Bringing Common Sense to Collections

By the stroke of a pen in Kraus v. Professional Bureau of Collections of Maryland, Inc., Case 17-CV-3402 (E.D.N.Y. November 27, 2017), a senior judge presiding over the U.S. District Court for the Eastern District of New York, I. Leo Glasser, recently brought common sense to the application of the Fair Debt Collection Practice Act (“FDCPA” or “Act” or “Statute”), a federal law that governs collections. The FDCPA was enacted by Congress to provide consumer debtors with a shield against unscrupulous practices of debt collectors, and not to hand debtors a sword that can be used to obtain relief from debts that they have incurred. Unfortunately, many debtors, their counsel, and courts have strayed far from that Congressional purpose, and too often the Statute has been put to illegitimate use. Now this senior federal judge has called out the misuse and abuse of the Statute and denied relief to a debtor whose only apparent reason for bringing a FDCPA claim was to avoid payment of a just debt.

[Editor's note: insideARM previously published this article, by Katie Neill, of ARS National, about the Kraus case. This post by Jeffrey Schreiber offers additional relevant background and commentary.]

Legislative history of the FDCPA

Effective March of 1978, the FDCPA, 15 U.S.C. 1692, et seq., was enacted by Congress. Prior to its enactment, Congress found that “debt collection abuse by third party debt collectors [was] a widespread and serious national problem.” S. Rep. 95-382, at 2 (1977) reprinted in 1977 U.S.C.C.A.N. 1695, 1696. The purpose of the Statute is to “protect consumers from unfair, harassing, and deceptive debt collection practices without imposing unnecessary restrictions on ethical debt collectors.” supra. Unfortunately, by interpretation, various courts have expanded the Statute inconsistent with the spirit, if not the letter, of its legislative history. 

The declared purpose of the Statute was “to eliminate abusive debt collection practices,” while also ensuring that compliant debt collectors “are not competitively disadvantaged.”  15 U.S.C. section 1692e. Collection abuse takes many forms, including the use of obscene or profane language, threats of violence, telephone calls at unreasonable hours, misrepresentation of a consumer’s legal rights, disclosing a consumer’s personal affairs to friends, neighbors, or an employer, obtaining information about a consumer through false pretense, impersonating public officials and attorneys, and simulating legal process 15 U.S.C. 1692e.  The Act prohibits these and other harassing, deceptive, and unfair debt collection practices.

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The Committee viewed the Act as “self-enforcing” meaning that consumers, who have been subjected to collection abuses, will be enforcing compliance.  A debt collector who violates the Act is liable for actual damages as well as any additional damages the court deems appropriate, not exceeding $1,000, plus attorney fees.  The Statute provides that the court must take into account the nature of the violation, the degree of willfulness, and the debt collector’s persistence. By doing so, one can only conclude that Congress wanted Courts to consider both aggravating and mitigating circumstances.  On the other hand, a debt collector has no liability if he violates the act in any manner when a violation is unintentional and occurred despite procedures designed to avoid such violations. Congress was even handed.  It recognized that not every situation is black or white but that grey areas exist.  Consequently, based upon the legislative history, Congress did not intend the FDCPA to be a strict liability statute even though Courts have interpreted it otherwise.

Some judges have expanded the statute, sometimes inconsistent with the Act’s legislative history. An example of such an expansion is the adoption of the so-called “least sophisticated debtor” standard.  The FDCPA does not establish this standard.  Rather, it is silent. Instead, the Ninth Circuit Court of Appeals decided that, when evaluating whether language may be deceptive, “the court should look not to the most sophisticated readers but to the least.” Baker v. G.C. Servs. Corp., 677 F.2d 775 (9^th Cir. 1982).  The court concluded that “the FDCPA does not ask the subjective question of whether an individual plaintiff was actually misled by a communication.  Rather, it asks the objective question of whether the hypothetical least sophisticated debtor would likely have been misled.  If the least sophisticated debtor would likely be misled by a communication from a debt collector, the debt collector has violated the Act.” Guerrero v. RJM Acquisitions LLC, 499 F.3d 926,934 (9^th Cir. 2007) (emphasis added).  Hence, the least sophisticated debtor standard was born. The concept is not grounded in either the Act or its legislative history. Nevertheless, most other courts have followed the Ninth Circuit, in determining whether there has been a violation of section 1692e(1)-(16).             

There are cases against lawyers for violation of the FDCPA for mailing a validation letter that is either allegedly confusing and/or does not meet the least sophisticated consumer test. See Caprio v. Healthcare Revenue Recovery Group, LLC, 709 F.3d 142 (3d Cir, 2013); Graziano and Wilson v. Quadramed Corp., 225 F.3d 350 (3d Cir. 2000); Smith v. Computer Credit, Inc., 167 F.3d 1052 (6^th Cir. 1999); Russell v. Equifax A.R.S., 74 F.3d 30 (2d Cir. 1996). There are cases proscribing a debt collector from collecting interest and fees on an unpaid balance when it is not disclosed that the balance may increase accordingly. Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016); Miller v. McCalla, Raymer Padrick, Cobb, Nichols and Clark, LLC, 214 F.3d 872 (7^th Cir. 2000).  

There are those in which a FDCPA violation is alleged in “reverse Avila” cases; that is, the debt collector’s failure to disclose that prejudgment interest may be owed by the consumer. See Altieri v. Overton, Russell, Doerr, and Donovan, LLP (2017 WL 5508372); Cruz, v. Credit Control Services, Inc., 2017 WL 5195225 (E.D.N.Y. Nov. 8, 2017); Bird v. Pressler & Pressler, L.L.P., 2013 WL 2316601 (E.D.N.Y. May 28, 2013).  

