BRINGING COMMON SENSE TO COLLECTIONS

By Jeffrey A. Schreiber*
©2018 Schreiber/Cohen, LLC

       By the stroke of a pen in Kraus v. Professional Bureau of Collections of Maryland, Inc., Case 17-CV-3402 (E.D.N.Y. November 27, 2017), a senior judge presiding over the U.S. District Court for the Eastern District of New York, I. Leo Glasser, brought common sense to collections.  This case will be discussed herein.  Portions of the Fair Debt Collection Practice Act (“FDCPA” or “Act” or “Statute”), a federal law that governs collections, its legislative history, and some of the cases interpreting the Statute, too will be discussed.  The FDCPA was enacted by Congress to provide consumer debtors with a shield against unscrupulous practices of debt collectors, and not to hand debtors a sword that can be used to obtain relief from debts that they have incurred.  Unfortunately, many debtors, their counsel, and courts have strayed far from that Congressional purpose, and too often the Statute has been put to illegitimate use.  Now this senior federal judge has called out the misuse and abuse of the Statute and denied relief to a debtor whose sole reason for bringing a FDCPA claim was to avoid payment of a just debt.

Effective March of 1978[1], the FDCPA, 15 U.S.C. 1692, et seq., was enacted by Congress.  Prior to its enactment, Congress found that “debt collection abuse by third party debt collectors[2] [was] a widespread and serious national problem.”  S. Rep. 95-382, at 2 (1977) reprinted in 1977 U.S.C.C.A.N. 1695, 1696. The purpose of the Statute is to “protect consumers from unfair, harassing, and deceptive debt collection practices without imposing unnecessary restrictions on ethical debt collectors.” supra.  Unfortunately, by interpretation, various courts have expanded the Statute inconsistent with the spirit, if not the letter, of its legislative history.  Ethical debt collectors have become burdened with unnecessary restrictions, something that Congress sought to avoid.[3]

LEGISLATIVE HISTORY

       The enacted purpose of the Statute was “to eliminate abusive debt collection practices,” while also ensuring that compliant debt collectors “are not competitively disadvantaged.”  15 U.S.C. section 1692e  Collection abuse takes many forms, including the use of obscene or profane language, threats of violence, telephone calls at unreasonable hours, misrepresentation of a consumer’s legal rights, disclosing a consumer’s personal affairs to friends, neighbors, or an employer, obtaining information about a consumer through false pretense, impersonating public officials and attorneys, and simulating legal process 15 U.S.C. 1692e. Witnesses before the Senate Consumer Affairs Subcommittee testified that independent debt collectors were the prime source of egregious collection practices.  “While unscrupulous debt collectors comprise only a small segment of the industry, the suffering and anguish which they regularly inflict is substantial.”  Unlike creditors, who generally are restrained by the desire to protect their good will when collecting past due accounts, witnesses accused independent collectors of being unconcerned with the consumer’s opinion of them.  The Committee concluded that “serious and widespread abuses…and the inadequacy of existing state and federal laws make this legislation necessary and appropriate.”

       The Act prohibits harassing, deceptive, and unfair debt collection practices.  These include:  threats of violence; obscene language; the publishing of ‘shame lists;’ harassing or anonymous telephone calls; impersonating a government official or attorney; misrepresenting the consumer’s legal rights; simulating court process; obtaining information under false pretenses; collecting more than is legally owing; and misusing postdated checks supra. It was Congress’ intent to enable the courts, where appropriate, to proscribe other improper conduct not specifically addressed in the Act.  The legislation prohibits disclosing a consumer’s personal affairs to third persons.  Other than obtaining location information, a debt collector may not contact third persons, such as a consumer’s friends, neighbors, relatives, or employer.  The Committee concluded that these contacts are not legitimate collection practices, may result in serious invasions of privacy, and the loss of jobs.

