The Ethics of Collection and the Fair Debt Collection Practices Act

SARAH E. FISHER -OTTEN ATTORNEY, OWNER FISHER LAW FIRM, PLLC WWW.FISHERLAWMN.COM BLOOMINGTON, MN 651 .442 .0206

Ethical Issues in Collections

Fees

Disclosure and Communications • Clients, Represented and Unrepresented Parties, Non-Lawyer Staff,

Judges

• Truthfulness to Others, Meritorious Claims, Candor Towards the Tribunal

Unauthorized Practice of Law

Fairness and Respect for Rights of Others

Additional FDCPA obligations

Fee Arrangements

Rule 1.5 Fees

• Contingency fees

• Flat/fixed fees

Communications with Clients and Other Parties

Rule 1.4 Communications

Rule 4.2 Communications with Persons Represented by Counsel

Rule 4.3 Dealing with Unrepresented Persons

Rule 5.3 Responsibilities Regarding Nonlawyer Assistants

Disclosure Issues

Rule 4.1 Truthfulness in Statements to Others

Rule 3.1 Meritorious Claims and Contentions

Rule 3.3 Candor Toward the Tribunal

Rule 4.3 Dealing with Unrepresented Persons

Unauthorized Practice of Law

Rule 5.5 Unauthorized Practice of Law; Multijurisdictional Practice of Law

Rule 7.1 Communication Concerning a Lawyer’s Services

Minn. Stat. § 481.02, Subd. 8 also makes UPL a misdemeanor

Common Considerations

Rule 3.4 Fairness to Opposing Party and Counsel

Rule 4.4 Respect for Rights of Third Persons

Time-Barred Debt, Statutes of Limitation, and “Zombie Debt”

Pros and Cons of Conciliation Court

Fair Debt Collection Practices Act 15 U.S.C. § 1692, et seq.

Big deal? Yes.

Remedial statute; strict liability

§ 1692k Civil Liability

Damages: • Individual actions

• Class actions

Burden of proof = Preponderance of evidence

1 year statute of limitations • Runs from date offending action

occurred or letter was mailed

Defenses • “Bona fide error” defense

• Revival of debt (“zombie debt”)

• Failure to mitigate damages

• “Bad faith” under § 1692k(a)(3)

Scope of the FDCPA

Consumer debts only, not commercial debts

Three primary goals: • Eliminate abusive debt collection practices by debt collectors;

• Insure those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged; and

• Promote consistent State action to protect consumers against debt collection abuses.

Who is a “consumer?”

What is a “debt?”

Who is a “creditor?”

Who is a “debt collector?”

Actions Permitted, Restricted, and Required by the FDCPA

“Unsophisticated Consumer” and “Least Sophisticated Consumer” Standards

Communications with Consumer (§ 1692c) • Time and Place of Communications

• Ceasing Communications with Consumer

Harassment or Abuse (§ 1692d) • “Meaningful disclosure”

• Debt collection calls

False or Misleading Representations (§ 1692e) • “Mini-Miranda”

• Voicemails

Unfair Practices (§ 1692f) • Interest and other charges

Validation of Debts (§ 1692g) • Debt Validation Notice

• Failure to dispute debt not an admission of liability

Payments by Consumer with Multiple Debts (§ 1692h) • Cannot apply to disputed debt

• Apply as instructed

Deceptive Forms (§ 1692j)

How Will the Court See It?

MN uses “Unsophisticated Consumer” standard • Duffy v. Landberg, 215 F.3d 871 (8th Cir. 2000)

• “Designed to protect consumers of below average sophistication or intelligence without having the standard tied to ‘the very last rung on the sophistication ladder.’”

• Protects all consumers, even naïve and trusting, and protects debt collectors against liability for bizarre or idiosyncratic interpretation of collection notices.

Most courts use “Least Sophisticated Consumer” standard • Exposition Press, Inc. v. Fed. Trade Comm., 295 F.2d 869 (2nd Cir. 1961)

• “In evaluating the tendency of language to deceive, the FTC should look not to the most sophisticated readers but rather to the least.”

Communications with Consumer (§ 1692c)

If knowledge consumer is represented by an attorney, must communicate with the consumer’s attorney and not the consumer, unless the attorney fails to respond within a reasonable period of time, or the attorney consents to direct communication with the consumer.

Without having directly received the prior consent of a consumer, or the express permission of a court of competent jurisdiction, may not communicate with a consumer in connection with the collection of any debt at any time or place that is known, or should be known, to be unusual or inconvenient to the consumer. • Absent knowledge to the contrary, can assume between 8:00 a.m. and 9:00

p.m. (local time based on consumer’s location) is convenient.

• May not contact a consumer at work if know or have reason to know that the consumer’s employer prohibits consumer from receiving such communication.

Ceasing Communications with Consumer (§ 1692c(c))

If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that consumer wishes for debt collector to cease further communications with the consumer, then the debt collector must stop.

