How to know if you have a legal claim under the FDCPA

Share | The ability to obtain credit is one of the most important privileges a person living in this country can have.  The so-called "American Dream" is inextricably tied to the credit industry.  If you don't have good credit, you cannot buy a home, get decent car insurance rates, get a decent credit card, or get a loan from your local bank. 

This article is about how to know if you have a Fair Debt Collections Practices Act (FDCPA) claim when dealing with your creditors and collection agencies.  For the sake of full disclosure, only an attorney can determine whether a consumer actually has a legal claim worth pursuing in the courts. The information below is only a guideline for consumers to help them understand their rights and possibly prompt them to seek legal counsel.

Activities of all collection agencies are regulated by the Federal Trade Commission and Consumer Financial Protection Bureau through the FCRA and the FDCPA.  Original creditor actions are now regulated by a new prohibition enacted when the Dodd-Frank Act was passed called Unfair, Deceptive Acts and Practices, also known as UDAAP. UDAAP also indirectly applies to third party creditors as well according to a recent CFPB bulletin.

Below are the rules and the context within which those rules create a legal cause of action:

1. A claim by a debtor that a third party debt collector has engaged in prohibited conduct in collecting or attempting to collect a consumer debt.
2. The creditor is typically not a party.
3. The validity of the underlying debt is not relevant or an issue in the action.

 The FDCPA mandates three areas of collector compliance:
1. Identifying oneself as a debt collector.
2. Advising the debtor of the right to verify and dispute the debt.
3. Refraining from harassment, false representations and third party communications.


PRIMARY SOURCES OF THE LAWA. Fair Debt Collection Practices Act. 15 U.S.C. § 1692 et seq.

Now, let's drill down to the core of what all of that means.  1. A claim by a debtor that a third party debt collector has engaged in prohibited conduct in collecting or attempting to collect a consumer debt.  The operative words of this rule are "prohibited conduct."  Prohibited conduct includes:

• Hours for phone contact: contacting consumers by telephone outside of the hours of 8:00 a.m. to 9:00 p.m. local time
• Failure to cease communication upon request: communicating with consumers in any way (other than litigation) after receiving written notice that said consumer wishes no further communication or refuses to pay the alleged debt, with certain exceptions, including advising that collection efforts are being terminated or that the collector intends to file a lawsuit or pursue other remedies where permitted
• Causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously: with intent to annoy, abuse, or harass any person at the called number.
• Communicating with consumers at their place of employment after having been advised that this is unacceptable or prohibited by the employer
• Contacting consumer known to be represented by an attorney
• Communicating with consumer after request for validation has been made: communicating with the consumer or the pursuing collection efforts by the debt collector after receipt of a consumer's written request for verification of a debt made within the 30 day validation period (or for the name and address of the original creditor on a debt) and before the debt collector mails the consumer the requested verification or original creditor's name and address
• Misrepresentation or deceit: misrepresenting the debt or using deception to collect the debt, including a debt collector's misrepresentation that he or she is an attorney or law enforcement officer
• Publishing the consumer's name or address on a "bad debt" list
• Seeking unjustified amounts, which would include demanding any amounts not permitted under an applicable contract or as provided under applicable law
• Threatening arrest or legal action that is either not permitted or not actually contemplated
• Abusive or profane language used in the course of communication related to the debt
• Communication with third parties: revealing or discussing the nature of debts with third parties (other than the consumer's spouse or attorney) (Collection agencies are allowed to contact neighbors or co-workers but only to obtain location information; disreputable agencies often harass debtors with a "block party" or "office party" where they contact multiple neighbors or co-workers telling them they need to reach the debtor on an urgent matter.)
• Contact by embarrassing media, such as communicating with a consumer regarding a debt by post card, or using any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business
• Reporting false information on a consumer's credit report or threatening to do so in the process of collection

In such cases, the original creditor is NOT a party in this action, has sold the debt to the collector and cannot be listed on the legal Complaint as such.  As for whether a consumer actually owes the money to the collector, it is not an issue that can be legitimately presented in court by the collector.  The legal issue is the conduct by which the collector exercised their right to collect the debt from the consumer.  If any of the three mandates I mentioned of above have been violated by the collector, a consumer has a possible legal claim. 

If you are serious about pursuing a lawsuit against a collector you must know how things work in the legal system.  First, you must have some kind of proof of an actual violation.  The truth is that some claims will require more clear proof than other types of claims.  For example, If a collector "publishes" a debt list and your name is on it in black and white - you have clear and compelling claim if you can produce the publicized list in court.  However, you may not have a claim if your lawsuit alleges that a collector called you on two separate occasions at times after the mandated 9:00 PM limit.  Even though they did break the law, it simply does not rise to the level of a legal claim because it is not egregious enough to warrant the courts' time and resources in comparison to other claims that clearly should be heard by the court.

