Consumer Debt Collection FDCPA Traps for the Unwary Nationwide Lender Loan Servicer and Debt Collector Part I

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Apr 2005

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Consumer protection laws regulating debt
collection practices are a complex minefield of potential liability for
creditors and other debt collectors. Large damage awards, provisions for
recovery of attorneys' fees and increased awareness and interest in
consumer protection in general have fueled an explosion in class action
lawsuits, even for seemingly minor violations of such legislation. Since
lenders, loan servicers, credit card companies and debt collectors
employ standardized practices and forms in communicating with large
numbers of customers, claims against them for violations are
particularly suited to class action certification. The Fair Debt
Collection Practices Act (FDCPA or "the Act") provides for statutory
damages in class actions against debt collectors "not to exceed the
lesser of $500,000 or 1 percent of the net worth of the debt collector,"
in addition to actual damages and attorneys fees.<a href="#1" name="1a">1</a>

In addition to the FDCPA, state laws regulating collection practices
provide even greater protection for consumers than the federal law. The
FDCPA provides that state laws and regulations that are more protective
to the consumer are deemed not to be "inconsistent with," and therefore
excluded from federal preemption by the Act.<a href="#2" name="2a">2</a> Therefore, compliance with the Act alone
does not insulate nationwide debt collectors from potential liability,
and state laws represent additional sources of potential class action
liability. Part I of this article discusses the federal Act. Part II
will discuss state laws regulating consumer debt collection practices.

<h4>The FDCPA, 15 U.S.C. §1692</h4>

Congress enacted the FDCPA for the stated purpose of prohibiting
"abusive practices by debt collectors" in the collection of "consumer"
debts. "Consumer debts" are defined as obligations or alleged
obligations on the part of a "consumer" (defined as a natural person)
"to pay money arising out of a transaction in which the money, property,
insurance or services that are the subject matter of the transaction are
primarily for personal, family or household purposes." 15 U.S.C.
§1692a(3),(5). In its findings and purposes related to the FDCPA,
Congress also declared that "abusive debt collection practices directly
affect interstate commerce, even where they are purely intrastate in
nature."

<h4>"Debt Collectors" Subject to the FDCPA</h4>

For the most part, the Act applies to "debt collectors" as defined in
the Act, and not to "creditors" (defined as persons who offer or extend
credit, creating a debt or to whom a debt is owed). However, the
definition of "debt collector" includes creditors attempting to collect
their own debts under other names. Assignees of debts of another, which
are in default solely for the purpose of collecting them, also are
excluded from the FDCPA's definition of "creditor" and instead treated
as debt collectors.<a href="#3" name="3a">3</a>

Application of subsection (c) to hold a creditor liable under the Act
is illustrated in Nielsen v. Dickerson, 307 F.3d 623 (7th Cir.
2002). In Nielsen, the Seventh Circuit affirmed summary judgment
in a class action against a credit card account creditor and an attorney
it hired to send out thousands of collection letters that the court
found falsely suggested that the attorney was actively involved in the
creditor's debt collection efforts and would file suit if the debts were
not paid. Because the attorney hired by the creditor to send out the
collection letters essentially plugged information provided by the
creditor into a form letter and was not otherwise actively involved in
the debt collection process (calls from consumers in response to the
letter were directed back to the creditor), the court applied subsection
(c) to hold the credit card account creditor liable.

Attorneys may be "debt collectors" under the FDCPA. Heintz v.
Jenkins, 514 U.S. 291 (1995); Nielsen v. Dickerson, supra;

