Abusive Collection Practices

Question 1

Fair Debt Collection Practices Act

Answer 1

1. Majority of abuses covered by the FDCPA stem from debt originally owned by unsecured creditors
2. Vast majority of debt is paid on time
3. Important part of the economy: if creditors cannot relatively inexpensively collect debts that are owed, presumably the cost of credit will increase
4. Goal of debt collection: how to ensure that debt collection remains feasible and effective, while also protecting consumers from harassment
   - part of CCPA

Question 2

Secured creditors

Answer 2

1. Creditors with an interest in the debtor’s property
2. If the debtor doesn’t pay, creditor with a security interest can force the sale of collateral and use the proceeds to pay outstanding debt
3. Examples of secured creditors
   a. Car lender
   i. Lender recourse: repossession
   b. Bank that has a mortgage on the home
   i. Banks recourse: foreclosure
4. Secured creditor doesn’t have to ask for repayment, instead they can force the sale of the collateral and apply those sale proceeds to the loan

Question 3

secured creditor property interest

Answer 3

known as collateral

Question 4

Unsecured (higher risk) creditor

Answer 4

1. Initially, they do not have any interest in a specific piece of the debtor’s property. They can get an interest later on
2. Far greater disadvantage than secured
3. Examples
   a. Credit card companies, doctors, hospitals, utilities, student lenders, funeral homes

Question 5

what is the process for repayment

Answer 5

a. Attempt for informal or extra-legal debt collection
i. Use in house personnel to contact the debtor through mail or phone and eventually may threaten to report the outstanding debt to one or more reporting agencies
b. After debts remain unpaid for a while, then they are charged off
i. Charged off: asset is no longer carried on the business’ balance sheet. After a certain amount of time, a creditor must forego the outstanding debt
c. After the debt is charged off, the creditor can:
i. Hang onto the debt
ii. Sell the debt to a third-party debt buyer
iii. Place debt with collection law firm
1. Law firm can try to collect the debt through the extra-legal techniques
2. Law firm (as unsecured creditor) can actually file suit on a debt
a. A way for an unsecured creditor to become secured
iv. Placed with a third-party collection agency

Question 6

what can an unsecured creditor do to get payment

Answer 6

d. To get payment, must get a judgement in court that says the consumer owes $. It is encumbered and clouded, meaning debt has to be repaid. That is when a judgement creditor can go after a debtor’s property and get a lien on their property as a previously unsecured creditor. After a judgement is given, creditor can:
i. Report the judgement to the local municipality
ii. Garnishment of wages
1. Ask someone who owes the debtor money to instead pay you the creditor
a. Employer owes you money
iii. Garnishment of bank account
1. Debt bank owes to you
iv. Citation to discover assets/turnover orders
1. Serve the debtor and ask them to appear in court and that are asked where their assets are located, where the creditor can get a lien on some if not all their property
v. Seize debtor’s nonexempt, unencumbered property
1. Nonexempt: every state protects a certain amount of assets from creditors

Question 7

What are some advantages and disadvantages of extra-legal debt collection by unsecured creditors

Answer 7

a. Advantages
i. Cheaper than legal debt collection
ii. Debtor can voluntarily turn over exempt assets or borrow from friends/family
b. Disadvantages
i. Potential liability under FDCPA (only applies to debt collectors)
ii. Potential tort liability
iii. Potential criminal liability
iv. Will lose out to unsecured creditors who get liens

Question 8

What are some advantages and disadvantages of legal debt collection by unsecured creditors

Answer 8

a. Advantages
i. Less risk of liability
b. Disadvantages
i. More expensive/onerous (must get judgment)
1. Counter: Very likely debtor wont show up/can get default judgment
ii. Judgment may be difficult to execute
1. E.g., debtor may hide assets or fraudulently convey them
iii. Exemptions more likely to be asserted by debtor

Question 9

are creditors debt collectors?

Answer 9

NO

Question 10

who enforces the FDCPA

Answer 10

1. Until 2011, the FTC was the principal agency charged with enforcing the FDCPA; the CFPB now shares enforcement with the FTC and has the power to issue FDCPA regulations

Question 11

purpose of FDCPA

Answer 11

to eliminate abusive debt collection practices by debt collectors, ensure that those debt collectors who refrain from abuses aren’t completely disadvantages, promote consistent state action to protect consumers against debt collection abuses

Question 12

limits to FDCPA

Answer 12

1. Generally, applies only to third party collectors, and governs collection efforts by third party collectors, and governs collection efforts by the original creditors only in rare situations
   a. Collection tactics by original lenders are largely unaffected by this statute. thus, the FDCPA probably affects only a small portion (10%) of collection activity
   b. Creditor is on better behavior because they rely on repeat business and usually don’t need that much policing, additionally they may have political clout

