As the song by The Who asks, “Who are you?” When it comes to the Fair Debt Collection Practices Act, many companies think they know who they are. If they’re third-party debt collectors, they’re covered by the FDCPA. If they’re creditors collecting their own debts, they aren’t. But as I mentioned recently in a presentation at an industry event, it’s not that simple. Some creditors and others may not realize that certain courses of conduct can put them squarely within the jurisdiction of the FDCPA.
The starting point, of course, is the language of the statute. Section 803(6) of the FDCPA defines a “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.”
Creditors who collect their own debts may see that definition and stop reading. Big mistake – because Section 803(6) goes on to say “the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts.” In other words, if a creditor collects its own debts but uses a different name that suggests it’s a third-party debt collector, presto. The company is now a debt collector subject to the FDCPA.
The FTC has gone to court to challenge FDCPA violations by companies that used other names to collect their own debts. For example, LoanPointe, LLC, a Utah-based payday lending outfit, did business as Ecash or GeteCash. But when it came time to collect those debts, the defendants used the company name LoanPointe. Therefore, in addition to allegations under Section 5, the complaint charged them with FDCPA violations, including illegally garnishing consumers’ paychecks and revealing the existence of debts to people other than the debtor. The FTC urged – and the trial court agreed – that the defendants’ conduct made them “debt collectors” under that second sentence of Section 803(6).
There’s another provision that some companies mistakenly read as putting them outside the FDCPA. Section 803(6)(F)(iii) exempts from the FDCPA “any person collecting or attempting to collect any debt owed or due . . . to the extent such activity . . . concerns a debt which was not in default at the time it was obtained by such person.” (I added the emphasis.) But what about a debt that is in default? According to the FTC and several federal appellate courts, if the debt is in default when the company obtained it, the company’s activities to collect that debt are covered by the FDCPA.
That’s what the FTC alleged in cases like Fairbanks Capital, EMC Mortgage, CompuCredit, Consumer Portfolio Services (CPS), and Green Tree Servicing. For example, auto loan servicer CPS buys and services financing contracts from car dealers across the country. But when collecting on accounts that were delinquent or charged off at the time CPS purchased them or acquired servicing rights, servicer CPS became debt collector CPS with regard to those accounts.
The FTC-CFPB settlement with Green Tree (now Ditech) also illustrates that principle. Green Tree contracted to service mortgages that other lenders extend to consumers. As such, Green Tree created and sent monthly statements, processed payments and property taxes, etc. But many of the accounts Green Tree serviced were in already in default when Green Tree acquired them. Thus, for those accounts, Green Tree donned the additional hat of “debt collector” subject to the FDCPA.
Coverage under the FDCPA changes the compliance calculus, which is why creditors need to know if they’re subject to that law. The FDCPA imposes additional obligations and non-compliance can be costly. For example, under Section 809, within five days after the initial communication with a consumer, the debt collector must send a written validation notice including (among other things) the amount of the debt, the creditor’s name, and details about the procedure for disputing the debt. In addition, Section 807(11) requires certain specific disclosures that “the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose,” often called in industry parlance the mini-Miranda.
But even if the FDCPA doesn’t apply, your collection activities are still covered by Section 5 of the FTC Act’s general prohibition against deceptive or unfair practices. As cases like AMG, Payday Financial, and Cash Today demonstrate, practices that are false or misleading under Section 807 of the FDCPA – bogus claims of a government affiliation or false threats of legal action, to name just a few – likely violate Section 5, too. The same can be said for the host of unfair practices listed in Section 808. In addition, the FTC has taken action under Section 5 when first-party creditors engage in other practices expressly prohibited by the FDCPA – for example, revealing the existence of a debt to anyone other than the debtor.
Examine your company’s collection practices and ask yourself “Who are you?”