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Debtor Creditor Rights
SUNY Buffalo Law School
Russo, Michael

Debtor Creditor
 
Fair Debt Collections Act: Congressional intent re: the Act was to prohibit unfair collections procedures used by creditors. There are 2 different causes of action which can be brought to enforce the law:
Private cause of action (me)
Cause of action by the Federal Trade Commission
The Act covers debt collection agencies as well as lawyers. It only applies to consumers. A debt collector can go after a business without violating the Act. Plus, a business trying to collect its own debt is not covered by the Act. Thus, the Act primarily applies to those who collect debt for others against consumers.
 
A debt collector has a right to contact 3rd parties to track down the debtor. He must identify himself and state that he is looking for location information. Only if the person at the other end of the line asks, can the caller state that he is trying to collect the debt. All inquiries by mail have to be non-obvious when looking for 3rd party contacts. If the debt collector knows that the 3rd party is represented by counsel and he can get a hold of the attorney, he must contact the attorney.
 
§ 1692
(a) intent of statute
(b) addresses inadequacy of state laws
(d) justification for statute under interstate commerce clause
(e) purpose – those that act with reason should not be competitively disadvantaged.
 
§ 1692b
–          what the debt collector can do to locate a debtor other than contacting the consumer himself
o        1. can only identify his employer if asked
o        2. can’t state that consumer owes a debt
o        3. can’t communicate with a person greater than one time
o        4. can’t communicate by postcard, must be sealed with no ID on it
o        5. no ID of agency on it
o        6. once the debt collector knows consumer is represented by an attorney, he can’t keep calling
 
§ 1692c
–          communications
o        only 8am – 9pm
o        attorney must authorize direct communication once the consumer is represented
 
§ 1692c
–          harassment and abuse
1. can’t physically threaten violence
2. can’t use obscene language
3. can’t publish a debtor’s list, can only report debtor to a credit agency 
5. can’t call on the telephone constantly
 
§1692d
            enacted to prevent the use of violence, publicly list debts, harass, use vulgar language….
 
§ 1692e
–          using false information to trick people into giving information about the consumer
1. can’t represent yourself as the “debt police”
2. Cant threaten litigation unless the creditor really intends to pursue it.
3. can’t represent yourself as an attorney
4. can’t say that consumer will be arrested, no “debtor’s prison”
5. can’t threaten to sell a person’s property unless you have legal means to do so, must be intended
 
§1692g
If you are on the receiving end of a debt collection, you can dispute it and contest it. That shifts the burden. You have the right to obtain all the details on the debt they are trying to collect and have 30 day from the initial contact to contest it. 
 
§ 1692k
–          civil liability
–          three types of damages:
1. Actual/tort damages – ie. emotional distress, physical symptoms, loss of wages/employment, pecuniary damages
§         no cap, so $$$$
§         not in statute
2. Statutory damages – capped at $1000 per lawsuit
3. Punitive damages – through case law; must be egregious
can get attorney’s fees if consumer wins
 
Chapter 2
Non-Judicial Collection Efforts
 
§ 2.02 Debt Collection Practices
 
(A)   Debt Collection by a Creditor
West v. Costen p. 8 (Class action)
Facts: Costen is the president of a collection agency and his job is to obtain delinquent accounts from various business people in the community. After he obtains these accounts he brings them back to his collection agency and distributes them to the employees who then attempt to collect their debts. First, a secretary sends a letter to the debtor. Second (if there is no response), a pre-printed form is mailed out that says, “Pay up and if you don’t pay up then certain actions will be taken against you.” In this case there were five primary causes of action against the employees who attempted to collect the debt (specifically the causes of action centered around the ways in which they went about trying to collect the debt). The five primary causes of action are as follows:
1.      Communicating with third parties about the debt.
·         Trying to communicate with third parties about location information is okay, but communicating with third parties about the substance of debt is NOT okay.
·         A consumer is a person who owes the debt and his/her parent, guardian, spouse, executor, or administrator is okay to contact. But only the consumer can sue under the FCDA. In this case the grandmother was suing and the court allowed it because the policy is to exclude such tactics.
 
2.      Threatening criminal prosecution. 
·         In NY passing a bad check is a crime. In this case the debt collectors would say that if so and so doesn’t pay the debt then we are going to put them in jail but the debt collectors don’t have standing to do this.  
·         Because the debt collectors were threatening prosecution they were violating the FCDA.
 