• Three exceptions:

To advise the consumer that the debt collector is stopping efforts to collect the debt;

To notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by the debt collector or creditor; or

Where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.

Harassment or Abuse (§ 1692d)

Expressly prohibits “any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with a debt.”

Includes, but is not limited to: • The use or threat of violence or other criminal means to harm the physical

person, reputation, or property of any person. 15 U.S.C. § 1692d(1);

• The use of obscene or profane language the natural consequence of which is to abuse the hearer or reader. 15 U.S.C. § 1692d(2);

• Advertising a debt for sale to coerce payment of the debt. 15 U.S.C. § 1692d(4);

• Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number. 15 U.S.C. § 1692d(5); and

• Except for acquiring information about the consumer’s location as permitted in 15 U.S.C. § 1692b, the placement of telephone calls without “meaningful disclosure” of the caller’s identity. 15 U.S.C. § 1692d(6).

False or Misleading Representations (§ 1692e)

Expressly prohibits “any false, deceptive, or misleading representation or means in connection with the collection of any debt.”

Includes, but is not limited to: • The false representation of the character, amount, or legal status of any debt, or

services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt. 15 U.S.C. § 1692e(2);

• The false representation or implication that an individual is an attorney or that any communication is from an attorney. 15 U.S.C. § 1692e(3);

• The representation or implication that nonpayment of any debt will result in the arrest or imprisonment of any person, or the seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to take such action. 15 U.S.C. § 1692e(4);

• The threat to take any action that cannot legally be taken or that is not intended to be taken. 15 U.S.C. § 1692e(5);

False or Misleading Representations (§ 1692e) cont.

• The false representation or implication that the consumer committed any crime or other conduct in order to disgrace the consumer. 15 U.S.C. § 1692e(7);

• Communicating or threatening to communicate credit information which is known or should be known to be false, including the failure to communicate that a disputed debt is disputed. 15 U.S.C. § 1692e(8);

• The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer. 15 U.S.C. § 1692e(10);

• The failure to disclose in the initial communication with the consumer, whether such communication is written or oral, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector. 15 U.S.C. § 1692e(11); and

• The use of any business, company, or organization name other than the true name of the debt collector’s business, company, or organization. 15 U.S.C. § 1692e(14).

Unfair Practices (§ 1692f)

Expressly prohibits use of “unfair or unconscionable means to collect or attempt to collect any debt.”

Includes, but is not limited to:

• The collection of any amount, including interest, fees, charges or expenses incidental to the principal debt obligation unless such amount is expressly authorized by the consumer or permitted by law. 15 U.S.C. § 1692f(1);

• Accepting a check postdated by more than five days unless the accountholder is notified in writing of the debt collector’s intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit. 15 U.S.C. § 1692f(2);

Unfair Practices (§ 1692f) cont.

• Soliciting a postdated check for the purpose of threatening or instituting criminal prosecution. 15 U.S.C. § 1692f(3);

• Depositing or threatening to deposit any postdated check prior to the date on the check. 15 U.S.C. § 1692f(4);

• Communicating with a consumer regarding a debt by post card. 15 U.S.C. § 1692f(7); and

• Using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer through the mail, except that a debt collector can use his or her business name if such name does not indicate that he or she is in the debt collection business. 15 U.S.C. § 1692f(8).

Validation of Debt (§ 1692g)

Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall send the consumer a written notice containing the following:

• The amount of the debt;

• The name of the creditor to whom the debt is owed;

• A statement that unless the consumer disputes the validity of the debt or any portion thereof, within thirty days after receipt of the notice, the debt will be assumed to be valid by the debt collector;

• A statement that unless the consumer disputes the validity of the debt or any portion thereof, within thirty days after receipt of the notice, the debt will be assumed to be valid by the debt collector;

Validation of Debt (§ 1692g) cont.

• A statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of the judgment again the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

• A statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

Notice not required if the above information is contained in the initial communication from the debt collector to the consumer, or if the consumer has paid the debt.

Avoid “overshadowing” the required information with other language

Payments by Consumer with Multiple Debts (§ 1692h)

If multiple debts and has disputed one or more of them, then makes a payment, payment may not be applied to the disputed debt(s).

When a consumer gives instructions as to how payment(s) should be applied, must apply payment in accordance with the consumer’s instructions.

Deceptive Forms (§ 1692j)

Makes it unlawful to design, compile, and furnish any form knowing that such form would be used to create the false belief in a consumer that a person other than the consumer’s creditor is participating in the collection, or attempted collection, of a debt, when that person is not in fact participating.

Demand Letters: FDCPA Pitfalls to Avoid

Using deceptive letterhead or form

Failing to Include Required Disclosures:

• Meaningful disclosure

• “Mini-Miranda”

• Debt validation notice

“Overshadowing” the debt validation notice

Requiring written dispute of validity of debt

Incorrectly stating amount of debt

• Interest, attorneys’ fees and other charges