The Fair Debt Collection Practices Act: Time for an Update?
ALM Media
Updated
Despite the seemingly never ending political bickering, our Congress is poised to make substantial changes to the Fair Debt Collection Practices Act (FDCPA", 16 U.S.C. Section 1692 et al. Indeed, the House Financial Services Committee is currently working on H.R. 864, known as the Stop Debt Collection Abuse Act of 2017, that would introduce substantive changes to the FDCPA, including significantly broadening its scope. At the same time, a parallel piece of legislation, known as S. 575, is being guided through the Senate's Committee on Banking, Housing and Urban Affairs. The FDCPA was last amended more than a decade ago. Accordingly, the changes being proposed are certainly welcome and overdue.
FDCPA
The FDCPA was signed into law 40 years ago. To date, however, this law remains a cornerstone in the federal consumer protection efforts it promotes ethical business practices in the debt collection industry. It is "an extraordinarily broad statute."
Specifically, it establishes general standards of conduct by debt collectors, defines proscribed collection methods and provides consumers with statutory rights that otherwise would not exist (e.g., to verify the accuracy of the debt and to stop all collection contacts). The FDCPA also grants a private cause of action and allows for recovery of damages for noncompliance, including statutory damages that are capped at $1,000 per individual claim.
Prior Amendments to the FDCPA
The FDCPA was substantively amended three times. In 1986, it was broadened to apply to attorneys, who engage in debt collection. Then, in 1996, our Congress altered the FDCPA notice required to be sent by debt collectors. Finally, the 2006 amendments added an exemption for check collection agencies working in conjunction with law enforcement, altered the rules for debt verification in response to a series of consumer-friendly decisions, and codified an extensive number of cases that allowed for limited collection activity while a consumer seeks to verify the underlying debt.
Stop Debt Collection Abuse Act of 2017
The new proposed amendments to the FDCPA would redefine a number of statutory terms (e.g., creditor, debt, and debt collector) to include debt collectors working on behalf of federal agencies within the purview of the FDCPA. The amount of fees these debt collectors can charge a consumer would be capped. Moreover, the proposed legislation would require a study of the debt collection practices by private collection agencies engaged by the federal, state, and local government. This is clearly a response to the increasing and roundly criticized efforts to outsource government collection of taxes, student loans, and reimbursement of medical expenses to private, third-party agencies.
The proposed changes would also classify debt buyers as "debt collectors under the FDCPA, which would subject them to statutory liability. This modification addresses and would unequivocally undermine the U.S. Supreme Court's recent decision in Henson v. Santander Consumer USA, 137 S.Ct. 1718 (2017), where it was unanimously held that the conduct of party that purchases a debt and then attempts to collect on this debt does not fall within the purview of the FDCPA.
Additional Changes That Should Be Considered
The newly proposed changes enjoy bipartisan support in the House, H.R. 864 was introduced by a Republican congresswoman from Utah, whereas the Senate's parallel version is being championed by a Democratic Senator from New Jersey. In other words, a compromise is likely to be reached for the FDCPA to be amended again. However, it can certainly be argued that the proposed changes fall short.
First, the statutory language should incorporate the Supreme Court's decision in Jerman v. Carlisle, 130 S.Ct. 1605 (2010), that the "bona fide error" defense to FDCPA liability, which is outlined in Section 1692k(c), does not apply to legal mistakes. In Jerman, the court reaffirmed that this defense is only available for a "good faith" mistake of fact. The holding may be easily incorporated into the FDCPA by a simple qualification that Section 1692k(c) only applies to "bona fide error of fact."
Second, Congress can address the issue of standing for purposes of maintaining a statutory cause of action for an FDCPA violation. Since the Supreme Court's decision in Spokeo v. Robins, 136 S.Ct. 1540 (2016), courts have struggled to determine what constitutes a sufficiently "concrete injury" to establish constitutional standing to sue for purposes of consumer protection statutes. Indeed, there is now a growing split between the circuit courts in this regard. For instance, in Dreher v. Experian Information Solutions, 856 F.3d 337 (4th Cir., May 11), the U.S. Court of Appeals for the Fourth Circuit vacated a multi-million judgment in a class action, because the plaintiff failed to allege a "concrete injury" under the Fair Credit Reporting Act, 15 U.S.C. Section 1681 et al. The Third Circuit, on the other hand, in Susinno v. Work Out World, ___ F.3d ___, (3rd Cir., July, 2017), found existence of "concrete injury" in a class action brought under the Telephone Consumer Protection Act, 47 U.S.C. Section 227. In this regard, FDCPA claimants should not be left unprotected. A clear modification of this statute to indicate that a violation of the FDCPA constitutes a "concrete injury" would ensure that this law continues to serve consumers going forward.
Finally, since its enactment in 1977, the FDCPA capped the amount of statutory damages at $1,000. It was recognized that the purpose of such an award was to "create an incentive to obey the law." But, time does not sit still and the real value of statutory damages that a court may award under the FDCPA has significantly declined. According to the U.S. Department of
Labor's Bureau of Labor Statistics, in today's economy it takes almost $4,000 to equal the purchasing ability of $1,000 in 1977. In other words, the effectiveness of awarding the maximum amount of statutory damages under the FDCPA today is about one-fourth of what it was 40 years ago. For this reason, such awards have become somewhat of a norm (even for relatively minor violations). Therefore, the coercive power of the FDCPA has significantly lessened and should be reinforced for the law to remain meaningful. Similarly, to encourage companies to obey the law, the statutory cap on class actions that has also remained the same since 1977, at "$500,000 or 1 per centum of the net worth of the debt collector" should likewise be adjusted upwards to account for inflation.
