Fighting abuse in debt collection.

The Fair Debt Collection Practices Act prevents abusive, deceptive, and unfair debt collection practices against consumer.

A woman laid off from her job falls behind on her credit card payments. Her $500 debt is sold to a professional bill collector who leaves frequent phone messages with her neighbors asking that she return his call.

A man injured at his job can't keep up with his credit card bills while he is out of work and living on government disability payments. A bill collector calls him every night at 11 o'clock, ruining his already disturbed sleep.

A woman recently divorced falls behind on her credit card bills when her child support payments are late. A bill collector calls and yells at her, suggesting that she prostitute herself to pay her bills.

These kinds of debt collection methods are illegal. Each year, millions of people have trouble paying their bills, sometimes because of life changes that impair their ability to earn a living and other times because they spend more than they earn.

Regardless of how consumers get into debt, the federal Fair Debt Collection Practices Act(1) (FDCPA) bars collectors from resorting to abusive techniques to get debtors to pay what they owe. These tactics include impersonating lawyers to coerce or intimidate the consumer into paying, making false threats of lawsuits, making late-night phone calls to debtors, and contacting neighbors and employers to embarrass or intimidate the debtors.

The FDCPA imposes minimum standards of fairness on collection agencies and people, such as lawyers, who collect consumer debts. With its straightforward requirements, the law gives consumers a tool to stop harassment by abusive collectors who often leave evidence of their illegal actions in the form of demand (dunning) letters and telephone answering machine messages.

The law's focus on remedying consumer concerns also makes litigation easier than it might otherwise be under common, more rigorous, tort laws.

The act can be separated into three parts for analysis: the purpose of the act and who is covered, requirements under the act, and remedies.

Purpose and coverage

The act's purpose is to prevent abusive, deceptive, and unfair debt collection practices by providing consumers with a private right of action to recover actual and statutory damages and reasonable attorney fees.

Government enforcement, in the form of administrative actions, rests with the Federal Trade Commission. However, Congress intended private litigation to be the primary means of enforcement.(2)

The FDCPA stipulates that the kinds of debt covered are those owed by individual consumers, not by business owners or corporations. Likewise, the law is aimed at stopping offensive practices conducted primarily by collection agencies and lawyers who regularly collect debts, not banks and department stores.

The latter types of creditors can be sued under state consumer protection statutes and are subject to tort actions such as intentional infliction of emotional distress or invasion of privacy.

The FDCPA excludes from coverage state and federal officials performing their duties -- for example, an agency employee collecting student loans. Also excluded are process servers and credit-servicing companies -- such as a home mortgage-servicing company -- that acquired a debt before default.(3)

The law covers creditors who use false names, people who design or supply forms that falsely imply a third party is involved in collecting a debt, and companies that repossess goods where the creditor does not have a valid claim.

Examples of harassment or abusive behavior exhibited toward a debtor include using obscene language, using or threatening violence, and causing a telephone to ring repeatedly with the intent to harass the consumer.

Requirements

Collectors, in initially contacting debtors, must disclose that they are trying to collect a debt and that any information consumers reveal can be used for debt collection. Collectors also must show that a debt exists if the debtor asks for verification in writing.(4) And collectors must identify themselves in later communications.

Collectors may not contact debtors by postcard and are restricted to phoning them between the hours of 8 a.m. and 9 p.m. Agents may contact debtors at work with their permission, but calls to employers are generally restricted to inquiries concerning consumers' addressee. Debtors may, in fact, mandate that a collector stop dunning the debtor.

False or misleading representations by collectors are prohibited. The act specifically forbids collectors from falsely representing themselves as attorneys, threatening action that may not be legally taken, or using false representation or deception to try to collect a debt.

The FDCPA borrows the standards of deception developed under the Federal Trade Commission Act, prohibiting representations that have the capacity to mislead an unsophisticated consumer.

The law prohibits the collection of any amount unless this amount was authorized by the agreement creating the debt or by law, such as a state statute authorizing collection charges.

A collector who brings a legal action against an alleged debtor must do so in a judicial district where, in real estate cases, the real property is located or where, in non-real estate cases, the contract was signed or the consumer lives.

