Source: http://debtcollectorshateus.com/the-fdcpa-legislative-mercy/
Timestamp: 2019-04-24 13:54:53+00:00

Document:
The Bible, when referring to justice usually focuses on how the powerless, poor, and homeless are treated.  On judgment day, Jesus is going to look us in the eyes and bring judgment based upon, inter alia, how each person treated the poor. Drawing from Aristotle and The Bible, Saint Thomas wrote that mercy and charity greatly determine justice.  Saint Thomas explained that the law was to direct the common good and that legal justice occurs when man is in harmony with the law that benefits the common good.  Although The Bible explains that justice is often shown by how we treat the poor, it also displays that poor should not be given a form of perverse special treatment in or through the law.
We often conduct ourselves displaying a belief that the poor are different than us. By classifying people based on one variable we instantly create a group containing everyone with this characteristic. When a group is composed of people possessing characteristics that society generally frowns upon, marginalization occurs. Because of our distaste for the poor, we indeed placed them into a group and marginalization manifested.
In the eighteenth century, not only were the poorest poor shunned but also the individuals whom were unable or unwilling to pay their debts.  Onlookers viewed Debtors’ inability to pay as a moral failure, not a result of circumstance. Ministers preached that God was the Great Creditor and He dammed insolvent souls into the debtor’s prison of hell. This was not a stretch of the congregations’ imagination because every colony and later every state permitted imprisonment for debt. Additionally, several colonies permitted indentured servitude and bound insolvent debtors to their creditors as to work off their obligations.
Because Justice greatly is determined by how we treat the “least of these”, this article examines a profound act, one that shines mercy on debtors. The act impinges on the freedom of contract and causes significant burdens on business. Saint Thomas would be proud that Congress favored the poor over these institutions. Additionally, the Supreme Court’s interpretation significantly broadened its scope to cover attorney collectors engaged in litigation which significantly adds protection to the poor. Because the treatment of the poor is so important to Jesus, their treatment should be important to America. The Fair Debt Collection Practices Act evidences their treatment is indeed important to her.
Many commentators agree the legislation was long overdue. Many creditors viewed debtors as irresponsible and simply unwilling to pay. Many engaged in reprehensible acts. In at least thirteen states, there was no state legislation regulating such activity so collectors were free to engage in any behavior that did not fall within a prohibited tort. This scheme was dangerous, because even with the act in effect, the fact patterns running throughout FDCPA cases are appalling.
For example, in Crossley v. Lieberman, Mary Crossley, a sixty-eight year old widow received a letter from a collector regarding a debt she owed to Fleet Consumers Discount Company. This loan was secured by a mortgage on her home.  The letter threatened legal action if a $297.79 debt was not quickly paid in full.  The letter also stated that unless the creditor received payment in full within one week from the date of the August 5, 1986 letter, the creditor would sue Mary and this could result in her property being sold by the sheriff to satisfy the debt. This threatening letter was the first time Mary was told she was in default of payment. There were no prior requests for payments, reminders or phone calls. There was a number located at the top of the letter with instructions to call the number to obtain more information of the debt. After calling the number and speaking with a gentleman, Mary immediately quit her job as noon-time Philadelphia School Board aid just to cash out her $800 pension she accumulated throughout the duration of her employment to pay the debt. Mary did this because the gentleman on the phone told her she should sell her house herself and become a “bag lady” when she told him she could not pay the entire bill at once. This instruction, taken in conjunction with the threat of the sheriff sale, led her to the conclusion if she did not pay her debt her house would be seized and sold.
