15 U.S.C. 1692j, that all of the 1692a(6) exceptions for persons associated with creditors and for services should be construed as subject to the restriction that there can be no use of a name which conveys the false impression that an independent third-party debt collector is involved or which dissociates the name used in dealing with the consumer prior to default with the name used in making collections.
An FTC opinion letter of Sept. 19, 1985 discusses a situation in which XYZ and ABC were two entities under common ownership, XYZ handled the collection of ABC’s delinquent debts, XYZ’s principal business was not debt collection, and XYZ failed to disclose its relationship with ABC in effecting collections. The FTC stated that these facts would result in an FDCPA violation:
[T]he [affiliate] exclusion does not necessarily apply if a creditor “in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is attempting to collect such debts.” Strictly speaking, this provision does not make XYZ subject to the Act because XYZ is not the creditor. However, because the collection activity would assumably be conducted under the XYZ name, its debt collection activities may subject the creditor, ABC Corporation, to the Act. For example, if, as your letter suggests (and is necessary for XYZ to come within the 803(6)(B) [1692a(6)(B)] exception), XYZ is not fully independent of ABC Corporation but uses a name which conveys the impression that it is independent, the use of such name in collecting ABC Corporation’s debts would (a) bring ABC Corporation within the scope of the Act and (2) violate the Act’s Section 807(10) [1692e(10)] and 807(14) [1692e(14)]. [f.n.: Section 807(10) prohibits the use of false representations and deceptive collection means when collecting debts. Section 807(14) prohibits the use of any name other than the true name of the collector when the collector is engaged in collection activities.] The Commission staff has stated that it would generally be a violation of 807(10) for a creditor to use a controlled entity to collect its own debts under a name that conveys the impression that a third party is collecting the debts.
Under the circumstances outlined in your letter, and in view of the ownership overlap and on-going business connections, it appears that ABC Corporation could not successfully maintain that XYZ was an independent collection entity at the same time it sought 803(6)(B) exemption. . . .
In Grammatico v. Sterling, Inc., Sterling owned a jewelry store, Kay. Sterling collected Kay’s accounts using the name “Sterling,” without disclosure of any relationship between Sterling and Kay. Sterling claimed that it came within the “affiliated creditor” exemption, 1692a(6)(B). The court held that the various provisions of the FDCPA had to be read together and in light of the statutory purpose, and that the FDCPA applied where company A collected debts for related company B, without disclosure of the relationship, and under circumstances where a consumer would believe that a third party was collecting the debt. “[I]t’s the impact on the consumer, not the technical corporate realities of the situation, which govern the application of the second sentence.” Neither the “own name” language in 1692a(6) nor the “affiliated creditor” exemption permitted such deception to be practiced on the consumer.
Likewise, in Little v. World Financial Network, Inc., a corporate affiliate was held to be a debt collector because a debt to Lane Bryant was being collected by World Financial without disclosure of the corporate relationship between the two. Similarly, in Vernon v. BWS Credit Services, Inc., Beneficial had its debt collected by wholly-owned subsidiary, BWS, which did not disclose relationship with Beneficial; the court found the FDCPA applicable.
Also instructive is Britton v. Weiss, Britton received a collection letter purporting to emanate from an independent law office of Weiss. Weiss was actually employed by the creditor, New York Telephone. While employees of creditors, like affiliates of the creditor, are normally not “debt collectors,” the letter conveyed the false impression that it came from an independent law office:
Plaintiff claims here that the March 6, 1988 letter from defendant was deceptive, that defendant clearly represented himself as an independent attorney not collecting debts in the name of the creditor, and that defendant is therefore covered by the terms of the FDCPA. Plaintiff points out that the letter was not written on NYT stationery which bears the well-known “blue bell” logo. While the letter does refer to New York Telephone in the street address, it is printed in small, lower case type. On the other hand, plaintiff states, the designation “attorney” below defendant’s signature is in upper-case letters. Indeed, as plaintiff asserts, it might appear to a debtor that defendant was an independent attorney who had offices in a New York Telephone building, since there is no other representation that he is an employee or otherwise affiliated with the telephone company. The letter, plaintiff maintains, was an attempt to deceive the plaintiff into believing that this was not merely a communication from the collection department of NYT, but a more serious step in the collection process: the intervention of a private attorney.
The court, citing the FTC materials referred to above, agreed that the letter conveyed the false impression that it came from an independent attorney:
A plain reading of the March 6, 1988 letter from defendant to plaintiff is indicative of defendant’s intent to deceive plaintiff into believing he was an independent attorney. The letter is not written on stationery bearing the logo of NYT. Defendant is identified at the bottom of the letter simply as an “attorney,” and he in no way indicates that he is an employee of NYT. Several passages in the letter indicate that defendant intends the plaintiff to believe he is acting on his own, and not on behalf of NYT: “Your former telephone account has been referred to me for collection”; “I am writing to permit you to pay this debt at a reasonable rate per month”; “All payments must be made directly to my office”; “So long as you abide by the above terms and conditions, I shall take no further action”; “However, should you fail to make any monthly payment, I shall immediately commence a lawsuit against you for the recovery of the full balance. . . .” While the words “New York Telephone” appear in small print, it is clear that the “least sophisticated consumer” could believe that the account was being handled by an independent collection agency, with all the attendant serious consequences for the consumer.
On the other hand, a court held that a creditor which consistently used its assumed business name in dealing with customers, rather than its incorporated name, did not thereby become a “debt collector,” and that corporate affiliates with similar names could take advantage of the “affiliate” exception.
Where, however the “debt collector,” although separately licensed and incorporated, is “dominated” by the creditor, there is a violation.
Finally, there is no reason that an affiliate of a creditor cannot be liable under 1692j if the provisions of that section are satisfied. Section 1692j is not dependent on meeting the definition of “debt collector”. Indeed, “Courts have found that both creditor-defendants and the ‘flat-rater’ who furnishes the collection letters may be liable for violations of 1692j.”
WHAT CONSTITUTES “USE” OF THIRD PARTY’S NAME
Several decisions reach opposite conclusions as to whether a creditor which causes letters to be sent on the letterhead of an attorney or collection agency “uses” the name of the attorney or agency. In Villareal v. Snow, the court answered the question in the negative where the letters were sent out by the attorney, even though the attorney did not have any of the contract documents or statements of account necessary to determine whether the debt was owed, was paid on a per-letter basis, and did not exercise any professional judgment with respect to the debt. In Fratto v. Citibank (South Dakota), N.A., the court held that the question was one for the jury, where the letters were placed in the mail by a third party functioning essentially as a mailing service. In both cases, the principal purpose of the letters was to induce the debtor to telephone the creditor’s in-house collection department.
Logically, if the actual sender of the letter does not act as an attorney or collection agency, and the purpose of the communication is to induce contact with or payment to the creditor, the creditor is “using” the name of the third party in the ordinary dictionary meaning of “use”, making the creditor a statutory “debt collector” under 1692a(6). The intended distinction is that between contracting for the professional services of a third party and borrowing a name to make one’s own collection efforts more effective.
In Sokolski v. Trans Union Corp., the court held that where Trans Union merely sent letters to a list of debtors furnished by the creditor and provided no meaningful debt collection services, it violated the FDCPA:
. . . While it is true that Bank One identifies itself in the body of the June 15 Letter as the destination for the 800 telephone call, the letter conveys the impression that Bank One is using Trans Union as a collection agency. Trans Union’s activities, however, are limited to the furnishing of collection letters. Trans Union does not received the files of the debtors and any correspondence received by Trans Union is sent directly to Bank One. Trans Union has no authority to negotiate collection of debts and is not paid a percentage of debts collected. Instead, Trans Union receives a flat fee based upon the number of letters sent. These circumstances fall squarely into the definition of flat rating as described by Congress.
This case falls in sharp contrast with cases where courts have refused to find that a creditor is debt collector. In Scrimpsher v. Wegmans Food Markets, Inc., 17 B.R. 999 (N.D.N.Y 1982), for example, in addition to sending dunning letters, the collection agency offered a “complete range of collection services,” including direct contract with debtors, the location of debtor assets and referrals to collection attorneys. Scrimpsher, 17 B.R. at 1007-08. Similarly, in Epps v. Etan Industries Inc., 1998 U.S. Dist. LEXIS 19120, 1998 WL 851488 at *2-4 (N.D.Ill. December 1, 1998) no flat rating arrangement was found where the collection agencies activities included active communication and negotiation with debtors.
Here, the activities of Trans Union never went beyond coordinating the mailing of letters and forwarding responses to Bank One. This
arrangement allowed Bank One to be involved in the collection of its own debts while also appearing to use the services of a collection agency. Under these circumstance, Bank One is properly held liable as a debt collector under 15 U.S.C. 1692a(6).
On the other hand, Epps v. Etan Industries Inc., no flat rating arrangement was found where the collection agencies’ activities included active communication and negotiation with debtors.
The undisputed evidence demonstrates that CPA drafted and mailed the collection letters, consulted with Blockbuster regarding debtor payment, was available to field inquiries from debtors, and recommended a course of action for Blockbuster with regard to stubborn debtors. . . . [T]he facts in the instant case demonstrate that CPA performed traditional debt collection services for Blockbuster.
In Larson v. Evanston Northwestern Healthcare Corp., the court stated
the pertinent considerations as follows:
Evidence that indicates that the collection agency’s participation is so minimal that the creditor should be deemed the actual debt collector, and therefore subject to liability, includes: (1) the collection agency is a mere mailing service or performs only ministerial functions; (2) the letters state if the debtor does not pay, the debt “will be referred for collection”; (3) the collection agency is paid merely for sending letters rather than on the percentage of debts collected; (4) the collection agency does not receive any payments or forwards payments to creditor; (5) if the debtor fails to respond to the letter(s), the collection agency has no further contact with the debtor or the creditor decides whether to pursue collection; (6) the collection agency does not receive the files of the debtors; (7) the collection agency never discussed with the creditor the collection process or what steps should be taken with certain debtors; (8) the collection agency cannot initiate phone calls to debtors; (9) any correspondence received by the collection agency is forwarded to the creditor; (10) the collection agency has no authority to negotiate collection of debts; (11) the letters do not state the collection agency’s address or phone number; (12) the letter directs questions or payments to the creditor; and (13) the creditor has substantial control over the content of the letters. . . .
On the other hand, evidence that indicates that a creditor is not acting as a debt collector includes: (1) the collection agency provides traditional debt collection services for the creditor such as direct contact with debtors, locating debtors’ assets, and referrals to collection attorneys; (2) accounts remain with collection agency if debtor does not pay after receipt of a letter; (3) the collection agency has authority to decide to pursue debts that remain unpaid after letters are sent; (4) the collection agency provides follow-up services; (5) the creditor pays only for successful collection efforts; (6) the creditor exercises only limited control over the collection agency; (7) the collection agency retains information about the debtors; (8) the letters state collection agency’s telephone number or address; (9) the collection agency drafts the letters; (10) the collection agency collects debts for others; (11) the collection agency answers debtors’ inquiries; and (12) the collection agency recommends how to pursue stubborn debtors.
Decisions in this area tend to be very fact-specific.
PURCHASERS OF LOAN PORTFOLIOS
INCLUDING DEFAULTED DEBTS
Recently, it has become common for banks, credit card companies and other creditors to sell their delinquent debts to companies which specialize in the purchase and liquidation of bad debts.
A financial institution which purchases delinquent debts is a “debt collector” within the meaning of the FDCPA with respect to the delinquent debts.
“The legislative history of section 1692a(6) [which defines ‘debt collector’] indicates conclusively that a debt collector does not include . . . an assignee of a debt, as long as the debt was not in default at the time it was assigned.” Conversely, the assignee of a debt which is in default at the time of the assignment is a “debt collector,” if the assignee’s principal purpose is the collection of debts, or the assignee regularly engages in the collection of debts. “For instance, a mortgage servicing company is not considered a debt collector when it acquires loans originated by others and not in default at the time acquired. However, to the extent the mortgage servicing company receives delinquent accounts for collection it is a debt collector with respect to those accounts.”
Under this test, a company which acquires a block of receivables is a “debt collector” with respect to those receivables in default at the time of acquisition. The leading case is Kimber v. Federal Financial Corp., where the purchaser of credit card receivables from W.T. Grant, which had gone bankrupt, was held to be a “debt collector” with respect to those receivables which were delinquent at the time they were acquired. The court stated:
The first part of 1692a(4) defined the universe of creditors as either those who originate a debt or those to whom a debt is owed; in either case, the creditors are not collecting the debts for others. The second part of 1692a(4), the assignee exception, then purports to exclude from this universe those persons who collect assigned or transferred debts that are already in default when assigned or transferred. To say that this exception applies only to those who collect debts for others would be to render the exception superfluous and meaningless; those who collect debts for others are not in the original definitional universe, and there is therefore no need to exclude them. Rather, the excluding factors in the exception are that the debts are the result of an assignment or transfer and that the debts were already in default at the time of assignment or transfer. With the phrase `for another’ at the end of the exception, Congress merely intended that the debts should have originally belonged to another and that the creditor was therefore in effect a third-party or independent creditor.
Similarly, in Cirkot v. Diversified Systems, the Connecticut District Court held that an entity which attempted to collect delinquent debts in loan portfolios acquired (through the FDIC) from defunct banks is a “debt collector” covered by the FDCPA with respect to the delinquent debts.
The Federal Trade Commission has expressed agreement that under the current language of the FDCPA the test of whether an assignee is a “debt collector” is whether the debt was assertedly in default at the time of its acquisition. In late 1993 the FTC proposed amending the FDCPA so that whether an assignee is a “debt collector” “will depend upon the nature of the overall business conducted by the party to be exempted rather than the status of individual obligations when the party obtained them.” However, the proposal was not adopted, and the test of whether an assignee is a “debt collector” subject to the FDCPA remains “the status of individual obligations when the party obtained them.” “Banks are not debt collectors if they service debts that they originated or debts that were not in default when obtained by the bank. However, if a bank services a loan portfolio, it is a debt collector for those loans in the portfolio that it did not originate and which were in default when obtained.”
