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

Red Orbit report on the case of Saunders v. Branch Banking and Trust Co. of Virginia, No. 07-1108 (decided May 14, 2008) (Judges Michael, MOTZ, & Keeley (sitting by designation), as follows:

FACTS: On August 31, 2003, Rex Saunders purchased an automobile from Richmond Mitsubishi, and the dealer assigned his loan for the car to Branch Banking & Trust Company of Virginia (BB&T). When Saunders did not subsequently receive a payment book for the new car, he telephoned BB&T and was told that he owed no money on any loan. Thereafter, he visited a BB&T branch and obtained a copy of his loan statement at the bank, revealing that he owed nothing, and checked with the Department of Motor Vehicles, which indicated no liens on the vehicle.

On March 8, 2004, Saunders received a letter from BB&T, informing him his payments were "seriously delinquent," that his loan was in default, and that BB&T had accelerated the payment schedule so that he owed a total balance of $20,441.19, including principal, interest, late fees, and "other applicable charges," all of which was to be paid in full within ten days.

Thereafter, Saunders met with a BB&T lending officer, and said that he would meet his obligations under the loan, but refused to pay any penalties or late fees. The bank refused to waive the late fees or penalties, however. BB&T subsequently repossessed Saunders' car and informed him that he could only redeem it by paying the full amount due, including principal, interest, late fees, and a repossession expense.

On October 24, 2005, Saunders sued BB&T in federal district court, alleging that it violated its duties as a furnisher of information under the Fair Credit Reporting Act (FCRA) by failing to report the dispute. The jury returned a verdict finding that BB&T had intentionally violated its duties under FCRA, awarding Saunders punitive damages.

BB&T appealed to the 4th Circuit, which affirmed.

LAW: FCRA requires credit reporting agencies (CRAs) to follow procedures in reporting consumer credit information that both "meet[] the needs of commerce" and are "fair and equitable to the consumer." 15 U.S.C. [section]1681(b). In addition to the duties it imposes on CRAs, FCRA also imposes duties on "furnishers of information." [section]1681s-2. Under [section]1681s-2(a), FCRA prohibits any person from furnishing information to a CRA that the person knows is inaccurate.

If a consumer notifies a CRA that he disputes the accuracy of an item in his file, FCRA requires the CRA to notify the furnisher of the dispute. [section]1681i(a)(2). FCRA requires furnishers to determine whether the information that they previously reported to a CRA is "incomplete or inaccurate." [section]1681s-2(b)(1)(D).

Here, given the evidence before it, the jury could reasonably have concluded that BB&T's decision to report the debt without any mention of a dispute was "misleading in such a way and to such an extent that it can be expected to have an adverse effect." Dalton v. Capital Associated Indus., Inc., 257 F.3d 409, 415 (4th Cir. 2001). The district court did not err in so holding.

Continue reading "There may be a private cause of action against a Furnisher for failing to flag a debt as disputed by the Consumer." »

Wow. The U.S. Court of Appeals either cut a break to the Defendant in Federal Home Loan Mortgage Corp v Lamar or it is signaling a new direction in the enforcement of the Fair Debt Collection Practices Act, against the consumer ("FDCPA").

In this case, Federal Home Loan foreclosed on the debtor's mortgage through its counsel, Lerner, Sampson and Rothfuss (LS& R). LS&R did not send out a separate validation notice as required by the FDCPA at 15 USC 1692g. The FDCPA requires a debt collector to send the consumer a notice of the debtor's rights to dispute a debt within 30 days, amongst other things. In this case, LS&R simply put the validation notice language in the complaint for foreclosure that it filed with the court. While the validation notice language informed Lamar that she had 30 days to dispute the debt, in reality she only had 20 days to file an answer to complaint disputing the debt. Ms. Lamar contended that putting the validation language in a complaint without reconciling language to explain the difference between the 30 day right to dispute the debt and the 20 day duty to file an answer to the complaint would confuse the least sophisticated consumer. This is an excellent point. The court agreed with neither Ms. Lamar nor with me.

Notices under the FDCPA use the Least Sophisticated Consumer Standard. Under the FDCPA, "A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." Courts have interpreted this provision in light of "the least sophisticated consumer." This means that if a notice would tend to confuse "the least sophisticated consumer," then the notice is confusing and violates the FDCPA. Notice that under general negligence law, we use the standard of the "reasonably prudent person." This is a much more sophisticated and intelligent person. However, when enforcing the FDCPA, the court use a much lower standard to determine whether the FDCPA has been violated. This is not to insult us as consumers. Rather, the courts use this lower standard so make the FDCPA enforceable in more cases than it would otherwise be enforced with the higher standard.

