Attorney Debt Collector Liability Under the FDCPA

ATTORNEY DEBT COLLECTOR LIABILITY
UNDER THE FAIR DEBT COLLECTION PRACTICES ACT

By Jeffrey A. Schreiber**
Schreiber/Cohen, LLC

                Attorneys who act as debt collectors, as that term is defined under the Fair Debt Collection Practices Act (“FDCPA” or “Act” “statute”), to collect debts in behalf of their clients are exposed to liability by failing to comply with the statute’s requirements.  One such obligation is to provide to consumers a notice of their rights otherwise known as a validation letter.[1]  To a lawyer who is beginning a law practice representing consumer creditors, the FDCPA is a minefield of exposure that could easily explode if the lawyer fails to comply with the Act.  Consequently, it is important that before one undertakes representation of a creditor as a debt collector, one becomes learned of the statute.  Representing consumer creditors to collect defaulted accounts receivable is a law practice concentration.  The FDCPA is to a creditor attorney as, for example but not by limitation, the Internal Revenue Code is to a tax lawyer as the Bankruptcy Code is to a bankruptcy lawyer and as the Securities Exchange Act is to a securities lawyer.  It is all in the statute.

Effective March of 1978[2], the FDCPA was enacted to “eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent state action to protect consumers against debt collection abuses.”  15 U.S.C. section 1692(e). Initially, lawyers were exempt from the FDCPA.  That changed, however, by amendment in 1986 if they satisfied the definition of a debt collector.  See also Heintz v. Jenkins, 514 U.A. 291 (1995).  A debt collector is defined under the FDCPA as “any person who…[operates] any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect…debts owed…another.”  15 U.S.C. section 1692a(6)

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* Mr. Schreiber is the founding member of Schreiber/Cohen, LLC, a business and trial law firm, with offices in New Hampshire, Connecticut, Maine, and Vermont.  He attended Syracuse University College of Law and, after graduation from law school in 1982, served as a judicial law clerk to the Hon. Leon J. Marketos (now deceased), U.S. Bankruptcy Judge for the Northern District of New York.  Prior to founding his own law firm, Mr. Schreiber was an associate in the business litigation department of the Boston Law firm of Burns & Levinson.  He served for seventeen years as a private panel Chapter 7 trustee and Chapter 11 trustee appointed in cases pending in both the U.S. Bankruptcy Court for the Districts of Massachusetts and New Hampshire.
[1] Section 1692g(a) of the Act states that the validation notice must include the amount of the debt, the name of the creditor, a statement that the debt’s validity will be assumed unless disputed by the consumer within 30 days, and an offer to verify the debt and provide the name and address of the original creditor, if the consumer so requests.
[2] Congress was busy in the late 1970’s legislating federal laws aimed at protecting debtors.  Effective October 1, 1979, Congress enacted the Bankruptcy Reform Act of 1978 significantly expanding debtors’ rights and protections under bankruptcy law.  Prior to that date, Congress had not significantly amended the federal bankruptcy laws since 1898.

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               Consequently, attorneys hired by creditors are held liable as debt collectors under the FDCPA, when they regularly engage in debt collection.   The FDCPA applies to the collection of consumer debts only.  It does not apply to the collection of commercial debts.

                The FDCPA prohibits debt collectors from using “any false, deceptive, or misleading representations or means in connection with the collection of any debt.”  15 U.S.C. section 1692e.  The statute identifies 16 nonexclusive instances of conduct, none of which will be discussed herein, that would constitute a violation of this prohibition. 15 U.S.C. section 1692e(1)-(16).

                There have been many cases imposing FDCPA liability on attorneys.  Unfortunately, some judicial interpretations have expanded the scope of the statute, sometimes inconsistent with the Act’s legislative history.  One such example is the adoption of the so-called “least sophisticated debtor standard.”  The FDCPA does not establish this standard.  Rather, it is silent.  Instead, the Ninth Circuit Court of Appeals on its own decided that when evaluating whether language may be deceptive, “the court should look not to the most sophisticated readers but to the least.”  Baker v. G.C. Servs. Corp., 677 F.2d 775 (9^th Cir. 1982).  The court concluded that “the FDCPA does not ask the subjective question of whether an individual plaintiff was actually misled by a communication.  Rather, it asks the objective question of whether the hypothetical least sophisticated debtor would likely have been misled.  If the least sophisticated debtor would likely be misled by a communication from a debt collector, the debt collector has violated the Act.”  Guerrero v. RJM Acquisitions LLC, 499 F.3d 926,934 (9^th Cir. 2007).  Hence, the least sophisticated debtor standard was born without foundation from either the Act or its legislative history.  Most other courts have followed the Ninth Circuit by adopting this standard to determine whether there has been a violation of section 1692e(1)-(16).

                The Seventh Circuit affirmed summary judgment against a law firm for a FDCPA violation where it assisted a bank’s collection efforts from certain credit card holders.  See Nielsen v. Dickerson, 307 F.3d 623 (7^th Cir. 2002).  In Nielsen, the attorney received the debtors’ information from the bank, conducted a check of the data to screen out debtors that were bankrupt or who lived in prohibited states, and then mailed delinquency letters to the debtors on the attorney’s letterhead.  Although the attorney was not authorized to resolve any matters on the bank’s behalf, the delinquency letters contained the attorney’s contact information, and advised the debtor to contact “us,” presumably the attorney, if any part of the debt was disputed.  The Court of Appeals affirmed a finding that the attorney violated the FDCPA, not because the attorney played a significant role in the collection process, but for the opposite reason:  The attorney’s small and ministerial role, coupled with the language in the dunning letter, left consumers with the misimpression that the attorney had exercised his professional judgment that the debt was delinquent and ripe for legal action.  Critically, the court opined that “an attorney must have some professional involvement with the debtor’s file if a delinquency letter sent under his name is not to considered false or misleading in violation of the FDCPA.”  Nielson, supra at 638.  And thus, the “meaningful attorney involvement rule” was born.  This rule has been since significantly expanded by other courts and the Consumer Financial Protection Bureau (“CFPB”) by consent decree.  See CFPB v. Hanna & Associates, P.C., et al, Civil Action No. 1:14-cv-02211-AT (N.D.Ga. December 2015); In the Matter of:  Pressler & Pressler, LLP, et al., Admin Proceeding File No. 2016-CFPB-0009 (April 2016).

               So, it is insufficient for a practitioner to read and comply with the Act.  Rather, practitioners must know and understand the case law that has interpreted the statute and its judicially expanded scope before embarking on the squirrely chore of collecting a client’s defaulted accounts from consumers.  Even the occasional practitioner who helps a client to collect a debt should be familiar with the FDCPA.  If one decides to undertake a collection practice, one would be wise to carefully review the statute and study the scores of cases interpreting it.

 

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