The successor in interest to a creditor’s business or line of business, openly identified as such, has been held not to be a “debt collector.”
LAWYERS AS “DEBT COLLECTORS”
Lawyers were originally excluded from the definition of “debt collector.” In 1986, Congress removed the attorney exemption. Now, the “FDCPA does apply to a lawyer . . . with a general practice including a minor but regular practice in debt collection.” The legislative history of the amendment states that collection attorneys were not being effectively policed by the legal profession and courts, and that the removal of the exemption was necessary to “put a stop to the abusive and harassing tactics of attorney debt collectors.”
In Heintz v. Jenkins, the United States Supreme Court held that litigation conduct of attorneys in collecting consumer debts is not exempt from the FDCPA, rejecting the arguments of the collection bar to the contrary. Unlawful conduct by collection attorneys in court proceedings is now covered. However, some judges are nevertheless still reluctant to find violations based on the contents of pleadings.
The amount of collection activity necessary to make a lawyer a “debt collector” — one who “regularly” collects consumer debts — is minimal. A law firm’s debt collection work which amounted to less than 4% of its total business brought it within the definition. “While the ratio of debt collection to other efforts may be small, the actual volume is sufficient to bring defendant under the Act’s definition of ‘debt collector.'” An attorney who represented four collection agencies, filed over 150 collection suits in a two-year period, and sent one particular collection letter over 125 times in a 14-month period was a debt collector even though debt collection was merely incidental to his primary law practice. Another decision holds that sending 60 collection letters during a period of several weeks is sufficient. On the other hand, an attorney who collected less than 20 consumer debts in a 10-year period was not a debt collector.
In two questionable decisions, courts held that a nascent collection lawyer who sent out about two dozen or three dozen letters at one time was not engaged in regular debt collection.
A lawyer should be classified as a “debt collector” if either a volume threshold or a percentage-of-time threshold is met, or if the lawyer holds himself out as engaging in consumer debt collection. A volume threshold is necessary because a law firm that handles a modest number of consumer collection matters as part of providing a full range of services to its clients should be required to comply with the FDCPA. One court has held that “It is the volume of the attorney’s debt collection efforts that is dispositive, not the percentage such efforts amount to in the attorney’s practice.” The Fifth Circuit has held that a law firm that sent out 600 demand letters was a “debt collector” notwithstanding the fact that only a small fraction of its time was spent in that activity.
A percentage threshold and a “holding out” test are also necessary because the FDCPA should apply to (i) a lawyer with a nascent collection practice and (ii) a lawyer who attempts to obtain collection business, even if he is not successful in obtaining very much of it.
Several recent decisions held that companies which provide debt collectors with the service of generating and mailing large numbers of form letters, but do not participate in the composition of the letters and are not compensated based on the amounts received, are not debt collectors. A related decision held that Western Union is not a “debt collector” where all it does is transmit a collection message.
CREDITORS THAT USE MASS MAILERS
It should follow from the last point that where a creditor hires a company that merely mails letters without further collection activity, or otherwise engages in conduct not sufficient to make it a debt collector, and the name of the mailer or another third party is used on the mailings, the creditor is both (a) making itself a debt collector under the 1692a(6) proviso and (b) engaging in deceptive collection efforts in violation of 1692e. See II.B.3, supra.
OTHER “DEBT COLLECTOR” ISSUES
The Ninth Circuit has held that Western Union could be a “debt collector” as a result of furnishing its “Automated Voice Telegram” service:
As the company’s advertisements acknowledge, the AVT service was “specially developed for the credit and collections industry.” The dual role of the service is to 1) retrieve unavailable telephone numbers for creditors and debt collection agencies; and 2) to catalyze debt collection activity through telegrams bearing the Western Union name. As noted above, Western Union’s advertisements state that its “revolutionary new collections service” will “stimulate recoveries dramatically.”
Western Union contends that, in requiring telegram recipients to release their telephone numbers, it is merely “confirming” the numbers in compliance with the FCC-approved tariff governing the AVT service. We find this argument to be disingenuous. As appellant notes, “one cannot ‘confirm’ what one does not know.” In the case at bar, the parties have stipulated that neither Western Union nor DCS knew Appellant’s telephone number prior to receiving his response to the telegram. To confirm is to corroborate, and one cannot corroborate a confirmation process is that the number reported verbally by Appellant matched the number on Western Union’s caller ID screen. This does not confirm the identity of the caller, but merely shows that the caller has candidly reported the from which he telephoned. Because obtaining the telephone number does not serve to identify the calling party, there is no essential reason for requiring disclosure of the number. The chief purpose of the alleged “confirmation” process is to obtain unlisted or otherwise unavailable telephone numbers which Western Union then turns over to creditors and debt collection agencies.
Check guaranty agencies, which purchase dishonored checks from merchants and seek to collect them from consumers, are “debt collectors.”
The franchisor of a check collection company had such right of control over its franchisee as to make the franchisee its agent with regard to the franchisee’s acts so as to subject the franchisor to coverage of the FDCPA.
Repossession agencies are not debt collectors within the FDCPA unless they perform common collection services, such as sending dunning letters, making telephone calls, etc. The fact that the repossessed property is sold and applied to the debt is not enough. An unusual Seventh Circuit decision holds that the imposition of a modest fee ($25) by a repossessor does not violate the FDCPA.
WHAT IS A “COMMUNICATION”
Certain substantive prohibitions of the FDCPA apply to “communications.” A “communication” is defined as “the conveying of information regarding a debt directly or indirectly to any person through any medium.” 15 U.S.C. 1692a(2). Usually this takes the form of dunning letters or telephone calls. However, the term is broadly and literally construed to encompass other forms of conveying information as well.
WHO IS ENTITLED TO SUE
The FDCPA applies to “consumer” debts, and certain substantive provisions, e.g., 1692c, only protect “consumers.” A “consumer” is “any natural person obligated or allegedly obligated to pay any debt.” 15 U.S.C. 1692a(3). The consumer’s executrix has standing to bring an FDCPA action.
It should be noted that certain substantive protections of the FDCPA are not limited to “consumers,” e.g., 1692e. Persons who do not in fact owe money but who are subjected to improper practices by debt collectors are entitled to the protection of the FDCPA.
LEAST SOPHISTICATED OR
UNSOPHISTICATED CONSUMER STANDARD
Most courts have held that whether a communication or other conduct violates the FDCPA is to be determined by analyzing it from the perspective of the “least sophisticated debtor.” “The basic purpose of the least-sophisticated-consumer standard is to ensure that the FDCPA protects all consumers, the gullible as well as the shrewd.”
The Seventh Circuit has held that a violation should be determined from the perspective of the “unsophisticated consumer.” Since the “least sophisticated consumer” has never been interpreted to impose liability for bizarre or idiosyncratic interpretations of collection demands. It does not appear that the difference in language represents a significant difference in substance. This was confirmed by a later Seventh Circuit decision, Avila v. Rubin, which held:
We reiterate our standard today, but we don’t want to be involved in the splitting of split hairs. Anyway it’s viewed, the standard is low, close to the bottom of the sophistication meter. * * *
Gammon does not significantly change the substance of the “least sophisticated consumer” standard as it had been routinely applied by courts. Instead, Gammon concluded that the term “unsophisticated consumer” is a simpler and less confusing formulation of a standard designed to protect those of below-average sophistication or intelligence. As a result, the court stated “we will use the term, ‘unsophisticated,’ instead of the phrase, ‘least sophisticated,’ to describe the hypothetical consumer whose reasonable perceptions will be used to determine if collection messages are deceptive or misleading.” Gammon, 27 F.3d at 1257. The new terminology reconciles the former standard’s literal meaning with its application. Id. As Avila correctly observes, the unsophisticated consumer standard is a distinction without much of a practical difference in application.
A district court in the Seventh Court has described the standard as follows:
The Seventh Circuit evaluates communications from debt collectors “through the eyes of an unsophisticated consumer.” Jang v. A.M. Miller & Assocs., 122 F.3d 480, 483-84 (7th Cir. 1997); see Avila v. Rubin, 84 F.3d 222, 226 (7th Cir. 1996). The unsophisticated consumer is a “hypothetical consumer whose reasonable perceptions will be used to determine if collection messages are deceptive or misleading.” Gammon v. GC Serv. Ltd. Partnership, 27 F.3d 1254, 1257 (7th Cir. 1994). This presumes a level of sophistication meter,” Avila 84 F.3d at 226, and “protects the consumer who is uninformed, naive, or trusting,” Jang, 122 F.3d at 483-84 (quoting Gammon, 27 F.3d at 1257). Still, the standard “admits an objective element of reasonableness,” which “protects debt collectors from liability for unrealistic or peculiar interpretations of collection letters.” Id. (citation and internal quotations omitted).
The Fifth Circuit, perceiving no substantial difference between the two standards, has declined to select between them.
Avila v. Rubin also rejected a defense contention that it is necessary to prove, by direct testimony or survey evidence, that someone was actually misled by a collection notice:
We also think the defendants’ reliance on false advertising cases from trademark law is unavailing here. Section 43(a)(2) of the Lanham Act prohibits statements that are (1) literally false and (2) statements that, while literally not false or ambiguous, convey a false impression or are misleading in context. See, Abbott Laboratories v. Mead Johnson & Co., 971 F.2d 6, 13 (7th Cir. 1992). The general rule is that if a statement is literally false, the court may grant relief without reference to the reaction of buyers or consumers of the product. On the other hand, if a statement is not literally false, the court may find that it is impliedly misleading only if presented with evidence of actual consumer deception. Id. at 14.
Avila claims Van Ru contradicted the validation notice and that Rubin both contradicted the validation notice and improperly sent attorney form letters. These claims resemble a literally false statement more than an ambiguous but potentially misleading statement. Just as the analysis involved in evaluating a literally false statement turns on whether the statement is true or false, the language in the collection letters either contradicts the validation notice or it does not.
Under either the “least sophisticated” or “unsophisticated” consumer standard, a collection communication which can plausibly be read in two or more ways, at least one of which is misleading, violates the law.
VALIDATION OR VERIFICATION NOTICE
One of the most important rights conferred by the FDCPA is the debtor’s right to “validation” or “verification” of a debt under 1692g. “This provision will eliminate the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid.” Under 15 U.S.C. 1692g:
(a) Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing —
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
15 U.S.C. 1692g(a). These warnings are commonly referred to as “civil Miranda warnings” by debt collectors.
It is sufficient that the collector send the notice; nonreceipt does not amount to a violation if it was sent.
Section 1692g(b) then provides that if the consumer disputes the debt in writing, the collector must cease further collection efforts until the validation procedure is complied with:
(b) If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) of this section that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.
Although the notice literally requires the debt collector to provide validation information, the Seventh Circuit has held that the debt collector does not violate the statute if it ceases all further collection activities without providing the information.
The Fourth Circuit has held that “verification of a debt involves nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed; the debt collector is not required to keep detailed files of the alleged debt.”
RELATIONSHIP WITH 1692e(8)
Section 1692g is related to 1692e(8). Under 1692e(8), if a consumer disputes a debt, either orally or in writing the debt collector cannot report it as undisputed to a credit bureau. Thus, if the consumer orally disputes the debt, the debt collector cannot assume that the debt is valid or report it as undisputed to a credit bureau, but need not provide validation information to the debtor.
Under 1692g, is not enough for a debt collector to merely include the notice somewhere on the collection letter. The notice must be large and prominent enough to be noticed and easily read. The validation notice may not be either “overshadowed” or contradicted by other language or material in the original or subsequent collection letters. “A notice is overshadowing or contradictory if it would make the least sophisticated consumer uncertain as to her rights.”
The Seventh Circuit has held that demands for “immediate” or “urgent” payment overshadow and contradict the 1692g notice unless a full explanation of the relationship between the demand and the debtor’s validation rights. In Chauncey v. JDR Recovery Corp., the Seventh Circuit held that a letter insisting that the collector receive a check within 30 days in one paragraph (a demand which would require the debtor to transmit the check in less than 30 days) followed by the 1692g notice in the next, and concluding with a demand for a “prompt response” to avoid “further collection activities” violated 1692g. The text of the letter was as follows:
Dear Carl P. Chauncey,
Please be advised that we have been requested by [Bridgestone/ Firestone] to assist them in the collection of the amounts due set forth above. Unless we receive a check or money order for the balance, in full, within thirty (30) days from receipt of this letter, a decision to pursue other avenues to collect the amount due will be made.
Unless you notify this office within thirty (30) days after receiving this notice that you dispute the validity of this debt, or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within thirty (30) days from receiving this notice that you dispute the debt or any portion of it, this office will obtain verification of the debt or obtain a copy of the judgment and mail you a copy of such judgment or verification. If you request this office in writing within thirty (30) days after receiving this notice, this office will provide you with the name and address of the original creditor if different from the current creditor.
This is an attempt to collect on this debt. Any information obtained will be used for that purpose.
You may contact Ms. Mackenzie at (800) 793-3369 if you have any questions or if you would like to discuss this matter further.
Please include the above JDR number on the outside of your remittance envelope to insure proper credit. We trust your prompt response will make any further collection activities unnecessary. In the event we do not hear from you within the next thirty (30) days, further collection activities will be pursued to the extent permitted by law.
