National Financial Services

For Release

 

Citing "deliberate, repeated, and numerous" violations of law, a federal district court has ordered a Baltimore debt- collection agency, National Financial Services (NFS), and its owner, Robert J. Smith, to pay a $500,000 civil penalty for violating the Fair Debt Collection Practices Act (FDCPA) by, among other things, falsely threatening to sue consumers, the Federal Trade Commission announced today. In its July 20, 1995 decision, the court also ordered N. Frank Lanocha, a Baltimore attorney affiliated with NFS and Smith, to pay a $50,000 civil penalty for similar violations of the FDCPA. The combined penalty of $550,000 is the largest ever obtained by the Commission in a debt-collection case.

The court upheld the original FTC charges in a Jan. 8, 1993 ruling. In its July 20 opinion the court reinforced its finding that NFS, Smith and Lanocha deliberately violated the FDCPA by falsely threatening to sue consumers and failing to properly notify consumers of their rights to dispute the alleged debts.

In its January 1993 order, the court cited collection letters that the defendants sent to consumers stating, in part: "YOUR ACCOUNT WILL BE TRANSFERRED TO AN ATTORNEY IF IT IS UNPAID AFTER THE DEADLINE DATE," and "Remember your attorney will also want to be paid." The court found that consumers would interpret these letters to mean they might be sued for the alleged debts, and also found that the defendants did not intend to sue. The FDCPA prohibits debt collectors from threatening to file lawsuits when no such suits are intended. The court ruled that Lanocha violated the same provision of the FDCPA because collection letters on his "attorney-at-law" letterhead threatened lawsuits when he had no intention of suing.

The court's 1993 ruling also found that NFS and Smith violated a provision of the FDCPA that requires debt collectors to give consumers a "validation notice," which, among other things, informs consumers that they have 30 days to dispute an alleged debt. The court ruled that NFS's validation notice, printed on the back of its collection letters in light grey ink, was difficult to read, and that the front of the letters con- tained statements that contradicted the validation notice. According to the court, "the commanding type and prominent dis- play of these statements 'undercu[t] and overshadow' the smaller, lighter and less visible declarations of the validation notice."

In December 1993, also at the request of the FTC, the court permanently enjoined the defendants from further violations of the FDCPA. At that time, the court left open the amount that the defendants would have to pay as a civil penalty. The July 20 order finalizes the district court case.

The penalty was assessed by Catherine C. Blake, U.S. Magistrate Judge, U.S. District Court for the District of Maryland, in Baltimore, on July 20, 1995.

An FTC brochure, "Fair Debt Collection," tells which debt collection practices are prohibited and outlines the self-help remedies available to consumers under the FDCPA. Copies of the July 20 order, the January 1993 order, and the Fair Debt Collection brochure are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest FTC news as it is announced, call the FTC's NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web Site at: http://www.ftc.gov

(Civil Action No. L-91-226)
(FTC File No. X910020)
(January 1993 order: 820 F. Supp. 228 (D. Md. 1993))

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