Update on Debt Collection Requirements and Litigation

UPDATE ON DEBT COLLECTION REQUIREMENTS

AND LITIGATION

2009 COMMERCIAL LAW UPDATE

Conference on Consumer Finance Law

December 3-4, 2009

The Skirvin Hotel, Oklahoma City, Oklahoma

MIKE VOORHEES & SHARON VOORHEES

SHELTON VOORHEES LAW GROUP

Attorneys at Law

7701 S. Western, Suite 201

Oklahoma City, OK 73139

405-682-5800

Fax: 405-601-6007

WWW.LAWOFFICEOKC.COM

UPDATE ON THE FDCPA

THE FEDERAL TRADE COMMISSION ANNUAL REPORT 2009:

FAIR DEBT COLLECTION PRACTICES ACT

Each year the Federal Trade Commission (FTC) reports to Congress on the Fair Debt Collection Practices Act (FDCPA). The following is a summary of the details of this year's Report.

The Commission acknowledges that not all of the debt collection practices about which consumers complain are law violations. Certainly, many consumers do complain of conduct that, if accurately described, violates the Act. The FTC, however, does not verify that the information consumers provide is accurate unless the agency undertakes such an inquiry in connection with its law enforcement activities.

Moreover, even if accurately described, some conduct about which consumers complain does not violate the Act. For example, consumers sometimes complain that a debt collector will not accept partial payments on the same installment terms that the original lender provided when the account was current. Although a collector's demand for accelerated payment or larger installments may be frustrating to the consumer, such a demand generally is not a violation of the FDCPA. Also, for example, if a consumer complains that a debt collector has threatened to file a civil lawsuit to collect a debt, the Commission cannot determine whether such conduct violates the FDCPA without investigating to ascertain whether the debt collector had the requisite intention to file suit.

In 2008, consumer complaints to the FTC about third-party debt collectors ("FDCPA complaints") increased in absolute terms, but decreased as a percentage of all complaints that consumers filed directly with the commission. The FTC received 78,838 FDCPA complaints in 2008. This represents 18.9% of all complaints received directly from consumers in 2008. By comparison, in 2007, the FTC received 71,004 FDCPA complaints, representing 20.8% of the complaints received directly from consumers that year.

The Commission recognizes that third-party collectors contact millions of consumers each year. The number of consumer complaints the FTC receives about such collectors is therefore but a small percentage of the overall number of consumers contacted by debt collectors. Nevertheless, the Commission receives more complaints about the debt collection industry than any other specific industry.

Last year, the number of complaints the Commission received about creditors' in-house collectors increased somewhat, both in absolute terms and as a percentage of total complaints. In 2008, the FTC received 26,598 complaints about in-house collectors, representing 6.4% of all complaints the Commission received. In 2007, the Commission received 20,095 complaints about in-house collectors, representing 5.9% of all complaints received.

The following is a summary ofd the major areas of complaints received by the FTC.

DEMANDING A LARGER PAYMENT THAN IS PERMITTED BY LAW: This category includes two different FDCPA law violation codes. First, the FDCPA prohibits debt collectors from misrepresenting the character, amount, or legal status of a debt. The types of complaints that fall in this category include for example, reports that a collector is attempting to collect either a debt the consumer does not owe at all or a debt larger than what the consumer actually owes. Other complaints in this category state that collectors have sought to collect on debts that have been discharged in bankruptcy. in 2008, there was a decrease in the number and percentage of complaints of this law violation compared to 2007. This was the second most common category of FDCPA complaints in 2008: 32.5%, or 25,644 FDCPA complaints, described this conduct. In 2007, 38.6% of FDCPA complaints, or 27,434 complaints, reported that collectors engaged in these practices, making this the most common category of FDCPA complaint in that year.

Second, the FDCPA prohibits debt collectors from collecting any amount unless it is "expressly authorized by the agreement creating the debt or permitted by law." In 2008, 7.5% of FDCPA complaints, or 5,942 complaints, asserted that collectors demanded interest, fees, or expenses that were not owed (such as collection fees, late fees, and court costs), significantly up from 2.3% of FDCPA complaints in 2007.