       The Committee viewed the Act as “self-enforcing” meaning that consumers, who have been subjected to collection abuses, will be enforcing compliance.  A debt collector who violates the Act is liable for actual damages as well as any additional damages the court deems appropriate, not exceeding $1,000, plus attorney fees.  Congress intended the award of compensation for injury caused by the debt collector.  The Statute provides that the court must take into account the nature of the violation, the degree of willfulness, and the debt collector’s persistence.  By doing so, one can only conclude that Congress wanted Courts to consider both aggravating and mitigating circumstances.  On the other hand, a debt collector has no liability if he violates the act in any manner when a violation is unintentional and occurred despite procedures designed to avoid such violations.  Congress was even handed.  It recognized that not every situation is black or white but that grey areas exist.  Consequently, based upon the legislative history, Congress did not intend the FDCPA to be a strict liability statute even though Courts have interpreted it otherwise.

       There are many cases imposing FDCPA liability on attorneys.  Unfortunately, some judges have expanded the statute, sometimes inconsistent with the Act’s legislative history.  An example of such an expansion 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 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 (9th 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 (9th Cir. 2007) (emphasis added).  Hence, the least sophisticated debtor standard was born.  The concept is not grounded in either the Act or its legislative history.  Nevertheless, most other courts have followed the Ninth Circuit.  They have adopted 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 the law firm assisted a bank’s collection efforts from certain credit card holders.  See Nielsen v. Dickerson, 307 F.3d 623 (7th 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 deceased, and then mailed delinquency letters to the debtors on the attorney’s letterhead.  Although the attorney was not authorized to resolve anything 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 that the attorney violated the FDCPA because the attorney had a small and ministerial role.  The language contained in the letter gave consumers the misimpression that the attorney had exercised his professional judgment concluding that the debt was delinquent and ripe for legal action.  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 considered false or misleading in violation of the FDCPA.”  Nielsen, supra at 638.  And thus, the “meaningful attorney involvement” rule, a concept not addressed in the FDCPA, was born.  This rule has been 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).  Presently, the CFPB requires meaningful attorney involvement at every stage of a law firm’s collection of a defaulted account.

       There are cases against lawyers for violation of the FDCPA for mailing a validation letter[4] that is either allegedly confusing and/or does not meet the least sophisticated consumer test.  Caprio v. Healthcare Revenue Recovery Group, LLC, 709 F.3d 142 (3d Cir, 2013); Graziano and Wilson v. Quadramed Corp., 225 F.3d 350 (3d Cir. 2000); Smith v. Computer Credit, Inc., 167 F.3d 1052 (6th Cir. 1999); Russell v. Equifax A.R.S., 74 F.3d 30 (2d Cir. 1996). There are cases proscribing a debt collector from collecting interest and fees on an unpaid balance when it is not disclosed that the balance may increase accordingly. Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016); Miller v. McCalla, Raymer Padrick, Cobb, Nichols and Clark, LLC, 214 F.3d 872 (7th Cir. 2000). There are cases in which the judge(s) disagree with AvilaKraus, supra. There are cases in which a FDCPA violation is alleged in “reverse Avila” cases; that is, the debt collector’s failure to disclose that prejudgment interest may be owed by the consumer. See Altieri v. Overton, Russell, Doerr, and Donovan, LLP (2017 WL 5508372); Cruz, v. Credit Control Services, Inc., 2017 WL 5195225 (E.D.N.Y. Nov. 8, 2017); Bird v. Pressler & Pressler, L.L.P., 2013 WL 2316601 (E.D.N.Y. May 28, 2013).  There are even alleged FDCPA violations litigated because a mailing barcode, account number, partial account number, or an account number embedded in a barcode, are visible through a glassine mailing envelope.  To that end, courts have debated whether there exists a “benign language exception” to 15 U.S.C. section 1692f(8), another concept fabricated by the courts.  Courts have gone both ways. See Anekova v. Van Ru Credit Corporation, et al., 201 F.Supp.3d 631 (E.D. Pa 2016); Douglass v. Convergent Outsourcing, Inc., 765 F. 3d 299 (3d Cir. 2014); Kostik v. ARS National Services, Inc., 2015 WL 4478765 (M.D. Pa July 22, 2015).  How far have we strayed from Congress’ intent to protect consumers from “unfair, harassing, and deceptive debt collection practices without imposing unnecessary restrictions on ethical debt collectors?”  How have consumers been injured by some of these seemingly technical, if not picayune, issues raised by consumer attorneys? Who has benefited most from these cases—the plaintiffs or plaintiffs’ attorneys?  Judge Glasser answers these questions. The following are excerpts from his decision.