The Court of Appeals agreed that “the thirty-day payment requirement set out in the [first paragraph of the] collection letter contradicts the mandatory validation notice disclosures allowing thirty days to dispute the debt.” It explained:
The statement in the first paragraph of defendant’s letter — “Unless we receive a check or money order for the balance, in full, within thirty (30) days from receipt of this letter, a decision to pursue other avenues to collect the amount due will be made” — contradicts the language in the letter explaining the plaintiff’s validation rights under the FDCPA, which allows plaintiff 30 days in which to dispute the debt and request verification. We believe that the contradictions in the letter, as in Avila, would leave an unsophisticated consumer confused as to what his rights are and therefore violate the FDCPA.
Defendant argues that the letter contains no contradiction because plaintiff is given the same amount of time to pay as to contest the debt (i.e., “within thirty (30) days”). But the letter required that plaintiff’s payment be received within the 30-day period, thus requiring plaintiff to mail the payment prior to the thirtieth day to comply. In contrast, subparagraphs (3) and (4) of 1692g(a) give the consumer thirty days after receipt of the notice to dispute the validity of a debt. It is clear that Mr. Chauncey had the full thirty days to send his notification to defendant. Nothing in Section 1692g requires, and we have found no other court decision which has required, that the debt collector must receive notice of the dispute within thirty days as defendant insists. . . .
In Bartlett v. Heibl, defendants’ letter threatened legal action within the 30-day validation period by demanding that the debtor make payment within one week or other suitable arrangements. The letter also contained a paraphrase of 1692g’s language. Even though the letter did not misstate either parties’ legal rights, the Seventh Circuit found that the letter was confusing and violated 1692g because it contained the seemingly contradictory statements that the debtor had 30 days to verify his debt and that he could also be sued in one week.
The court concluded, by way of an exemplary “safe harbor” letter, that if a debt collector threatens suit within the 30-day validation period, it should also provide the debtor with a full explanation of the relationship between the creditor’s right to sue and the debtor’s right to verification. A very similar solution was endorsed by the Second Circuit in Savino v Computer Credit, Inc..
Debt collectors using the “safe harbor” letter need to adhere to it strictly. The reference to suit within 30 days may not be used without the explanation that exercise of verification rights will halt the collection process. Also, the reference to 30 days should specify “after receipt.”
In Johnson v. Revenue Mgmt. Corp., the Seventh Circuit held that two letters could be found to violate 1692g, if they in fact increased consumer confusion. Both letters contained a paraphrase of the statutory notice. The letter to Lenora Johnson added:
If you fail to make prompt payment we will have no alternative but to proceed with collection, which may include referring this account for legal action or reporting this delinquency to the credit bureau.
Should you wish to discuss this matter, contact our office and ask for extension 772.
The letter to Brendt Wollert added:
The above account has been placed with our firm for payment in full.
Call our office immediately upon receipt of this letter. Our toll free number is 1-800-521-3236.
The Johnson court stated that survey or similar evidence may be necessary to establish that the quoted statements in fact increased consumer confusion as to their 1692g rights.
Any language suggesting that action within 30 days is necessary, may create a 1692g problem. Prior cases to the contrary may be invalid under Bartlett.
In Ozkaya v. Telecheck Services, the district court dealt with a letter which stated:
Telecheck has purchased the check referenced in this notice. As a result, we have entered your name in our NATIONAL COMPUTER FILES. Until this is resolved, we may not approve your checks or the opening of a checking account at over 90,000 merchants and banks who use Telecheck nationally.
We have assigned your file to our Recovery Department where it will be given to a professional collection agent. Please be aware that we may take reasonable steps to contact you and secure payment of the balance in full.
In order for us to update your file quickly, send a cashier’s check or money order for the Total Amount Due in the return envelope provided.
It is our intent to resolve this as quickly and as amicably as possible for all parties concerned. Any delay, or attempt to avoid this debt, may affect your ability to use checks.
The court held that the demand for “quick” payment coupled with the suggestion that the debtor’s credit could be adversely affected resulted in a valid overshadowing claim:
The Bartlett court’s generous definition of overshadowing and its willingness to direct judgment for the debtor, as well as the factual congruence between this case and Russell and Swanson, convince us to allow the claim to proceed. Telecheck’s warning that “any delay” in payment “may affect your ability to use checks” could confuse the unsophisticated consumer because it fails to explain how this comports with her thirty-day right to contest the debt. See Bartlett, 128 F.3d at 500 (explaining that creditor’s right to sue and debtor’s right to dispute the debt are “not inconsistent, but by failing to explain how they fit together the letter confuses.”). Ozkaya may well have wished to assert a defense for nonpayment — that the car repairs were not made correctly — but feared that she did not really have thirty days to dispute the debt if doing so would be seen as “a delay” or an “attempt to avoid the debt” punishable by a sudden inability to write checks. Compl. Ex. A. Telecheck compounded the confusion by urging Ozkaya to resolve the dispute “quickly” when, in fact, she had at least thirty days.
Just as in Russell and Swanson, which involved implied threats to a debtor’s credit purchasing power, Ozkaya could “readily believe” that her ability to undertake a fundamental financial transaction — writing checks — would be severely affected if she did not pay the debt with haste. In its first communication to Ozkaya, Telecheck stated that it had already entered her name into its “national computer files.” This language creates an even greater sense of urgency than the Swanson debt collector’s statement about posting the debtor’s account to its “master file” after ten days should the debtor fail to pay. Telecheck’s letter also presents a stronger case for overshadowing than the communications in Russell or Swanson because they involved implied threats (posting the collections to the agency’s file), not explicit threats to ruin the debtor’s credit. Telecheck’s language is far more direct; the letter told Ozkaya that she could be prevented from writing checks or opening a checking account “at over 90,000 merchants and banks who use Telecheck nationally . . . until this is resolved.” An unsophisticated consumer could interpret this to mean that until she pays, she will not be able to write checks — anywhere — because her name is already on some “bad check” list that has been distributed across the country. (982 F.Supp. at 583-4).
Another example of “overshadowing” is furnished by Miller v. Payco-General American Credits, Inc., where the debt collector’s “screaming headlines, bright colors and huge lettering” utilizing language “IMMEDIATE FULL PAYMENT”, “PHONE US TODAY” and “NOW”, were held to have overshadowed the 30 day validation notice. Another letter disapproved by a court stated in type several times that of the required validation language “IF THIS ACCOUNT IS PAID WITHIN THE NEXT 10 DAYS IT WILL NOT BE RECORDED IN OUR MASTER FILE AS AN UNPAID COLLECTION ITEM. A GOOD CREDIT RATING — IS YOUR MOST VALUABLE ASSET.”
In Russell v. Equifax A.R.S., the court held:
A notice is overshadowing or contradictory if it would make the least sophisticated consumer uncertain as to her rights. It is not enough for a debt collection agency simply to include the proper debt validation notice in a mailing to a consumer — Congress intended that such notice be clearly conveyed. See Swanson v. Southern Or. Credit Serv., Inc., 869 F. 2d 1222, 1225 (9th Cir. 1988) (per curiam). Here the initial February notice failed to convey the validation information effectively. We recognize there are many cunning ways to circumvent 1692g under cover of technical compliance, see Miller v. Payco-General Am. Credits, Inc., 943 F.2d 482, 485 (4th Cir. 1991), but purported compliance with the form of the statute should not be given sanction at the expense of the substance of the Act. Since the language on the front of the notice overshadowed and contradicted the language on the back of the notice, causing the validation notice to be ineffective, the February notice violated 1692g as a matter of law.
A collection letter from an attorney demanding payment within ten days upon the threat of suit was held to have contradicted the 30 day validation notice. Similarly, demands for an “immediate” response or “immediate payment” have been held to overshadow and contradict the validation notice. Confusing statements such as “if the above does not apply to you, we shall expect payment or arrangement for payment within ten (10) days from the date of this letter,” also violate the statute.
Sending a subsequent letter demanding action prior to the expiration of the validation period violates 1692g.
In a questionable decision, Ninth Circuit held that in order to give rise to a valid overshadowing claim, the action or response which the collector must demand “immediately” is payment. The court explained:
It is particularly significant that the challenged language in this matter does not require payment “immediately.” It merely requests a phone call. A demand for payment within less than the thirty-day timeframe necessarily requires the debtor to forego the statutory right to challenge the debt in writing within thirty days, or suffer the consequences. For this reason, requiring a payment that would eliminate the debt before the debtor can challenge the validity of that debt directly conflicts with the protections for debtors set forth in section 1692g. The request that the debtor telephone the collection agency does not contradict the admonition that the debtor has thirty days to contest the validity of the debt. This language simply encourages the debtor to communicate with the debt collection agency. It does not threaten or encourage the least sophisticated debtor to waive his statutory right to challenge the validity of the debt.
We are persuaded that the form and content of the additional language contained in Kaplan’s initial communication did not overshadow or contradict the validation notice. . . .
However, the Seventh Circuit held to the contrary in Johnson v. Revenue Mgmt. Corp., supra.
Even where a demand for immediate payment is required, it can be implied as well as express. A letter may overshadow if the overall effect is to convey that message. In Jenkins v. Union Corp., the court considered a letter which stated:
URGENT – THIS ACCOUNT HAS BEEN ASSIGNED TO OUR AGENCY FOR IMMEDIATE COLLECTION.
PLEASE BE ADVISED THAT WE HAVE BEEN AUTHORIZED TO PURSUE COLLECTION AND ARE COMMITTED TO MAKE WHATEVER EFFORTS ARE NECESSARY AND PROPER TO EFFECT COLLECTION.
STRONGLY RECOMMEND YOU CONTACT OUR CLIENT TO MAKE PAYMENT ARRANGEMENT.
The court found this to violate 1692g, holding:
Terrafino likewise challenges the legality of his initial dunning letter, dated August 22, 1995. although this letter does not use the words “immediate payment,” we conclude that, viewed as a whole, the letter creates an apparent and unexplained contradiction between message and the thirty-day validation rights discussed at the bottom of the letter.
The letter begins with the declaration “URGENT,” this is followed by a statement informing Terrafino that his account has been “assigned to our agency for immediate collection.” Contrary to Transworld’s assertions, the unsophisticated consumer is likely to understand “immediate collection” as an effort to extract immediate payment form him, not as a reference to the collector’s duties. While Bartlett, makes clear that a debt collector need not suspend collection efforts during the validation period, these efforts run afoul of the FDCPA if they create an unexplained contradiction that confuses the debtor. 128 F.3d at 500. The confusion in this letter is compounded by its last sentence, which “strongly recommends you contact our client to make payment arrangement.” Read together, the reference to “immediate collection” and the “strong” recommendation to contact the creditor to arrange for payment are the substantive equivalent of the request for immediate payment in Jenkins’ first letter.
A collection letter that does not expressly request immediate payment can also overshadow the validation notice by creating a confusing impression of urgency, when, in reality, the consumer has thirty days in which to decide on his course of action. See Ozkaya v. Telecheck Servs., Inc., 982 F.Supp. 578, 583-84 (N.D. Ill. 1997) (plaintiff stated valid overshadowing claim where offending letter was confusing because it “urg[ed] [plaintiff] to resolve the dispute ‘quickly’ when, in fact, she had at least thirty days.”) Terrafino’s letter begins by proclaiming that it is “URGENT”; the sense of urgency is further communicated by the “immediate collection” language and in the letter’s express request for action — a “strong” recommendation in the final paragraph that Terrafino contact the creditor to make payment arrangement. The middle paragraph sounds pressing and ominous as well: “Please be advised that we have been authorized to pursue collection and are committed to make whatever efforts are necessary and proper to effect collection.” We find that this language creates an apparent contradiction with the validation notice by creating a false sense of urgency.
Accordingly, we grant Terrafino summary judgment on his overshadowing claim premised on the language in his first letter, and deny defendants’ cross motion for summary judgment on this claim. We emphasize, however, that our decision to grant Terrafino summary judgment on this ground is based on the letter read as a whole, not on any one phrase scrutinized in isolation.
Requests that the consumer telephone the debt collector induce the consumer to waive his right to verification by failing to make the request in writing, as required. “A consumer calling the defendant would not be exercising her validation rights and would not be entitled to the statutory cessation of debt collection activities.” On the other hand, the inclusion of a settlement offer that expired shortly before the end of the validation period has been held not to violate 1692g.
The notice should specify that the debt has 30 days after receipt of the letter to dispute the debt.
Eviction notices that are sent out by a “debt collector” and demand money in less than 30 days violates the FDCPA. However, if the landlord or servicing agent sends the notice it is not a “debt collector” subject to the FDCPA.
Recent cases hold that any contradiction of the 1692g warnings is a violation, and that it is not necessary to establish a violation that the contradiction be “threatening” or visually overshadow the required notice. In other words, anything that confuses unsophisticated consumers as to their 1692g rights, is sufficient to violate 1692g.
OTHER 1692g VIOLATIONS
Where the validation notice is placed on the back of the correspondence, without a legible and reasonably prominent reference on the front, 1692g is violated. However, the enclosure of a separate 8-1/2 x 11″ validation notice in the same envelope has been found to be acceptable.
The FTC staff has stated that a debt collector may not charge for furnishing validation information. One decision held that such a charge did not violate 1692g per se, but found it unlawful under 1692f on the ground that it was not authorized by contract or law.
A debt collector violates 1692g by failing to provide its address so that the debtor can exercise his right to validate the debt. Failure to include the collector’s address violates 1692g even if the complete text of the 1692g notice is provided and nothing requires action in less than 30 days.
Directing the consumer to contact the creditor rather than the debt collector if he disputes the debt violates 1692g. Contacting the creditor does not preserve the consumer’s rights.
DEBT COLLECTION WARNING: 15 U.S.C. 1692e(11)
Effective December 30, 1996, 15 U.S.C. 1692e(11) was amended to prohibit:
The failure to disclose in the initial written communication with the consumer and, in addition, if the initial communication with the consumer is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector, except that this paragraph shall not apply to a formal pleading made in connection with a legal action.
Section 1692e(11) formerly required that the debt collector “disclose clearly in all communications made to collect a debt or to obtain information about a consumer, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.” 15 U.S.C. 1692e(11).
