NEW PROTECTION AGAINST THE UNETHICAL BILL COLLECTOR: DEBTORS' REMEDIES UNDER THE FAIR DEBT COLLECTION PRACTICES ACT

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1 NEW PROTECTION AGAINST THE UNETHICAL BILL COLLECTOR: DEBTORS' REMEDIES UNDER THE FAIR DEBT COLLECTION PRACTICES ACT INTRODUCTION Fueled by the steady expansion of consumer credit, the debt collection industry in America has grown to enormous proportions.' This growth has brought with it a multitude of unscrupulous and abusive debt collection practices, 2 such as: telephone harassment of the debtor at home and at work; the impersonation of policemen and attorneys by collectors; the use of phony legal documents; and even threats of bodily harm to the delinquent debtor. 3 Traditional remedies have proven largely inadequate in protecting the debtor from such unscrupulous collection practices. 4 Common law tort theories do not adequately safeguard the abused debtor's interests, 5 and there has been little meaningful protection afforded by state legislation. 6 Moreover, the individual states cannot effectively regulate the growing num- 1. There are over 5,000 debt collection agencies across the country, with more than $5 billion in debts being turned over to such agencies during Independent collectors contacted well over 8,000,000 consumers during S. REP. No , 95th Cong., 1st Sess. 2 (1977). 2. See, e.g., The Debt Collection Practices Act: Hearings on HR. 29 Before the Subcomm. on Consumer Affairs of the House Comm. on Banking, Finance and Urban Affairs, 95th Cong., 1st Sess. 27 (1977) (statement of Hugh Wilson) [hereinafter cited as 1977 House Hearings]. 3. H.R. REP. No , 95th Cong., 1st Sess. 2 (1977). 4. Greenfield, Coercive Collection Tactics-An Analysis of the Interests and the Remedies, 1972 WASH. L.Q. 1, Id. at 15. The subject of the debt collector's tort liability has been treated extensively by various authors. See Berger, The Bill Collector and the Law-A Special Tort, At Least for a While, 17 DE PAUL L. REV. 327 (1968); Hurt, Debt Collection Torts, 67 W. VA. L. REV. 201 (1965); Sheinfeld, Current Trends in the Restriction of Creditors'Collection Activities, 9 Hous. L. REV. 615 (1972); Comment, Debt Collection Practices: The Need for Comprehensive Legislation, 15 DUQ. L. REV. 97 (1976); Note, 17 HASTINGS L.J. 369 (1965); Comment, Focus on Debtors' Rights-Making the Bill Collector Pay, 23 KAN. L. REV. 681 (1975); Comment, Effectively Regulating Extrajudicial Collection of Debts, 20 ME. L. REV. 261 (1968); Comment, Recovery for CreditorHarassment, 46 TEX. L. REV. 950 (1968). 6. S. REP. No , 95th Cong., 1st Sess. 2 (1977). The Senate Report pointed to 24 states with little or no debt collection legislation, and concluded that 80 million Americans "have no meaningful protection from debt collection abuse." Id.

2 CREIGHTON LAW REVIEW [Vol. 11 ber of interstate debt collection abuses, particularly those involving long distance telephone harassment. 7 This situation prompted the United States Congress to enact the Fair Debt Collection Practices Act 8 on September 20, 1977, 9 as a separate title to the Consumer Credit Protection Act.' 0 The purpose of this legislation is threefold: to eliminate abusive debt collection practices;" to protect consumers by encouraging honest and ethical standards of conduct among all debt collectors; 2 and to promote consistent state action in combatting debt collection abuses.1 3 Aimed primarily at a small, unscrupulous minority of independent debt collectors,' 4 this legislation also establishes minimum standards of conduct for the entire third-party collection industry H.R. REP. No , 95th Cong., 1st Sess. 3 (1977). The United States Congress expressly recognized the "substantial extent" of interstate collection abuses and concluded: "Even where abusive debt collection practices are purely intrastate in character, they nevertheless directly affect interstate commerce." Fair Debt Collection Practices Act, Pub. L. No , 802, 91 Stat. 874 (1977) (to be codified at 15 U.S.C. 1692(d)). In support of this proposition, theact's sponsors had cited Perez v. United States, 402 U.S. 146 (1971). In that case the Supreme Court upheld the anti-loan-sharking provisions of the Consumer Credit Protection Act after affirming Congress' finding that local loan-sharking activities affected interstate commerce. 402 U.S. at Accordingly, Perez provides analogous support for Congressional regulation of intrastate debt collection practices under the Act. 123 CONG. REC. H2922 (daily ed. Apr. 4, 1977) (remarks of Rep. Annunzio). 8. Pub. L. No , 801, 91 Stat. 874 (1977) (to be codified at 15 U.S.C. 1692) (hereinafter cited as 15 U.S.C o]. 9. The passage of this bill was the culmination of a two year effort. Similar debt collection bills, H.R and S. 3838, were prepared by the House and Senate in 1976 but failed for lack of Senate action by the closing of the 94th Congress. See H.R. REP. No , 94th Cong., 2d Sess. 2 (1976); 122 CONG. REC. S16273 (daily ed. Sept. 21, 1976). The House Banking Committee, after conducting legislative hearings, prepared a new debt collection bill in early H.R. REP. No , 95th Cong., 1st Sess. 2 (1977). This bill, H.R. 5294, was considered with similar bills by the Senate Banking Committee. S. REP. No , 95th Cong., 1st Sess. 1 (1977). H.R was later passed by both houses, as amended. 123 CONG. REC. H2919 (daily ed. Apr. 4, 1977); 123 CONG. REC. S13851 (daily ed. Aug. 5, 1977); 123 CONG. REC. H8993 (daily ed. Sept. 8, 1977). The amended version of the bill was signed into law on September 20, Pub. L. No , 91 Stat. 874 (1977). The Act became effective March 20, 1978 and acts prospectively. Id U.S.C.A o (West Supp. III 1977) U.S.C. 1692(e). The Act provides: "It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 12. H.R. REP. No , 95th Cong., 1st Sess. 9 (1977) U.S.C. 1692(e). See note 11 supra. 14. S. REP. No , 95th Cong., 1st Sess. 2 (1977) House Hearings, supra note 2, at 125 (remarks of Rep. Annunzio).

3 1978] UNETHICAL BILL COLLECTORS The Act prohibits a host of debt collection practices which the Congress considered to be unethical. These include excessive and unreasonable communications, 16 harassment of the debtor, 17 misrepresentation, 18 and other unfair and deceptive practices. 19 Civil liability is imposed upon the collector for violations of the Act. 20 In addition, there is a statutory provision for an award of attorney's fees to a successful debtor-plaintiff. 21 The purpose of this comment is to explore and to analyze the causes of action which are available under the Fair Debt Collection Practices Act. Furthermore, this article will draw analogies to similar remedial provisions of the Consumer Credit Protection Act in order to provide a blueprint for the enforcement of the Fair Debt Collection Practices Act. The first section will acquaint the reader with the major provisions of this Act. AN OVERVIEW OF THE FAIR DEBT COLLECTION PRACTICES ACT SCOPE OF COVERAGE The parameters of debtor protection under the Act are understood most clearly by noting the two major limitations upon the scope of a debtor's statutory cause of action. These limitations lie within the statutory definitions of "debt" and "debt collector". 22 First, the Act applies only to debts incurred For those sectors of the debt collection industry covered by the Act, see notes 25, 26 and accompanying text infra. In setting these industry-wide standards, the drafters of the Act sought to codify the ethical practices currently used by professional independent collectors. The Fair Debt Collection Practices Act: Hearings on S.656, S.918, S.1130, and H.R Before the Subcomm. on Consumer Affairs of the Senate Comm. on Banking, Housing, and Urban Affairs, 95th Cong. 1st Sess. 44 (1977) (statement of Rep. Chalmers P. Wylie) [hereinafter cited as 1977 Senate Hearings] U.S.C. 1692b, 1692c. 17. Id. 1692d. 18. Id. 1692e. 19. Id. 1692f, 1692j. 20. Id. 1692k. 21. Id. 1692k(a)(3). 22. Id. 1692a provides in relevant part: As used in this title- (5) The term "debt" means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. (6) The term 'debt collector' means 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 who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another...

