QUESTION
We were examined by our state banking department and they accused us of violations in the way we attempted to collect a debt. Our internal counsel seems to not have been aware of all the possible ways we could violate the collection of debt. This is very frustrating, as we try our best to avoid such accusations, especially since it can also affect our reputation. So, we ask, what are the prohibited practices associated with the collection of a debt?
ANSWER
This an instance where comprehensive policies and procedures should be ratified prior to collection of debts. The Fair Debt Collection Practices Act (FDCPA) has had an “unfair practices” section promulgated since 1977. In my view, there really is no excuse for not knowing a section of the FDCPA that is forty years old. [15 USC § 1692f. Section effective upon the expiration of six months after Sept. 20, 1977, see section 819 of Pub. L. 90–321, as added by Pub. L. 95–109, set out as a note under section 1692 of this title.]
Let’s start with the basic rule that protects the consumer against unfair practices: A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt.
The legal and regulatory risks to financial institutions involved in debt collecting are considerable. Courts have long placed extreme caution on handling interactions with consumers in connection with the collection of a debt. For instance, in Midland v Johnson, the court “recogniz[ed] the ‘abundant evidence of the use of abusive, deceptive, and unfair debt collection practices [which] contribute to the number of personal bankruptcies’”. [Midland Funding, LLC v. Johnson, No. 16-348, US, 5.15.17] Another court specifically noted the purpose of the FDCPA is “to eliminate abusive debt collection practices”. [Hoo-Chong v. CitiMortgage, Inc., 15-CV-4051(JS)(AKT), EDNY 3.31.17]
Here's a broad, but viable working definition of “debt,” for the sake of identifying the basis of a policy document that accords with the FDCPA. Debt is “any obligation 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.” [Harper v. MFR’s Trust Co, Civil No. PJM 10-00593, D. MD. 2.285.11; also see In Re Westberry, 215 F.3d 589, 6th Cir. 2000]
The following conduct is a violation of the unfair practices section of the FDCPA:
1.The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.
2.The acceptance by a debt collector from any person of a check or other payment instrument postdated by more than five days unless such person is notified in writing of the debt collector’s intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit.
3.The solicitation by a debt collector of any post- dated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution.
4.Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument.
5.Causing charges to be made to any person for communications by concealment of the true purpose of the communication. Such charges include, but are not limited to, collect telephone calls and telegram fees.
6.Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if –
a.There is no present right to possession of the property claimed as collateral through an enforceable security interest;
b.there is no present intention to take possession of the property; or
c.the property is exempt by law from such dispossession or disablement.
7.Communicating with a consumer regarding a debt by postcard.
8.Using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business. [
Obviously, non-abusive collection methods are means other than misrepresentation or other abusive debt collection practices that are available for the effective collection of debts. But it is critical to know those non-abusive collection methods!
Jonathan Foxx
Managing Director
Lenders Compliance Group