Back to our story.....As a debt collector, this case is very welcomed news in our community. As a consumer, I would be very scared. The Act requires debt collectors to give certain notices to the debtors. The Act also requires debt collectors to communicate very clearly with consumers such that even the least sophisticated consumer would understand the communication from the debt collector. With these two simple rules, I don't understand how the court could have ruled that putting a 30 day validation notice into a complaint that only gives a consumer 20 days to respond would NOT confuse a least sophisticated consumer. The Court of Appeals would not have any part of this argument. It believes that the least sophisticated consumer must simply think a little harder. The court ruled:

The least sophisticated consumer, with a careful reading of the language in the Summons and Complaint, including the statutorily required notice, would understand that there were two different time periods within which she must act, and that the time periods run at the same time, from the day after the Summons and Complaint is received.

In my opinion, this ruling ignores the very nature of the least sophisticated consumer. If he were able to read pleadings that carefully and develop the understanding that there are two different time periods involved, then would this consumer really be "the least sophisticated"? I doubt it.

Moral of the Story? Good question! So what the court doing when it made this ruling? Was the Sixth Circuit ratcheting up the I.Q. of the least sophisticated consumer or merely going away from that standard and moving towards a reasonably prudent person standard? Or was the court merely signaling to us that it has seen enough creative FDCPA lawsuits at the trial level, the likes of which were never contemplated by Congress and simply wanted to push the pendulum in the other direction? I think it may be a little too early to tell. I do, believe, however, that this case is a harbinger of the court's direction rather than an isolated anomaly.

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.

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.

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.

I follow a number of blogs and read a large number of articles about the Fair Debt Collection Practices Act. Many of these authors tout the FDCPA as magic bullet with which a debtor can bully a collection agency. While the Act is intended to make collectors act as decent human beings, you should be aware that the Act also has the following limits:

1. The FDCPA applies only to consumer debts and not to commercial debts. A consumer debt is one that incurred for "personal, family or household use." A commercial debt is any debt that is not a consumer debt. This definition can make the determination of a debt somewhat tricky. For example, if one uses a credit card debt to purchase items for a home, it is a consumer debt. If one uses that same credit card to purchase items for one's office, it is arguably a commercial debt. In any event, just be aware, that the FDCPA does NOT apply to commercial debts.

2. The FDCPA does NOT apply to creditors collecting on their own debt so long as they did not acquire the debt when it was in default. For example, MBNA collecting on its own debt does not subject its collector type employees to the FDCPA. Moreover, if MBNA sells a credit card debt that is used for consumer purposes to another credit card company while the debt is NOT in default, the new credit card company is also not subject to the FDCPA. But, if MBNA sells the debt to the new credit card company while the debt is in default, the new company is subject to the FDCPA.

3. Governmental agencies are not subject to the FDCPA. Hence, neither the IRS nor your state or local governmental taxing authorities are bound by the Act's restrictions.

If you have find yourself being pursued by a debtor, take a moment and review these restrictions before dealing with any collector. Knowing your rights and their limits will give you a decided edge in your negotiations to resolve your debt issues.

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.

The U.S. Court of Appeals for the Fourth Circuit just decided Sayyed v Wolpoff and Abramson. Sayyed was a consumer that was delinquent on his discover card. Wolpoff is a law firm that sued for the balance due plus attorneys fees. In pursing its client's case, Wolpoff served interrogatories that did not state "This is a communication from a debt collector." Moreover, Wolpoff filed a Motion for Summary Disposition. Sayyed countersued for violation of the FDCPA. Sayyed alleged that the interrogatories failed to state that they were a communication from a debt collector, in violation of 15 U.S.C. § 1692e(11). He also alleged that the interrogatories violated
§ 1692e(10)’s prohibition against false representations and § 1692f’s prohibition against unfair or unconscionable collection attempts by making three false statements: (1) that the trial date for the Maryland case was June 11, 2004; (2) that Sayyed had to state his grounds of refusal to answer the interrogatories under oath; and (3) that the state court could enter a default judgment against Sayyed if he did not mail answers to W&A within thirty days after the date of service. W&A argues that it cannot be subject to claims under the FDCPA because an absolute common law immunity attaches to "any statements made during the course of judicial proceedings." In W&A’s view, the allegedly false statements in W&A’s interrogatories and
summary judgment motion thus cannot constitute FDCPA violations. The court held that the FDCPA trumps such common law immunity. Hence, even in litigation and in its pleadings, an attorney's statements are governed by the FDCPA.

