Michigan Collection Law Blog

In October of 2006, the FDCPA was amended to exclude pleadings from the definition of initial communication. Hence, if a complaint is not an initial communication, the service of a complaint upon a defendant does not trigger a duty on the collector/lawyer to serve the debtor with a validation notice. But recently, the 6th Circuit has decided the case of Jerman v. Carlisle, 2007 U.S. Dist. LEXIS 44731.

In Jerman, the Plaintiff was served with a complaint before the October 2006 amendment to the FDCPA and thus properly alleged that the complaint was an initial communication. The court agreed. However, it is unlikely that the court would have reached the same conclusion if the Plaintiff were served with the complaint after the October 2006 amendment to the FDCPA.

However, there are 2 other very important lessons to be garnered from this case for all consumer debt collectors:

1. Do NOT state in your validation letters that a consumer must provide its dispute or demand for validation in writing to you. There is no such requirement under the FDCPA. Although it is good practice to reduce things to writing to avoid the "he said/she said" controversy, there is still no requirement imposed upon a debtor by the FDCPA to make such demands in writing. If there is anything in your letter that requires the debtor to make his demand/dispute in writing, take it out TODAY...WITHOUT FAIL. The Jerman case is a class action.

2. Do NOT send the validation notice with a complaint. The debtor made a very interesting argument. Jerman alleged that the 30 day window within which Jerman was provided by the FDCPA to dispute the complaint overshadowed, if not misled Jerman into thinking that he would have 30 days to dispute the complaint. In Ohio, where this case arose, a debtor has only 28 days to file an answer to a complaint or the debtor will be defaulted. The court did not address this issue. But I believe that the debtor's position is correct. In Jerman, the Defendant law firm sued the Plaintiff and attached its FDCPA validation notice (the one requiring that all disputes and requests be in writing). By serving the Plaintiff with a complaint in which the debtor has only 28 days to respond and attaching a letter that states that the debtor has 30 days to dispute the debt or demand verification, there is little doubt that this would tend to mislead the "least sophisticated" consumer. That is the standard used to determine whether the FDCPA has been violated. Indeed, I would conclude that unless you are an attorney, even a reasonably prudent person could be misled. Moral of the story - if you are going to sue a debtor, do not include the validation notice with the complaint. You are far better off sending a demand letter that includes the validation notice in it and then waiting a week or so to serve the debtor with a complaint. These are two separate mailings and thus would be less likely to be seen as misleading the least sophisticated consumer. The best practice, in my opinion, is to simply send the validation notice and then wait the 30 days to file the lawsuit.

I just had to say thank you to my friends at Justia. Their founder founded FINDLAW, and then went on to build law firm websites. I built my original website back in 1995 and personally maintained it until 2006. Last year, I decided to turn the reigns over to Justia. It was one of the best marketing decisions I ever made. Justia is not cheap nor for the faint of heart. But I will tell you that I recouped my investment in the first case that I got through my website that Justia created. I got that case within two weeks of my new website from Justia going live. I have obtained over 50 other cases from it ever since.

It absolutely pays to have a company that understands lawyers and law firms create your website. Without a website today, your firm might as well be operating out of a mini-van. Justia gave me great ideas about modifying my website and presence. They also optimized my website and presence. They understand Google and how it works. I recently bought a few books on Search Engine Optimization and frankly, I am a far better lawyer than computer guru. It just makes sense to turn a project as important as one's cyber presence over to professionals. I could not be happier that I had selected Justia.

Thank you, Justia. I can honestly say that I am thankful to pay my annual subscription fees to you because I know that I will get a great return on this investment as well.

P.S. This is not a paid advertisement for Justia. Nor do I get a discount or a referral fee. I am simply passing on to you, my blog follower, a massively great marketing tip.

The Battle Creek Inquirer reports about a scam that certain group of companies have run on our Spanish speaking populations. It seems that Tono Records, dba Tono Music and Professional Legal Services, Tono Publishing, Promo Music, Millennium Three Corp., Dulce Ugalde, Luis Roberto Ruiz, and Maria Oceguera, all based in Los Angeles County, California.
advertised "free" English courses for the simple price of shipping and handling which fees ranged from $100- $160. These scum bags would then dun their customers for several hundreds of dollars and threaten them with jail to collect non existent debt.

