Supreme Court Knocks a Hole in the Fair Debt Collection Practices Act
On June 12, 2017, the Supreme Court knocked a hole in consumers’ rights under the Fair Debt Collection Practices Act.
Starting now, debt buyers, like Midland, Portfolio Recovery, and Cavalry are free of the regulations under the FDCPA. Here’s my list of the top ten unfair and harassing tactics that are now LEGAL for debt buyers.
- Call you 24 hours a day
- Call friends and family
- Call you at work after you tell them you’re not allowed to get calls at work
- Call you after you told them to call your lawyer.
- Publish your name and address
- Sue you in the wrong county
- Add fees that were not in your contract
- Take you to court on debts that are legally expired under the statute of limitations
- Threaten criminal action that can’t legally be taken
- Threaten to put false information on your credit report.
And more. If you write and tell them you are disputing the debt, they are free to ignore your dispute and keep trying to collect.
The Fair Debt Collection Practices Act was passed in 1977. It says debt collectors are companies who collect debt owed to another. So when Midland—who you never heard of—calls you on a debt they say you owed to Citibank, are they collecting debts owed to another. Right?
No! said a unanimous Supreme Court. Once Midland buys the debt, they are no longer collecting for another. They are collecting their own debt.
If you, or I, or most judges, would look at the FDCPA, we’d see the financial world divided into two groups.
The term “creditor” means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.
The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.
Is Midland a creditor? They did not extend credit to you and the debt was transferred to them ”for the purpose of facilitating collection of such debt… ”
Oh but they are! There’s that “for another” at the end of the definition of creditor. Once your debt’s been assigned or transferred to Midland, they are not collecting for another. So, they are just a creditor.
That interpretation means the second half of the definition of creditor, everything after the word “but,” never covers anybody; but oh well, said the Supremes. The Supremes agreed that debt buyers had outsmarted Congress, but that’s the way the world works. “Constant competition between constable and quarry, regulator and regulated, can come as no surprise in our changing world.” Henson v Santander (2017).
How Soon Will Things Get Bad?
Can we expect round the clock debt buyer phone calls starting next weekend? Three things might slow them down.
The “principal purpose” clause might still protect you. Santander, the debt buyer in the Supreme Court case, makes car loans. The Supreme Court said nobody tried to argue that the purpose of Santander was collecting debts—because they were in the business of making car loans. Is the purpose of a debt buying business the collection of debts? We need some consumer friendly judges to say, of course. (But, Midland, Portfolio and Cavalry all say their business purpose is to help consumers resolve their debt.) Don’t know how long it will take to get some good decisions from friendly judges, but I do know it will NOT start in Virginia.
The debt buyers need to check out all fifty state laws. Some states have copied, or strengthened, the FDCPA. (California is one example.) The debt buyers will need to check each state before they get too carried away with their new freedom. (Knowing Virginia, here will be one of the first places they’ll determine they don’t have to worry about any state laws.)
Maybe Congress will help. After Richard Nixon and the Watergate scandals, Democrats in Congress were very strong and they passed the FDCPA, FCRA and other important consumer protections. Will Congress and the White House change parties in 2020? We have to wait and see. Maybe the debt buyers will take it easy until then.
Bankruptcy Protections Are Still There
Asking creditors to stop calling you are work, and stop calling your family, probably isn’t going to work any more. So if you don’t want everybody you know involved in your financial problems, talk to a bankruptcy lawyer—before the debt buyers start to call.