Friday, November 18, 2011

Court Ruling Restricts Collection Attorney Scare Tactics

No matter how much debt collectors have hounded  you in the past or how many FDCPA violations they rack up, know that the corruption that runs rampant in the collection industry doesn't always run unchecked. This past April, the U.S. Third Circuit Court of Appeals ruled that a collection agency's company attorney can only send the debtor letters using the attorney's letterhead if the attorney is acting in a "legal capacity" rather than merely as a debt collector himself.

Sound confusing? Let me break it down further. First, lets take a look at the FDCPA's rules regarding what debt collectors can and cannot do when communicating with debtors. Here's a peek at Section 807

Section 807: False or Misleading Representations

 807. False or misleading representations
A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section...

(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.

Collecting By Fear 

In a nutshell, this means that the collection agency can neither threaten to sue you outright nor imply that they may sue you if they either don't have the legal right to do so (such as after the statute of limitations passes) or if the company does not intend to take legal action.

While this seems like good old common sense, the reason these provisions are included in the FDCPA is to protect debtors from abusive debt collectors who use fear as a collection tool. A debtor who believes he'll be facing a lawsuit if he doesn't pay is more likely to pony up the cash than someone who knows the collection agency doesn't have a leg to stand on. Collecting by fear is generally considered unethical. Thus, the FDCPA forbids this debt collection method unless the collection agency is willing to back itself up with an actual lawsuit.

Collection Agency Attorneys

Now, remember that talk we had about collection agency attorneys? If so, then you'll recall that collection agencies that do not use in-house attorneys sometimes pay third-party attorneys to draft letters to debtors. These letters usually contain a small disclaimer somewhere noting that the attorney has not personally reviewed the debtor's case. Collection letters on an attorney's letterhead are an effective collection tool because they essentially let the collector skirt the "implied" lawsuit ban put in place by the FDCPA. The debtor sees a letter from an attorney and automatically assumes he is in danger of a lawsuit, even if the letter does not say anything to that effect. As a rule, a debtor is more likely to pay off his debt after receiving a collection letter from an attorney rather than from a collection agency.

The unspoken threat that a collection letter from an attorney poses is clear: Pay the debt or we'll take you to court. After the April 2011 ruling in  Lesher v. The Law Offices of Mitchell N. Kay by the U.S. Third Circuit Court of Appeals, that loophole is no longer an option for collectors.

The Case

The situation behind  Lesher v. The Law Offices of Mitchell N. Kay is a common one. A collection agency enlisted a third-party attorney to collect an unpaid debt from the plaintiff, Mr. Lesher. The collection letters from the attorney's office arrived on the lawyer's letterhead. Of the two letters Mr. Lesher recieved, neither posed an outright threat to sue. According to Lesher, however, that threat did not need to be made directly. The very fact that the collection letters arrived on company letterhead implied that the collection agency could and would sue him.

You don't want to end up here

Lesher filed a lawsuit based on violations of Section 807 of the FDCPA. The violation was a simple one: a letter from a collection attorney strongly implies that a lawsuit may follow in the event the debtor does not pay.  The collection attorney created this implied threat yet did not so much as review Mr. Lester's file. Although attorneys can act as debt collectors, many simply draft individual letters for collection agencies to add weight to payment demands.  Lester won his lawsuit and, by doing so, put case law on the books that goes a long way toward closing the loophole of collection attorney letters that collectors previously enjoyed.

The Pending Brief from NARCA

By establishing a precedent dictating how a collection agency can use a third-party attorney's services when collecting a debt, the U.S. Third District Court of Appeals sliced into the collection industry's profit pie with a wide blade. This prompted a quick response from the National Association of Retail Collection Attorneys, which filed an amicus brief with the court.

I'm not sure if its funny, infuriating or just plain sad. The collection industry isn't immune to the economic problems that plague our country. Aside from a back-door judgment, using collection letters from attorneys was the collection industry's "ace in the hole."

I have no seen or reviewed NARCA's court brief, but I've got a pretty good idea of what it says. Personally, I'm not a big fan of amicus briefs but, in some cases, I can see the necessity of them. An amicus brief is merely a brief filed with the court by a third-party not directly involved in a lawsuit but who will be impacted by the outcome of the case. The amicus brief provides the court with additional information on the case, along with the potential consequences for those not directly involved and the third-party's legal opinions.

Right now everything is pending, so we'll just have to wait and see how the case turns out. All I can suggest is that you keep your fingers crossed that the court tosses NARCA's brief in the trash before moving on to more pressing business. The more protections debtors receive under the FDCPA, the less leeway debt collectors and collection attorneys alike will have when using scare tactics to elicit payment.


  1. This comment has been removed by a blog administrator.

  2. Any updates on this?

    1. None that I've been able to find, but if anyone else has any new information I'd be more than happy to post it.