Any attorney seeking to enforce and or collect money judgements in Texas needs to be aware that the federal Fair Debt Collection Practices Act (“FDCPA”) and the Texas Debt Collection Act (“TDCA”) may apply to his or her enforcement activities. Failure to be cognizant of the scope of these laws and their proscriptions may well impose monetary liability on the attorney and even his or her client.
II. FDCPA
A. Scope
The prohibitions set forth in the FDCPA only apply to parties who meet the definition of a “debt collector” set forth in 15 U.S.C. § 1692a(6) as follows:
The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.
Following this definition are two sentences which impose liability on parties that might not otherwise meet the definition. First, creditors who collect their own debts under a name other than their own name are treated as “debt collectors.” Second, the definition of “debt collector” includes any person who uses the mail or other instrumentality of interstate commerce to engage in a business the principal purpose of which is the enforcement of security interests.
The definition of “debt collector” is followed by 6 exceptions covering (1) officers and employees of a creditor while collecting debts for the creditor, (2) persons collecting debts for an affiliated corporation when collection of debts is not the principal business of such a person, (3) any officer or employee of the federal state government collecting a debt as part of his official duties, (4) any person serving or attempting to serve process, (5) any nonprofit organizations engaged in consumer credit counseling services, and (6) any person collecting a variety of debts such as, inter alia, those incidental to escrow arrangements, debts originated by that person, and debts not in default at the time they were obtained by such person.
Under 15 U.S.C. § 1692a(5), covered “debts” include “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” The reference to “consumer” means any natural person obligated or allegedly obligated to pay any debt.” 15 U.S.C. § 1692a(3).
In short, the FDCPA covers third-party debt collectors attempting to collecting debts arising out of obligations with a consumer (i.e. personal, family or household) purpose. Covered collectors can include those who are collecting consumer debts owed to others as well as consumer debts that have been assigned after default to the collector by the original creditor. The Act does not cover creditors attempting to collect their own debts inhouse (as long as they use their own name in collection), government employees attempting to collect debts owed to the government or process servers attempting service of process.
Note: A party that violates 15 U.S.C. § 1692j by providing a form that falsely represents that a third party, like an attorney, is involved in the debt collection process, is liable even without meeting the defined requirements of 15 U.S.C. § 1692a(6). Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232, 1239 (5th Cir. 1997).
1. Coverage of Attorneys
If you are as old as me, 52, you may wonder why the FDCPA has any relevance to attorneys seeking to enforce judgments. For almost 10 years after its enactment, the FDCPA specifically exempted “any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client.” That exemption, however, was repealed in 1986, and suddenly attorneys became subject to liability for violations of the FDCPA when they met the definition of “debt collector.” Despite the repeal of the attorney exemption, a number of courts, and even the Federal Trade Commission, were unwilling to find that the FDCPA applied to the activities of attorneys engaged in litigation. Green v. Hocking, 9 F.3d 18, 22 (6th Cir. 1993); Fireman’s Ins. Co. v. Keating, 753 F.Supp. 1137, 1141-1144 (S.D.N.Y. 1990); Federal Trade Commission, Statements of General Policy or Interpretation, Staff Commentary on the Fair Debt Collection Practices Act,” 53 Fed.Reg. 50,097, 50,100-50,102 (1988). For example, the Sixth Circuit unabashedly stated that “the actions of an attorney while conducting litigation are not covered by the [FDCPA.]” 9 F.3d at 22.
Likewise, the FTC informally opined that attorneys “that engage in traditional debt collection activities (sending dunning letters, making collection calls to consumers) are covered by the FDCPA, but those whose practice is limited to legal activities are not covered.” 53 Fed.Reg. 50,097, 50,100. A number of courts of appeals, however, had found that there was no residual “litigation” exception for attorneys after the repeal of the express exception in 1986. Jenkins v. Heintz, 25 F.3d 536 (7th Cir. 1994); Fox v. Citicorp Services, Inc., 15 F.3d 1507, 1512-1513 (9th Cir. 1994); Scott v. Jones, 964 F.2d 314, 316-317 (4th Cir. 1992). Finally, the Supreme Court addressed this issue and specifically held that “[t]he Act does apply to lawyers engaged in litigation.” Heintz v. Jenkins, 514 U.S. 291, 294, 115 S.Ct. 1489, 1490 (1995). The Supreme Court primarily relied on the plain language of the “debt collector” definition and the repeal of the explicit attorney exemption in reaching its conclusion. As for the FTC’s interpretation, the Court noted that it was not considered binding on the Commission or the public and was not a reasonable reading of the statute, one of the few times the Court has been unwilling to defer to the statutory interpretation of an administrative agency.
Conceding that there is no “litigation” exception for attorneys, when are attorneys covered by the FDCPA? The Fifth Circuit has ruled that there are two ways in which an attorney may meet the definition of a debt collector: (1) by engaging in any business “the principal purpose of which is the collection of any debts” or (2) by regularly collecting or attempting to collect debts owed to another or assertedly owed to another. Garrett v. Derbes, 110 F.3d 317, 318 (5th Cir. 1997). In other words, there are two alternative prongs in the definition, the “principal purpose” prong and the “regularly collect” prong. Finding a substantial difference between these two prongs, the court held that “a person may regularly render debt collection purposes, even if these services are not a principal purpose of his business. Indeed, if the volume of a person’s debt collection services is great enough, it is irrelevant that these services only amount to a small fraction of his total business activity; the person still renders them ‘regularly.’ “ Id.
