QUESTION
We are facing a potential class action suit for violating the Fair Debt Collection Practices Act. Our company originates and services residential loans. I am the company’s General Counsel. My colleague is Of Counsel. Together, we are writing for some guidance. We already have retained outside counsel to fight the suit; however, we seek some understanding for revising our policies and procedures by outlining the written notice requirements to cease communications.
Here’s what happened, in part. For a period of approximately six months, we did not cease communications upon receiving the borrowers’ written requests to terminate communications with them. We learned about it due to a servicing quality control review. The servicing quality control reviews should never have been stopped. These audits were only reactivated after receiving consumer complaints, which thereafter led to the lawsuit.
What are the salient guidelines for a debt collector to cease communications with a debtor upon a written request?
ANSWER
I have written and spoken at length about the importance of implementing servicing quality control. Here are just a few of the articles on this subject. For some reason, some servicers – and lenders who use subservicers! – do not conduct servicing quality control. Then lawsuits or regulators come knocking on their door, and they suddenly scramble to do it.
Our highly credentialed experts provide the servicing quality control audit if you (or anyone else) want it. Regulators and investors know the excellent reliability of our work. So contact us, and we’ll send you information about our servicing quality control.
It seems like your firm understands the importance of servicing quality control, but somewhere along the line, let the ball drop. Benjamin Franklin’s warning applies: “A little neglect may breed great mischief.” Missing one servicing QC period is a red flag; miss six of them, as in your case, and get ready for a lawsuit!
Now, let’s zero in on your question.
The Fair Debt Collection Practices Act (FDCPA)[i] provides that debt collectors must cease to send communications to the consumer upon the consumer’s written request. The term “consumer” is defined under FDCPA[ii] to include both
(1) the “natural person obligated to pay the subject debt”
and
(2) certain persons “close to the consumer-debtor,” specifically the consumer’s spouse, parent (if the debtor is a minor under applicable state law), guardian, executor, and administrator. However, other relatives, such as the consumer’s children, parents (if the consumer is not a minor), grandparents, and relatives not included in the special FDCPA definition do not constitute “consumers” under FDCPA.[iii]
Taking into account this
expanded FDCPA[iv]
definition of consumer, the FDCPA decrees[v]
that whenever a Debtor, et al., (“Debtor”) notifies
a debt collector in writing that the consumer
(1) refuses to pay the debt sought to be collected or
(2) wishes the debt collector to cease further
communication with the Debtor, the debt collector must not communicate
further with the Debtor regarding the subject debt, except for the
following purposes:
·
To advise the Debtor that the debt collector’s further collection efforts
are being terminated.
·
To notify the Debtor that the debt collector or the creditor may invoke
specified remedies that are ordinarily invoked by the debt collector or the
creditor.
· Where applicable, notify the Debtor that the debt collector or the creditor intends to invoke a specified remedy.
Furthermore, the FDCPA further provides[vi] that if the notice to the debt collector to cease communications with the Debtor is sent by mail, the notification is complete upon receipt by the debt collector.
The term “communication” is defined as the conveying of information regarding a debt, orally or in writing, either directly or indirectly, and through any medium. This term includes both oral and written transmissions of messages that refer to a debt.[vii]
Indeed, the FDCPA expands the definition of “communication,” by stating that “the term ‘communicate’ is given its commonly accepted meaning.”[viii] Thus, “communication” means any contact with the consumer related to the collection of the debt, whether or not the debt is specifically mentioned.”[ix]
Taking this into account, upon receipt of the notification to cease further communications, debt collectors must cease all oral and written contact with the consumer, their spouse, parent (if a minor), guardian, executor, or administrator, except for the three express exceptions previously discussed.
________________________________________________
FEATURED SOLUTION
In effect, the FDCPA requires that the debt collection show some good manners. Most of our servicing clients adopt the Golden Rule. That principle encourages us to ‘do unto others as you want them to do unto you.’ Of course, the negative reciprocal is not doing unto others as you do not want them to do unto you. Good manners are just a way of being courteous, respectful, and polite. The FDCPA enacts requirements that effectively ensure that the Golden Rule will be enforced, like it or not!
Put simply, there is a time when further communications between a debt collector and the Debtor should halt. According to the statute establishing legal protection from abusive debt collection practices, published all the way back in 1977, consumer witnesses who related their personal experiences at the congressional hearings testified that they had been innocent third parties wrongly assumed to be the consumer merely because of a slight similarity of names. Also, stories reportedly were presented of abnormally rude and persistent collectors who refused to listen to the consumers’ valid reasons for nonpayment.[x]
The FDCPA is intended to give relief to consumers being ‘harassed cruelly and relentlessly’ by a few independent debt collectors; it does not, however, enable consumers to avoid payment of just and honest debts.
