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.