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Federal Fair Debt Collection Practices Act and Texas Debt Collection Act
I. Introduction Any attorney seeking to enforce and or collect money judgements in Texas needs to be aware that the federal Fair Debt Collection Practices Act (“FDCPA”) and the Texas Debt Collection Act (“TDCA”) may apply to his or her enforcement activities. Failure to be cognizant of the scope of these laws and their proscriptions may well impose monetary liability on the attorney and even his or her client. II. FDCPA A. Scope The prohibitions set forth in the FDCPA only apply to parties who meet the definition of a “debt collector” set forth in 15 U.S.C. § 1692a(6) as follows: 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. Following this definition are two sentences which impose liability on parties that might not otherwise meet the definition. First, creditors who collect their own debts under a name other than their own name are treated as “debt collectors.” Second, the definition of “debt collector” includes any person who uses the mail or other instrumentality of interstate commerce to engage in a business the principal purpose of which is the enforcement of security interests. The definition of “debt collector” is followed by 6 exceptions covering (1) officers and employees of a creditor while collecting debts for the creditor, (2) persons collecting debts for an affiliated corporation when collection of debts is not the principal business of such a person, (3) any officer or employee of the federal state government collecting a debt as part of his official duties, (4) any person serving or attempting to serve process, (5) any nonprofit organizations engaged in consumer credit counseling services, and (6) any person collecting a variety of debts such as, inter alia, those incidental to escrow arrangements, debts originated by that person, and debts not in default at the time they were obtained by such person. Under 15 U.S.C. § 1692a(5), covered “debts” include “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.” The reference to “consumer” means any natural person obligated or allegedly obligated to pay any debt.” 15 U.S.C. § 1692a(3). In short, the FDCPA covers third-party debt collectors attempting to collecting debts arising out of obligations with a consumer (i.e. personal, family or household) purpose. Covered collectors can include those who are collecting consumer debts owed to others as well as consumer debts that have been assigned after default to the collector by the original creditor. The Act does not cover creditors attempting to collect their own debts inhouse (as long as they use their own name in collection), government employees attempting to collect debts owed to the government or process servers attempting service of process.
1. Coverage of Attorneys If you are as old as me, 52, you may wonder why the FDCPA has any relevance to attorneys seeking to enforce judgments. For almost 10 years after its enactment, the FDCPA specifically exempted “any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client.” That exemption, however, was repealed in 1986, and suddenly attorneys became subject to liability for violations of the FDCPA when they met the definition of “debt collector.” Despite the repeal of the attorney exemption, a number of courts, and even the Federal Trade Commission, were unwilling to find that the FDCPA applied to the activities of attorneys engaged in litigation. Green v. Hocking, 9 F.3d 18, 22 (6th Cir. 1993); Fireman’s Ins. Co. v. Keating, 753 F.Supp. 1137, 1141-1144 (S.D.N.Y. 1990); Federal Trade Commission, Statements of General Policy or Interpretation, Staff Commentary on the Fair Debt Collection Practices Act,” 53 Fed.Reg. 50,097, 50,100-50,102 (1988). For example, the Sixth Circuit unabashedly stated that “the actions of an attorney while conducting litigation are not covered by the [FDCPA.]” 9 F.3d at 22. Likewise, the FTC informally opined that attorneys “that engage in traditional debt collection activities (sending dunning letters, making collection calls to consumers) are covered by the FDCPA, but those whose practice is limited to legal activities are not covered.” 53 Fed.Reg. 50,097, 50,100. A number of courts of appeals, however, had found that there was no residual “litigation” exception for attorneys after the repeal of the express exception in 1986. Jenkins v. Heintz, 25 F.3d 536 (7th Cir. 1994); Fox v. Citicorp Services, Inc., 15 F.3d 1507, 1512-1513 (9th Cir. 1994); Scott v. Jones, 964 F.2d 314, 316-317 (4th Cir. 1992). Finally, the Supreme Court addressed this issue and specifically held that “[t]he Act does apply to lawyers engaged in litigation.” Heintz v. Jenkins, 514 U.S. 291, 294, 115 S.Ct. 1489, 1490 (1995). The Supreme Court primarily relied on the plain language of the “debt collector” definition and the repeal of the explicit attorney exemption in reaching its conclusion. As for the FTC’s interpretation, the Court noted that it was not considered binding on the Commission or the public and was not a reasonable reading of the statute, one of the few times the Court has been unwilling to defer to the statutory interpretation of an administrative agency. Conceding that there is no “litigation” exception for
