Tag Archives: fair debt collection practices act

Pennsylvania consumers protections under the Fair Credit Extension Uniformity Act

In previous blogs, I have discussed the protections provided consumers under the Federal Fair Debt Collection Practices Act (“FDCPA”). The FDCPA is a powerful deterrence to unscrupulous debt collectors and unlawful debt collection practices. The FDCPA is a comprehensive and reticulated statutory scheme, involving clear definitions, precise requirements, and particularized remedies. The validity of the underlying debt is not relevant or an issue under the FDCPA. There is no exception to liability for violating the FDCPA as a result of fraud on the part of the consumer. As long as the underlying obligation is a “debt” as defined b the FDCPA, the method of collections is irrelevant. The validity of the underlying debt is irrelevant as well.

The FDCPA “provides a remedy for consumers who are subjected to abusive, deceptive, or unfair trade collection practices by debt collectors.” A single violation of the Act triggers statutory liability and remedies. Under the FDCPA, a plaintiff may collect statutory damages even if he has suffered no actual damages. The FDCPA is essentially a strict liability statute, where the degree of the defendant’s culpability is relevant only in computing damages, not in determining liability.

Under the FDCPA, consumers are enforcing the FDCPA essentially acting as private attorney generals. Because consumers are acting as private attorney generals, an award of attorney fees is mandatory in an FDCPA case. That means that the FDCPA is essentially a fee shifting statute. If a consumer can demonstrates that the FDCPA has been violated, the consumer may recover actual damages, statutory, costs and attorney’s fees. The longer the lawsuit goes, the more the consumer can recover in attorney’s fees. The threat of an award of attorney’s fees is a very effective deterrent and leads to mean settlements early in litigation.

The FDCPA is not without its limitations. One of the biggest limitations of the FDCPA is that it only applies to debt collectors as defined by the FDCPA. It does not apply to creditors or assignees of the creditor when the assignment has occurred prior to the consumer’s default on the debt obligation. Attorneys acting as debt collectors are also included in the definition of debt collector under the FDCPA.

Typically when bringing a suit under the FDCPA, a consumer will name the debt collectors, and possible law firm and individual attorney hired by the creditor to collect on the debt for any violations of the FDCPA. However the creditor may not be named under the FDCPA.

From the perspective of obtaining the greatest recovery in a lawsuit, a consumer’s best option is to target the creditor as they usually have the deepest pockets. Under Pennsylvania’s Fair Credit Extension Uniformity Act (“FCEUA”), a consumer may also sue the creditor.

The FCEUA is Pennsylvania’s analogue to the FDCPA and applies to both debt collectors and creditors. A debt collector’s violation of any provision of the FDCPA constitutes a violation of the FCEUA which in turn constitutes a violation of Pennsylvania’s consumer protection law, the Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). The FCEUA allows a consumer to sue the original creditor as well as the debt collector for any violations of the FCEUA. The FCEUA protections mirror the FDCPA’s protections.

The FCEUA also has a two year statute of limitations as opposed to the FDCPA’s one year statute of limitations. Finally, as the FCEUA is also a violation of the UTPCPL, a consumer may recover actual damages or statutory damages whichever is greater, costs and reasonable attorney’s fees. Under the UTPCPL, a court may also award treble damages. Again a very effective deterrent which can lead to early settlements.

Any action by a consumer for unlawful debt collection practices must include claims for violations of the FDCPA as well as the FCEUA. It allows the consumer to sue the creditor as well as include older violations.

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The Supreme Court’s decision in Midland Funding, LLC v. Johnson places too much reliance on Bankruptcy Trustees.

In a previous blog, I was asked to write a blog on the recent May 15, 2017 United States Supreme Court decision in Midland Funding, LLC v. Johnson, docket no. 16-348. In a 5-3 vote the Supreme Court reversed a decision by the United States Court of Appeals for the Eleventh Circuit holding that the filing of a time barred proof of claim in a bankruptcy matter was a violation of the Fair Debt Collection Practices Act (“FDCPA”). In a majority opinion written by Justice Breyer, the Supreme Court held that the filing of a proof of claim that is obviously time barred is not a false, deceptive, misleading unfair or unconscionable debt-collection practice within the meaning of the FDCPA.