4 CREIGHTON LAW REVIEW [Vol. ii "primarily for personal, family, or household purposes," 23 and does not apply to the collection of commercial accounts. 2 4 Second, because the Act was primarily intended to affect independent debt collectors and collection agencies, 25 the Act accordingly touches only those debt collectors who are engaged in "any business the principal purpose of which is the collection of any debts," or who "regularly" collect or attempt to collect debts owing to another. 26 Creditors who engage in collection activities which are only incidental to their principal business, such as banks, retailers, credit unions., and finance companies, are thus exempted from the Act's coverage. 2 However, the employees of repossession agencies, under certain conditions, fall under the Act's authority. 28 Furthermore, a number of parties are specifically excluded from the purview of this legislation, notably, the "in-house" collector employed by the creditor for the purpose of collecting the creditor's own accounts. 29 Wholly-owned subsidiaries which collect debts owing to a parent company or a related affiliate are similarly exempted, as long as the subsidary-collector is not principally involved in the debt collection business. 30 The "inhouse" and subsidiary-collector exemptions, however, do not apply where, in the process of collecting debts, such collectors use a name not readily identifiable with the creditor or parent company. 31 Also excluded from the scope of the statute are federal officials collecting debts as part of their official duties, 32 process 23. Id. 24. S. REP. No , 95th Cong., 1st Sess. 3 (1977). 25. Id. at U.S.C. 1692a(6). See note 22 supra. This definition excludes a person who collects a debt for another in an isolated instance, but includes parties who collect for others in the regular course of business. S. REP. No , 95th Cong., 1st Sess. 3 (1977). A creditor who makes "reciprocal collections," whereby he regularly collects delinquent debts for another pursuant to a reciprocal service agreement, becomes a "debt collector", unless otherwise exempted by the Act. Id. 27. H.R. REP. No , 95th Cong., 1st Sess. 4 (1977) U.S.C. 1692a(6), 1692f(6). 29. Id. 1692a(6)(A); S. REP. No , 95th Cong., 1st Sess. 3 (1977) U.S.C. 1692a(6)(B); H.R. REP. No , 95th Cong., 1st Sess. 4 (1977) U.S.C. 1692a(6). The Act, in defining "debt collector", further provides in relevant part that "the term [debt collector] includes 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...." Id. 32. Id. 1692a(6)(C).

5 19781 UNETHICAL BILL COLLECTORS servers, 33 nonprofit credit counseling organizations, 34 and attorneys collecting a client's debts within their professional capacity. 35 Finally, the Act does not apply to trust departments, escrow companies or other bona fide fiduciaries, 36 persons who service debts not in default, 37 and persons collecting loans which they originated. 38 Secured parties, holding an account receivable as collateral for credit extended to the creditor, are also exempted. 39 Thus, except where a creditor regularly collects another's debts or collects his own debts under an unrelated identity, 40 the abused debtor is effectively limited under the Act to a cause of action against independent third-party debt collectors and collection agencies only. 41 RESTRICTIONS UPON COMMUNICATION INVOLVED IN THE COLLECTION OF DEBTS In response to the unwarranted invasions of privacy often caused by the abusive and unethical practices of debt collectors, 42 the Act substantially restricts the scope of communications allowed in the collection of debts. The Act limits the collector's contacts not only with the debtor, but with third parties as well Id. 1692a(6)(D). 34. Id. 1692a(6)(E). 35. Id. 1692a(6)(F). 36. Id. 1692a(6)(G)(i); S. REP. No , 95th Cong., 1st Sess. 3 (1977) U.S.C. 1692a(6)(G)(iii); S. REP. No , 95th Cong., 1st Sess. 4 (1977) U.S.C. 1692a(6)(G)(ii). 39. Id. 1692a(6)(G)(iv); S. REP. No , 95th Cong., 1st Sess. 4 (1977). 40. See notes 22, 32 supra. 41. The Act's restricted application to independent third-party collectors generated controversy throughout the history of the legislation. The restriction was attacked as being "arbitrarily limited" to independent debt collectors. 123 CONG. REC. H2933 (daily ed. Apr. 4, 1977) (remarks of Rep. Rousselot). The restriction was further criticized for leaving debtors vulnerable to abusive practices by non-independent collectors Senate Hearings, supra note 15, at 248 (statement of Lewis H. Goldfarb). The rationale behind this restriction was based upon a congressional finding that independent debt collectors constitute the "prime source" of unethical collection practices and that, as an industry, they have thus far eluded government attempts at regulation. S. REP. No , 95th Cong., 1st Sess. 2 (1977); H.R. REP. No , 95th Cong., 1st Sess. 7 (1977). In response to constitutional challenges to this classification, the Act's sponsors cited Richardson v. Belcher, 404 U.S. 78, 81 (1971), as support for the argument that the statutory classification is "rationally based and free from invidious discrimination," and, as such, is consistent with the due process and equal protection clauses. H.R. REP. No , 95th Cong., 1st Sess. 6-7 (1977). 42. See 15 U.S.C. 1692(a). 43. Id. 1692c(a), (b), (d). The Act provides in relevant part:

6 CREIGHTON LAW REVIEW [Vol. 11 Communication with third persons for the purpose of establishing the debtor's whereabouts, known in the industry as "skip-tracing,"" is permitted only when the following guidelines are observed: a debt collector must identify himself by personal name, and by his employer's name if requested; he must not disclose the fact of the consumer's debt to the third party; he must not communicate by post card or other mailing which suggests the inquiry involves the collection of a debt; he may not inquire with such third party more than once, unless reasonably necessary; and he is precluded from third-party contact altogether upon learning that the debtor is represented by an attorney. 4 (a) Communication with the consumer generally.-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... (b) Communication with third parties.-except as provided in section 1692b of this title, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a post judgment judicial remedy, 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. (d) For the purpose of this section, the term "consumer" includes the consumer's spouse, parent (if the consumer is a minor), guardian, executor, or administrator. Id. See also 15 U.S.C. 1692b for restrictions on the acquisition of information regarding the debtor's whereabouts Senate Hearings, supra note 14, at 38 (statement of Patricia A. Miller) U.S.C. 1692b provides: Any debt collector communicating with any person other than the consumer for the purpose of acquiring location information about the consumer shall- (1) identify himself, state that he is confirming or correcting location information concerning the consumer, and, only if expressly requested, identify his employer; (2) not state that such consumer owes any debt; (3) not 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 such person is erroneous or incomplete and that such person now has correct or complete location information; (4) not communicate by post card; (5) not 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; and (6) after the debt collector knows the consumer is represented by an attorney with regard to the subject debt and has knowledge of, or

