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Attorneys need to understand the Fair Debt Collections Practices Act

Attorneys have increasingly become the targets of lawsuits for violations of the federal Fair Debt Collection Practices Act (FDCPA), and related claims are now one of the most common causes of malpractice claims against attorneys.

While many of these claims are against so-called “collections attorneys,” claimants often target attorneys who don’t even realize they are “debt collectors.”

Under the FDCPA, the term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails, the principal purpose of which is the collection of any consumer debt. This includes attorneys and law firms. These debts include any obligation or alleged obligation to pay money arising out of a transaction in which the money, property, insurance or services are primarily for personal, family, or household purposes.

In Heinz v. Jenkins, 514 U.S. 291, 299 (1995), the Supreme Court held, “that the [FDCPA] applies to attorneys who “regularly” engage in consumer-debt-collection activity, even when that activity consists of litigation.” Several factors are considered by the courts to determine what constitutes “regularly,” and the lawyer has the burden of proving she is not a debt collector.

Many lawyers collect debts on behalf of clients, thus potentially meeting the definition of a “debt collector” subject to the FDCPA. An example is a lawyer who represents a landlord, and then also attempts to collect back rent on behalf of that landlord. Depending on the circumstances, this type of work could be subject to the FDCPA.

Why is this important? The FDCPA imposes very stringent requirements on debt collectors including when they can communicate with the debtors, what information the debtor must be given, how that information can be communicated, and where the debt collector must sue the debtor. The debt collector cannot mislead (even if it is innocent), provide false information or engage in unfair practices.

Civil liability for FDCPA violations includes:

  • Actual damages (rare)
  • Statutory damages – up to $1,000 (per plaintiff)
  • Class Actions (not to exceed $500,000 or 1 percent of the net worth of the debt collector)
  • Reasonable attorney’s fees and costs
  • Attorney’s fees are often the largest element of civil liability, and they can be substantial.

The ways in which a consumer debt collecting attorney can run afoul of the FDCPA are numerous, and all such attorneys should become fully informed of its provisions. According to Susan Dimond, a malpractice defense attorney at Wuestling & James, the five most common types of violations are:

  • Collection behavior that is defined by the statute as “harassing” the debtor
  • Making false representations in collection with a debt
  • Using unfair practices to collect a debt
  • A failure to properly validate the debt in accordance with FDCPA requirements or to follow specific procedures if the debtor disputes the debt
  • Providing deceptive forms

In addition to reading and fully understanding the statute, attorneys who the law may classify as “debt collectors” would be wise to educate themselves about how their firm’s policies can be adapted to avoid FDCPA violations through CLE courses. Firms who undertake a large amount of FDCPA work might also want to consider bringing in an FDCPA expert to audit the firm’s communications, pleadings, and other debt collection procedures to ensure compliance.

Attorneys who may be “debt collectors” should also check their professional liability insurance (“LPL”) policy to make sure they are covered in the event an FDCPA claim is brought against them, because the vast majority of carriers do not cover this exposure.

Most LPL policies exclude from the definition of covered “Damages” any fine, penalty, sanction, cost, expense or fee imposed by statute or rule of procedure. If a claim is brought against an attorney seeking money or services that are excluded from the definition of “Damages,” most insurance companies are not then even obligated to provide a defense to that claim.

It can get a little tricky, but attorneys will want to review the definition of “Damages” in their LPL policy. If there is an exclusion for statutory fines and penalties, this is where you will want to look for language that makes an exception for the FDCPA (15 U.S.C. §1692k). If this exception is not present, the policy may provide NO coverage for an FDCPA claim. Now that FDCPA claims are a leading cause of malpractice claims, it is imperative that attorneys understand the FDCPA and their malpractice coverage, or lack thereof.

oleary-patPatrick M. O’Leary is vice president and general counsel of The Bar Plan Mutual Insurance Company. He can be reached at pmoleary@thebarplan.com or 314-288-1031.

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