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The Fair Debt Collection Practices Act: To Whom Does It Apply?

Fair Debt Collections Practices Act: US Supreme Court Poised to Leave Consumers Vulnerable—Yet Again

fair debt collection practices act

Supreme Court Likely To Find Debt Buyers Not Covered by Fair Debt Collection Practices Act

Reuters reports that, last month, during oral arguments in a class action suit filed by consumers against “debt buyers” (companies that buy debt from the original lenders and then attempt to collect on it from the borrower), both Conservative and (allegedly) Liberal Justices of the Court appeared dubious that the Fair Debt Collections Practices Act (“FDCPA”) applies to such “debt buyers.”

What Is the Fair Debt Collection Practices Act?

The Fair Debt Collection Practices Act, or “FDCPA,” (read the full text here) is a Federal statute that purports to protect consumers from abusive debt collections practices.

The FDCPA forbids debt collectors from, among other things, contacting consumers outside of the hours of 8 AM – 9 PM, from communicating with consumers once the collector is notified that the consumer is represented by an attorney, requires that the collector cease communication when so requested in writing, forbids obscene or profane language, threats of violence or criminal means of collecting, advertising the sale of the debt in order to coerce payment, making false or misleading representations, just to name a few.

Collectors who violate the FDCPA are liable for actual damages sustained (including attorney’s fees), up to $1,000 in additional damages. 

So What Is the Issue?

The Fair Debt Collections Practices Act starts off, like any statute does, by defining its terms. The definition of a “debt collector” is too long to include in this post, but, long story short, it applies generally to collectors of debt but not to the original creditor that borrowers actually took the money from. So, if your annoying phone-calls are coming from, say, Citibank because you racked up a big debt on a Citibank credit card, the FDCPA does not apply to Citibank. Citibank can call and bother you at any time of day, etc.

However, if the phone-calls are coming from the XYZ Scumbag Debt Collection Agency of Cornhole, Iowa—the FDCPA does apply. 

The issue under discussion in the Supreme Court is whether or not the FDCPA applies to “debt buyers”—companies that purchase the actual promissory note (allegedly) from the creditor that originally lent the money. Basically, such companies are buying the right to collect that debt and then retain and funds received in payment from the borrower.

So is a creditor who bought the debt from, say, Citibank, who originally lent the money, now the original creditor because they bought that promissory note from Citibank? Or are they collecting a debt on behalf of another?

The Justices of the Supreme Court seemed skeptical, according to the Reuters article, that a debt buyer is collecting the debt on behalf of another.

“Just look at the language [of the FDCPA statute],” asked Obama appointee Elena Kagan of the consumers’ attorney. “Can you come up with a sentence that points to your reading [that debt buyers are “debt collectors” under the FDCPA’s definition]?”

Why Does it Matter if the FDCPA Does Not Apply to Debt Buyers?

The question matters because an enormous amount of debt is bought up by such debt buyers, and with increasing frequency. It is now a virtual certainty that, should you fail to pay a debt as required to an original creditor within a finite amount of time (mere months, often), that creditor will sell the debt off and you will start enduring harassing collections from strange company you have never heard of it and have never done any direct business with. And never signed any kind of contract with.

Should the Supreme Court exclude debt buyers from coverage under the Fair Debt Collections Practices Act, most US consumers who fail to make a timely payment due will end up nose-to-nose with one of these debt buyers—and will have virtually no protection from abusive collections tactics unless they happen to live in a state which has its own robust anti-abusive collections laws.

Michigan has very weak consumer protections laws, for one.

The Fair Debt Collection Practices Act and Debt Buyers: The Bottom Line

The bottom line is that the Fair Debt Collection Practices Act is one of the only tools consumers have under Federal law other than filing for Chapter 7 or Chapter 13 bankruptcy for protecting themselves from abusive collections activity. If the US Supreme Court, based on an overly strict reading of the FDCPA statute, is unwilling to extend its protections to the increasingly profuse number of debt buyers active in the US, the Court will have done a serious disservice to US consumers—and badly misread the intent of the statute. (There are a huge number of Supreme Court cases where the Court examined Congress’ intent as well as the specific text of a statute to render a decision … They certainly can do so here and come up with a protective result.)

This will not be the first bad consumer law decision by Justice Kagan since being appointed to the Court. It will leave the issue to Congress to correct—and legislation that protects consumers rather than enabling their ongoing bilking by the US financial industry is virtually impossible to imagine at this point in time.

If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.

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