KRAUS, ET AL v. PROFESSIONAL BUREAU OF COLLECTIONS OF MARYLAND, INC

By this action, Plaintiff, Ms. Kraus (“Kraus” or “Plaintiff”) claimed Defendant, Professional Bureau of Collections of Maryland, Inc. (“PBCM” or “Defendant”) violated 15 U.S.C. section 1692e by sending her an offer to settle her debt for 40% of her account balance.  The letter provided the amount owed on her account.  It, however, did not state that the account balance might increase due to interest or other charges if not timely paid. See Avila, supra.  In Avila, the Second Circuit held that a debt collector violates section 1692e if it notifies a consumer that an unpaid account balance may increase due to interest and fees if not timely paid.  Avila, however, also provides a safe harbor for a debt collector who fails to disclose that interest or other charges may increase the outstanding balance.  A letter that contains language stating “that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date” is exempt.  So, the issue before the Kraus court is whether Avila applies to the letter and, if so, whether the settlement offer in the letter brings Defendant within the safe harbor of Avila.  The Court found that Avila applies to the letter but that the letter falls within the safe harbor.  Judgment was entered for Defendant but not before Judge Glasser explained why the letter fits within the Avila safe harbor.  The PCBM letter clearly stated that Kraus’ account debt would be discounted by 40% if she paid the discounted amount prior to a specified date.  The purpose of Avila is to prevent a consumer from being misled by paying the amount contained in the letter if, by the time she pays that amount, her debt may have increased due to interest or late fees.

Judge Glasser questioned what is the alleged harm in this case?  He observes that tort law teaches that the violation of a statute will subject the violator to liability if the person harmed is a member of a class the statute was designed to protect, and the harm complained of is the harm the statute was designed to prevent.  Though this action is not a tort case, Judge Glasser states that the same principle applies.  As to harm, the Statute’s enacted purpose was to eliminate abusive debt collection practices. See 15 U.S.C. section 1692e; S. Rep. 95-382, at 2 (1977).   The judge rhetorically asks “where is the abuse here? The court sees none.”

At oral argument, the judge asked her lawyer why did Ms Kraus bring this case?  He responded because she is in financial distress.  Kraus did not seek an attorney because she felt abused, deceived, or otherwise aggrieved.  Rather, she did so because she wanted help getting out of debt.  Judge Glasser firmly states that “the FDCPA is not a debt-relief statute and courts should not indulge thinly veiled attempts to use it as one.” Id at 14.

Sadly, abuse of the statute is unsurprising given the development of the law in this area, and the Court suspects such abuse is fairly widespread.  In 2006, the Court observed that the interaction of the least sophisticated consumer standard with the presumption that the FDCPA imposes strict liability has led to a proliferation of litigation in this district…Since then, the number of FDCPA cases filed yearly in this District has more than quintupled.  And small wonder, when all required of a plaintiff is that he plausibly allege a collection notice is “open to more than one reasonable interpretation, at least one of which is inaccurate. Clomon v. Jackson, 988 F.2d 1314, 1319 (2d Cir. 1993).  This standard prohibits not only abuse but also imprecise language, and it has turned FDCPA litigation into a glorified game of “gotcha,” with a cottage industry of plaintiffs’ lawyers filing suits over fantasy harms the statute was never intended to prevent.  With Avila, the circuit’s FDCPA jurisprudence lurches to ever more plaintiff-friendly terrain.  Kraus, supra at 14-15 (emphasis supplied).

