Jeremy Gogel. 330 / Journal of the Missouri Bar

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1 Remedies (and for Victims BY jeremy gogel 1 Debt Collect The purpose of this article is to examine the remedies and shortcomings of the Fair Debt Collection Practices Act ( FDCPA ), as well as the lack of unfair debt collection remedies under Missouri law. Jeremy Gogel Introduction As the economy began spiraling downward in late 2007, the number of individuals defaulting on their outstanding debts began to increase. It should be no surprise, therefore, that the businesses that extended credit to these individuals increased their efforts to recover debts owed to them. 2 While many of these businesses utilize third-party debt recovery agencies, many others have inhouse collection departments, or even sell their delinquent accounts to companies in the business of recovering debt. Many third-party debt recovery companies use extreme techniques, including threatening to garnish a debtor s wages, using harassing language when speaking with the debtor, or even threatening to file suit, in an effort to recover any money they can. 3 The federal government, after becoming aware that less than scrupulous third-party debt collectors were intimidating debtors into paying up, passed the Fair Debt Collection Practices Act (FDCPA) in hopes of curbing these abuses. While the FDCPA provides consumers with protection 330 / Journal of the Missouri Bar

2 Lack Thereof) of Abusive ion Practices Definition of a Debt To qualify for relief under the FD- CPA, one must first determine whether the obligation that a collector is seeking to recover is, in fact, a debt. The act only applies to consumer as opposed to commercial debt; specifically, debt obligations arising out of transactions for personal, household or family purposes. 6 This definition, therefore, excludes commercial debt. 7 Some seemingly personal, household, or family obligations, including obligations to pay for shoplifted merchandise 8 and child support, 9 have been excluded from the FDCPA s definition of debt by certain courts. There are situations, however, where a debt will exhibit signs of both a commercial and consumer debt, including credit cards used for business and personal purchases, in which case only part of the debt will come under the purview of the FDCPA. In cases of a defaulted comingled debt, a debt collector 10 must take care to abide by the relevant FDCPA provisions, because even if part of a debt does not include personal, household, or family obligations, a consumer would likely argue that the effort required to collect the commercial part of the debt is the same amount of effort required to collect the entire debt. from many unfair practices of third party debt collectors, the practices of in-house collection departments and debt buyers remain largely unchecked. One might think that state law would provide stopgap measures to prevent inhouse collection departments and debt buyers from using abusive practices to recover debts owed to them, but, as will be discussed below, the Missouri Merchandising Practices Act a law aimed at preserving fundamental honesty and fair play fails to protect consumers from the vast majority of unfair debt collection practices of both third party, and in-house, debt collectors. The Fair Debt Collection Practices Act In 1977, Congress enacted the FDCPA 4 in order to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses. 5 Debt Collector A major limitation of the FDCPA is that it mainly prohibits certain practices of independent agencies collecting debts for others. 11 The creditor itself will only be considered a debt collector when (1) it uses a name that suggests that a third party debt collector is involved in the collection process, 12 or (2) it receives an assignment or transfer of the debt after default. 13 Thus, companies that extend credit to individuals and attempt to collect these debts themselves are generally not subject to the prohibition on abusive debt collection practices under the FDCPA. November-December 2010 / 331

3 Unfair Practices Under the FDCPA, [a] debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. 14 The following is a non-exhaustive list of conduct violative of the statute: (1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law. (2) The acceptance by a debt collector from any person of a check or other payment instrument postdated by more than five days unless such person is notified in writing of the debt collector s intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit. (3) The solicitation by a debt collector of any postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution. (4) Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument. (5) Causing charges to be made to any person for communications by concealment of the true purpose of the communication. Such charges include, but are not limited to, collect telephone calls and telegram fees. (6) Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if (A) there is no present right to possession of the property claimed as collateral through an enforceable security interest; (B) there is no present intention to take possession of the property; or (C) the property is exempt by law from such dispossession or disablement. (7) Communicating with a consumer regarding a debt by post card. (8) Using any language or symbol, other than the debt collector s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business. 