Thus, in that case, an attorney who attempted to collect debts owed to another by 639 consumers in one 9-month period met the “regularly collect” prong of the “debt collector” definition, even though this work only constituted 0.5% of his entire practice during that time period. Id. For examples of attorneys found to be “debt collectors,” see Goldstein v. Hutton, Ingram, Yuzek, Gainen, Carroll & Bertollotti, 374 F.3d 56, 60-61 (2nd Cir. 2004)(law firm was a “debt collector” when it sent 145 3-day notices to vacate in a one-year period, despite receiving only 0.05% of its revenue during the same time period); Cashman v. Ricigliano, 2004 U.S. Dist. LEXIS 17027, *18-20 (D. Conn. 2004)(20 demand letters per month demonstrated “regularity”); Derenick v. Cohn, 2004 U.S. Dist. LEXIS 25548, *7-9 (E.D. Tenn. 2004)(277 lawsuits demonstrates “regularity”);Crossley v. Lieberman, 90 B.R. 682 (E.D. Pa. 1988)(Act applied to attorney whose collection work is a minor but regular part of his general practice), aff’d, 868 F.2d 566 (3rd Cir. 1989); Kolker v. Sanchez, Clearinghouse No. 46,774 (D. N.M. 1991) 991)(attorney, whose collection actions constituted approximately 30% of her practice, who during an 18-month period initiated about 150 suits for a debt collection agency and who regularly sent collection letters was a debt collector); Cacace v. Lucas, 775 F.Supp. 502 (D. Conn. 1990)(attorney who represented 4 collection agencies, filed over 150 collection suits in 2 years, and sent over 125 collection letters over 14 months was a debt collector, even though debt collection was merely incidental to his primary law practice).
On the other hand, courts are unwilling to find that attorneys are “debt collectors” when they engage in only incidental work collecting consumer debts. Catherman v. First State Bank, 796 S.W.2d 299, 302-303 (Tex. App. - Austin 1990, no writ); Franco v. Maraldo, 2000 WL 288378 (E.D. La.). For example in Catherman, neither a law firm that had only about 5 consumer credit cases out of its 750 to 1000 active files and worked on 10 to 15 consumer credit accounts for one client over the past 5 years nor an individual attorney who spent less than ½ of 1% of his time collecting consumer debts, had sent less than 5 consumer credit demand letters in the past 5 years and spent less than an hour every month on such collection met the definition of a “debt collector.” 796 S.W.2d at 303.
Likewise in Franco, an attorney who worked on only 2 collection matters during apparently his entire career did not meet the definition of a “debt collector.” 2000 WL 288378. For other cases refusing to find that an attorney or a law firm qualified as a “debt collector,” see Schroyer v. Frankel, 197 F.3d 1170 (6th Cir. 1999)(to prove regular collection, must show debt collection was a substantial, if not principal, part of his practice); White v. Simonson & Cohen P.C., 23 F.Supp.2d 273 (E.D.N.Y. 1998)(firm that sent 35 demand letters on one occasion was not a debt collector); Argentieri v. Fisher Landscapes, 15 F.Supp.2d 55 (D. Mass. 1998), later opinion, 27 F.Supp.2d 84 (D. Mass. 1998)(attorney who spent only 0.4% of time on consumer debt collection was not a debt collector); Mladenovich v. Cannonito, 1998 WL 42281 (N.D. Ill. 1998)(attorney who only sent 23 collection letters for 2 clients was not a debt collector).
Recently, a number of courts have found that enforcement of security interests, such as the filing of judicial foreclosure actions, is not “debt collection,” thereby precluding law firms from being found to be “debt collectors.” Beadle v. Haughey, 2005 U.S. Dist. LEXIS 2473, *7-12 (D.N.H. 2005); Rosado v. Taylor, 324 F.Supp.2d 917-924-925 (N.D. Ind. 2004); Bergs v. Hoover, Bax & Slovacek, L.L.P., 2003 U.S. Dist. LEXIS 16827 (N.D. Tex. 2003); Hulse v. Ocwen Fed. Bank, FSB, 195 F.Supp.2d 1188, 1203-1204 (D. Or. 2002); Heinemann v. Jim Walter Homes, Inc., 47 F.Supp.2d 716, 722 (N.D. W. Va. 1998). This argument, however, only works if the lawsuits make no attempt to collect any debt, such as a deficiency judgment. In other words, it is effective only when the law firm files suit only to enforce a security interest. Thus, when a law firm sued to foreclose and to recover unpaid debt, it is engaged in “debt collection” and may be covered by the FDCPA. McDaniel v. South & Associates, P.C., 325 F.Supp.2d 1210, 1216-1218 (D. Kan. 2004).
2. Is the underlying debt a consumer obligation or not?
Another way of avoiding the application of the FDCPA is by proving that the debt being collected is not a consumer debt. Most obviously, an attempt to collect a commercial or business debt would not be covered by the Act. First Gibraltar Bank, FSB v. Smith, 62 F.3d 133, 135-136 (5th Cir. 1995). The Seventh Circuit has held that the relevant time for a determination of the purpose of the transaction is when the debt obligation is incurred, not when the debt collection activity occurred. Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, 214 F.3d 872, 874-875 (7th Cir. 2000). Thus, where an individual originally purchased a house to live in but was renting it out at the time collection activities commenced, the debt was considered consumer in nature rather than commercial. Id.