(lawyer who regularly tries to obtain payment of consumer debts through
litigation is a person who "regularly collects or attempts to
collect...debts owed" another, such attorneys were covered under the
FDCPA); Scott v. Jones, 964 F.2d 314 the Fourth Circuit (4th Cir.
1992) (court found that the "principal purpose" of the defendant
attorney's business was the collection of debts because at least 70-80
percent of the defendant's fees were generated in relation to work
performed toward the collection of debts); Garrett v. Derbes, 110
F.3d 317 (5th Cir. 1997) (percentage of debt collection services is
irrelevant if the volume of debt collection services is great enough;
attorney who collected debts from 639 individuals over nine months
"regularly collected debts," even though collection efforts accounted
for just 0.5 percent of his overall practice); Fuller v. Becker &
Poliakoff, 192 F. Supp. 2d 1361 (M.D. Fla. 2002) (homeowners'
association attorneys who sent collection letters for delinquent
maintenance assessments "regularly attempted to collect" consumer
debts). Contrast Franco v. Maraldo, No. 99-3265, 2000 WL 288378
(E.D. La. Mar. 16, 2000) (attorney was not a "debt collector" under the
FDCPA, as debt collection was not the "principal purpose" of his
business; less than one percent of his practice involved the collection
of debts on behalf of one client, and the attorney had only engaged in
two collection matters).

<h4>Exclusions from the Definition of "Debt Collector"</h4>

Expressly excluded from the term "debt collector" under the Act are:

<ul>
<li>officers or employees of a creditor while, in the name of the
creditor, collecting debts for such creditor;<a href="#4" name="4a">4</a>

</li><li>persons acting as a debt collector for another person, related by
common ownership or affiliated by corporate control, if the person
acting as the debt collector does so only for persons to whom it is so
related or affiliated and if the principal business of such person is
not the collection of debts;<a href="#5" name="5a">5</a>

</li><li>persons collecting or attempting to collect debts owed or due or
asserted to be owed or due another to the extent such activity:

<ul>
<li>is incidental to a bona fide fiduciary obligation or a bona fide
escrow arrangement;<a href="#6" name="6a">6</a>

</li><li>concerns a debt that was originated by such persons;<a href="#7" name="7a">7</a>

</li><li>concerns a debt that was not in default at the time it was obtained
by such person;<a href="#8" name="8a">8</a> or

</li><li>concerns a debt obtained by such person as a secured party in a
commercial credit transaction involving the creditor.<a href="#9" name="9a">9</a>

</li></ul></li></ul>

The "bona fide fiduciary" exclusion. The exclusion from the
definition of "debt collector" applicable to entities attempting to
collect on the debt of another under a "bona fide fiduciary obligation"
or "bona fide escrow arrangement" is illustrated in Pelfrey v.
Educational Credit Management Corp., 71 F. Supp. 2d 1161 (N.D. Ala.
1999), aff'd., 208 F.3d 945 (11th Cir. 2000) (collection
activities of guarantor of federal student loans fell within the
"fiduciary obligation" exclusion of the FDCPA because guarantor had a
fiduciary obligation to the government to pursue collection of the
loan).

The "originator" exclusion. Applicability of "the originator"
exclusion turns on whether or not the entity played a "significant role"
in the transaction from its origination. Buckman v. American Bankers
Ins. Co. of Florida, 115 F.3d 892 (11th Cir. 1997) (defendant bail
bondsman played a significant role in originating bail bond transaction
and therefore was excluded from FDCPA under the "originator" exclusion,
15 U.S.C. §1692a(6)(F)(ii)); Holmes v. Telecredit Service
Corp., 736 F. Supp. 1289 (D. Del. 1990) (court rejected application
of the "originator" exclusion to computerized check authorization and
purchase service, which advised its subscribers whether to accept or
decline the check based on the consumer's check-writing history and
agreed to purchase check from the subscriber company if the check was
not honored; while these activities may have facilitated the transaction
between the consumer and the other corporation, the defendant did not
participate in the exchange so as to warrant the "originator"
exclusion).<a href="#10" name="10a">10</a>

The "assignee of debt not in default" exclusion. Those
attempting to collect debts obtained by assignment are treated as
creditors, excluded from debt collector regulations under the Act, but
only if the debt was not in default at the time it was acquired.
Whitaker v. Ameritech Corp., 129 F.3d 952 (7th Cir. 1997)
(defendant that acquired debts for long-distance telephone calls at the
time the calls were placed, and before the customer was billed, excluded
from the FDCPA under 15 U.S.C. §1692a(6)(F)(iii)).<a href="#11" name="11a">11</a>