If you receive a dunning letter (collection letter) and it does not advise you of your right to verify and dispute the debt, you may have a claim.  Don't just take it for granted that a business is always doing what it is supposed to do.  23,000 FDCPA lawsuits last year is proof that they are not. So carefully look over any communication you receive from a collector.  It's safer for you to assume there might be an error on that document than to assume there isn't.

Understanding Your Credit Report

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We are all becoming more aware of how important our credit scores and reports are now that many of us are experiencing financial hardships in the wake of the harsh economic events in recent years. As more aspects of our daily lives become affected by our credit score, it has become more important that consumers understand what is actually in their credit report, how to read it and how to recognize possible errors that might be lurking.  

The three largest nationwide consumer reporting agencies (NCRAs) are Equifax Information Services LLC, TransUnion LLC, and Experian Information Solutions Inc. The NCRAs each maintain credit files on over 200,000,000 adults and receive information from approximately 10,000 furnishers of data. On a monthly basis, these furnishers provide information on over 1.3 billion consumer credit accounts or other “trade lines.” Credit reports play an increasingly important role in the lives of American consumers. Most decisions to grant credit – including mortgage loans, auto loans, credit cards, and private student loans – include information contained in credit reports as part of the lending decision. These reports are also used in other spheres of decision-making, including eligibility for rental housing, setting premiums for auto and homeowners insurance in some states, or determining whether to hire an applicant for a job. As the range and frequency of decisions that rely on credit reports have increased, so has the importance of assuring the accuracy of these reports. These three NCRAs occupy the hub of what can best be described as a national credit reporting system. They, the entities who report information about borrowers to them (furnishers), providers of public records information, and consumers all play roles which affect the accuracy of the information reported in consumer credit reports.

According to a recent Consumer Financial Protection Bureau report, inaccuracies in a credit file can happen in a variety of ways because of how the information gets there in the first place.  The reasons range from errors by the credit applicant when initially applying for credit, to lack of data base integrity within a company's record keeping systems.  Reports by the Federal Trade Commission confirm that credit reports can contain errors significant enough to cause the denial of credit. And those who are not denied credit are only offered unfavorable or 'sub prime' interest rates.  Do the math on a home loan with a 2% interest rate compared to a 4.5% interest rate over 30 years and you will quickly see the payment difference between 650 FICO score compared to a 750 FICO score!  The difference is literally thousands of dollars.  

Components of your credit report

Header or Identifying information including your name, previous names used, known addresses, social security number, date of birth and phone numbers. This information should first on your list of items to scrutinize, especially if you have a common name like John Jones or Michael Smith. An error with one single letter, or a wrong digit in the social security number could be all it takes to compromise the accuracy of the file and therefore cause a really big identity problem. The other rather self-explanatory components include the following:

Trade lines

Public Records

Collections

Inquiries

Here, we have included some of the errors consumers should look out for:

• Inclusion of accounts or records in a credit file that do not belong to the consumer, commonly called a mixed file: Credit reports can contain trade lines or public records about a consumer other than the one who is the subject of the credit report.
• Omission of accounts or records belonging to the consumer: A credit account or public record that belongs to the consumer’s file can be erroneously placed in another consumer’s file, leading to a mixed file, as described above. Alternatively, credit bureau matching algorithms or gaps in data can lead to a consumer trade line being kept separate from the rest of the consumer’s file.
• Trade line or record inaccurately represents information pertaining to the consumer’s account with the creditor: A credit file can inaccurately depict the terms and status of a valid account such as inaccurately depicting the date an account was closed, the credit limit for the account, or whether a trade line is delinquent. Similarly, a collection item on the report may inaccurately reflect the payment status of the debt or the amount of money owed.

How long can adverse information remain on the credit report?

The FCRA limits with some exceptions how long a credit bureau can communicate certain adverse information in a credit report. Many adverse items including records of late payments, delinquencies, or collection items typically stay on a credit report for up to seven years. Likewise, civil suits and civil judgments typically stay on the report for no more than the longer of seven years or the governing statute of limitations, while paid tax liens typically cannot be reported more than seven years after the date of payment. Credit reports generally cannot list bankruptcies for more than 10 years after the order for relief or date of adjudication, except that repayment plans are only reported for seven years. There are also restrictions on communicating a medical service provider’s name, address, and telephone number pertaining to medical debts in a credit report

Consumer Financial Protection Bureau - Phoenix, AZ: Protecting Homeowners: New tools for empowering consumers and advocates

Are you a homeowner?  Watch this video to learn about the new mortgage foreclosure rules for Servicers, and mortgage fraud.

