Court broadened potential liability for debt collection activity

A loan servicer's disclosure of information to a company it hired to probe into a debtor's assets was deemed a "communication" under the Fair Debt Collection Practices Act.

Two core sections[1] of the Fair Debt Collection Practices Act (FDCPA) prohibit certain third-party communications made "in connection with the collection of any debt."

What constitutes "in connection with the collection of any debt"?

The bounds of this phrase were tested when a mortgage loan servicer engaged a business to help collect information from a debtor to assess his financial condition for purposes of settling a defaulted loan. The servicer caused the third-party business to send a letter to the debtor seeking financial information and inviting the debtor to discuss "foreclosure alternatives."

A federal appeals court[2] addressed the following two inquiries as to whether certain communications were made "in connection with the collection of any debt":

1) Must the communication explicitly demand payment?

No. Prior courts that have ruled otherwise may have construed the FDCPA too narrowly.

2) Must the communication be made directly to the debtor?

No again. Here, any communication between the loan servicer and third-party business was tied to debtor's defaulted loan and was made in furtherance of collection. That finding was enough to bring the third-party communication within the scope of the FDCPA.

The court reiterated a different court's finding that it is a "question of objective fact" as to whether a communication was sent "in connection with an 'attempt to collect a debt." But a relevant inquiry always is whether the communication was made to induce a debtor to pay.

The FDCPA is broad, and like many other federal statutes, requires interpretation that may at times conflict.

If you have been confused by any debt collection attempt, contact me, and let's discuss whether you've been treated properly under the law.



[1] FDCPA §§ 1692(c) and (e).

[2] Grubek v. Litton Loan Servicing, LP, 08-3776 (7th Cir. 2010).

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