The application of The Fair Debt Collection Practices Act, like all statutes, is contingent upon the statute’s definitions.  The legislation focuses its protection on the debt collector’s post default communications with the debtor. Under the act, a communication is the “conveying of information regarding a debt directory or indirectly to any person through any medium”.  The act covers “debt collectors” who collect “debt”.  The act defines a debt collector as “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is to collect debt.”  It does not include a creditor, an employee of a creditor, an attorney of a creditor who collects debts in the creditor’s name, or a creditor that collects debts in its own name.  The definitional portion of the act was amended in ­­­­­­­­­­­­­­­­­­­­1986, most notably to remove an express exemption for attorneys who regularly collect consumer debts.  The act applies to “consumer debt arising out of a transaction of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes.”  The focus is on the underlying obligation; the fact that a creditor has taken a judgment does not change the nature of the debt.
Because the purpose of the act is to protect debtors from unscrupulous collectors some question why the act only applies to consumer debt. Even though Congress recognized existing laws were inadequate to protect debtors, the act only applies to consumer debtors. However, arguably a business debtor is a more sophisticated party to a contract than a consumer debtor.
Additionally commentators question why the act only applies to third party creditors. Many small creditors do not hire third party collectors. Therefore, these creditors are not subjected to the act. Furthermore, smaller creditors might depend more on every account, therefore out of desperation more likely to engage in questionable practices. Additionally, some creditors are hiring in house collectors to take advantage of the exemption.  This could pose similar problems as the former attorney exemption, discussed infra.
The act places several restrictions on collectors’ ability to contact third parties.  When collectors communicate with individuals other than the debtor, §1692(b) requires the collector identify himself and state that he is “attempting to confirm or correct the location of the debtor.” If requested, the caller must identify his employer. The collector is prohibited from contacting the same person more than once, unless the person consents or unless the collector believes the person previously gave erroneous or incomplete information.
The third party communication restrictions are reasonable. They discourage unnecessary contact with individuals other than the debtor. Additionally, this prohibition strikes a balance between the creditor’s need to acquire the debtor’ and the debtor’s right to privacy.
In addition to placing restrictions on communication, the act severely limits the proper place of venue for debt collection actions. The venue provision in the FDCPA is an important part of the act. Congress wanted to restrict the normal venue restrictions recognized in state and federal law.  A consumer who is unable to pay an alleged debt will obviously be unable to expend the resources to defend himself in a distant forum. For this reason, any collector who brings a legal action on a consumer debt subject to the act must bring the action in the “judicial district or similar legal entity” where the property is located, or if the transaction does not involve real property, in the judicial district or similar legal entity where the contract was signed or where the debtor lives.  There is a split of authority on how to interpret this provision.
Specifically, it is unclear what entails a “judicial district or similar legal entity”. Currently there are three ways to interpret the provision. For example, in Fox v. CitiCorp Credit Services, the Ninth Circuit reasoned that when an action is brought in a state court, the term “judicial district” is governed by state law and therefore is synonymous with state counties.  The courts have not clearly promulgated what determines a “judicial district or similar legal entity” when the suit on the underlying obligation is brought in Federal Court. However, it seems ridiculous that federal districts would govern. Otherwise, if a state only had one district, the creditor could subject the consumer to litigation on the other side of the state. This does not coincide with the purpose of the venue restriction provision.
Cases interpreting the venue provision are vague. For example, in Scott v. Jones, the plaintiff, a resident of Lynchburg, Virginia claimed the collector violated the venue provision when he filed suit against her in Richmond Virginia.  Without any analysis, the court stated that venue was improper. The only case squarely addressing the issue is Action Processional Service v. Kiggins.  In that case, the court interpreted “judicial district or similar legal entity” as the circuit courts as established by state law if filed in state court but federal judicial districts as established under federal law if action is filed in federal court. However, this statement was dicta because the action on the underlying obligation was filed in state court.  Therefore, this case does not answer clarify the issue.
On its face, the venue restriction appears reasonable. It is reasonable to prevent collectors from bringing suit in forums far from the debtor. However, the consequence of the provision is to force the party that was wronged (the creditor) to travel to inconvenient forums. The creditor did nothing wrong, it was the debtor whom breached the contract. According to Saint Thomas, legal justice occurs when man is in harmony with the law that benefits the common good. Looking at this provision alone, it may be questionable if it benefits the common good. There are two competing sides, the individual debtor and the creditor. The debtor has an interest in not traveling to far away forums. He could not afford to meet his monetary obligation, so he will not have the money to travel.