Whether Congress intended the "actual status" of the debt, or the
assignee's understanding (or misunderstanding) of the default status of
the loan for purposes of this exception, has been addressed by both the
Second and Seventh Circuits. In Schlosser v. Fairbanks Capital
Corp., 323 F.3d 534 (7th Cir. 2003), the assignee of a sub-prime
mortgage attempting to collect on a mortgage it mistakenly believed was
in default at the time it was acquired was sued for alleged violations
of the FDCPA in connection with its collection letters. The Seventh
Circuit rejected the assignee's defense that it was not a "debt
collector" under the Act because the loan was not actually in default at
the time of its acquisition, even though the assignee believed
otherwise.<a href="#12" name="12a">12</a>

The exclusion for debts obtained by a secured party in a
commercial credit transaction involving the creditor. This exclusion
is illustrated in Friedman v. Textron Financial Corp., No.
96-C-7983, 1997 WL 467175 (N.D. Ill. Aug. 12, 1997) (defendant who
acquired and subsequently attempted to collect consumer accounts pledged
as collateral under commercial loan was not a "debt collector" under the
FDCPA).

<h4>Strict Liability; Maintenance of Procedures to Avoid Violations</h4>

The FDCPA is a strict liability statute. Thus, the intention of the
sender of a prohibited communication is generally not relevant. The sole
defense to a claim for violation of its provisions is a showing by the
debt collector, "by a preponderance of the evidence, that the violation
was not intentional and resulted from a bona fide error notwithstanding
the maintenance of procedures reasonably adapted to avoid any such
error." 15 U.S.C. §1692k(c). Therefore, maintenance of procedures
and policies intended to avoid violations may make a difference in
liability under the statute, if it can be proven that the violation was
unintentional.

<h4>Civil Liability and Administrative Enforcement</h4>

The Act provides for enforcement actions by the Federal Trade
Commission, as well as a private right of action by those injured by
violation of its provisions. In addition to actual damages of such
violation(s), an individual plaintiff is entitled to "such additional
damages as the court may allow, not exceeding $1000."<a href="#13" name="13a">13</a> This statutory penalty is per
lawsuit, not per violation. Harper v. Better Bus. Servs. Inc.,
961 F.2d 1561 (11th Cir. 1992).

In class actions, in addition to actual damages, each named plaintiff
is also entitled to recover additional statutory damages not exceeding
$1000, with the maximum recovery for additional damages for the class in
total the lesser of $500,000 or one percent of the net worth of the debt
collector."<a href="#14" name="14a">14</a> In
determining the amount of statutory damages, the court must consider the
frequency and persistence of the noncompliance by the debt collector,
the nature of the noncompliance, and the extent to which such
noncompliance was intentional.<a href="#15" name="15a">15</a> The Act also provides for recovery of
attorneys' fees and costs to the consumer,<a href="#16" name="16a">16</a> and these are mandatory once actual or
statutory damages are awarded. O'Connor v. Check Rite Ltd., 973
F. Supp 1010 (D. Colo. 1997) (no attorneys' fees awarded where no
statutory or actual damages awarded). There is disagreement among the
circuits as to whether the Act requires an award of actual damages
before an award of attorneys' fees is appropriate. Nagle v. Experian
Information Solutions Inc., 297 F. 3d 1305 (11th Cir. 2002).