attorneys, when are attorneys covered by the FDCPA? The Fifth Circuit has
ruled that there are two ways in which an attorney may meet the definition
of a debt collector: (1) by engaging in any business “the principal
purpose of which is the collection of any debts” or (2) by regularly
collecting or attempting to collect debts owed to another or assertedly
owed to another. Garrett v. Derbes, 110 F.3d 317, 318 (5th Cir. 1997). In
other words, there are two alternative prongs in the definition, the
“principal purpose” prong and the “regularly collect” prong. Finding a
substantial difference between these two prongs, the court held that “a
person may regularly render debt collection purposes, even if these
services are not a principal purpose of his business. Indeed, if the
volume of a person’s debt collection services is great enough, it is
irrelevant that these services only amount to a small fraction of his
total business activity; the person still renders them ‘regularly.’ “
Id. On the other hand, courts are unwilling to find that attorneys are “debt collectors” when they engage in only incidental work collecting consumer debts. Catherman v. First State Bank, 796 S.W.2d 299, 302-303 (Tex. App. - Austin 1990, no writ); Franco v. Maraldo, 2000 WL 288378 (E.D. La.). For example in Catherman, neither a law firm that had only about 5 consumer credit cases out of its 750 to 1000 active files and worked on 10 to 15 consumer credit accounts for one client over the past 5 years nor an individual attorney who spent less than ˝ of 1% of his time collecting consumer debts, had sent less than 5 consumer credit demand letters in the past 5 years and spent less than an hour every month on such collection met the definition of a “debt collector.” 796 S.W.2d at 303. Likewise in Franco, an attorney who worked on only 2 collection matters during apparently his entire career did not meet the definition of a “debt collector.” 2000 WL 288378. For other cases refusing to find that an attorney or a law firm qualified as a “debt collector,” see Schroyer v. Frankel, 197 F.3d 1170 (6th Cir. 1999)(to prove regular collection, must show debt collection was a substantial, if not principal, part of his practice); White v. Simonson & Cohen P.C., 23 F.Supp.2d 273 (E.D.N.Y. 1998)(firm that sent 35 demand letters on one occasion was not a debt collector); Argentieri v. Fisher Landscapes, 15 F.Supp.2d 55 (D. Mass. 1998), later opinion, 27 F.Supp.2d 84 (D. Mass. 1998)(attorney who spent only 0.4% of time on consumer debt collection was not a debt collector); Mladenovich v. Cannonito, 1998 WL 42281 (N.D. Ill. 1998)(attorney who only sent 23 collection letters for 2 clients was not a debt collector). Recently, a number of courts have found that enforcement of security interests, such as the filing of judicial foreclosure actions, is not “debt collection,” thereby precluding law firms from being found to be “debt collectors.” Beadle v. Haughey, 2005 U.S. Dist. LEXIS 2473, *7-12 (D.N.H. 2005); Rosado v. Taylor, 324 F.Supp.2d 917-924-925 (N.D. Ind. 2004); Bergs v. Hoover, Bax & Slovacek, L.L.P., 2003 U.S. Dist. LEXIS 16827 (N.D. Tex. 2003); Hulse v. Ocwen Fed. Bank, FSB, 195 F.Supp.2d 1188, 1203-1204 (D. Or. 2002); Heinemann v. Jim Walter Homes, Inc., 47 F.Supp.2d 716, 722 (N.D. W. Va. 1998). This argument, however, only works if the lawsuits make no attempt to collect any debt, such as a deficiency judgment. In other words, it is effective only when the law firm files suit only to enforce a security interest. Thus, when a law firm sued to foreclose and to recover unpaid debt, it is engaged in “debt collection” and may be covered by the FDCPA. McDaniel v. South & Associates, P.C., 325 F.Supp.2d 1210, 1216-1218 (D. Kan. 2004). 2. Is the underlying debt a consumer obligation or not? Another way of avoiding the application of the FDCPA is by proving that the debt being collected is not a consumer debt. Most obviously, an attempt to collect a commercial or business debt would not be covered by the Act. First Gibraltar Bank, FSB v. Smith, 62 F.3d 133, 135-136 (5th Cir. 1995). The Seventh Circuit has held that the relevant time for a determination of the purpose of the transaction is when the debt obligation is incurred, not when the debt collection activity occurred. Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, 214 F.3d 872, 874-875 (7th Cir. 2000). Thus, where an individual originally purchased a house to live in but was renting it out at the time collection activities commenced, the debt was considered consumer in nature rather than commercial. Id. Despite many efforts to limit the application of the FDCPA, the courts have been willing to apply the Act to a wide variety of consumer debts. Recently, many debt collectors have argued that dishonored checks are not “debts” under the FDCPA, because payment by check is the equivalent of payment in cash and that there is no “debt” under the Act unless credit has been extended. While this argument has found some support by a few district courts, see, e.g., Krevsky v. Equifax Check Services, Inc., 85 F.Supp.2d 479, 480-482 (M.D. Pa. 2000) and Cederstrand v. Landberg, 933 F. Supp. 804, 805-806 (D. Minn. 1996), every court of appeals that has directly addressed this issue has found that dishonored checks are “debts” for purposes of the FDCPA, Duffy v. Landberg, 133 F.3d 1120, 1123-1124 (8th Cir. 1998); Charles v. Lundgren & Assoc., P.C., 119 F.3d 739, 742 (9th Cir. 1997); Bass v. Stolper, Koritzinsky, Brewster & Neider, S.C., 11 F.3d 1322, 1324-1330 (7th Cir. 1997). The courts of appeal have simply refused to limit the definition of “debt” under the Act to debt in which credit was extended, recognizing that the plain language of the definition was not that limited. Charles, 119 F.3d at 741-742; Bass, 111 F.3d at 1325-1330. Likewise, most courts have found debt for past due rent for residential space to be a “debt” covered by the FDCPA. Romea v. Heiberger & Associates, 163 F.3d 111,114-116 (2d Cir. 1998). Similarly, water and sewer bills are covered debts under the Act. Piper v. Portnoff Law Associates, Ltd., 396 F.3d 227, 232-236 (3rd Cir. 2005); Pollice v. National Tax Funding, L.P., 59 F.Supp.2d 474, 485 (W.D. Pa. 1999), aff’d, 2000 U.S.App. LEXIS 22153 (3d Cir. 2000). On the other hand, certain debts have been found to be outside the scope of the FDCPA. For example, child support obligations are not debts covered by the FDCPA, because these debts are not incurred to receive consumer goods or services. Mabe v. G.C. Services Ltd. Partnership, 32 F.3d 86, 88 (4th Cir. 1994); Campbell v. Baldwin, 90 F.Supp.2d 754, 756-757 (E.D. Tex. 2000); Battye v. Child Support Services, 873 F.Supp. 103, 105 (N.D. Ill. 1994); Brown v. Child Support Advocates, 878 F. Supp. 1451, 1454-1455 (D. Utah 1994). Similarly, a tort claim arising out of the illegal reception of microwave television signals has been held not to be a “debt” under the FDCPA, because it did not involve a consensual transaction. Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1168 (3d Cir. 1987). Likewise, tax obligations are not “debts” for purposes of the FDCPA. In re Westberry, 215 F.3d 589 (6th Cir. 2000); Staub v. Harris, 626 F.2d 275, 278 (3d Cir. 1980); Pollice v. National Tax Funding, L.P., 59 F.Supp.2d 474, 485 (W.D. Pa. 1999). 3. Other possible exemptions for attorneys Attorneys and other debt collectors have also attempted to assert the remaining exemptions to avoid application of the FDCPA. In the context of student loan collection, now largely handled by private collection firms and private attorneys, several courts have uniformly refused to apply the government actor exception set forth in 15 U.S.C. § 1692a(6)(C) to private parties engaged in the collection of student loan debts owed to the government, because the collectors were not employees of the government. Brannan v. United Student Aid Funds, Inc., 94 F.3d 1260, 1262-1263 (9th Cir. 1996), cert. Denied, 521 U.S. 1106, 117 S.Ct. 2484, 138 L.Ed.2d 992 (1997); Knight v. Schulman, 102 F. Supp.2d 867, 875-876 (S.D. Ohio 1999)(exception not available to private attorney collecting student loan debts for the government). Contra: Games v. Cavazos, 737 F.Supp. 1368 (D. Del. 1990). In a similar vein, another court refused to apply this government actor exception to a private party collecting utility debts initially owed to a local governmental entity. Pollice v. National Tax Funding, L.P., 59 F.Supp.2d 474, 486 (W.D. Pa. 1999). On the other hand, at least one district court was affirmed when it held that a guaranteed student loan agency was exempt from the Act under 15 U.S.C. § 1692a(6)(F)(i) regarding collection by a fiduciary. Pelfrey v. Educational Credit Management Corporation, 71 F.3d 1161 (N.D. Ala. 1999), aff’d, 208 F.3d 945 (11th Cir. 2000). One law firm sued for FDCPA violations asserted that in mailing of notice-to-vacate letters to defaulting tenants, a prerequisite to an eviction action in New York, it was acting as a process server and thereby entitled to rely on the exception in 15 U.S.C. § 1692a(6)(D). Finding these letters not to be legal process, the Second Circuit refused to permit the firm to rely upon this exception. Romea v. Heiberger & Associates, 163 F.3d 111, 116-118 (2d Cir. 1998). B. What does the FDCPA prohibit and require? 