Prior to the enactment of the FDCPA, debt collectors would send people mail purporting to seek employment references, inviting the recipient to collect a prize, or otherwise disguising its true purpose. One enterprising pair of debt collectors operated under such names as “National Research Company,” “National Marketing Service,” “United States Credit Control Bureau,” “Claims Office,” “Bureau of Verification,” “Bureau of Reclassification,” “Reverification Office” and “Disbursements Office”. They would disseminate — at the rate of 700,000 every six months — forms with titles such as “Current Employment Records” and “Change of Address” and requesting address, employment, banking, and similar information. They also sent out “Claimants Information Questionnaires” asking the recipient to verify that he or she was the party entitled to receive unclaimed money. Other debt collectors used notices representing that the sender had correspondence or packages for delivery to a debtor; these would be sent to references used by a debtor.
In re London Credit & Discount Corp., debt collectors sent letters purporting to be connected with auditing procedures. The collectors were enjoined from “Representing, directly or by implication, that any letter, demand, inquiry or other communication originated by respondents was originated by an independent auditing or any other person, firm or corporation.”
Another such consent order was entered in In re Marjorie P. Ingram, where the collectors were enjoined from falsely “representing, directly or by implication, that the respondents are engaged in the business of auditing the accounts and records of others.” See also, Opinion of the Attorney General of the State of Arizona, 77-174, finding it improper for a collection agency to send out documents entitled “Audit Verification.”
Yet other collectors called themselves “State Credit Control Board”, “Business Research” and “Affiliated Credit Exchange,” “Manpower Classification Bureau” and “American Deposit System,” “General Forwarding System,” “National Retail Board of Trade” and “National Liquidators, Inc.”, “Retail Board of Trade,” “Allied Information Service” and “National Deposit System,” “Cavalier Reserve Fund” and “Liberty Reserve Fund,” and “National Clearance Bureau.”
Another collection agency called itself the “United States Association of Credit Bureaus.” The use of this name was held to violate 5 of the FTC Act on the ground that it was not an “association,” or a “credit bureau,” nor connected with the “United States.”
Under the original version of 1692e(11), five appellate courts held that the debt collection warning must be included in all communications, while an early decision from the Ninth Circuit held that this warning was not required in “follow up letters,” whatever that means.
The only courts to have addressed the effect of the 1996 amendment stated that it was intended to adopt Pressley and that use of the precise language is not required.
MISLEADING NOTICES OF RIGHTS
Certain states (Colorado, Massachusetts) require that additional notice of rights be furnished to consumer. These notices are sometimes (1) included in collection notices sent to other states (for the convenience of the debt collector) and (2) provided in a manner that suggests that consumers in other states do not have these rights, when they do. In Jenkins v. Union Corp., supra, the court held that such misleading notices violate the FDCPA:
Plaintiffs next take issue with the contents of — rather, omissions from — the reverse side of Transworld’s dunning letter. On the back of each letter that Transworld sent the plaintiffs are selected state collection law provisions. One paragraph under the heading “COLORADO” explains that the state’s law prohibits a debt collector from contacting the debtor at home or work if the debtor requests cessation of contact. n11 Plaintiffs claim that this notice is misleading under 15 U.S.C. 1692e, as well as unfair and unconscionable under 1692f, because it is not printed in conjunction with the FDCPA’s analogous provisions. See 15 U.S.C. 1692c(c). Printing these consumers protections only under the “Colorado” heading, plaintiffs argue, deceives the debtor into believing that only Colorado residents are entitled to end collection agency contact when, in fact, this right is extended to all consumers, regardless of their residence, under the FDCPA.
The Colorado and federal statutes differ in an important way, however. Colorado law requires collection agencies to notify Colorado consumers about these cessation rights, in writing, along with their initial collection communications. See Colorado Rev. Stat. 12-14-105(3)(c). The FDCPA, on the other hand, does not require debt collectors to disclose the analogous federal rights in any debt collection letter.
The plaintiffs retort that the Colorado statute does not require this information to be accompanied by the “Colorado” heading. They argue this heading, which appears in letters sent across the country, misleads unsophisticated consumers from other states into believing that the right to end debt collection communications belongs exclusively to Colorado residents. Unaware of their parallel federal section 1692c(c) rights, these consumers will likely continue to receive unwanted contact. The plaintiffs go on to suggest a number of alternative ways that Transworld’s letters could provide the information from both statutes.
Transworld responds that this Court should follow the ruling in Brown v. ACB Business Servs., Inc., 1996 U.S. Dist. LEXIS 11826, 1996 WL 469588, at *3 (S.D.N.Y. Aug. 16, 1996), which rejected an identical section 1692e claim challenging the omission of section 1692c disclosures from letters that printed analogous state provisions. The Brown court admitted that consumers “could be misled as to the scope of his or her rights by the state disclosures” but explained that “this court is constrained by the knowledge that Congress did not include in the FDCPA a mandatory notification provision with respect to the FDCPA itself.” Id. at *3. Finding a violation under these circumstances would “in effect write a notification requirement into the FDCPA,” exceeding the court’s judicial power. Id. We agree with Brown’s observation that any ruling on this issue should not be fashioned in a way that constructively imposes a written federal notification requirement. But, we hasten to add, ruling that Transworld must communicate that cessation rights are not limited to Colorado residents does not necessarily mean that Transworld is required print the relevant federal statutory section. In fact, we would leave the method of compliance up to Transworld.
It is within our purview to mandate that if Transworld prints state statutory provisions explaining debtors’ rights to stop contact, as it must under Colorado law, and chooses to send these letters to debtors across the country, it must do so in a way that will not confuse those debtors into believing they have no similar rights because they reside outside of Colorado. We find that Transworld failed to meet that mandate in the letters it sent to plaintiffs. The unsophisticated consumer could read the notice on the back of Transworld’s letters and be mislead to believe that only Colorado residents may demand that a debt collector cease communication. n13
n13 Simply by way of suggestion, Transworld may want to consider prefacing the state law disclosures with the following statement suggested by the Brown court: “We are required under state law to notify consumers of the following rights. This list does not contain a complete list of the rights consumers have under state and federal law.” 1996 WL 469588, at *3 n. 1.
We conclude that Transworld has violated 1692(e) by presenting information about debtors’ rights to cease collector contact in a misleading manner. Therefore, we grant summary judgment to the plaintiff on this issue, and deny it to defendants.
THREATS OF UNINTENDED, UNAUTHORIZED OR ILLEGAL ACTION
The FDCPA prohibits “the threat to take any action that cannot legally be taken or that is not intended to be taken.” 15 U.S.C. 1692e(5). Examples of violations include:
Threatening criminal prosecution or liability for multiple damages or civil penalties, when collecting bad checks. If the collector states or implies that it regularly prosecutes criminally when it does not, its communications violate 1692e(5).
Section 1692e(5) is also violated if the collector misstates the consumer’s liability for multiple damages or civil penalties, such as by implying that liability for multiple damages is absolute when the consumer has a right to tender the amount of the check prior to trial and avoid liability for multiple damages, or where a statutory notice is a precondition to liability and no such notice has been given. “Debt padding” is discussed below.
The threat to file suit or take other collection actions within a short time when the creditor has not authorized the action or the debt collector does not take the action within the period stated.
Threats of suit by an attorney not licensed within the jurisdiction or who does not in fact file suits in the jurisdiction. Courts have divided with respect to whether any threat to take collection action by a debt collector that is required to be, but is not, licensed in the jurisdiction, violates the FDCPA.
Threatening to take or taking action which constitutes the unauthorized practice of law, such as when a collection agency files suit in its own name to collect a debt when not permitted to do so under state law.
Threats to file suit in a forum where suit cannot legally be filed under 15 U.S.C. 1692i.
Threats to enforce creditor remedies which cannot be enforced at the time stated or to the extent stated. For example, a debt collector may threaten to obtain a wage garnishment or execution without disclosing that this can only be done after notice, hearing and judgment, or may threaten to garnish “all” of a consumer’s wages when the law clearly imposes limitations on the amount which may be garnished.
A debt collector which also functions as a credit reporting agency cannot threaten to disseminate credit information in a manner prohibited by the Fair Credit Reporting Act or the FDCPA (15 U.S.C. 1692c(b)) unless the debtor pays the debt.
Threats to contact employers or take other action prohibited by the FDCPA or other law, or which is not in fact taken.
Threats may be implicit as well as express. Statements that a debt will be subject to “legal review” or “will be transferred to an attorney” are implicit threats of suit. A statement by an attorney that “all necessary actions” will be taken is a threat of suit. “Because to most consumers, the relevant distinction between a collection agency and an attorney is the ability to sue, . . . the debtor would understand the disparate treatment to be the institution of suit.” A statement that action “could be” or “can be” taken is a “threat.” A statement that the debtor would be “susceptible to immediate criminal prosecution” if a check was not made good in 10 days conveyed the impression that “prosecution would follow non-payment”.
A statement that suit would be “recommended” is misleading where the collector knows suit is never filed because of the small size of the debt.
A collection letter that stated that the creditor had authorized whatever legal means were necessary to collect the debt and that referred to post-judgment attachment and garnishment implied that legal proceedings were imminent when they were not and violated 15 U.S.C. 1692e(5).
UNAUTHORIZED CHARGES: “DEBT PADDING”
In addition to “the threat to take any action that cannot legally be taken or that is not intended to be taken,” 15 U.S.C. 1692e(5), the FDCPA prohibits “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” This language has been interpreted to require either (i) an express agreement for the addition of interest or other charges to the principal amount of a debt, which agreement is lawful under applicable state and federal law, or (ii) a statute or common-law rule that permits the addition of interest or other charges to the debt even if not specifically provided for by agreement. “Under this provision, it is unconscionable for a debt collector to collect any amount in excess of the principal amount of a loan, including collection charges, unless these charges are authorized expressly by the terms of the agreement creating or evidencing the debt or unless the charges are authorized explicitly by applicable state law.”
Typical violations include the imposition of service charges for bad checks where not permitted by agreement and applicable state law, and the imposition of attorney’s fees where no contract or statute authorizes them.
Percentage attorney’s fees or collection fees are often not permitted under state law. Rather, the debtor is liable for attorney’s fees on collection agency fees completed on a “lodestar” basis.
One court held that a statement that the debtor might “also be responsible for interest and any other fees to which we are legally entitled, along with the original balance,” did not violate the FDCPA because of the qualification “to which we are legally entitled.” This decision would appear to be correct only insofar as it was legally possible to claim interest and costs. See discussion of implied threats, supra.
Filing suit on an allegedly forged instrument is not a violation.
BAD CHECK CHARGES
In Newman v. Checkrite of California, Inc., a district court made a number of significant holdings regarding the addition of “service charges” and similar fees to the face amount of dishonored checks:
“Service charges” could not be added to the amounts of dishonored checks on the basis of posted signs unless there was evidence that the check writer actually saw the sign, or that the charges otherwise actually formed part of the contract entered into with the consumer.
For such charges to be valid as incidental damages under the Uniform Commercial Code, debt collectors must establish that “the amount of their service charges is a commercially reasonable incidental damage to the merchant.” A debt collector cannot do this “by referring to its own charges to the merchant as evidence of reasonable or actual cost.”
The debt collector violated the FDCPA by describing demands for additional fees as “legal notice fees” or “legal consideration for covenant not to sue,” as such names imply that they are an authorized legal expense or an obligatory payment to avoid suit.
Where state law requires a formal demand by certified mail before statutory damages are available, it is improper to represent that the check writer is potentially liable for those damages when the demand requirement is neither complied with nor disclosed.
Under this decision, it is impermissible for a debt collector to send out mass-produced form letters demanding fees in addition to the face amount of dishonored checks unless state law authorizes the automatic addition of a fee to a dishonored check. Some states, including Illinois, authorize modest charges of this nature under specified circumstances, generally in the $20-30 range.
A Utah District Court reached the same conclusion in another case against the same defendant:
It is undisputed that DeLoney & Associates attempted to collect fees greater than $15.00 through the “covenant not to sue” practice without first having filed suit. Indeed, the very goal of the letter sent by the firm to plaintiffs was to settle their accounts short of actual litigation. The dishonored instruments statute is clear: Until a civil action is filed, fees in excess of $ 15.00 may not be charged. Therefore, the fees DeLoney & Associates attempted to collect were not permitted by Utah law and, in fact, violated Utah law.
DeLoney & Associates argues that because it could have sued plaintiffs for civil conversion or shoplifting instead of proceeding under the dishonored instruments statute, the $ 15.00 limit of Utah Code Ann. 7-15-1(2) does not apply. However, the firm’s own conduct makes clear that it was proceeding under the dishonored instruments statute, for its collection letter, sent to each plaintiff, listed a “service charge” in the amount of $ 15.00. Richard DeLoney testified in his deposition that this figure was used because it was the specific amount allowed by Utah Code Ann. 7-15-1(2). Further, to accept DeLoney & Associates’ argument would permit holders of dishonored checks to easily avoid the provisions of the dishonored instruments statute. Such a result would undermine the effectiveness of the statute and would be inconsistent with Utah Legislature’s intention that dishonored checks be governed by the specific procedures outlined in the statute.
However, a recent Second Circuit decision holds that the debt collector can justify a modest ($20) service fee by showing its own collection expenses — salaries, telephones, postage, etc. — on the theory that the expenses are “incidental damages” recoverable for breach of a contract for the sale of goods under the Uniform Commercial Code.