15 False or Misleading Representations The FDCPA prevents a debt collector from using any false, deceptive, or misleading representation or means in connection with the collection of any debt[,] including: (1) The false representation or implication that the debt collector is vouched for, bonded by, or affiliated with the United States or any State, including the use of any badge, uniform, or facsimile thereof. (2) The false representation of (A) the character, amount, or legal status of any debt; or (B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt. (3) The false representation or implication that any individual is an attorney or that any communication is from an attorney. (4) The representation or implication that nonpayment of any debt will result in the arrest or imprisonment of any person or the seizure, garnishment, attachment, or sale of any property or wages of any person unless such action is lawful and the debt collector or creditor intends to take such action. (5) The threat to take any action that cannot legally be taken or that is not intended to be taken. (6) The false representation or implication that a sale, referral, or other transfer of any interest in a debt shall cause the consumer to (A) lose any claim or defense to payment of the debt; or (B) become subject to any practice prohibited by this subchapter. (7) The false representation or implication that the consumer committed any crime or other conduct in order to disgrace the consumer. (8) Communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed. (9) The use or distribution of any written communication which simulates or is falsely represented to be a document authorized, issued, or approved by any court, official, or agency of the United States or any State, or which creates a false impression as to its source, authorization, or approval. (10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer. (11) The failure to disclose in the initial written communication with the consumer and, in 332 / Journal of the Missouri Bar

4 [T]he Missouri Merchandising Practices Act a law aimed at preserving fundamental honesty and fair play fails to protect consumers from the vast majority of unfair debt collection practices.... addition, if the initial communication with the consumer is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector, except that this paragraph shall not apply to a formal pleading made in connection with a legal action. (12) The false representation or implication that accounts have been turned over to innocent purchasers for value. (13) The false representation or implication that documents are legal process. (14) The use of any business, company, or organization name other than the true name of the debt collector s business, company, or organization. (15) The false representation or implication that documents are not legal process forms or do not require action by the consumer. (16) The false representation or implication that a debt collector operates or is employed by a consumer reporting agency. 16 Civil Liability A debt collector that violates any section of the FDCPA with respect to a person is civilly liable to that person. 17 As well as actual damages, the court is granted wide discretion in determining whether to award additional damages. 18 The act provides, however, that a debt collector is not liable if the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error. 19 The United States Supreme Court narrowed the bona fide error rule in a recent opinion, holding that a violation of the FDCPA resulting from a debt collector s mistaken interpretation of the legal requirements of the [act] does not absolve the collector from liability. 20 Debt collectors, therefore, can only rely on the presence of clerical errors when employing the bona fide error defense. An action under the FDCPA may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within one year from the date on which the violation occurs. 21 Thus, courts have held that FDCPA litigation may be brought in either state or federal courts; however, an FDCPA action filed in state court may be removed to federal court by the defendant. 22 Preemption The FDCPA does not annul, alter, or affect [state law], or exempt any person [who is] subject to [its] provisions from complying with [state law] with respect to debt collection practices, except to the extent that [state law is] inconsistent with any provision of [the act], and then only to the extent of the inconsistency. 23 Further, a state law is not inconsistent with the FDCPA if the protection such law affords any consumer is greater than the protection provided by the act. 24 The FDCPA, therefore, leaves open the possibility for states to enact legislation that proscribe unfair debt collection practices; to date, at least two dozen states 25 have enacted such legislation. Interestingly enough, however, none of these states have legislation that specifically prohibits unfair debt collection practices of a creditor, meaning that an action against a creditor would have to be brought under a harassment, slander or libel, or other such statute. The problem, of course, is that the particular circumstances of a case may not fall neatly within the purview of these types of statutes. Missouri Merchandising Practices Act In 1967, the Missouri General Assembly enacted the state s Merchandising Practices Act ( MPA ). The fundamental purpose of the MPA is the protection of consumers, and, to promote that purpose, the act prohibits false, fraudulent or deceptive merchandising practices. 26 The legislature intended section to supplement the definitions of common law fraud in an attempt to preserve fundamental honesty, fair play, and right dealings in public transactions. 27 Because of the act s broad scope and the legislature s clear policy to protect consumers, certain legal principles are not available to defeat claims authorized by the act. 28 Unlawful Practices Under Missouri Revised Statutes (1), it is unlawful to employ any deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression, or omission of any material fact in connection with the sale or advertisement of any merchandise in trade or commerce in or from the state of Missouri. 29 While certain terms of the Act were clearly defined as to November-December 2010 / 333

