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

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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.

What are the biggest changes anticipated from the Consumer Financial Protection Bureau's proposed new rules?

Are complaints against collections practices being resolved?

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.  

FTC: When It Comes to the TCPA and FDCPA, Everything Counts

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For an industry that relies so heavily on communication devices to reach their targets, debt collectors have been carefully watching how the Federal Trade Commission interprets and enforces laws relating to their business for decades.  Collection agencies and collection attorneys have been paying particular attention to the Federal Debt Collections Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA) because the language of both acts – the first written in 1977 and the latter amendment created in 1991 – predate many modern technologies, especially text messaging and ringless voicemail.

The FTC has no rulemaking authority, but frequently uses its enforcement authority to telegraph how it plans to interpret rules and regulations going forward.  Recently, the FTC brought the first case against a collection firm based in Glendale, California that involved the sending of text messages and found that the firm had violated the clear disclosure rule of the FDCPA when it used text messages that made no reference to debt and did not obtain prior permission from the consumer.  The company in question agreed to a $1 million settlement and to accept guidelines for future collection attempts.

The ruling was enlightening because the FTC chose its words very carefully to state that it does not matter where the transmission was targeted (i.e., a land-line phone or device).  In fact, the FTC underlined the issue in a post to its web site, writing ‘Regardless of the means you choose — mail, phone, text, or something else — the law applies across the board.’

Thus, the FTC’s policy going forward is relatively clear: There will be no tolerance for “loopholes” regarding text messages or so-called “ringless voicemail” messages that bypass a mobile phone’s ringer and allow direct recording to voicemail.  The FTC clearly intends to regard any communication without clear and prominent disclosure as a violation of the FDCPA and/or the TCPA.

Is it legal to send debtors a text message in an effort to collect on a debt?

How the TCPA and FDCPA are Affecting Consumer Collections in a High Technology Environment

No matter who is making an effort to collect on a debt, there are very specific laws that must be followed.  The Telephone Consumer Protection Act (TCPA) sets forth some very specific provisions that may make it very difficult for a company to use automated technology to collect on debt.

One example of how the TCPA affects collections is that it prohibits automated recordings or any artificial voices to call any cellular phone without getting the express permission from the Debtor.  In an age when home telephone service is becoming obsolete, and most Americans carry only a cell phone, this law can cause a serious impediment to any automated collection efforts.  If an agency does violate the TCPA—the penalties are severe-$500.00 per automated call plus attorneys fees and maybe even punitive damages or a class action lawsuit.

In addition, the FDCPA requires a (FOTI) message be left when leaving any message  which basically states that certain identifying information be provided when leaving a message with a debtor – name of caller, name of entity, and the phone number or address of the entity – leaving the indebted party unlikely to return the message and pay the debt . It also opens up the collecting entity to potential third part disclosure lawsuits as well.

Despite an ever-automated world, federal regulations such as the TCPA and FDCPA are making automated collections more and more difficult.  This means that your business or the collection firm you have hired will need to use more non-automated resources, such as having staff on hand to place the calls, and lawyers with specific knowledge of collection law.  This will ensure that in the process of collecting the debt, no fines will be incurred, and the settlement will be worth the time, effort, and money expended to retrieve the debt.

Collectors Take Their Stand: Seek Sanctions in FDCPA Cases

Many collections companies find themselves spending their time in court responding to boilerplate complaints, only to find that the plaintiff doesn’t actually participate in the litigation yet won’t drop the suit.  Meanwhile, attorney’s fees and court costs continue to build up.  A recent case in California resulted in two debt collectors being awarded more than $13,000 in the form of sanctions against the plaintiff’s counsel.

During the year prior to the sanctions, multiple consumers filed lawsuits of an almost identical nature against various collectors of debt.  The complaints were boilerplate, with allegations associated with reporting activity on the plaintiffs’ credit reports as the basis.  Multiple debt collectors, creditors and debt buyers were named in the suit.  The majority of the cases were dismissed immediately due to the failure of the plaintiff to make a claim or to comply with various rules, in addition to plaintiffs’ counsel not attending discovery meetings. 

One of the dismissed lawsuits made assertions under state laws, the Fair Credit Reporting Act, and the Fair Debt Collection Practices Act.  Other than serving the claims, the plaintiff did not take part in the case, resulting in the dismissal of the case.  On behalf of two of the defendants, Issa Moe, an attorney with Moss & Barnett, P.A., filed several motions that sought an award for the various costs and fees associated with the case. 