1. General Requirements and Prohibitions The FDCPA is a detailed regulatory scheme. There are 9 separate provisions which impose certain requirements and prohibit certain conduct. What follows is a brief description of each of these provisions: (1) Acquisition of Location Information: § 1692b regulates the acquisition of location information from non-debtor parties. Generally, it is intended to preclude debt collectors from mentioning the existence of a debt in any efforts at obtaining location information from friends and relatives. In attempting to obtain location information about a debtor with any person other than the debtor, this provision requires a debt collector to identify himself and to state that he is trying to obtain location information on the debtor. The debt collector is prohibited from revealing his employer unless asked and from mentioning that the debtor owes any debt. Moreover, the debt collector should never make more than one contact with each non-debtor individual unless the debt collector reasonably believes the individual gave incorrect information previously and possesses accurate information. In addition, the debt collector may not use a postcard to make such non-debtor contacts and in using other forms of mail shall not use any language or symbol which indicates that the sender is in the debt collection business. Finally, if the debt collector knows the debtor is represented by an attorney, all non-debtor contacts aimed at locating the debtor shall be suspended unless the attorney fails to respond within a reasonable time to a communication from a debt collector. (2) Debt Collection Communication: § 1692c regulates direct contacts with the debtor as follows:
(3) Harassment or Abuse: § 1692d generally prohibits any unreasonably harassing, oppressive or abusive conduct in debt collection. It specifically prohibits the use of threats of violence or other criminal means to harm any person, the use of obscene language, publication of any list of consumer debtors who allegedly fail to pay their debts (other than by reporting to a credit bureau pursuant to the Fair Credit Reporting Act), advertising the sale of any debt to coerce payment of the debt, making repeated telephone calls to annoy or harass any person, and making any telephone call without identifying the caller. (4) False or Misleading Representations: § 1692e bans any false, misleading or deceptive representation in connection with an attempt at debt collection. The following specified practices are deemed a violation of this provision:
In addition, this provision has one far-reaching subsection (11) that requires disclosure in the initial communication with the debtor that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose and in all subsequent communications that the communication is from a debt collector, except that this does not apply to formal pleadings in court actions. This notice is often referred to as a “Miranda warning” like the similar warning given in the criminal context.
(5) Unfair Practices: § 1692f prohibits the use of unfair and unconscionable means to collect or attempt to collect consumer debts, including but not limited to the following practices:
(6) Validation of Debts: § 1692g deals with the right of debtors to obtain validation of debts. Specifically, it provides that, within 5 days of the initial communication, a debt collector shall send to the debtor a written notice containing:
This provision further provides that if a debtor, in writing, disputes any debt or requests the name and address of the original creditor, the debt collector shall cease all debt collection efforts until the debt is verified or the original creditor is identified. (7) Multiple Debts: § 1692h provides that when a debtor owes multiple debts and makes a single payment, the debt collector shall not apply the payment to any debt in dispute and shall apply the payment in accordance with the debtor’s instructions. (8) Legal Action by Debt Collectors: § 1692i basically prohibits debt collectors from bringing a debt collection suit in a distant or inconvenient forum. In the case of debts secured by an interest in real estate, such actions must be filed in the judicial district where the real estate is located. With all other debts, such actions must be filed in the judicial district (a) in which the debtor signed the contract sued upon or (b) in which the debtor resides at the commencement of the action.
