Federal Bill Spotlights Debt Collection Abuse – Again
Enduring debt collection can be a horrifying experience: calls all day, confusing and threatening letters and fear of legal action by creditors. Did you know that federal law regulates the practices of debt collectors? At least one U.S. senator doesn’t think it goes far enough and wants to expand its protections for consumers.
The Fair Debt Collection Practices Act
“The FDCPA was first enacted in 1977 to protect consumers against what were viewed as abusive, deceptive and unfair debt collection practices taking place at that time,” explains John Redding, counsel with BuckleySandler LLP in Los Angeles. The FCDPA protects consumers in a number of ways:
- Requiring debt collectors to inform consumers in writing regarding the amount of the debt, to whom the debt is owed, the consumer’s right to dispute the debt and obtain verification it is owed within five days of the initial contact
- Prohibiting debt collectors from communicating about the debt with third parties except in very limited circumstances
- Prohibiting any type of harassment or abuse of the consumer by the debt collector
- Prohibiting the use of any false, deceptive or misleading acts or statements by a debt collector
- Prohibiting the use of any unfair or deceptive means to collect a debt
A recent federal case illustrates how the FDCPA can be used to curb overzealous debt collectors. On July 9, a U.S. district judge in Denver, Colorado ruled that a debt collector’s and law firm’s attempt to collect over $800 in post-judgment interest on a consumer’s debt violated the FDCPA.
Judge Christine M. Arguello ordered that Liberty Acquisitions LLC and the law firm of Robert G. Busch PC pay Tracy Shepherd $1,000 plus attorneys fees – probably not what the debt collector and law firm had in mind when they went after Shepherd in state court to recover debt owed on a credit card. Their mistake was to tell the state court judge that Shepherd owed them post-judgment interest; she in fact did not, and she filed this action under the FDCPA to block them from their continued – and illegal – collection efforts.
Redding, who practices law in the financial services industry, says the result in the case is “not particularly surprising.” Liberty Acquisitions, the debt collection company, didn’t even provide evidence of its right to collect post-judgment interest – at the whopping rate of 23.9% – on the debt Shepherd owed, Redding points out. Nor could it overcome the judicial doctrine that prevents federal courts in most cases from directly reviewing state court decisions.
While Shepherd was successful in remedying the mistakes of this debt collector, many other consumers are not as fortunate. Senator Al Franken wants to do something about that.
Franken Pitches Increased Protection – Again
Senator Franken is again proposing to amend the FDCPA to make it more difficult to collect debt from consumers. A bill introduced by Franken in late June, titled the End Debt Collector Abuse Act (S 3350), would significantly expand the FDCPA. He introduced the same bill in 2010.
With the federal health care reform law still not on solid ground, the number of consumers with medical debt could continue to grow. “To the extent that people may not have medical insurance, or that insurance is inadequate to cover the procedures giving rise to the debt, medical debt can have a meaningful impact on consumers and may even lead consumers to file for bankruptcy protection,” says Redding.
The End Debt Collector Abuse Act addresses gaps in the federal debt collection law that have left patients vulnerable. It would update the FDCPA in general to help consumers better protect themselves and keep debt collectors honest. “Some unscrupulous debt collectors use intimidation to collect debts, going so far as to seek arrest warrants when consumers fail to respond to alleged unpaid debts,” notes Franken in a summary of the bill. “Most disturbingly, there have been recent reports of collectors targeting patients in emergency rooms and using private health information to pressure consumers to pay medical debts.”
Specifics of the End Debt Collector Abuse Act
“Often, the first communication with the consumer is the sending of a letter containing the required debt validation notice,” notes Redding. Franken’s bill would expand the required information in the letter to include:
- The date of the last payment made and amount of the debt at the time of that payment
- Itemization of principal, fees and interest making up the debt, including any charges imposed since the date of the last payment
- Disclosure of the consumer’s right to request the collector cease communication and to have collection efforts cease under certain circumstances already set forth within the FDCPA
- Identification of a person at the debt collector responsible for handling complaints
As for medical debt specifically, the bill proposes other changes to the FDCPA: It makes clear that the law applies to debt collectors and creditors: the debt does not have to be overdue for the FDCPA’s protections to apply. “It will also require additional disclosures in the debt validation notice, as well as the first oral communication, about the availability of charity care coverage and other financial assistance,” says Redding.
It would be big change for creditors and the debt collection industry. The need to update policies and procedures, train employees on the changes, and deal with the vagaries of new dispute investigation and verification requirements could increase the costs of collection, which could in turn increase the cost of credit and that could lead to “a potential negative impact on all consumers,” points out Redding.
He doesn’t give Franken’s bill much of a chance, given the gridlock in Congress and election-year maneuvering. But at least Franken’s keeping the issue in public view. Learn more about debt collection law on Lawyers.com. And if you have strong feelings about the End Debt Collector Abuse Act, contact your senator and make your voice heard.
If you’re being harassed by creditors, contact an experienced debtor/creditor attorney in your area who can answer your questions and help you evaluate your options.