HARASSING THE ALLEGED DEBTOR OR OTHERS: This complaint category encompasses four distinct law violation codes. Under the FDCPA, debt collectors may not harass consumers to try to collect on a debt. In 2008, 34.7% of FDCPA complaints the Commission received, or 27,382 complaints, claimed that collectors harassed the complainants by calling repeatedly or continuously. This was the most frequent law violation about which consumers complained during 2008. These figures are significantly up from 2007, when 19.7% of FDCPA complaints the Commission received, or 14,006 complainants, stated that collectors harassed them by calling repeatedly or continuously. Also in 2008, 10,610 complainants, or 13.5% of FDCPA complaints, claimed that a collector had used obscene, profane, or otherwise abusive language. Five thousand, four hundred seventy-three complaints, or 6.9% of 2008 FDCPA complaints, said that collectors called before 8:00 a.m., after 9:00 p.m., or at other times that the collectors knew or should have known were inconvenient to the consumer. One thousand, one hundred eighty-six complaints, or 1.5% of 2008 FDCPA complaints, reported that collectors used or threatened to use violence if consumers failed to pay. As proportions of total FDCPA complaints, the complaint levels increased substantially from 2007 for all these categories.

THREATENING DIRE CONSEQUENCES IF CONSUMER FAILS TO PAY: The FDCPA bars debt collectors from making threats as to what might happen unless the collector has the legal authority and the intent to take the threatened action. Among other things, collectors threaten to initiate civil suit or criminal prosecution, garnish wages, seize property, cause job loss, have a consumer jailed, or damage or ruin a consumer's credit rating. In 2008, 15% of FDCPA complaints, or 11,787 complainants, reported that third-party collectors falsely threatened a lawsuit or some other action that they could not or did not intend to take, more than double the 6.5% of complaints that reported the same conduct in 2007. Also in 2008, 8.1% of FDCPA complaints, or 6,404 complaints, alleged that such collectors falsely threatened arrest or seizure of property, which was treble the 2.7% of FDCPA complaints reporting such conduct in 2007.

IMPERMISSIBLE CALLS TO CONSUMER'S PLACE OF EMPLOYMENT: Under the FDCPA, a debt collector may not contact a consumer at work if the collector knows or has reason to know that the consumer's employer prohibits such contacts. By continuing to contact consumers at work under these circumstances, debt collectors may put the consumers in jeopardy of losing their jobs. In 2008, 10.3% of FDCPA complaints, or 8,092 complaints, related to calls to consumers at work, compared with only 5.9% of FDCPA complaints in 2007.

REVEALING ALLEGED DEBT TO THIRD PARTIES: The FDCPA generally prohibits third-party contacts for any purpose other than obtaining information about the consumer's location. Collectors calling to obtain location information also are prohibited from revealing that a consumer allegedly owes a debt.

Improper third-party contacts typically embarrass or intimidate the consumer who allegedly owes the debt and are a continuing aggravation to the third parties. Contacts with consumers' employers and co-workers about consumers' alleged debts also may jeopardize continued employment or prospects for promotion. Relationships between consumers and their families, friends, or neighbors also may suffer from improper third-party contacts. In some cases, collectors reportedly have used misrepresentations as well as harassing and abusive tactics in their communications with third parties, or even have attempted to collect from the third party.

In 2008, 8.8% of all FDCPA complaints, or 6,949 complaints, reported that debt collectors illegally disclosed a purported debt to a third party, up considerably from 3.8% of FDCPA complaints in 2007. The third parties contacted include employers, relatives, children, neighbors, and friends. This past year, 16.1% of complaints, or 12,695 complainants, claimed that collectors called a third party repeatedly to obtain location information about the complainant, up from 13.2% of FDCPA complaints in 2007.