(9) Furnishing Certain Deceptive Forms: § 1692j makes it unlawful for any person (instead of any debt collector) to design, compile and furnish any form knowing that such form would be used to create the false belief in a debtor that a person other than the creditor, such as an attorney, is participating in the collection of a debt when they are not so participating. 2. Compliance Issues of Interest to Attorneys There are a number of compliance issues that apply to attorneys seeking to collect consumer debts, even when they are acting in litigation. a. Venue: Attorneys who fit the definition of “debt collector” must be careful to bring consumer debt collection actions only where provided by § 1692i. In the context of debts unrelated to real estate, that means that suit should only be filed where the underlying contract was signed or where the consumer resides. If the underlying contract is oral, the debtor can only be sued in the judicial district where he resides. Crawford v. Credit Collection Services, 898 F. Supp. 699 (D. S.D. 1995); Martinez v. Albuquerque Collection Services, 867 F. Supp. 1495, 1502 (D. N.M. 1994). Even the post-judgment filing of an application for a writ of garnishment is considered a judicial action covered by the FDCPA venue provision, meaning that, if the application is filed in a jurisdiction other than one of the two permitted venues, the FDCPA is violated. Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507, 1515 (9th Cir. 1994). See the following cases where attorney debt collectors were held liable under the FDCPA for filing collection actions in a distant forum: Addison v. Braud, 105 F.3d 223, 224 (5th Cir. 1997); Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507, 1511 (9th Cir. 1994); Scott v. Jones, 964 F.2d 314, 316-318 (4th Cir. 1982).
b. Notice of validation rights and Miranda warning: Attorneys who fit the definition of “debt collector” must give the Miranda warning required by § 1692e(11) in their initial communication and must give an adequate written notice of the debtor’s validation rights under § 1692g within 5 days of the initial communication. Some attorneys who have failed to give the Miranda warning have been held liable for violating § 1692e(11). Romea v. Heiberger & Associates, 163 F.3d 111, 113-119 (2nd Cir. 1998)(failure to give § 1692e(11) notice not excused in notice-tovacate letter); Frey v. Gangwish, 970 F.2d 1516, 1519-1520 (6th Cir. 1992)(post-judgment letter to judgment debtor was initial communication with debtor despite prior communications in underlying suit with debtor’s attorney, thereby requiring the giving of the notice required by this subsection). Compliance with the validation provisions of § 1692g is much more complicated. The most common violation is that the notice of the right to obtain validation of a purported debt within 30 days has been overshadowed or contradicted by other language in the communication. Savino v. Computer Credit, Inc., 164 F.3d 81, 85 (2d Cir. 1998); Bartlett v. Heibl, 128 F.3d 497, 500 (7th Cir. 1997); U.S. v. National Financial Services, Inc., 98 F.3d 131, 139 (4th Cir. 1996); Graziano v. Harrison, 950 F.2d 107, 111-112 (3rd Cir. 1991); Miller v. Payco-General American Credits, Inc., 943 F.2d 482, 483-485 (4th Cir. 1991); Swanson v. Southern Oregon Credit Service, Inc., 869 F.2d 1222, 1224-1226 (9th Cir. 1988); Gervais v. Riddle & Associates, P.C., 2005 U.S. Dist. LEXIS 5395, *14-24 (D. Conn. 2005); Brown v. Law Offices of Butterfield, Joachim, Schaedler & Kelleher, 2004 U.S. Dist. LEXIS 9822, 811-14 (E.D. Pa. 2004); Rhoades v. West Virginia Credit Bureau Reporting, 96 F.Supp.2d 528, 531-532 (S.D. W.Va. 2000); McNab v. Statewide Recovery Service, Inc., 2000 WL 135839 (E.D. La.); Garner v. Kansas, 1999 WL 262100 (E.D. La.). For example, sending a collection letter with language demanding immediate payment or payment within 10 days overshadows other language in the letter giving notice of the § 1691g validation rights. Attorneys are not infrequently sued for overshadowing or contradicting the validation notice required by § 1691g. See, e.g., Graziano and Garner. At least one court has found that a validation notice which required any dispute of the purported debt to be in writing was a violation of § 1692g(a)(3). Spearman v. Tom Wood Pontiac-GMC, Inc., 2002 U.S. Dist. 24389, * 21-31 (S.D. Ind. 2002). A number of courts agree with this ruling. Ong v. Am. Collections Enterp., Inc., 1999 U.S. Dist. LEXIS 409 (E.D.N.Y. 1999); Harvey v. United Adjusters, 509 F.Supp. 1218, 1221 (D. Ore. 1981). At least one court of appeals, however, has ruled that such disputes must be in writing. Graziano v. Harrison, 950 F.2d 107, 111-112 (3rd Cir. 1991). There is no explicit ruling on this issue in the Fifth Circuit. If the initial communication between the debt collector
attorney and a debtor is the petition filed in court, compliance with §
1691g can be even more complicated. What if the first contact between the
debt collector attorney and a debtor is the petition filed in court? A
number of courts addressing this issue have found legalpleadings such as
petitions can be “initial communications,” thereby triggering a duty to
provide a validation notice. Thomas v. Law Firm of Simpson & Cybak,
392 F.3d 914, 916-920 (7th Cir. 2004)(en banc); Kafele v. Lerner, Sampson
& Rothfuss, 2005 U.S. Dist. LEXIS 11127 (S.D. Ohio 2005); Spears v.
