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May 2021 Advisory

ACA Member Meets with New Jersey Congressman

Rep. Scott Garrett meets with representatives from Heritage Financial Recovery Services to discuss TCPA reform and other issues facing the credit and collection industry.







Past ACA President and Pennsylvania collection Agency Owner Harry Strausser III was quoted recently for an AP national story while in Atlantic City for a collection convention.
ATLANTIC CITY, N.J. -- These are the best of times, and the worst of times, for America's debt collectors. The prolonged economic turmoil has created more opportunity than ever for the profession, even while making it harder than ever to get folks to pay up. A gathering of debt collectors in Atlantic City this week found many willing to work out payment plans with debtors in which payments of as little as $5 or $10 a month are acceptable. "It's harder to collect than ever because people are in genuine hardship," said Harry Strausser III, president of the Mid-Atlantic Collectors Association, who has his own collection agency in Bloomsburg, Pa. "With unemployment the way it is and the terrible foreclosures, people are having a harder time making ends meet. There's more potential business, and we're having a tougher time trying to collect it." Also growing is the number of consumer complaints about debt collectors. The Federal Trade Commission says it receives more complaints from consumers about debt collectors than any other industry. Last year, it received 140,036 such complaints, up from 119,609 in 2009. "They called me three or four times a day, every day, asking all kinds of personal questions, like am I married, do I have custody of my kids, can my kids pay this bill?" Scott Tillman III, a 53-year-old musician from Oroville, Calif., told The Associated Press in a telephone interview. He said he was harassed over an auto lease for a vehicle he returned to a dealership 15 years ago. Businesses nationwide placed $150 billion worth of debt with collection agencies last year, Strausser said. Of that total, agencies were able to collect about $40 billion, a figure that has held roughly steady for the past three years. There are 4,100 debt collection agencies in the United States, employing nearly 450,000 people, and the industry expects to grow by as much as 26 percent over the next three years. The industry averages about 20 percent recovery on delinquent debt, Strausser said. Several decades ago, it averaged 30 percent. Sometimes that amount is shared on a contingency basis with the business to which a consumer owes money. Other times, a debt collection agency will buy debt from businesses at a discount and keep whatever it can pry from the debtor. That part of the industry has grown significantly in recent years, collectors said. The most common consumer complaints against debt collectors involved three big no-nos under federal law: calling a debtor repeatedly or constantly; misrepresenting the amount or status of a debt; and failing to notify consumers of their rights in writing. About half the complaints dealt with repeated calls from collectors. More than 20,000 people said debt collectors falsely threatened to have them arrested or seize their property, and more than 17,500 said collectors used profanity or abusive language on the phone. Nearly 4,200 consumers said a collector threatened them with violence if they did not pay up. "The way collection agencies try to get money from people who have less of it is to get more aggressive," said Sergei Lemberg, a Connecticut attorney who represents debtors who feel harassed. "We get cases every day from people who have collection agencies calling them six, seven, 10 times a day. My own mother doesn't call me three times a day." Tillman, one of Lemberg's clients, told the agency calling him that he did not owe the debt on the vehicle he had already returned. Under the law, when a consumer disputes a debt, the agency is supposed to investigate the situation and if the debt is not owed, halt further collection efforts. "Then the threats started," he said. "They said, `We're going to take it out of your Social Security.' Because I'm black, they had someone who was black call me as if they knew me, saying, `Hey Scotty, man, when you gon' give us our money, man?' One day one of them called and said, `We're coming down there and we're going to put your ass in jail and take you for everything you've got." Kevin McNeill, 26, of Modesto, Calif., also got threatening calls for a $500 debt he incurred after a divorce. He was willing to pay it in two monthly installments but said the collector insisted on everything up front. "I get this call at work, and this guy is just going off, calling me a thief, a criminal, and saying that the sheriff's office would be there in 10 minutes to arrest me in front of my co-workers," he told the AP by telephone. "Then he threatened to call the owner of the company and say, `Do you know you have a thief working in your finance department?'" Collectors interviewed this week in Atlantic City said such tactics, aside from being illegal, just don't work. "Some agencies are into the intimidating side," said Jeff Kotula, a manager with a Scranton, Pa., collection agency who trains others in acceptable techniques. "They try to scare people into paying. We don't do that. We try to explain to people we're helping them get their credit rating back." Yet, collection agencies are quick to point out that unpaid debt is never truly written off: Someone, somewhere, has to eat it. An industry-sponsored study says debt collectors save the average U.S. household $354 a year in costs it otherwise would have been charged if businesses raised prices to cover losses instead of recovering it through a collection agency. "Say you own a small flower shop, and someone doesn't pay a $3,000 bill," Strausser said. "That's a big hit for a small business. So next year, you charge more for deliveries or add $5 to the price of an arrangement to try to make up for that lost money." Kotula said most collection agencies will offer a debtor the option to slowly pay off the debt_ as little as $5 or $10 a month in some cases. Some agencies will also offer settlements in which some of the outstanding debt can be forgiven if the rest is paid up front. "We have a lot of people who want to pay; they just don't know how they can do it and still be able to live their lives," said Hope Palmer, a Pennsylvania collections manager. "The most difficult situation is the person who has been unemployed for several years and can't find a job and can't pay their bills. That's most of our calls." In those cases, she said, a collector is trained to look for alternatives: Do you have relatives who can help you pay? Do you have a 401(k) account you can tap, or stock you can sell? "We won't turn away anything," Palmer said. "There is always a way to work something out." Kotula said his agency never technically gives up on an unpaid debt. "You never want to count it out," he said. "People's situations can change in three months. They may get a job and they can pay $25 a month."