Remedies

Defendants must pay attorney fees of successful plaintiffs. This provision of the law offers relief to consumers with sound cases who may not otherwise be able to afford to file suit. Attorney fees are paid at the market rate, but the act limits statutory damages to $1,000.(5)

No ceiling exists on actual damages, but attorneys sometimes undervalue them by failing to appreciate the nature and extent of the stress suffered as a result of wrong-doing in a debt collection case. Actual damages typically include lost wages; the cost of obtaining an unlisted phone number; and the cost of treating physical injuries such as heart attacks, ulcers, headaches, vomiting, loss of appetite, and insomnia

Generally, plaintiffs alleging physical or emotional injury should be prepared to support their claims with evidence of the severity and duration of their trauma. Actual damages for emotional distress may be recovered under the FDCPA regardless of state requirements for the tort of intentional infliction of mental distress. Thus, the plaintiff does not have to prove physical impact caused the emotional distress or outrageous behavior as required by many states.(6)

A notable feature of the act is its limits on available defenses. For example, raising common law defenses such as [aches or the consumers' bad faith is not allowed.(7) Defendants may argue, however, that violations were unintentional, resulting from a bona fide error where they maintained reasonable procedures to avoid the error. Errors of law are not excused.

Class actions

The FDCPA offers individuals a potential weapon against abuse, but it also affords broad protection to the community by authorizing class relief.

Lawyers deciding whether to file for a class should note that the maximum recovery for class statutory damages is limited to 1 percent of the defendant's net worth. Class action suits may also seek actual damages. Some courts have allowed actions for declaratory relief;(8) others are divided on the availability of injunctive relief for aggrieved consumer classes.(9)

A class action for actual damages may require the commitment of substantial funds by a plaintiffs' attorney. This could outweigh the benefits of bringing a suit. Plainly, many collection agencies are not highly capitalized.

A class action requires common questions of fact and law to predominate over individual questions of liability. This can be problematic if a collector's tactics vary among consumers. Class relief may be an appropriate choice, however, in cases involving deceptive form letters that were sent to consumers.

Another approach to FDCPA enforcement is pursuing a class action claim for declaratory relief as the primary remedy.(10) The benefit of this strategy is that notice of pendency of action is not usually required, which results in lower costs.

Also, the problems of proving and distributing damages among class members are minimized because the class actions usually ask the court to declare certain collectors' practices illegal and do not request damages. Attorney fees are also awarded in these cases.

In the long run, class action suits may be more effective for consumers than individual suits because they are more likely to lead to debt collectors halting their unlawful practices. In one case, a consumer received a dunning letter from a collector demanding payment for a credit card debt. The letter said the collector was an experienced agency, and it implied that both the federal and state governments had vouched for it.

The consumer filed a class action for declaratory relief, arguing that it was illegal under the FDCPA for the collector to falsely claim to be vouched for by the government. A settlement was reached. The form letter had been sent to an estimated 4 million consumers.(11)

The FDCPA provides lawyers with a flexible and effective tool to help consumers--especially those who are already financially distressed--maintain a degree of dignity during difficult times.

Notes

(1.) Pub. L. No. 90-321, Title VIII, 91 Stat. 874 (1977) (codified as emended et 15 U.S.C. [sections] 1692 (1992)). The National Consumer Law Center's 800-page manual, Fair Debt Collection (3d ed. 1996), provides attorneys with checklists, sample pleadings on computer disk, and a legal guide to litigating in the area of debt collection.

(2.) S. REP. NO. 95-382 (1977).

(3.) See 15 U.S.C. [sections] 1692a(6)(A)-(F) for a complete list of those not considered debt collectors.

(4.) Graziano v. Harrison, 950 F.2d 107 (3rd Cir. 1991) (finding a computer printout of the amount of debt, date of services provided, and date debt was incurred to be sufficient verification).

(5.) 15 U.S.C. S1692k(a)(2)(A); see Tolentino v. Friedman, 56 F.3d 645 (7th Cir. 1995).

(6.) See, e.g., Smith v. Law Offices of Mitchell N. Kay, 124 B.R. 182 (D. Del. 1991).

(7.) For a discussion of these defenses, see Richard Rubin and Joanne S. Faulkner, paper presented at the Fifth Annual National Consumer Rights Litigation Conference 263-75 (Oct.26-28, 1996) (on file at the offices of the National Consumer Law Center in Boston).

(8.) See, e.g., Gammon v. GC Serv. Ltd. Partnership, 162 F.R.D. 313 (N.D. Ill. 1995).

(9.) See, e.g., Strong v. Nat'l Credit Management Co., 600 E Supp. 46 (E.D. Ark. 1984) (finding equitable relief should not be implied under the FDCPA); Duran v. Credit Bureau of Yuma, 93 F.R.D. 607 (D. Ariz. 1982) (finding courts are without jurisdiction to grant equitable relief under the FDCPA).

(10.) 15 U.S.C. S1692k(a)(2)(B); see Gammon, 162 F.R.D. 313, 321.

(11.) Id. at 315.

Robert J. Hobbs is the deputy director of the National Consumer Law Center, Inc., in Boston. Catherine R. Warren, a lawyer admitted to practice in Massachusetts and Rhode Island, is a researcher at the center.