The court declined to hold the plaintiff responsible for the costs incurred by the defendants; however, due to the actions of the plaintiff’s counsel, which the court regarded as being “unreasonably and vexatiously” conducted sanctions against the counsel totaling $13, 278.50 were awarded.  While sanctions being granted in a case such as this are rare, it is good news for collection lawyers and  debt collectors subjected to such frivolous litigation to know that they have paths they can pursue to recoup their losses.  

Foreclosures Have Been Ruled By FDCPA As Debt Collection

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It is common knowledge that the housing market took a large turn for the worse over the past few years.  More and more foreclosures have put homeowners out of their home and placed banks scrambling to sell houses they thought were already sold. 

Recently, the Sixth Circuit U.S. Court of Appeals passed a judgment that made foreclosures on mortgages an act of ‘debt collection.’ This was done under the Fair Debt Collection Practices Act and it reversed a decision made by the lower courts. 

This decision basically states that third parties that are working through the foreclosure process need to abide by the FDCPA laws and regulations.  The decision was made in response to Glazer V. Chase Home Finance, LLC.  Glazer inherited a home only to discover there was still an active mortgage that Chase held.  Six payments were missed and  a law firm was contacted to start the foreclosure proceedings. 

The mortgage wasn’t owned by Chase, nor did it originate there.  Fannie Mae was the mortgage owner and Chase was assigned to service the originator.  This made the entire process more complicated for Glazer to find details of the proceedings out and made it difficult to settle the problem. 

Glazer sought a lawsuit for FDCPA damages but an Ohio judge sided with Chase and their lawyers instead and dismissed the case entirely.  The panel stated Chase wasn’t a debt collector; however the lawyers working to collect on the lien were considered debt collectors and expected to follow the guidelines of FDCPA.

This means that there are a set of regulations and guidelines mortgage collectors will be expected to follow.  Likewise debtors will also be expected to follow the laws and regulations.  With this kind of formalities imposed on the system there is expected to be smoother transitions and hopefully less homeowners put out of their home.  

What the Consumer Financial Protection Bureau Means for Small Collections Firms

Due to recent changes that the Obama administration made in creating the Consumer Financial Protection Bureau, beginning January 2, 2013, there will be a federal agency that will oversee the country’s largest debt collection firms.  Under the new regulations, the Consumer Financial Protection Bureau (CFPB) will oversee any debt collection firm that brings in annual profits of more than $10 million.  Companies that do not meet this $10 million minimum will not be included in the CFPB’s crosshairs for increased regulation and oversight. 

The CFPB’s aim is to ensure that debt collectors follow the regulations and consumer protection practices that the Consumer Protection Act requires, including civil communication with debtors and maintaining fair debt collection practices.  However, although there are approximately 4,500 debt collection firms in the country, approximately 175 of these collections firms will be under the scrutiny of the Consumer Financial Protection Bureau.  The remainder will continue to be under the general regulations of the Federal Trade Commission but will not be under such close scrutiny. 

This recent push is due to the Federal Trade Commission’s attempt to crack down on unfair debt collection practices such as calling more than a certain number of times a day, harassing debtors at their place of employment, and calling outside of the hours of 8 a.m. to 9 p.m. in the debtor’s local time zone.  According to an FTC spokesman, the agency received 180,000 complaints in 2011 due to actions initiated by debt collectors in the attempt to collect upon unpaid debts that violated these restrictions, among others. 

While the FTC will continue to focus on collections firms of all sizes, the CFPB will regulate and enforce consumer protection law on the 175 firms that turn the biggest profits from collections.  This means that the smaller collections firms can breathe a sigh of relief that their own debt collections practices won’t be under such close scrutiny, although they must still follow the restrictions set forth in the Fair Debt Collection Practices Act.    

Debt Collecting - A Regulated Business

When a company provides service, a product or a loan to an individual, they expect to receive it back as per the credit agreement.  Unfortunately, this isn’t always the case.  More often than not, especially in today’s tragic economic times, companies want vengeance on their customers that have not fulfilled the terms within the agreed upon credit agreement.

While retribution cannot be obtained, a company has a right to hire a debt collection agency.  However, debt collection agencies do not always follow the rules (unfortunately) and it gets them as well as the creditor in trouble as the debtor reports this “bad behavior” to appropriate authorities.  Nonetheless, it is possible to ensure that this doesn’t happen.

Debt collection agencies simply need to ensure that all employees are up-to-date on new regulations regarding debt collections.  One way to do this is by holding monthly meetings to address any concerns that employees may have regarding the current collections regulations.  At the same time, this meeting can be held to provide information for new regulations that have been passed.