“In Writing” Requirement Must Be Included in Validation Notices
Failing to disclose in a validation notice that verification requests must be submitted in writing violates the FDCPA.
The consumer alleged the debt collector violated §§ 809(a)(4), 809(a)(5), 807, and 807(10) of the Fair Debt Collection Practices Act (FDCPA) by failing to provide in a validation letter that the debt collector will provide verification or the identity of the original creditor if the consumer submits a dispute in writing. The debt collector moved for summary judgment.

Although the debt collector did not dispute that §§ 809(a)(4) and 809(a)(5) require a debt collector to inform consumers that a request for verification or the identity of the original creditor must be submitted in writing, the debt collector argued that he nonetheless maintained compliance. Specifically, the collector asserted that removing the “in writing” requirement from the letter provided the consumer additionalrights by allowing the consumer to trigger the collector’s verification requirements both orally and in writing. 

The court found that although a debt collector is free to provide verification or the identity of the original creditor upon an oral request from a consumer, the FDCPA requires that a debt collector must provide that such information will be presented upon a consumer’s written notification. By omitting the “in writing” requirement from the validation notice, the court held the debt collector did not effectively convey the consumer’s validation rights. 

The debt collector argued that even if there was a violation in this instance, the collector should not be held liable due to the bona fide error defense. The court noted that to establish a bona fide error defense under § 813(c), the collector must demonstrate that the violation was “not intentional.” Since a triable question of fact existed regarding this issue, the court held the collector’s asserted defense precluded partial summary judgment. 

Accordingly, the court denied the debt collector’s motion for summary judgment. Hernandez v. Guglielmo, No. 2:09-cv-0830-LDG-GWF, 2012 WL 993676 (D. Nev. Mar. 23, 2012).

Failure to Possess License Does Not Violate FCRA

The failure to possess a license, without more, does not constitute a false pretense under the FCRA.

The debt collector obtained the consumers’ address from a consumer reporting agency (CRA). The collector’s purpose in obtaining this information was to locate the consumers who owed delinquent rent payments at a condominium. The collector began collection activity after obtaining the consumers’ address, which eventually resulted in a state court judgment against the consumers.

