Fair Debt Collection Act Amendments

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A pair of bills amending the Fair Debt Collection Practices Act have hit the House Financial Services Committee, chaired by Rep. Jeb Hensarling of Texas. The first, introduced by Rep. Ed. Perlmutter (D-CO7), attempts to amend 12 U.S.C. 1692a(6) by adding an additional exception to the definition of the term “Debt Collector.” The amendment states that the term “debt collector” does not include-

(F) any law firm or licensed attorney--

(i) serving, filing, or conveying formal legal pleadings, discovery requests, or other documents pursuant to the applicable rules of civil procedure; or

(ii) communicating in, or at the direction of, a court of law or in depositions or settlement conferences, in connection with a pending legal action to collect a debt on behalf of a client; and.

One member of the National Association of Consumer Advocates, upon hearing of the proposed revision, asked how consumers would be able to distinguish between actions by a law firm attempting to collect a debt, and actions by a law firm prosecuting a legal action. Often the same firms do both, attempting to collect a debt by dunning a consumer through the mail, as well as litigating a case against the consumer. Would a settlement offer after suit was filed made directly to a consumer be a communication from a debt collector, or from a non-debt-collector attorney serving “other documents pursuant to the applicable rules of civil procedure?”

Lou Freedman of the National Association of Retail Collection Attorneys (NARCA) argues that consumer protections under the bill will not be impacted and that the bill is necessary to protect collection attorneys from liability when they are arguing in court on behalf of their clients.

Notably, the amendment would reverse long standing case law that that law firms representing original creditors are covered by the FDCPA (see Heintz v. Jenkins, 514 U.S. 291, 294-95 (1995).

More recently, Rep. Steve Cohen (D-TN9) introduced H.R. 3402 in the House of Representatives last week to statutorily ban legal action against a consumer on any debt in which the statute of limitations has expired. The text of the bill is not yet available, but InsideARM.com, an accounts receivable management industry publication, is reporting that the bill will also require debt collectors to inform consumers that they cannot sue for a debt when the statute of limitations has run, and to warn consumers that any payment made toward the debt could restart that statute of limitations.

Both bills are in committee with, according to GovTrack.us, less than a 10% chance of getting out of committee and a 1% chance of enactment.

About the Author

Mike Wood has been a member of NACA since 2011, when he left Fortune 100 corporate management to attend law school in Chicago, IL. Mike practices as a senior law student under Ill. S. Ct. Rule 711, and is currently working with other consumer advocates to address the debt buyer problem in Cook County, IL, through a new project called Debtors Legal Clinic, which provides direct legal services and education to consumers facing debt buyer issues. Mike can be found on twitter @mikewoodondebt, or by email at mike_at_michaeljacobwood.com.