How to avoid running afoul of the debt collection law Featured

7:00pm EDT November 25, 2010

If you’re trying to collect a debt for a third party, failing to follow the rules of the Federal Debt Collection Practices Act could prove costly.

The Act, which provides for consumer damages if violated, was passed by Congress to prevent harassment of consumers who may fall into debt and be unable to pay it off, says Jennifer Ervin, an associate, bar results pending, at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.

“The intent was to make the transaction of acquiring debt less of a nightmare to consumers when it’s time to pay the debt if they are in default,” says Ervin.

Smart Business spoke with Ervin about how to avoid running afoul of the law when collecting debt for a third party.

What is the Federal Debt Collection Practices Act?

The FDCPA is a federal law that prohibits unfair debt collection practices, such as lying, harassing or otherwise abusive collection methods. However, the Act prohibits conduct only by debt collectors collecting debt on behalf of a third party; it does not apply to creditors collecting their own debt.

The purpose of the Act is to stop abusive debt collection practices to ensure that debt collectors who already refrained from those practices were not disadvantaged and to promote consistent action to protect consumers from those practices. Ultimately, as long as the debt collection company is not harassing the consumer or lying, for example, the debt can be pursued.

Who can pursue action under the Act?

Any person who is considered a consumer can sue under the Act. A consumer is defined as a natural person obligated, or allegedly obligated, to pay a debt. That means that basically any American can bring an action against a debt collector who is violating this statute. Because it is a federal offense, relief may be sought under the federal court system.

To pursue a claim, you have to prove three things. First, you must prove that you are a consumer who has been the object of collection activity arising from debt. Second, you have to prove that the defendant is a debt collector as defined by the Act. You have to prove that the agency is a third-party debt collector; a key distinction would be a lender that is foreclosing on a security deed that the borrower has defaulted on. If the lender is in the act of pursuing action and foreclosing, that does not make that lender a debt collector under the act.

The third thing you need to prove is that the defendant has engaged in an act or omission that is prohibited under the Act. If you can prove all three of those things, you have a high likelihood of succeeding in your claim.

How can a consumer prove a debt collector has violated the Act?

Phone messages and letters directly from the collection agency could be used as proof. A person could also produce copies of phone records, as collectors can’t call you at work and can’t call before 8 a.m. or after 9 p.m. They also can’t conceal their identity on the phone.

In addition, if the debt collector disregarded a written request to stop further contact with the consumer because the debt is disputed, that could help establish harassment. If you submit a written request, the collections efforts have to cease. If they continue after the consumer has disputed the debt, then that is likely a violation of the Act.

What defenses could a collection agency make to dispute a consumer claim?

First, the agency could show that the plaintiff has failed to prove one of the three elements required under the law. If the plaintiff fails to show that he’s a consumer, or that the defendant is a debt collector, that’s a great defense.

However, if a plaintiff does prove all three elements, there are three ways the debt collector can ask the court to forgive the agency’s actions. First, it can claim as a defense that the act or omission giving rise to the claim was completely unintentional. Second, the agency can say that the act or omission was a bona fide error, or that the violation was made despite the maintenance of procedures that were reasonably put in place to avoid the error. A third defense is that it was a truthful error and the agency was not trying to be aggressive in pursuit of the debt. If the debt collection company can make a strong showing that the questionable actions are not common practice, the company may be able to avoid, or at least lessen, its liability.

What are the consequences of failing to comply with the Act?

A debt collection agency can be liable for damages. Those damages could include any actual damage sustained by the consumer as a result of the action taken. In addition, the court may allow additional damages of up to $1,000. In the case of a class action suit, the court may allow an amount for all class members not to exceed the lesser of $500,000 or 1 percent of the net worth of the debt collector. In some cases, an award of damages for emotional distress has been allowed.

Jennifer Ervin is an associate, bar results pending, at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. Reach her at (404) 223-2219 or