DEBT COLLECTION PRACTICES Federal and State Protection from Predatory Collectors

Fair Debt Collections Practices Act (Federal Protection) Source: Fair Debt Collection, a brochure from the Federal Trade Commission.

Debtor If you use credit cards, owe money on a personal loan, or are paying on a home mortgage, you are a "debtor." If you fall behind in repaying your creditors, or an error is made on your accounts, you may be contacted by a "debt collector."

Fair Debt Collection Practices Act The Fair Debt Collection Practices Act requires that debt collectors treat a debtor fairly and prohibits certain methods of debt collection. The law does not erase any legitimate debt.

Covered Debts Personal, family, and household debts are covered under the FDCPA. This includes student loans and other financial obligations to institutions of higher education.

Debt Collector A debt collector is any person who regularly collects debts owed to others. This includes attorneys who collect debts on a regular basis.

Debt Collector Contacts A debt collector may contact you in person, by mail, telephone, telegram, or fax. A debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves of such contacts.

Verification Debtor is entitled to verification of debt. Intended to eliminate recurring problem of debt collectors dunning the wrong person or attempting to collect debts which have already been paid.

Verification Requirement Within five days after the initial communication with a consumer a debt collector shall send the consumer written notice containing: –the amount of debt; –the name of the creditor; –a statement that the debt will be assumed to be valid unless disputed in writing within thirty days;

–a statement that if the consumer notifies the debt collector in writing within thirty days that the debt is disputed, the debt collector will obtain verification of the debt of copy of a judgment against the consumer and mail the same to the consumer; and –a statement that upon 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.

Exceptions to Verification The consumer information is contained in the original communication; or The consumer has paid the debt.

Suspension of Collection Efforts A debt collector may be stopped from further contact by written demand to the debt collector instructing them to stop. Once the debt collector receives the demand, the debt collector must stop further contact except to say there will be no further contact or to notify you that the debt collector or the creditor intends to take some specific action. Note: the contacts may stop, but the debt is not extinguished. A lawsuit may still follow.

Third Party Contacts If you have an attorney, the debt collector must contact the attorney rather than you. If you do not have an attorney, a collector may contact other people, but only to find out where you live, what your phone number is, and where you work. Debt collectors usually are prohibited from contacting such third parties more than once. In most cases, the collector may not tell anyone other than you and your attorney that you owe money.

Post Contact Communication Within five days after you are first contacted, the collector must send you a written notice telling you the amount of money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.

Disputed Debt A collector may not contact you if, within 30 days after you receive the written notice, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed.

Prohibited Practices Debt collectors may not harass, oppress, or abuse you or any third parties they contact. Examples include: –use threats of violence or harm; –publish a list of consumers who refuse to pay their debts (except to a credit bureau); –use obscene or profane language; or repeatedly use the telephone to annoy someone.

Prohibited Practices Debt collectors may not use any false or misleading statements when collecting a debt. For example, debt collectors may not: –falsely imply that they are attorneys or government representatives; –falsely imply that you have committed a crime; –falsely represent that they operate or work for a credit bureau; –misrepresent the amount of your debt; –indicate that papers being sent to you are legal forms when they are not; or –indicate that papers being sent to you are not legal forms when they are.

Unfair Practices Debt collectors may not engage in unfair practices when they try to collect a debt. For example, collectors may not: –collect any amount greater than your debt, unless your state law permits such a charge; –deposit a post-dated check prematurely; –use deception to make you accept collect calls or pay for telegrams; –take or threaten to take your property unless this can be done legally; or –contact you by postcard.

Violations You have the right to sue a collector in a state or federal court within one year from the date the law was violated. If you win, you may recover money for the damages you suffered plus an additional amount up to $1,000. Court costs and attorney' s fees also can be recovered. A group of people also may sue a debt collector and recover money for damages up to $500,000, or one percent of the collector' s net worth, whichever is less.

Creditor as Debt Collector A creditor is not a Debt Collector No relief for most actions by creditors, no matter how unfair, deceptive, or outrageous. Exceptions: –The creditor attempted to collect using a different name –The creditor was assigned or transferred the debt after it was already in default.

Michigan Collection Practices Act (State Protection)

Michigan Laws Less Used The Michigan statutes are less commonly known and less commonly litigated than the federal act.

Reasons for Lack of Use The remedies in a private right of action are not as generous under state law. A perception that federal judges are more sympathetic than state judges. The federal venue is often attractive for other reasons.

Creditor as Debt Collector The Michigan collection practices act applies to “a person whose collection activities are confined and are directly related to the operation of a business other than that of a collection agency.”

