A debt owner cannot be held liable under the Fair Debt Collection Practices Act (FDCPA) for the allegedly false representations made by another entity acting on its behalf in debt collection, including an affiliate, according to a recent ruling by the United States Court of Appeals for the Eleventh Circuit.
The ruling serves as a reminder that the FDCPA still presents stumbling blocks for compliance and it important staff involved in the collection of debts to abide by the appropriate practices based on industry best practices and the FDCPA.
The FDCPA has been around since the late 1970s and was designed to eliminate abusive, deceptive and unfair debt collection practices and encourage consistent state action to protect consumers from abuses in debt collection.
The act also sets the industry standards for debt collection and influences how debt collection at a financial institution is viewed from UDAAP and fair lending perspectives
Debts covered by the FDCPA are only those incurred by a consumer for personal, family or household purposes. Debt collectors covered by the FDCPA are defined as any person who regularly collects, or attempts to collect, consumer debts for another person or institution or uses some name other than its own when collecting its own consumer debts.
If your institution regularly collects debts for another unrelated institution, you are a covered debt collector. If your institution has a reciprocal service arrangement to assist another institution in collecting defaulted consumer debts, you are a covered debt collector.
However, if you collect on debts originated under your own name, debts you continue to service, or only debts secured by commercial transactions, you would not be a covered debt collector under the Act.
As you think about your own debt collection practices, think about how the FDCPA principles could improve your own program and help you avoid possible UDAAP and fair lending concerns.
FDCPA rules cover all surrounding communications with a consumer or third party, the borrower and their spouse, their parent(s) (when the borrower is a minor), guardian, executor and administrator.
Here is a deeper look into the types of communication:
Communication directly with the consumer: Without the direct prior consent of the consumer or the express permission of a court, you may not communicate with a consumer in connection with the collection of any debt at any unusual time or place or a time or place known or that should be known to be inconvenient to the consumer. In practice, this means communications need be limited to the hours of 8 a.m. until 9 p.m. in the time zone where the consumer is located. When the consumer is represented by an attorney with respect to the debt in question, contact needs to be through the attorney when you can easily learn the attorney’s name and address, the exception being when the attorney fails to respond in a reasonable period of time or expressly consents to allow your communication with the consumer.
Communication with third parties: The only third parties with whom you may communicate while attempting to collect the debt are the consumer’s attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor or the attorney of the institution. Without the prior consent of the consumer or the express permission of a court or as reasonably necessary to effectuate a post-judgment judicial remedy, you may not communicate with any other third parties in connection with the collection of the debt.
The exception to this is when you are attempting to locate the consumer. In that situation, a third party may be asked for the consumer’s home address, telephone number and employer. When doing so, give your name and state that you are confirming or correcting location information about the consumer. Only when expressly requested may you identify the institution. A further limitation is that communications with third parties be no more than a one-time occurrence unless the debt collector is requested to do so by that third party or the debt collector reasonably believes the earlier response of the third party was erroneous or incomplete and the third party now has correct or complete location information.
Contact with any third party by postcard, letter or telegram (yes, by telegram) is allowed only if the envelope or content of the communication does not indicate the nature of the collector’s business.
Ceasing communication with the consumer: If a consumer notifies your institution in writing of a refusal to pay a debt or a request that you cease further communication, your institution must stop further communication with respect to such debt upon receipt of the notice, except in limited circumstances. The consumer may be advised that the collection effort has stopped, or the debt collector or creditor may invoke specified remedies or advise that such remedies are being invoked.
Additional notification requirements: Within five days after the initial communication with a consumer, unless the following information is contained in the initial communication or the consumer has paid the debt, a written notice must be sent to the consumer stating:
- The amount of the debt.
- The name of the creditor to whom the debt is owed.
- That, unless the consumer disputes the debt in writing within 30 days, the debt will be presumed to be valid.
- That, if the consumer notifies the institution within 30 days that the debt is disputed, the institution will obtain verification of the debt and mail it to the consumer.
- That, if the consumer issues a written request within 30 days, the institution will provide the consumer with the name and address of the original creditor if different from the current creditor.
Within the 30-day window, if the consumer disputes in writing any portion of the debt or requests the name and address of the original creditor, then all collection attempts must be paused until the consumer is mailed a copy of the requested information.
Harassment and false or misleading representations and other unfair practices
The FDCPA states that a debt collector may not harass, oppress or otherwise abuse any person. In practice, this means a debt collector may not engage in any conduct for which the natural consequence is to harass, oppress or abuse any person in connection with the collection of a debt.
In addition to harassment concerns, the FDCPA states that false, deceptive or misleading representations may not be used in connection with collecting debt.
Unfair practices are also prohibited and are defined by the FDCPA as those practices which are considered unfair or unconscionable means used to collect or attempt to collect a debt.
Specific examples of harassment, false or misleading representations and unfair practices are found at 15 U.S.C. 1692(d), (e) and (f).
Failure to comply with the FDCPA may result in liability for actual damages sustained as a result of that failure, punitive damages as allowed by a court and costs and reasonable attorneys’ fees in any such action. In addition to the civil liabilities, debt collectors may also face reputational and other risks — such as ending up as the inspiration for a Wipfli article.
At Wipfli, we recommend you have a written policy or procedure addressing compliance with the Fair Debt Collection Practices Act. For those institutions not subject to the FDCPA, we recommend your written policy or procedure take into account its framework to ensure you avoid UDAAP and fair lending issues. This, along with periodic training and routine monitoring of collection activities, will guide staff in the collection of debts and help you avoid regulatory actions, possible civil liability and loss of your good reputation.