In addition, when new collections regulations become known, it is critical that all employees receive a training session.  While this doesn’t have to be a day-long class, a brief yet full explanation of the new rules can truly help a debt collection agency succeed in obtaining owed debts.

It is crucial that every employee of a debt collection agency be completely familiar – in fact, they should know it like the back of their hand – with the Fair Debt Collections Practices Act, aka FDCPA. The FDCPA describes exactly how, where and when debtors can be contacted and outlines deceptive practices that are strictly prohibited.  When misleading practices are put into play, a debtor has rights to recover damages, which is not what the creditor wants. 

Florida Broadens the Fair Debt Collection Practices Act (FDCPA)

The Fair Debt Collection Practices Act (FDCPA) gives all debtors some rights when it comes to collecting debt.  Often times, collectors only have one motive, and that is to collect the money.  The collectors or creditors don’t tend to take into consideration the damage they are causing in the process of them gaining their claim. The Fair Debt Collection Practices Act is provided to protect the debtors from unlawful collecting tactics that have been used in the past.

Some of the things that the Fair Debt Collection Practices Act prohibits are:

·         Contacting consumers outside of  8:00 AM and 9:00 PM

·         Misrepresentation

·         Harassing the consumer with phone calls

·         Publishing the consumer’s name on a ‘bad debt’ list

·         Communicating with a consumer at their work after being asked not to

The list of protection that the FDCPA offers extends far past that, however Florida has taken those laws and broadened them.  Florida’s laws protect the consumer more.  Their laws also apply to creditors as opposed to the FDCPA whose laws only apply to collectors. 

Florida also gives legal rights to the consumer.  If a collector or creditor has been abusive, or has broken one of Florida’s guidelines, the consumer may sue in a court of law.  The compensation that would be received would be for punitive damages. 

Some of the statutes that Florida upholds include:

·         Collectors are not allowed to communicate with the debtor during inconvenient times

·         Collectors are prohibited from mailing collection requests in a clear envelope

·         Collectors are not allowed to harass the debtor’s family

When it comes to debt collectors, Florida’s laws seem to favor the consumer.  Florida takes an already strict set of guidelines and expands them further in hopes to make a fairer environment for the debtor.  

Do Debt Collectors REALLY Need to Follow Their Industry Regulations?

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You don’t need me to tell you the debt collection field is filled with unscrupulous individuals looking to make a quick buck by taking advantage of the desperation of both their clients and their debtors. Left to their own devices, most debt collectors would employ every thug tactic they could think of in order to get debtors to pay up. Thankfully the debt collection field is highly regulated and any law firm or agency looking to collect debts needs to comply with these laws to the letter if they want to stay in business.

The two primary sets of regulations relating to the debt collection field are the Fair Debt Collection Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA). Let’s take a minute to outline what these acts state when it comes to how we can perform our duties.

The TCPA was primarily designed to rein in telemarketers, but it applies to debt collection agencies and firms as well. Under the TCPA, no debt collection professional is allowed to do the following actions:

• Call between 9 p.m. and 8 a.m. local time
• Call individuals on the Do Not Call list
• Refuse to provide their agency’s identifying information
• Solicit using automated messages
• Engage more than 2 lines of a business with automated calls

Each instance of breaking one of these regulations can result in a fine of $500 - $1,500 a piece, making the TCPA costly to violate!

The FDCPA works in much the same way, but isn’t limited exclusively to regulating telephone calls. Under the FDCPA, debt collectors can’t misrepresent themselves, their intentions, or their capabilities. The FDCPA also prevents collectors from being able to embarrass or harass their debtors through a variety of once-common practices.

For legal, financial, and ethical reasons, it’s wise to ONLY work with debt collectors who follow these regulations as closely as possible!

How the FDCPA and TCPA Effect Collections

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The Fair Debt Collections Practices Act, or the FDCPA, and the Telephone Consumer Protection Act, or TCPA, both effect technologically based collections agencies negatively. There are many provisions set forth in these acts that make it difficult for a technology based collection agency to use auto dialers, automated messaging systems, and automatically printed statements or collection notices. These regulations must be followed, yet it is difficult to follow all of them using this technology for collections.

For example, the TCPA mandates that you must provide your name, the name of the entity, and the phone number or address of the entity on any automated messages. This can be detrimental to collections efforts, as people are not likely to return your call if they know who is calling and why.

