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Can a Debt Collector Call Your Family Members?

Consumers may experience call from family and friends who inquire as to whether the consumer is having problems paying their bills.  This is embarrassing for the consumer.  If it is a debt collector who is contacting the consumer’s family (other than spouses) and friends, then the debt collector may be breaking the law.

The FDCPA flatly prohibits a debt collector from engaging in collection communications with third parties: “A debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer…”  15 U.S.C. § 1692c(b); Evon v. Law Offices of Sidney Mickell, 688 F.3d 1015, 1025-26 (9th Cir. 2012); Thomas v. Consumer Adjustment Co., Inc., 579 F.Supp.2d 1290, 1296-1297 (E.D.Mo. 2008).

There are several exceptions in Section 1692c.  For example, if the debt collector is seeking contact information for a consumer then it generally gets to place one call to a third party to seek that information.  Unfortunately, however, many debt collectors will insist on calling these third parties even when they have a good address or phone number for the consumer.  This is likely illegal conduct.  The consumer can recover a statutory penalty of up to $1,000 and the debt collector will likely be required to pay the consumer’s attorneys’ fees.

Is a Debt Buyer a Debt Collector under the FDCPA?

This article focuses on a commonly asked question: is a debt buyer (for example, LVNV Funding, www.lvnvfunding.com, is a well-known purchaser of consumer debt) the same as a “debt collector” pursuant to the Fair Debt Collection Practices Act?  The short answer is yes, a debt buyer will most likely be a debt collector for purposes of the FDCPA.

Under the Act, “debt collectors” are defined as entities “who regularly collect or attempt to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”  15 U.S.C. § 1692a(6).

In litigation, a debt buyer might contended that it is not a debt collector.  It might claim that it is merely a “passive debt buyer.”  This precise argument has been rejected again and again by various courts.  See, e.g., Murr v. Tarpon Finan. Corp., No. 3:10–CV–372, 2014 WL 546690, at *4 (E.D. Tenn. Feb. 10, 2014); Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355, 359 (6th Cir. 2012); Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir. 1985); Schlosser v. Fairbanks Capital Corp., 323 F.3d 534, 536 (7th Cir. 2003); F.T.C. v. Check Investors, Inc., 502 F.3d 159, 173 (3d Cir. 2007); Munoz v. Pipestone Finan., LLC, 397 F. Supp. 2d 1129, 1133 (D. Minn. 2005); Flint v. EMC Mortg. Corp., No. 05-4137-CV-C-SOW, 2005 WL 2237693, at *2 (W.D. Mo. Sept. 14, 2005).

The Circuit courts have uniformly held that the statutory definition of “debt collector” includes debt buyers.  Those courts have determined that the operative inquiry under Section 1692a(6) is “the status of the debt at the time it was acquired.”  Check Investors, 502 F.3d at 173.  If the debt in question was in default at the time it was acquired by an entity, that entity is considered a debt collector.  Schlosser, 323 F.3d at 536; Bridge, 681 F.3d 355, 359.  The analysis is no more complicated than that.

If a consumer hires a lawyer, what is the debt collector’s obligation?

This article focuses on what happens when a consumer tells a debt collector that the consumer has hired an attorney.  The cited law is generally applicable in Missouri.  In short, the debt collector must stop all collection attempts made to the consumer directly.  The debt collector must exclusively deal with the consumer’s attorney.

The relevant statute is 15 U.S.C. 1692c.  Section 1692c(a)(2) provides in relevant part:

Without the prior consent of the consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt…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.

15 U.S.C. § 1692c(a)(2); see also Courchene v. Citibank, No. 06-4026-CV-C-NKL, 2006 WL 2192110, at *1 (W.D. Mo. Aug. 1, 2006) (“The FDCPA…prohibits a debt collector from contacting a debtor where the collection agency knows the consumer is represented by an attorney.”); Shapiro v. Law Offices of Cohen & Slamowitz, LLP, No. 06 Civ. 3773(WCC), 2007 WL 958513, at *4 (S.D.N.Y. Mar. 28, 2007) (“The plain language of the FDCPA clearly states that a debt collector may have no contact whatsoever with a consumer once it becomes aware that he is represented by counsel.”) (emphasis in original).