5 scope and meaning, the elements or perimeters of the unlawful practices of the section (i.e., deception, fraud, false pretense, false promise, misrepresentation, or the concealment, suppression, or omission of any material fact) were not. Hence, the enforcement actions of the Attorney General and the resulting appellate decisions have been crucial in determining the type of conduct prohibited by the Merchandising Practices Act. 30 Civil Liability While the enforcement authority under the original MPA was vested solely in the attorney general, the Missouri General Assembly revised the MPA in 1973 to allow for a private cause of action. 31 Given the relatively scarce amount of resources at the disposal of the attorney general compared to the number of Missouri consumers the act aims to protect, it should be no surprise that the general assembly made such a revision. Specifically, (1) states that [a]ny person who purchases or leases merchandise primarily for personal, family or household purposes and thereby suffers an ascertainable loss of money or property, real or personal, as a result of the use or employment by another person of a method, act or practice declared unlawful by section , may bring a private civil action in either the circuit court of the county in which the seller or lessor resides or in which the transaction complained of took place, to recover actual damages. Debt Collection Remedies Under the MPA Despite the relatively broad scope of the MPA, the language of the act precludes individuals from bringing actions for unfair debt collection practices against either third party collectors or creditors. As discussed above, only those unlawful practices in connection with the purchase or lease of merchandise for personal, family, or household purposes give rise to a private cause of action under the MPA. 32 Merchandise is broadly defined by the MPA to include any objects, wares, goods, commodities, intangibles, real estate or services. 33 Even if the debt collection practices of a creditor or third party collector included a deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression, or omission of any material fact, 34 unless these practices were in connection with the sale or advertisement of any merchandise, 35 the MPA provides no remedy. In the relatively rare instances where an individual attempted to bring a cause of action for unfair debt collection practices under the MPA, the courts have dismissed these claims. In Lavender v. Wolpoff & Abramson, L.L.P., 36 the United States District Court for the Western District of Missouri dismissed the plaintiff s claim for violation of the MPA in connection with allegedly deceptive techniques employed by debt collection law firms. 37 In its opinion, the court stated that [t]here is no allegation that the plaintiffs were clients or customers of the defendants. The defendants did not sell any goods or merchandise or provide any services to the plaintiffs. Plaintiffs have failed to state a cause of action under [the MPA]. 38 In Lavender, the plaintiffs also brought claims under the FDCPA, but because of the one-year statute of limitations prescribed by the act, several claims were dismissed as untimely. 39 Shortcomings of the FDCPA and MPA It is possible for one to think of a situation where the MPA would allow for a remedy for unfair debt collection practices, but such a situation would have to include a very specific set of circumstances. First, because the MPA requires the unlawful practices to be in connection with the sale or advertisement of any merchandise, 40 all actions against a third party debt collector or collection agency that purchased the debt from the original creditor, as well as those actions against creditors who merely provide loans to consumers, would necessarily be precluded, because the consumer was not, to paraphrase the court in Lavender, a client or customer of the defendant. Second, because the MPA requires the consumer to suffer an ascertainable loss of money or property, 41 many actions against creditors from whom consumers purchased or leased merchandise, and who now are being subjected to unfair collection practices for their failure to make payments, would be precluded. Because a consumer would most likely suffer unfair debt collection practices for defaulting on merchandise purchased on credit, the Uniform Commercial Code Secured Transactions section of the Missouri Revised Statutes would likely apply. 42 Specifically, states that [a]fter default, a secured party 43 may proceed if it does so without [a] breach of the peace. 44 Again, however, the particular collection practices of a creditor, while seemingly unfair, may not rise to the level of a breach of the peace, and because the consumer did not lose any money or property, cannot proceed under the MPA. 334 / Journal of the Missouri Bar