7 1978] UNETHICAL BILL COLLECTORS The Act also imposes general restrictions upon the debt collector's contact with the debtor, his spouse, and other third parties, except where the debtor's prior consent or the express permission of a competent court has first been obtained. 4 6 Such restrictions require that the collector may not contact the debtor at any unusual or inconvenient place or time. 47 Similarly, communicating with the debtor at his place of employment is forbidden when the collector has reason to know that such contacts are prohibited by the debtor's employer. 48 When the collector knows that an attorney is representing the consumer with respect to the debt, further contacts with the debtor are also proscribed. 49 Except where "reasonably necessary to effectuate a postjudgment judicial remedy," the Act narrowly confines the scope of a debt collector's communication with third parties to: the consumer's attorney; a credit reporting agency; the creditor; and the attorney of the collector or creditor. 5 1 Other third parcan readily ascertain, such attorney's name and address, not communicate with any person other than that attorney, unless the attorney fails to respond within a reasonable period of time to communication from the debt collector. 46. Id. 1692c(a),(b), 1692(d). See note 43 supra. It should be noted that "prior consent" of the consumer must be expressed voluntarily and directly to the collector. Thus, any contract term which requires a consumer to consent in advance to debt collection communication is not "prior consent" for purposes of this statute. H.R. REP. No , 95th Cong., 1st Sess. 5 (1977) U.S.C. 1692c(a)(1) provides that the collector may not communicate with the consumer with regard to the collection of any debt: (1) 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, a debt collector shall assume that the convenient time for communicating with a consumer is after 8 o'clock antimeridian and before 9 o'clock postmeridian, local time at the consumer's location Id. 1692c(a)(3). The Act provides that such communications are prohibited "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 communication." Id. 49. Id. 1692(c)(a)(2). The Act proscribes such contacts 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 with a reasonable period of time to a communication from the debt collector or unless the attorney consents to direct communication with the consumer... Id. However, under section 1692c(a), these proscriptions on collector contact with the consumer do not apply where prior consent of the consumer or express permission of a court of competent jurisdiction has been obtained. See notes 43, 46 supra U.S.C. 1692c(b). See note 43 supra. Other than to obtain location information under 1692(b), a debt collector may not contact a debtor's friends, neighbors, relatives or employer. S. REP. No , 95th Cong., 1st Sess. 4 (1977).

8 CREIGHTON LAW REVIEW [Vol. 11 ties may be contacted only with the debtor's consent, 51 or when the collector gathers "location information" regarding the debtor. 52 It is important to note that, with rare exceptions, collector contact with the debtor's employer is prohibited entirely. 53 When the debtor notifies a collector in writing of his refusal to pay the debt, or his request to stop further contacts, the debt collector must cease communications, except to notify the debtor of possible or intended remedial action by the creditor or collector. 4 Finally, the Act broadly prohibits debt collectors from engaging in any form of conduct which operates to harass, oppress, or abuse any person in the collection of a debt, 55 including the debtor's family, neighbors, friends, and employer. 56 Collector contact with the consumer's spouse, parent (if the consumer is a minor), guardian, executor, or administrator is allowed, but is subject to the same restrictions which apply to communication with the consumer himself. 15 U.S.C. 1692c(d). 51. See note 46 and accompanying text supra. 52. See notes 44, 45 and accompanying text supra. 53. S. REP. No , 95th Cong., 1st Sess. 4 (1977) U.S.C. 1692c(c). This Act provides in relevant part: Ceasing communication.-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. If such notice from the consumer is made by mail, notification shall be complete upon receipt. Id. 55. Id. 1692d. The Act provides: 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. Without limiting the general application of the foregoing, the following conduct is a violation of this section: (1) The use or threat of use of violence or other criminal means to harm the physical person, reputation, or property of any person. (2) The use of obscene or profane language or language the natural consequence of which is to abuse the hearer or reader. (3) The publication of a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency... (4) The advertisement for sale of any debt to coerce payment of the debt. (5) Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number. (6)... [Tihe placement of telephone calls without meaningful disclosure of the caller's identity. 56. H.R. REP. No , 95th Cong., 1st Sess. 8 (1977).

9 1978] UNETHICAL BILL COLLECTORS Threats of violence or injury to property or reputation, use of obscene or profane language, publication of "shame lists"1 57 of delinquent debtors, and the placement of unidentified or intentionally harassing telephone calls are specifically prohibited. 5 8 In essence, the Act substantially restricts the scope of communication involved in the collection of a debt, 59 and in so doing creates a 'debtor's zone of privacy'. 60 The Act further 57. See S. REP. No , 95th Cong., 1st Sess. 4 (1977). 58. Id. See note 55 supra. 59. These restrictions upon collector communications did not fail to elicit first amendment challenges during the legislative hearings from critics who charged that a debt collector's communication was constitutionally protected as "commercial speech." See, e.g., 1977 Senate Hearings, supra note 15, at 180 (statement of Rep. Charles F. Wiggins). The force of such objections, however, has been diminished by two recent court decisions. In Millstone v. O'Hanlon Reports, Inc., 528 F.2d 829 (8th Cir. 1976), the restrictions on consumer credit reporting imposed by the Fair Credit Reporting Act, 15 U.S.C to 1681t (1970), were challenged on first amendment grounds. The court was called upon to determine whether consumer credit reports were constitutionally protected as "commercial speech." The Eighth Circuit Court of Appeals rejected these first amendment challenges, concluding that the reporting agency's "commercial speech" interests must yield to the consumer's right to privacy protected by the statute. 528 F.2d at 833. Like the Fair Credit Reporting Act, the Fair Debt Collection Practices Act also protects the consumer's right to privacy. 15 U.S.C. 1692(a); S. REP. No , 95th Cong., 1st Sess. 4 (1977). The reasoning of the Eighth Circuit Court of Appeals in Millstone would therefore provide analogous support for the proposition that the debt collector's first amendment claims must yield to the debtor's right to privacy. More recently, the United States Supreme Courtyefused to review a Florida Supreme Court decision which upheld the constitutionality of a Florida debt collection statute prohibiting collector contact with a debtor's employer. Harris v. Beneficial Fin. Co. of Jacksonville, 338 So.2d 196 (Fla. 1976), cert. denied, No (U.S. Mar. 28, 1977). After applying the tests enunciated in Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748 (1976) and Bigelow v. Virginia,'421 U.S. 809 (1975), the Florida court rejected the debt collector's first amendment challenges. The court concluded "that the public interest in proscribing harassment of a debtor through contact with his employer about an obligation to a third party simply transcends a finance company's interest in choosing this particular means of collecting a debt." Congressional prohibition of debt collector contacts with the debtor's employer under the Fair Debt Collection Practices Act arose from the similar conclusion that "the damage an employer contact could do to a consumer far outweighs any benefit from such contact." 124 CONG. REc. H2923 (daily ed. Apr. 4,1977) (remarks of Rep. Annunzio). 60. At least one federal court has intimated that such a 'zone of privacy' exists in the realm of consumer credit transactions. See Millstone v. O'Hanlon Reports, Inc., 528 F.2d 819, 833 (8th Cir. 1976). In upholding the constitutionality of the Fair Credit.eporting Act, the Millstone court relied upon Griswold v. Connecticut, 381 U.S. 479 (1965), to assert the validity of the consumer's right to privacy. 528 F.2d at 833. The Eighth Circuit Court of Appeals thus appears to place the credit consumer's right to privacy within one of the constitutionallyguaranteed "zones of privacy" described in Griswold. 381 U.S. at 484.

