Courts, Congress send mixed messages to debt collectors

Recent court opinions have created a stir in the collection industry by challenging debt collectors’ procedures for recovering money.

While nearly everyone agrees that debt collectors need strict regulation to prevent strong-arm tactics, the courts’ recent rulings have left many legitimate companies wondering how to comply with state and federal regulations.

Nearly 30 years ago, Congress passed the Fair Debt Collection Practices Act (FDCPA) to curb abusive collection practices and to provide a legal remedy for victims of those abuses. Unfortunately, FDCPA has not stayed current with the times, and courts have not clarified its language to reflect today’s technology. The resulting confusion has yielded a number of traps that leave ethical collectors exposed to heavy penalties.

FDCPA’s strict liability standard has created a cottage industry of “debtors’ rights” attorneys who seek to enforce the act’s stiff penalties for even trivial violations. These attorneys often threaten suit if they are not paid a quick settlement, knowing that the cost of defending FDCPA claims can easily reach $10,000 or more.

Moreover, if the debtor prevails, the act requires the collector to pay the debtor’s attorneys’ fees and costs, even if the fees exceed the amount of the plaintiff’s damages. In these instances, the debtors’ attorneys understand that the collectors’ legal costs in defending such actions would exceed the cost of a quick settlement.

Many collectors fall prey to lawsuits or threats based on ambiguities in FDCPA’s treatment of voice messages, which many professionals believe makes it impossible for a collector to leave a message without violating the law.

FDCPA allows collectors to make telephone calls to communicate with debtors, and it is generally understood that these calls help all parties as they allow debtors to work out payment plans (where possible) and to discuss the resolution of claims without the need for lawsuits, wage garnishments, foreclosures, or other legal process.

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Unfortunately, recent decisions interpreting FDCPA call into question whether collectors can leave any voice message without opening themselves up to significant penalties.

For example, FDCPA requires collectors to identify themselves and to state that they are calling to collect a debt. Many courts have called this the “mini-Miranda warning.” The law also generally requires collectors to refrain from communicating with third parties about the debt.

While these requirements appear reasonable on the surface, they are incompatible when collectors encounter a debtor’s answering machine, as the collector may end up violating the act regardless of whether they leave the mini-Miranda.

Courts have consistently held that a collector who omits the warning violates FDCPA. At the same time, if the collector provides the mini-Miranda, he risks violating the FDCPA if the debtor’s spouse or some other third party overhears the message.

FDCPA was enacted in 1977, at a time when answering machines were not widely used and voice mail had not yet been invented. Unfortunately, those courts interpreting the act have not addressed these deficiencies in their decisions, and Congress has not yet updated the law. Many collectors have responded to this problem by refraining from leaving messages. While this tactic ensures that the collector will not leave improper messages, it also dramatically impedes communications and eliminates opportunities for agreement.

The Association of Credit and Collection Professionals, an agency representing the collections industry, recommends that its collectors utilize the mini-Miranda warning, but preface their messages by stating, “This is a call for [debtor’s name]. If you are not [debtor’s name], please hang up immediately.” Nonetheless, no court has approved the language, and a court could still find a collector liable if a third party continued to listen.

The risks of significant damages under FDCPA are very real. Without a clear path to avoid liability, debt collectors who leave voice mails may face lawsuits alleging significant damages for comparatively trivial debts.

For instance, one debtor tried to recover up to a half-million dollars from a debt collector who made repeated phone calls to the debtor trying to collect student loans. In another case, a debtor recovered several thousand dollars for emotional distress when a debt collector tried to recover less than $300.

As a result of the FDCPA’s ambiguity, many collectors are forcing their clients to make a choice regarding future collection methods. Businesses may choose between paying debt collectors higher costs (to offset FDCPA risks) for the continued efficiency of collections using voice messages or less effective, but safer, collection methods without the use of voice mail. In either event, until the proper method for leaving a collections voice message is clarified by either courts or Congress, the consumer ultimately loses.

Kenneth E. Rubinstein, an officer of Nelson, Kinder, Mosseau & Saturley, is chairman of the firm’s creditors’ rights group. Alexander G. Rheaume is an associate in the firm’s creditors’ rights group with experience litigating collection-related matters.