Michigan Collection Law Blog

Many commentators believe that the Fair Debt Collection Practices Act creates more questions than it solved when it was passed into law. Kudos to the Seventh Circuit for taking a number of these issues in the case of Evory v RJM Acquistions Funding, LLC decided on October 23, 2007. Evroy is actually a number of cases that were consolidated that answered the following questions:

1. If the consumer is represented by a lawyer, whether debt collector must give the same written notice to the lawyer that section 1692g requires were the consumer unrepresented and the notice sent directly to him.

HOLDING - YES. Section 1692g of the FDCPA requires a debt collector to send a validation notice to the consumer within 5 days of initial contact. The statute requires that a validation notice be sent to the consumer. If the consumer is represented by counsel, then the debt collector may only communicate with counsel. Send the notice to the consumer's attorney.

2. Whether communications to lawyers are subject to sections 1692d through 1692f, which forbid harassing, deceptive, and unfair practices in debt collection.

HOLDING - MAYBE. Remember, the usual standard for determining whether a communication is deceptive is the "least sophisticated consumer (e.g. "not very bright")." Since lawyers are usually pretty bright and know how to find the law, they are less likely to be deceived by debt collectors. In fact, lawyers can look up the FDCPA and see if a communication is required to be disclosed in the initial communication. In these cases, if a lawyer is unlikely to be deceived by a communication that might confuse the least sophisticated consumer, then there is violation of the FDCPA. However, if the debt collector make a misrepresentation that likely to deceive anyone (for example, as to the amount of the debt that is claimed to be owed), then there would be a violation of the FDCPA no matter to whom the communication is directed.

3. Whether, if the answer to question 2 is yes, the standard applicable to determining whether a representation is false, deceptive, or misleading under section 1692e is the same whether the representation is made to the lawyer or to his client.

HOLDING - Sometimes, but not always. See above.

4. Whether a settlement offer contained in a letter from the debt collector to a consumer is lawful per se under section 1692f.

HOLDING - NO...But see below...

5. If it (a settlement offer directed to a consumer) is not per se lawful, whether its lawfulness should be affected by whether it is addressed to a lawyer, rather than to the consumer directly.

HOLDING - Strangely, the court did not address is this issue directly. Rather, the court talked about safe harbor language that if included in settlement offers would obviate a distinction between whether such offer was received by an attorney or an unsophisticated consumer. The safe harbor language (may be the new "Mini-Miranda" for settlement offers) is "We are not obligated to renew this offer." The court concluded this discussion with the idea that it would have to decide such violations on a case by case basis. Its interesting that the court would have pointedly held that this case addresses this specific issue just to issue a "lets just see on a case by case" holding.

6. Whether there should be a safe harbor for a debt collector accused of violating section 1692e by making such an offer.

HOLDING - YES. The new mini-miranda for settlment offers that should appear on every such settlement offer is..."We are not obligated to renew this offer." In my opinion, that language should now appear not only on settlement offers sent to consumers, but to counsel as well. Why not?

7. Again, if such a letter is not per se lawful, what type of evidence a plaintiff must present to prove that a settlement offer violates section 1692e.

HOLDING - The court held that whether a settlement offer violates the FDCPA will be decided on a case by case basis. Its a question of fact and not a question of law.

8. Whether the determination that a representation is or is not false, deceptive, or misleading under section 1692 is always to be treated as a matter of law.

HOLDING - NO. Representations should be a question of fact.

9. Whether, if that determination is not always a matter of law, nevertheless a charge under section 1692e can sometimes be dismissed on the pleadings on the ground that the challenged representation was, as a matter of law, not false or misleading.

HOLDING -...The court, in a rather humorous dissertation, held that most debt collectors and attorneys know that when a debt collector makes a deep discount offer to a consumer to pay a debt by a certain date, that the debt collector will most likely accept that offer at a later time. A least sophisticated consumer might complain that he was deceived into believing that if he did not accept the offer by that deadline, that he lost out a valuable opportunity for life. The court recognized this potential deception and gave the following safe harbor language that all collectors should use when communicating offers of settlement to consumers: " We are not obligated to renew this offer."