The competing side is most likely a corporation or a business organization. Its sole function is to increase the profit of the investors. By forcing the corporation to travel to far away forums, this profit is reduced. This appears unfair because it is already suffering loss on the debtors default. However, the right for the accused to defend against accusers outweighs the corporation’s necessity for profits. The right is better for the common good than wealth maximization.
There are also several affirmative obligations the act places on collectors. A significantly debated portion of the act is §1692(e)(11). Commentators and Judges refer to this provision informally as the Miranda Requirement.  Mirroring criminal Miranda warnings, the §1692(e)(11) warnings tell consumers they are talking to an adverse party and the effect of their willingness to engage in reciprocal dialogue. This disclosure requires the collector to divulge two things; that the debt collector is attempting to collect a debt, and that any information the collector obtains will be used for that purpose.
The original version of the act did not express when this disclosure was required. The circuits were wholly inconsistent with the application of this provision. For example, the Ninth Circuit stated that the collector must include the notice in the initial communication but not in any communication thereafter. The Ninth Circuit was the only court that followed this interpretation. The other circuits held that any communication, whether in writing, in person, or on the telephone, needed to begin with this disclosure. When the act was amended, Congress assented to the Ninth Circuit and required the full Miranda warning only in the initial written or oral communication.  However, in subsequent communications the collector must state that they are a debt collector. This is to remind debtors of the initial disclosure.
Another provision requires the debt collector to send the consumer certain information in writing either with the initial communication or within five days after.  Congress recognized that debt collectors sometimes make mistakes in attempting to collect debts.  Because the act only covers collectors not employed by the creditor, there is often a communication stream reminiscent to the childhood game “Telephone”.
The game begins with one person whispering in the ear of their neighbor who in turn, hopefully, whispers the exact phrase in their neighbor’s ear. This exercise continues down a line of multiple people. Without exception, by the time the last person whispered the sentence into the final ear, the information morphed into an unrelated, sometimes unintelligible conglomeration of words. Similarly, the creditor and collector frequently misspoke. Causes of the misinformation include the large bureaucracy of commercial lenders to insufficient methods of communication between the creditor and collector. As a result, Congress requires the collector to provide the debtor certain details about the debt, including notice about the consumer’s right to have the details verified. This ensures the information the collector possesses is accurate.  The required notice must contain (1) the amount of the debt, (2) the name of the creditor to whom the debt is owed, (3) a statement that unless the consumer disputes the validity of the debt within thirty days after receiving the notice the debt collector may assume the debt is valid, (4) a statement that if the debtor contacts the debt collector within thirty days after receiving the notice, the debt collector will obtain verification of the debt and (5) a statement indicating that the consumer may request, in writing, the original name and address of the original creditor, if different from the current one.  This disclosure has caused heated debate. Debt collectors are usually rated on two factors; the amount the recovery and the timeframe in which they recover it. The thirty days requirement angers collectors because it causes their timeframes to increase, which affects their overall rating with clients. The question then becomes, what, if anything, can the debt collector do within those thirty days.
The doctrine dealing with this question is entitled the overshadowing doctrine. Under the overshadowing doctrine, a court will find the notice requirement violated if a statement in the required letter containing the validation notice impliedly or expressly contradicts with the notice.  While an express contradiction is easily defined, determining if statement impliedly contradicts with the provision is more difficult.
The court in Barlett v. Hilbel assisted with this task. The court clearly promulgated ways in which the requirement could be violated; (1) by an actual contradiction arising out of a logical inconsistency, (2) an overshadowing achieved by the placement or type of the validation notice; (3) the collector’s failure to explain an apparent though not actual contradiction between the period for payment and the period for verification.  To clarify the last element, the element most commonly violated, the court included model language in its opinion. The language clearly stated the law did not require the collector to wait until the end of the thirty day period before bringing action on the debt. However, if the debtor exercises his validation right, the collector must halt all further collection activities until verification. The clear promulgation substantially places the debtor in a good position because previous to the holding, collectors regularly overshadowed the debtor’s validation right.