10 CREIGHTON LAW REVIEW [Vol. 11 serves to codify various tort theories which are applicable to debt collection abuses, 61 promising more effective causes of action to the aggrieved debtor. PROHIBITION OF MISREPRESENTATIVE AND DECEPTIVE COLLECTION PRACTICES The Fair Debt Collection Practices Act broadly prohibits a debt collector from using false, misleading, or deceptive methods in the collection of debts. 62 The following practices are among those constituting major violations of the statute: misrepresenting that a debt collector is a government official or attorney; 6 3 misrepresenting the amount, character of a debt, or compensation which may be received by the collector; 64 threatening legal action which is not lawful or intended, including arrest, seizure, or garnishment; 35 communicating, or threatening to communicate, false credit information regarding the debtor; 66 using bogus or misleading legal documents; 67 and By analogy, the reasoning in Millstone could be applied in the context of debt collection to find a constitutionally protected "debtor zone of privacy." 61. These include invasion of privacy, infliction of mental distress, and interference with contractual (i.e. employment) relationships. See generally Greenfield, supra note 4; 15 U.S.C. 1692d U.S.C. 1692e. The Act provides that: "A debt collector may not use any false, deceptive or misleading representation or means in connection with the collection of any debt." Id. See also 15 U.S.C. 1692e(10)-(11), 1692j U.S.C. 1692e(l), (3) provides in relevant part: Without limiting the general application of the foregoing, the following conduct is a violation of this section: (1) The false representation or implication that the debt collector is vouched for, bonded by, or affiliated with the United States or any State, including the use of any badge, uniform, or facsimile thereof. (3) The false representation or implication that any individual is an attorney or that any communication is from an attorney. Id. 64. Id. 1692e(2). The Act proscribes "[t]he false representation of-(a) the character, amount, or legal status of any debt; or (B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt." Id. 65. Id. 1692e(4)-(5). The Act proscribes: (4) The representation or implication that nonpayment 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. (5) The threat to take any action that cannot legally be taken or that is not intended to be taken. Id. 66. Id. 1692e(8). The Act provides that "[clommunicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed," is a violation of section 1692e. Id. 67. Id. 1692e(9). The Act prohibits "[tihe use of distribution or any written

11 1978] UNETHICAL BILL COLLECTORS misrepresenting a debt collector under a different business name or operation. 68 Also, the distribution of deceptive collection forms by independent collectors, along with the improper use of such forms by creditors to give the impression that a third party is collecting the debt, will subject both parties to liability under the statute. 69 In sum, the Act enables the abused debtor to bring suit for a broad range of misrepresentative or deceptive practices used to collect a debt or to obtain information regarding a debtor. UNFAIR COLLECTION PRACTICES. The Act further proscribes the use of unfair or unconscionable means to collect debts, 70 including the following practices: collecting any amount in excess of that created by the debt agreement; 71 causing improper charges for communication to be billed to the consumer; 2 repossessing or threatening to repossess a debtor's property when such action is unjustified or communication which simulates or is falsely represented to be a document authorized, issued, or approved by any court, official, or agency of the United States or any State, or which creates a false impression as to its source, authorization, or approval." Id. See also Id. 1692e(13),(15). 68. Id. 1692e(14),(16). The Act proscribes: "[t]he use of any business, company, or organization name other than the true name of the debt collector's business, company, or organization;" and "[t]he false representation or implication that a debt collector operates or is employed by a consumer reporting agency as defined by section 1681a(f) of this title." Id. 69. Id. 1692j. The Act provides: (a) 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 collecta debt such consumer allegedly owes such creditor, when in fact such person is not so participating. (b) Any person who violates this section shall be liable to the same extent and in the same manner as a debt collector is liable under section 1692k of this title for failure to comply with a provision of this subhapter. Id. This provision is aimed specifically at prohibiting the use of "flat-rater" dunning letters. These are obtained by the creditor from a collection agency and are then sent by the creditor to create the impression that a third-party collector is collecting the debt. S. REP. No , 95th Cong., 1st Sess. 5 (1977) U.S.C. 1692f. 71. Id. 1692f(1). The Act prohibits: "[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law." Id. 72. Id. 1692f(5). The Act forbids: "[c]ausing charges to be made to any person for communications by concealment of the true purpose of the communication. Such charges include, but are not limited to, collect telephone calls and telegram fees." Id.

12 CREIGHTON LAW REVIEW [Vol. V 11 unintended; 3 and communicating with the debtor through the use of post card or other mailing which suggests that the enclosed message pertains to debt collection. 4 Postdated checks may be accepted from debtors only upon certain conditions; and once accepted, they may not be deposited prematurely or solicited for subsequent coercive use against the debtor. 7 5 When a consumer owes several debts and makes a single payment, the collector may not apply such payment against any debt disputed by the consumer. 7 6 To prevent "forum abuse," whereby collectors obtain default judgments in distant and inconvenient courts, 7 the Act requires that legal actions be brought in a logical or convenient forum. 7 8 In addition, as in the case of 73. Id. 1692f(6). The Act proscribes: Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if- (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. Id. 74. Id. 1692f(7)-(8). The Act prohibits: (7) Communicating with a consumer regarding a debt by post card. (8) Using any language or symbol, other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business. Id. 75. Id. 1692f(2)-(4). The Act forbids: (2) The acceptance by a debt collector from any person of a check or other payment instrument postdated by more than five days unless such person is notified in writing of the debt collector's intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit. (3) The solicitation by a debt collector of any postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution. (4) Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument. Id. 76. Id. 1692h. The Act reads as follows: If any consumer owes multiple debts and makes any single payment to any debt collector with respect to such debts, such debt collector may not apply such payment to any debt which is disputed by the consumer and, where applicable, shall apply such payment in accordance with the consumer's directions. Id. 77. S. REP. No , 95th Cong., 1st Sess. 5 (1977) U.S.C. 1692i provides: (a) Any debt collector who brings any legal action on a debt against any consumer shall- (1) in the case of an action to enforce an interest in real property securing the consumer's obligation, bring such action only in a judi-

13 1978] UNETHICAL BILL COLLECTORS misrepresentative and deceptive practices, the Act broadly proscribes all unfair and unconscionable collection practices not specifically enumerated in the Itatute. 79 REQUIRED PROCEDURE FOR VALIDATION OF DEBTS Lastly, in order to eliminate the frequent problem of debt collectors pursuing the wrong person or seeking collection of a debt already paid, 80 the Act places an affirmative duty upon collectors to observe a prescribed debt validation procedure. 81 Within five days after initially contacting the debtor, the collector must send him a written notice stating the creditor's name and the amount owed, and must notify the debtor of his right to cial district or similar legal entity in which such real property is located; or (2) in the case of an action not described in paragraph (1), bring such action only in the judicial district or similar legal entity- (A) in which such consumer signed the contract sued upon; or (B) in which such consumer resides at the commencement of the action. (b) Nothing in this subchapter shall be construed to authorize the bringing of legal actions by debt collectors. The Act adopts the "fair venue standards" developed by the Federal Trade Commission. See S. REP. No , 95th Cong., 1st Sess. 5 (1977) U.S.C. 1692f. The language of the Act, "[w]ithout limiting the general application of the foregoing...", enables the consumer to bring suits for unfair and unconscionable collection practices not delineated in the statute. Id. 80. S. REP. No , 95th Cong., 1st Sess. 4 (1977) U.S.C. 1692g. The Act provides as follows: (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 to be valid by the debt collector; (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 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 thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor. (b) If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) of this section that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy 6f a judgment, or the name and address of the original creditor, and a copy of such verifica-