The consumers alleged, among other things, that the debt collector violated § 619 of the Fair Credit Reporting Act (FCRA) by (1) obtaining consumers’ information from a CRA without being licensed in the consumers’ state, and (2) obtaining the information with the knowledge that the original creditor did not hold the deed to the condominium at issue. Based on these allegations, the consumers argued the debt collector did not have a right to request address information from the CRA. The consumers’ allegations in this case also matched their arguments made in the aforementioned state-court lawsuit. 

The debt collector and creditor moved to dismiss, arguing the consumers failed to allege that the consumers’ address was obtained from a CRA under “false pretenses,” which is required to establish a violation under § 619.

The court found that although courts in the Second Circuit have not addressed whether the failure to obtain a license violates the FCRA, such courts have held the failure to possess a license does not violate § 807 of the Fair Debt Collection Practices Act (FDCPA). Section § 807 of the FDCPA—which prohibits a debt collector from utilizing false or misleading representations—is similar to § 619 of the FCRA—which prohibits a person from “knowingly and willfully obtain[ing] information on a consumer from a CRA under false pretenses.” As such, the court noted that “there is no substantive difference between the FDCPA and the FCRA” as to whether the failure to be licensed constitutes a violation; therefore, both Acts apply with equal force. Without specific allegations as to how the failure to be licensed violates § 619, the court held the consumers failed to state a claim. 

The court also held the consumers’ allegation regarding the debt collector’s knowledge that the original creditor did not hold the deed to the consumers’ condominium was barred by collateral estoppel. Collateral estoppel bars a claim when an issue of ultimate fact has been determined under a previously valid and final judgment. The court found the issue of who held the deed to the condominium was decided in the prior state court proceedings and the consumers already had the opportunity to litigate these issues in state court. The court noted the fact that the consumers may still be attempting to appeal the previous state court decision does not undermine the application of collateral estoppel in this instance. 

Accordingly, the court granted the creditor and debt collector’s motion to dismiss. Caldwell v. Gutman, Mintz, Baker & Sonnenfeldt, P.C., No. 08-CV-4207 (JFB)(WDW), 2012 WL 1038804 (E.D.N.Y. Mar. 28, 2012).

BUT NOT "expressly": 

 Ninth Circuit Holds Validation Notice Must Expressly Require Written Disputes to Violate FDCPA


 The U.S. Court of Appeals for the Ninth Circuit recently held a validation notice that implicitly requires a consumer dispute a debt in writing does not violate the Fair Debt Collection Practices Act (FDCPA). Rather, according to the Ninth Circuit, a validation notice violates § 809(a)(3) of the FDCPA only when the notice expressly states that any dispute must be submitted in writing.

In Riggs v. Prober & Raphael, No. 10-17220, 2012 WL 2054640, --- F.3d --- (9th Cir. June 8, 2012), validation notice at issue stated the firm would provide the consumer verification if she disputed the debt in writing and would also provide the name and address of the original creditor upon the consumer's written request. The notice subsequently noted "[i]f I do not hear from you within 30 days, I will assume that your debt to [the client] is valid." The consumer alleged the notice violated § 809(a)(3) because it required her to submit any dispute of her debt in writing.

On appeal, the court noted §§ 809(a)(4)-(5) of the FDCPA require validation notices to include a statement that a consumer must provide written notice to a debt collector to obtain verification of the debt or the name and address of the original creditor. The court also noted that § 809(a)(3) requires validation notices include a statement that a debt will be assumed valid unless the consumer disputes the debt within 30 days; however, it does not clarify whether the consumer must dispute the debt in writing.  

The court observed that when these sections are read together, they could be read to imply that a consumer must dispute her debt in writing. The Ninth Circuit reasoned that "if the FDCPA itself can be read to imply that a consumer must dispute an alleged debt in writing, a validation notice like the [law firm]'s ...cannot be unlawful because it allows for the same implication."