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Consumer Protection Bureau Brings Lawsuit against Cash America Pay Day Loan company

Revenge is a dish best served...by the CFPB!  Today the Consumer Financial Protection Bureau brought an enforcement action against giant pay day lender Cash America, one of the largest short-term loan sharks in the US.  Cash America agreed to pay $14 Million to 14,000 people for robo-signing practices related to debt collection lawsuits.  They will also pay 5 million for the violation and other misconduct, according to a CFPB report released today. 

CFPB has caught the scent of Pay Day loan sharks!!

Some of the "misconduct" mentioned in the enforcement action included destroying documents before the CFPB could examine them which is a big no-no in the legal world.  “We are also sending a clear message today to all companies under our watch that impeding a CFPB exam by destroying documents, withholding records, and instructing employees to mislead examiners is unacceptable.”CFPB Director Richard Cordray said.

Within months of the CFPB discovering the robo-signing, Cash America dismissed pending collections lawsuits, terminated all post-judgment collections activities, cancelled all judgments obtained, and corrected information it furnished to credit bureaus for the nearly 14,000 wrongful cases filed in Ohio.

These guys are scum.  The whole model of pay day lending is predatory in nature and promotes a vicious cycle of getting paid, paying off your loan, then not having any money so you have to get another loan.  Their victims are usually those who can't afford the terms and conditions of the loan, but are forced to accept them in order to eat or put gas in their car to get to work.  Once you decide you want out of the cycle, you end up on the receiving end of a lawsuit which is litigated illegally by the pay day lender - hence the CFPB enforcement action.

In the US, pay day loans are a multi-billion dollar industry.  In California, pay day lender Money-Mart settled a class-action lawsuit where they agreed to pay its customers $7.5 million.  The Money Mart settlement will resolve a class action lawsuit, entitled Dennis Herrera v. Check N’ Go of California, Inc., et al., that alleges Money Mart offered to California consumers CustomCash loans with interest rates that exceeded the limits set by California Law and Cash ‘til Payday loans that did not comport with the California law. Check n Go allegedly charged California customers up to 400% interest on loans which is far above what California law allows. 

If you are a victims of a pay day lender, you should contact your state Attorney General's Office and file a complaint immediately.  You may be entitled to money somewhere down the road because you can bet the CFPB has "released the hounds" so to speak, on pay day lenders.  They smell blood and are going for the kill. 

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There's a New Sheriff in Town: The Consumer Financial Protection Bureau

For years, the big three credit reporting agencies - Equifax, TransUnion, and Experian, have operated with little to no government oversight or regulation. These are the three agencies that control who gets approved or rejected for loans on everything from credit cards, to cars, to even buying a home.

Consumer protection organizations such as US PIRG (US Public Interest Research Group) have long claimed that the big three operate under a mysterious shroud of secrecy and are the reason the entire credit and lending system is plagued with inaccuracies and erroneous information.

Several studies over many years have repeatedly documented the chronic problem of inaccuracies in credit reports. The U.S. PIRG has conducted at least six studies between 1991 and 1998 and each time has found a shocking number of serious errors in consumer credit reports. US PIRG’s most recent study in 1998 revealed the following:

Twenty-nine percent (29%) of the credit reports contained serious errors --false delinquencies or accounts that had never belonged to the consumer --that could result in the denial of credit; 

 Forty-one percent (41%) of the credit reports contained personal demographic identifying information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect; 

Twenty percent (20%) of the credit reports were missing major credit, loan, mortgage, or other consumer accounts that would demonstrate the positive creditworthiness of the consumer; 

Twenty-six percent (26%) of the credit reports contained credit accounts that had been closed by the consumer but incorrectly remained listed as open; 

Altogether, 70% of the credit reports contained either serious errors or other mistakes of some kind.


Federal laws like the Fair Credit Reporting Act (FCRA) and the Fair Debt Collections Practices Act (FDCPA) provide consumers with some protections and more importantly, a basis for litigation against companies who violate consumer protection laws regarding how consumer credit information is handled, and how debts should be collected by collection agencies. Still, it seems collection agencies, and the big three credit reporting agencies have managed to sidestep the regulations aimed at protecting consumers from their mistakes, lack of security and illegal collection practices. Credit reporting agencies and collection agencies try to defend (even in courts of law) severely flawed business models that make it extremely difficult if not impossible for the average consumer to call them on their mistakes and get relief from practices that are intentionally harmful to a consumers credit file. Consumer requests to the credit reporting agencies to correct erroneous or inaccurate information in their file are routinely ignored or mishandled. Consumer investigation requests are conducted via a process that has been describes as “shoddy” and “grossly irresponsible” by legal professionals in the industry.