14 CREIGHTON LAW REVIEW [Vol. 11 dispute or obtain verification of the debt within a thirty-day period. 82 Upon receiving a response from the consumer which disputes the debt, the collector shall cease collection of the debt until he obtains further verification from the creditor. The collector may resume collection efforts only after notifying the consumer of the debt's validity. 83 This section of the Act, though highly technical, provides another safeguard upon unreasonable intrusion into the 'debtor's zone of privacy.' 84 As the foregoing discussion indicates, the Fair Debt Collection Practices Act places diverse and effective causes of action in the hands of the aggrieved debtor. Aimed primarily at abusive independent debt collectors, the Act crystallizes tort theories applicable to debt collection abuses and extends broad authority to sue for unfair and deceptive collection practices. The remainder of this comment will measure the extent to which the abused debtor can effectively turn these statutory rights into remedies. DEBTORS' REMEDIES UNDER THE FAIR DEBT COLLECTION PRACTICE ACT-A CRITICAL ANALYSIS In drafting the remedial sections of the Fair Debt Collection Practices Act, the Act's sponsors borrowed from the substantially similar remedial provisions found in previous titles of the Consumer Credit Protection Act. 85 As a consequence, the almost identical remedial provisions of the Truth-in-Lending Act, 86 and to a lesser extent, the Fair Credit Reporting Act, 87 provide a useful blueprint for analogous interpretation of the remedial language found in the present statute. 8 Thus, the foltion or judgment or name and address of the original creditor, is mailed to the consumer by the debt collector. (c) 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. Id. 82. Id. 1692g(a). 83. Id. 1692g(b). 84. See note 60 supra Senate Hearings, supra note 15, at 51 (statement of Rep. Chalmers P. Wylie) U.S.C (1970 & Supp. V 1975) [hereinafter cited as 15 U.S.C. 1640] U.S.C. 1681n-1681p, 1681t (1970). 88. The Truth-in-Lending Act, for example, contains remedial language virtually identical to that found in the Fair Debt Collection Practices Act in several provisions: 15 U.S.C. 1640(a) (amount of liability); 15 U.S.C. 1640(c) (defense of unintentional bona fide error); 15 U.S.C. 1640(e) (jurisdiction of actions); 15 U.S.C. 1640(f) (defense of good faith conformity with regulatory

15 1978] UNETHICAL BILL COLLECTORS lowing discussion of debtor remedies under the Act will draw upon appropriate analogies from these earlier remedial models, while fully considering the differing legislative purpose of the present statute. CIVIL LIABILITY Central to debtor relief under this legislation is the imposition of civil liability upon a collector who violates any provision of the Act. 89 It is not necessary to show that the debt collector's violation was willful or intentional 0 Except where special defenses apply, 91 civil liability will be imposed even for technical violations of the statute. 92 The Act makes the collector liable to the individual debtor for any actual damages resulting from such violation, and further permits additional damages up to one thousand dollars as the court may allow. 9 3 These additional damages are not punitive, but rather take the form of a "civil penalty" imposed to insure compliance with the statute; 94 as such they may be awarded opinions); 15 U.S.C (effect on state laws); 15 U.S.C (exemption for state-regulated transactions). See 15 U.S.C. 1692k(a), (c), (d), (e), 1692n, 1692o. Moreover, the Fair Debt Collection Practices Act shares a goal similar to that of the Truth-in-Lending Act. Both statutes, even though they regulate different phases of the credit-consumption process, share a common intent to protect consumers of commercial credit. Compare 1977 House Hearings, supra note 2, at (remarks of Rep. Annunzio); with 15 U.S.C (1970) U.S.C. 1692k reads in relevant part: (a) Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this title with respect to any person is liable to such person in an amount equal to the sum of- (1) any actual damage sustained by such person as a result of such failure; (2)(A) in the case of action by an individual, such additional damages as the court may allow, but not exceeding $1, Senate Hearings, supra note 15, at 185 (remarks of Senator Schmitt). The model remedial language found under the Truth-in-Lending Act also does not require an intentional violation in order to impose liability. S. REP. No , 93rd Cong., 1st Sess. 15 (1973). 91. See notes and accompanying text infra. 92. Compare Grant v. Imperial Motors, 539 F.2d 506, 510 (5th Cir. 1976), which involved a Truth-in-Lending Act violation "miniscule in its scope and amount." Construing the model language of 15 U.S.C. 1640(a), which imposes liability for violations of any requirement of the statute, the Fifth Circuit Court of Appeals concluded that "once the court finds a violation, no matter how technical, it has no discretion with respect to the imposition of liability." 539 F.2d at 510. The virtually identical language of the Fair Debt Collection Practices Act, 15 U.S.C. 1692k(a), likewise, would compel the automatic imposition of liability for even technical violations of the Act U.S.C. 1692k. See note 89 supra. 94. The model provisions found in 15 U.S.C. 1640(a)(2)(A) of the Truth-in- Lending Act, which impose a $100 minimum recovery, have Peen repeatedly characterized as awarding non-punitive 'civil penalties.' See, e.g., Redhouse v.

16 CREIGHTON LAW REVIEW [Vol. 11 without a showing of actual damages. 9 5 Even when a debtor can show no actual harm or the violation is merely technical, courts should award some amount of additional damages in order to properly effectuate the broad remedial intent of the Act. 96 The court should determine the amount of such additional damages after considering, among other factors, the frequency, persistence, nature, and willfulness of the debt collector's noncompliance. 9 7 What constitutes "actual damages" under the Act's civil liability section poses a more difficult question. Although this term has been construed to include only the plaintiff's out-of-pocket, pecuniary losses, 98 such a limited concept of "actual damages" is inconsistent with the Act's broadly stated intent to redress both pecuniary and nonpecuniary injuries. 9 9 Damages for men- Quality Ford Sales, Inc., 511 F.2d 230,237 (10th Cir. 1975) reargued at 523 F.2d 1 (10th Cir. 1975); Bostwick v. Cohen, 319 F. Supp. 875, 878 (N.D. Ohio 1970); S. REP. No , 93rd Cong., 1st Sess. 14 (1973). Although Congress deleted the $100 minimum recovery provision from the Fair Debt Collection Practices Act, this was done for the purpose of avoiding encouragement of "nuisance suits", and was not intended to alter the non-punitive character of these statutory penalties. 123 CONG. REc. H8996 (daily ed. Sept. 8,1977) (remarks of Rep. Annunzio); S. REP. No , 95th Cong., 1st Sess. 10 (1977) (additional views of Senators Schmitt, Garn and Tower). 95. The model civil penalty provisions of the Truth-in-Lending Act, 15 U.S.C. 1640(a)(2)(A), do not require a showing of actual damages. Redhouse v. Quality Ford Sales, Inc., 511 F.2d 230, 237 (10th Cir. 1975), reargued at 523 F.2d 1, 2 (10th Cir. 1975). 96. Regarding the model Truth-in-Lending Act language, 15 U.S.C. 1640(a), it was reported that "[m]ost Truth-in-Lending violations do not involve actual damages and... some meaningful penalty provisions are therefore needed to insure compliance." S. REP. No , 93rd Cong., 1st Sess. 15 (1973). The need to impose some civil penalty despite the plaintiff's lack of actual damages was further recognized in Mourning v. Family Publications Serv., Inc., 411 U.S. 356, 376 (1973). There the Supreme Court construed 15 U.S.C. 1640(a) by stating: "We cannot conclude that Congress intended those who failed to comply with regulations to be subject to no penalty or to criminal penalties alone U.S. at 376. As in the case of Truth-in-Lending Act violations, violations of the present statute often will not involve any actual damages. Nevertheless, courts should recognize in such cases the need to impose some "meaningful penalty" in order to insure collector compliance with the Act U.S.C. 1692k(b)(1) reads in relevant part: (b) In determining the amount of liability in any action under subsection (a), the court shall consider, among other relevant factors- (1) In any individual action under subsection (a)(2)(a), the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional The identical Truth-in-Lending Act provision, 15 U.S.C. 1640(a)(1), was drafted in terms of "actual monetary damage arising out of a... violation." S. REP. No , 93rd Cong., 1st Sess. 14 (1973). 99. While the Act seeks to redress such pecuniary injuries as "the loss of

