Supreme Court To Decide Whether Bad Faith Needed for Award of Costs under FDCPA

more+
less-

The U.S. Supreme Court has agreed to decide whether the Fair Debt Collection Practices Act allows an award of costs to the prevailing defendant even without a finding that the suit was filed by the plaintiff in bad faith and for the purpose of harassment.

In Marx v. General Revenue Corp., (cert. granted, May 29, 2012), the U.S. Court of Appeals for the 10th Circuit affirmed the district court’s award of costs to a debt collector that had prevailed in an FDCPA suit, relying on Federal Rule of Civil Procedure 54(d), which provides that “[u]nless a federal statute, these rules, or a court order provides otherwise, costs—other than attorney’s fees—should be allowed to the prevailing party.”

The FDCPA allows an award of attorney’s fees and costs to a prevailing defendant only upon a finding that the action “was brought in bad faith and for the purpose of harassment.” The 10th Circuit held that the FDCPA provision did not “provide otherwise” than Rule 54(d), but instead merely recognized the long-standing rule that the prevailing party is entitled to reimbursement of the costs of suit. The 10th Circuit’s decision conflicts with a Ninth Circuit decision as well as Second Circuit dicta.

The Supreme Court declined to hear the second (and, to many, the more important) question presented by the petition for certiorari in Marx—whether the FDCPA’s limits on third-party communications cease to apply if a debt collector, when contacting a third party in connection with the collection of a debt, does not indicate the reason for the communication.

The FDCPA defines a “communication” as the “conveying of information regarding a debt directly or indirectly to any person through any medium.” In its decision, the 10th Circuit also affirmed the district court’s ruling that a fax sent to the petitioner’s employer was not a “communication” under the FDCPA because it did not indicate to the employer that the fax related to debt collection. To satisfy the FDCPA’s definition of a “communication,” the 10th Circuit held, the petitioner needed to show that her employer either knew or inferred that the fax involved a debt. (For more on the 10th Circuit’s decision in Marx, read our prior legal alert.)

Ballard Spahr lawyers regularly provide advice to clients engaged in consumer debt collection on compliance with the FDCPA and state debt collection laws. As summarized in a prior legal alert, the Consumer Financial Protection Bureau has issued a proposal to supervise certain debt collectors and debt buyers as “larger participants.” The CFPB will soon be examining debt collectors and debt buyers who qualify as “larger participants” or who act as service providers to entities supervised by the CFPB, such as payday and private student loan lenders. We are currently conducting compliance reviews for debt collectors and debt buyers in anticipation of their first CFPB examinations.

Ballard Spahr’s Consumer Financial Services Group produces the CFPB Monitor, a blog that focuses exclusively on important CFPB developments. To subscribe, use the link provided on the right. The group is nationally recognized for its guidance in structuring and documenting prepaid cards and other consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com; Practice Leader Jeremy T. Rosenblum at 215.864.8505 or rosenblum@ballardspahr.com; John L. Culhane, Jr., at 215.864.8535 or culhane@ballardspahr.com; Burt M. Rublin at 215.864.8116 or rublin@ballardspahr.com; Mercedes Kelley Tunstall at 202.661.2221 or tunstallm@ballardspahr.com; Barbara S. Mishkin at 215.864.8528 or mishkinb@ballardspahr.com; or Mark J. Furletti at 215.864.8138 or furlettim@ballardspahr.com.

Published In: Administrative Agency Updates, Civil Procedure Updates, Civil Remedies Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »