QUESTION
We were recently collecting a debt from a consumer on behalf of a creditor. We threatened the consumer with legal action if the debt wasn’t paid. Our client, the creditor, told us to stop doing this immediately. But all we did was to threaten legal action if the consumer did not pay the debt. Are there restrictions on threatening legal action when we are trying to collect a debt?
ANSWER
In the Fair Debt Collection Practices Act (FDCPA), there is a section entitled “false or misleading representations.” [15 U.S. Code § 1692e] Under this section, asserting that actions will be taken that are not legally permitted or not intended are barred from communications with consumers to collect a debt. [15 U.S. Code § 1692e(5)]
This prohibition actually overlaps somewhat with another prohibition in this same section, which states:
"The representation or implication that nonpayment of any debt will result in the 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." [15 U.S. Code § 1692e(4)]
Threats of legal action are prohibited by the FDCPA in collecting a debt. Even the mere implication of legal action can be a violation. This prohibition includes any such threats that are (1) beyond the debt collector’s legal or contractual authority; (2) not intended by the debt collector when the statement is made; (3) not imminent as stated by the debt collector; or (4) not likely based on particular circumstances known to the debt collector. [FTC Staff Commentary on FDCPA § 807(5)]
From the statutory point of view, examples of actions that are beyond the debt collector’s legal or contractual authority include threatening a suit that is time-barred or threatening a suit that may only be brought by the creditor or other third party. [Idem, et sequi]
It should be noted that the prohibition also applies to threats or implications of legal action by a third party, such as the creditor. A threat or implication that a creditor will take action would violate the FDCPA unless the debt collector has reason to believe, at the time the statement is made, that such action will be taken.
Do not assume that the threat is just meant to instigate the payment with no consequences to the creditor for such statements. The FDCPA is interpreted under the “least sophisticated consumer” standard, which means that the consumer is expected to interpret the threat as implying the legal action is intended, imminent, or being pursued. The debt collector should not state or imply remarks such as (1) garnishment of wages is available upon obtaining judgement, (2) the debt collector has the right to sue, or (3) further legal action has been recommended. These types of statements can lead to violations of the FDCPA’s prohibition against false and misleading representations.
So, as a general proposition, the action stated in a communication to the consumer must be legal and there must be a reasonable likelihood, at the time the statement is made, that such action will be taken. Determining what is a “reasonable likelihood” can be a challenge. A generic proposition would be that an action may be reasonably likely if such action is frequently taken by the debt collector or creditor in similar circumstances – but, if the debt collector is aware of circumstances that would make such action unlikely in the particular case, a threatening statement would violate FDCPA.
As to determining intent or the lack thereof in threats made to a consumer where collecting a debt is taking place, this is a tough area of the law to prove to the satisfaction of a court; however, lack of intent may be established in the following ways:
- if the debt collector or creditor has a history of not pursuing the action under the particular circumstances;
- if the debt collector made the threat before any required processes for determining whether a lawsuit is appropriate; or
- if certain circumstances exist that would make the action unlikely, such as a small amount of debt.
Over the years, we have encountered certain instances that demonstrate violations derivative of the foregoing communications, such as those caused by falsely threatening to initiate a lawsuit, threatening to report a debt to a credit bureau if the debt collector does not intend to (or is not otherwise permitted to do so), or threatening to assess a collection fee for nonpayment, if such a fee is unlawful.
Jonathan Foxx
Managing Director
Lenders Compliance Group