Another example of how the TCPA negatively affects technology driven collections agencies is that it prohibits automated recordings or artificial voices to call any cellular phone. This is detrimental to technology based collections agencies, because many Americans only carry a cell phone. Home telephone service is becoming a thing of the past. If you cannot contact a cell phone by automated means, you may as well give up on the automated means all together.

The provision about cell phones in the TCPA hurts countless agencies that do not even realize they are calling a cell phone. However, the way the law is written, each offense can cost the agency five hundred to fifteen hundred dollars per occurrence. This is a hefty price to pay for the cost of doing business. No agency can afford it. Therefore, most collections clients cannot be contacted by automated means.

The FDCPA also gives limitations to technology driven collection agencies. For one thing, you cannot contact someone by phone if they request no contact by that means. This cannot happen if you have an automated system, and it can be argued that by not giving someone the opportunity to deny contact you are violating the act.

Another way the FDCPA limits automated collections is by the fact that various statements must be made in every contact. The collections agent must make it clear that the call is from a debt collector, and that any information provided will be used to collect on that debt. Including this type of personal information in an automated call is nearly impossible.

As you can see, there are many reasons why technology driven collections agencies are becoming a thing of the past. Between the TCPA and the FDCPA, there are so many regulations that must be followed that automated systems are nearly obsolete. You may need to consider other means for collecting your debts.

Should you consider factoring or selling your debt as opposed to sending to third party collection firms?

Factoring is a financial transaction whereby a business or individual sells its account receivable (a.k.a. invoices) to a third party (e.g. collection agencies) at a discounted price, for it to be exchange into immediate money to finance the business. It is often misused synonymously with invoice discounting.  Factoring is the sale of receivables, whereas invoice discounting is borrowing where the receivable is used as collateral.  

Some major financial institutions sell their outstanding accounts both pre-charge off and post-charge off rather than have them worked in-house or sent to third part agencies or law firms. One factor is the volume of accounts and another is that they can obtain working capital upfront rather than waiting for funds to be collected over time. The advantage of this move is the invoices will be turned into money that can be use for the benefit of the company. The downside is collection agencies are known for their aggressiveness, so telephone harassment is a possibility. 

FDCPA (Fair Debt Collection Practices Act) only covers third party collections agencies not original creditors. However Federal Trade Commission has issued a Staff Opinion Letter which indicates that, even if a collection agency has purchase a debt, it is still covered under FDCPA as a third party debt collector. Hostile collections can stress out the customer and might think negatively about the company in which he/she original has debt. This might be harmful for future business opportunities.  

Aside to collections agencies, there are other debt buyers in the market. There are law firms, third party collection agencies and even individual entrepreneurs. There are a lot of individuals or companies that buy debts from individuals to large companies.

How past due should be your customer before you decide to turn over to a third party collection agency and law firm?

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The first tier of collection is with first party agencies that are subsidiaries of the company itself, these are from 1 – 30 days past due. Second tier is 31- 60 days past due, this tier, it depends upon the company if they still want the first-party to continue collecting or if they will pass it on to the third-party collections agency. 

Banks, firms or credit card companies resort to third party collections once the account reaches 90 days to 180 days delinquent. Each country and state has their own rules and regulations regarding collection agencies and their practices which are quite often very aggressive.

 

Third party collection agencies, will try to trace the customer and ensure full settlement of outstanding. If the customer is unable to settle the outstanding, the collector will ensure that a settlement plan or a discount strategy – as agreed by the company and the collection agency- is offered to the customers. 

The advantage of first party collection is there is no lag in time between an account becoming delinquent and the beginning of the collections process. Another is you have knowledge of your customers needs and practices, making the client-customer relationship positive even if the later incurred a debt, which helps down the road to keep the customer loyal to the company. Third party collections can sometimes be seen as hostile, however if your clients need your product or service to keep his or her business running smoothly, they will strive to stay on your good side. Sometimes if the customer just hears a familiar voice asking nicely for a payment is enough to keep the problem solved. 

Many times the third party agency or law firm will have settlement authority from the client to settle for far less than the original balance. Now after 180 days and the account’s still in collections it is advisable to have the account transferred to third party agencies or law firms. 

Third party agency or law firm are subjected to Fair Debt Collection Practices Act of 1977 (FDCPA). This law is administered by the Federal Trade Commission (FTC), this federal law limits the hours of collection agency or law firm to call the customers and prohibits communication of the debt to a third party. It also prohibits false or misleading representation and making threats of actions the agency cannot lawfully or does not intend to take.