Preparing to sue a debt collector? Expect that you need to prove consumer nature of debt. New York district court's relaxed standard compared to Virginia appeals court's heightened standard.

The Fair Debt Collection Practices Act ("FDCPA") is a powerful tool against debt collectors who treat you unfairly. This federal act is one of "strict liability," which means that any debt collector who violates this act (i.e., harassment, misrepresentation, contacting third parties-See FDCPA page) is liable, and may owe you up to $1,000 plus damages and attorney's fees, regardless of its intent.

The FDCPA generously protects consumers using the "least sophisticated consumer standard" to guarantee the protection of the "gullible as well as the shrewd."

But for all of its protections, the FDCPA has some strict limitations. For one, the act governs only "debt collectors" (third parties collecting debt – not originating creditors).

The second limitation of the FDCPA is its application to attempts to collect "consumer debt" (money used for "personal, family, or household transactions" – not business transactions).

Thirdly, the FDCPA protects "consumers" – not business entities.

Otherwise slam-dunk cases against debt collectors fail because a plaintiff is unable to prove the "consumer" nature of the debt. For example, some plaintiffs happen to be third parties mistaken as debtors because of similarly spelled names and therefore have no connection to, or ability to prove, the debt.

Our recent case (I.B. v. Pressler & Pressler, LLP) relaxed this standard. Although our client was a third party with no direct knowledge, the court nonetheless inferred its consumer nature. Magistrate Peck spoke against the fact that defendants Palisades and Pressler possessed (but did not disclose) information that would address the nature of the debt. Magistrate Peck also considered and credited the facts that Pressler holds itself out on its website as specializing in "Retail Collections." The court further found that the debt was against an individual living in an apartment building. Based on these facts, the court found sufficient facts to warrant the inference that that debt was of a consumer nature.

You may read Magistrate Judge Andrew J. Peck's decision here.

Virginia Court requires direct evidence of the consumer nature

Virginia federal appeals court (Booshada v. Providence Dane, LLC, (Decided January 31, 2012) required direct evidence of the nature of the debt, especially when the debtor denied any relationship to the debt to escape an obligation to pay.

The Booshada court rejected the debtor's three arguments to legally infer the "consumer" nature of the debt:

The debtor's three evidentiary arguments were:

  1. A letter that he received from the debt collector containing FDCPA-required disclosures constituted an admission that the debt was for consumer purposes.
  2. The fact that he was sued personally in state court infers the consumer nature of the debt.
  3. His sworn testimony that he never used a credit card for a business purpose.

The court rejected these evidentiary inferences. The court refused to hold that FDCPA disclaimer language "automatically triggers" protections of the FDCPA. Debt collectors can't be penalized for complying with the FDCPA as a precautionary measure. In Booshada, at issue was the "mini-miranda" warning: "we are attempting to collect a debt and any information obtained will be used for that purpose."

The Booshada court next held that individuals can be sued personally for business debts thus not triggering the FDCPA. The court found that "any or all of the purchases" in the billing statements could have been business expenses.

Most damaging to the plaintiff's case in Booshada was his state-court denial of having any recollection of the purchases for purposes of disavowing responsibility for repaying the debt. So when it came to proving the consumer nature of the debt in a subsequent FDCPA action against the collector, the court discredited his testimony. The court held, "we deem it troubling that Booshada's suddenly possessed knowledge of the nature of the debt, having repeatedly disavowed under oath knowledge of the debt itself.

Conclusion: Before you sue a debt collector under the FDCPA make sure you examine the account statements to confirm that the purchases were for family, personal, or household purposes.

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