Question 13

what is a debt collector

Answer 13

3. § 1692a(6) Debt Collector: those who regularly attempt to collect debts from others. An isolated instance of collection does not make them a debt collector.

schroyer rule: collects debts as a matter of course for its clients or some clients or collects debts as a substantial but not principal part of his general law practice looking at volume of practice activity

FDCPA defines debt collector as 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

Question 14

additional rule of who is a debt collector

Answer 14

d. (A) excludes any officer or employee of a creditor while, in the name of the creditor, collecting such debts for creditor
i. Excludes creditors collecting under own name
ii. Includes creditors using a false name

Question 15

what is debt

Answer 15

5. § 1692a(5) Debt: Only debt arising out of consumer transactions are subject to the statute in which the money, property, or services are primarily used for personal, family, or household purposes (in TILA, synonymous with consumer). Doesn’t include commercial.

Question 16

6. § 1692c(a) Communication in connection with debt collection: in general, cannot without the prior consent of the consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt –

Answer 16

a. 1692c(a)(1): at an unusual time or place or a time or place known, or which should be known to be inconvenient to the consumer. Convenient time is generally after 8 pm and before 9 am local time.
b. 1692c(a)(3): at the consumers 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

Question 17

7. § 1692c(b) Communication with 3rd parties

Answer 17

without prior consent of consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, debt collector cannot communicate with anyone other than consumer, his attorney, a CRA if otherwise permitted, the creditor, the attorney of the creditor, or the attorney of the debt collector

a. Debt collector now knows that employer doesn’t allow the consumer to get this kind of communication
b. If profession involves certain important tests that cannot be interrupted (surgeon, teacher, etc.)

Question 18

§ 1692(d) Harassment or Abuse

Answer 18

debt collector may not engage in any conduct the natural consequences of which is to harass, oppress, or abuse any person in connection with the collection of a debt. Without limiting the general application of the foregoing, the following conduct is a violation:

a. (1) use or threat of use of violence
b. (2) use of obscene or profane language
c. (3) publication of a list of consumers who allegedly refuse to pay debts
d. (4) ad for sale of any debt to coerce payment
e. (5) causing a phone to ring or engaging any person in a phone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number
f. (6) placement of phone calls without meaningful disclosure of the caller’s identity

Question 19

10. § 1692e False or Misleading representations

Answer 19

debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

a. 1692e(2)(A): false representation of the character, amount, or legal status of any debt
i. Might cover the threat of suit on debts for which the SOL has expired
b. (4): representation or implication that nonpayment will result in arrest or imprisonment or the seizure, garnishment, attachment, or sale of any property of wages unless such action is lawful, and the debt collector or creditor intends to take such action
c. (5): threat to take any action that cannot legally be taken or that is not intended to be taken
d. (10): use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain into concerning a consumer
e. (11): the failure to disclose in the initial written communication with the consumer and, in addition, if the initial communication with them is oral, that the debt collector is attempting to collect a debt and that any info obtained will be used for that purpose…

Question 20

what is the least sophisticated consumer standard

Answer 20

Clomon v. Jackson

1. In determining whether or not a debt collector is falsely implying that suit will be brought, we are interpreting from the viewpoint of the least sophisticated consumer
2. The goal is to protect vulnerable consumers

same as FTC traditional approach

Question 21

11. § 1692f Unfair Practices in debt collecting

Answer 21

: a debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
a. 1692f(3): solicitation by a debt collector of any postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution

Question 22

Notice of Debt

Answer 22

b. Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing—
i. (1)the amount of the debt;
ii. (2)the name of the creditor to whom the debt is owed;
iii. (3)a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;
iv. (4)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 a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and
v. (5)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.

Question 23

Dispute of Debt

Answer 23

d. If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector.
e. (c)Admission of liability - The failure of a consumer to dispute the validity of a debt under this section may not be construed by any court as an admission of liability by the consumer.

Question 24

Common law remedies to debt collection harassment

Answer 24

IIED, invasion of privacy, tort of publicity

Question 25

IIED elements

Answer 25

intent/ reckless disregard, extreme and outrageous conduct, causal between conduct and distress, emotional distress must be severe

Question 26

invasion of privacy elements

Answer 26

a. Intrusion: physical or electronic (aka multiple phone calls)
b. Public disclosure of private facts (dissemination of truthful private info that objectionable to a reasonable person) *needs to be publicized
c. False light (putting debtor into false light even though not necessarily harmful)

Question 27

are common law remedies preempted by FDCPA

Answer 27

no! can sue under both