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?

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.  

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.    

Familiarity with Student Loan Debt Collections is Crucial for Debt Collection Agencies

As student loan debt continues to rise, the number of agreements that debt collection agencies receive increase as well.  While this is great business for debt collection agencies, it is crucial that agencies be well aware of the rights that consumers (students in this particular case) have.

·         Debt collection agencies can only call a certain number of times per day.

·         Debt collection agencies can only call between certain hours of the day.  Contacting outside of these hours is deceptive and illegal practice on their behalf.

·         Debt collection agencies may not use any form of abusive or threatening language nor can they threaten debtors with the pursuit of legal action.

·         Debt collection agencies can, for no reason, contact a debtor’s co-workers, employers, relatives, friends or neighbors regarding the debt owed.

·         Debt collection agencies are prohibited to take part in deceptive debt collection methods, as outlined in the FDCPA, Fair Debt Collections Practices Act.

·         Debt collection agencies cannot misrepresent the amount of debt owed or the status of the debt.

·         Debt collection agencies are not allowed to provide any information regarding the owed debt to third parties.

·         Debt collection agencies are not permitted to continue contacting a debtor if that debtor has provided, in writing, a request to no longer be contacted.

·         Debt collection agencies must halt all contact with the debtor if an attorney is representing him or her.

·         Debt collection agencies must provide debtors with information regarding the debtor’s entitlement to validating the said debt.  If within 30 days the debtor has requested validation, all communications must cease until the debt has been thoroughly and appropriately validated.

Student borrowers have rights when it comes to student loan debt collection and these rights must be considered by debt collection agencies; otherwise, trouble looms as the borrower is entitled to requesting compensation for damages. 

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. 

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!

Debt Collection and Social Media

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No one can dispute that the economy is heavily reliant on the debt collection industry. The economy won’t be in the pink if many businesses won’t hinge on the repayment of credit to pay for facilities, salaries, taxes, and other expenses. That’s why when times get harder, debt collectors become more aggressive in pursuing debtors. These days, creditors and collectors turn to the new means of reaching debtors—through Social Media. 

What really is Social Media?

As Wikipedia puts it, “Social Media refers to the use of web-based and mobile technologies to turn communication into an interactive dialogue.” Social networking sites such as Facebook, Twitter and LinkedIn commonly identify Social Media. However, other forms such as blogs, podcasts, pictures, videos, and social bookmarking also fall under the broad umbrella of Social Media.  

According to a report by Pew Internet & American Life Project, 65% of adult users are into social networking sites. Because of the high penetration rate, the drive of falling back on social media is too intense to ignore. 

But what can debt collectors really do in social media?

There are actually three reasons you may consider before taking the plunge into social media: to locate, communicate, and even accept payments from consumers.  A simple search on these platforms could yield vital information such as the current location and employment details of the debtor. The use of the “Big Three” in social media such as Facebook, Twitter and LinkedIn depends on the type of debt. Facebook appeals more to the younger segment, while LinkedIn is the working class’ hangout.

Downbeat consumers

Not everyone agrees that consumers should be reached through social media. Consumers and consumer protection groups alike are wary about the increasing number of collectors who turn to social media. 

However, nothing can really stop you from using social media in your collection efforts, not even the Fair Debt Collection Practices Act which was passed in 1978. Making false statements and harassment are forbidden though. You cannot just claim to be someone else when connecting to consumers online. Just don’t cross the line.

In line with this, the Federal Trade Commission is soon to release guidelines that will tell you about the dos and don’ts when it comes to the use of social media. On the other hand, The Association of Credit and Collection Professionals has already outlined the blueprint for Modernizing Debt Collection that proposes the removal of barriers to effective communications between consumers and debt collectors. 

More than just collections

Using more tools is essential for the debt collection industry. But more than successfully collecting what businesses rightfully own, social media use can be your own way of making PR work. Quite a few times you would find a bunch of negative tweets on Twitter. Although you don’t really need to engage consumers, responding to one or two of their questions or bad comments can really make a difference. 

Reaching consumers through social media will also make communication more effective. It will allow consumers to know the accurate details about their debts and their options directly and fast. This could even help both parties reach agreements without having to go through tedious and more costly settlements. 

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.