Article 2 of the UCC, as adopted in Connecticut, provides that “when the buyer fails to pay the price as it becomes due the seller may recover, together with any incidental damages under section 42a-2-710, the price . . . of goods accepted.” Conn. Gen. Stat. 42A-2-709. The “incidental damages” permitted under 42A-2-709 “include any commercially reasonable charges, expenses or commissions . . . otherwise resulting from the breach,” id. 42A-2-710, and may be recovered by a seller or by a “person in the position of a seller,” id. 42A-2-707. The latter includes (as the commentary advises) “a financing agency which has acquired documents . . . by discounting a draft for the seller . . . .” Conn. Gen. Stat. Ann. 42A-2-707, comment (West 1990 & Supp. 1999). More generally, a “financing agency” is defined in the UCC as one “who in the ordinary course of business . . . by arrangement with either the seller or the buyer intervenes in ordinary course to make or collect payment due or claimed under the contract for sale.” Conn. Gen. Stat. 42A-2-104.
This statute permitted Equifax to impose its service charge. Equifax, pursuant to its agreement with Richlin, authorized Richlin to accept Tuttle’s check as payment for goods; then, after Tuttle’s check was dishonored, Equifax took it from Richlin at face value. Equifax now stands in the position of Richlin vis a vis Tuttle and, accordingly, can recover commercially reasonable expenses resulting from Tuttle’s breach (his dishonored check). See id. 42A-2-104, -707, -710. Equifax’s service charge constitutes incidental damages to the extent that it offsets the collection expenses arising from the dishonored check. Equifax offered evidence to show that its collection costs, on average, are slightly in excess of $ 20 per dishonored check. It was therefore within the province of the jury to find the $ 20 service charge was commercially reasonable. See id. 42A-2-710.
The particular state bad check statute was held not to be exclusive.
FALSE REPRESENTATION THAT
COMMUNICATION IS FROM AN ATTORNEY
Another popular recent debt collection technique is to have large numbers of collection letters, with implicit or explicit threats of suit, sent under the name of an attorney. The courts have recognized that “A debt collection letter on an attorney’s letterhead conveys authority and credibility.” The clear implication of any attorney letter is a threat of suit.
Unless the attorney has in fact reviewed the debtor’s file and made a professional judgment that whatever action is threatened is appropriate, and the threatened action has been authorized by the creditor, the use of such letters is a violation of 1692e(3), which prohibits “[t]he false representation or implication that any individual is an attorney or that any communication is from an attorney.”
In Clomon v. Jackson, the Second Circuit found that the use of an attorney’s name in the letterhead and at the conclusion of the debt collector’s dunning letter, where the attorney did not review the file, violated the FDCPA. The court concluded that “there will be few, if any, cases in which a mass-produced collection letter bearing the facsimile of an attorney’s signature will comply with the restrictions imposed by 1692e.”
In Avila v. Rubin, the Seventh Circuit held that “an attorney sending dunning letters must be directly and personally involved in the mailing of the letters in order to comply with the strictures of FDCPA. This may include reviewing the file of individual debtors to determine if and when a letter should be sent or approving the sending of letters based on the recommendations of others. [citation] Given these requirements, . . . there will be few, if any, cases in which a mass-produced collection letter bearing the facsimile of an attorney’s signature will comply with the restrictions imposed by section 1692e.” The court explained:
An unsophisticated consumer, getting a letter from an “attorney,” knows the price of poker has just gone up. And that clearly is the reason why the dunning campaign escalates from the collection agency, which might not strike fear in the heart of the consumer, to the attorney, who is better positioned to get the debtor’s knees knocking.
A letter from an attorney implies that a real lawyer, acting like a lawyer usually acts, directly controlled or supervised the process through which the letter was sent. That’s the essence of the connotation that accompanies the title of “attorney.” A debt collection letter on an attorney’s letterhead conveys authority. Consumers are inclined to more quickly react to an attorney’s threat than to one coming from a debt collection agency. It is reasonable to believe that a dunning letter from an attorney threatening legal action will be more effective in collecting a debt than a letter from a collection agency. The attorney letter implies that the attorney has reached a considered, professional judgment that the debtor is delinquent and is a candidate for legal action. And the letter also implies that the attorney has some personal involvement in the decision to send the letter. Thus, if a debt collector (attorney or otherwise) wants to take advantage of the special connotation of the word “attorney” in the minds of delinquent consumer debtors to better effect collection of the debt, the debt collector should at least ensure that an attorney has become professionally involved in the debtor’s file. Any other result would sanction the wholesale licensing of an attorney’s name for commercial purposes, in derogation of professional standards:
[A] lawyer has been given certain privileges by the state. Because of these privileges, letters . . . purporting to be written by attorneys have a greater weight than those written by laymen. But such privileges are strictly personal, granted only to those who are found through personal examination to measure up to the required standards. Public policy therefore requires that whatever correspondence purports to come from a lawyer in his official capacity must be at least passed upon and approved by him. He cannot delegate this duty of approval to one who has not been given the right to exercise the functions of a lawyer.
American Bar Association, Formal Opinion 68 (1932).
Other courts have similarly held that a debt collector’s form letter which is signed by an independent attorney who has no knowledge of and has not conferred with a debt collector concerning a particular debt is an unfair collection practice. “If there has been no individualized review of a debtor’s case, a communication from that attorney is considered false and misleading for purposes of the FDCPA.”
In Nielsen v. Dickerson, a collection lawyer had his facsimile signature placed on large quantities of blank letterhead, on which his creditor-client had printed collection letters directing the recipient to contact the creditor’s internal collection department. The lawyer received a printout giving the names and addresses of the recipients and the alleged amount each owed, but did not receive contracts, account statements, or other documents necessary to form a professional conclusion that the particular debtor actually had some legal liability to the creditor. The court held that the resulting letters were not “from” an attorney. The attorney was held liable under 1692j. The creditor was deemed to be a “debt collector” under the 1692a(6) proviso covering creditors who use the names of others in collecting their own debts, and to have violated the FDCPA prohibition on deceptive collection practices.
This veneer of compliance with the FDCPA, however, is deceiving. To the reasonable unsophisticated consumer, the letters appear to be from an attorney that is aware of the facts of her case, and is preparing to zealously pursue the case. In fact, the opposite is true. The letter mailed on Dickerson’s letterhead prompts debtors to contact Household Credit by telephone or mail, not Dickerson. The letter was not created specifically for Household Credit to serve its unique purposes, but was a customizable form letter used by Dickerson before he landed Household Credit as a client.
Household Credit also does not forward Dickerson & Associates its entire file for each debtor. Rather, it only sends him the debtor’s account number, name, address, city, state, balance and amount due. In other words, Dickerson & Associates receives only the information necessary to complete the form letter that it sends to the debtors. The role of the Dickerson defendants is to check for incorrect amounts and typographical errors. They do not analyze contracts or any other information about the debtor.
The Dickerson defendants argue that by reviewing this wealth of information Dickerson is exercising his professional judgment to determine whether a collection letter is warranted under the circumstances. We disagree. The information analyzed by Dickerson is insignificant and does not contain any information that would enlighten Dickerson on the particular circumstances of the account prior to the mailing of the dunning letter to Plaintiffs. Checking for “typos” is admirable; however, it cannot be construed as an attorney exercising independent, trained legal judgment on the validity of a claim. Therefore, we believe that Dickerson did not exercise any meaningful professional judgment before issuing a collection letter on his letterhead and under his signature.
In another recent case, Stewart v. Slaughter, an attorney and his brother owned a collection agency. If letters on the agency letterhead failed to provoke payment, the debtor would be sent one on the attorney’s letterhead. The court held that this was deceptive:
The most egregious and disturbing claim of deception is that the letter falsely implies that the account has been referred to an attorney whose law practice is independent of and separated and distinct from the credit bureau, when in truth and fact the account was still being handled by CBA and its owner-manager Slaughter. Defendants argue that the letter does not imply that Slaughter is independent of CBA, and that it is irrelevant that he has no other legal clients. Defendants further argue that the Act does not require Slaughter to disclose that his law office is located in the CBA building, or that he is the majority shareholder of CBA and involved in its daily activities. They argue that because Slaughter personally reviewed each file before signing the letter, and because he did indeed intend to file suit as indicated by the subsequently filed Magistrate Court complaint, he complied with the Act’s requirements.
Leaving aside whether the type of review performed by Slaughter was adequate for him to form an actual and valid opinion as to the proper direction for the account, see Clomon, 988 F.2d at 1321-22, the letter was deceptive in another more subtle respect. The letterhead reads “Attorney At Law,” and the letter begins by stating “As attorney for the Credit Bureau of Athens, Inc., this account has been turned over to me for suit purposes.” This is a rather obvious attempt to suggest that the account was referred to an independent attorney who was fully able, and willing, to prosecute the lawsuit in an attempt to win a judgement against the debtor. Slaughter’s admitted policy of withdrawing from the case and substituting another attorney to prosecute the lawsuit should the debtor go so far to file an answer directly contradicts that intentional suggestion.
The truth of the matter is that the account had not really been “turned over” to anyone. The concept of hiring an attorney necessarily implies that the attorney is an independent third person hired to represent a client in the matter. . . . For Slaughter to attempt to get the plaintiff’s knees knocking by intentionally and falsely indicating that the account had reached an independent attorney and willing to fully prosecute a lawsuit — including going to trial if necessary — constitutes an act of deception and a clear-cut violation of the letter and spirit of the Act.
A number of collection lawyers have recently sent out letters on attorney letterhead which purport to state that the sender has not reviewed the debtor’s file. This would not appear to eliminate the deception, as it is possible the consumer will not notice the disclaimers. Furthermore, the mere sending of an attorney letter is a representation that the lawyer is acting as a lawyer:
The committee believes that before a lawyers letter goes to a debtor the file must have been turned over to the lawyer for collection. The lawyer must determine what rights the parties have and whether applicable statutory or other legal requirements have been met. The lawyer must have authority as well as responsibility to determine the legal steps to be taken and to negotiate in behalf of the client. None of these factors can exist if all the lawyer does is lend the lawyer’s name and letterhead to the client’s use.
Similarly, Texas Ethics Opinion 484 states:
When an attorney signs a debtor letter or authorizes someone under his or her direct supervision to sign such a letter, such action manifests that the attorney has exercised professional judgement that the particular letter is appropriate for the particular debtor and for a debtor’s particular account. The rules require that an attorney should review the debtor’s file and determine that the letter to be sent is appropriate for this particular debtor. A lawyer must exercise care and independent judgement to make sure that each debtor’s letter is accurate and appropriate as to the account of the debtor.
In trademark law, it is not permissible to use an established trademark coupled with a disclosure that the owner has not authorized the defendant’s product. Similarly, FTC Act 5 cases generally find disclaimers inadequate, at least where they go to the central message conveyed. If an attorney has not acted as such with respect to a debt, the use of an attorney letterhead serves no legitimate purpose other than to deceive those who do not notice on grasp the disclaimer.
A related debt collection tactic involves sending the debtor what appears to be a copy of a letter from a collection agency or a creditor to an attorney, directing that he take legal action. If the statement is untrue, such letters violate 1692e if sent by a collection agency and may violate 1692j if sent by a creditor.
IMPROVEMENT OF CREDIT
A debt collector or purchaser of bad debts cannot normally “improve” the debtor’s credit rating by refinancing a bad debt. The credit bureaus will not delete accurate information regarding the original delinquency or repossession, and the refinancing may actually harm the debtor’s credit score by showing both a new obligation and the original default. Representations to the contrary are deceptive.
FALSE REPRESENTATION OF NATURE OF COLLECTOR
Section 1692e prohibits the use of names or statements which falsely suggest affiliation with government agencies, and the representation or implication that the debt collector is part of a credit reporting agency when it is not. Specifically it prohibits “The false representation or implication that the debt collector is vouched for, bonded by, or affiliated with the United States or any State, including the use of any badge, uniform, or facsimile thereof. . . .” (1692e(1)), “The use or distribution of any written communication which simulates or is falsely represented to be a document authorized, issued, or approved by any court, official, or agency of the United States or any State, or which creates a false impression as to its source, authorization, or approval. . . .” (1692e(9)) and “the false representation or implication that a debt collector operates or is employed by a consumer reporting agency as defined by section 1681a(f) of this title.” (1692e(16))
In McKenzie v. E.A. Uffman & Assoc., Inc., defendant sent a dunning letter headed “Collections Department, Credit Bureau of Baton Rouge.” The Court of Appeals held that this was misleading when the credit bureau did not actively involve itself in the collection activities:
No one associated with the Credit Bureau supervised any of E.A. Uffman’s 23 employees or had the power to discharge or discipline them. The Credit Bureau did not compensate or provide benefits to E.A. Uffman employees. There are no shared employees. Since E.A. Uffman’s incorporation in 1989, the Credit Bureau had not referred any collection accounts to E.A. Uffman. E.A. Uffman’s place of business was in the Credit Bureau’s Building, where it leased office space from the Credit Bureau.
Clearly, E.A. Uffman does not operate a credit reporting agency. E.A. Uffman argues that it has not violated 1692e(16) because it is “employed by” the Credit Bureau as the Credit Bureau’s “Collection Department “. E.A. Uffman relies on two district court cases to support its position.
The McKenzie notice represents or implies that the debt collector is employed by a credit reporting or implies that the debt collector is employed by a credit reporting agency. In fact, the name does more than that, the name implies that the debt collector is a department within the Credit Bureau itself. Though the language of the notice refers to “this office” and “this collection agency”, neither an unsophisticated consumer” nor the “least sophisticated consumer” would discern from this language that the debt collector is actually a wholly distinct entity from the Credit Bureau.
In Gammon v. GC Services L.P., supra, a debt collector stated in collection letter that it had designed collection systems used by federal and state tax collection authorities. The Court of Appeals characterized the statement as having no conceivable purpose other than to convey the impression that the tax collection systems could in some manner be used in debt collection.
In Adams v. First Federal Credit Control, Inc., the court held that the use of the word “federal” and seal emblem improperly suggested affiliation with federal government.