The court recognized that other courts have held a debt collector violates § 809(a)(3) when the validation notice expressly requires that a consumer dispute the debt in writing; however, the court in Riggs noted that the law firm's letter did not expressly require a written dispute. 

Thus, even assuming that the law firm's letter could be read to implicitly require the consumer to dispute her debt in writing, the Ninth Circuit held that the notice did not violate the FDCPA. Rather, the Ninth Circuit held that a validation notice violates § 809(a)(3) only if it expressly requires a consumer to dispute a debt in writing.

Frivolous Dispute Did Not Require Furnisher to Mark Account as Disputed
Only meritorious or bona fide disputes trigger a data furnisher’s duty to mark an account as disputed under the FCRA.
The consumer submitted a written dispute to the debt collector regarding information about a delinquent debt on the consumer’s credit report. The dispute requested “proof of the alleged debt” and merely asserted the charges were excessive, inflated, and not warranted by contract. The debt collector responded to the consumer with a letter that stated to trigger an investigation, the consumer would need to submit to the collector additional written correspondence containing, among other things, “the specific information that is being disputed, an explanation for the basis of the dispute, and all supporting documentation or other information reasonably required to substantiate the basis of the dispute.” Instead of providing the requested materials, the consumer submitted the same dispute to the collector and subsequently submitted a substantially similar dispute to a consumer reporting agency (CRA). The collector verified the accuracy of the information with the CRA, but did not mark the consumer’s account as disputed.

The consumer alleged the debt collector violated § 623(b) of the Fair Credit Reporting Act (FCRA) because the collector failed to mark the consumer’s credit report as disputed when reporting its investigation results to a CRA. The debt collector moved to dismiss.

The court found that while § 623(b) provides a private cause of action, any failure to mark an account as disputed when providing the results of an investigation to a CRA is not a per se violation of the FCRA. The purpose of the FCRA is to “meet[] the needs of commerce” and to be “fair and equitable to the consumer.” The court noted that a dispute does not “trigger an absolute obligation” to report the debt as disputed when the dispute (1) does not meet the § 623(a)(8)(D) bona fide dispute requirements, or (2) qualifies as a frivolous dispute under § 623(a)(8)(F). Otherwise, consumers could file meritless disputes at any time to improve one’s credit rating. 

With this assessment, the court stated whether a cause of action exists under § 623(b) is dependent on whether the consumer’s dispute was meritorious or bona fide, as such a dispute would arguably require a furnisher to mark an account as disputed to fulfill the intent of the FCRA. The court found it appropriate to consider the requirements of § 623(a)(8) to determine whether the consumer’s dispute was bona fide or meritless. Section 623(a)(8)(D) provides that a dispute must: (1) identify the specific item being disputed; (2) explain the basis for the dispute; and (3) include all supporting documentation required by the furnisher to substantiate the basis of the dispute. Thus, if a dispute does not meet these requirements, or alternatively, is deemed to be frivolous or irrelevant under § 623(a)(8)(F), a furnisher would have no obligation to mark an account as disputed and would therefore not be subject to liability under § 623(b).
In this case, the court found the consumer did not submit a meritorious or bona fide dispute to the debt collector because the dispute did not meet the applicable criteria under § 623(a)(8)(D). Additionally, the consumer’s dispute was frivolous or irrelevant because the consumer did not submit enough information to trigger an investigation. Instead of responding to the collector’s request to submit additional information, the consumer chose to submit a substantially similar dispute to the collector and a CRA, which failed to provide any supporting information beyond noting the reported charges were “not warranted by any existing contract.” Thus, the court held the collector had no obligation to mark the consumer’s account as disputed and was not liable under § 623(b).

Accordingly, the court granted the debt collector’s motion to dismiss.Noel v. First Premier Bank, Civ. A. No. 3:12-CV-50, 2012 WL 832992 (M.D. Pa. Mar. 12, 2012).

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