Despite many efforts to limit the application of the FDCPA, the courts have been willing to apply the Act to a wide variety of consumer debts. Recently, many debt collectors have argued that dishonored checks are not “debts” under the FDCPA, because payment by check is the equivalent of payment in cash and that there is no “debt” under the Act unless credit has been extended. While this argument has found some support by a few district courts, see, e.g., Krevsky v. Equifax Check Services, Inc., 85 F.Supp.2d 479, 480-482 (M.D. Pa. 2000) and Cederstrand v. Landberg, 933 F. Supp. 804, 805-806 (D. Minn. 1996), every court of appeals that has directly addressed this issue has found that dishonored checks are “debts” for purposes of the FDCPA, Duffy v. Landberg, 133 F.3d 1120, 1123-1124 (8th Cir. 1998); Charles v. Lundgren & Assoc., P.C., 119 F.3d 739, 742 (9th Cir. 1997); Bass v. Stolper, Koritzinsky, Brewster & Neider, S.C., 11 F.3d 1322, 1324-1330 (7th Cir. 1997). The courts of appeal have simply refused to limit the definition of “debt” under the Act to debt in which credit was extended, recognizing that the plain language of the definition was not that limited. Charles, 119 F.3d at 741-742; Bass, 111 F.3d at 1325-1330. Likewise, most courts have found debt for past due rent for residential space to be a “debt” covered by the FDCPA. Romea v. Heiberger & Associates, 163 F.3d 111,114-116 (2d Cir. 1998). Similarly, water and sewer bills are covered debts under the Act. Piper v. Portnoff Law Associates, Ltd., 396 F.3d 227, 232-236 (3rd Cir. 2005); Pollice v. National Tax Funding, L.P., 59 F.Supp.2d 474, 485 (W.D. Pa. 1999), aff’d, 2000 U.S.App. LEXIS 22153 (3d Cir. 2000).
On the other hand, certain debts have been found to be outside the scope of the FDCPA. For example, child support obligations are not debts covered by the FDCPA, because these debts are not incurred to receive consumer goods or services. Mabe v. G.C. Services Ltd. Partnership, 32 F.3d 86, 88 (4th Cir. 1994); Campbell v. Baldwin, 90 F.Supp.2d 754, 756-757 (E.D. Tex. 2000); Battye v. Child Support Services, 873 F.Supp. 103, 105 (N.D. Ill. 1994); Brown v. Child Support Advocates, 878 F. Supp. 1451, 1454-1455 (D. Utah 1994). Similarly, a tort claim arising out of the illegal reception of microwave television signals has been held not to be a “debt” under the FDCPA, because it did not involve a consensual transaction. Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1168 (3d Cir. 1987). Likewise, tax obligations are not “debts” for purposes of the FDCPA. In re Westberry, 215 F.3d 589 (6th Cir. 2000); Staub v. Harris, 626 F.2d 275, 278 (3d Cir. 1980); Pollice v. National Tax Funding, L.P., 59 F.Supp.2d 474, 485 (W.D. Pa. 1999).
3. Other possible exemptions for attorneys
Attorneys and other debt collectors have also attempted to assert the remaining exemptions to avoid application of the FDCPA. In the context of student loan collection, now largely handled by private collection firms and private attorneys, several courts have uniformly refused to apply the government actor exception set forth in 15 U.S.C. § 1692a(6)(C) to private parties engaged in the collection of student loan debts owed to the government, because the collectors were not employees of the government. Brannan v. United Student Aid Funds, Inc., 94 F.3d 1260, 1262-1263 (9th Cir. 1996), cert. Denied, 521 U.S. 1106, 117 S.Ct. 2484, 138 L.Ed.2d 992 (1997); Knight v. Schulman, 102 F. Supp.2d 867, 875-876 (S.D. Ohio 1999)(exception not available to private attorney collecting student loan debts for the government). Contra: Games v. Cavazos, 737 F.Supp. 1368 (D. Del. 1990). In a similar vein, another court refused to apply this government actor exception to a private party collecting utility debts initially owed to a local governmental entity. Pollice v. National Tax Funding, L.P., 59 F.Supp.2d 474, 486 (W.D. Pa. 1999). On the other hand, at least one district court was affirmed when it held that a guaranteed student loan agency was exempt from the Act under 15 U.S.C. § 1692a(6)(F)(i) regarding collection by a fiduciary. Pelfrey v. Educational Credit Management Corporation, 71 F.3d 1161 (N.D. Ala. 1999), aff’d, 208 F.3d 945 (11th Cir. 2000).
One law firm sued for FDCPA violations asserted that in mailing of notice-to-vacate letters to defaulting tenants, a prerequisite to an eviction action in New York, it was acting as a process server and thereby entitled to rely on the exception in 15 U.S.C. § 1692a(6)(D). Finding these letters not to be legal process, the Second Circuit refused to permit the firm to rely upon this exception. Romea v. Heiberger & Associates, 163 F.3d 111, 116-118 (2d Cir. 1998).
B. What does the FDCPA prohibit and require?
1. General Requirements and Prohibitions
The FDCPA is a detailed regulatory scheme. There are 9 separate provisions which impose certain requirements and prohibit certain conduct. What follows is a brief description of each of these provisions:
(1) Acquisition of Location Information: § 1692b regulates the acquisition of location information from non-debtor parties. Generally, it is intended to preclude debt collectors from mentioning the existence of a debt in any efforts at obtaining location information from friends and relatives. In attempting to obtain location information about a debtor with any person other than the debtor, this provision requires a debt collector to identify himself and to state that he is trying to obtain location information on the debtor. The debt collector is prohibited from revealing his employer unless asked and from mentioning that the debtor owes any debt.
Moreover, the debt collector should never make more than one contact with each non-debtor individual unless the debt collector reasonably believes the individual gave incorrect information previously and possesses accurate information. In addition, the debt collector may not use a postcard to make such non-debtor contacts and in using other forms of mail shall not use any language or symbol which indicates that the sender is in the debt collection business. Finally, if the debt collector knows the debtor is represented by an attorney, all non-debtor contacts aimed at locating the debtor shall be suspended unless the attorney fails to respond within a reasonable time to a communication from a debt collector.
(2) Debt Collection Communication: § 1692c regulates direct contacts with the debtor as follows:
Subsection (a) provides that, unless prior consent is given by the debtor or leave is granted by a court, a debt collector may not contact a debtor about a debt (a) at any unusual time and place known to be inconvenient to the consumer (and contacts before 8 a.m. and after 9 p.m. are deemed to be inconvenient), (b) if the debt collector is aware the debtor is represented by an attorney with respect to the debt in question (unless the attorney fails to respond within a reasonable time to a communication from the debt collector), (c) at the debtor’s place of employment if the debt collector has reason to know that the debtor’s employer prohibits such contacts.
Subsection (b) prohibits contact with any third parties regarding collection of the debt unless agreed to by the debtor, leave is granted by a court or it is reasonably necessary to effectuate a post-judgment judicial remedy. The following are not treated as third parties: the debtor, his attorney, a credit bureau, the creditor, the attorney of the creditor and the attorney for the debt collector.
Subsection (c) requires a debt collector to cease communications with a debtor once the debtor informs the debt collector in writing that he refuses to pay the debt or that he wishes the debt collector to cease further communication regarding the debt. Thereafter, the debt collector is allowed one more contact, traditionally provided by mail, to advise the consumer that the debt collector has terminated collection efforts, to specify certain remedies available to the creditor or to state a specific remedy, like a lawsuit, that a creditor intends to invoke.
Practice tip: One of the most common forms of advice that I dispense to consumers is that I inform them that they can force a debt collector to cease further communication with them by sending a letter by certified mail to that effect. Most debt collectors comply, although I had a recent case in which a debt collection firm totally ignored several of these “cease communication” letters, leading to a lawsuit in federal court.
(3) Harassment or Abuse: § 1692d generally prohibits any unreasonably harassing, oppressive or abusive conduct in debt collection. It specifically prohibits the use of threats of violence or other criminal means to harm any person, the use of obscene language, publication of any list of consumer debtors who allegedly fail to pay their debts (other than by reporting to a credit bureau pursuant to the Fair Credit Reporting Act), advertising the sale of any debt to coerce payment of the debt, making repeated telephone calls to annoy or harass any person, and making any telephone call without identifying the caller.
(4) False or Misleading Representations: § 1692e bans any false, misleading or deceptive representation in connection with an attempt at debt collection. The following specified practices are deemed a violation of this provision:
(A) false representing or implying that the debt collector is vouched for or affiliated with the government, including the use of any false badge or uniform;
(B) falsely representing the character, amount or legal status of any debt or any services rendered or any compensation which might be received by the debt collector;
(C) falsely representing that anyone is an attorney or that a communication is from an attorney;
(D) representing or implying that non-payment of a debt will result in arrest or imprisonment of any person or the seizure, garnishment, attachment or sale of any property or wages of any person UNLESS such action is lawful and the debt collector or creditor intends to take such action;
(E) threatening to take any action that is illegal or that is not intended to be taken;
(F) false representing that sale or assignment of the debt causes a debtor to lose any claim or defense or to become subject to any practices prohibited by the FDCPA;
(G) falsely representing that a debtor committed a crime;
(H) communicating or threatening to communicate information known to be false or which should be known to be false, including the failure to communicate that a debt is disputed;
(I) use of any written communication that falsely implies issuance by a court or governmental entity or which creates a false impression as to its source, authorization or approval;
(J) use of any false or deceptive representation as part of an attempt to collect a debt or to obtain information concerning a debtor;
(K) falsely representing or implying that accounts have been transferred to innocent purchasers for value;
(L) false representing or implying that certain documents are legal process;
(M) use of any name other than the true name of the debt collector’s business;
(N) falsely representing that documents are not legal process or do not require any action; and
(O) falsely representing that a debt collector operates or is employed by a credit bureau.
In addition, this provision has one far-reaching subsection (11) that requires disclosure in the initial communication with the debtor that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose and in all subsequent communications that the communication is from a debt collector, except that this does not apply to formal pleadings in court actions. This notice is often referred to as a “Miranda warning” like the similar warning given in the criminal context.
NOTE: Debt collectors from outside of Texas need to be particularly careful about threatening wage garnishment, as they commonly do, because Texas only permits wage garnishment for the collection of child support and alimony.
(5) Unfair Practices: § 1692f prohibits the use of unfair and unconscionable means to collect or attempt to collect consumer debts, including but not limited to the following practices:
(A) collection of any amount for any fee unless this expense is authorized by the agreement creating the debt or permitted by law;
(B) acceptance of a check postdated by more than 5 days unless the debtor receives written notice of the debt collector’s intent to deposit such check at least 3 days and no more than 10 days before the deposit occurs;
(C) solicitation of any postdated check for the purpose of threatening or instituting a criminal prosecution;
(D) depositing or threatening to deposit any postdated instrument before the date on the instrument;
(E) causing a debtor to be charged collect telephone and telegraph fees by concealing the true purpose of the communication;
(F) taking or threatening to take any nonjudicial action to repossess or disable property if (a) there is no present right to possession of the collateral through an enforceable security interest, (b) there is no present intention to repossess or (c) the property is exempt by law from such action;
(G) communicating with a debtor regarding a debt by postcard; and
(H) using any language or symbol other than the debt collector’s address on the outside of an envelope when communicating by mail or telegram, although the business name may be listed if it does not indicate that the debt collector is in the debt collection business.
NOTE: More commonly now, debt collectors solicit periodic direct withdrawals from checking accounts rather than soliciting post-dated checks.
(6) Validation of Debts: § 1692g deals with the right of debtors to obtain validation of debts. Specifically, it provides that, within 5 days of the initial communication, a debt collector shall send to the debtor a written notice containing:
(A) the amount of the debt;
(B) the name of the creditor to whom the debt is owed;
(C) a statement that unless the debtor, within 30 days after receipt of the notice, disputes the validity of the debt or any portion thereof, the debt will be assumed to be valid by the debt collector (NOTE: the failure to dispute the validity of a debt in response to any such communication may not be construed as an admission of liability by the debtor);
(D) a statement that if the debtor notifies the debt collector within the 30-day period that any portion of the debt is disputed, the debt collector will obtain verification of the verification and a copy of such verification shall be sent to the debtor; and
(E) a statement that, upon the consumer’s written request within the 30-day period, the debt collector will provide the debtor with the name and address of the original creditor is different from the current creditor.
This provision further provides that if a debtor, in writing, disputes any debt or requests the name and address of the original creditor, the debt collector shall cease all debt collection efforts until the debt is verified or the original creditor is identified.
(7) Multiple Debts: § 1692h provides that when a debtor owes multiple debts and makes a single payment, the debt collector shall not apply the payment to any debt in dispute and shall apply the payment in accordance with the debtor’s instructions.
(8) Legal Action by Debt Collectors: § 1692i basically prohibits debt collectors from bringing a debt collection suit in a distant or inconvenient forum. In the case of debts secured by an interest in real estate, such actions must be filed in the judicial district where the real estate is located. With all other debts, such actions must be filed in the judicial district (a) in which the debtor signed the contract sued upon or (b) in which the debtor resides at the commencement of the action.
NOTE: Likewise, the DTPA has a similar prohibition against distant forum abuse that applies to creditors as well as debt collectors. See Tex. Bus. & Com. Code § 17.46(b)(22).
(9) Furnishing Certain Deceptive Forms: § 1692j makes it unlawful for any person (instead of any debt collector) to design, compile and furnish any form knowing that such form would be used to create the false belief in a debtor that a person other than the creditor, such as an attorney, is participating in the collection of a debt when they are not so participating.
2. Compliance Issues of Interest to Attorneys
There are a number of compliance issues that apply to attorneys seeking to collect consumer debts, even when they are acting in litigation.
a. Venue: Attorneys who fit the definition of “debt collector” must be careful to bring consumer debt collection actions only where provided by § 1692i. In the context of debts unrelated to real estate, that means that suit should only be filed where the underlying contract was signed or where the consumer resides. If the underlying contract is oral, the debtor can only be sued in the judicial district where he resides. Crawford v. Credit Collection Services, 898 F. Supp. 699 (D. S.D. 1995); Martinez v. Albuquerque Collection Services, 867 F. Supp. 1495, 1502 (D. N.M. 1994). Even the post-judgment filing of an application for a writ of garnishment is considered a judicial action covered by the FDCPA venue provision, meaning that, if the application is filed in a jurisdiction other than one of the two permitted venues, the FDCPA is violated. Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507, 1515 (9th Cir. 1994). See the following cases where attorney debt collectors were held liable under the FDCPA for filing collection actions in a distant forum: Addison v. Braud, 105 F.3d 223, 224 (5th Cir. 1997); Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507, 1511 (9th Cir. 1994); Scott v. Jones, 964 F.2d 314, 316-318 (4th Cir. 1982).
Note: If the attorney filing a collection action is acting at the behest of a “debt collector” as opposed to a “creditor,” the debt collector client can be vicariously liable for the violation of the venue provision by their attorney. Fox, 15 F.3d at 1516; Martinez, 867 F.Supp. at 1502. The creditor may be separately liable for violating DTPA § 17.46(b)(22) if the suit was brought in the creditor’s name.
b. Notice of validation rights and Miranda warning: Attorneys who fit the definition of “debt collector” must give the Miranda warning required by § 1692e(11) in their initial communication and must give an adequate written notice of the debtor’s validation rights under § 1692g within 5 days of the initial communication.
Some attorneys who have failed to give the Miranda warning have been held liable for violating § 1692e(11). Romea v. Heiberger & Associates, 163 F.3d 111, 113-119 (2nd Cir. 1998)(failure to give § 1692e(11) notice not excused in notice-tovacate letter); Frey v. Gangwish, 970 F.2d 1516, 1519-1520 (6th Cir. 1992)(post-judgment letter to judgment debtor was initial communication with debtor despite prior communications in underlying suit with debtor’s attorney, thereby requiring the giving of the notice required by this subsection).
