May/June '01 Issue
MSBA Home Page
Fair Debt Collection Practices:
Federal Guidelines for Third Party Collectors
by Glen R. McCluskey
"the FDCPA applies
only to third-party collection activities"
The Federal Fair Debt Collection Practices Act (FDCPA) was passed by Congress in 1977 as a means of eliminating abusive debt collection practices by third-party debt collectors and to assure that collectors who refrain from unfair tactics are not competitively disadvantaged.1 The FDCPA is sweeping consumer-protection legislation. Since it is a federal statute, most cases are brought in federal courts. Thousands of cases exist based on FDCPA causes of action and more are generated every month.
The FDCPA is important to attorneys whose clients are debt
collectors or who regularly collect on the debts of others. In
some cases, credit grantors may also be liable under the FDCPA.
An exemption in the FDCPA, which kept attorneys outside of its
scope, was removed in 1986. Following that amendment, the U.S.
Supreme Court in Jenkins v. Heintz affirmed a 7th Circuit
decision holding that the FDCPA applies to attorneys who regularly
engage in consumer debt collection activity, even when that activity
consists of litigation.2 What percentage
of a law practice constitutes "regularly engaging in consumer
debt collection activity" is not completely clear. At least
one case found that an attorney was a debt collector when only
a miniscule portion of the firm's practice was devoted to collection.3 Other courts have found that devoting one-third
to one-half or more of an attorney's practice to debt collection
meets the threshold for an FDCPA claim against the attorney.4 In some cases, the percentage can be even
An especially onerous aspect of the FDCPA is that it is a strict liability statute. A plaintiff need not prove intent or fault. The FDCPA states, "(A)ny debt collector who fails to comply with any provision is liable to such person in an amount equal to the sum of such actual damages as the court may allow, but not exceeding $1,000." In addition, the court must award court costs and reasonable attorney's fees to a successful plaintiff. The court has discretion to determine the exact amounts.6 This part of the law is hotly debated. As a consumer statute, the FDCPA provides solid protections; however, consumers rarely, if ever suffer actual damages. This means that an individual who does not suffer actual damages will recover at most $1,000 per case.7 Attorney's fees however, are awarded in addition to the statutory damage amount. Courts generally use the "lodestar method" to determine the amount of attorney's fees to be awarded.8 Although reasonable fees will be allowed, many courts have freely reduced excessive requests for attorney's fees in FDCPA cases.9
GLEN R. MCCLUSKEY is legal counsel to the American Collectors Association, Inc., an international trade association of debt collection professionals, credit grantors, and attorneys. He is a cum laude graduate of William Mitchell College of Law and is licensed to practice in Minnesota, Wisconsin, and in Minnesota Federal District Court.
The usual procedural defenses such as lack of jurisdiction and failure to state a claim are available in an FDCPA suit. However, the primary substantive defenses to an action brought against a collector or attorney are the "bona fide error defense" and good faith conformity with an FTC advisory opinion.10
This provision gives some protections to collectors who inadvertently violate the act so long as they can show such a violation is a rare occurrence and that they have policies, business routines, and employee training in place to avoid this kind of problem. Such bona fide errors are generally clerical in nature. The courts are split on whether a successful bona fide error defense can be predicated on the collector's having acted on the erroneous advice of legal counsel. In Baker v. GC Services Corp. the collector had relied on the opinion of its attorney regarding the specific wording on its billing notices. The plaintiff sued based on confusion about the validation notice required.12 The court ruled that reliance on an attorney concerning mistakes of law was not a valid defense and that the bona fide error defense applied only to clerical errors.13 One the other hand, in Pollice v. Nat'l Tax Funding, the court expanded the defense holding that bona fide error may include errors in legal judgment.14Attorneys for collector-clients would be wise however, not to rely on Pollice, which is valid only in the 3rd Circuit. Courts around the country generally side with the Baker case.
A complete discussion of the FDCPA and how it affects attorneys and their clients is well beyond the scope of this article. Attorneys should remember that strict requirements are in place that must be followed when attempting to collect on the debts of a client. Attorneys who fall within the definition of "debt collector" will themselves be subject to the rigors of the FDCPA.22 Familiarity with this statute and with even more stringent state law is essential for attorneys involved in debtor-creditor work.
1. 15 U.S.C.A. ¤ 1692(e) (1997).
be followed when attempting to collect on the debts of a client"