6 Conclusion While Congress was able to curb many debt collection abuses in passing the FDCPA, as the foregoing hopefully demonstrates, both Congress and the Missouri Legislature fell short in their efforts to protect consumers. Specifically, while the FDCPA protects consumers from unlawful practices of third party debt collectors, it does not protect consumers from those practices of the original creditor or debt-buying agency, absent extremely narrow circumstances. Additionally, while the FDCPA allows for actions to be brought in either federal or state courts, there may be particular reasons 45 why a plaintiff would want to proceed in state court; yet the defendant would, in all likelihood, be able to remove the case to federal court on the basis of federal question jurisdiction. Finally, the FDCPA only provides for a one-year statute of limitations. In situations where consumers are being subjected to unlawful practices by a debt collector, the consumer many not seek the assistance of counsel until a year after the unlawful practices began. While [t]he MPA contains no statute of limitations, and therefore the five-year period for civil actions applies[,] 46 as stated above, only an extremely narrow set of circumstances would give rise to a debt collection action under the MPA, despite the General Assembly s authority to enact broader debt collection legislation under the FDCPA. If the Missouri General Assembly truly aims to protect the state s consumers, it should either broaden the MPA to allow for actions against all abusive debt collectors, or enact a separate debt collection practices statute. Endnotes 1 Jeremy Gogel is law clerk to the Hon. Philip M. Frazier of the United States District Court for the Southern District of Illinois. Gogel graduated from the University of Missouri- Columbia in 2009 with a J.D. and M.B.A., and from the same institution in 2006 with a dual degree in finance and economics. Prior to beginning his clerkship, Gogel volunteered for the Consumer Protection Division of the Office of the Missouri Attorney General, and worked for the Securities Division of the Office of the Missouri Secretary of State, and the United States Commodity Futures Trading Commission s Division of Enforcement. 2 In fiscal year 2009, U.S. district courts saw an increase of 2,143 filings of cases involving consumer credit an increase of 53 percent Year-End Report on the Federal Judic i a ry 3 available at gove/publicinfo/year-end/2009year-endreport. pdf. 3 See e.g. United States of America v. Credit Bureau Collection Servs., No. 2:10-cv-169 (S.D. Ohio Feb. 24, 2010) (FTC complaint alleges that debt recovery agency continued collection efforts even after receiving information from consumers that a debt was paid off or did not belong to the consumer) U.S.C p U.S.C. 1692(e) U.S.C. 1692a(5). 7 It is not uncommon, however, to come across a debt that arises out of a defaulted credit card used for both personal and business purchases. 8 Bass v. Stolper, Koritzinsky, Brewster & Neider, S.C., 111 F.3d 1322, 1326 (7th Cir. 1997) citing Shorts v. Palmer, 155 F.R.D. 172, (S.D. Ohio 1994). 9 Mabe v. G.C. Services Ltd. Partnership, 32 F.3d 86, 88 (4th Cir. 1994). 10 See definition infra U.S.C. 1692a(6). 12 See e.g. Lester E. Cox Med. Ctr. v. Huntsman, 408 F.3d 989 (8th Cir. 2005) U.S.C. 1692a(4). An example of such a debt collector would be an agency that purchases dishonored checks from businesses and seeks to collect them from consumers U.S.C. 1692f U.S.C. 1692F(1)-(8) U.S.C. 1692e U.S.C. 1692k(a). 18 Lester E. Cox Med. Ctr. v. Huntsman, 408 F.3d 989, 993 (8th Cir. 2005) citing Savino v. Computer Credit, Inc., 164 F.3d 81, 86 (2d Cir. 1998); Clomon v. Jackson, 988 F.2d 1314, 1322 (2d Cir. 1993) ( The decision on whether to award additional damages and on the size of such award is committed to the sound discretion of the district court. ) U.S.C. 1692k(c). 20 Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 130 S. Ct (2010) U.S.C. 1692k(d). 22 See e.g. Itri v. Equibank, N.A., 464 A.2d 1336 (Pa. Super. Ct. 1983); McGilvray v. Hallmark Fin. Group, Inc., 891 F. Supp. 265 (E.D. Va. 1995) U.S.C. 1692n U.S.C. 1692o. 25 States that have either enacted debt collection legislation or whose courts have found that the state s consumer protection laws apply to debt collection practices include: Alabama, California, Colorado, Connecticut, Florida, Idaho, Illinois, Iowa, Maryland, Massachusetts, Michigan, Nebraska, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Washington, West Virginia, and Wisconsin. 26 Huch v. Charter Commc ns, Inc., 290 S.W.3d 721, 724 (Mo. banc 2009) (citation omitted). 27 Id. (citation omitted). 28 Huch v. Charter Commc ns, Inc., 290 S.W.3d 721, 725 (Mo. banc 2009) (citation omitted). 29 Section , RSMO Supp William Webster, Combating Consumer Fraud in Missouri: The Development of Missouri s Merchandising Practices Act, 52 Mo. L. Rev. 365, , (1987). 31 Section , RSMo Section (1), RSMo Section (4), RSMo Section (1), RSMo Supp Id. 36 Lavender v. Wolpoff & Abramson, No CV-W-FJG, 2007 WL (W.D. Mo., Aug. 30, 2007). 37 Id. 38 Id. at *2. 39 Lavender v. Wolpoff & Abramson, No CV-W-FJG, at 3, 2007 WL (W.D. Mo., Aug. 30, 2007). (An action to enforce any liability created by this subchapter may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within one year from the date on which the violation occurs. 15 U.S.C. 1692k (d) (emphasis added). 40 Id. at *1. 41 Section (1), RSMo Sections , et seq., RSMo. 43 Section (a), RSMO Supp Section (b), RSMO Supp The particular reasons why a plaintiff would want to proceed in state court are beyond the scope of this article. 46 Boulds v. Chase Auto Fin. Corp., 266 S.W.3d 847, 851 (Mo. App. E.D. 2008) citing Ullrich v. CADCO, Inc., 244 S.W.3d 772, 778 n. 3 (Mo. App. E.D. 2008). November-December 2010 / 335