There are three main types of damages permitted under the statute. The statute permits statutory damages up to $1,000. A debt collector who violates any provision of the act is liable for the debtor’s actual damages.  Damages under this provision most commonly include damages for emotional distress, humiliation, and embarrassment. In one case, a jury awarded 15,000 as actual damages even though the consumer suffered no monetary loss.
Most significantly, the act now permits a court to award the costs of the action and reasonable attorney fees for the successful prosecution of a violation. Congress permitted the award of attorney fees to encourage consumers to enforce the act. Additionally, the court will require the plaintiff to pay the cost of defending the suit if the suit is found to be in bad faith. In the Fifth Circuit, a defendant is not liable for attorney fees where no actual or statutory damages are awarded.  However, courts have been quick to limit the amount recoverable under this section.  In Lee v. Thomas and Thomas, a court refused a successful debtor request for attorney fees that constituted economic waste.  In Lee, the defendant debt collector realized he made a technical mistake and quickly offered a $2,000 settlement offer. The Plaintiff rejected this offer. However, several months later the Plaintiff accepted another offer in the amount $1,200 plus costs and attorney fees. The Plaintiff then petitioned for over $12,000 in attorney fees. The judge refused to compensate the attorney for any of the fees incurred after his client refused the first settlement offer.
The Supreme Court’s interpretation of the FDCPA has significantly broadened its scope. As stated supra, the original version of the act explicitly excluded attorneys from regulation. The exclusion caused problems in the debt collection community because attorneys began engaging in activities barred by the act.  Attorneys even advertised to potential clients stating that their exemption gave them an advantage over other collectors.  This caught Congress’ attention and led a repeal of the exemption.
After the repeal, a large amount of litigation erupted to clarify which attorneys were subject to the act.  Under the FDCP, “debt” means “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.  To qualify as a debt collector, an attorney must be a person who regularly uses any instrumentality of interstate commerce or mails in any business the principal purpose is the collection of debts, or who regularly mails in any business the principal purpose of which is the collection of debts, or who regularly collects or attempts to collect, directly or indirectly debts owed or due or asserted to be owed or due to another.  After the exemption was repealed, a strict reading of the statute implies that an attorney only falls under the purview of the statue when collecting a debt, i.e. acting as a debt collector, not when he was performing legal tasks.  Because the act was originally passed covering collectors who could not file a law suit, conduct discovery, etc. it seems reasonable that the legislature did not want to regulate these activities. The FTC in a nonbonding statement subscribed to this interpretation and stated attorneys were only covered when conducting debt collection activities, not when performing legal tasks.  However, this statement gave no indication as to what the FTC thought were tasks legal in nature.  Ultimately, due to the confusion Congress left interpretation to the circuits.
The Circuits disagreed about which types of attorney conduct were covered. The Sixth Circuit found a “litlgation” exception for attorneys who were engaged in the practice of law. The Sixth Circuit, in Green v. Hocking, recognized this exception when an attorney, on behalf of his client, filed a complaint seeking $304.83 in past due bills. The debtor contested the amount alleged in the complaint because the attorney, in calculating the amount due, included interest calculated at eighteen percent. The attorney realized that there was no contract permitting the rate and quickly amended his complaint. After the conclusion of the action, the debtor sued the attorney for violating attempting to collect an unauthorized amount. The attorney moved for and the court granted summary judgment recognizing while engaged in litigation, attorneys are immune from the collection provisions of the act.