17 1978] UNETHICAL BILL COLLECTORS tal anguish and distress, for instance, would be excluded under this narrow construction of "actual damages", even though such injuries are the frequent products of the debt collection abuses proscribed by the Act. 100 Despite this apparent loophole, 101 however, nothing in the Act's legislative history stands to preclude a court from expanding the statutory concept of "actual damages" in individual cases to redress an abused debtor's nonpecuniary injuries. 1 jobs-,"' it also aims to redress those injuries arising from "invasions of [a debtor's] individual privacy." 15 U.S.C. 1692(a). These latter injuries are usually non-monetary in nature Some forms of collection abuse which can readily cause mental distress in the debtor are: constant telephone harassment, 15 U.S.C. 1692d(5); threats of physical violence, 15 U.S.C. 1692d(1); and threats of arrest or seizure of property, 15 U.S.C. 1692e(4)-(5). In general, it has been remarked that "no aspect of commercial activity produces such anxiety and grief as unscrupulous and unethical debt collection." 1977 Senate Hearings, supra note 15, at 605 (statement of Richard A. Gross) A similar restriction to actual out-of-pocket losses recoverable for debt collection abuses under the Massachusetts debt collection practices law has been described as a "glaring loophole" which denies relief in cases of severe debtor harassment. The Debt Collection Practices Act: Hearings on H.R Before the Subcomm. on Consumer Affairs of the House Comm. on Banking, Currency and Housing, 94th Cong., 2nd Sess (1976) [hereinafter cited as 1976 House Hearings] (statement of Richard A. Gross) Although the Senate committee hesitated to expand the definition of actual damages to include "damages for emotional distress or emotional anguish", as proposed in S. 918 sponsored by Senator Riegle, this refusal was motivated by non-remedial considerations, particularly the desire to avoid inviting a rash of nuisance suits which might overburden federal dockets Senate Hearings, supra note 15, at 5 (statement of Senator Jake Garn). The thrust of the debt collection industry's objections to the debtor's recovery of mental distress damages was not that such damages should be absolutely disallowed, but rather that such recovery was a question of state law and was thus inappropriate for federal regulation. Id. at 208 (statement of Julia Boyd). Moreover, the legislative history contains no affirmative expressions that Congress specifically intended to exclude an award of mental distress damages under the Fair Debt Collection Practices Act Such a judicial expansion has occurred in several cases involving "actual damages" arising from violations of the Fair Credit Reporting Act, 15 U.S.C. 1681n-1681o (1970). Millstone v. O'Hanlon Reports, Inc., 518 F.2d 829, (8th Cir. 1976) ("actual damages" awarded for loss of sleep, nervousness, frustration, and mental anguish); Collins v. Retail Credit Co., 410 F. Supp. 924, 932 (E.D. Mich. 1976) ("actual damages" awarded for loss of reputation, embarrassment and humiliation where statutory action was coupled with libel action); Rasor v. Retail Credit Co., 87 Wash. 2d 516, 554 P.2d 1041, 1050 (1976) ("Actual damages" held not limited to out-of-pocket losses, but as encompassing all elements of compensatory awards, including injury to reputation and mental suffering). The Fair Credit Reporting Act, like the Fair Debt Collection Practices Act, expressly seeks to protect the consumer's right to privacy. Compare 15 U.S.C. 1681(a)(4)(1970) with 15 U.S.C. 1692(a). The foregoing decisions, therefore, would lend support, by analogy, to any expansion of "actual damages" to cover the debtor's non-monetary injuries under the Fair Debt Collection Prac-

18 CREIGHTON LAW REVIEW [Vol. 11 The Act further authorizes class action suits, and allows for an award of "additional damages" up to one thousand dollars for each named debtor-plaintiff. 0 4 The court may make an aggregate award to all unnamed class members, without regard to a minimum individual recovery, in an amount not exceeding the lesser of $500,000 or one per cent of' the net worth of the debt collector The amount of these awards shall be determined after the court considers, among other factors, the resources of the debt collector, the number of persons adversely affected, and the extent to which the violation was intentional Since debt collection agencies are typically small operations with few assets, 0 7 the one per cent net worth limit upon aggregate awards made to unnamed class members will likely result in small class recoveries. Moreover, where each named plaintiff seeks actual damages in addition to the discretionary "additiontices Act. Furthermore, there are indications that when state courts are called upon to award relief under the Act (see note 145 and accompanying text infra), they might construe an award of "actual damages" to cover the debtor's nonpecuniary injuries, in line with the more liberal damage awards which have been given under a number of state debt collection practices laws. See, e.g., Ledisco Fin. Serv., Inc. v. Viracola, 533 S.W.2d 951, 957 (Tex. Civ. App. 1976) (plaintiff-debtor was awarded damages for mental anguish under the Texas debt collection practices statute which authorizes the recovery of "actual damages") U.S.C. 1692k reads in relevant part: (a) Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this title with respect to any person is liable to such person in an amount equal to the sum of- (1) any actual damage sustained by such person as a result of such failure; (2)(A) in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000; or (B) in the case of a class action, (i) such amount for each named plaintiff as could be recovered under subparagraph (A) and (ii) such amount as the court may allow for all other class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or one per centum of the net worth of the debt collector 105. Id. A usable definition of the collector's "net worth", not provided by the statute, might be borrowed from federal income tax regulations. 26 C.F.R b(j)(1977) U.S.C. 1692k(B)(2) reads in relevant part: (b) In determining the amount of liability in any action under subsection (a), the court shall consider, among other relevant factors- (2) In any class action under subsection (a)(2)(b), the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector's noncompliance was intentional House Hearings, supra note 101, at 122 (statement of Jay I. Ashman).

19 1978] UNETHICAL BILL COLLECTORS al damages" award, courts may sometimes refuse to certify the class action as to the issue of actual damages In any event, a class action under the Act could proceed only after the court has determined the superiority of the class action to individual debtor suits The Act's imposition of civil liability upon abusive debt collectors in both individual and class actions will provide much-deserved relief to victims of unethical debt collection practices. Yet while the statute affords adequate relief to the aggrieved debtor for any actual pecuniary losses, its remedial sections make no apparent provision for redressing the debtor's equally important nonpecuniary injuries. For this reason, courts which fail to consider every interest of the injured debtor in awarding statutory damages will in many cases substantially limit the debtor's access to an adequate remedy Instead, courts should recognize the congressional intent to create a species of "private attorney general" in the debtor-plaintiff, and should liberally construe the Act's civil liability section in light of this broad remedial purpose."' AWARDS OF ATTORNEY'S FEES In addition to a damage award, the Act allows for awards of attorney's fees and court costs to the successful debtor-plaintiff Such awards were intended to enable consumers to sue 108. In McCoy v. Salem Mortgage Co., 74 F.R.D. 8 (E.D. Mich. 1976), the court certified a class action brought under the Truth-in-Lending Act provisions, 15 U.S.C. 1640(a)(4), as to the issue of the defendant's liability only. It refused, however, to certify a class action as to the issue of actual damages sought by the named plaintiff, basing its refusal upon the absence of common issues of law and fact as to each class member. 74 F.R.D. at 13. The consideration expressed in McCoy would likewise apply, by analogy, to the virtually identical class action recovery provisons of the Fair Debt Collection Practices Act, 15 U.S.C. 1692k(a)(2)(B) See FED. R. Civ. P. 23(b)(3). For an in-depth discussion on the certification of class action suits under the analogous Truth-in-Lending Act provisons, see Agostine v. Sidcon Corp., 69 F.R.D. 437, (E.D. Pa. 1975) See Greenfield, supra note 4, at Judge Frankel made this oft-quoted admonition in Ratner v. Chemical Bank N.Y. Trust Co., 329 F. Supp. 270,280 (S.D.N.Y. 1971), regarding application of the Truth-in-Lending Act. By analogy, this admonition applies equally to other titles of the Consumer Credit Protection Act, including the Fair Debt Collection Practices Act U.S.C. 1692k(a)(3) reads in relevant part: (a) Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this title with respect to any person is liable to such person in an amount equal to the sum of- (3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attor-