BIG STORY OF THE CASE...This case is really very good news for collectors, agencies and collection law firms. The Court decided this case quite pragmatically. The court refused to give the FDCPA a mechanical reading and interpretation and instead looked at both the offending correspondence and its recipient. Instead of laying down a blanket rule of holding that a correspondence violates FDCPA if it would tend to deceive the least sophisticated consumer, the Court actually looked at who was receiving the letter. Attorneys are not likely to be deceived by something that might tend to mislead a least sophisticated consumer. This is an excellent application and interpretation of the FDCPA. After all, the FDCPA was intended to curb abuses by debt collectors; a shield if you will. The FDCPA was not intended to be a sword by which to catch debt collectors off guard and impale them with sanctions. Kudos the Seventh Circuit. Debt collectors now have a new Mini-Miranda for Settlement Offers. "We are not obligated to renew this offer." Put it on every settlement offer communicated to consumers and attorneys alike. This language will remove the question of whether a settlement offer is a per se violation of the FDCPA in the Seventh Circuit. I think this well crafted opinion will hold sway over the other circuits as well.

I follow a number of blogs. There is a great deal of good information on the web that keeps me current about the state of the law. Unfortunately, there are also a number of quacks that spew baseless information with such authority that one might be lulled into believing its true. I found two such nuggets this morning. I won't mention the blog by name, but I will tell identify the two statement the author has put forth that are simply wrong. He states:

1. If a debt collector insists on payment in full (as every decent collector does), he violates the Fair Debt Collection Practices Act when he refuses to take payments even though he is authorized to do so.

RESPONSE: WRONG. The debt collector may be authorized by his client to accept a payment plan from the debtor, but that does not mean that he has to negotiate one. In fact, most clients simply give their debt collectors some blanket authorization and direct the debt collector to use her discretion to make the best deal possible. In short, just because a collector has the authority to accept a payment plan does not mean that he is required to make one.

2. If a debt collector sends the debtor a notice that refers to a Form 1099, the debt collector has per se, violated the FDCPA because the IRS is not involved.

RESPONSE: WRONG. In fact, when a debt is compromised from its original balance, the IRS has recently required that the collector issue a 1099-C for the difference between the debt as owed and the balance for which it was settled. These rules came about a few years ago and affects both the creditor who has a duty to report debt forgiveness over $600 and debtors who now have to report the debt reduction.

While there is a lot of good information on the 'net, there is also a lot of bad information as well. Just beware of the source of the information to see if its reliable and if the author has the credentials that would give you faith in what he says.

In order to pull someone's credit report, the debt collector has to have a federally permissible purpose according to the Fair Credit Reporting Act. OK...we all know that. We cannot go spelunking for our ex-girlfriends and such for amusement. As a general rule, it used to be that a collector could pull a credit report on any debtor. This is an easy concept. This is not the law anymore.

The 9th Circuit Court of Appeals recently decided Pintos v Pacific Creditors Association. In that case Ms. Pintos' car was towed. She failed or refused to pay the towing company so they sold her car. Apparently, the car did not fetch enough money to pay her towing bill. The towing company turned the debt over to Pacific Creditors Association ("PCA"). PCA pulled her credit report. The 9th Circuit held that this was a mistake. Under the Fair and Accurate Credit Credit Transactions Act ("FACTA") the newest revision of the Fair Credit Reporting Act, a collector may only pull a credit report in connection with a "credit transaction." Ms Pintos did not ask the towing company for credit; rather she helped herself to it. Ms. Pintos lost her claim at the trial court but not in the Court of Appeals.

FACTA became law in 2003. Prior to FACTA, we only had the the Fair Credit and Reporting Act ("FCRA"). Under FCRA, the defendant PCA, would not have been in violation of the law for pulling Pintos' credit report. Under FACTA, it is in violation of the law.