Examples A regular employee when collecting accounts for 1 employer if the collection efforts are carried on in the name of the employer. A financial institution when collecting its own claim.

Debt “Claim” or “debt” means an obligation or alleged obligation for the payment of money or thing of value arising out of an expressed or implied agreement or contract for a purchase made primarily for personal, family, or household purposes.

Prohibited Acts Among other things, the act prohibits: –Communicating with a debtor in a misleading or deceptive manner. –Using forms that may otherwise induce the belief that they have judicial or official sanction. –Making an inaccurate, misleading, untrue, or deceptive statement or claim in a communication to collect a debt or concealing or not revealing the purpose of a communication when it is made in connection with collecting a debt.

Other Prohibited Acts –Communicating information relating to a debtor's indebtedness to an employer or an employer's agent unless the communication is specifically authorized in writing by the debtor subsequent to the forwarding of the claim for collection, the communication is in response to an inquiry initiated by the debtor's employer or the employer's agent, or the communication is for the purpose of acquiring location information about the debtor.

–Using a harassing, oppressive, or abusive method to collect a debt, including causing a telephone to ring or engaging a person in telephone conversation repeatedly, continuously, or at unusual times or places which are known to be inconvenient to the debtor. All communications shall be made from 8 a.m. to 9 p.m. unless the debtor expressly agrees in writing to communications at another time. All telephone communications made from 9 p.m. to 8 a.m. shall be presumed to be made at an inconvenient time in the absence of facts to the contrary.

Remedies May bring an action for damages or other equitable relief (e.g. an injunction). Damages are the amount of actual damages or $50.00, whichever is greater. If the court finds that the method, act, or practice was a willful violation, the court may assess a civil fine of not less than 3 times the actual damages, or $150.00, whichever is greater, and shall award reasonable attorney's fees and court costs incurred in connection with the action.

Communications with Third Persons A regulated person communicating with any person other than the debtor, for the purpose of acquiring location information about the debtor, shall state all of the following: –(a) The name of the individual seeking the location information. –(b) Whether the purpose of the communication is for confirmation or correction of location information about the debtor. For the purpose of the act, location information shall consist only of a debtor's place of abode and place of employment and the telephone number at each place.

Occupational Statute The Michigan Occupational Code regulates persons engaged in collection activity. Debt collectors have to obtain a license unless "the person's collection activities in this state are limited to interstate communications. The exemption, however, does not exempt a person from other requirements of law that regulate collection practices.

Case Studies

Case Study No. 1 Plaintiff procured a student loan under the Federal Family Education Loan Program. The Illinois Student Assistance Commission (“ISAC”) guaranteed the loan. ISAC hired the defendant to collect delinquent debts. As of February 2000, plaintiff’s debt to ISAC, totaling approximately $1,600.00, was delinquent. Consequently, defendant, as an agent of ISAC, took steps under the HEA to collect plaintiff’s debt by garnishing her wages.

The garnishment was administrative (i.e. without going to court); but, upon demand, a hearing was available. The garnishment notice sent by defendant was in compliance with Department of Education forms. Upon receipt of the garnishment notice, plaintiff filed a complaint for violation of the FDCPA.

The Result The garnishment notice was a violation of the FDCPA. However, if the assumed error was “bona fide” (i.e. an error made in good faith, as opposed to a contrived mistake), then the violation is unenforceable. Bona fide error = 1.) unintentional; 2.) bona fide; and 3.) procedures are maintained to avoid such error.

Case Study No. 2 Plaintiff received a letter dated from defendant attempting to collect a student loan in the amount of $2,300 that she allegedly owed the Department of Education. The letter was two pages long, printed on both sides of one sheet of paper. The same block print is used throughout the letter, with no changes in font, and no underlining, bold type, or other emphases upon any one portion of the letter.

The front of the letter read as follows: YOUR STUDENT LOAN, WHICH IS IN SERIOUS DEFAULT, HAS BEEN REFERRED TO GC SERVICES-A CONTRACTED PROFESSIONAL COLLECTION AGENCY-BY THE U.S. DEPARTMENT OF EDUCATION (ED). FULL COLLECTION ACTIVITY WILL CONTINUE UNTIL THIS ACCOUNT IS PAID IN FULL.... THE DEPARTMENT WILL CHARGE YOU FOR THE EXPENSES INCURRED TO COLLECT THIS ACCOUNT, AS AUTHORIZED BY THE HIGHER EDUCATION ACT OF 1965, AND YOUR PROMISSORY NOTE(S). THESE COLLECTION COSTS COULD ADD AS MUCH AS 25% TO THE AMOUNT NEEDED TO PAY THE ACCOUNT IN FULL.