Brennan, 745 N.E.2d 862, 875-878 (Ind. App. 2001); Mendus v. Morgan &
Associates, P.C., 994 P.2d 83, 88-92 (Okla. App. 1999); Goldman v. Cohen,
2004 U.S. Dist. LEXIS 25517, *7-24 (S.D.N.Y. 2004). Likewise, what happens if an attorney debt collector gives
the validation notice in the body of the petition, because it is the
attorney’s first communication with the debtor regarding a debt? When the
citation or summons provides for a different period of time in which to
file an answer than the 30 days for in the validation notice, there can be
a different violation of the FDCPA. Several courts have ruled that the
FDCPA has been violated when the initial petition/complaint contained
notice of the 30-day validation period and the attached citation/summons
provided for a lesser period to file an answer to avoid a default, finding
that the validation notice had been contradicted or overshadowed by the
notice of when to file an answer in a different time period. Spears v.
Brennan, 745 N.E.2d at 875-878; Mendus v. Morgan & Associates, P.C.,
994 P.2d at 88-92. In some of these cases, debt collectors have argued that it is irrelevant whether the validation notice was given where it is clear that the amount of the debt is 1 Moreover, including an amount of attorney’s fees in the disclosure of the amount of the debt can be deceptive and thereby found to be a violation of 15 U.S.C. §§ 1692e and 1692f. For example, the Seventh Circuit found the failure to itemize the amount of the debt, which would have explained the addition of attorney’s fees, was deceptive and violative of the FDCPA. Fields v. Wilber Law Firm, 383 F.3d 562, 565-566 (7th Cir. 2004). That ordinarily does not mean that attorney’s fees can only be determined in a court of law. Id. at 564-565; Singer v. Pierce & Associates, P.C., 383 F.3d 596, 598-599 (7th Cir. 2004). valid. While this may have some basis in logic, no court has accepted this argument. In each case, the courts have ruled that the statutory validation notice must be given and the validation procedure followed. Rhoades, 96 F.Supp.2d at 532-533. See McCartney v. First City Bank, 970 F.2d 45, 47 (5th Cir. 1992); Baker v. G.C. Serv. Corp., 677 F.2d 775, 777 (9th Cir. 1982). Also, in stating the amount of the debt in the § 1691g notice, it is not appropriate to give notice of the unpaid principal balance only and direct a debtor to an 800 telephone number to obtain the amount of the accrued interest, late charges and other charges that may be due. Miller, 214 F.3d 872, 875-876. The Seventh Circuit indicated that the notice must state the full amount of the debt as of the date the notice was issued. Id. While this is a new issue, it may well apply to the activities of attorney debt collectors in many situations, such as when an attorney sends notices preliminary to a non-judicial foreclosure with a statement of the amount owed. Finally, if an attorney sends a notice letter with a § 1691g notice and the consumer responds by contesting the debt and requesting the verification, the collecting attorney must cease collection efforts upon receipt of the consumer’s request until such verification. Thus, filing suit after getting a request for verification and without providing any verification of the debt beforehand violates the FDCPA. Anderson v. Frederick J. Hanna & Associates, 361 F.Supp.2d 1379 (N.D. Ga. 2005). c. Flat-rating: This is another name for the process by which an attorney provides signed or unsigned letterhead for use by another debt collector or even a creditor without any direct involvement on his part. It violates § 1692j, because it leaves the impression that a debt collector or creditor is represented by counsel, and in effect is serious about suing, when, in fact, there is no such connection. Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232, 1237-1238 (5th Cir. 1997); Miller v. Wolpoff & Abramson, 321 F.3d 292, 306-312 (2nd Cir. 2003); Nielsen v. Dickerson, 307 F.3d 623, 634-640 (7th Cir. 2002); Boyd v. Wexler, 275 F.3d 642, 644-648 (7th Cir. 2001); Clomon v. Jackson, 988 F.2d 1314, 1317-1321 (2d Cir. 1993); Nance v. Lawrence Friedman P.C., 2000 WL 1230462 (N.D. Ill. 2000). Moreover, liability for such flat-rating is not limited to debt collectors; liability may be imposed upon any person participating in the conduct, including an attorney who does not fit the definition of a “debt collector” or even a creditor. 3. FDCPA Remedies If a “debt collector” violates the FDCPA or a “person” violates the flat-ratingprohibition in § 1692j, they are subject to claims for actual damages, statutory damagesof up to $1,000 in an individual action or not more than$500,000 or 1% of the net worth of the defendant in a class action, and attorney’s fees and costs. 15 U.S.C. § 1692k(a). Such claims may be filed in federal or state court within one year from the date on which the violation occurs. 15 U.S.C. § 1692k(d). A bona fide error defense is afforded to defendants, 15 U.S.C. § 1692k(c), and a defendant may recover attorney’s fees from the plaintiff upon a showing that any FDCPA action was brought in bad faith and for the purpose of harassment, 15 U.S.C. § 1692k(a)(3). Class actions against law firms for violation of the FDCPA are becoming more common. See, e.g., Keele v. Wexler, 149 F.3d 589 (7th Cir. 1998); Fuller v. Becker & Poliakoff, P.A., 198 F.R.D. 697 (M.D. Fla. 2000); Fry v. Hayt, Hayt & Landau, 2000 U.S. Dist. 18895 (E.D. Pa. 2000). Practice Note: Attorneys covered by the FDCPA should consider the development of procedures “reasonably adapted to avoid” violations of the FDCPA, so that the bona fide error defense can be raised. See 15 U.S.C. § 1692k(c); Frye v. Bowman, Heintz, Boscia & Vician, 193 F.Supp.2d 1070, 1084-1089 (S.D. Ind. 2002). III. Texas Debt Collection Act This Act has a very broad scope but provides fewer remedies for consumer debtors than the FDCPA. A. Scope The Texas Debt Collection Act (“TDCA”), Tex. Fin. Code § 392.001 et seq., is far broader than that of the FDCPA. Like the FDCPA, the TDCA only applies to “debt collectors” seeking to collect consumer-related debt, Tex. Fin. Code § 392.001(2), (5) and (6), but the definition of debt collectors is intended to encompass creditors collecting their own debts. Smith v. Heard, 980 S.W.2d 693, 697 (Tex. App. - San Antonio 1998, pet. denied); Monroe v. Franks, 936 S.W.2d 654, 659-660 (Tex. App. - Dallas 1996, writ dism’d w.o.j.). It further defines a “third-party debt collector” as encompassing the FDCPA definition of “debt collector” with the caveat that attorneys are not included in this definition only if he employs non-attorney staff who regularly engage in debt collection. Tex. Fin. Code § 392.001(7). The TDCA only places two demands upon third-party debt collectors: (1) they are required to file proof of a $10,000 bond with the Texas Secretary of State, Tex. Fin. Code § 392.101, and (2) they must provide verification of debts upon request, Tex. Fin. Code § 392.201. B. What does the TDCA prohibit and require? Most of the TDCA is directed at “debt collectors” which includes creditors seeking to collect their own debts, parties that would clearly be exempted from coverage under the FDCPA.
C. TDCA Remedies:
IV. Conclusion Attorneys who fit the definition of “debt collector” need to be careful about complying with the FDCPA to avoid potential liability for statutory damages and costs of litigation. While easier to comply with, the TDCA does raise potential liability issues in particular for creditors attempting to collect their own debts.
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