The knowledge element requires a showing of actual knowledge on the part of the debt collector.  Schmitt v. FMA Alliance, 398 F.3d 995, 997 (8th Cir. 2005).  Furthermore, the knowledge must be specific to the debt at issue; knowledge that the consumer is currently or was represented as to other debts is insufficient.  Berndt v. Fairfield Resorts, Inc., 337 F. Supp. 2d 1120, 1132–33 (W.D. Wis. 2004) (citing Graziano v. Harrison, 950 F.2d 107, 113 (3d Cir. 1991)).  “As the Federal Trade Commission commentary on this provision explains, ‘[i]f a debt collector learns that a consumer is represented by an attorney in connection with the debt, even if not formally notified of this fact, the debt collector must contact only the attorney and must not contact the debtor.’” Goins v. JBC & Associates, P.C., 352 F. Supp. 2d 262, 272–73 (D. Conn. 2005) (quoting Federal Trade Commission, Statements of General Policy or Interpretation Staff Commentary on the Fair Debt Collection Practices Act, 53 Fed. Reg. 50097, 50104 (1988)).  Because such notice need not be formal, courts have consistently rejected the argument that such notice must be in writing.  See, e.g., Morrow v. Weinerman & Assoc., LLC, Civil No. 11–104 (RHK/LIB), 2011 WL 4472651, at *4 (D. Minn. Sept. 26, 2011); Goins, 352 F. Supp. 2d at 272–73.

In Bieber, the court rejected a distinguishable Section 1692c(a)(2) claim.  Bieber v. Associated Collection Servs., Inc., 631 F. Supp. 1410, 1417 (D. Kan. 1986).  There, the debt collector phoned the consumer.  Id.  The consumer told the debt collector that she was represented by counsel with respect to the debt the collector was calling about, and advised the debt collector to contact her attorney.  Id.  The debt collector then inquired whether the consumer was planning to file bankruptcy.  Id.  Nothing more was said during the conversation.  Id.  The court found that the debt collector’s lone question after receiving notice of the consumer’s representation was a “legitimate business inquiry” and “was not so extensive as to have been the kind of additional ‘communication’ prohibited by subsection c(a)(2).”  Id.

Moreover, although Section 1692c states that the consumer or his attorney may consent to direct communications with the consumer, neither exception can possibly apply here.  In Backlund, the court faced precisely this issue.  Backlund v. Messerli & Kramer, P.A., Civil No. 12–808 (JRT/JJK), 2013 WL 4050197, at * 4 (D. Minn. Aug. 9, 2013).  There, the debt collector sent the consumer two notices of default pursuant to a stipulation signed by the collector and the consumer.  Id.  The court noted that there is no Eighth Circuit precedent on this issue.  Id.  The court instead relied on the waiver/consent concept examined by the Ninth Circuit in Clark:

The Eighth Circuit has not considered whether consent may waive the protections of the FDCPA. However, in Clark v. Capital Credit Collection Services, Inc., the Ninth Circuit considered whether a collection agency’s phone call to Mrs. Clark in response to her request for information violated § 1692c(c)6 in light of letters sent by Mr. Clark to the collection agency directing them not to call Mrs. Clark. 460 F.3d 1162, 1168 (9th Cir.2006). The court found that although, in general, a party may waive “a benefit of a provision of a statute … enacted … for his protection,” not all rights are waivable and “waiver is not appropriate when it is inconsistent with the provision creating the right sought to be secured.” Id. at 1170 (internal quotation marks omitted). The court went on to find that “a debtor may waive the rights created by a cease communications directive.” Id. The waiver must, however, be knowing and voluntary, and the Ninth Circuit “will enforce a waiver of the cease communication directive only where the least sophisticated debtor would understand that he or she was waiving his or her rights under § 1692c(c).” Id. at 1170–71. The court concluded that “even the least sophisticated debtor would recognize that Mrs. Clark’s request for information constituted consent” for the return phone call “in order to provide the specific information she requested.” Id. at 1172.

Id.  Under the Clark analysis, the court in Backlund concluded that the stipulation constituted prior consent given directly to the debt collector.  Id.  Thus, the debt collector’s communications were exempted by Section 1692c.  Id.

Must a Debt Collector Disclose Interest to a Consumer?

This article addresses whether a debt collector must disclose to the consumer that it is attempting to collect interest on a debt.  The short answer is yes, a debt collector must make this disclosure.  This holds true in Missouri and in many other jurisdictions.

When a debt collector’s dunning letter seeks payment from a consumer, it must accurately state the amount of the debt; this includes providing at least some indication that the debt collector is trying to recover interest on the debt when that is the case.

Section 1692g(a)(1) requires that:

[w]ithin 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…the amount of the debt.

(15 U.S.C. § 1692g(a)(1).)

To ensure that the amount stated is accurate, such a letter must warn the consumer if late charges, interest, and other fees that will accumulate after the date of the letter, increasing the actual balance due.  Jones v. Midland Funding, LLC, No. 3:08–CV–802 (RNC), 2012 WL 1204716, at *2 (D. Conn. April 11, 2012).  This “safe harbor” warning concerning future interest and fees “prevent[s] confusion by debtors for whom the ‘exact amount due’ is a constantly shifting target due to accruing interest and accumulating unpaid charges.”  Veach v. Sheeks, 316 F.3d 690, 693 (7th Cir. 2003).  The noted decision of the 7th Circuit in Miller suggested a template for a “safe harbor” clause:

As of the date of this letter, you owe $___ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write the undersigned or call 1-800-[phone number].

Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, L.L.C., 214 F.3d 872, 876 (7th Cir. 2000).  Debt collectors need not use this precise language, but they must take steps notify consumers of any accruing fees and interest.  Id.  If a letter does not even hint at the accrual of interest, it is likely to mislead the unsophisticated consumer because “it would be possible to interpret ‘balance’ to mean that it was either a dynamic or static amount.”  Michalek v. ARS Nat. Sys., Inc., Civil Action No. 3:11–CV–1374, 2011 WL 6180498, *4 (M.D. Penn. Dec. 13, 2011).  A debt collector shirks its obligation to provide a “safe harbor” clause when it merely states a single “balance due” and fails to state “the effective date as of which [that] amount would suffice to pay off the debt in full.”  Dragon v. I.C. System, Inc., 483 F. Supp. 2d 198, 202 (D. Conn. 2007).

If a debt collector seeks to collect only the amount stated on its letter, it need not provide the Miller safe harbor warning.  See Curto v. Palisades Collection, LLC, No. 07–CV–529(S), 2011 WL 5196708, at *8 (W.D.N.Y. Oct. 31, 2011); Olson v. Risk Mgmt. Alternatives, Inc., 366 F.3d 509, 513 (7th Cir. 2004).  The Chuway court summarized this principle succinctly:

If the debt collector is trying to collect only the amount due on the date the letter is sent, then he complies with the Act by stating the “balance” due, stating that the creditor “has assigned your delinquent account to our agency for collection,” and asking the recipient to remit the balance listed—and stopping there, without talk of the “current” balance. If, instead, the debt collector is trying to collect the listed balance plus the interest running on it or other charges, he should use the safe-harbor language of Miller [v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C., 214 F.3d 872, 876 (7th Cir.2000) ].

Chuway v. National Action Fin. Svs., Inc., 362 F.3d 944, 949 (7th Cir. 2004); see also Brill v. Finan. Recovery Servs., Inc., No. 4:10–CV–3121, 2010 WL 5825480, at *4 (D. Neb. Nov. 10, 2010) (safe-harbor language “indicate[s] that the amount owed may vary if not paid immediately because of interest, late charges, or other charges”); Owens v. Howe, Cause No. 1:04–CV–152, 2004 WL 6070565, at *10 (N.D. Ind. Nov. 8, 2004) (no violation where the debt collector’s letter followed Miller’s safe-harbor language “faithfully”).

Missouri has recently joined the host of states which support interest disclosure.  In Verna and Jerry Roach v. Miller and Steeno, P.C., Cause No. 13JE-CC00741, Defendant Miller and Steeno argued that there simply is no legal requirement that it disclose when interest is actually accruing on a consumer’s debt.  The court rejected that argument.  Judge Kramer recognized, for the first time in Missouri jurisprudence, that debt collectors must disclose when interest is in fact accruing on a consumer’s balance.  Id.  Likewise, Judge Bouchard rejected an identical argument made by debt collectors Consumer Adjustment Company, Inc. and Roger Weiss in Christopher Fisher v. Consumer Adjustment Company, Inc. et al., Cause No. 13JE-AC05847.  In his order, Judge Bouchard closely analyzed the Seventh Circuit’s decision in Miller, finding that “[t]he Miller Court, by means of actual holding, was telling debt collectors” that if they are attempting to collect interest, they “[have] a duty to use ‘some form of words’ to notify the debtor that the debt amount may vary from day to day.”  Judge Bouchard thus concluded that:

If a debt collector wants to collect interest that is accruing on a debt, then the collector must notify and disclose such to consumers like plaintiff with ‘safe harbor’ or similar ‘heads up’ language on its collection letters.  Should a debt collector fail to do so, then the collection letter does not correctly state the amount of the debt and violates the FDCPA.

 

Resources for Consumers Dealing with Debt Collectors

Consumers who are dealing with debt collectors may want to check with several free resources provided by governmental agencies before contacting an attorney.  The FTC publishes an excellent resource at http://www.consumer.ftc.gov/articles/0149-debt-collection.  In addition, many state-level Attorneys General publish consumer-friendly resources.  For example, the Missouri Attorney General’s Office has http://ago.mo.gov/consumercomplaints/topten/index.htm available to consumers.  It is possible to file a short and simple complaint against a debt collector online at the Attorney General’s website.

Consumers should know that if they consult with a debt collection attorney, they should not be required to pay anything up front to the attorney.  The FDCPA’s fee statute, 15 U.S.C. 1692k (you can see the full statute here: http://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text) allows a consumer to collect a statutory penalty of up to $1,000 and the debt collector, not the consumer, is responsible for paying the consumer’s attorney.