<h4>Collection Practices Regulated by the FDCPA</h4>

Substantively, the FDCPA regulates practices of debt collectors in
the areas of:

<ul>
<li>acquisition of location information from third
persons;<a href="#17" name="17a">17</a>

</li><li>communications with consumers in collecting debts;<a href="#18" name="18a">18</a>

</li><li>communications with third parties;<a href="#19" name="19a">19</a>

</li><li>conduct deemed to be harassing, abusive or unfair;<a href="#20" name="20a">20</a>

</li><li>communications that are false or misleading;<a href="#21" name="21a">21</a>

</li><li>furnishing deceptive forms;<a href="#22" name="22a">22</a>

</li><li>providing notice to the consumer and validation of
debts.<a href="#23" name="23a">23</a>
</li></ul>

Conduct involving acquisition of location information from third
persons. Under the Act, a debt collector communicating with persons
other than the consumer for the purpose of acquiring location
information about the consumer "shall":

<ol>
<li>"identify himself, state that he is confirming or correcting
location information concerning the consumer and, only if expressly
requested, identify his employer";<a href="#24" name="24a">24</a> and

</li><li>shall not:

<ul>
<li>state that such consumer owes any debt;<a href="#25" name="25a">25</a>

</li><li>communicate with any such person more than once unless requested to
do so by such person or unless the debt collector reasonably believes
that the earlier response of that person was erroneous or incomplete and
that the person now has correct or complete location
information;<a href="#26" name="26a">26</a>

</li><li>communicate by postcard;<a href="#27" name="27a">27</a>

</li><li>use any language or symbol on any envelope or in the contents of any
communication effected by the mails or telegram that indicates that the
debt collector is in the debt collection business or that the
communication relates to the collection of a debt;<a href="#28" name="28a">28</a> or

</li><li>communicate with the consumer once the debt collector knows the
consumer is represented by an attorney, unless that attorney fails to
respond within a reasonable period of time to communication from the
debt collector.<a href="#29" name="29a">29</a>
</li></ul></li></ol>

Communications with consumers in collecting debts. Under
1692c(a) of the Act, absent the prior consent of the consumer given
directly to the debt collector or the express permission of a court of
competent jurisdiction, debt collectors may not communicate with a
consumer in connection with the collection of any debt:

<ol>
<li>at any unusual time or place or a time or place known or which
should be known to be inconvenient to the consumer (in the absence of
knowledge of circumstances to the contrary, the debt collector shall
assume that the convenient time for communicating with a consumer is
after 8:00 a.m. and before 9:00 p.m. local time at the consumer's
location);

</li><li>if the debt collector knows the consumer is represented by an
attorney with respect to such debt and has knowledge of, or can readily
ascertain, such attorney's name and address, unless the attorney fails
to respond within a reasonable period of time to a communication from
the debt collector or unless the attorney consents to direct
communication with the consumer; or

</li><li>at the consumer's place of employment if the debt collector knows or
has reason to know that the consumer's employer prohibits the consumer
from receiving such communications.
</li></ol>

In addition, if the consumer notifies the debt collector in writing that
the consumer refuses to pay a debt or wishes the debt collector to cease
further communication with the consumer, the debt collector is
prohibited from communicating further with the consumer with respect to
such debt except:

<ol>
<li>to advise the consumer that the debt collector's further efforts are
being terminated;

</li><li>to notify the consumer that the debt collector or creditor may
invoke specified remedies that are ordinarily invoked by such debt
collector or creditor; or

</li><li>where applicable, to notify the consumer that the debt collector or
creditor intends to invoke a specified remedy.<a href="#30" name="30a">30</a>
</li></ol>

The term "consumer" also includes the consumer's spouse, parent (if
the consumer is a minor), guardian, executor or administrator.

Communications with third parties in collecting debts. Except
as permitted in §1692(b) with regard to the acquisition of location
information, "a debt collector may not communicate, in connection with
the collection of any debt, with any person other than the consumer, his
attorney, a consumer reporting agency if otherwise permitted by law, the
creditor, the attorney of the creditor or the attorney of the debt
collector" without the prior consent of the consumer given directly to
the debt collector, or the express permission of a court of competent
jurisdiction.<a href="#31" name="31a">31</a>

Harassing or abusive conduct. A debt collector "may not engage
in any conduct the natural consequence of which is to harass, oppress or
abuse any person in connection with the collection of a
debt."<a href="#32" name="32a">32</a> Specific
conduct identified as violating this provision, "without limiting its
general applicability," includes, but is not limited to:

<ul>
<li>the use or threat of use of violence or other criminal means to harm
the physical person, reputation or property of any person.