20 CREIGHTON LAW REVIEW [Vol. 11 for any violation of the statute; the resulting private enforcement provides the chief means of obtaining compliance with the Act." 3 Attorney's fees should be awarded notwithstandingthe fact that the debtor's recovery is minimal,"i 4 or that the amount of attorney's fees is highly disproportionate to such nominal recovery." 1 5 Even a successful plaintiff's attorney employed by Legal Aid, or otherwise serving pro bono, is entitled to this statutory award." 6 Furthermore, attorney's fees may be awarded for counsel's work in the original action, on appeal, and on remand." i 7 No such fees may be awarded, however, when the ney's fee as determined by the court. On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs CONG. REC. H8896 (daily ed. Sept. 8,1977) (remarks of Rep. Annunzio); S. REP. No , 95th Cong., 1st Sess. 5 (1977). The Federal Trade Commission is given responsibility for administrative enforcement of the Act. 15 U.S.C It should be noted that the House bill, H.R. 5294, contained a further provision for criminal liability, but this was deleted by the Senate committee from the final version. 123 CONG. REC. H8896 (daily ed. Sept. 8, 1977) (remarks of Rep. Annunzio) A similar statutory scheme for the award of attorney's fees to successful consumer-plaintiffs is found in the Truth-in-Lending Act, 15 U.S.C. 1640(a)(3). As one court stated, "the remedial sections of the Consumer Credit Protection Act, 15 U.S.C. 1640, contemplate separate federal suits as 'private attorneys-general' for recovery of minimal amounts." Young v. Trailwood Lakes, Inc., 61 F.R.D. 666, 668 (E.D. Ky. 1974). In light of the emphasis placed upon private enforcement by the Fair Debt Collection Practices Act, 123 CONG. REC. H8896 (daily ed. Sept. 8,1977) (remarks of Rep. Annunzio), the recovery of minimal amounts should likewise not preclude an award of attorney's fees to a successful debtor-plaintiff In Welmaker v. W. T. Grant Co., 365 F. Supp. 531 (N.D. Ga. 1972), the court was asked to award attorney's fees under the similar Truth-in-Lending Act provision, 15 U.S.C. 1640(a)(3), in an amount highly disproportionate to the plaintiff's recovery. In awarding such fees, the court stated that "the attorney's fee should not be measured as a percentage of the total judgment." 365 F. Supp. at The disproportionate award was justified, the court insisted, due to the "far-reaching effects of the injunctive relief for future consumers gained by the attorneys in their efforts on behalf of the plaintiffs." Id. at Given the overriding emphasis placed upon private enforcement by the present statute, 123 CONG. REc. H8896 (daily ed. Sept. 8, 1977) (remarks of Rep. Annunzio), the considerations expressed in Welmaker would similarly justify disproportionate fee awards to successful debtor-plaintiffs In Sellers v. Wollman, 510 F.2d 119 (5th Cir. 1975), the court awarded attorney's fees under 15 U.S.C. 1640(a) to a successful Truth-in-Lending plaintiff represented by a Legal Aid attorney. The court held that, if successful, "plaintiffs should not be denied attorney's fees because their attorney was employed by a legal aid society... and [that] such an award is not contingent upon an obligation to pay an attorney, or the fact that no fee was charged." 510 F.2d at 123. These conclusions apply, by analogy, to the similar "private attorney-general" scheme of the Fair Debt Collection Practices Act Regarding the analogous private enforcement scheme of the Truth-in-

21 1978] UNETHICAL BILL COLLECTORS plaintiff prevails other than on the merits of the action." 8 No attorney's fees will be awarded without some evidence to support the reasonableness thereof, 1 9 and the amount of such award shall be set in accordance with general principles used in calculating a reasonable attorney's fee. 2 Where, however, the court finds that a debtor has brought an action in bad faith and for harassment purposes, it may also award attorney's fees and costs to the defendant-debt collector.' 2 ' This provision was intended to protect debt collectors against nuisance suits, and does not apply to claims brought in good faith for bona fide violations of the statute. 22 Given the Act's overriding intent to encourage private attorney general actions, 23 courts should presume the good faith validity of a Lending Act, it has been held that attorney's fees should also be awarded to a successful consumer-plaintiff on appeal and on remand. Ljepava v. M.L.S.C. Properties, Inc., 511 F.2d 935, 945 (9th Cir. 1975); Thomas v. Myers-Dickson Furniture Co., 479 F.2d 740, 748 (5th Cir. 1973) In construing the model remedial language found in 15 U.S.C. 1640(a) of the Truth-in-Lending Act, it has been held that an award of attorney's fees in "the case of any successful action to enforce the foregoing liability" is available only where a consumer-plaintiff successfully proves his case on the merits. Williams v. United Credit Plan of Chalmette, Inc., 526 F.2d 713, 715 (5th Cir. 1976) Cf. Houston v. Atlanta Fed. Sav. & Loan Ass'n, 414 F. Supp. 851, 860 (N.D. Ga. 1976) (successful Truth-in-Lending plaintiff seeking attorney's fees and costs was ordered to submit affidavits and other evidence supporting the reasonableness of the amount requested) Cf. Thomas v. Myers-Dickson Furniture Co., 479 F.2d 740, 748 (5th Cir. 1973) (the court found that the "hours reasonably expended" by plaintiff's attorney multiplied by a "reasonable rate per hour" would yield a satisfactory award of fees to Truth-in-Lending plaintiffs); Starks v. Orleans Motors, Inc., 372 F. Supp. 928, 933 (E.D. La. 1974) (the court considered the factors set out in ABA Disciplinary Rule 2-106, in calculating the award of attorney's fees to a successful Truth-in-Lending plaintiff) U.S.C. 1692k(a)(3). See note 112 supra. Under this provision, it is clear that the court may, at its discretion, award attorney's fees against an.unsuccessful debtor-plaintiff. 15 U.S.C. 1692k(a)(3). When a debtor's bad faith suit is successful, however, a more complicated result ensues. A literal reading of 15 U.S.C. 1692k(9)(3) would indicate that, upon a finding that a suit was brought in bad faith for harassment purposes, a successful debtor-plaintiff becomes entitled to statutory attorney's fees and at the same time may be ordered to pay attorney's fees to the collector-defendant. This conjunctive interpretation, though it brings a somewhat anomalous result, is further compelled by the Act's strict imposition of liability even for technical violations (see note 92 supra) and by its intended encouragement of "private attorney-general" actions (see note 113 and accompanying text supra) Senate Hearings, supra note 14, at 5 (statement of Sen. Jake Garn). This provision was adapted from S. 1130, which was introduced by Senator Garn. It was intended to deal primarily with the situation in which a debtor sues, or threatens to sue, for a technical violation of the Act for the purpose of escaping payment of a just debt. Id. at CONG. REC. H8896 (daily ed. Sept. 8, 1977) (remarks of Rep. Annunzio).