Other names which have been found offensive under the FDCPA or 5 of the Federal Trade Commission Act include “United States Credit Control Bureau,” “State Credit Control Bureau,” and “United States Association of Credit Bureaus.”
OTHER FALSE OR MISLEADING REPRESENTATIONS
The FDCPA prohibits the “use of any false, deceptive, [or] misleading representation” in an attempt to collect a debt. 15 U.S.C. 1692e. This section lists sixteen such violations, including the false representation of the character, amount or legal status of the debt, the representation or implication that nonpayment will result in arrest, imprisonment, seizure, garnishment, attachment, or sale of the consumer’s property, the simulation of legal process, and use of any name other than the true name of the debt collector. The list is non-exclusive, and a debt collection practice can be “false, deceptive, or misleading” in violation of 1692e even if it does not fall within any of the subsections of 1692e.
Filing suit or sending demands to pay on obviously time-barred debts has been held to violate the FDCPA. This is a violation often committed by purchasers of bad debts.
Sending a consumer a document entitled “final demand before legal action” is illegal when it is not the final demand used by the collection agency, or when no legal action has been authorized.
A letter treating to contact neighbors or relatives when such contact is prohibited by the FDCPA violates 1692e.
Fictitious deadlines may violate the Act.
Courts have divided on whether simulated telegrams and the use of aliases by debt collectors violate the FDCPA.
A Northern District of Illinois decision holds that an attorney who verifies a collection complaint (for the purpose of obtaining a default judgment without the need for a prove up) without reviewing evidence sufficient to prove the debt at trial may violate 1692e.
An attorney letter stating that “After judgment is obtained,” garnishment or attachment would be instituted is misleading because it suggests that defense is futile.
OTHER UNFAIR PRACTICES
The FDCPA prohibits “unfair or unconscionable means to collect or attempt to collect any debt.” 15 U.S.C. 1692f. Unfair practices are defined to include “the collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” 15 U.S.C. 1692f(1). “Debt padding,” discussed above, is perhaps the most common violation of the “unfair practice” section. Other unfair practices include the solicitation and use of post-dated checks under certain circumstances, the use of collect telephone calls and telegrams, threats of illegal repossession, and the use of postcards or envelopes that reveal the collection purpose.
HARASSMENT OR ABUSE
The FDCPA prohibits “any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.” 15 U.S.C. 1692d. Among the conduct specifically defined as harassment or abuse is the threat of violence, obscene or profane language, the publication of a list of debtors, the advertisement of a debt in order to coerce payment, repeated telephone calls, and telephone calls without disclosure of the caller’s identity.
“claims under Section 1692d should be viewed from the prospective of a consumer whose circumstances make him relatively more susceptible to harassment, oppression, and abuse”.
Various obnoxious debt collection letters have been found to be harassing, oppressive, and abusive. Immediate return telephone calls by the debt collector to the consumer containing abusive comments also violate this section. However, a statement that a lawsuit might cause “embarrassment inconvenience, and further expense” is not a violation of 1692d.
COMMUNICATIONS WITH THE CONSUMER
The FDCPA provides that the debt collector may not communicate with the consumer at any unusual time or place that is or should be known to be inconvenient to the consumer. 15 U.S.C. 1692c(a)(1). This presumptively includes communications before 8:00 a.m. and after 9:00 p.m. local time.
The debt collector may not communicate with a consumer known to be represented by legal counsel, 15 U.S.C. 1692c(a)(2), or at the consumer’s place of employment at which personal communications are prohibited. 15 U.S.C. 1692c(a)(3). Collection letters mailed in care of the consumer’s attorney have violated this portion of the FDCPA. On the other hand where the debt collector did not have knowledge of the consumer’s previous bankruptcy and representation by legal counsel, the FDCPA was not violated. The bona fide error defense, discussed below, may protect an otherwise violative communication.
Finally, where the consumer has written to the debt collector to cease further communications, continued collection contacts are violative of the FDCPA.
CONTACTS WITH THIRD PARTIES
Section 1692c provides debtors the “extremely important protection” of prohibiting debt collectors from contacting third parties, including a debtor’s employer, relatives (other than the debtor’s spouse), friends or neighbors, for any purpose other than obtaining “location information.” As stated by the Senate, “such contacts are not legitimate collection practices and result in serious invasions of privacy, as well as loss of job.” Id. Debt collectors cannot communicate a consumer’s personal affairs to third persons”. Id.
Contacts with the consumer’s relatives, other than the spouse, violate the FDCPA. Leaving a message on an answering machine or voice mail system may result in an illegal third party communication if it is foreseeable that a third party with whom the collector could not communicate directly would access the device or system.
The section is violated by any communication to a third party, even if the debt is not expressly referenced, other than one that strictly complies with the provision allowing location information to be gathered. Thus, a message left with a neighbor for the debtor to call regarding some urgent matter is illegal.
ACQUISITION OF LOCATION INFORMATION
The debt collector may not communicate with someone other than the consumer except to obtain location information. 15 U.S.C. 1692b. In doing so the debt collector must identify himself but not discuss the debt. He also cannot request more explanation than specified in the statute. Such a communication can be made only once unless requested by that third party. If the consumer is represented by an attorney, the debt collector may not communicate with any other person. Furthermore, if the collector already has the permitted information, he should not be able to request it in order to harass the debtor.
LEGAL ACTION BY DEBT COLLECTORS
A debt collector may bring an action to enforce an interest in real property only where the real property is located. 15 U.S.C. 1692i(a)(1). This includes attorneys whose collection activities are limited to purely legal activities, such as the filing of collection actions or mortgage foreclosures.
A collection action brought by a debt collector on a personal obligation may be brought only in the “judicial district” where the consumer signed the contract or in which the consumer resides at the time the action is filed. 15 U.S.C. 1692i(a)(2).
The Seventh Circuit has held that the six districts of the Municipal Department of the Circuit Court of Cook County are not distinct “judicial districts,” so that a debt collection lawyer did not violate the FDCPA by filing a case in a district in which no contract was signed and the debtor did not live. A contrary Federal Trade Commission staff opinion was not followed. In outlying multi-county circuits in Illinois, the debt collector must file suit in the county in which the debtor resides or signed the contract.
A Northern District of Illinois decision holds that the administrative wage garnishment procedure authorized by federal statute with respect to student loan debts is not a “legal action,” so that the hearing which the debtor must be afforded need not be conducted in the county or district where the debtor resides.
The protection afforded by 1692i is not waived by the consumer’s failure to request a change of venue in the debt collection action. By filing suit in an improper forum and forcing the consumer to either default or appear in the improper forum (in person or by counsel), the debt collector has already inflicted the injury sought to be avoided by 1692i.
Section 1692i(b) cautions that the section does not confer authority for any legal action by a debt collector. In many jurisdictions, a collection agency may neither file suit in its own name, have its attorney file suit in its name, or take an assignment of a debt for collection and then have its attorney file suit in its name. If the commencement of legal action by the debt collector is unauthorized or constitutes the unauthorized practice of law under state law, it will also violate the FDCPA.
FURNISHING DECEPTIVE FORMS
It is unlawful to design, compile and furnish any forms knowing that such forms would be used to create the false belief in the consumer that a person other than the creditor is participating in the collection. 15 U.S.C. 1692j. An attorney furnishing form letters that deceive the consumer was held to violate the FDCPA.
As discussed above, an attorney who authorizes a creditor or collection agency to use his letterhead without his reviewing the files violates this section.
Defendants have sometimes argued that 1692j only applies where the form is furnished to the creditor (a practice known as “flat rating”), as opposed to another debt collector, or a mailing service, but there is no textual basis for this argument.
The Federal Trade Commission has filed 1692j cases against a number of firms that sold creditors documents entitled “Notice of Authority to File Suit” or “Notice of Intent to File Suit.” These forms were sent as “copies” to debtors, for the purpose of suggesting that their debts were being forwarded to attorneys for suit. In fact, there were no originals, no attorneys, and no intent or authority to file suit.
Federal and state courts have concurrent jurisdiction of FDCPA suits. 15 U.S.C. 1692k(d). A single violation is sufficient to support judgment for the consumer.
A successful consumer is entitled to an award of actual damages, statutory damages up to $1,000, costs and attorney’s fees. 15 U.S.C. 1692k(a). Class action relief is also available. 15 U.S.C. 1692k(a)(2)(B).
The validity of the underlying debt — i.e., whether the consumer owes the alleged obligation, is normally not relevant to the debt collector’s liability for violation of the FDCPA. The only exception is that one ground of liability under the FDCPA is when a debt collector attempts to collect a debt which is obviously not owed. In FDCPA litigation brought against the debt collector, the collector normally may not assert a counterclaim for the underlying debt.
The Seventh Circuit has recently held that many issues as to whether debt collection notices are misleading or confusing present questions of fact. In Johnson v. Revenue Management Corp., the court held:
Rule 12(b)(6) should be employed only when the complaint does not present a legal claim. A contention that a debt-collection notice is confusing is a recognized legal claim; no more is needed to survive a motion under Rule 12(b)(6). See Bennett v. Schmidt, 153 F.3d 516 (7th Cir. 1998). Such a claim may fail on the facts, but assessing factual support for a suit is not the office of Rule 12(b)(6). Moreover, as we observed in Bartlett, although many opinions inquire whether language in a dunning letter “contradicts or overshadows” the statutory notice, these words are not themselves the applicable rule of law; a court must inquire whether the letter is confusing. 128 F.3d at 500-01. Language that contradicts or overshadows the statutory notice may make a letter confusing, but to say that these are sufficient means of showing confusion is not to say that they are necessary.
“A contradiction is just one means of inducing confusion; ‘overshadowing’ is just another; and the most common is a third, the failure to explain an apparent though not actual contradiction”. Id. at 500 (emphasis in original). . . .
The two dispositions in the district court share an additional assumption: that whether a dunning letter is “confusing” is a question to be answered solely by applying the rules of logic to the text of the letter. But why should that be so? As we noted in Bartlett, a letter may confuse even though it is not internally contradictory. Unsophisticated readers may require more explanation than do federal judges; what seems pellucid to a judge, a legally sophisticated reader, may be opaque to someone whose formal education ended after sixth grade. To learn how an unsophisticated reader reacts to a letter, the judge may need to receive evidence. A concurring opinion in Gammon suggested that this evidence might include the kind of surveys used to measure confusion in trademark cases. 27 F.3d at 1260.
A debt collector who has violated any provision of the FDCPA is liable for actual damages. 15 U.S.C. 1692k(a)(1).
The amount of a valid debt does not constitute actual damages.
Actual damages include emotional distress. The debt collector may be held “liable for any mental and emotional stress, embarrassment, and humiliation caused” by improper debt collection activities. State law requirements regarding the proof of intentional or negligent infliction of emotional distress are not applicable to actual damages under the FDCPA.
The attorney’s fees assessed in a case filed in the wrong venue do not constitute “actual damages” unless they are increased by reason of the improper location. Similarly, a collection agency which sends a misleading letter does not thereby inflict actual damages equal to its fee.
In addition to actual damages, if any, the consumer may be awarded “such additional damages as the court may allow, but not exceeding $1,000.” 15 U.S.C. 1692k(a)(2). The consumer need not show any actual damages in order to recover statutory damages. It follows that where only statutory damages are claimed “any FDCPA or related lawsuits filed in the past by this plaintiff have no bearing on whether the letter sent by [the collector] violated the FDCPA” and are not discoverable.
In determining the amount of statutory damages in an individual action the court is to consider “the frequency and persistence of non-compliance by the debt collector, the nature of such non-compliance, and the extent to which the non-compliance was intentional”. 15 U.S.C. 1692k(b)(1). One court has held that continued use of an unlawful letter after being placed on notice of its illegality warrants the maximum. On the other hand, some courts consider that in an individual action the conduct of the debt collector towards third persons is not relevant.
The question arises as to what “not exceeding $1,000” refers. The Sixth Circuit, in Wright v. Finance Service of Norwalk, Inc. and the Eleventh Circuit, in Harper v. Better Business Services, Inc. have held that up to $1,000 in statutory damages is available to one plaintiff in one lawsuit. A majority of the district courts to have considered the issue have reached the same conclusion. However, since a separate FDCPA action could be filed for each communication or other discrete act that violates the law, a substantial argument can be made that “action” means “cause of action” in that sense.
Moreover, each collection agency and individuals associated with it are liable for a separate $1000 maximum award.
The statutory damages must be assessed by a jury if a party timely demands a jury trial.
The consumer need not prove the debt is invalid, although payment of amounts not owed as a result of an FDCPA violation would certainly constitute actual damages.
Punitive damages are not recoverable under the FDCPA.
Courts have consistently held that the FDCPA does not confer any right to injunctive relief in favor of private parties.
A collection agency which employs an attorney who violates the FDCPA can be held liable for his actions, and a collection agency is liable for the FDCPA violations of its employees. “Numerous courts utilize agency principles to make a principal vicariously liable for the acts of his authorized or apparent agent under the FDCPA”.
However, a creditor which does not (i) bring itself within the proviso in 1692a(6) imposing liability for using a third party name or (ii) violate 1692j is not vicariously liable for the FDCPA violations of its debt collector, on the ground that with those two exceptions the FDCPA manifests Congressional intent to exclude creditors from its scope.
Vicarious liability against creditors may be available under state collection practices laws, such as the Illinois Collection Agency Act.
Owners and officers of debt collectors, including parent corporations, are not vicariously liable. However, they may be held liable if they authorize, direct or participate in the violations. General partners of a debt collector organized as a partnership are liable.
The successful consumer is entitled to an award of costs and reasonable attorney’s fees. 15 U.S.C. 1692k(a)(3).
Given the structure of the section, attorney’s fees should not be construed as a special or discretionary remedy; rather the Act mandates an award of attorney’s fees as a means of fulfilling Congress’s intent that the Act should be enforced by debtors acting as private attorneys general.