Evidence of high error rates in the credit reporting system is also found in the complaints received by the Federal Trade Commission regarding credit reports. For many years consumer complaints about credit reports have ranked at the top of all complaints submitted to the FTC for any reason. Identity theft, which also involves creditors or furnishers of credit information and credit reporting agencies, is now at the top of all fraud complaints received by the FTC. The FTC reported to Congress that as of March 2002, the FTC received approximately 3000 calls per week to their toll-free identity theft hot line. Approximately 43% of all complaints received by the FTC in all subjects are identity theft related. When one considers number of people applying for credit in the US on a daily basis, the number of persons affected by credit reporting agency mistakes and information mismanagement is absolutely staggering.


It is clear that the credit reporting agencies and the collection companies need more regulation and oversight. A close examination of their procedures and Operations reveal that their business models complement each other, resulting in a two-pronged attack upon the consumer. Well, it appears the consumers’ cry for help after all these years has finally been heard.


On July 16th in Detroit Michigan, the new director of the newly formed Consumer Financial Protection Bureau (CFPB) Richard Cordray announced: “the Consumer Bureau is issuing a new regulation to expand our supervision program to oversee these credit reporting companies. The authority to supervise firms is the authority to conduct on-site examinations of whether and how they are complying with the law. It affords an opportunity to gain a more thorough understanding of their business models and their business practices, to work with them to correct any problems we find, and to find ways to resolve matters that may be causing harm to consumers.”


Cordray went on to comment about the important role credit reporting agencies play in our entire economy:

“So this critical market is at the heart of our lending systems. It has enabled many of us to get credit and to afford a home or a college education. But it is also clearly a market that can cause considerable problems for consumers. For example, sometimes credit reports contain errors that inaccurately reflect people’s financial histories and can unfairly block them from getting approved for credit or can make it cost more than it should. Consumers also can encounter great difficulties at times in getting errors corrected. When the Consumer Bureau first opened its doors almost a year ago, we asked people to share their consumer experiences with us. We have heard reports since from many consumers that their credit reports are not accurate, and it is difficult to get them corrected. Because of the critical role that credit reports play in consumers’ lives, it is our job to make sure we understand the full extent of these problems and address them effectively.”

“Given its enormity, given its influence, and given its wide impact on our overall economy, you can see that there is much at stake in ensuring that the credit reporting market is working properly for consumers.”

David Holt, with Clear Point Credit Counseling Solutions says it's a good move. "This is a big deal for consumers," he says. The goal is to ensure credit reporting agencies are working properly for consumers, lenders and the economy. "The laws are already there in the Fair Credit Reporting Act but they are going to shore up the rules on what the agencies have to do," Holt says.

David Holt of Clear Point is exactly right, this is a big deal. However, the effectiveness of this new bureau will surely be measured by what they actually do, and what real regulative authority they have. I believe the effectiveness of any regulatory government agency should be measured first by its leadership, and second, by its mission statement. The CFPB is headed up by Richard Cordray. But as anyone who hasn’t spent the last three years in a cave would know, the first choice to lead the agency was Elizabeth Warren, the up and coming Harvard Law professor who gained notoriety as an outspoken critic and Chairman of the Congressional Oversight Panel of the infamous TARP Bailout of 2008.

In the hallowed halls of congress, Warren is considered the Champion of the beleaguered Middle Class. The CPFB was her own brainchild. As she crisscrossed the country, spreading the word about the C.F.P.B., Warren became a familiar face to many, especially to those who had seen her on television—on CNBC, Real Time with Bill Maher, and The Daily Show with Jon Stewart. Whatever the reasons, president Obama ignored scores of political groups like the AFL-CIO and thousands of people around the county who had petitioned him to appoint her as the nation’s top consumer protection watchdog. (See article in Vanity Fair).

So, who is Richard Cordray? As attorney general of Ohio, Cordray aggressively pursued lawsuits against some of the country’s biggest financial firms — including AIG, Bank of America and Fannie Mae — for misleading the state’s pension funds, ultimately securing a $700 million settlement from AIG over accounting fraud. He also led an early effort to go after so-called “foreclosure mills” that used falsified documents to speed up foreclosures on consumers, suing Ally Financial in 2010 and campaigning for big banks to slow down their own foreclosure proceedings. “We pursued many actions against foreclosure rescue scammers who were reaching into the pockets of desperate people in an effort to steal what little remained as they sought to keep their homes,” His background seems well suited for the position, but the jury is still out as to what direction the bureau will take and how affective it will be. For Mark Spindel, co-founder of the Potomac River Fund, that will be a major indicator of how effective the CFPB can be. “The key for me is whether and when and if this will have some impact on the foreclosure and housing markets. the real test for the CFPB will be in seeing how aggressive Cordray will be in pushing financial policy to favor consumers.















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