Wolpoff argued that the pleadings that it had sent were not transmitted to the debtor, but rather the debtor's attorney and thus, even if FDCPA applies to pleadings, the communication was not sent to the consumer. The court would have no part of that. The court noted that FDCPA defines "communication" broadly. Thus a communication to debtor's counsel is the same as a communication to the debtor.

Wolpoff did advance one very interesting argument that I had never seen before. It contended that the FDCPA cannot apply to the litigation process because the entire purpose of litigtion is to arrive at the truth. I found this argument appealing. W & A was actually telling the court that if it was going to be bound by the strictures of the FDCPA in advocating for its client, then the FDCPA will have a chilling effect upon its advocacy. This is really quite unthinkable, especially in light of the immunity that litigants enjoy in their pleadings. The court found it interesting as well, but alas, it was not enough to save W & A at the end of the day. The court found that inasmuch as Congress specifically and narrowly exempted formal pleadings from the notice requirement under FDCPA, that the rest of the statute must apply to the rest of the litigation process.

Wolpoff also contended that it relied upon its client's affidavit in support of its Motion for Summary Judgment. While the District Court bought this argument and dismissed Sayyed's case, the court of appeals reversed this decision. The court of appeals held that the district court should not have dismissed this claim out of hand, but rather it needed to make a finding of fact (which is impermissible on a Motion for Summary Disposition) as to whether Wolpoff is entitled to use the bona fide error exception of the FDCPA. This would probably necessitate a trial.

In my opinion, this is a scary case, but it is well reasoned and properly decided.

Lessons to be learned by Debt Collection Attorneys:

1. Although you do not have put the phrase "This is a communication from a debt collector" on pleadings, the FDCPA applies in all other respects to the litigation process including your pleadings. If you sue for an amount that is not allowed by contract or law, you bear the consequences.

2. Thus a communication to debtor's counsel is the same as a communication to the debtor.

3. Do NOT rely upon the bona fide error exception to the FDCPA to get you out of an FDCPA lawsuit quickly. Whether you are entitled to use this defense is a question of fact. Questions of fact are usually resolved after a long and expensive trial.

P.S. Special thanks to Attorney Remy Luria for her help in editing this post.

Collection agencies and collectors - BE VERY CAREFUL. An unpublished opinion from from the United States District Court from the Northern District of Ohio called Jerman v Carlisle, McNellie et al at 2006 U S Dist LEXIS 85339 held that a debtor's demand for verification of the debt does not have to be in writing in order to be effective.

As you are probably are aware, the Fair Debt Collection Practices Act requires third party debt collectors to send a validation notice to the consumer within 5 days of the collector's initial communication (15 USC 1692g). While a debt collector's notice to the consume must be in writing, the consumer's demand for verification of the debt does NOT need to be in writing.

So whats the problem, here?

There are a great number of debt collectors, including attorneys, who think that if a debtor gets a letter with a scary tone, that it will shock the debtor into paying the debt...yeah...right...wake up!!!! By drafting language in the validation notice that is different than the safe harbor language of 15 USC 1692g, all the collector is doing is opening himself up to lawsuit by the debtor. This lawsuit is not only a fund raiser for the debtor, but an especially happy time for the debtor's attorney who knows that the collection agency or attorney who dared to be creative with the validation notice, will end up paying the debtor's attorney's fees. Why should a collector then get creative with his demand letters, you ask? The short answer is, he shouldn't. It's just ego doing the drafting of a validation notice that does not track, word for word, the safe harbor provisions of 15 USC 1692g. Collectors, including attorneys, here's a message for you....this is just business, its not ego. Yeah, yeah, I know. The client expects to be dazzled by your brilliance and fine command of the English language. I have a better idea....How about protecting the client from lawsuits under the FDCPA that are completely avoidable? Draft your validation notices carefully, plainly and very very simply. After all, the standard that courts use to determine whether the FDCPA has been violated is the "least sophisticated consumer." (Translation - "drooling idiot"). If you letter can trick a drooling idiot into thinking that his rights are different than what they are, you have violated the FDCPA. Now, we all know that consumers are not drooling idiots. Some of my best friends are consumers and they don't drool. You don't want to look like a drooling idiot in front of your client when she asks you about the lawsuit that she was served with because the validation notice that you drafted does not comply with FDCPA.

Moral of the story/case - The FDPCA does not require that consumers respond in writing in order to protect their rights. Don't tell consumers that they must send their disputes in writing in order demand validation of the debt.

Note to my fellow collection attorneys - I know that this case is not a published opinion. Big deal, right? Wrong. The court went through a very interesting analysis in which it analyzed cases that held that a consumer's demand for validation must be in writing. See Graziano v Harrisoni, 950 F2d 107 (3rd Cir 1991). The court sided with the majority of district courts that held that a plain reading of the FDCPA imposes not such writing requirement upon the consumer. I think that this is the better reasoned approach.