Yesterday, I got a CYA letter from Transunion advising me of this issue. I can see why it is up in arms. Ms. Pintos not only sued PCA, but also sued Experian for providing her credit bureau to PCA.

MORAL OF THE STORY - Before pulling a credit bureau in connection with a consumer transaction, take note of whether the transaction at issue was a voluntary request for credit that has gone bad or whether it was an involuntary debt incurred by the debtor. If it is the former, you may legally pull a credit bureau. If it is the latter, you had better think twice before doing so.

The United States District Court here in the 6th Circuit recently decided Jerman v Carlisle, 502 F Supp 2nd 686 (2007). While this is not an appellate decision, it may very well be a harbinger of the 6th circuit court of appeals' sentiment may lay with respect to the issue of whether a summons and complaint is an initial communication under the federal Fair Debt Collection Practices Act.

Until now, this issue has been unsettled in this circuit. Under the FDCPA, a debt collector has to send a validation notice to the debtor within 5 days of its initial communication with the debtor. Hence, if a law firm files a lawsuit to foreclose on a mortgage, it must send out a validation notice within 5 days of serving the complaint for foreclosure on the homeowners. This holding should be noted by every law firm that does mortgage foreclosures.

Law firms and attorneys that only dabble in debt collection and foreclosure BEWARE....many of you will most likely see a wave of FDCPA lawsuits naming you as defendants. While you may not want to get involved in the pre-suit "collection process" , you cannot avoid the strictures of the Fair Debt Collection Practices Act by refusing to call the debtor before you file suit. If you have had no pre-suit contact with the debtor, then your lawsuit IS the initial communication with the debtor. You MUST then send out a validation notice. The Jermane holding is a wake up call to every attorney and law firm that if you are going to sue someone on a consumer debt, you better send that consumer a validation letter within 5 days of serving the consumer with the complaint.

Here is an interesting conundrum. Defendant Portfolio Recovery Associates ("PRA") purchased a time barred debt from Brewer and sent Brewer a "notice" that the debt has been transferred. PRA sent Brewer a letter that states:

"Portfolio Recovery Associates purchased the account referenced above [Capital One Bank, balance $ 2,444.20] on 03/22/07. Interest continues to accrue on this account until the account is satisfied. The stated balance includes interest as of the date of this letter. All future payments and correspondence for this account, including credit counseling service payments, should be directed to us. This account may be collected by us or by our affiliate, Anchor Receivables Management."

It also added the validation language of the FDCPA as follows:

Unless you notify this office [*4] within 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 30 days from receiving this notice that you dispute the validity of this debt or any portion thereof, this office will obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgment or verification. If you request this office in writing within 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.

Brewer sued PRA alleging that PRA violated the FDCPA. Brewer alleged that because the debt was barred by the statute of limitations, that PRA created a false representation by sending him a letter implying that this debt was still valid. The court dismissed Brewer's claim. If you look at the language the letter, you will see that PRA did not demand payment of the debt, but merely advised the debtor that this debt had been transferred. The court held the running of the statute of limitations does not extinguish the debt, but merely makes it unenforceable.

The court held that even the least sophisticated consumer could not infer from PRA's letter that there was a threat to sue. Hence, there was no violation of the FDCPA.

Even as a debt collector, I think that there are two major issues with the court's ruling: First, The "least sophisticated consumer" standard is an extremely low one. Without trying to be politically incorrect or offensive, suffice it to say that one might find a least sophisticated consumer living in a group home. If an individual such as this received a letter stating that the debt (presumably valid and enforceable) had been transferred and interest continues to accrue, what is that consumer supposed to garner from the letter? Hell, even if you cranked up this consumer's business saavy a notch or two so that it was on par with your I.Q., what would you think if you received this letter? I don't understand how this letter could have passed scrutiny with the FDCPA as it clearly conveys an impression that the debt is valid and enforceable. Any recipient of the letter would have to make the assumption that the collection agency sent a letter advising that a debt has been transferred because it had a valid and enforceable debt. That would just be implied. At least it would be implied to me. May I should move into a group home.