The Second Circuit held that even where no actual or statutory damages are awarded, attorney’s fees are available: “Because the FDCPA was violated, however, the statute requires the award of costs and a reasonable attorney’s fee . . . .” In an earlier decision, the Second Circuit explained: “[T]he statute mandates such an award in the case of any successful action’.” The Fifth Circuit has reached the opposite conclusion.
The provision for attorney’s fees is intended to encourage consumers to act as “private attorneys general” to enforce the FDCPA. “Congress intended the Act to be enforced primarily by consumers . . . .”
The proper rate at which an attorney bringing an FDCPA case is to be compensated is the rate which his or her services command in the marketplace, as established by billings or awards in other cases, and it is not proper to have a special reduced rate in FDCPA cases because of the nature of the case or the $1,000 limitation on actual damages.
A defendant that offers to pay the maximum likely damages plus attorney’s fees incurred to date is unlikely to be held liable for fees incurred after the offer.
BONA FIDE ERROR DEFENSE
The debtor suing under the FDCPA need not prove that a violation was intentional or negligent in most cases. The “FDCPA is a strict liability statute.” Of course, evidence that the debt collector intended to mislead consumers tends to prove that he selected suitable means to accomplish that end.
The FDCPA does provide an affirmative defense to debt collectors:
A debt collector may not be held liable in any action brought under this title if the debt collector shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
15 U.S.C. 1692k(c). The provision is somewhat similar, but not identical, to one found in the Truth in Lending Act. 15 U.S.C. 1640.
Most courts held that a mistaken view of the law is not excused under 15 U.S.C. 1692k(c). Furthermore, the maintenance of precautions designed to avoid errors is mandatory. Where the debt collector “failed to provide any evidence that it maintained proper procedures to avoid error”, the bona fide error defense was held not to be available. Reliance by the debt collector on an informal Federal Trade Commission advisory opinion does not establish a bona fide error defense. “Furthermore, we hold that the FTC’s interpretation of the definition is in conflict with the unambiguous text of the statute, and according, we decline to adopt that interpretation.”
However, in Jenkins v. Heintz, a divided Seventh Circuit panel held that an attorney debt collector who seeks to collect an unauthorized amount is not required under the FDCPA “to assess the legality of the debt sought to be collected” under state law.
The majority held that the FDCPA does not require lawyers to exercise legal judgment as to such matters:
Filing suit, as defendants did here, should not give lawyers dispensation from the FDCPA; the law still applies to them. And it does not hold them to a different standard. The Act reads that debt collectors are not liable for attempting to collect validly certified amounts owed their client. It does not say that the collector’s status as an attorney should add a requirement of independent legal analysis for each aspect to the creditor’s claim, including a potential defense arising out of a somewhat arcane subject matter like force placed insurance. To require an attorney debt collector to conduct an independent investigation into the legal intricacies of the client’s contract with the consumer would create a double standard for the bona fide error doctrine based upon the identity of the collector. The language of the FDCPA does not provide for such a standard, and pursuant to the reasoning of our last opinion, 25 F.3d at 539-40, we will not impress such an understanding upon it. To interpret the FDCPA as not to treat lawyers and debt collectors equally would contort the statute’s meaning, and ignore Congress’ drafting and the Supreme Court’s interpretation. . . .
There was a strong dissent.
No case holds that a mistake as to one’s obligations under the FDCPA gives rise to a bona fide error defense. “Generally the term ‘error’ is limited to clerical mistakes, such as minor numerical mistake in transporting numbers.” “Mistake of law, however, is insufficient to establish a bona fide error defense, even where the defendant has relied on the advice of counsel.” “Courts have consistently held that neither a misunderstanding of the law nor reliance on an attorney’s inaccurate advice is sufficient to make out a successful bona fide error defense.” “A reliance on advice of counsel, a mistake about the law, or mere inadvertence are not shielded by the unintentional and bona fide error defense.” In Lamb v. M&M Associates, Inc., the court rejected the notion that Jenkins allows a bona fide error defense for a mistake as to what the FDCPA requires.
In the split decision of Smith v. Transworld Systems, Inc., a divided Sixth Circuit absolved a debt collector that sent from its California headquarters a second letter to the consumer shortly after receiving the consumer’s cease and desist letter at its Ohio office. The debt collector demonstrated “procedures reasonably adapted to avoid any such error” and thereby established a bona fide error defense. A dissenting judge wrote that the debt collector “has intentionally structured and implemented a system that defies compliance with the absolute duty mandated by 1692c(c).”
Where the debt collector telephoned the consumer before 8:00 A.M., a bona fide error defense was demonstrated where the debt collector erroneously failed to consider the consumer’s time zone and no damage resulted from such calls. An unintentional misstatement of the law of garnishment, where it was demonstrated that the collector’s employee had been properly trained on wage garnishment limitations, established a bona fide error defense. A collection agency that posted a card containing the debt collection warning required by former 1692e(11), required its employees to recite this language immediately in all telephone conversations, and trained its employees regarding this requirement, established a bona fide error defense to a claim based on failure to provide the 1692e(11) warning.
An attorney who claims the bona fide error defense based on information supplied by his client, the creditor, may waive the attorney client privilege with respect to all communications with the client on the relevant subject, even without the consent of the client.
SUBJECT MATTER AND PERSONAL JURISDICTION
An FDCPA suit “may be brought in any appropriate United States district court without regard to the amount in controversy”, within one year of the date of violation. 15 U.S.C. 1692k(d). State courts have concurrent jurisdiction. A jury trial is available in FDCPA actions brought in federal court.
Most courts have held that FDCPA litigation is appropriately filed within the district where the consumer received the communication. Officers and managers of the debt collector who have control over the procedures complained of may also be sued there.
Filing in the district where the letter was received has been upheld even where the debt collector’s letter had been forwarded to a district in which it did not do business.
The debt collector normally may not bring counterclaims for either the underlying debt, or for bad faith and harassment.
The FDCPA contains special damage provisions for class actions. 15 U.S.C. 1692k. Recovery of statutory damages for the class is limited to 1% of the debt collector’s net worth or $500,000, whichever is less. The named plaintiffs, however, can collect their full statutory damages. The damage limitation does not apply to actual damages.
The meaning of “net worth” has been the subject of a division of judicial opinion. Some courts hold that it means accounting book value. Others hold that it means the actual value of the debt collector’s business.
FDCPA actions based on improper form letters or charges, or similar standard practices, are ideally suited for class action treatment. Under the objective “least sophisticated consumer” or “unsophisticated consumer” standard of liability, an FDCPA claim for statutory damages presents no issues of reliance or causation. “The question is not whether the plaintiffs were deceived or misled, but rather whether an unsophisticated consumer would have been misled.” An FDCPA class action alleging unauthorized charges may technically require proof of causation, but the payment of the unauthorized amount establishes causation.
Class actions have been certified under the FDCPA in cases involving phony attorney letters, “flat-rating”, unauthorized charges, improper form letters, and the filing of suits in improper venues.
The class may be defined in any manner that results in a cohesive group of claimants with similar characteristics. In Mace v. Van Ru Credit Corp., the Seventh Circuit rejected the notion that the court is obligated to define the class as broadly as possible:
[O]ur only task on appeal is to determine whether the FDCPA authorizes statewide (in contrast to nation-wide) class actions. We note first that we know of no authority requiring the participation of the broadest possible class. On the contrary, the class requirements found in the Federal Rules of Civil Procedure encourage rather specific and limited classes. Fed. R. Civ. P. 23. The typicality and commonality requirements of the Federal Rules ensure that only those plaintiffs or defendants who can advance the same factual and legal arguments may be grouped together as a class. * * *
The defendants, however, advance a policy argument, from which the district court constructed a requirement for a nation-wide class. The district court reasoned that, if the damage cap of $ 500,000 can be applied anew to a series of state-wide (or otherwise limited) class actions, the damage limitation would become meaningless. This contention may be correct as far as it goes, although there is, of course, no way of telling whether such repeated class actions are possible or likely, here or generally. The other side of the coin is that to require a nation-wide class as the district court did here brings with it other problems that will be discussed later. There are other possible problems with the district court’s reasoning. The FDCPA has a short, one-year statute of limitations making multiple lawsuits more difficult. Further, if a debt collector is sued in one state, but continues to violate the statute in another, it ought to be possible to challenge such continuing violations. Given the uncertainty of those policy considerations, there is no compelling reason to ignore the plain words of the statute. In any event, the case before us does not now present multiple or serial class actions to recover for the same misconduct. Hence, it would be premature to require a nation-wide class at this juncture. If and when multiple serial class actions are presented, it will be time enough to rule on such a pattern. At this point, there is no persuasive reason to require a nation-wide class.
Some judges had denied certification where the recovery per capita of statutory damages was felt to be de minimis. However, the principal decision denying a class on this ground, Mace v. Van Ru Credit Corp., was reversed by the Seventh Circuit in 1997. The Court of Appeals expressly held that the fact that each class member receives a small amount of damages is not a ground for refusing certification:
But even if a nation-wide class were appropriate, we believe that a de minimis recovery (in monetary terms) should not automatically bar a class action. The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone’s (usually an attorney’s) labor.
True, the FDCPA allows for individual recoveries of up to $ 1000. But this assumes that the plaintiff will be aware of her rights, willing to subject herself to all the burdens of suing and able to find an attorney willing to take her case. These are considerations that cannot be dismissed lightly in assessing whether a class action or a series of individual lawsuits would be more appropriate for pursuing the FDCPA’s objectives.
Prior to the Court of Appeals decision in Mace, the Northern District of Illinois, in a creative decision, Gammon v. GC Services, LP, approved of class certification under Rule 23(b)(2) followed by cy pres distribution of statutory damages in this situation. This has in fact been done in settling a number of cases.
However, in Mace v. Van Ru Credit Corp., the Seventh Circuit Court of Appeals held that Gammon should be confined to its facts, and that cy pres distribution of damages is generally not appropriate when damages amount to $10-$12 per class member, as long as it is reasonably possible to identify the class members and the amounts to which each class member is entitled:
Mace offers the availability of cy pres recovery as an alternative ground for class certification. Given that we have already found that a state-wide class action is sustainable and that a de minimis recovery does not bar certification, the issue of cy pres availability is no longer of concern. Nevertheless, because it is important to stress that cy pres recovery should be reserved for unusual circumstances, we briefly address Mace’s arguments.
Cy pres, or fluid, recovery is a procedural device that distributes money damages either through a market system (e.g., by reducing charges that were previously excessive), or through project funding (the project being designed to benefit the members of the class). Simer v. Rios, 661 F.2d 655, 675 (7th Cir. 1981). Cy pres recovery “is used where the individuals injured are not likely to come forward and prove their claims or cannot be given notice of the case.” Id. at 675. Cy pres recovery is thus ideal for circumstances in which it is difficult or impossible to identify the persons to whom damages should be assigned or distributed. Here, damages, though small, would not be either difficult to assign or difficult to distribute. Further, there is no reason, when the injured parties can be identified, to deny them even a small recovery in favor of disbursement through some other means.
Mace relies on Gammon v. GC Servs. Ltd. Partnership, 162 F.R.D. 313 (N.D.Ill. 1995), in support of cy pres recovery under the FDCPA. This reliance is misplaced. The only discussion of cy pres recovery in Gammon is supposititious only:
Gammon suggests that cy pres distribution of any damage award to the class would be appropriate should he prevail on the merits. GC Services has not disputed the appropriateness of this remedy. Therefore, we decline to address this issue at this stage of the litigation, but merely assume for purposes of this opinion that cy pres distribution of any damage award would provide a suitable remedy should Gammon prevail.
Id. at 321 n.9. Gammon provides no support for a cy pres recovery here. And to the extent that it provides for a cy pres recovery under the FDCPA in any circumstances, it is limited to its own unique facts.
In Blair v Equifax, the Seventh Circuit strongly intimated that (b)(2)
certification of an FDCPA case is improper; “If damages are at issue, how can Rule 23 (b) (2) be used to avoid opt-outs and notice?”
Furthermore, the U. S. District Court for the Southern District of New York squarely rejected the propriety of (b)(2) certification of any FDCPA claim, holding that “violations of the FDCPA cannot serve as the basis for injunctive relief for private plaintiffs” and that a declaratory judgment as to the legality of defendant’s collection practices does not warrant (b)(2) certification because it is not “corresponding” declaratory relief, as the rule requires. “[I]n order to come within Rule 23(b)(2), declaratory judgment must perform function of injunction, not merely lay basis for damage award.” Other decisions are in agreement that the FDCPA does not provide for injunctive relief.
Later decisions have limited cy pres distribution to cases where the per capita damages are on the order of $1-2 per class member or less.
In any event, the de minimis argument is obviously inapplicable where the claim involves unauthorized charges. Those class members who paid the unauthorized charges have actual damages, and those class members who have not yet paid are entitled to a judicial determination that they do not owe the questioned charges.
In a class action alleging that unauthorized charges were demanded, a plaintiff who did not pay the charge may represent a class consisting of both people that did pay and people that did not pay.
The one-year statute of limitations begins to run when a collection letter is mailed or an improper legal action is filed. In a split decision, the Eighth Circuit calculated the one year statutory limitation to expire on the day before that anniversary date. The Eighth Circuit decision has now been followed by the Eleventh Circuit.
LXXVI. FTC OFFICIAL STAFF COMMENTARY
The FTC has published an Official Staff Commentary on the FDCPA, 15 Fed. Reg. 50097-50110 (December 13, 1988). The Staff Commentary is a guideline intended to clarify the staff’s interpretations of the statute, but does not have the force or effect of law. It is not a formal trade regulation rule or advisory opinion of the Commission, and thus is not binding on the Commission or the public. Id. at 50101. The FDCPA states: “Neither the Commission nor any other agency referred to in subsection (b) may promulgate trade regulation rules or other regulations with respect to the collection of debts by debt collectors as defined in this title.” 15 U.S.C. 1692l(d).