</li><li>the use of obscene or profane language or language the natural
consequence of which is to abuse the hearer or reader.

</li><li>causing a telephone to ring or engaging any person in a telephone
conversation repeatedly or continuously with intent to annoy, abuse or
harass any person at the called number.

</li><li>except as provided in §1692b, the placement of telephone calls
without meaningful disclosure of the caller's identity.<a href="#33" name="33a">33</a>
</li></ul>

Communications that are false or misleading. 15 U.S.C.
§1692e provides that "a debt collector may not use any false,
deceptive or misleading representation or means in connection with the
collection of any debt." Specific conduct identified as violating this
provision, "without limiting its general applicability," includes, but
is not limited to:

<ol>
<li>a false representation of the character, amount or legal status of
any debt, or any services rendered or compensation that may be lawfully
received by any debt collector for the collection of a debt.

</li><li>a false representation or implication that any individual is an
attorney or that any communication is from an attorney.

<blockquote><blockquote>
<hr>
<big><center>
Failure to include the "actual amount" of the debt in the validation
notice has been held to render it misleading and deceptive.
</center></big>
<hr>
</blockquote></blockquote>

</li><li>a representation or implication that non-payment 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.

</li><li>a threat to take any action that cannot legally be taken or that is
not intended to be taken.

</li><li>communicating or threatening to communicate to any person credit
information that is known or that should be known to be false, including
the failure to communicate that a disputed debt is disputed.

</li><li>the use of any false representation or deceptive means to collect or
attempt to collect any debt or to obtain information concerning a
consumer.

</li><li>a failure to disclose in the initial written communication with the
consumer and, in addition, if the initial communication with the
consumer is oral, in that initial oral communication, that the debt
collector is attempting to collect a debt and that any information
obtained will be used for that purpose, and the failure to disclose in
subsequent communications that the communication is from a debt
collector, except that this paragraph shall not apply to a formal
pleading made in connection with a legal action.

</li><li>a false representation or implication that documents are legal
process.

</li><li>the use of any business, company or organization name other than the
true name of the debt collector's business, company or organization.

</li><li>a false representation or implication that documents are not legal
process forms or do not require action by the consumer.

</li><li>a false representation or implication that a debt collector operates
or is employed by a consumer reporting agency.<a href="#34" name="34a">34</a>
</li></ol>

The standard by which courts judge whether communications violate the
Act by being false, misleading, harassing or unfair is that of the
"least sophisticated consumer." Jeter v. Credit Bureau Inc., 760
F.2d 1168 (11th Cir. 1985).<a href="#35" name="35a">35</a>

Unfair practices. The Act also prohibits debt collectors from
using "unfair or unconscionable means to collect or attempt to collect
any debt."<a href="#36" name="36a">36</a>

Specific conduct identified as violating this provision, "without
limiting its general applicability," includes, but is not limited to:

<ol>
<li>collection of amounts (including interest, fees, charge or expense
incidental to the principal obligation) not expressly authorized by the
agreement creating the debt or permitted by law.

</li><li>the acceptance of a check or other payment instrument postdated by
more than five days unless such person is notified in writing not more
than 10 nor less than three business days prior to such deposit of the
debt collector's intent to deposit such check or instrument.

</li><li>the solicitation by a debt collector of any postdated check or other
postdated payment instrument for the purpose of threatening or
instituting criminal prosecution.

</li><li>depositing or threatening to deposit any postdated check or other
postdated payment instrument prior to the date on such check or
instrument.

</li><li>causing charges to be made to any person for communications by
concealment of the true purpose of the communication, including, but not
limited to, collect telephone calls and telegram fees.