The Supreme Court stated that “Congress intended [when it adopted the Bankruptcy Code] to adopt the broadest available definition of ‘claim.’” Therefore, while a claim may be unenforceable because it is time barred or stale, it is still a “claim” under the Bankruptcy Code. The Court further stated that the Bankruptcy code does not say that an ‘unenforceable’ claim is not a ‘claim.’”

The Court further wrote that whether a claim is stale or unenforceable due to the expiration of the limitations period is an affirmative defense to be raised by a debtor. The claim while unenforceable still remains a claim which debtor may raise an affirmative defense to.

The Court’s holding I believe minimizes the appearance of debt validation that a filed a proof of claim may have on the least sophisticated consumer. The FDCPA requires any conduct by a creditor be viewed from the perspective of the least sophisticated consumer. In other words, a court’s standard of review is whether an unsophisticated, uninformed, naïve, trusting, possession below average intelligence consumer would find the filing of a time barred proof of claim in bankruptcy matter misleading or deceptive. Blum v. Fisher & Fisher P.C., 961 F. Supp. 1218 (N.D. I.ll. 1997).

The Court addressed this by stating that in “determin[ing] whether a statement is misleading normally requires consideration of the legal sophistication of its audience” and that the “audience in [consumer] bankruptcy cases includes a trustee … likely to understand [the importance of objecting to an untimely claim].”

In other words, because the matter is in bankruptcy and subject to the review of a trustee, the debtor is receiving the benefit of his/her knowledge and therefore can not be mislead as easily.

The problem with that is a trustee will be reviewing claims only within the context of the bankruptcy matter. Unsecured debts are likely to be discharged and the Trustee may pay little attention to the proof of claim. While unlikely, there is a risk that unsophisticated debtor will believe that the acceptance of time barred proof of claim has rendered the claim valid and subject to collection when the debtor is no longer in bankruptcy. The risk is greater should a debtor’s bankruptcy petition be dismissed without debtor receiving a discharge of his debts.

The Supreme Court acknowledge that several lower courts have found it improper to enforce stale claims directly, largely based on the view that “a consumer might unwittingly repay a time-barred debt.” Justice Breyer suggested that because the consumer initiates the bankruptcy proceeding, the consumer is not likely to pay a stale claim just to avoid going to court. Justice Breyer also pointed out again that the “knowledgeable trustee” is a likely source of objections protecting the consumer.

Justice Sonia Sotomayor, joined by Justices Ruth Bader Ginsburg and Elena Kagan, responded with a dissenting opinion. Justice Sotomayor’s dissent was focused on the large market for consumer debt (“trillions of dollars”), and the third party buyers of debt who buy long-stale “debts for pennies on the dollar.”

Having represented many of those same debt buyers, I am all too familiar with their practices. Third party debt buyers purchase debt on a large scale and then forward hundreds of claims to debt collectors and attorneys. The debt collectors/attorneys are looking to collect on the debt with as little effort as possible and hope a debtor will pay the debt after receiving an initial demand. Under the FDCPA, attorneys are considered debt collectors may be prosecuted for violations. Because of this, attorneys usually will normally not take any action on stale claims. However, given the volume of claims, mistakes occur and attorneys may make demands on time barred claims which debtors may assume are valid and pay.

Similarly Justice Sotomayor recognize that the claims have monetary value only because of the possibility the trustee will forget to object to them. As Sotomayor noted in her dissent, the trustees’ trade association filed an amicus brief in support of the debtor, explaining the impractical burden of interposing objections to the flood of stale claims appearing in consumer bankruptcies in recent years.

Third party buyers of debt factor in to their costs the risks of stale claims being acted on by their debt collectors and attorneys. They know they may be sued under the FDCPA but because of the volume of debt they accept the risk.

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Protection Consumers Have Under Federal and State Law From Creditors and Debt Collectors.

If you have defaulted on your credit card obligations or other debts, you have likely been subjected to calls and letters and from debt collectors, attorneys, and/or creditors threatening legal action if you don’t pay. What many may not realize is that as a debtor you are afforded protection from unfair debt collection practices under federal and state law.