Thankfully, the Federal Trade Commission acted swiftly and obtained an injunction against these companies and froze their assets for violation of the Fair Debt Collection Practices Act. I hope the FTC is successful in putting these pieces of garbage out of business.

Yeah, I am a debt collector and feel very strongly about this case. Its not an issue involving illegal vs. legal immigration. It involves a U.S. based company taking advantage of immigrants who may not be aware of their rights, by threats and intimidation. I am very thankful that our government has a department such as the FTC to see that these cowardly and greedy predators are all put out of business.

An article in Bank Lawyer's Blog talks about piggybacking credit being "the latest and greatest" way to improve one's FICO score. With Piggybacking, someone with a subprime score ("a Subprime Risk") can become an authorized user of someone else's credit without actually being authorized to incur credit on the better credit risk's ("BCE") accounts. The subprime Risk then gets the benefit of BCE's credit score and resultantly, it raises the Subprime Risk's FICO score. This is called Piggybacking. It is neither the latest nor the greatest.

Piggybacking has been allowed for a number of years. This exception to the Fair Credit Reporting Act was designed to allow an adult child to build credit using the benefit of the parent's credit score. It has, unfortunately, been abused. Indeed, there are companies that will pay hundreds if not thousands of dollars to BCE's for the benefit of leasing their better FICO scores to Subprime Risks. This loophole to allow a young adult to build credit has been hijacked by those who are, for whatever reason, just plain poor credit risks. Common sense would tell you that Piggybacking results in deception to credit grantors and the granting of credit to those who are simply unable or handle or manage the credit responsibly. When this happens, the credit grantor is the first one to eat these losses. However, these losses are ultimately bourne by the consumer.

Fair Isaac, the company that invented the FICO score back is wise to this perceived industry abuse. There is talk in the industry that Fair Isaac is in the process of re-tooling the FICO score to close this exception to the general rule that everyone's credit must be a reflection of one's own credit history. Unfortunately, like any other war, there is collateral damage. In this case, it is our children.

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The Fair Credit Reporting Act ("FCRA") allows potential credit grantors to get your name and address from a credit reporting agency ("CRA") in order to send you a firm offer of credit, if you meet certain criteria. So just what is a firm offer of credit? In the 6th Circuit, that issue is not quite so clear.
Recently, Judge Cleland from the U S District Court for the Eastern District of Michigan held in Phinn v Capital One Auto Finance, that a firm offer of credit does not have to include terms of repayment including an interest rate.

Ken Phinn is a consumer that received a flyer from Capital One Auto Finance. In that flyer, Capital One offered to finance up to $25,000 in credit for an auto purchase to Mr. Phinn. The flyer did not discuss the interest rate, the term or the amount of repayment. Phinn contended that this was not a firm offer of credit as required by FCRA in order to go trolling through a CRA's records for his name. Judge Cleland held that the offer was firm enough to satisfy the requirements of FCRA and dismissed the case.

I don't think this case should give the consumer any reason for alarm. Potential credit grantors simply seek the names and addresses of consumers that meet certain criteria. CRAs only return names and address to the credit grantors. CRAs do not give the credit grantors any other information about the consumer. I think this case was more in the nature of a fund raiser for Mr. Phinn as even if there were a technical violation of the FCRA, so what? He was not harmed. The CRA's identifying him as an individual who met certain criteria did not lower is FICO score.
Again, Judge Cleland wrote another well reasoned and persuasive opinion.

I am sad to report the passing John Mueller of Mueller, Mueller, Richmond, Harms and Sgroi. John was the senior partner of this firm. He was a large and imposing man in stature and reputation. He and his firm are very well respected in Michigan and indeed, around the country as one the best debt collection law firms. I met Mr. Mueller back in 1995 when I first joined the Commercial Law League. John was a soft spoken and intellgent man. He commanded the respect of others around him without insisting on it. During our brief meeting, he actually was able to show me why so many people had so much respect for him. After that meeting, I never really had occasion to talk with him again, but I will always remember him for the gentleman that he was.
John, you will be missed. Our industry has lost a most respected leader.

