Selecting, Valuing, Developing Letter and Overcharge Cases David J. Philipps Mary E. Philipps Angie K. Robertson Philipps & Philipps, Ltd.

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1 1 Selecting, Valuing, Developing Letter and Overcharge Cases David J. Philipps Mary E. Philipps Angie K. Robertson Philipps & Philipps, Ltd. NCLC 2015 FDCPA Conference Washington, D.C. 2 I. First Case Broome v. Feingold (1991) Won t debt collectors start complying with the FDCPA and make this practice area obsolete? N.D. Ill. S.D. Ind. Other Districts Total

2 3 II. Developing Relationships with Co- Counsel; Obtaining Referrals a. Good Sources: i. Bankruptcy Attorneys ii. Family & Friends iii.debt Collector Referrals iv. Defending Small Claims Lawsuits v. Referrals from Legal Aid Organizations b. Good Practices i. Fax machine accurate time and date with proof of receipt ii. Know your limits; know the law s limits iii. Be wary of internet experts / unreasonable expectations c. Is There a Viable Defendant? 4 i. Check Pacer.gov -Has the collection agency, debt buyer, or collection attorney been sued before? -If so, did the defendant file an appearance, or was there a default judgment? ii. Check membership rosters on Debut Buyers Association and ACA International. -If your potential defendant is a member, they are likely insured. - and iii. Ask your colleagues on the NACA listserv. iv. Avoid cases involving loans originating with Native American Tribes. v. Advise clients having issues with non-viable defendants to report them to the CPFB, FTC, and their state s attorney general.

3 d. Path of a Typical Fair Debt Case 5 i. Valuation -Fram Oil Filter -Taxi at the Curb of the Courthouse with the meter running ii. Demand Letter vs. Lawsuit iii. Individual v. Class Action iv. Settlement v. Accounting for Fees and Costs vi. Settlement Agreement and Release The Devil is in the Details SAMPLE COLLECTION LETTERS 6... a debt collector may not communicate with a consumer in connection with the collection of any debt I. 1692c(a)(2): Communications with a Consumer Represented by Counsel (2) if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge or, 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 a debt collector or unless the attorney consents to direct communication with the consumer; See, NCLC Fair Debt Manual Collector Section 5.7-Validation of a Debt; May Not Contact Consumer it Knows to be Represented by an Attorney

4 7 What s wrong with this letter? 8 How about this letter?

5 9 Nothing really wrong, except... II. 1692c(c): CEASING COMMUNICATIONS 10 If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except (1) to advise the consumer that the debt collector s further efforts are being terminated; (2) to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or (3) where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy. See, Section in NCLC Fair Debt Manual Right to Stop Collection Contacts See also, Section in NCLC Fair Debt Manual Lawyer Letter Requesting the Collector to Stop Contacts; Section Collector May Not Contact A Consumer It Knows To Be Represented By An Attorney

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7 13 14 III. False, Deceptive or Misleading Statements A debt collector may not use any false, deceptive, or misleading representation in connection with the collection of any debt. a. Debts Discharged in Bankruptcy b. False Statement of the Amount of the Debt c. False threat of lawsuit d. False statement that consumer committed a crime e. False statement regarding ability to collect attorney s fees f. False statement regarding ability to credit report a debt.

8 15 a. Collecting on a debt subject to, or discharged in, a bankruptcy A demand for immediate payment while a debtor is in bankruptcy (or after the debt s discharge) is false in the sense that it asserts that money is due, although, because of the automatic stay... or the discharge injunction..., it is not. A debt collector s false statement is presumptively wrongful under the Fair Debt Collection Practices Act, see 15 U.S.C. 1692e(2)(A), even if the speaker is ignorant of the truth; but a debt collector that exercises care to avoid making false statement has a defense under 1692k(c). -Randolph v. IMBS, Inc., 368 F.3d 726, 728 (7th Cir. 2004); See also, Simon v. FIA Card Services, et al., 2013 U.S. App. LEXIS (3rd Cir. 2013) Note, 9 th Circuit follows Walls v. Wells Fargo Ban, N.A., 276, F.3d 502 (9th Cir. 2002), which holds that a violation of the bankrutpcy automatic stay/discharge does not create a private right of action under the FDCP See, Sections in NCLC Manual FDCPA Claims Arising Out Of Or In Conjunction With The Bankruptcy Code -- and in NCLC Fair Debt Manual - Collectors May Not Falsely Represent the Character, Amount or Legal Status of any Debt 16

9 17 18 b. False statement of the amount of the debt 1692e(2)(A) Prohibits the false representation of (A) the character, amount, or legal status of any debt; See, Section in NCLC Fair Debt Manual - Content of Validation Notice; and, Section Collectors May Not Falsely Represent the Character, Amount, or Legal Status of any Debt

