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Creditor Liability Under the FDCPA

In a recent opinion this month decided by the United States Court of Appeals for the Second Circuit, creditors may now be held liable under the Fair Debt Collection Practices Act (" FDCPA") when hiring a collection agency to collect debt on its behalf.  In Vincent v. The Money Store ("Vincent") F.3d, No. 11-4525-cv (2d Cir. 2013), the court held on appeal that when a creditor hires a third party collection agency to collect a debt and the agency makes no effort at collection, the creditor may be held liable under the "false name exception" of the FDCPA.

In Vincent, the defendant, the Money Store, hired a law firm to send collection letters to its debtors who failed to fulfill their loan agreements. The law firm sent the letters to the alleged debtors on its letterhead as a means of intimidating the debtors into making payment, however beyond writing the letter the law firm had no real involvement in the collection activity.  In response to receiving the letter, the plaintiffs filed suit alleging the Money Store violated the FDCPA. The law firm argued that its only involvement in the collection efforts was to draft the letter to ensure compliance with the laws but the Money Store argued that the law firm had true involvement in handling the collections.

At the lower level, the district court agreed with the Money Store's argument and held that it did not exercise control over the law firm drafting the letters.  On appeal to the Second Circuit, the court reversed the ruling and held that the Money Store could be liable under the false name exception to the FDCPA, a provision in the statute that imposes liability on a creditor collecting its own debts.  Under the false name exception, a creditor could be liable under the FDCPA when using a false name, allowing the debtor to believe that the creditor was using a third party to collect a debt when it was in fact collecting the debt on its own behalf.  Using this exception, the Court held that despite the Money Store not adopting a false name, it represented that the law firm was collecting, when in reality it never gave the firm any authority to collect the debts beyond the initial mailings.

With this new ruling expanding liability of the FDCPA, creditors need to use caution when hiring a third party to collect their debts.  Creditors must ensure that they relinquish control to the third party during collection activity or they could find themselves on the receiving end of more FDCPA suits for their own collection tactics that violate the statute.

If you believe you have been the target of a violation of the FDCPA by a collection agency or original creditor, contact SmithMarco P.C. for a free case review.

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