The debtor appealed and on appeal the attorney cited two theories in support of his arguments. First, the debtor stated that activities purely legal in nature are not within the purview of the act and even if litigation activities fell under the act, his behavior was a bone fide error. The Sixth Circuit expressly found a litigation exception for attorneys engaged in the practice of law. Because the misrepresentation took place in a complaint, and the complaint was part of litigation, the act did not apply to this action. The Sixth Circuit held that if they refused to find this exception the outcome of the statute would be ridiculous. The statue, the Sixth Circuit claimed, was enacted to prevent harassment and deception in debt collection. The court refused to expand the act to cover attorneys engaged in litigation. Otherwise, a simple misstatement made by an attorney during a court proceeding would subject the attorney to a FDCPA sanctions.
This uncertainty continued throughout the circuits. In 1980, events started unfolding that would clarify the issue once and for all. In that year, Darlene Jenkins signed a contract with a bank to purchase an automobile.  The contract stated that Ms. Jenkins had to adequately insure the vehicle at all times and if she didn’t, the bank had the right to purchase insurance on her behalf.  When Ms. Jenkins failed to insure the car, the bank purchased the insurance on the car and insurance on her default.  The bank then sought the services of Mr. Heintz to collect this amount from Ms. Jenkins. Mr. Heintz wrote a letter to Ms. Jenkins indicating this amount was owed and filed a suit for this amount. Ms. Jenkins objected to this amount. Ms. Jenkins claimed the insurance purchased, was in violation of the agreement. In this regard, Ms. Jenkins brought a FDCPA violation against Mr. Heintz for violation of §1692(f), which prohibits the collection of an amount not authorized by agreement or law.
Under this school of thought, the Codes of Professional Responsibility is adequate to protect consumers against the ills the Supreme Court interpreted the act to cover. For example, under §1692(c), the FDCPA prohibits an attorney from contacting a debtor that is represented by counsel.  Similarly, in the Model Rules of Professional Conduct a provision states that a lawyer shall not communicate about the subject of the representation with a person the lawyer knows to be represented by another lawyer in the matter.
Another mechanism that may warrant the inapplicability of the FDCPA to post-petition activities is Federal Rule of Civil Procedure 11.  Under this rule, sanctions may be brought against an attorney who makes improper allegations in pleadings or other court documents.  Additionally, Rule 11 imposes a duty on attorneys to certify that they have conducted a reasonable inquire and determined that anything filed is grounded in fact and not filed for an improper purpose. This rule would take the bite out of many provisions the FDCPA now oversees due to the attorney post petition stuff. Proponents of the litigation exception argue because there are other rules regulating attorneys accomplishing the same things, the FDCPA is unnecessary and over inclusive.
Since the opinion was handed down in Heintz v. Jenkins, debt collection has changed immensely.  The FDCPA is now being applied outside of the traditional debt collection arena.  For example, real estate attorneys are now often subjected to the FDCPA when they assist in a foreclosure action. Despite the activity that Congress intended to address, case law indicates that attorneys are subjected to liability for technical violations rather than for conduct the FDCPA desires to alleviate.
Michael, A Creditors Rights Attorney located in Columbus, Ohio expressed at great lengths with the author the ills of Heintz v. Jenkins on his practice.  Michael stated that a large number of attorneys have created a niche practice simply searching for technical violations in the FDCPA. He states he receives a surprising amount of unwarranted threats from attorneys alleging technical violations. Unfortunately, Michael claims, this has given debtor’s attorneys undeserved bargaining power in the suit involving the underlying obligation. Michael explains sometimes it is difficult to explain to his clients that it may be wise to settle for an amount less than the underlying obligation to save the cost of litigating the frivolous claim. When I mentioned that the successful litigant under the FDCPA is awarded attorney fees, he quickly agreed with me and very articulately explained that time is money and the time he required defending a suit would cause disaster with his practice. He expressed that although the loser is awarded attorney fees under the FDCPA, this would not put him in the same position, but for the allegation, because of the time expended outside of the office.