My colleague, Michael Herin, writes a very good blog about debt collection. Mr. Herin, recently wrote about the ugly truths of medical debt His blog post is very interesting and I highly recommend it, although I only disagree with him on one issue.

Mr. Herin states that if a patient has insurance, that it is strictly a contract between the insurance company and the patient. I disagree with his analysis. The doctor is also a party to that insurance contract as the doctor has agreed to accept a reduced amount of fees for her services. Nevertheless, Mr. Herin makes some very good points that I think everyone really ought to know.

I used to do a great deal of medical collection. I can tell you that it sucked. Medical debt is not the kind of debt that anyone asks for. I loathed going after people who either did not have medical insurance or who simply maxed out their benefits and were on their own for this bills. The absolute worst medical debt was pursing a parent for medical bills that they had for their children. Like its not bad enough that your kid is so sick that one has to accumulate astronomical debt. I understand the need for the hospital and docs to get paid for their services. I am just glad that someone else is doing it. However, the problems of our healthcare delivery system still gnaws at me. I am a father and I wonder what the system will be like for my kids when they grow up.

I predict that in the next 10 years that there will be a major change in the way that America delivers healthcare to the population. Its kinda funny to see who blames whom for the woes in our system. My aunt Phyllis works for an HMO and she tells me that the hospitals are using more services and thus costing the insurance companies more money. She is a very bright woman and I respect her opinion immensely. I know another gentleman who worked for a very large health system in Michgan. He blames the insurance companies for cutting fees at a time when costs are going up. At some point, the finger pointing will be moot as the problem will be inescapable and we will protected by a an irretrievably broken system.

I am amazed at collection agencies that try to get creative with the collection letters. After all, the FDCPA provides safe harbor language to include in a demand letter. When collection agencies avoid this safe harbor, they usually get Pearl Harbored. Take, for instance,

Continue reading "Remember - The standard is the LEAST Sophisticated Debtor" »

The U.S. District Court for Ohio just decided Maddox v The Martin Company, 2006 U.S. Dist. LEXIS 42563. The Defendant, while pursuing the Plaintiff for a debt, apparently disclosed the Plaintiff's social security number to the defendant's nefarious niece. Ms. Maddox sued the Martin company under various Consumer Protection theories including the Fair Debt Collection Practices Act ("FDCPA"). The FDCPA allows for the recovery of attorney fees to a prevailing plaintiff. In this case, the Plaintiff prevailed only upon her theory that the Defendant violated the FDCPA and was awarded damages of $500.00. However, Plaintiff's counsel sought attorney fees of $16,708.50, based upon an hourly rate of $235 and 71.1 hours. The court took a rather dim view of this request in light of the recovery.

What is interesting about this case is that the award of attorney fees is not unbridled and without limitations. While the court will multiply a reasonable hourly rate by reasonable hours invested in the case, the attorney fees may be reduced in light of the result obtained by the Plaintiff.

The court noted that since Plaintiff's counsel did not file affidavits from other attorneys attesting to the reasonableness of the $235 hourly rate, that $150 was probably a more reasonable rate. The court also noted that since Plaintiff's other claims failed in the court, that Plaintiff's counsel should not be compensated for those hours either. The court finally concluded that $3,500 was a reasonable fee to award to Plaintiff's counsel in this case.

Plaintiffs' attorneys should be aware that while the recovery of attorneys fees in FDCPA litigation is tantalizingly authorized by the statute, that some courts appear to take a hard line view of these fees. In some jurisdictions, courts are more liberal in assessing attorneys fees for pro consumer litigation such as FDCPA claims present. However, this case, Maddox v The Martin Company, is a reminder that the FDCPA is not an open checkbook to attorney fees.

When Congress passed the American Jobs Creation Act of 2004, it agreed to allow the IRS to hire private debt collectors to collect back taxes. Recently, the IRS's plan to employ two private debt collection agencies has been halted.

What is disturbing about this statute is that it does not provide any remedies to the taxpayer when faced with an abusive debt collector. In the consumer arena, a collector's behavior is governed by the Fair Debt Collection Practices Act. However, the FDCPA specifically excludes governmental agencies from its provisions. Thus, if a private collector working on behalf of the IRS, gets abusive, there is no federal statute that a consumer may use as a shield and counter-weapon. While it its true that the FDCPA applies only to consumer debts and thus, in a business setting, a collector is not controlled by the FDCPA in the commercial arena, business are usually not as unsophisticated as many consumers are. It may be that in the rush to secure tax dollars that are undoubtedly floating out there, Congress may not have thought this through.