3.      Failing to comply with property notice and debt validation procedures. (?)
·         The name of the creditor, the amount of the debt, and a statement to the debtor that they have 30 days to contest has to be included in the letter. 
 
4.      The debt collectors were trying to collect surcharges that were not authorized by the agreement. Cannot collect surcharges that were not originally authorized in the original agreement between the debtor ad the creditor. (k-mart example)
 
5.      The debt collection agency was misrepresenting the amount of debt.
·         In every case they were attempting to add the $15 surcharge and that was a misrepresentation.
 
·         Costen was charged with the misdeeds of the workers of the company. He can’t hide and his personal assets could be held liable. (This is called “piercing the corporate veil.”)
 
Procedure: The court separated out communicating with third parties and threatening criminal prosecution because it was hard to ascertain from the affidavits. These two causes weren’t amenable to a class action
 
 
Bentley v. Great Lakes Collection Bureau p. 33
Facts: The debt collector sent out notices that violated the FCDA and in this case they were focusing in on the misrepresentation. City Lakes (CL) had not allowed great lakes to make certain threats that they made. Only CL had that right. Great Lakes (GL) had no legal authority to take any further legal action and they didn’t have any right to make these statements. Also GL would state in the letter that if the debtor didn’t pay then judgment would be held against them and their wages would be garnished. GL had no authority to garnish anybody wages. 
Holding: GL is in violation of the FCDA.
 
 
Heintz v. Jenkins
Issue: Is an attorney subject to FCDA when the attorney is one who routinely collects debts for another? (In this case the lawyer was representing a bank.)
Holding: Yes, the attorney is liable. Court read congressional intent to read that lawyers were subject to the act too. You have to be truthful, specific and follow the formula in the Act.
 
Various types of judgments:
Summary judgment
No genuine issue of material fact such that one party is entitled to judgment as a matter of law.
Default judgment
Entered against defendant who fails to appear and defend a law suit.

inition of “failing to pay under any circumstances, including theft”.
This shows that default provisions need to be properly draft agreements if theft happens; stores get robbed all the time, should have thought of this; these provisions must be broad and expansive and cover everything.
 
Judgment by confession: If I loan you money and you don’t pay by the time the payment is due, I don’t have to bring a lawsuit. You signed a confession by judgment. I get what you owe. A person’s agreement to the entry of judgment upon the occurrence or non-occurrence of an event (payment/nonpayment). Gives lender the immediate right to obtain judgment if the debtor defaults. Allows the lender to file the judgment without any process (no complaint, court costs…) Dangerous for the Maker to agree to.
**In event of default, bank doesn’t have to take judicial actions; just has to file judgment with clerk when debtor defaults
–          Certain advantages –
o        makes collection easy b/c its quick
o        gives judgment creditor a lien on personal and real property
o        Debtor agrees to waive personal jurisdiction issues regarding an out-of-state debtor; debtor can’t object to being entered against her stating that state doesn’t have personal jurisdiction; plaintiff (bank) can waive this**
o        Once you file it, a copy gets stamped by the clerk.
NYS allows judgments by confessions
–          has to be in affidavit form signed by the debtor
–          must state amount being confessed
–          must state why the debtor owes the money – pursuant to what agreement
NYCPLR §3218: Judgment by confession is legal, constitutional, there is no due process violation.
 
D.H. Overmyer Co. v. Frick Co. (1972)
Issue: Whether cognovit (confession by judgment) provision is unconstitutional because violates due process clause. 
Facts: Frick improved real property of Overmyer. Out a mechanics lien on the building. P didn’t pay as Frick finished stuff, which was part of the agreement. Parties renegotiated the contract. Overmyer agreed to a cognovit. In return, Frick released certain liens it had on the property, reduced monthly payments, extended time to be paid and reduced interest rate. Two commercial parties, both represented by attorneys. Now Frick holds the CoJ. Overmyer can’t even pay under the new plan. Frick responds by filing the judgment by consent. Overmyer wants to vacate the judgment. He said there was no personal service, therefore this court didn’t have personal jurisdiction + these CoJ were against public policy, b/c he didn’t have the opportunity to put forth an affirmative defense. 
Held: In Pennsylvania, the person who confessed judgment could have their day in court/due process provision. Court said that Overmyer signed away this right when the agreement was signed. Court said no to policy argument: if a party knowing and voluntarily waives its rights to a notice and hearing before judgment, then it can be enforced. The outcome might be different if the parties weren’t represented, sophisticated.