There are even alleged FDCPA violations litigated because a mailing barcode, account number, partial account number, or an account number embedded in a barcode, are visible through a glassine mailing envelope. To that end, courts have debated whether there exists a “benign language exception” to 15 U.S.C. section 1692f(8), another concept fabricated by the courts.  Courts have gone both ways. See Anekova v. Van Ru Credit Corporation, et al., 201 F.Supp.3d 631 (E.D. Pa 2016); Douglass v. Convergent Outsourcing, Inc., 765 F. 3d 299 (3d Cir. 2014); Kostik v. ARS National Services, Inc., 2015 WL 4478765 (M.D. Pa July 22, 2015). 

How far have we strayed from Congress’ intent to protect consumers from “unfair, harassing, and deceptive debt collection practices without imposing unnecessary restrictions on ethical debt collectors?” How have consumers been injured by some of these seemingly technical, if not picayune, issues raised by consumer attorneys? Who has benefited most from these cases—the plaintiffs or plaintiffs’ attorneys? Judge Glasser answers these questions. The following are excerpts from his decision.

Kraus, et. al. v. Professional Bureau of Collections of Maryland, Inc.

Plaintiff, Kraus (“Kraus” or “Plaintiff”) claimed Defendant, Professional Bureau of Collections of Maryland, Inc. (“PBCM” or “Defendant”) violated 15 U.S.C. section 1692e by sending her an offer to settle her debt for 40% of her account balance. The letter provided the amount owed on her account. It, however, did not state that the account balance might increase due to interest or other charges if not timely paid. In Avila, the Second Circuit held that a debt collector violates section 1692e if it notifies a consumer that an unpaid account balance may increase due to interest and fees if not timely paid. Avila, however, also provides a safe harbor for a debt collector who fails to disclose that interest or other charges may increase the outstanding balance. A letter that contains language stating “that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date” is exempt. So, the issue before the Kraus court was whether Avila applied to the letter and, if so, whether the settlement offer in the letter brought Defendant within the safe harbor of Avila. The Kraus Court found that Avila applied to the letter but that the letter fell within the safe harbor. 

Judge Glasser questioned what the alleged harm was in this case. He observed that tort law, for example, teaches the violation of a statute will subject the violator to liability if the person harmed is a member of a class the statute was designed to protect, and the harm complained of is the harm the statute was designed to prevent. As to harm, the Statute’s enacted purpose was to eliminate abusive debt collection practices. See 15 U.S.C. section 1692e; S. Rep. 95-382, at 2 (1977). The judge rhetorically asks,

“Where is the abuse here? The court sees none.”

At oral argument, the judge asked Ms. Kraus' lawyer why her client brought this case? Her lawyer responded because she is in financial distress. Kraus did not seek an attorney because she felt abused, deceived, or otherwise aggrieved. Rather, she did so because she wanted help getting out of debt. Judge Glasser firmly stated that “the FDCPA is not a debt-relief statute and courts should not indulge thinly veiled attempts to use it as one.” Id. at 14.  He wrote:

Sadly, abuse of the statute is unsurprising given the development of the law in this area, and the Court suspects such abuse is fairly widespread.  In 2006, the Court observed that the interaction of the least sophisticated consumer standard with the presumption that the FDCPA imposes strict liability has led to a proliferation of litigation in this district…Since then, the number of FDCPA cases filed yearly in this District has more than quintupled.  And small wonder, when all required of a plaintiff is that he plausibly allege a collection notice is “open to more than one reasonable interpretation, at least one of which is inaccurate. Clomon v. Jackson, 988 F.2d 1314, 1319 (2d Cir. 1993).  This standard prohibits not only abuse but also imprecise language, and it has turned FDCPA litigation into a glorified game of “gotcha,” with a cottage industry of plaintiffs’ lawyers filing suits over fantasy harms the statute was never intended to prevent.  With Avila, the circuit’s FDCPA jurisprudence lurches to ever more plaintiff-friendly terrain.  Kraus, supra at 14-15 (emphasis supplied).     

Judge Glasser questioned whether these cases describe genuine instances of debt collection abuse.  He is concerned that debt evasion is being facilitated for the purpose of increasing profits among the plaintiffs’ bar. Kraus supra at 18. Congress intended that the FDCPA would provide a shield against the overly zealous debt collector. By carrying the least sophisticated debtor standard and strict liability concepts to illogical extremes, “Courts have fashioned this shield into a sword” inconsistent with the Congressional intent of the Statute. Id.

Conclusion

For decades since the FDCPA’s enactment, federal courts have bent, distorted, contorted, misinterpreted and otherwise mischaracterized the statute, usually for the benefit of the consumer, even where no measurable damage has been sustained. This is, among other reasons, why the Kraus case is an oasis in a desert of federal cases finding the defendant debt collector liable for an alleged (if not dubious) FDCPA violation even where the debtor has not sustained any injury. Maybe the Kraus case signals the pendulum swinging toward a more common sense, judicial interpretation of the Statute consistent with Congress’ intent. Hopefully, hereafter, courts will apply the FDCPA to serious abuses in accordance with Congress’ intent and dismiss specious or implausible cases. At a minimum, plaintiffs with ulterior motives, such as seeking debt relief by suing under the FDCPA, should no longer be tolerated.