A recent Urban Institute analysis of the credit files of nearly 7 million Americans revealed that 35 percent had a debt so far past due it had been referred to a collection agency. And this has led to a strong market for debt-collection agencies, not all of which have operated in accordance with the law.
In some cases, collectors may have failed to give proper notice to indebted consumers when trying to collect, in violation of the Fair Debt Collection Practices Act, or FDCPA.
Last week, the Federal Trade Commission joined with the Consumer Financial Protection Bureau in filing a friend-of-the-court brief in a case that concerns interpretation and enforcement of that law as it pertains to such notifications. The fact they did so illustrates the importance they see in clarifying the law, as the most complaints they receive are about collection practices related to credit card, mortgage, health care and other debts.
In the case, a federal judge granted summary judgment to a law firm, Williams Zinman & Parham P.C. (WZP), who was sued by Maria Hernandez, who complained the debt-collection letter she received from the firm violated the FDCPA because it didn’t properly advise her that in order to dispute the debt she would have to do so in writing. The law firm contends it didn’t have to comply because Hernandez received the initial debt-validation notice requiring such information earlier from another collection agency, Thunderbird Collection Specialists.
According to the summary judgment ruling, WZP contends that Hernandez’s complaint rests entirely upon her false assumption that its letter also must comply with the FDCPA as a debt-validation notice. However, because its letter to Hernandez was not the “initial communication” with respect to the debt, WZP contends that its letter did not need to comply with the FDCPA as a debt-validation notice.
Though the courts are divided as to whether both the initial debt collector and each subsequent debt collector must provide a debt-validation notice in their initial communication with a consumer, the judge ruled in WZP’s favor because its notice was not the original one Hernandez received.
"Under the FDCPA, it is “the” initial communication with the consumer that triggers the mandatory debt validation notice requirements,” the court ruled. In the district court’s view, regardless of whether the initial debt collector sent a notice that complied with the act, a subsequent debt collector like WZP had no obligation to comply with the provision.
In their amicus brief, the FTC and CFPB argue that each debt collector that contacts a consumer, not just the first debt collector that attempts to collect a particular debt, must send a notice that complies with the act’s notification provision. As such, they are asking the Ninth U.S. Circuit Court of Appeals to reverse the U.S. District Court’s March ruling granting summary judgment to WZP.
The brief asserts that harmful debt-collection practices remain a significant concern, as the bureau and FTC receive more complaints about debt-collection practices than any other issues. By imposing the written-notification requirement on “a debt collector,” Congress indicated that each debt collector that attempts to collect a debt from a consumer must provide the required notice, the agencies contend.
The district court, however, “impermissibly narrowed the law’s reach to only the first of what is often many debt collectors that handle a particular debt,” the FTC and CFPB noted. “That narrow interpretation has no basis in the statute’s text or purposes,” the said.
Last November, the CFPB took its first step toward considering consumer-protection rules for the debt collection market when it began collecting information on a wide array of issues, including the accuracy of information used by debt collectors, how to ensure consumers know their rights, and the communication tactics collectors employ to recover debts. The bureau also added consumer complaints about debt collections to its public Consumer Complaint Database.
"For decades, many consumers have reported various unacceptable practices in the debt collection industry,” CFPB Director Richard Cordray said in announcing the changes. “We want to ensure that all players in the industry are working with correct information, that consumers are fully informed, and that consumers are treated fairly and with dignity."