Michigan Collection Law Blog published By Michigan Creditor Lawyers Nitzkin & Associates

In the good ol' days, when someone bounced a check on you in Michigan, you could sue for 3 times the amount of the check plus $250 in costs. See MCL 600.2952. While most of us in Michigan still enjoy this law, Payday Loan companies do not. These companies have sprung up around our state like dandelions in June. They offer money to people on a very short term basis. The Michigan legislature appears to be treating them as most people treat dandelions in June; not nicely at all!

In 2005, the Michigan legislature passed the DEFERRED PRESENTMENT SERVICE TRANSACTIONS ACT. MCL 487.2122. It governs these payday loan companies ("PLC") by requiring them to be licensed and not lending more than $600 and charging no more than 11%-15% for the privilege. In fact, these payday loan companies can't even make more than one loan at time to an individual. Furthermore, the PLC has to check to make sure that the borrower does not have another outstanding payday loan with another PLC before it can make the loan. So why does this statute have me in a dither?

First, the statute prevents the PLC from suing for treble damages on a bad check. If the consumer writes a bad check to the grocery store, then Krogers can sue for three times the amount of the check. Not so for the PLC. The PLC gets a whopping $25 fee. So not only is the lender's rate of return highly regulated, but now its damages are equally regulated (read eviscerated"). To add insult to injury, the statute prohibits pursuing criminal charges against the consumer if he bounces the check. Krogers can turn its check over to the prosecutor, but PLCs cannot. Pretty unfair huh?

Judge Laura Mack from the 29th District Court in Wayne Michigan, wrote an interesting article on the subject. In her article, she implores consumers to be aware of their rights in this regard and to turn in PLCs that still sue for treble damages. There are many of them out there. PLCs can be fined as much as $1,000 or more than $10,000 for each violation. There is also a private right of action by the consumer against the PLC for costs and attorney's fees.

Lessons learned -

1. PLCs have to very careful when setting up shop and enforcing their rights. PLCs have to be especially careful when selecting an attorney to enforce their rights under these bad checks. After all, if an attorney pursues the PLC's rights under the check and seeks treble damages, the attorney not only puts the PLC's license at risk, but the attorney may face liability to the consumer under the Fair Debt Collection Practices Act.

2. Attorney better be very careful when pursing these bad checks. As stated above, if they pursue claims that they do not have the right to pursue, they put their client's license at risk, not to mention the costs of fines, etc. This is a malpractice action just waiting to happen.

3. No conversation by me would be complete without discussing the Fair Debt Collection Practices Act implications. Remember it is a violation of the FDCPA to take action or threaten to take action that you do not presently have the right to take. Suing a debtor for violation treble damages on behalf of a PLC puts the attorney squarely in an FDCPA lawsuit. This just turns this case into a complete nightmare.

Best practice is become familiar with MCL 487.2122 and respect the bounds of the law, like it or not.

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.

An interesting article in the National Law Journal of March 26, 2007 talks about five states that have instituted caps on stay bonds for defendants who appeal their cases. A stay bond is an amount of money that a losing party must post with the trial court so that if the defendant loses the appeal, the winning party will have a fund with which to satisfy the judgment.

From a Plaintiff's perspective, a stay bond is a great thing. Whenever I get a large verdict at a the trial court level, I am usually faced with an opposing party or its counsel threatening an appeal. They usually do this as a tacit threat to further dely my collecting the debt for which I was hired to pursue. Whenever I am threatened in this fashion, I simpy smile and respond that I would actually appreciate the defendant filing an appeal because in order for stop me from pursuing further collection action, the defendant has to post a stay bond with the trial court. By doing this, I will not have to jump through anymore hoops to collect my client's money when the defendant loses the appeal. I am actually thankful for the stay bond requirement.

I once was given a $1.8 million judgment to collect. The defendant/debtor filed an appeal to the Michigan Court of Appeals, but his attorney forgot to post a stay bond. I sent a court officer to his house to clean it out. I also filed a lawsuit against his college aged children for fraudulent transfer of funds as he was paying for their college educations. This was enough to bring him to his knees and to tender a settlement check to us for $1.6 million. The stay bond is a good thing.

Michigan, thus far, does not have a cap on stay bonds. The trial court is charged with the duty of assessing just how large a stay bond must be posted. Typically, stay bonds are assessed at 120% to 150% of the judgment. If the Michigan legislature reduces or sets limits on stay bonds, this could take away a very large tool that we collection attorneys have in collecting judgments. Fortunately, the stay bond limits in Alaska, Kentucky, Maryland, New Mexico and Wyoming are pretty substantial. In fact, Wyoming's stay bond cap is for $2,000,000 on individuals. I suppose that if Michigan were to contemplate a stay bond along these lines, it would not have a great affect on most collection law practices. Nevertheless, its an uncomfortable feeling for collection attorneys whenever a legislative body looks at the law in our specialty. After all, many of us are still reeling from the effects of the Fair Debt Collection Practices Act.