Frivolous Lawsuits

Lawsuits have always been a part of this business. In all actuality, lawsuits are a part of every business and of course part of our society as a whole. The credit and collection business, however, seems to be a magnet for lawsuits, especially those of a frivolous nature.

To completely understand what’s happening, we should first understand the word:

friv·o·lous:

Unworthy of serious attention; trivial: a frivolous novel.
Inappropriately silly: a frivolous purchase.

Easy enough, right? Frivolous is actually a word that doesn’t appear anywhere in the text of the FDCPA or in any commentary by ACA International or by the FTC. (If I am wrong on that, I am sure that someone will let me know!) It’s a word that has been adopted by agencies, but without a doubt, an attorney first used that word in this way: frivolous lawsuit.

In this industry, the phrase frivolous lawsuit has become synonymous with the phrase technical violation. In most cases, if an agency is faced with a lawsuit that they consider frivolous, it is usually a result of a technical violation or at least the perception, by the consumer, that a technical violation has been committed. Even though the word frivolous doesn’t appear in the FDCPA, the term technical violation does. Many times, actually. In most situations, it’s used by a judge who says something like “…it would be erroneous to award (the) plaintiff fees for motions on which she did not prevail…reasonable people can debate on whether Congress had in mind the kind of technical violation reflected in this case when itincluded incentives for encouraging the prosecution of such cases.” Basically, the judge is saying that it was a frivolous lawsuit and the person suing should not benefit from it — especially when they weren’t successful.

The mid 1990’s are remembered by many people in this industry as being a time where you could barely operate on a day-to-day basis without being sued or at least being threatened by a lawsuit. Most of the lawsuits at that time were based on the wording of collection notices and predatory attorneys were having a field day. If your notice said “now,” or “immediately” or “within 48 hours,” well, you were sued, even if it wasn’t the first notice.

The first notice, of course being the validation notice, had a different set of problems, and the term "overshadowing" became a four-letter word for agencies. Attorneys began claiming that demanding payment during the 30 day validation period constituted overshadowing, and demands for payment actually took away from the person’s right to dispute whether the debt was valid or not. To this day, however, the FTC still contends that the 30-day period is strictly a dispute period and not a grace period. Even so, collectors and agencies paid the price — $1000.00 at a time. Actually, in the mid 90’s, you were lucky to walk away only paying $1000.00.

Well, here we are in 2004. Things have changed. Damage awards have been reduced and violations are looked at on a per-occurrence or per-action basis rather than on a per-violation basis, so we should be happy, right? Well, when I said in the beginning, “They’re baaaack,” I meant it. Frivolous lawsuits are on the rise once again and it is very reminiscent of the mid-90’s. There’s one very important difference though: it’s not the attorneys that are wreaking havoc this time, it’s the consumers themselves.

I mentioned the consumer message boards in last month’s column and my takeon the whole thing was, “Hey, we don’t have to worry, as long as we know what’s going on and with that knowledge, we can protect ourselves.” I may have been a little premature with that statement. Notice that I didn’t say that I might have been wrong? Part of that could be my ego, but the other part is that I don’t know (yet) if I truly am wrong. What I do know is that the consumer message boards cannot be ignored by this industry.

In my last column, I had mentioned that I had joined one of the more popular consumer boards with the thought that I could learn and that I could teach. Well, I learned a lot, but it was very difficult to teach anything. On many occasions, I would post a message on a thread, basically pointing out where the consumer was mistaken about his/her interpretation of the FDCPA and that he/she didn’t really have a case to pursue against an agency. I even backed up my posts with facts, not just opinions. In every situation, I was greeted with comments such as, “What do you know?” or “You are a collector so of course you wouldn’t think that there was a violation” or “I don’t care what you think, you are wrong and I am going to sue.” Just so you know, I stopped posting over there!

Regardless of the resistance that I received, I still learned quite a bit. I saw that many of the consumers that either want to sue or that are suing agencies have a legitimate belief that the agency did something wrong. I also saw that many of the situations came about based on a technical mistake that was made by the agency and also, the technical mistake could have been avoided. Even if the lawsuit isn’t successful, it will still cost the agency something in the long run, even if it’s just time. As we know though, time is money.

So, here is your warning or your heads up, or whatever you want to call it: frivolous lawsuits are back and they are back with a vengeance. As I have said before, when I have talked about compliance, take a few minutes and review all of your collection processes. Your phone calls, your notices, everything. If you run across anything, anything at all that could be interpreted by the least sophisticated consumer as a violation, change it. Remember, the average consumer doesn’t fit the definition of least sophisticated any more. They are aware, informed and highly intelligent when it comes to this business and worst of all, they want you to pay.

Bill Lindala provides training and consulting services to collection agencies, collection attorneys and internal collection departments of creditors. He has been a part of the industry since 1990 and has been involved in all aspects of the agency business.

Previously, Bill worked primarily in the third party collection arena in marketing, daily operations, compliance and internal training. He has served as a Certified Instructor for ACA International and was also a Certified Collection Specialist. Bill has written several articles about the collection industry that have appeared in state and national publications, and he has also been asked to speak at various industry functions.