</li><li>taking or threatening to take any non-judicial action to effect
dispossession or disablement of property if—

<blockquote>
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.
</blockquote>

</li><li>communicating with a consumer regarding a debt by postcard.

</li></ol>

Furnishing deceptive forms. The Act provides that it is
unlawful "to design, compile and furnish any form knowing that such form
would be used to create the false belief in a consumer that a person
other than the creditor of such consumer is participating in the
collection of or in an attempt to collect a debt such consumer allegedly
owes such creditor, when in fact such person is not so
participating."<a href="#37" name="37a">37</a>
As this provision has general applicability, any person who violates
this section is liable in the same manner as provided for debt
collectors.<a href="#38" name="38a">38</a>

Providing notice to the consumer and validation of debts. The
Act requires debt collectors to provide debtors with written notice
concerning the debt and an opportunity to dispute it within five days of
initial communication (validation notice) under 15 U.S.C. §1692g:

<blockquote>
(a) Within five days after the initial communication with a consumer in
connection with the collection of any debt, a debt collector shall,
unless the following information is contained in the initial
communication or the consumer has paid the debt, send the consumer a
written notice containing—

(1) the amount of the debt; 
(2) the name of the creditor to whom the debt is owed; 
(3) a statement that unless the consumer, within 30 days after receipt
of the notice, disputes the validity of the debt, or any portion
thereof, the debt will be assumed to be valid by the debt collector; 
(4) a statement that if the consumer notifies the debt collector in
writing within the 30-day period that the debt, or any portion thereof,
is disputed, the debt collector will obtain verification of the debt or
a copy of a judgment against the consumer and a copy of such
verification or judgment will be mailed to the consumer by the debt
collector; and 
(5) a statement that, upon the consumer's written request within the
30-day period, the debt collector will provide the consumer with the
name and address of the original creditor, if different from the current
creditor.
</blockquote>
</blockquote>

If the consumer notifies the debt collector in writing within the
30-day period that any portion of the debt is disputed, or requests the
name and address of the original creditor, the debt collector is
required to cease collection of the debt, or the disputed portion
thereof, until obtaining verification of the debt or a copy of a
judgment, or the name and address of the original creditor, and until a
copy of such verification or judgment, or name and address of the
original creditor, is mailed to the consumer by the debt
collector.<a href="#39" name="39a">39</a> The
failure of a consumer to dispute the validity of a debt under this
section may not be construed by any court as an admission of liability
by the consumer. Failure to include the "actual amount" of the debt in
the validation notice has been held to render it misleading and
deceptive.<a href="#40" name="40a">40</a>

Courts have also held that provisions in a debt-collection letter
implying an obligation on the part of the debtor to provide
documentation to support their dispute of the debt violate
§1692g(a).<a href="#41" name="41a">41</a>

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> 15 U.S.C.
§1692k(a)(2)(B). <a href="#1a">Return to article</a>

<a name="2">2</a> 15 U.S.C. §1692n. <a href="#2a">Return to article</a>

<a name="3">3</a> Under 15 U.S.C.
§1692a(4), "creditor" is defined as " any person who offers or
extends credit creating a debt or to whom a debt is owed, but such term
does not include any person to the extent that he receives an assignment
or transfer of a debt in default solely for the purpose of facilitating
collection of such debt for another." The term "debt collector" is
defined in the Act to include:

<blockquote>
(a) any person who uses any instrumentality of interstate commerce or
the mails in any business the principal purpose of which is the
collection of any debts; or 
(b) any person who regularly collects or attempts to collect, directly
or indirectly, debts owed or due or asserted to be owed or due
another; 
(c) any creditor who, in the process of collecting his own debts, uses
any name other than his own which would indicate that a third person is
collecting or attempting to collect such debts; and 
(d) any person who uses any instrumentality of interstate commerce or
the mails in any business the principal purpose of which is the
enforcement of security interests.
</blockquote>
15 U.S.C. §1692a(6). <a href="#3a">Return to article</a>

