The Saga Continues: Who, Exactly, is a Debt Collector?

by Bradley Arant Boult Cummings LLP

One overarching certainty of federal debt collection law seems to be prolonged uncertainty over its appropriate scope. Is this scope about to change yet again? One recent bill called the Practice of Law Technical Clarification Act of 2017, H.R. 1849, seeks to do just that.

It has been now 40 years since the Fair Debt Collection Practices Act was enacted, and the scope of this law has continued to constantly evolve over time. Just recently, in Henson v. Santander Consumer USA, Inc., the Supreme Court weighed in on one aspect of this statute’s scope, holding that a company may collect debts that it purchased for its own account without triggering the statutory definition of a debt collector seeking to collect debts owed to another party. The Supreme Court’s decision in Henson will likely subject fewer entities to the FDCPA’s reach.

There has also been significant debate over the past 20 years plus as to whether lawyers and law firms fit within the scope of the FDCPA. While many believed that the FDCPA did not apply to attorneys who were debt collectors when the law was first enacted, the Supreme Court extended the FDCPA to apply to such attorneys in its 1995 decision in Heintz v. Jenkins. The basic premise of H.R. 1849 reverses this position, and provides that law firms and attorneys, when litigating or communicating in connection with a legal action, would be exempt from the FDCPA and the reach of the CFPB.

Why, then, is the debate over the FDCPA’s application to attorneys and law firms important for non-lawyers? For starters, some courts have held debt collector clients liable for the misconduct of their attorneys. Some courts have ruled that the current interpretation of the FDCPA covers attorneys who collect debts as a matter of course for their clients, or those who collect debts as a principal part of their law practice. Certain courts have even held attorneys (and, vicariously, their clients) liable under the FDCPA for representations they made in court filings, despite the fact that such filings were addressed not to individual consumers, but to the attorneys for such consumers. Additionally, while courts and state bars oversee the conduct of attorneys nationwide, the CFPB has tried to assert enforcement and supervisory authority over certain attorneys—even though such attorneys are not actively offering consumer financial services or products.    

In a September 7 hearing before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, testimony in support of this proposed legislation set forth the differences between preparing documents for litigation and communicating during litigation from sending dunning letters and calling debtors. Proponents offered testimony to discuss the appropriate reach of the CFPB and potential overlap with state bars and local courts under the current system. Opponents of this law, to the contrary, have argued that the CFPB’s oversight and the FDCPA’s penalties are needed to protect consumers from debt collector attorneys.

From a practical perspective, it appears that this proposed legislation would potentially reduce the costs of debt collection, as attorneys would be able to more freely engage in collection litigation (including foreclosures and repossessions) without certain added costs to ensure compliance with federal debt collection statutes. Companies engaged in debt collection themselves would have less risk of vicarious liability based upon the actions of their attorneys. This bill would also lessen the specter of potential lawsuits or CFBP enforcement actions interfering with the judgment of independent state judiciaries. As this legislation is sponsored by Rep. David Trott (R-Mich.), it is possible that this bill will make it out of the House Committee on Financial Services and be approved by the full House of Representatives on its way to becoming law. Rep. Trott, of course, is acutely aware of the potential impact as a former owner of a Michigan-based default firm, Trott Law, P.C. At the very least, H.R. 1849 is worth watching to see where Congress stands on the even more controversial issue of the proper scope and powers of the CFPB.

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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