Supreme Court Upholds Prevailing Debt Collectors' Right to Obtain Litigation Costs from Plaintiffs Under the Fair Debt Collection Practices Act

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Summary

In Marx v. General Revenue Corp., decided on February 26, 2013, the United States Supreme Court, by a margin of 7-2, held that a debt collector sued by a borrower under the Fair Debt Collection Practices Act ("FDCPA") may recover its litigation costs, even if the borrower brought the action in good faith and without the intent to harass the debt collector.

What's The Takeaway?

The Supreme Court's decision confirms that parties sued under the FDCPA may employ a powerful tool – the possibility of an award of litigation costs – in defending or resolving borrowers' suits. Moreover, the possibility that litigation costs may be awarded to a prevailing defendant may reduce the overall number of lawsuits brought under the FDCPA. At a minimum, the Supreme Court's decision should prompt potential FDCPA plaintiffs and their attorneys, some of whom have built a cottage industry in FDCPA lawsuits, to be more circumspect when deciding whether a borrower has a claim that is sufficiently meritorious to be filed, or whether to commence an action in the hope that the debt collector will settle quickly. Finally, the Supreme Court's holding potentially may be applied to other consumer protection statutes, or to scenarios in which a company seeks to collect a debt related to a consumer product or service it may have sold. If sued under other consumer protection statutes, parties seeking to collect a debt should be mindful that the language of the statute at issue may lend itself to the same argument successfully made by the debt collector in Marx.

Background

In 2007, plaintiff Olivea Marx ("Marx") defaulted on her student loans, and the lender hired defendant General Revenue Corporation ("GRC") to collect the debt. One month later, Marx commenced an action against GRC under the FDCPA alleging that its collection efforts, which purportedly included numerous telephone calls, threats to garnish her wages or deduct the amount of the debt directly from her bank account, and a fax sent to her employer, constituted acts of harassment. The District Court dismissed Marx's suit and ordered her to pay GRC's litigation costs under Federal Rules of Civil Procedure 54(d)(1), which gives courts discretion to award costs (excluding attorneys' fees) to prevailing parties unless a federal statute or rule otherwise forbids it. The District Court denied Marx's motion to vacate the award of costs and rejected her argument that the FDCPA permits cost awards only if the suit was brought in bad faith or to harass the defendant. The Tenth Circuit affirmed the District Court's cost award to GRC. The Supreme Court agreed that the language of the FDCPA did not establish that the District Court was precluded from awarding GRC its litigation costs under Rule 54(d)(1).

If you have questions about this decision and how it may be applied to your particular circumstances, we encourage you to contact the authors or any member of Saul Ewing LLP's Consumer Financial Services Practice.

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Topics:  Attorney's Fees, Debt Collectors, FDCPA, General Revenue Corp., Legal Costs, Prevailing Party, SCOTUS, Student Loans

Published In: Civil Remedies Updates, Consumer Protection 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.

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