Compliance with the validation provisions of § 1692g is much more complicated. The most common violation is that the notice of the right to obtain validation of a purported debt within 30 days has been overshadowed or contradicted by other language in the communication. Savino v. Computer Credit, Inc., 164 F.3d 81, 85 (2d Cir. 1998); Bartlett v. Heibl, 128 F.3d 497, 500 (7th Cir. 1997); U.S. v. National Financial Services, Inc., 98 F.3d 131, 139 (4th Cir. 1996); Graziano v. Harrison, 950 F.2d 107, 111-112 (3rd Cir. 1991); Miller v. Payco-General American Credits, Inc., 943 F.2d 482, 483-485 (4th Cir. 1991); Swanson v. Southern Oregon Credit Service, Inc., 869 F.2d 1222, 1224-1226 (9th Cir. 1988); Gervais v. Riddle & Associates, P.C., 2005 U.S. Dist. LEXIS 5395, *14-24 (D. Conn. 2005); Brown v. Law Offices of Butterfield, Joachim, Schaedler & Kelleher, 2004 U.S. Dist. LEXIS 9822, 811-14 (E.D. Pa. 2004); Rhoades v. West Virginia Credit Bureau Reporting, 96 F.Supp.2d 528, 531-532 (S.D. W.Va. 2000); McNab v. Statewide Recovery Service, Inc., 2000 WL 135839 (E.D. La.); Garner v. Kansas, 1999 WL 262100 (E.D. La.). For example, sending a collection letter with language demanding immediate payment or payment within 10 days overshadows other language in the letter giving notice of the § 1691g validation rights. Attorneys are not infrequently sued for overshadowing or contradicting the validation notice required by § 1691g. See, e.g., Graziano and Garner.
At least one court has found that a validation notice which required any dispute of the purported debt to be in writing was a violation of § 1692g(a)(3). Spearman v. Tom Wood Pontiac-GMC, Inc., 2002 U.S. Dist. 24389, * 21-31 (S.D. Ind. 2002). A number of courts agree with this ruling. Ong v. Am. Collections Enterp., Inc., 1999 U.S. Dist. LEXIS 409 (E.D.N.Y. 1999); Harvey v. United Adjusters, 509 F.Supp. 1218, 1221 (D. Ore. 1981). At least one court of appeals, however, has ruled that such disputes must be in writing. Graziano v. Harrison, 950 F.2d 107, 111-112 (3rd Cir. 1991). There is no explicit ruling on this issue in the Fifth Circuit.
If the initial communication between the debt collector attorney and a debtor is the petition filed in court, compliance with § 1691g can be even more complicated. What if the first contact between the debt collector attorney and a debtor is the petition filed in court? A number of courts addressing this issue have found legalpleadings such as petitions can be “initial communications,” thereby triggering a duty to provide a validation notice. Thomas v. Law Firm of Simpson & Cybak, 392 F.3d 914, 916-920 (7th Cir. 2004)(en banc); Kafele v. Lerner, Sampson & Rothfuss, 2005 U.S. Dist. LEXIS 11127 (S.D. Ohio 2005); Spears v. Brennan, 745 N.E.2d 862, 875-878 (Ind. App. 2001); Mendus v. Morgan & Associates, P.C., 994 P.2d 83, 88-92 (Okla. App. 1999); Goldman v. Cohen, 2004 U.S. Dist. LEXIS 25517, *7-24 (S.D.N.Y. 2004).
Two other courts, reading Heintz narrowly, have found that a pleading was not a “communication” for purposes of the FDCPA and, consequently, refused to find any violation of the Act. Vega v. McKay, 351 F.3d 1334, 1337 (11th Cir. 2003); McKnight v. Benitez, 176 F.Supp.2d 1301, 1304-1308 (M.D. Fla. 2001). These decisions, however, have been criticized for ignoring the spirit of Heintz. Thomas v. Law Firm of Simpson & Cybak, 392 F.3d at 918; Goldman v. Cohen, 2004 U.S. Dist. LEXIS 25517, at *10-11; Frye v. Bowman, Heintz, Boscia & Vician, 193 F.Supp.2d 1070, 1080 n. 7 (S.D. Ind. 2002); Spearman v. Tom Wood Pontiac-GMC, Inc., 2002 U.S. Dist. LEXIS 24389, *5-17 (S.D. Ind. 2002); Sprouse v. City Credits Company, 126 F.Supp.2d 1083, 1089 n. 8 (S.D. Ohio 2000). Thus, there is some conflict among the courts on this issue, but the safe procedure is to assume that a pleading can be an “initial communication.”
Likewise, what happens if an attorney debt collector gives the validation notice in the body of the petition, because it is the attorney’s first communication with the debtor regarding a debt? When the citation or summons provides for a different period of time in which to file an answer than the 30 days for in the validation notice, there can be a different violation of the FDCPA. Several courts have ruled that the FDCPA has been violated when the initial petition/complaint contained notice of the 30-day validation period and the attached citation/summons provided for a lesser period to file an answer to avoid a default, finding that the validation notice had been contradicted or overshadowed by the notice of when to file an answer in a different time period. Spears v. Brennan, 745 N.E.2d at 875-878; Mendus v. Morgan & Associates, P.C., 994 P.2d at 88-92.
In Spears, the Indiana Court of Appeals even ruled that the notice was overshadowed if a default judgment was obtained during the 30-day verification period. 745 N.E.2d at 875-876. See also In re Martinez, 266 B.R. 523, 533-537 (Bktrcy. S.D. Fla. 2001), aff’d, 271 B.R. 696, 700-702 (S.D. Fla. 2001), aff’d, 311 F.3d 1272 (11th Cir. 2002), where a conflict was found between a summons and a validation notice, even though both stated 30-day deadlines. One other court has simply refused to find any “overshadowing” when a summons provided 28 days in which to respond while the validation notice provided a 30-day deadline. Sprouse v. City Credits Company, 126 F.Supp.2d at 1088-1089. Nevertheless, to avoid this issue, collection attorneys can send a demand letter with a clean validation notice before filing suit.
In some of these cases, debt collectors have argued that it is irrelevant whether the validation notice was given where it is clear that the amount of the debt is 1 Moreover, including an amount of attorney’s fees in the disclosure of the amount of the debt can be deceptive and thereby found to be a violation of 15 U.S.C. §§ 1692e and 1692f. For example, the Seventh Circuit found the failure to itemize the amount of the debt, which would have explained the addition of attorney’s fees, was deceptive and violative of the FDCPA. Fields v. Wilber Law Firm, 383 F.3d 562, 565-566 (7th Cir. 2004). That ordinarily does not mean that attorney’s fees can only be determined in a court of law. Id. at 564-565; Singer v. Pierce & Associates, P.C., 383 F.3d 596, 598-599 (7th Cir. 2004). valid. While this may have some basis in logic, no court has accepted this argument. In each case, the courts have ruled that the statutory validation notice must be given and the validation procedure followed. Rhoades, 96 F.Supp.2d at 532-533. See McCartney v. First City Bank, 970 F.2d 45, 47 (5th Cir. 1992); Baker v. G.C. Serv. Corp., 677 F.2d 775, 777 (9th Cir. 1982).
Also, in stating the amount of the debt in the § 1691g notice, it is not appropriate to give notice of the unpaid principal balance only and direct a debtor to an 800 telephone number to obtain the amount of the accrued interest, late charges and other charges that may be due. Miller, 214 F.3d 872, 875-876. The Seventh Circuit indicated that the notice must state the full amount of the debt as of the date the notice was issued. Id. While this is a new issue, it may well apply to the activities of attorney debt collectors in many situations, such as when an attorney sends notices preliminary to a non-judicial foreclosure with a statement of the amount owed.
Finally, if an attorney sends a notice letter with a § 1691g notice and the consumer responds by contesting the debt and requesting the verification, the collecting attorney must cease collection efforts upon receipt of the consumer’s request until such verification. Thus, filing suit after getting a request for verification and without providing any verification of the debt beforehand violates the FDCPA. Anderson v. Frederick J. Hanna & Associates, 361 F.Supp.2d 1379 (N.D. Ga. 2005).
c. Flat-rating: This is another name for the process by which an attorney provides signed or unsigned letterhead for use by another debt collector or even a creditor without any direct involvement on his part. It violates § 1692j, because it leaves the impression that a debt collector or creditor is represented by counsel, and in effect is serious about suing, when, in fact, there is no such connection. Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232, 1237-1238 (5th Cir. 1997); Miller v. Wolpoff & Abramson, 321 F.3d 292, 306-312 (2nd Cir. 2003); Nielsen v. Dickerson, 307 F.3d 623, 634-640 (7th Cir. 2002); Boyd v. Wexler, 275 F.3d 642, 644-648 (7th Cir. 2001); Clomon v. Jackson, 988 F.2d 1314, 1317-1321 (2d Cir. 1993); Nance v. Lawrence Friedman P.C., 2000 WL 1230462 (N.D. Ill. 2000). Moreover, liability for such flat-rating is not limited to debt collectors; liability may be imposed upon any person participating in the conduct, including an attorney who does not fit the definition of a “debt collector” or even a creditor.
3. FDCPA Remedies
If a “debt collector” violates the FDCPA or a “person” violates the flat-ratingprohibition in § 1692j, they are subject to claims for actual damages, statutory damagesof up to $1,000 in an individual action or not more than$500,000 or 1% of the net worth of the defendant in a class action, and attorney’s fees and costs. 15 U.S.C. § 1692k(a). Such claims may be filed in federal or state court within one year from the date on which the violation occurs. 15 U.S.C. § 1692k(d). A bona fide error defense is afforded to defendants, 15 U.S.C. § 1692k(c), and a defendant may recover attorney’s fees from the plaintiff upon a showing that any FDCPA action was brought in bad faith and for the purpose of harassment, 15 U.S.C. § 1692k(a)(3). Class actions against law firms for violation of the FDCPA are becoming more common. See, e.g., Keele v. Wexler, 149 F.3d 589 (7th Cir. 1998); Fuller v. Becker & Poliakoff, P.A., 198 F.R.D. 697 (M.D. Fla. 2000); Fry v. Hayt, Hayt & Landau, 2000 U.S. Dist. 18895 (E.D. Pa. 2000).
Practice Note: Attorneys covered by the FDCPA should consider the development of procedures “reasonably adapted to avoid” violations of the FDCPA, so that the bona fide error defense can be raised. See 15 U.S.C. § 1692k(c); Frye v. Bowman, Heintz, Boscia & Vician, 193 F.Supp.2d 1070, 1084-1089 (S.D. Ind. 2002).
III. Texas Debt Collection Act
This Act has a very broad scope but provides fewer remedies for consumer debtors than the FDCPA.
A. Scope
The Texas Debt Collection Act (“TDCA”), Tex. Fin. Code § 392.001 et seq., is far broader than that of the FDCPA. Like the FDCPA, the TDCA only applies to “debt collectors” seeking to collect consumer-related debt, Tex. Fin. Code § 392.001(2), (5) and (6), but the definition of debt collectors is intended to encompass creditors collecting their own debts. Smith v. Heard, 980 S.W.2d 693, 697 (Tex. App. - San Antonio 1998, pet. denied); Monroe v. Franks, 936 S.W.2d 654, 659-660 (Tex. App. - Dallas 1996, writ dism’d w.o.j.). It further defines a “third-party debt collector” as encompassing the FDCPA definition of “debt collector” with the caveat that attorneys are not included in this definition only if he employs non-attorney staff who regularly engage in debt collection. Tex. Fin. Code § 392.001(7). The TDCA only places two demands upon third-party debt collectors: (1) they are required to file proof of a $10,000 bond with the Texas Secretary of State, Tex. Fin. Code § 392.101, and (2) they must provide verification of debts upon request, Tex. Fin. Code § 392.201.