FAILING TO SEND REQUIRED CONSUMER NOTICE: The FDCPA requires that debt collectors send consumers a written notice that includes, among other things, the amount of the debt, the name of the creditor to whom the debt is owed, and a statement that, if within thirty days of receiving the notice the consumer disputes the debt in writing, the collector will obtain verification of the debt and mail it to the consumer. Many consumers who do not receive the notice are unaware that they must dispute their debts in writing if they wish to obtain verification of the debts. Last year, 15.7% of the FDCPA complaints, or 12,365 complaints, reported that collectors did not provide the required notice, up considerably from 3.1% of all FDCPA complaints in 2007.

FAILING TO VERIFY DISPUTED DEBTS: The FDCPA also mandates that, if a consumer submits a dispute in writing, the collector must cease collection efforts until it has provided written verification of the debt. Many consumers complained that collectors ignored their written disputes, sent no verification, and continued their collection efforts. Other consumers reported that some collectors continued to contact them about the debts between the date the consumers submitted their dispute and the date the collectors provided the verification. Last year, 8.0% of all FDCPA complaints, or 6,340 complainants, claimed that collectors failed to verify disputed debts, up from 2.6% of all FDCPA complaints in 2007.

CONTINUING TO CONTACT CONSUMER AFTER RECEIVING "CEASE COMMUNICATION" NOTICE: The FDCPA requires debt collectors to cease all communications with a consumer about an alleged debt if the consumer communicates in writing that he or she wants all such communications to stop or that he or she refuses to pay the alleged debt. This "cease communication" notice does not prevent collectors or creditors from filing suit against the consumer, but it does stop collectors from calling the consumer or sending dunning notices. In 2008, 6.3% of FDCPA complaints, or 4,992 complainants, reported that collectors ignored consumers' "cease communication" notices and continued their collection attempts, up from 4.9% of total FDCPA complaints in 2007.

In May 2008, the Commission settled an action filed in June 2007 against Tono Records and related companies and individuals whose representatives allegedly victimized Spanish-speaking consumers nationwide by posing as debt collectors seeking payments for purported debts that consumers did not owe. Because the defendants presented themselves as if they were third-party debt collectors, they were subject to the FDCPA as well as the FTC Act. The defendants were charged with violating the FTC Act and the FDCPA by: (1) falsely claiming that a debt is owed; (2) falsely claiming to be, or to represent, an attorney; and (3) falsely threatening legal action, arrest, imprisonment, property seizure, or garnishment of wages. Other FDCPA violations alleged included attempting to collect an amount of debt not authorized by contract or permitted by law; harassing consumers; and failing to inform consumers, within five days of their initial communication with them, of their right to dispute and obtain verification of their debt and the name of the original creditor. The settlement imposed a $1.19 million judgment against the defendants and permanently enjoined them from violating the FTC or the FDCPA.

The FTC recommends certain reforms to the debt collection legal system. The FTC recommends that the validation notices that collectors are required to send to consumers also disclose the name of the original creditor, a break down of the debt by principal, total interest and total fees, and inform consumers of certain rights they already have under the FDCPA. In addition, the FTC recommends that debt collectors be required to conduct a reasonable investigation relative to the specific dispute the consumer debtor raised.

The FTC also recommends that the FDCPA should be modernized to reflect changes in technology since 1977. The FDCPA should generally allow debt collectors broad use of communication technology to contact consumers but prevent consumers from incurring charges for those contacts. The FTC recommends that debt collectors be prohibited from contacting consumers on their cell phones, including texting, without prior express consent and require debt collectors who use payment technologies to obtain express verifiable authorization from consumers before accessing their accounts.

The FTC also recommends raising the amount of statutory damages under the FDCPA.

CASES

A debt collector violated the FDCPA by using the courts to attempt to collect a time-barred debt. Debt collector violated the FDCPA by serving a request for admission to admit a payment was made, when the debt collector's own records showed it was not. While the collector's use of discovery is not a per se FDCPA violation, a request for admission to a pro se defendant to admit a payment when the debt collector's records showed it was not made, to avoid a statute of limitations defense, was an abusive, unfair, and unconscionable practice in violation of the FDCPA. The debt collector's failure to move to set aside the underlying state court default judgment after a summary judgment ruling that the underlying state court action violated the FDCPA because it was time barred constituted an additional FDCPA violation. McCollough v. Johnson, Rodenberg & Lauinger, 2009 WL 176867 (D. Mont. Jan. 8, 2009).

