Participants of the Consumer Credit and Debt Industry
Before discussing the Fair Debt Collection Practices Act, a brief discussion on the industry would be helpful. There are several types of entities within the consumer credit and debt industry. These entities include loan originators, loan servicers, third party collectors, and debt buyers. Consumer debt is created by loan originators, also commonly referred to as creditors.
Once the debt is created, the loan originator can choose to outsource servicing of the loan while it is still in good standing to loan servicers. Loan servicing may include sending bills, providing customer service, and collecting payment on the loan. Once a loan has fallen into default, the loan originator has a variety of options for recovery of the debt.
A loan originator may choose to collect on the debt itself, outsource collection on defaulted debt to third-party collection agencies, or sell the debt to a debt buyer. Third-party collection agencies are typically paid a portion of the amount of delinquent debt they are successful in collecting. See Fed. Trade Comm., Collecting Consumer Debts: The Challenges of Change 3 (2009). If a loan originator chooses to sell the debt to a debt buyer, the debt buyer in turn may collect on the debt itself or outsource to a third party. Id.
The Government Inadvertently Creates the Debt Industry
The practice of buying debt is a relatively recent phenomenon, which was originated by government action during the 1980’s and early 1990’s as a result of the savings and loans crisis. See Fed. Trade Comm., The Structure and Practices of the Debt Buying Industry 12 (2013). During this time, the Resolution Trust Corporation, a government owned entity, auctioned off close to $500 billion in unpaid loans owed to creditors. Id. The success the government had in the sales of these debts encouraged other creditors to sell their debts as well, thus creating a debt buying industry. Id. The debt buying industry saw significant growth during the early 2000’s “as a result of … increases in the amount of debt available for purchase and the ready availability of capital to finance debt-buying enterprises and debt purchases.” Id.
Debt buyers continue to play a significant role in the industry today. See CFPB, Annual Report 2017: Fair Debt Collection Practices Act, 11 (2017). Debt buyers purchase defaulted debt for cents on the dollar of the debt’s face value. See Fed. Trade Comm., Collecting Consumer Debts: The Challenges of Change, ii (2009). After purchasing the debt, debt buyers either attempt to collect on the debt themselves, or outsource collection efforts to third-party collection agencies or law firms. See Stifler, Debt in the Courts: The Scourge of Abusive Debt Collection Litigation and Possible Policy Solutions, 11 Harv. L. & Pol’y Rev. 91, 94–95 (2017). Debt buyers “also repackage purchased debt portfolios,” and resell them to other debt buyers. See CFPB, Annual Report 2016: Fair Debt Collection Practices Act, 10 (2016).
The Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq.,prohibits “debt collectors” from taking certain actions in connection with the collection of any “consumer debt.” 15 U.S.C. §§ 1692c–1692j. The Fair Debt Collection Practices Act (the “FDCPA”) was enacted in 1977 with the purpose “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.” 15 U.S.C. § 1692(e).
The FDCPA employs important protections for consumers including restricting debt collectors from contacting a consumer at certain times and places, prohibiting collectors from contacting consumers represented by attorneys, and providing consumers the right to require a collector to cease communication with the consumer regarding a debt. 15 U.S.C. § 1692c. Under the Act, debt collectors are prohibited from engaging in harassing, oppressive, or abusive conduct when attempting to collect on delinquent debt. 15 U.S.C. § 1692d. This includes threats of violence and the use of profane language. Id.
Importantly, consumers have the ability to bring a private action against a debt collector who violates the act. 15 U.S.C. § 1692k. A debt collector found to be in violation of the Act can be liable for “any actual damages sustained” by the individual, up to $1,000 in additional damages, and attorney’s fees and costs. Id.
Application and Limitations of the FDCPA
Using the Fair Debt Collection Practices Act as its principal regulatory device, the Consumer Financial Protection Bureau (the “CFPB”) is the primary regulator of the debt buying and debt collection industry. See Reid, The Debt Buying Industry, Receivables Mgmt. Ass’n. 7 (2016).
However, as stated above, the FDCPA gives consumers the right to file lawsuits against debt collectors who violate it and even authorizes class action lawsuits. 15 U.S.C. § 1692k(a). As such, the FDCPA is an essential tool for protecting consumers from the abusive communication tactics used by companies to intimidate consumers and secure payment of delinquent debt.
“[T]he FDCPA . . . appl[ies] only to payment obligations of a (1) consumer arising out of a (2) transaction in which the money, property, insurance, or services at issue are (3) primarily for personal, family, or household purposes.” Oppenheim v. I.C. Sys., Inc., 627 F.3d 833, 837 (11th Cir. 2010). “The statute thus makes clear that the mere obligation to pay does not constitute a ‘debt’ under the F[D]CPA.” Id.
“[I]n order to state a plausible FDCPA claim under § 1692e, a plaintiff must allege, among other things, (1) that the defendant is a ‘debt collector’ and (2) that the challenged conduct is related to debt collection.” Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1216 (11th Cir. 2012).
Statutory Definitions under the FDCPA
The FDCPA defines the term “debt” as “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 ….” 15 U.S.C. § 1692a(5).
The FDCPA defines the term “debt collector” as “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.” 15 U.S.C. § 1692a(6).
The FDCPA defines “creditor” as “any person who offers or extends credit creating a debt or to whom a debt is owed” but excludes “any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.” 15 U.S.C. § 1692a(4).
Generally, the FDCPA does not apply to creditors, the person or entity take originally extended the credit that created the debt, unless they are representing themselves as a third party in the process of attempting to collect debt. 15 U.S.C. § 1692a(6) (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 third person is collecting or attempting to collect such debts.”). Congress decided to exempt creditors from the act based on the belief that creditors were already “restrained by the desire to protect their good will when collecting on past due accounts.” S. Rep. No. 95-382, at 2 (1977).
Consumer complaints regarding debt collection practices are the most common complaint received by the CFPB. See CFPB, Annual Report 2016: Fair Debt Collection Practices Act, at 17–19 (2016). The most common debt collection issue faced by consumers is “continued attempts to collect on debt that the consumer states is not owed.” Id. Consumers also regularly complain about the communication tactics used by debt collectors. Id. Many of the complaints involve calls that are “too frequent or at inconvenient times of the day” or “calls to third-parties or calls to the consumer’s place of employment.” Id. Another issue faced by consumers is the lack of debt verification documentation from debt collectors. Id.
Are You Being Harassed By Debt Collectors?
If you are a victim harassing and intimidating debt collectors, Gulisano Law can help as we go after those entities for violations of the Fair Debt Collection Practices Act.