Secondly, while I understand the paper thin distinction between a debt and its enforceability, I don't understand why the court believes that such a distinction would be valid in context of an FDCPA action. After all, the FDCPA according to the official FTC commentary is to be liberally construed in favor of the consumer to effectuate its purpose. With an edict to construe the FDCPA broadly, I again, do not understand the difference between a debt that is unenforceable and debt that does not exist. In an academic setting, there is a difference; albeit thin. But c'mon, as a practical matter and against the background of the FDCPA's purpose and its construction, that difference is meaningless.

Moral of the story - you can send demand letters to collect expired debts so long as you are not demanding payment or threatening to take action to collect the debt. I still think, however, that this is risky business.

Here is a post that is going to win me absolutely no friends with the credit card industry or even my colleagues. But what the hell...here it goes.

Are you delinquent with your credit card debt? Is the credit card company dunning you? You should know that it is highly unlikely that they will compromise this debt. If you want to save your credit rating, do your best to make a deal. BUT...if you are not as concerned about your credit rating (translation...this ain't the only debt on your record), then here is my advise....IGNORE THEM. Simply tell them once, kindly, not to contact you. If it is a consumer type debt, then under the Fair Debt Collection Practices Act, they have to comply. They will then take one of 3 possible actions against you:

1. They will refer your debt to a collection agency which is good news for you),
2. They will refer it to law firm to file suit against you (which is even better news for you) or
3. They will sell your debt to a third party (which is great news for you.) Here is why...

1. If the credit card company refers your balance to a collection agency, the agency typically has some settlement authority with which to make a deal with you. They usually have far more authority to compromise your debt than the collector at the credit card company did. If you can make a deal at this point, you might want to consider it. But, if you want to screw with them a little, then just tell the nice collector from the agency to not call you anymore and wait for the debt to go to a law firm or a debt buyer.

2. Law firms - typically don't like suing on credit card debt. Why? Because if you present any kind of a defense to it, you may actually get out of paying the debt altogether. I know of several judges in Michigan that hate this kind of debt coming into their courtroom. Moreover, unless the debt is really really high, it is unlikely that the credit card company is going to send a witness to trial. If you demand a trial and don't back down, the law firm will go to some pretty great lengths to make a deal with you.

3. Credit card purchasers. This is the Tri-fecta for a debtor. First of all, these credit card purchasers usually do NOT get the back data on their debts. Thus when they take you to court, tell the judge that you want "discovery." This means that you want the debt buyer to come across with a copy of the contract that you signed when you opened the account. They almost never have this information. When you demand this discovery and the law firm comes up short,l they will bend over backwards to make a deal with you. There is a sizable debt collection law firm in West Bloomfield that does a brisk business in credit card collections. When debtors demand discovery, this firm will usually come across with a paltry offer or simply dismiss their case.

There you have it. Credit card debt is highly manageable depending on the level of risk you are willing to take and also depending on who is collecting the debt. If you can stand the heat, I would suggest that you wait until the debt falls into the hands of a third party. You can make your best deal at that level.

My colleague, Mary Jane Elliot has been sued by Frank Glover for violation of the Fair Debt Collection Practices Act. I know Mary Jane. She is a very bright, and very astute individual. I don't know the facts of this case, but merely want to talk about a recent development in this case that has made money for the Plaintiff's counsel at her expense.

Mary Jane's attorney filed a veritable laundry list of affirmative defenses in connection with her answer. I have seen this done literally, hundreds if not thousands of times. Under the court rules, generally any affirmative defense not asserted is waived. Mary Jane's attorneys were probably concerned about inadvertently failing to assert a defense on her part and so, they listed a number of affirmative defenses that were really not relevant. Plaintiff's counsel seized the opportunity and filed a motion to strike these affirmative defenses and ask for sanctions. In a tersely worded opinion the court held in part:

Tenth Defense. As noted above, the tenth defense attempts to incorporate by reference all affirmative defenses recognized in Rules 8(c) and 12(b) of the Federal Rules of Civil Procedure. This is utter nonsense. It is inconceivable that every defense known to the law could be applicable to a case of this [*12] simplicity. The tenth defense does not given plaintiff fair notice of anything and will be stricken.

