Fewer Lawsuits Mean Better Days Ahead: FDCPA Lawsuits Filed Against Collectors Down 10% in 2013

Image courtesy of Salvatore Vuono / freedigitalphotos.net

If the mutual goal of both consumers and debt collection industry insiders is better communication, there is light at the end of the tunnel for 2013’s heated exchanges between the two sides.  The numbers prove it: 2013 saw 10% fewer cases filed under the Fair Debt Collection Practices Act (FDCPA) by consumers and their attorneys against a debt collector. 

This data, compiled and released by WebRecon LLC, shows a decline in lawsuits that has been happening for two years straight and is showing every sign of continuing this trajectory.  Specifically, 10,320 FDCPA lawsuits were present on federal district courts dockets in 2013, which is a 10.2% decline from 2012’s numbers.  2012’s numbers showed a 6.8% decline from 2011. 

Lawsuits filed by consumers against debt collectors, collections attorneys, and ARM companies saw a rapid rise in 2005 and peaked in 2011, following the brutal economic aftermath of the 2008 world financial crisis.  Fewer lawsuits claiming FDCPA violations means the industry is stabilizing and finding its footing on a path to higher customer satisfaction. 

There are multiple reasons for this but much credit can be given to the willingness of both sides to negotiate best practices in the industry.  Additionally, the recent outspokenness of key players in ARM during the CFPB’s Advance Notice of Proposed Rulemaking (ANPR) shows a willingness on behalf of the debt collection industry to meet consumers halfway. 

Despite the gains being made and the decline of FDCPA lawsuits on federal court dockets, lawsuits alleging ARM violations of the Telephone Consumer Protection Act (TCPA) have risen rapidly in 2013—up almost 70% from 2012’s numbers.  However, as this statute was originally written for telemarketers, there remains open debate concerning the scope and range of this Act as it relates to debt collection industry best practices.

The Big Wait for the Consumer Financial Protection Bureau’s Next Move

The Consumer Financial Protection bureau has placed the topic of debt collection at the forefront of their priorities as soon as the period of Advance Notice of Proposed Rulemaking ends.  What this means for the debt collection industry is that 2014 might become one of the most important years for the collection industry since the FDCPA was passed in 1977.

Some of the changes announced by the agency include increased regulations for debt collection practices.  These regulations could include restrictions placed on the originating creditors, as well as better accuracy on forms or documents that are shared between collection parties, debt buyers and settlement companies.  The potential also exists for updated rules on the limit and scope of communication that must transpire between a collection agency or collection attorneys and a debtor, including communication via text messaging. 

The biggest changes, according to senior CFPB officials, will likely occur for creditors that both originate -and collect on debt.  Currently, the Fair Debt Collection Practices Act only places restrictions on third-party collectors.  These changes proposed this year by the CFPB could affect first-party creditors in much the same way that the Fair Debt Collection Practices Act affects current third-party collectors.  It could also give the Consumer Financial Protection Bureau the authority to supervise larger debt collectors that are not affiliated with a bank; although banks are also under fire for their current debt collection practices, as well. 

This past July, American Banker interviewed Paul Joseph, the director of business development for McCarthy, Burgess & Wolff, a debt collection firm.  In that interview, Joseph stated: “You can't ignore this.  It's a freight train.  I have no doubt they're going to eventually come after everything [with regard to consumer debt].” If his conclusions are true, the ARM industry might be in for a rude awakening when the dust settles and the new regulations are in place.