Judge Cleland from the United States District Court in the Eastern District of Michigan recently ruled that not all letters from a debt collector to a consumer are subject to the FDCPA. In Francis v. GMAC Mortg., 2007 U.S. Dist. LEXIS 41022, In Francis, Old Canal Financial ("Old Canal") attempted to collect on a 12 year old mortgage debt.. Francis sued Old Canal and eventually agreed to dismiss his case in exchange for a full release of the mortgage debt. End of story right? WRONG!
Old Canal then transfers its mortgage rights (although none existed) to GMAC who begins to collect the debt. Plaintiff immediately sent GMAC a letter, enclosing a copy of the settlement agreement between herself and Old Canal, and explaining that she had been released from the alleged mortgage debt. Plaintiff asserted that she did not owe the debt, the debt was not valid, and GMAC should not attempt to collect on it. The subject line of Plaintiff's letter stated: "Your Account Number: B001305055; Dispute and Qualified Written Request and FDCPA [D]emand for Validation." In response to her June 29 letter, Plaintiff received two letters from GMAC's "Voice of the Customer" department. The first letter, dated August 4, 2006, states:

"I would like to thank you for contacting GMAC Mortgage Corporation concerning your mortgage account. This will acknowledge receipt of your letter of June 29, 2006. We will review this matter and provide you with a written response. Should you need to contact me directly, you may reach me at 888-462-2864, extension 5750."

The second letter was sent September 22, 2006, and states:

"Please be advised that this letter will serve as our response to your qualified written request regarding the above-referenced loan. The Mutual Release and Settlement Agreement that you have provided is not sufficient to terminate your obligations to GMAC Mortgage Corp. After a thorough review, based on the information that you provided, it does not give us enough detail to grant your request for release of mortgage. We would need additional information to research. Please provide a copy of the executed Release of Mortgage from Old Canal or any other documentation that would prove that this loan has been released. If you should have any further questions or concerns, please contact me directly at 888-462-2864 extension 5750."

Plaintiff alleges that GMAC did not accept the validity of Plaintiff's explanations, and continued collection activities. Plaintiff initiated this action on December 29, 2006, asserting two counts against GMAC. In her first count, Plaintiff asserts an individual claim under the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, alleging that GMAC violated the FDCPA by attempting to collect the alleged debt from Plaintiff. In her second claim, Plaintiff asserts that in the two "Voice of the Customer" letters, GMAC failed to include the disclosures required under the FDCPA, 15 U.S.C. § 1692e(11). .

NOT ALL COMMUNICATIONS FROM A DEBT COLLECTOR TO A CONSUMER ARE GOVERNED BY THE FDCPA.

Judge Cleland held that just because a letter comes from a collector to a consumer, it is not necessary governed by the FDCPA. He states:

First, the court does not accept the proposition that all "communications" sent by a debt collector to a consumer must contain the notices specified by § 1692e(11). While § 1692e(11) applies to "communications," § 1692(e) generally prohibits "false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. § 1692e. It is fundamentally the general statutory prohibition which gives rise to the cause of action, admittedly as further defined by the respective sub-parts. Nonetheless, the court's initial inquiry focuses on whether the two letters were sent "in connection with the collection of [a] debt." Id. They were not.

Although the letters were sent by a debt collector and, therefore, perhaps remotely related to Plaintiff's alleged debt, the letters were, in context, undisputedly sent in response to an inquiry made by Plaintiff. The first letter amounts to nothing more than an acknowledgment of receipt of Plaintiff's June 29, 2006 letter. The second letter was similarly not sent in connection with the collection of Plaintiff's alleged debt, but rather in connection with Plaintiff's June 29, 2006 inquiry. To the extent the second letter sought any additional information from Plaintiff (or stated that Plaintiff could voluntarily send in further information), it was in connection with the prospect of a potential discharge of Plaintiff's mortgage, rather than its collection. The letters were, on their face, in the nature of a customer service response, rather than a debt collection demand. Neither letter provided terms of payment or deadlines, threatened further collection proceedings, or, indeed, demanded payment in any form. While the court does not hold that any of these actions are necessarily required to fall within the scope of § 1692e, they would have been at least indicia of actions taken "in connection with the collection of [a] debt," as opposed to customer service actions taken in response to an inquiry.

From my experience, Judge Cleland is a very smart man and an excellent judge. However, on this issue, I have to wonder whether he is reading a requirement into 15 USC 1692e that does not exist. After all, the FDCPA simply talks about the required language that must be contained in communications with a consumer. The statute does not condition the requirement to provide this language based upon the contents of the communications to threats or proceedings. I think Judge Cleland may have over analyzed this requirement in the FDCPA, although I can appreciate the nature of his reasoning.