I proceeded to ask Michael if he believed the FDCPA was necessary. Michael answered affirmatively. Michael expressed that he imagined many creditors acted with unnecessary force prior to the FDCPA. However, he stated if the purpose of the FDCPA as promulgated is to level the playing field without causing undue burden on debt collectors, he thinks the application of the act has possibly undermined its creation. Michael stated that the time spent training in compliance with the act, double checking for typographical errors, and other necessary requisites is unduly burdensome. He stated that he has hundreds of documents flowing through his office daily because his practice, like all collection practices is a volume business. Michael stated that he expends a lot of energy simply making sure there are no typographical errors in his pleadings. A simple decimal point or including a penny too much in the prayer for relief is an automatic FDCPA Violation. Michael does not believe Congress intended such a result.
The FDCPA is a powerful piece of Legislation. Prior to its existence, the poor and the underrepresented in our country were taken advantage in alarming proportions. Instead of recognizing that sometimes debtors do not pay because they are unable, collectors pursued them in unconscionable ways. However, the unequal treatment of the poor is nothing exclusive to modern history. Further, the unequal treatment will most likely continue. However, as Aristotle said, a just law is a law that brings happiness to the common good.
 Aristotle, The Nicomachean Ethics of Aristotle (1982).
 See e.g. Exod. 23:1-9; Psalm 82:2-4; Isa. 1:17; Amos 5:11-12, 21-24; Jer. 22:1-4.
 saint thomas aquinas, summa theologica.
 Thomas Ross, The Rhetoric of Poverty: TheirImmorality, Our Helplessness, 79 Geo. L. J. 1499 (1991).
 Bruce H. Mann, Failure In The Land Of The Free, 77 Am.Bankr.L.J 1 (2003).
 William P. Strout, Heintz v. Jenkins just an unsound decision, 49 CounsumerFinL.Q. 310 (1995).
 Brian Keith Faulkner, Third Party Communications Clarified in the Fair Debt Collection Practices Act. 22 Campbell L. Rev. 369 (2000).
 Elwin Griffith, The Meaning of Language and the Element of Fairness in the Fair Debt Collection Practices Act, 27 U.Tol.L.Rev. 13, (1995).
 Crossley v. Lieberman, 868 F.2d 566, (3rd Cir. 1989).
 Jule J.R. Huygen, After the Deal is done, Debt collection and credit reporting, 47 A.F.L. Rev. 89 (1999).
 Christopher A. Golden, Fair Debt Collection Practices Act: Has Attorney Liability replaced consumer protection? 45 Jan Fed Law 20) (1998).
 Fox v. CitiCorp Credit Servc., Inc. 15 F.3d 1507 (9th Cir. 1994).
 Scott v. Jones 964 F.2d. 314. (4th Cir. 1992).
 Action Processional Service v. Kiggins, 458 N.W2d 365 (1990).
 Elwin Griffith, The Search for More Fairness in the Fair Debt Collection Practices Act. 37 E. Rich. L. Rev. 511 (2003).
 Teran v. Kalpan, 109 F. 3d. 1428 (9th Cir. 1997).
 Graziano v. Harrison 13 F. Supp. 2d 1037 (1998).
 Barlett v. Hilbel 128 F.3d 497 (7th Cir. 1997).
 Barner v. Jones 128 F.3d 497 (7th Cir. 1997).
 Lee v. Thomas and Thomas 109 F3d 302 (6th Circuit 1997).
 Bentley v. Great Lakes collection Bureau 6 F.3d 60 (2nd Cir 1993).
 Scott v. Jones 964 F.2d. 317 (1986).
 Fox v. CitiCorp 15 F.3d. 1510 (9th Cir. 1994).
 Lynn A.S. Araki RX For Abusive Debt Collection Practices, Amend the FDCPA, 17 U.Haw.L.Rev. 69 (1995).
 Lynn A.S. Araki RX For Abusive Debt Collection Practices, Amend the FDCPA 17 U.Haw.L.Rev. 69 (1995).
 Carroll v. Wolpoff, 961 F.3d 459 (2nd Cir. 1992).

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