22 CREIGHTON LAW REVIEW [Vol. 11 debtor's suit and treat the collector's claim of bad faith harassment with caution.' 24 Otherwise, this provision could have the unintended effect of discouraging legitimate private actions by abused debtors. 125 On the whole, however, the Act's award of attorneys fees should encourage many otherwise silent victims of collection abuses to seek legal redress of their injuries. 126 DEBT COLLECTORS' DEFENSES TO LIABILITY The Act provides two special defenses which, if applicable, enable a debt collector to escape liability, notwithstanding his violation of the statute. 127 Debtors seeking relief under the Act, therefore, must recognize and be prepared to challenge these potentially crucial defenses. The first and most important defense applies when a debt collector can show, by a preponderance of the evidence, that his violation was unintentional and resulted from a bona fide error. 128 In light of its original purpose under previous legislation, 29 the defense of unintentional bona fide error has been 124. In Christiansburg Garment Co. v. EEOC, - U.S. -, 98 S. Ct. 694 (1978), the United States Supreme Court discussed the considerations which should govern discretionary counter-awards of attorney's fees under a provision of Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e-5(k)(1970). The Court stated that [iun applying these criteria [for a counter-award of attorney's fees against a plaintiff whose action was frivolous, unreasonable, or brought in bad faith], it is important that a district court resist the understandable temptation to engage in post-hoc reasoning by concluding that, because a plaintiff did not ultimately prevail, his action must have been unreasonable or without foundation. This kind of hindsight logic could discourage all but the most airtight claims, for seldom can a prospective plaintiff be sure of ultimate success... Even when the law or the facts appear questionable or unfavorable at the outset, a party may have an entirely reasonable ground for bringing suit. 98 S. Ct. at 700. Like the Fair Debt Collection Practices Act, Title VII of the Civil Rights Act of 1964 entrusts its enforcement to "private attorney-general" actions. Id. at 697. By analogy, therefore, the Court's cautionary admonition in Christiansburg would likewise apply to counter-awards of attorney's fees against debtor-plaintiffs who bring suit under the Fair Debt Collection Practices Act Id The statutory award of attorney's fees could especially benefit the lowincome consumer plagued by debt collection abuses. See Summary of Hearings on Debt Collection Practices, National Commission on Consumer Finance, 88 BANKING L.J. 291, (1971) U.S.C. 1692k(c),(e). See notes 119, 130 infra U.S.C. 1692k(c) provides: (c) A debt collector may not be held liable in any action brought under this title if the debt collector shows by a preponderance of 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 This defense is identical to that contained in the Truth-in-Lending Act,

23 1978] UNETHICAL BILL COLLECTORS construed by all but a few courts to apply to clerical errors only, and not to errors of law. 130 Thus, a good faith error of legal judgment as to the Act's requirements, even if made in reliance upon the advice of counsel, would offer the collector no defense for violations resulting from such misjudgment. 13 ' The collector's lack of specific intent to violate the statute is immaterial, and so long as he acts deliberately upon an erroneous understanding of the law, the defense will not apply. 132 Another necessary requirement for the debt collector's defense of unintentional bona fide error is the "maintenance of procedures reasonably adapted to avoid any such error". 33 By the debt collection industry's own standards, such reasonable preventative procedures should include the careful training and supervision of collectors and the use of proper collection forms and letters. 3 4 The maintenance of accurate records regarding debtor contacts should also be expected. 3 5 Furthermore, the 15 U.S.C. 1640(c), where it was designed to compensate for mathematical and clerical errors in annual rate computations. Ratner v. Chemical Bank N.Y. Trust Co., 329 F. Supp. 270, 281 n.17 (S.D.N.Y. 1971) The identical defense found in the Truth-in-Lending Act, 15 U.S.C. 1640(c), has been held by the following courts to apply to clerical errors only: Ives v. W. T. Grant Co., 522 F.2d 749, (2d Cir. 1975); Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161, 1167 (7th Cir. 1974); Doggett v. Ritter Fin. Co., 384 F. Supp. 150, 157 (W.D. Va. 1974), aff'd in part and rev'd on other grounds, 528 F.2d 860 (4th Cir. 1975); Starks v. Orleans Motors, Inc., 372 F. Supp. 928, 931 (E.D. La. 1974), aff'd without opinion, 500 F.2d 1182 (5th Cir. 1974); Douglas v. Beneficial Fin. Co., 334 F. Supp. 1166, 1178 (D. Alas. 1971), rev'd on other grounds, 453 F.2d 253 (9th Cir. 1972); Ratner v. Chemical Bank N.Y. Trust Co., 329 F. Supp. 270, 281 n.17 (S.D.N.Y. 1971). Contra, Welmaker v. W. T. Grant Co., 365 F. Supp. 531, 544 (N.D. Ga. 1972); Thrift Funds of Baton Rouge, Inc. v. Jones, 274 So.2d 150, 161 (La. 1973), cert. denied, 414 U.S. 820 (1973). See Comment, The 1974 Amendments To The Truth-in-Lending Act, 53 N.C. L. REV. 1259, 1261 n.21 (1975) Cf. Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161, (7th Cir. 1974). In Haynes, the defendant's error of law, even if made in good faith and in "principal but not exclusive reliance" upon the advice of counsel, did not constitute an unintentional bona fide error under the analogous Truth-in-Lending Act provision, 15 U.S.C. 1640(c) The following courts are among those which have held that the absence of specific intent is not a defense to a violation under 15 U.S.C. 1640(c) of the Truth-in-Lending Act: Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161, (7th Cir. 1974); Starks v. Orleans Motors, Inc., 372 F. Supp. 928,931 (E.D. La. 1974), aff'd without opinion, 500 F.2d 1182 (5th Cir. 1974); Ratnerv. Chemical Bank N.Y. Trust Co., 329 F. Supp. 270,281 (S.D.N.Y. 1971). Contra, Welmaker v. W. T. Grant Co., 365 F. Supp. 531, 544 (N.D. Ga. 1972) U.S.C. 1692k(c). See note 128 supra. See also note 136 infra for an interpretation of this section AMERICAN COLLECTORS Ass'N, INC., A MANUAL ON THE FAIR DEBT COLLECTION PRACTICES ACT 37 (1977) House Hearings, supra note 101, at 113 (statement of John L. Spafford).

24 CREIGHTON LAW REVIEW [Vol. 11 debt collector has the burden of proving not only the existence of reasonable preventative measures, but also that such procedures were being consistently maintained at the time of the violation. 136 The mere promulgation of preventative procedures, without consistent and good faith adherence thereto, should not entitle the debt collector to the use of this defense. 137 Courts which fail to recognize this crucial distinction will only invite the abuse of this defense, and will enable many noncompliant debt collectors to circumvent statutory liability. 138 The second defense available to debt collectors under the Act enables them to escape liability for any good faith act or omission done in conformity with any advisory opinion of the Federal Trade Commission, despite the fact that such opinion is subsequently amended or invalidated by judicial or other authority. 139 In order for this defense to apply, the collector must be acting in good faith reliance upon a particular advisory opinion when the violation occurs. 140 Courts generally give little 136. In Mirabal v. General Motors Acceptance Corp., 537 F.2d 871 (7th Cir. 1976), the court construed the identical Truth-in-Lending defense, 15 U.S.C. 1640(c), by stating: "Congress required not only that procedures designed to avoid bona fide errors be established by creditors if they seek exemption under this section but also, that these procedures be maintained. This means that the creditor must show that the proper procedures were followed time in and time out." 537 F.2d at 879. The court further required the creditor to show that such preventative measures were "consistently followed during the time in question." Id. at 877 n See 537 F.2d at 877 n.8, Many debt collectors can be expected to formulate a written policy regarding compliance with the Act for potential defensive use in a lawsuit brought under this statute. See AMERICAN COLLECTORS Ass'N, INC., A MANUAL ON THE FAIR DEBT COLLECTION PRACTICES ACT 30 (1977). Since the existence of these written policies is difficult to disprove, the question of their consistent maintenance thus becomes crucial to the validity of the collector's defense under 15 U.S.C. 1692k(c). Notwithstanding the existence of written procedures, courts which accept anything less than the vigilant maintenance of such measures may be unrealistically broadening the intended scope of this defense. Unless tightly regulated, this defense could bar many otherwise effective prosecutions of abusive collectors House Hearings, supra note 101, at 255 (statement of Richard Gross) U.S.C. 1692k(e) provides: No provision of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the [Federal Trade] Commission, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason. The Truth-in-Lending Act allows for the virtually :identical defense for reliance upon Federal Reserve Board regulations. 15 U.S.C. 1640(f) (1970 & Supp. V 1975) Cf. Pennino v. Morris Kirschman & Co., 526 F.2d 367, 370 n.3, 371 n.8 (5th Cir. 1976) (it was noted that the analogous defense under 15 U.S.C. 1640(f) requires reliance upon a rule, regulation, or interpretation); Gillard v. Aetna