The Benefits of Being Litigious

Adam and I have recently discussed our take on whether and why the Fair Debt Collection Practices Act (FDCPA) should apply to mortgage servicers. The take-away was that the current interpretation of the FDCPA, based on its legislative history, is that it does not typically apply to mortgage servicers.

But perhaps debtors should be challenging that interpretation. Although the weight of case law suggests it would be a difficult litigation victory, it turns out that suing under the FDCPA, regardless of outcome, has a crucial side effect. Columbia Financial International sent me an email a few months ago advertising a brand new feature--the opportunity to scrub a collection database against its FDCPA litigant database. Columbia Financial advertises that this Litigant Alert service "empowers you to protect yourself from overly-litigious debtors" and "find out immediately if you are collecting against anybody with a history of suing collection agencies."

What is the implication of this advertising? It suggests to me that if a debt collector found a match, i.e., was collecting from someone who was an FDCPA plaintiff, the debt collector should what . . . . either stop collecting or start complying with the FDCPA? The industry is supposed to already be complying with the FDCPA; we've heard lots of stories about the burden that it puts on collectors--to log and record their calls, to add a debt collection notice to their correspondence, etc. If a collector is in full compliance, why care if someone has sued another debt collector who may not have obeyed the FDCPA. Perhaps the suggestion is that debtors bring malicious and ungrounded lawsuits, alleging FDCPA allegations when there are none? The "overly litigious" description of FDCPA litigants certainly suggests that debtors have engaged in wrongdoing by filing claims. But notice the perverse incentive created for consumers--the apparent benefit of filing an FDCPA lawsuit is a respite from dunning and collection efforts.

Comments

[Craig R. Lewis, Esq.]

Great post! I have been wanting to discuss this from a debt collector's perspective for some time.

Collection professionals often view FDCPA lawsuits as too expensive to litigate, even if they lack merit. The attorney's fee provision may be found to be reciprocal, but courts are not required to award attorney's fees to the collector when the case is dismissed or when the judgment is entered in the collector's favor, and they often don't. And the law is so convoluted that even the most frivolous of FDCPA claims can be made to seem like no more than a misunderstanding.

As a result, refusing to pursue debtors who have been known to sue for FDCPA violations, without considering the merits of the claims being made, becomes a seemingly more feasible decision than actually complying with the FDCPA (which explains the Columbia Financial product and the success I would guess it is achieving). In my opinion, however, substituting the former for the latter will ultimately be bad for business and for the public. It will encourage unscrupulous debtors to file FDCPA lawsuits just to get their names on the list, which will reduce revenues for collection agencies by shrinking the pool of debtors from whom they can collect (and as the list grows, it will become a significant reduction). And this reduction of revenues will undoubtedly cause collection agencies to turn up the heat on those debtors who are in collection by virtue of being honestly unable to pay their debts but who aren't on the list by virtue being against filing meritless lawsuits (the very class of people I submit the FDCPA was meant to protect).

In order to avoid this result, I counsel my clients to fight against the effect you mention by contesting those frivolous FDCPA lawsuits filed against them, and by ignoring the FDCPA lawsuit debtor data. But at the same time, I counsel them to comply with the FDCPA across the board.

Of course, this last piece of advice may be the most important one in the long term. After all, it is that portion of the debt collection industry that ignores the FDCPA when it is most financially beneficial to do so that can be blamed for the growth of the (often meritorious) debt collection litigation that resulted in the need for the Columbia Financial list in the first place. Until the industry takes a longer view of its finances, or the law is changed to allow for easier compliance, however, shortcuts around the FDCPA like that list will abound.

[Patches]

Funny. Is there a Database showing the opposite? Say like, Creditors that have been sued the most for unfair debt collection practices???? I know debtors don't have the choice on who collects the debts. Maybe we can see the "sort" that certain Creditors use to collect debts? Let the "Market" decide if people want to do business with those who have the most FDCPA claims.

I think there are far more (good) lawsuits that could be filed that are not. Especially in the climate we find ourselves in now. I believe even if half were "frivolous", it would be (almost) a wash if we accounted for the ones who don't assert their claims because they were just too unsophisticated to know better. We rarely pursue them in Bankruptcy because of time and economics. Plus the debtors are getting such benefits already. If they mess up after filing then that's when we step in. There are so many out there that are not being pursued. My experience is that they are like water and sand in your hands. A lot slips between your fingers.