B. What does the TDCA prohibit and require?
Most of the TDCA is directed at “debt collectors” which includes creditors seeking to collect their own debts, parties that would clearly be exempted from coverage under the FDCPA.
1. Threats or Coercion: § 392.301 prohibits a number of specific threats including threats of violence; falsely accusing a debtor of fraud or any other crime; representing to any person that a consumer is willfully refusing to pay a debt when the debt is in dispute; threatening to have a debtor arrested for nonpayment of a debt without proper court proceedings; threatening to file criminal charges when the debtor has not committed a crime; threatening that nonpayment of a debt will result in seizure, repossession or sale of property without proper court proceedings or threatening to take an action prohibited by law. This statute goes on, however, to provide that it is acceptable for a debt collector to inform a debtor that he may be arrested after proper court proceedings if the debtor has violated a criminal statute, threaten to institute a civil lawsuit, or to threaten to exercise a right to non-judicial repossession and sale.
In a very broad construction of the predecessor statute, the Texas Supreme Court held that any threat of criminal prosecution violated this law, specifically ruling that such a threat was inappropriate before a debtor had been convicted of a crime. Brown v. Oaklawn Bank, 718 S.W.2d 678, 680 (Tex. 1986).
In construing what is now § 392.301(a)(8) prohibiting the making of threats to take action prohibited by law, one court concluded that letters threatening to terminate a contract for deed without providing the notice required by a statute regulating such contracts violated the TDCA. Dixon v. Brooks, 604 S.W.2d 330, 334 (Tex. Civ. App. - Houston [14th Dist.] 1980, writ ref’d n.r.e.). Similarly, another court has held that wrongful acceleration of a real estate note states a violation of this provision as well. Rey v. Acosta, 860 S.W.2d 654, 659 (Tex. App. - El Paso 1993, no writ).
2. Harassment and Abuse: § 392.302 prohibits harassment and abuse by debt collectors through the use of obscene language, repeatedly calling a debtor without disclosing one’s identity with the intent to annoy or harass, causing a person to incur collect telephone and telegram fees without first disclosing the identity of the caller, and causing a telephone to ring repeatedly with the intent to harass.
3. Unfair and Unconscionable Means: § 392.303 prohibits debt collectors from employing the following practices: (a) seeking a written statement that specifies a debtor’s obligation is one incurred for necessaries of life if the obligation was not incurred for such necessaries, and (b) attempting to collect any fee incidental to an obligation unless it is expressly authorized by the agreement creating the obligation with one exception for a particular form of reinstatement fee.
4. Fraudulent, Deceptive or Misleading Representations: § 392.304 prohibits debt collectors from using specified misrepresentations that basically correspond to the misrepresentations prohibited in § 1692e of the FDCPA.
5. Use of Independent Debt Collector: § 392.306 imposes liability upon a creditor for using a third-party debt collector if the creditor knows that the debt collector repeatedly engages in practices that are prohibited by the Act.
Note: While there is no caselaw interpreting this provision, it has had some effect in the marketplace. When enforcing the TDCA publicly as an assistant attorney general with the Consumer Protection Division of the Texas Attorney General’s Office, I discovered that debt collectors being investigated for TDCA violations frequently agreed to no-fault injunctions to avoid a finding of repeated TDCA violations that would preclude them from taking on work from creditors as a result of this provision.
C. TDCA Remedies:
The TDCA affords a number of remedies. Like the FDCPA, you can recover actual damages and attorney’s fees. Tex. Fin. Code § 392.403(a)(2) and (b). Unlike the FDCPA, it does provide for injunctive relief. Tex. Fin. Code § 392.403(a)(1). While § 392.403(e) appears to provide minimum statutory damages of $100 for violations of the two provisions applied solely to third-party debt collectors (the bond requirement in § 392.101 and the debt verification requirement in § 392.201) and the prohibition on representing or threatening to represent that a debtor is willfully not paying a debt when it is in dispute (§ 392.301(a)(3)), this provision has been construed in such a way as to make it meaningless. In Elston v. Resolution Services, Inc., 950 S.W.2d 180, 183-184 (Tex. App. - Austin 1997, no pet.), the Austin Court of Appeals ruled that the minimum damages accorded by § 392.403(e) were not available unless actual damages are demonstrated.
Note: Given the absence of any meaningful statutory damages provision and the apparent unwillingness of Texas courts to issue injunctions to enforce the TDCA in private lawsuits, this Act is largely a toothless tiger. Debt collectors are put at much more risk by the FDCPA. On the other hand, the TDCA is usually the only mechanism for imposing liability on a creditor using abusive tactics in collecting its own debts. See, e.g., Charlie Thomas Leasing, Inc. v. Taylor, 44 S.W.3d 684 (Tex. App. - Houston [14th Dist.] 2001, no pet.) which involved the certification of a class of debtors subjected to the filing of false criminal complaints asserting theft.
IV. Conclusion
Attorneys who fit the definition of “debt collector” need to be careful about complying with the FDCPA to avoid potential liability for statutory damages and costs of litigation. While easier to comply with, the TDCA does raise potential liability issues in particular for creditors attempting to collect their own debts.
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