In certain respects, the Commentary reflects the FTC’s desire to narrow the FDCPA rather than to enforce it as written. Most notably, it purported to support the efforts of the collection bar to obtain exemption from the FDCPA’s strictures, and has now proposed that the FDCPA be amended to reinstate the exemption! FTC interpretations of the FDCPA should not be viewed as either correct or pro-consumer.
Several courts have held that and other portions of the FTC’s Staff Commentary to be unpersuasive and flatly contrary to the statute. Others have described it at “merely suggestions that the stated interpretations are the more likely interpretation of the statute.”
More useful in construing the FDCPA are FTC decisions addressing debt collection practices under 5 of the Federal Trade Commission Act. There are numerous decisions, many rendered before the enactment of the FDCPA, holding that deceptive collection practices by creditors and debt collectors violated 5. These have frequently been relied upon in construing the FDCPA.
A debt collector’s good faith compliance with an FTC advisory opinion insulates the collector from liability. 15 U.S.C. 1692k(e). However, at the date of this writing, the FTC has not issued any formal opinions.
TEXT OF THE FAIR DEBT COLLECTION PRACTICES ACT
1692. Congressional findings and declaration of purpose [Section 802 of P.L.]
(a) There is abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors. Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.
(b) Existing laws and procedures for redressing these injuries are inadequate to protect consumers.
(c) Means other than misrepresentation or other abusive debt collection practices are available for the effective collection of debts.
(d) Abusive debt collection practices are carried on to a substantial extent in interstate commerce and through means and instrumentalities of such commerce. Even where abusive debt collection practices are purely intrastate in character, they nevertheless directly affect interstate commerce.
(e) It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.
1692a. Definitions [Section 803 of P.L.]
As used in this subchapter–
(1) The term “Commission” means the Federal Trade Commission.
(2) The term “communication” means the conveying of information regarding a debt directly or indirectly to any person through any medium.
(3) The term “consumer” means any natural person obligated or allegedly obligated to pay any debt.
(4) The term “creditor” means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.
(5) The term “debt” means 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, whether or not such obligation has been reduced to judgment.
(6) The term “debt collector” means 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. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The term does not include–
(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 duties;
(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 nonprofit 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; and
(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; (ii) concerns a debt which was originated by such person; (iii) concerns a debt which was not in default at the time it was obtained by such person; or (iv) concerns a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor.
(G) Redesignated (F).
(7) The term “location information” means a consumer’s place of abode and his telephone number at such place, or his place of employment.
(8) The term “State” means any State, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any political subdivision of any of the foregoing.
1692b. Acquisition of location information [Section 804 of P.L.]
Any debt collector communicating with any person other than the consumer for the purpose of acquiring location information about the consumer shall–
(1) identify himself, state that he is confirming or correcting location information concerning the consumer, and, only if expressly requested, identify his employer;
(2) not state that such consumer owes any debt;
(3) 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;
(4) not communicate by post card;
(5) 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; and
(6) after the debt collector knows 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 period of time to communication from the debt collector.
1692c. Communication in connection with debt collection [Section 805 of P.L.]
(a) Communication with the consumer generally–Without the prior consent of the consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt–
(1) at any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer. In the absence of knowledge of circumstances to the contrary, a debt collector shall assume that the convenient time for communicating with a consumer is after 8 o’clock antimeridian and before 9 o’clock postmeridian, local time at the consumer’s location;
(2) if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney’s name and address, unless the attorney fails to respond within a reasonable period of time to a communication from the debt collector or unless the attorney consents to direct communication with the consumer; or
(3) at the consumer’s place of employment if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication.
(b) Communication with third parties–Except as provided in section 1692b of this title, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a post judgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.
(c) Ceasing communication–If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except–
(1) to advise the consumer that the debt collector’s further efforts are being terminated;
(2) to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or
(3) where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.
If such notice from the consumer is made by mail, notification shall be complete upon receipt.
(d) Definitions–For the purpose of this section, the term “consumer” includes the consumer’s spouse, parent (if the consumer is a minor), guardian, executor, or administrator.
1692d. Harassment or abuse [Section 806 of P.L.]
A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
(1) The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person.
(2) The use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader.
(3) The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency or to persons meeting the requirements of section 1681a(f) or 1681b(3) of this title.
(4) The advertisement for sale of any debt to coerce payment of the debt.
(5) Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number.
(6) Except as provided in section 1692b of this title, the placement of telephone calls without meaningful disclosure of the caller’s identity.
1692e. False or misleading representations [Section 807 of P.L.]
A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
(1) The false representation or implication that the debt collector is vouched for, bonded by, or affiliated with the United States or any State, including the use of any badge, uniform, or facsimile thereof.
(2) The false representation of–
(A) the character, amount, or legal status of any debt; or
(B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.
(3) The false representation or implication that any individual is an attorney or that any communication is from an attorney.
(4) The representation or implication that nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to take such action.
(5) The threat to take any action that cannot legally be taken or that is not intended to be taken.
(6) The false representation or implication that a sale, referral, or other transfer of any interest in a debt shall cause the consumer to–
(A) lose any claim or defense to payment of the debt; or
(B) become subject to any practice prohibited by this subchapter.
(7) The false representation or implication that the consumer committed any crime or other conduct in order to disgrace the consumer.
(8) Communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.
(9) The use or distribution of any written communication which simulates or is falsely represented to be a document authorized, issued, or approved by any court, official, or agency of the United States or any State, or which creates a false impression as to its source, authorization, or approval.
(10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.
(11) The failure to disclose in the initial written communication with the consumer and, in addition, if the initial communication with the consumer is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector, except that this paragraph shall not apply to a formal pleading made in connection with a legal action.
[As amended, P.L. No. 104-208, the Omnibus Consolidated Appropriations Act of 1996 2305 (September 30, 1996)]
EFFECTIVE DATE: The amendment shall take effect 90 days after the date of enactment and shall apply to all communications made after that date of enactment. P.L. No. 104-208, 2305(b) (Sept. 30, 1996)]
[PRIOR TEXT OF 1692e(11) Except as otherwise provided for communications to acquire location information under section 1692b of this title, the failure to disclose clearly in all communications made to collect a debt or to obtain information about a consumer, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.]
(12) The false representation or implication that accounts have been turned over to innocent purchasers for value.
(13) The false representation or implication that documents are legal process.
(14) The use of any business, company, or organization name other than the true name of the debt collector’s business, company, or organization.
(15) The false representation or implication that documents are not legal process forms or do not require action by the consumer.
(16) The false representation or implication that a debt collector operates or is employed by a consumer reporting agency as defined by section 1681a(f) of this title.
1692f. Unfair practices [Section 808 of P.L.]
A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
(1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.
(2) The acceptance by a debt collector from any person of a check or other payment instrument postdated by more than five days unless such person is notified in writing of the debt collector’s intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit.
(3) The solicitation by a debt collector of any postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution.
(4) Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument.
(5) Causing charges to be made to any person for communications by concealment of the true purpose of the communication. Such charges include, but are not limited to, collect telephone calls and telegram fees.
(6) Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if–
(A) there is no present right to possession of the property claimed as collateral through an enforceable security interest;
(B) there is no present intention to take possession of the property; or
(C) the property is exempt by law from such dispossession or disablement.
(7) Communicating with a consumer regarding a debt by post card.
(8) Using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.
1692g. Validation of debts [Section 809 of P.L.]
Notice of debt; contents
(a) Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing–
(1) the amount of the debt;
(2) the name of the creditor to whom the debt is owed;
(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
(5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
(b) If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) of this section that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.
Admission of liability
(c) The failure of a consumer to dispute the validity of a debt under this section may not be construed by any court as an admission of liability by the consumer.
1692h. Multiple debts [Section 810 of P.L.]
If any consumer owes multiple debts and makes any single payment to any debt collector with respect to such debts, such debt collector may not apply such payment to any debt which is disputed by the consumer and, where applicable, shall apply such payment in accordance with the consumer’s directions.
1692i. Legal actions by debt collectors [Section 811 of P.L.]
(a) Any debt collector who brings any legal action on a debt against any consumer shall–
(1) in the case of an action to enforce an interest in real property securing the consumer’s obligation, bring such action only in a judicial district or similar legal entity in which such real property is located; or
(2) in the case of an action not described in paragraph (1), bring such action only in the judicial district or similar legal entity–
(A) in which such consumer signed the contract sued upon; or
(B) in which such consumer resides at the commencement of the action.
(b) Nothing in this subchapter shall be construed to authorize the bringing of legal actions by debt collectors.
1692j. Furnishing certain deceptive forms [Section 812 of P.L.]
(a) It is unlawful to design, compile, and furnish any form knowing that such form would be used to create the false belief in a consumer that a person other than the creditor of such consumer is participating in the collection of or in an attempt to collect a debt such consumer allegedly owes such creditor, when in fact such person is not so participating.
(b) Any person who violates this section shall be liable to the same extent and in the same manner as a debt collector is liable under section 1692k of this title for failure to comply with a provision of this subchapter.
1692k. Civil liability [Section 813 of P.L.]
Amount of damages
(a) Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of–
(1) any actual damage sustained by such person as a result of such failure;
(2)(A) in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000; or
(B) in the case of a class action, (i) such amount for each named plaintiff as could be recovered under subparagraph (A), and (ii) such amount as the court may allow for all other class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector; and
(3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney’s fee as determined by the court. On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.
Factors considered by court
(b) In determining the amount of liability in any action under subsection (a), the court shall consider, among other relevant factors–
(1) in any individual action under subsection (a)(2)(A), the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional; or
(2) in any class action under subsection (a)(2)(B) of this section, the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector’s noncompliance was intentional.
(c) A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
(d) An action to enforce any liability created by this subchapter may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within one year from the date on which the violation occurs.
Advisory opinions of Commission
(e) No provision of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the Commission, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.
1692l. Administrative enforcement [Section 814 of P.L.]
Federal Trade Commission
(a) Compliance with this subchapter shall be enforced by the Commission, except to the extent that enforcement of the requirements imposed under this subchapter is specifically committed to another agency under subsection (b) of this section. For purpose of the exercise by the Commission of its functions and powers under the Federal Trade Commission Act, a violation of this subchapter shall be deemed an unfair or deceptive act or practice in violation of that Act. All of the functions and powers of the Commission under the Federal Trade Commission Act are available to the Commission to enforce compliance by any person with this subchapter, irrespective of whether that person is engaged in commerce or meets any other jurisdictional tests in the Federal Trade Commission Act, including the power to enforce the provisions of this subchapter in the same manner as if the violation had been a violation of a Federal Trade Commission trade regulation rule.
Applicable provisions of law
(b) Compliance with any requirements imposed under this subchapter shall be enforced under–
(1) section 8 of the Federal Deposit Insurance Act, in the case of–
(A) national banks, and Federal branches and Federal agencies of foreign banks, by the Office of the Comptroller of the Currency;
(B) member banks of the Federal Reserve System (other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25(a) of the Federal Reserve Act, by the Board of Governors of the Federal Reserve System; and
(C) banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation;
(2) section 8 of the Federal Deposit Insurance Act, by the Director of the Office of Thrift Supervision, in the case of a savings association the deposits of which are insured by the Federal Deposit Insurance Corporation;
(3) the Federal Credit Union Act, by the National Credit Union Administration with respect to any Federal credit union;
(4) subtitle IV of Title 49, by the Secretary of Transportation with respect to all carriers subject to the jurisdiction of the Surface Transportation Board;
(5) the Federal Aviation Act of 1958, by the Secretary of Transportation with respect to any air carrier or any foreign air carrier subject to that Act; and
(6) the Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act.
The terms used in paragraph (1) that are not defined in this subchapter or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).
(c) For the purpose of the exercise by any agency referred to in subsection (b) of this section of its powers under any Act referred to in that subsection, a violation of any requirement imposed under this subchapter shall be deemed to be a violation of a requirement imposed under that Act. In addition to its powers under any provision of law specifically referred to in subsection (b) of this section, each of the agencies referred to in that subsection may exercise, for the purpose of enforcing compliance with any requirement imposed under this subchapter any other authority conferred on it by law, except as provided in subsection (d) of this section.
Rules and Regulations
(d) Neither the Commission nor any other agency referred to in subsection (b) of this section may promulgate trade regulation rules or other regulations with respect to the collection of debts by debt collectors as defined in this subchapter.
1692m. Reports to Congress by the Commission [Section 815 of P.L.]
(a) Not later than one year after the effective date of this subchapter and at one-year intervals thereafter, the Commission shall make reports to the Congress concerning the administration of its functions under this subchapter, including such recommendations as the Commission deems necessary or appropriate. In addition, each report of the Commission shall include its assessment of the extent to which compliance with this subchapter is being achieved and a summary of the enforcement actions taken by the Commission under section 1692l of this title.
(b) In the exercise of its functions under this subchapter, the Commission may obtain upon request the views of any other Federal agency which exercises enforcement functions under section 1692l of this title.
1692n. Relation to State laws [Section 816 of P.L.]
This subchapter does not annul, alter, or affect, or exempt any person subject to the provisions of this subchapter from complying with the laws of any State with respect to debt collection practices, except to the extent that those laws are inconsistent with any provision of this subchapter, and then only to the extent of the inconsistency. For purposes of this section, a State law is not inconsistent with this subchapter if the protection such law affords any consumer is greater than the protection provided by this subchapter.
1692o. Exemption for State regulation [Section 817 of P.L.]
The Commission shall by regulation exempt from the requirements of this subchapter any class of debt collection practices within any State if the Commission determines that under the law of that State that class of debt collection practices is subject to requirements substantially similar to those imposed by this subchapter, and that there is adequate provision for enforcement.