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11 21 c. Other False Statements e(7) Prohibits the false representation or implication that the consumer committed any crime or conduct in order to disgrace the consumer. See, Section in NCLC Fair Debt Manual - Misrepresenting that the Consumer Committed a Crime or Engaged in Other Misconduct in Order to Disgrace the Consumer is Prohibited

12 23 McMillan v. Collection Professionals, 455 F. 3d 754 (7th Cir. 2006) 24 d. 1692e(5) Prohibits False Threats, Including False Threat of Lawsuit See, Section in NCLC Fair Debt Manual: Threat of Suit May be Deceptive

13 Tips for Identifying False Threat of Suit: 25 You can determine whether this threat is false by checking state court records for the numbers and nature of cases filed by the creditor, debt collector, debt buyer, or their attorney. Have they ever sued anyone in your jurisdiction? Have they ever brought a lawsuit for a de minimis amount? 26 e. False Statements Regarding Right to Attorneys Fees

14 Lox v. CDA, 689 F.3d 818 (7th Cir. 2012) 27 7th Circuit found that a statement regarding attorney fees was materially false on its face and, therefore, required no extrinsic evidence. [U]nder the so-called American Rule, a losing party cannot be charged with the winning party s attorney fees unless a statute or contract explicitly states otherwise. (at 823) The naive, trusting, unsophisticated consumer is therefore likely to believe a debt collector when it says that attorney fees are a potential consequence of nonpayment, and the language at issue is therefore misleading. (at 825) 28

15 f. 1692e(8) Prohibits False Statements Regarding Ability to Report a Debt to a Credit Reporting Agency 29 Gonzales v. Arrow, 660 F.3d 1055 (9th Cir. 2011) In 2002, Arrow purchased a portfolio of debts owed to health clubs. All of the debts in the portfolio were more than seven years old. Therefore, pursuant to the FCRA, none of them could be reported to a credit reporting agency. Arrow wisely concedes that it had no intention of reporting the health club debts to a credit bureau and was legally prohibited from doing so. Gonzales v. Arrow, 660 F.3d 1055 (9th Cir. 2011) 30 To the least sophisticated debtor, the phrase if we are reporting the account, the appropriate credit bureaus will be notified that this account has been settled suggests two possibilities. It suggests the possibility that Arrow was not reporting the debt to a credit reporting agency, and would accordingly make no further report in the event of settlement. But the phrase also suggests that, under some set of circumstances applicable to the recipient, Arrow could and would report the account. Absent any possibility that Arrow could report the accounts, there would be no reason for Arrow to assert its intention to make a positive report in the event of payment. Only the first reading is actually correct, but the second reading is far from bizarre or idiosyncratic it is eminently reasonable. As there is no circumstance under which Arrow could legally report an obsolete debt to a credit bureau, the implication that Arrow could make a positive report in the event of a payment is misleading. (at ), emphasis added.

16 31 g. 15 U.S.C. 1692f(1) Prohibits Collection Fees Not Authorized By Law Or Contract Contract with original creditor: I certify that I am the authorized account holder and I agree to assume Joint responsibility with the student named for all expenses incurred at X University Including: all associated collection costs and legal fees. This is NOT enough to impose a collection fee. See also, Kojetin v. C U Recovery, Inc., 212 F.3d 1318 (8th Cir. 2000); Seeger, et al. v. AFNI, Inc., 548 F.3d 1107 (7th Cir. 2008); Bradley, et al. v. Franklin Collection Service, Inc., 739 F. 3d 606 (11th Cir. 2014) See, Section in NCLC Fair Debt Manual Collecting An Amount Not Permitted By Law Or Contract. 32

17 33 IV. 1692g: Claims pertaining to validation requirements and the consumer s right to dispute a debt 1692g Validation of debts (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 thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed valid by the debt collector. See, Section in NCLC Fair Debt Manual - Collectors May Not Obscure, Confuse or Contradict Validation Rights See, Section in NCLC Fair Debt Manual - Content of Validation Notice; and Section Collectors May Not Falsely Represent the Character, Amount, or Legal Status of any Debt 34

18 35 Who s the Creditor? Braatz v. Leading Edge, 2012 U.S. Dist. LEXIS (N.D. Ill. 2012) 36

19 37 Walls v. UCB, 2012 U.S. Dist. LEXIS (N.D. Ill. 2012) 1692g(a) validation notice requirements (cont. d) 38 (4) a statement that if the consumer notifies the debt collector in writing within the thirty-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 judgment will be mailed to the consumer by the debt collector; and 1692g(b) Any collection activities and communications during the 30-day period may not overshadow or be inconsistent with the disclosure of the consumer s right to dispute the debt or request the name and address of the original creditor.

20 39 How long does the consumer have to dispute validity? 40

21 Additional resources: 41 Fair Debt Collection (7 th Ed.) order on-line at The National Consumer Law Center 7 Winthrop Square Boston, MA (617) (617) (FAX) The National Association of Consumer Advocates th Street NW 5th Floor Washington, DC (202) (202)