The Fair Debt Collection Practices Act (“FDCPA”) is a federal consumer protection statute that prohibits harassing abusive, deceptive, and/or unfair debt collection practices by debt collectors at any point in the debt collection process, including during pleadings and post judgment conduct. See 15 U.S. Code §1692. The FDCPA protects all consumers from debt collectors attempting to collect debt 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. See 15 U.S. Code §1692a.

A debt collector includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. While creditors are not included in the definition of a debt collector unless the creditor attempts to collect their own debt by using a name that indicates a third party is trying to collect the debt, attorneys are included in the definition of a debt collector under the FDCPA and are subject to a federal law suit should they violate the terms of the FDCPA.

Generally speaking, a debt collector may not communicate with a consumer in connection with the collection of any debt: 1) at any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer (generally, only between the hours of 8:00 a. m and 9:00 p.m.); 2) contact a consumer if represented by an attorney; 3) contact consumer at the consumer’s place of employment if the debt collector knows or has reason to know that the consumer’s employer prohibits the consumer from receiving such communication. See 15 U.S. Code §1692c

Additionally, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.

A debt collector can not leave a message on an operator, answering machine or third party that indicates that call concerns the collection of a debt. Under the FDCPA, only calls that reach the consumer at home between the hours of 8:00 a. m and 9:00 p.m., that inform the consumer by name who is calling, and the reason for the call are permitted.

Additionally, all calls as well as other communications must also include the required warning and disclosure that the call is to gather information for purposes of debt collection. 15 U.S. Code §1692e(11) requires that debt collectors in all initial written communication to consumers, and if the initial communication is oral, to advise that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.

Under 15 U.S. Code §1692g, each debt collector must offer an initial debt validation statement for the debtor in the first communication with debtor, whether orally or in writing, including in a complaint if it is the first communication with the debtor. Under the statute, specific language is required and any failure to use that specific language as well as provide the name of the creditor and the amount of debt is a violation of the FDCPA.

Under 15 U.S. Code §1692d, a debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt, including, but not limited to: 1) the use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person; 2) the use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader; and 3) 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.

Under 15 U.S. Code §1692e, a debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt, including, but not limited to: 1) the false representation of the character, amount, or legal status of any debt; 2) the false representation or implication that any individual is an attorney or that any communication is from an attorney; 3) the threat to take any action that cannot legally be taken or that is not intended to be taken.

Under 15 U.S. Code §1692f, a debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt, including, but not limited to the collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.

The FDCPA provide that a consumer may recover in a civil law suit actual damages, statutory damages of $1,000.00 and costs of the action together with reasonable attorney’s fees. The FDCPA is a fee shifting statute allowing the consumer to recover his attorney’s fees in a law suit for violation of the FDCPA. Finally, all suits must be commenced within one year of the violation.

Pennsylvania’s Fair Credit Extension Uniformity Act (“FCEUA”) is Pennsylvania’s analogue to the FDCPA and essentially mirrors the FDCPA in its prohibitions. See 73 P.S.§ 2270.1 et seq, However, the FCEUA applies to creditors and debt collectors alike and allows for law suits against the actual creditors as well as the debt collectors unlike the FDCPA. The FCEUA does not allow for lawsuits against attorneys collecting debts for other parties.

A debt collector’s violation of any provision of the FDCPA constitutes a violation of the FCEUA. See 73 P.S. §2270.4. Under the FECUA, 73 P.S. §2270.5, if a creditor engages in an unfair or deceptive debt collection act or practice under this act, it shall constitute a violation of The Unfair Trade Practices And Consumer Protection Law (“UTPCPL”).  73 P.S. §201-1 et. seq.  The UTPCPL allows a consumer to recover actual damages, as a result of his use methods, act or practice declared unlawful under the FCEUA, statutory damages, treble the actual damages (at the court’s discretion), together with costs and reasonable attorney fees. See. 73 P.S. §201.9-2. All actions under the FCEUA must be commenced within two years.

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