Collections: The Fair Debt Collection Practices Act

     It is time again to review the Fair Debt Collections Practices Act (FDCPA), Title 15 U.S. §1692. This is a federal law designed to protect consumer debtors from "unscrupulous" collection activities. It defines the practices, the people who are protected, and the people who are restricted.
     The most damaging part of the act is the definition of "collector" (as only collectors are covered), and attorneys are included in the definition.
     The FDCPA requires collectors to send a demand letter thirty (30) days prior to commencing suit.  The letters must contain information including:
     1. The principal amount remaining on the debt;
     2. The name of the creditor to whom the debt is owed; and 

The specific language that follows:
     Unless you, within thirty days after you have received this notice, dispute the validity of this debt, or any portion thereof, I will assume the debt to be valid.
     If you notify me, in writing, within thirty days after you have received this notice, that the debt or any portion thereof, is disputed, I will obtain verification of the debt and mail you a copy of that verification to you.
     Upon your written request within thirty days after you have received this notice, I will provide you with the name and address of the original creditor, if different from the current creditor.
     The FDCPA further restricts the jurisdictions in which suit can be brought to the city or county in which the debtor resides. In certain circumstances, the matter can be sued upon where the debt was incurred. To eliminate the ambiguity, one idea that I always suggest is that creditors stamp ("this document executed in [name of city or county], Virginia") adjacent to the original signatures of the executed documents, prior to their execution.
     The jurisdiction restriction of the FDCPA can be the most costly provision for the creditor, as attorneys, attempting to pass on the economies of consolidating cases, may be unable to do so. Additional trips to court result in additional costs which will, in one way or another (higher percentage fees), be passed on to the creditor. Hence, a wise creditor should invest in an appropriately worded stamp for each site executing such documents.

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     Check out Creditor News by viewing our website at www.lawplc.com.  In the next three editions of Creditor News we will begin a review of The Equal Opportunity Credit Act. Over the last few years debtors have been utilizing the Equal Opportunity Credit Act, 15 U.S.C. §1691 ("the ECOA" or "the Act"), to avoid adverse action against them on seemingly valid creditor suits. The litigation that has arisen gives good cause to review lending policies for ECOA compliance.

Collections: Sanctions on Improper Fair Debt Claim

     In the case of Guidry v. Clare, a United States District Court in Northern Virginia granted an award of $16,000.00 in sanctions against a debtor who was a plaintiff in a Fair Debt Practices Collection Act (FDCPA). The Court held that the debtor’s case, which also included state law claims of intentional infliction of emotional distress, malicious prosecution and false imprisonment, was filed wholly without merit.
     The Court found that the dispute arose when the debtor wrote the plaintiff, a company that provided cheerleading training, a check for $62.50 for the debtor’s daughter’s class. The check was returned for insufficient funds. The company’s office manager (Clare) contacted the debtor to make the check good. The debtor did not respond. Over the next several months the company made several other efforts to collect on the check, including a letter from the company’s attorney and from a collection agency. The company’s office manager also advised the debtor that the company would seek a warrant for the debtor’s arrest if the debt was not paid within seventy two hours. When the debtor did not respond, the company filed a criminal complaint for misdemeanor larceny by check. A few days later, a policeman served the warrant on the debtor at the same time he served a warrant from another creditor for felony larceny by check. The debtor was arrested and released on her own recognizance on both charges. She paid the face amount of the company’s check, plus a $30.00 bank service charge. As a result of this, the prosecutor withdrew the bad check charge.
     A few months later the debtor filed her FDCPA action. After much litigation, the case was dismissed, without prejudice, because the case was not served within 120 days. The complaint was refiled. The company’s attorneys sought dismissal and sanctions for filing a frivolous lawsuit. The Court dismissed the case, scheduled a hearing on sanctions, and ordered the parties to prepare briefs. After reviewing the briefs the Court concluded that the debtor’s case was “meritless, indeed flatly frivolous”. The meritless claims included allegations that the company’s manager had failed to make a meaningful disclosure of her identity and debt collection purpose in her telephone calls to the debtor, that a debt collector was barred from filing a criminal complaint, that the company’s manager had made false representations to authorities in order to disgrace the debtor, and that the collection letters failed to disclose their debt collection purpose. The Court ruled that the letters contained the required disclosures and the purpose of the phone calls were clear. The Court further ruled that the law prohibits only the threat of criminal action if there is no intent to follow through on the threat. In this case the intent to follow through was evident from the fact that a warrant was issued, and there was no evidence that the representations to authorities were false or made with an intent to disgrace the debtor. The Court found that there was also no basis for the state law claims of intentional infliction of emotional distress, malicious prosecution and false imprisonment. The Court wrote that “it cannot be forgotten or overlooked” that the case “was spawned by Guidry’s failure to pay a $62.50 debt, or rather by her attempt to pay it with a bad check”.
     Creditors take heart - there is still some common sense in this world!