Thus, the mandate to debt collectors could not be more clear.
To draft your policy, I suggest you include a section given to your employees involved in debt collection. Importantly, you must monitor their actions regularly. The section should be in the form of written instructions on implementing the FDCPA requirements. You may want them to sign a receipt for it and require periodic training.
We are now ready to discuss the salient guidelines to cease communications with a debtor upon a written request.
Collection procedures
manuals should emphasize the following salient points:
·
Written Notice Required
In order for the notice requiring
the debt collector to cease communications with the Debtor to be
enforceable, it must be furnished to the debt collector in writing. Thus, an
oral request made by a Debtor in person or over the telephone does not
trigger the requirement to terminate all communications.
·
No Formal Notice Required
The FDCPA does not require
that the written notice be signed. Since the FDCPA does not indicate how formal
the notice must be, debt collection employees should be alerted to watch for
written notations on returned dunning letters, envelopes, bills, and scraps of
paper stating that
(1) The consumer refuses
to pay the debt, or
(2) The consumer wants the
debt collector to cease making any further contacts. Upon receipt of any such
written messages, a proper cease communications notice is deemed to have been
received by the debt collector.
·
Notices Permissible from Multiple Persons
The notice to cease
communications may be sent to the debt collector not only by the individual who
actually or allegedly owes the debt but also by the consumer’s spouse; parent
if the consumer is a minor under applicable state law (viz., each state law
must be examined on point); legal guardian; and the executor or administrator
if the consumer is deceased.
·
Effective Date of Notices
Whether the notice to cease
communications is delivered by hand or by mail to the collector, it becomes
binding on the debt collector and all of the collector’s employees upon receipt
in the collection agency’s office.
·
All Contact Halted
Upon receipt of the notice
to cease communications, the debt collector must cease all contact with the
individual consumer and the consumer’s spouse, parent (if the consumer is a
minor), or legal guardian. If the notice is received from the executor or the
administrator of a deceased consumer’s estate, no further communications may be
sent to those officials or the family members of the deceased consumer.
·
Some Disputes Not “Notices”
Debt collectors are not
required to cease communicating with the Debtor simply because the consumer
disputes the amount or character of the debt or the quality of goods purchased
or financed. A cease communications notice is received only when the Debtor writes
a note to the debt collector stating either that the consumer
(1) refuses to pay the
subject bill or
(2) wishes the debt
collector to cease all further communications. Written statements such as (a)
“I won’t pay your bill” or (b) “I don’t want you to call or write me any more
letters” would each serve as the requisite cease communications notice.
·
Notice as to Multiple Accounts
Debt collectors who handle
multiple claims against an individual must cease their communications with the
Debtor solely regarding the particular debts or accounts referred to in the notice
to cease communications. If the notice relates exclusively to one particular
delinquent account, the debt collector may continue debt collection efforts on
the other claims. However, if the notice states that the Debtor wants the
debt collector to cease future communications concerning all claims the
collector is handling or that the consumer refuses to pay all of the debts that
the debt collector is seeking to collect, all contacts should be terminated
concerning all claims being handled.
I have not discussed here the actions the debt collector should take in response to a cease communications notice; however, the FDCPA allows but does not require the collector to send one final letter or notice that advises the consumer of the following:
·
The debt collector is terminating further efforts to collect the debt
from the consumer;
· The debt collector or the creditor may invoke certain clearly specified remedies that are ordinarily invoked by either the debt collector or the creditor; and/or
· Where a clearly specified remedy is available to the debt collector or the creditor and applicable to the debt and the consumer, the debt collector or the creditor actually intends to invoke this remedy.
The FDCPA states that the debt collector’s response to a written notice to cease communication from a consumer is limited to the three statutory exemptions, as noted above. The response specifically may not contain a demand for payment.
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director[i] Fair Debt Collection
Practices Act (FDCPA) § 805(c), 15 USC § 1692c(c)
[ii] § 805(d),15
USC § 1692c(d); for all portions of FDCPA § 805
[iii] See § 805(d)
[iv] Idem
[v] § 805(c),
15 USC § 1692c(c)
[vi] Idem
[vii] Comment
803(2)-1
[viii] Comment 805(c)-1, for
purposes of implementing § 805(c)
[ix] Op. cit.
i
[x] Public Law 95-109, 91
Stat. 874, approved September 20, 1977, and subsequently amended, the statute
is a consumer protection amendment that establishes legal protection from
abusive debt collection practices; it is in the Consumer Credit Protection Act,
as Title VIII thereof.