A confidential communication issued from foreclosing party or its counsel to counsel for another creditor involved in the foreclosure, regarding the payoff figure, did not violate 15 U.S.C. §1692c(b), as such a communication was not subject to the FDCPA. Acosta v. Campbell, 2009 WL 190089 (11^th Cir. Jan. 28, 2009) (not for publication).

Summary judgment for consumer that debt collector had violated 15 U.S.C. §1692c(b), when the debt collector sent an envelope that contained a window through which anyone could see the creditor and account number related to the consumer debt being collected. Owens v. Brachfeld, 2008 WL 3891958 (N.D. Cal. Aug. 20, 2008).

Filing notice of default with town clerk was not an impermissible third party contact: the deed gave permission to do so if home owner defaulted. Maynard v. Cannon, 2008 WL 2465466 (D. Utah June 16, 2008).

Consumer stated a claim under the anti-harassment provision, 15 U.S.C. §1692d(5), for repeated rude, threatening phone calls. Wisniewski v. Asset Acceptance Capital Corp., 2009 WL 212155 (N.D. Ill. Jan. 29, 2009).

Consumers stated a claim for defendants' violation of 15 U.S.C. §1692D when defendants' agents, while attempting to serve process, stood at the entrance of the consumers' home and "in a very loud voice repeatedly yelled plaintiff's name 'Mike, Mike,' 'come out of your house,' 'I have legal papers for you,' 'you need to come out and get these legal papers now,' 'you need to get your ass out here and open your gate now,' 'I'm not leaving until you come out and open this gate'." McNall v. Credit Bureau, 2008 WL 188179 (D. Or. Apr. 18, 2008).

Unopposed motion to dismiss granted on this §1692c(a)(2) claim because (1) there was no allegation that the creditor or anyone else had informed the debt collector of the attorney's representation of the consumer, and (2) the creditor's knowledge of that representation could not be imputed to the debt collector. Offril v. J.C. Penney Company, Inc., 2009 WL 69344 (N.D. Cal. Jan. 9, 2009).

Plaintiff's motion for summary judgment that defendant violated the FDCPA by contacting the consumer after knowing she was represented by counsel was denied because questions of fact existed including the failure of plaintiff's counsel to respond to defendant's correspondence. Graff v. Henriques, 2008 WL 3916039 (N.D. Cal. Aug. 25, 2008).

Summary judgment for defendant collector on claim that it violated §1692c(a)(2) by communicating with consumer known to be represented by an attorney since the evidence showed that only the creditor actually knew of that representation and the knowledge of the creditor cannot be imputed to the collector under §1692c(a)(2). Keisler v. Encore Receivable Mgmt., Inc., 2008 WL 177417 (S.D. Ind. April 17, 2008).

A collector's alleged imputed knowledge from its creditor of the consumer's representation by counsel and request to cease communication was insufficient to state a claim for violating §§1692c(a)(2) and 1692c(c), which require the collector to have actual knowledge. In re Carroll, 2008 WL 5377695 (Bankr. N.D. W. Va. Dec. 22, 2008).

Credit card agreement that specified that Delaware law applied to substantive matters, including the statute of limitations, controlled the time frame within which the debt collector may initiate the collection action. Although the debt collector was wrong in its choice of the applicable statute of limitations within which to bring its collection action, the debt collector's procedures were "reasonably adapted" to prevent a legal error and established a bona fide error defense pursuant to 15 U.S.C. §1692k(c). McCorriston v. L.W.T., Inc., 536 F. Supp. 2d 1268 (M.D. Fla. Feb. 22, 2008).

In Bank of Oklahoma vs. Regina Ashley, n/k/a Williams, 2009 OK CIV App 50, 212 P.3d 507, defendant, Regina Ashley n/k/a Williams, appealed from the trial court's denial of her motion to release a judgment lien held by Plaintiff, Bank of Oklahoma (Bank). At issue was a question of first impression: Does a pre-existing judgment lien on a debtor's real property survive a bankruptcy discharge in light of 12 O.S. 2001 §706(e)(2)? The Oklahoma Court of Appeals found that it does and affirmed.