And continued … TO AVOID FURTHER COLLECTION ACTIVITY, YOUR STUDENT LOAN MUST BE PAID IN FULL. SHOULD YOU FAIL TO PAY THIS AMOUNT IN FULL, GC SERVICES WILL REVIEW YOUR ACCOUNT AND MAKE RECOMMENDATIONS TO THE DEPARTMENT OF EDUCATION FOR THE MOST EFFECTIVE COLLECTION METHOD ALLOWABLE UNDER FEDERAL LAW.... NOTE: SEE REVERSE SIDE FOR IMPORTANT CONSUMER INFORMATION.

The reverse side of the letter to which the note referred, in pertinent part provided: IF YOU DO DISPUTE THE VALIDITY OF THIS DEBT, OR ANY PORTION THEREOF, IN WRITING, WITHIN THE THIRTY (30) DAY PERIOD, WE WILL OBTAIN VERIFICATION OF THE DEBT OR A COPY OF A COPY OF A JUDGMENT AND WILL MAIL A COPY OF SUCH VERIFICATION OR JUDGMENT TO YOU. AT YOUR REQUEST, IN WRITING, WITHIN THE THIRTY (30) DAY PERIOD, WE WILL PROVIDE YOU WITH THE NAME AND ADDRESS OF THE ORIGINAL CREDITOR, IF DIFFERENT FROM THE CURRENT CREDITOR. THE DEMANDS FOR PAYMENT IN THIS LETTER DO NOT REDUCE YOUR RIGHTS TO DISPUTE THIS DEBT, OR ANY PORTION THEREOF, AND/OR TO REQUEST VERIFICATION WITHIN THE THIRTY (30) DAY PERIOD AS SET FORTH ABOVE.

This letter came in an envelope which had in the upper- left hand corner the following return address: US Department of Education P.O. Box 4144 Greenville, TX Official Business Penalty for Private Use, $300

The Result Plaintiff objects to the sentences: “FULL COLLECTION ACTIVITY WILL CONTINUE UNTIL THIS ACCOUNT IS PAID IN FULL....TO AVOID FURTHER COLLECTION ACTIVITY, YOUR STUDENT LOAN MUST BE PAID IN FULL.” Court: no violation. When the letter is read as a whole, the court concluded that the lines do not misrepresent, contradict, or overshadow the language explaining plaintiff’s statutory rights.

Plaintiff also argues that the letter was false or misleading in stating that full collection activity will continue until the debt was paid in full because her timely exercise of her rights would require the collector to cease collection activity until responding to the information request. Court: no violation

First, the letter fully informed the plaintiff of her rights to dispute the validity of the debt or request more information on the original creditor within 30 days of receipt of the collection letter. Second, the letter does not contain a threat of legal action by the debt collector within that 30 day window. Third, the statements are not misleading because, except for temporary delays caused by the nature of the collection process, only full payment of the debt would prevent the continuation of the collection activity.

Plaintiff also appealed the adverse ruling relating to the envelope in which the collection letter arrived. Court: violation of FDCPA The defendants' use of the United States Department of Education's name and address on the envelope, as well as a marker that the envelope is not to be used for private communication, violated the plain language of the FDCPA

Case Study No. 3 Plaintiff obtained $4,000 in student loans between 1979 and All loans were guaranteed by entity that contracted with the Department of Education to provide such guarantees.

Plaintiff defaulted on the loans. Plaintiff claims that he paid guarantor on two loans. 1987, Guarantor instituted suit. Plaintiff contacted guarantor and requested the “payoff amount.” Plaintiff sent a check to guarantor for $1,769.84, the amount guarantor stated was the “payoff amount.” Plaintiff did not file an answer or appear in the litigation because he thought his payment resolved the issue. Guarantor obtained a default judgment against plaintiff for an amount that did not take into account his prior payments.

1990, Plaintiff contacted guarantor and was told that the entire debt could be paid off for $ Plaintiff paid the $70.00 and received a letter from guarantor informing him that his obligation was paid in full. The letter contained the four promissory notes, stamped “paid in full.” Later, guarantor claimed a computer error caused the promissory notes to be stamped “paid in full.”

The Defense and Result Default judgment is set aside and litigation resumes. Guarantor claims it is not a “debt collector.” Court: Guarantor is a “debt collector.” The FDCPA excepts from the definition of a debt collector “any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties.” Guarantor did not become a government employee by virtue of its contract with the Department of Education.

Thank You Daniel G. Kielczewski Abbott, Nicholson, Quilter, Esshaki & Youngblood, P.C. 300 River Place, Suite 3000 Detroit, MI