Can a letter be described as ambiguous (or deceptive or misleading) regarding interest if it says nothing about interest?  The court takes the common sense approach and answers the question “no.”  “It makes as much sense to say the letter in Avila was ambiguous regarding interest as to say it was ambiguous regarding the date of the next presidential election or the existence of Bigfoot.”  Interest on a debt is a familiar concept.  Even the hypothetical least sophisticated consumer is aware of it.  “A debtor who assumes his account balance will never increase, simply because a collection letter provides no information regarding interest, does so unreasonably, and this irrationality should not be rewarded by courts at the expense of non-abusive debt collectors.” See Ellis v. Solomon & Solomon, P.C., 591 F.3d 130, 135 (2d Cir. 2010) as cited in Kraus, supra at 16. (“The hypothetical least sophisticated consumer is neither irrational nor a dolt.  While protecting those consumers most [vulnerable] to abusive debt collection practices, this Court has been careful not to conflate lack of sophistication with unreasonableness.”)

Judge Glasser struggles with how Avila protects consumers.  He questions whether these cases describe genuine instances of debt collection abuse.  He is concerned that debt evasion is being facilitated for the purpose of increasing profits among the plaintiffs’ bar. Kraus supra at 18.  Congress intended that the FDCPA would provide a shield against the overly zealous debt collector.  By carrying the least sophisticated debtor standard and strict liability concepts to illogical extremes, it appears that “Courts have fashioned this shield into a sword” inconsistent with the Congressional intent of the Statute. Id.

CONCLUSION

       For decades since the FDCPA’s enactment, federal courts have bent, distorted, contorted, misinterpreted and otherwise mischaracterized the statute, usually for the benefit of the consumer, even where no measurable damage has been sustained.  The FDCPA is as much of a strict liability statute as a garden variety breach of contract case.  A measure of damage needs to be found in both.  This is, among other reasons, why the Kraus case is an oasis in a desert of federal cases finding the defendant debt collector liable for an alleged (if not dubious) FDCPA violation even where the debtor has not sustained any injury.  Maybe the Kraus case signals the pendulum swinging toward a more common sense, judicial interpretation of the Statute consistent with Congress’ intent.  Hopefully, hereafter, courts will apply the FDCPA to serious abuses in accordance with Congress’ intent and dismiss specious or implausible cases.  At a minimum, plaintiffs with ulterior motives, such as seeking debt relief by suing under the FDCPA, should no longer be tolerated.


* Mr. Schreiber is a renowned collection, bankruptcy, and FDCPA defense trial lawyer.  He is the founding member of Schreiber/Cohen, LLC, a business and trial law firm, with offices located throughout New England.  He is a magna cum laude graduate of Bowdoin College and a graduate of Syracuse University College of Law.  After law school, Mr. Schreiber served as a judicial law clerk to the late Hon. Leon J. Marketos, 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 Burns & Levinson in Boston.  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 Courts for the Districts of Massachusetts and New Hampshire.  Mr. Schreiber is admitted to practice law in MA, NH, CT, VT, NY, PA, DC, and IN.

[1] 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, 11 U.S.C. 101 et seq., significantly expanding debtors’ rights and protections under bankruptcy law.  Prior to that date, Congress had not significantly amended the federal bankruptcy laws since 1898.
[2] The terms “debt collector” and “lawyer” are used interchangeably as lawyers who concentrate their law practices in collecting defaulted accounts from consumers are debt collectors within the meaning of the FDCPA. Heintz v. Jenkins, 514 U.S. 291 (1995).
[3]Debt collectors are subject to a kind of Rule 11 on steroids. For example, collection lawyers may not rely on the integrity of defaulted accounts referred by their clients.  Instead, lawyers (not paralegals) are required to, among other things, inspect the integrity of each account’s original account level documents twice:  once before accepting the defaulted account from the creditor, and again prior to bringing a lawsuit seeking judgment to collect the claim.  Lawyers no longer may rely on the veracity of client affidavits of indebtedness. Rather, lawyers must independently investigate and determine that the information contained in each client affidavit is true and accurate prior to commencing a lawsuit.  These procedures may not sound burdensome except that creditor clients often refer hundreds, if not thousands, of defaulted accounts at one time, each one the basis of a prospective lawsuit.  Staffing for such a client with sufficient lawyers charged with the task of reviewing each account individually, checking and double checking the integrity of each account’s documentation, independently determining the veracity of each client affidavit with the defaulted account to which it relates, without the assistance of paralegals, arguably are burdens Congress did not contemplate.
[4] 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.

 

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