The essential facts are undisputed: In 2002, Bank filed a lawsuit against Defendant to collect an indebtedness. In 2003, Bank obtained a default judgment, recorded it in Oklahoma County, and properly perfected a judgment lien on Defendant's real property. In 2007, Bank renewed the judgment. Indisputably, Bank's judgment lien attached to a tract of realty which Defendant owned in joint tenancy and which was not her homestead.

Thereafter, Defendant and her husband filed for Chapter 7 protection under the U.S. Bankruptcy Code and listed Bank as a creditor. Bank did not contest this filing. Defendant eventually obtained a Chapter 7 discharge.

After the discharge, Defendant filed an action seeking the release of Bank's judgment lien on her realty. She relied upon Tit. 12 O.S. 2001§706(E)(2), which provides:

The lien of any judgment which has been satisfied by payment or otherwise charged and which has not been released by the judgment creditor shall be released by the court upon written motion.

Defendant asserted that since her personal liability for the judgment debt to Bank had been discharged by the Bankruptcy Court, she was entitled to a release of the judgment lien. Bank objected, asserting the bankruptcy discharge did not apply to the judgment lien because pre-existing liens are not discharged by bankruptcy.

Indisputably, Defendant received a discharge of debtor in Bankruptcy Court. Section 524(a) of the U.S. Bankruptcy Code, provides that such a discharge:

(1) voids any judgment at any time obtained, to the extend that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged.

Defendant asserted that under state law the judgment lien did not survive. She asserted that Tit. 12 O.S. 2001 §706(E)(2) provides that, when the debt is "otherwise discharged," as it was in her bankruptcy action, the judgment lien "shall be" released. The appellate court disagreed, finding that, while a bankruptcy discharge releases the debtor from personal liability for a debt, discharge does not affect vested liens upon property acquired prior to the filing of the bankruptcy petition, and such pre-existing liens may be enforced after a discharge is granted.

Thus, if §706(E)(2) was interpreted as authorizing the nullification of pre-existing judgment liens, the statute would unconstitutionally impair the vested property rights of perfected lienholders.

The appellate court found that the legislative intent of 12 O.S. 2001 §706(E)(2) is that judgments extinguished by bankruptcy proceedings no longer have vitality to attach as liens to real estate subsequently acquired by a debtor. The court further found that the state statute does not apply to valid liens existing at the time the debtor files his or her bankruptcy petition.

FTC ADVISORY OPINION

On June 23, 2009, the FTC issued an advisory opinion letter which attempts to clarify another FDCPA dilemma.

Occasionally, the FDCPA and other federal laws create statutory conflicts. This particular advisory opinion deals with the conflict between the FDCPA and the Fair And Accurate Credit Transaction Act (FACTA). The two potentially conflicting provisions deal with a consumer's written notification to a debt collector to cease communications, and the duty of a furnisher of information to a credit reporting agency to report to the consumers the results of a dispute. The Fair Debt Collection Practices Act provides in part that if a consumer has notified a debt collector in writing that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate with the consumer with respect to such debt. The Code of Federal Regulations which implement the FACT Act require a debt collector/furnisher to notify the consumer either of the results of its investigation or of its determination that the consumer's dispute is frivolous or irrelevant.

The FTC analyzed in its advisory opinion that providing the notice required by FACTA does not undermine the purpose of the cease communication provision of the FDCPA. Communications from debt collectors which do nothing more than respond to disputes consumers themselves have raised do not impose a burden on the FDCPA or the debt collector. A debt collector does not violate the FDCPA if the consumer directly disputes information after sending a written cease communication to the debt collector and the debt collector complies with the CFR under FACTA by means of a communication that has no purpose other than complying with the Code of Federal Regulations by stating the results of the investigation or the debt collector's belief that the communication is frivolous or irrelevant.