Fair Debt Collection Practices Act

ZombieIn today’s LA Times, Sean Pyles wrote a nice summary of the problem of zombie debt.

He began with the observation that when the statute of limitations has passed on debt collection actions, creditors are estopped from suing you to collect.  However, I suspect that in the interest of saving columnar space, he elided over

Many ― but not all ― debt collectors working for loan sharks are alleged humans who do the bidding of the dark side of the force.  I have written about abusive debt collectors several times, in unflattering terms.  It turns out that I’m not the only one who has noticed their abusive tactics.  The feds are paying attention too.

I.  The Abusive Tactics Epidemic

A.  Criminal Charges Against Collectors

Writing in the November 18, 2014, issue of the ABA Journal, Martha Neil reported:

A Georgia-based debt-collection company, its owner and six employees have been criminally charged in what is described by federal authorities as a $4.1 million national scheme that took advantage of more than 6,000 people.  U.S. Attorney Preet Bharara of Manhattan, who is overseeing the case, says a larger investigation of “an absolute epidemic of abusive debt-collection practices” is ongoing by the Consumer Financial Protection Bureau, the Federal Trade Commission, the Federal Bureau of Investigation and federal prosecutors in his own office.  This appears to be the first time these agencies have coordinated on such a probe, which could signal that a major enforcement effort is underway, reports CNN Money.  The Atlanta Journal-Constitution, Newsday (sub. req.) and Reuters also have stories.  “[R]uthlessly persistent” collectors at Williams, Scott & Associates in Norcross, Georgia, bullied thousands of people nationwide into paying millions between 2009 and 2014, sometimes even when they didn’t owe money, said Bharara.  Collectors falsely claimed affiliations with government agencies and threatened people with arrest or other enforcement action, he said.

Collectors lied!  I’m shocked, shocked.  Actually, I’m not shocked because I’ve had clients tell me that collectors have threatened to jail them for not paying a debt.

The FBI has an article about the Williams, Scott & Associates case, that provides much more detail about the scope of the abuse.  I mention this to emphasize the fact that the FBI really is interested in going after abusive collectors.  However, they cannot do so unless the victims report the abuse.  Therefore, if you’ve been told by a debt collector that you’re headed for jail unless you pay a debt, call the FBI and the U.S. Attorney’s Office, and tell them about it.  If enough people complain, they will act.
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Cartoon of man with billA very recent Eleventh Circuit decision, Crawford v. LVNV Funding, LLC, No. 13-12389 (11th Cir., July 10, 2014), highlights an interesting split among the circuits, which makes things ripe for an appeal to the Supremes.

First let’s get a little background.

BACKGROUND

I.                The Automatic Stay And The Discharge Injunction

When a person files for bankruptcy protection, the automatic stay is triggered.  The stay prevents creditors from taking action against the debtor, the debtor’s possessions, and the bankruptcy estate that is created upon filing.  I have written about the automatic stay in many previous posts, so I won’t spend a lot of time exploring it here.

[T]he stay . . . continues until the earliest of —

(A) the time the case is closed;

(B) the time the case is dismissed; or

(C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied.

11 U.S.C. § 362(c) (2).

If the debtor receives a discharge, then once the stay terminates it is replaced by the permanent discharge injunction of 11 U.S.C.  § 524(a), that forever prohibits creditors from attempting to collect discharged debts.

II.              The Fair Debt Collection Practices Act

The Bankruptcy Code is federal law, made pursuant to Congress’s enumerated power “to establish . . . uniform Laws on the subject of Bankruptcies throughout the United States.”  U.S. Const. art. I, § 8, cl. 4.  It affords debtors marvelous protections — including the automatic stay and the discharge injunction — against the depredations of their creditors.

Another federal law that protects debtors, in this case from debt collectors, is the Fair Debt Collection Practices Act (“FDCPA”) found in 15 U.S. Code § 1692, et seq.  The FDCPA contains significant limitations on what a debt collector can do.  By the way, the limitations here are not on the creditor, just on the collector.

III.            The Doctrine Of Federal Preemption

The U.S. Constitution contains the following provision:

This Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.

U.S. Const., art. VI, para. 2.

This means that federal laws are binding on everyone.  Thus, if there is a conflict between a federal statute and a state statute, the federal statute always wins.  This is sometimes referred to as the doctrine of federal preemption.

But notice what the Constitution does not say.  It does not say anything about the relationship between two federal statutes.  Therefore, if there were an inconsistency between two federal statutes, there is no formula for determining which statute controls.  And if there were no conflict between two federal statutes, there is no indication that one should be preferred above the other.

IV.            The Ninth Circuit’s Walls Decision

In 2002 the U.S. Court of Appeals for the Ninth Circuit issued a decision in Walls v. Wells Fargo Bank, N.A., 276 F. 3d 502 (9th Cir. 2002), that has created a problem for Ninth Circuit practitioners.
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An ongoing source of distress for debtors is truly abusive debt collectors.  Many of these alleged humans ignore the due process rights of debtors, lie, and break the law in their efforts to shake down debtors.  Can anything be done?  Finally, the federal and state governments are starting to take some action.

I.          The Problems

A.        Collectors Fail To Follow The Due Process Rules

I regularly have clients show me abstracts of judgment from state court cases in which they knew nothing about the suit until receiving the judgment.  Are my clients lying?  I don’t think so.  In fact, a California state senator had the same thing happen to him.  According to Jim Puzzanghera, in the August 20, 2012 Los Angeles Times:

Several years ago, debt collectors began pursuing state Sen. Lou Correa (D-Santa Ana) for an unpaid Sears bill they said he owed.  He told them they had the wrong man, but the debt collectors never wavered.  “These folks are very aggressive,” Correa said. “They’ll call back repeatedly and say, `Tell us some personal information so we can tell it’s not you.’  When all of a sudden is the burden of proof on me?”  Last year, Correa discovered his Senate paycheck was being garnisheed [sic] because of a $4,329 lien for the Sears debt.  Brachfeld had obtained a default judgment in court, even though, Correa said, the lawsuit was never served on him and he knew nothing of the claim or the court hearing.  He later learned that the debt belonged to a Luis Correa from Santa Ana. The man had a different Social Security number, different address, even different first name — the senator is legally Jose Luis Correa.  “I always pay my bills on time.  Then to have somebody garnish my wages, I thought was pretty astounding,” the lawmaker said.  He later resolved the problem and stopped the wage garnishment.  Now Correa is supporting a bill by state Sen. Mark Leno (D-San Francisco) to require debt collectors to document that they are pursuing the right person for the correct amount of money.  The bill passed the Senate and is pending in the Assembly.

If these entities can abuse a state senator, where does that leave the average person without any political clout?
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