<a name="4">4</a> 15 U.S.C.
§1692a(6)(A). <a href="#4a">Return to article</a>

<a name="5">5</a> 15 U.S.C.
§1692a(6)(B). <a href="#5a">Return to article</a>

<a name="6">6</a> 15 U.S.C.
§1692a(6)(F)(i). <a href="#6a">Return to article</a>

<a name="7">7</a> 15 U.S.C.
§1692a(6)(F)(ii). <a href="#7a">Return to article</a>

<a name="8">8</a> 15 U.S.C.
§1692a(6)(F)(iii). <a href="#8a">Return to article</a>

<a name="9">9</a> 15 U.S.C.
§1692a(6)(F)(iv). <a href="#9a">Return to article</a>

<a name="10">10</a> See, also,
Winterstein v. Crosscheck Inc., 149 F.Supp.2d 466 (N.D. Ill. 2001)
(debt at issue did not originate with the defendant, and therefore the
"originator" exemption did not apply where defendant merely facilitated
debt transaction by providing estimated probability that a check would
be good). <a href="#10a">Return to article</a>

<a name="11">11</a> But, see Winterstein
v. Crosscheck Inc., 149 F.Supp.2d 466, 471 n.6 (N.D. Ill. 2001)
(exclusion did not apply where assignment to the defendant took place
after the debt at issue was already in default). <a href="#11a">Return
to article</a>

<a name="12">12</a> The facts in
Alibrandi v. Financial Outsourcing Services Inc., 333 F.3d 82
(2nd Cir. 2003), were opposite, but a similar result was reached. In
Alibrandi, the debtor filed a class action against First Union's
loan servicer for failure to give the FDCPA warnings in communications
from the loan servicer mistakenly stating that the loan was not in
default. Before transferring the loan to the servicer, First Union had
retained a collection agency to collect the debt, and the collection
agency had sent a collection letter to the debtor with the required
FDCPA warnings. The Second Circuit held that the prior notification by
the collection agency that it was a debt collector constituted a
declaration that the loan was in default, that the default status of the
loan was not changed by transfer of the loan to the servicer, and that
even if the servicer believed the loan was not in default, the loan
stayed in default status requiring the servicer to include the FDCPA
statutory warnings. <a href="#12a">Return to article</a>

<a name="13">13</a> 15 U.S.C
§1692k(a)(2)(A). <a href="#13a">Return to article</a>

<a name="14">14</a> 15 U.S.C.
§1692k(a)(2)(B). <a href="#14a">Return to article</a>

<a name="15">15</a> 15 U.S.C.
§1692k(b)(1). <a href="#15a">Return to article</a>

<a name="16">16</a> 15 U.S.C.
§1692k(a)(3). <a href="#16a">Return to article</a>

<a name="17">17</a> 15 U.S.C. §1692b.
<a href="#17a">Return to article</a>

<a name="18">18</a> 15 U.S.C.
§1692c(a). <a href="#18a">Return to article</a>

<a name="19">19</a> 15 U.S.C.
§1692c(b). <a href="#19a">Return to article</a>

<a name="20">20</a> 15 U.S.C. §1692d;
1692f. <a href="#20a">Return to article</a>