Collectors - DO NOT BE FOOLED OR LULLED INTO COMPLACENCY. While this holding makes it appear that you may avoid your responsibilities to advise your debtor that you are a debt collector, this ruling has no precedential value. Zero…nada… Be safe. Just write in the words "This is a communication from a debt collector" on every letter you send to your debtors. Make sure your collectors say it on the telephone when talking with your debtors. Do not rely upon this holding.

Debtors - This is a very interesting case. I don't foresee other courts ruling as Judge Cleland has in this case. If you get any communication from a debt collector that does not advise you that it is from a debt collector, I would strongly advise you to pursue your rights.

My colleagues at Credit Slips write a blog that generally bashes credit grantors and bleeds left wing sympathy for the poor. OK. I am closer to being a rich guy that a poor one, but so what? I ain't apologizing. I grew up in a nice home, had my parents to pay for my undergraduate and law school degrees. I have thus far had a wonderful and privileged life. I am pleased as G-d has been good to me.

My colleagues at Credit Slips have recently taken to bashing the Payday loan industry in blog entry entitled Predatory Lending: Robin Hood in Reverse posted by Keith Kilty. I don't know Mr. Kilty or the amount of experience he has talking with the owners of these business. I represent one such entity as its lawyer. I can tell you that it takes a lot of money to pay the start up costs of the the business, pay employees, rent, security and other over items. Pushing all of that aside, Mr. Kilty may not know that a good deal of the checks that are written by Payday customers go bad. When they do, someone has to eat that loss. If the business owner were to eat that ENTIRE loss, he would find himself out of business. The Payday loan business owners protect themselves against these eventual and unavoidable losses with a higher interest rate. Hence, everyone pays a premium to cover the losses that are bourne by the business owner due to the relatively high frequency of these Payday loans going bad. If their interest rates were cut by law, many Payday business owners would simply close up shop. Hence, a Payday customer needing cash immediately would have one less available option to solve the pressing cash need. Is that a solution that Mr. Kilty would prefer? While I understand that some state legislatures are beginning to examine the business operations of the Payday loan industry, one can be sure if that interest rates get cut by statute, many of these business owners will close and do something else with their investment. Is this a direction that Mr. Kilty things would be good for the poor? I sure don't think so.

I am not a big fan of credit repair. In fact, I am downright scared of them. However...I was recently contacted by Marc Chase of My Credit Group. He runs a blog that talks about credit repair services. I liked what he had to say in his email to me. He said "we're working hard as we can to help clean up the industry a little bit On both sides of the fence." I think its a great idea. Credit Reporting Agencies are notorious for frequently reporting incorrect information in consumers' credit bureaus. There is a definite need for credit repair service companies. There is, unfortunately, an equally large need for industry rules, regulations and standards so that a consumer can be reasonably assured that she is working with a company that will aid her in fixing her credit issues.

Marc, I wish you well in your endeavor and look forward to posting good news about positive things you accomplish in this arena.

My colleague, Jonathan Stein, writes a collection law blog from the debtor's perspective. He writes very interesting and insightful pieces. He recently wrote an article describing how a debt collector went to jail for impersonating an attorney and threatening debtors with arrest if they did not pay their bills. Mr. Stein wrote an article in his blog in which he refers to another site that allows one to verify whether an individual is an attorney. I liked this article a lot and thought it had a lot of good information in it. You can now verify whether you are dealing with an attorney or a prankster.

....that if a debtor contacts you and says that the debtor you are collecting on is a result of identity theft, that you have a duty to: 1. report to your client that the debt may be the result of identiity theft and 2. provide the alleged debtor with all of the information you have on the account? I just found this out recently. I have been looking at the Fair Credit Reporting Act lately ("FCRA"). When it was modified in 2004 by FACTA, this requirement was put into the FCRA. I only bring htis up because it is definitely a trap for the unwary collector. You would think ( or at least, I do) that anything having to do with collectors would be contained in the Fair Debt Collection Practices Act, right? WRONG! So be careful.

However, if you follow my blog, you are more likley to stay out of trouble, right? :)