On April 18th, the US Supreme Court is going to hear the arguments from a case that could change the legal playing field for consumers being harassed or sued by junk debt collectors, and potentially not in the favor of the average American. Companies like Midland Funding, LVNV, Portfolio Recovery Associates, CACH, buy what is commonly called “Junk debt”; credit card, medical or other unsecured private debts, typically paying between 4¢- 8¢ on the dollar. The debts are sold in “portfolios” or spreadsheets containing customer names, addresses, social security numbers, and other information about the old accounts. Debt buyers sell and resell the debts multiple times through an industry that has no other purpose but to collect money that was owed to someone else. Worse yet, the information being sold is often inaccurate and there is little documentation of who legally owns the debt. So consumers have been sued multiple times, had their credit damaged, or been harassed for years over money they actually don’t owe.
Although debt collection when carried out responsibly is a legitimate business, the federal courts have documented serious abuses by the junk debt collection industry. In 1977, Congress enacted the FDCPA (Fair Debt Collection Practices Act) to protect US citizens from harassment, abuse and dishonesty that was known to be occurring in the debt collection industry. The FDCPA outlawed a varying forms of misconduct including, harassing or threating violence or criminal prosecution if a consumer didn’t pay, overstating the amount owed, calling family members or employers to shame consumers, filing lawsuits far from where a consumer lives, or threatening to sue on a debt that is beyond the statute of limitations. Congress also created a private cause of action, or, in other words, established a precedent of fact to bring private lawsuits against debt collectors and their lawyers who violated the FDCPA. The FDCPA doesn’t only protect those who owe debts, it protects those who are victims of identity theft, spouses, ex-spouses, parents, and even employers who can also fall victim to harassment and abuse by the debt collection industry when it wants to collect money by any means possible.
Debt buyers argue that because they buy old debt they should be exempt the FDCPA. They argue they should be treated like the original lenders who typically are federally chartered banks. The problem is that because they are not federally chartered banks debt buyer would also exempt from federal banking regulations. That means that junk debt collectors could circumvent all federal regulation and behave like loan sharks, using all kinds of strong arm techniques to collect debts that were previously owed to another company.
A split of opinion has developed in the federal appeals courts, most recently, in the 4th Circuit Court of Appeals, where the court ruled that a debt buyer isn’t a debt collector because they aren’t collecting debt for someone else. The majority of federal courts however have held that if a company is buying a debt already in default, then you’re buying it with the intention of pursuing collections and therefore you’re a debt collector.
In an effort to ensure junk debt buyers remain under the umbrella of federal regulation, Attorney Generals from 28 different US states, as well as D.C. have filed their own briefs (here’s an example of one of the briefs), asking the US Supreme Court to overturn the decision from the 4th Circuit Court of Appeals and state that Congress did in fact intend to regulate junk debt buyers.
If the junk debt buyers wins this fight in the US Supreme Court the average American will lose valuable federal protections against a hungry and unscrupulous agency.
-Written by Breana N Smith and John M. Perrin
*All briefs cited were taken from SCOTUSblog.com
“The Perrin Law Firm has successfully represented hundreds of consumers in litigation with junk debt buyers. By far, the FDCPA remains the greatest tool available within our legal system to protect American citizens from strong arm tactics, verbal abuse or outright trickery by one of the largest growing industries worldwide. Although oral arguments will be held on April 18th, it will likely be weeks or months before the Supreme Court rules. If the Supreme Court finds that debts buyers are exempt from the FDCPA, it will require Congress to amend the FDCPA to add more specific language to protect citizens under federal law.”
– John M. Perrin, attorney at law. The Perrin Law Firm