<a name="21">21</a> 15 U.S.C. §1692e.
<a href="#21a">Return to article</a>

<a name="22">22</a> 15 U.S.C. §1692j.
<a href="#22a">Return to article</a>

<a name="23">23</a> 15 U.S.C. §1692b.
<a href="#23a">Return to article</a>

<a name="24">24</a> 15 U.S.C. §1692b.
<a href="#24a">Return to article</a>

<a name="25">25</a> 15 U.S.C.
§1692b(2). <a href="#25a">Return to article</a>

<a name="26">26</a> 15 U.S.C.
§1692b(3). <a href="#26a">Return to article</a>

<a name="27">27</a> 15 U.S.C.
§1692b(4). <a href="#27a">Return to article</a>

<a name="28">28</a> 15 U.S.C.
§1692b(5). <a href="#28a">Return to article</a>

<a name="29">29</a> 15 U.S.C.
§1692b(6). <a href="#29a">Return to article</a>

<a name="30">30</a> 15 U.S.C.
§1692c(c). <a href="#30a">Return to article</a>

<a name="31">31</a> 15 U.S.C.
§1692c(b). <a href="#31a">Return to article</a>

<a name="32">32</a> 15 U.S.C. §1692d.
<a href="#32a">Return to article</a>

<a name="33">33</a> 15 U.S.C. §1692d.
<a href="#33a">Return to article</a>

<a name="34">34</a> 15 U.S.C. §1692e.
<a href="#34a">Return to article</a>

<a name="35">35</a> Examples of
communications that have been deemed false or misleading under the Act
include use of a "priority gram," which appeared to be a telegram and
thus gave a false sense of urgency. See Schweizer v. Trans Union
Corp., 136 F.3d 233 (2nd Cir. 1997) (inclusion of treble damages,
costs and attorneys' fees in debt validation notice (misrepresenting the
actual debt owed because the debtor would not be liable for such legal
penalties until the court entered a judgment); Veach v. Sheeks,
316 F.3d 690 (7th Cir. 2003) (inclusion of $20 check charge and
statutory returned check penalty in amount due in validation notice on
bad check as misrepresenting the "actual amount" of the debt);
Armstrong v. Rose Law Firm P.A., No. Civ. 00-2287-MJD/SRN, 2002
WL 461705 (D. Minn. March 25, 2002) (enclosing an unfiled summons and
complaint with a demand letter, giving the false impression that suit
had been filed); Weiner v. Bloomfield, 901 F. Supp. 771 (S.D.N.Y.
1995) (a letter advising that wages could be garnished if judgment was
entered, omitting other conditions required for garnishment);
Seabrook v. Onondaga Bureau of Med. Econ. Inc., 705 F. Supp. 81
(N.D.N.Y. 1989). <a href="#35a">Return to article</a>

<a name="36">36</a> 15 U.S.C. §1692f.
<a href="#36a">Return to article</a>

<a name="37">37</a> 15 U.S.C.
§1692j(a). <a href="#37a">Return to article</a>

<a name="38">38</a> 15 U.S.C.
§1692j(b). <a href="#38a">Return to article</a>

<a name="39">39</a> 15 U.S.C.
§1692g(b). <a href="#39a">Return to article</a>

<a name="40">40</a> See Veach v.
Sheeks, 315 F.3d 690 (7th Cir. 2003) (inclusion of treble damages,
costs and attorneys' fees in debt validation notice misrepresented
actual debt owed because the debtor would not be liable for legal
penalties until the court entered a judgment); Armstrong v. Rose Law
Firm P.A., No. Civ. 00-2287-MJD/SRN, 2002 WL 461705 (D. Minn. March
25, 2002) (inclusion of $20 check charge and statutory returned check
penalty in amount set forth as due on collection letter for bad check
misrepresented the "actual amount" of the debt). <a href="#40a">Return
to article</a>

<a name="41">41</a> See Whitten v. ARS
Nat'l. Servs. Inc., No. 00 C 6080, 2002 WL 1050320 (N.D. Ill. May
23, 2002) (letter requiring debtor to submit "suitable dispute
documentation" violated this section because the section does not
contain requirement that consumer notifying the debt collector it
disputes debt supply "suitable documentation"); Sambor v. Omnia
Credit Servs. Inc., 183 F. Supp. 1234, (D. Ha. 2002) (letter
containing language suggesting that some documents might be unsuitable
to dispute the debt was confusing and therefore violated the section);
relying on Castro v. ARS Nat'l Servs. Inc., No. 99 Civ. 4596(HB),
2000 WL264310 (S.D.N.Y. 2000). <a href="#41a">Return to article</a>

Journal Authors

Ari H. Gerstin

Elizabeth M. Bohn

Journal Date

Friday, April 1, 2005 - 12:00

Bankruptcy Rule

2005

none