Eleventh Defense. Defendant asserts that plaintiff has suffered no damages as a result of any act or omission of defendant. This is not an affirmative defense. Plaintiff has the burden of demonstrating that he is entitled to whatever damages the statutes allow. The eleventh defense is a waste of ink and will be stricken.

Twelfth Defense. Defendant raises the equitable defense of unclean hands. The unclean hands defense will, in certain circumstances, provide a defense to claims for injunction or other equitable relief. See, e.g., Performance Unlimited, Inc. v. Questar Pub., Inc., 52 F.3d 1373, 1383 (6th Cir. 1995). As plaintiff seeks no equitable relief, the unclean hands doctrine is inapplicable to this case and insufficient on its face.

Thirteenth Defense. The thirteenth defense alleges verbatim: "Plaintiff's and/or their agents have engaged in the unauthorized practice of law." Leaving grammatical errors aside, the court notes the utter futility of this so-called defense. Although called upon to do so by the motion to strike, defendant has not attempted to justify its accusation that [*13] plaintiff has engaged in the unauthorized practice of law. If the accusation is aimed at plaintiff's counsel, it appears completely frivolous, as counsel has been admitted to the bar of this court. This nonsensical defense will be stricken.

Fourteenth Defense. In five words, defendant asserts the right of setoff, but does not identify any debt or claim owing to defendant that would give rise to such a right. Again, this is boilerplate pleading that the court will not tolerate. The defense will be stricken.

Fifteenth Defense. Defendant asserts that plaintiff's claims are barred "due to impossibility." The doctrine of impossibility may have some relevance to a contract claim or an action under Article II of the UCC. It is hard to conceive of a more ridiculous defense to an action under the Fair Debt Collection Practices Act.

The sharpness of the court's rebuke of of defense counsel's affirmative defenses grew with each successive affirmative defense. But, beesides the obvious embarrassment to Defense counsel, whats the harm? In this case, I see it as two fold: First, under the FDCPA, the Plaintiff may be awarded attorneys' fees if it prevails. This motion and the fact that partial relief was granted on it, will undoubtedly add to the Plaintiff's pot of attorneys' fees at the end of this case or during settlement negotiations.

Secondly and perhaps more importantly, Plaintiff's counsel took a chunk of Defense counsel's credibility from the court. Attorneys win and lose cases not just on the facts, but on their credibility. In close calls on rulings, one would be hard pressed to believe that a court does not look to the credibility of counsel. I am not throwing stones at Mary Jane's attorneys. Hell, I throw every affirmative defense into a case so as not to waive anything on behalf of my client. From now on, however, I will be quite sure to review those affirmative defenses. So will Mary Jane's attorneys, I am sure.

The Fair Debt Collection Practices Act ("FDCPA") prohibits the use of false or deceptive means in the connection with the collection of a debt. So...when Mr. Glover was dunned for a consumer debt and the collection agency that called him had its caller i.d. come up on Glover's phone as "unavailable" did the agency violate the FDCPA? According to the 6th Circuit Court of Appeals, the answer is "NO." But...there is more. Mr. Glover argued that in the case of Knoll v. Intellerisk, the Defendant collection agency was found to have violated the FDCPA when it manipulated its caller i.d. to show the name "Jennifer Smith" on the debtor's caller i.d. device. The 6th Circuit said that Knoll was distinguishable from Mr. Glover's case.

The difference? Intellerisk was violating the FDCPA by using a false name on debtors' caller i.d.s. That is clearly using a false or deceptive method in connection with the collection of a debt. In Glover's case, the agency that was dunning Glover simply made its information "unavailable" to his caller i.d.

Moral of the Story - Note the distinction between the two cases. If a collection agency merely declines to forward its information on debtor's caller i.d., that is acceptable and does not violate the FDCPA. However, if the collection agency misrepresents its identity on debtor's caller i.d., then it violates the FDCPA violation.