Legally Speaking: Extreme Debt Collecting

John G. Browning Oct. 21, 2009, 3:24pm

In last week's column, I related the experience of a young Illinois woman who found herself on the receiving end of a debt collection notice – sent via her social networking page!

As I pointed out, the unusual method not only cost the debt collectors a lawsuit for emotional distress, but it also could very well have violated the Fair Debt Collection Practices Act – a federal law passed to protect consumers and set limits on just what debt collectors can do to collect a debt.

But as we'll see, the pressures of today's economy have translated to more questionable debt collection activities than ever before.

There have always been the rare extreme examples of outrageous debt collection attempts. In one case, an El Paso jury awarded a couple $11 million (reduced on appeal in 1998 to $1 million) for what they endured at the hands of debt collectors.

Seeking to recover a Visa credit card debt of $2,700, the collection agents swore at the couple; made harassing calls at work; claimed that a "hit" had been placed on one of the debtors; and even allegedly called in a bomb threat to one spouse's workplace.

In Duval County, a jury awarded $15 million to an elderly woman who was harassed by debt collects over a debt that wasn't even hers. The senior citizen, who suffered from anxiety disorders, was convinced by the overzealous collectors that she'd be jailed – so she tried to surrender to some very confused law enforcement personnel.

Last month, Dianne McLeod filed what is believed to be the first wrongful death lawsuit ever brought against a debt collector.

According to the Tampa woman's lawsuit, McLeod's husband Stanley had fallen behind on his mortgage payments after suffering a heart attack that forced him to leave his job. The defendant, Green Tree Servicing, allegedly harassed Stanley with 10-12 phone calls a day driving his blood pressure up and subjecting his weakened heart to more stress.

Sometime after an allegedly abusive phone call from one of Green Tree's collectors Stanley suffered a fatal heart attack. Representatives of Green Tree have characterized the claims as "outrageous and meritless."

For some debtors, even death is no refuge from overzealous debt collectors.

Using improved database technology to determine when estates are opened in the U.S.'s estimated 3,000 probate courts, debt collection firms are more methodical than ever than in pressing their claims. However, in many instances, no formal estate is ever created, leaving debt collectors with nothing to file against.

But does that stop them? No.

Despite the fact that in most states there is no obligation for a survivor to pay a deceased family member's debts, debt collectors report that going after surviving family members is one of the healthiest parts of their industry.

Many individuals pay the debt of a dead spouse, sibling, or parent out of sentiment or moral obligation, bur many are completely unaware that they have no legal duty to do so – and the debt collectors on the other end of the line are in no hurry to tell them otherwise.

Sometimes, the "moral obligation" collection tactic can backfire. Mark and Sara Neill of Becker, Minn., were offended when they received a dunning letter from Bullseye Collection Agency over an unpaid $88 chiropractor's bill.

The reason was that in the upper right hand corner of the notice were the letters WWJD (commonly understood to signify "What would Jesus do?"), and the Neills felt it was a blatant attempt to made them feel that there would be spiritual consequences for failing to pay the debt.

The Neills decided to do a little smiting of their own, and in October 2008 filed a class action lawsuit in federal court in Minneapolis. According to their lawyer, Thomas Lyons Jr., "This is equivalent to a shame tactic and is an attempt to guilt an alleged debtor to pay the debt by portraying the debtor as a sinner who is going to go to hell." Let he who is without sin cast the first lawyer.

In these tough economic times, consumers are using the courts to fight back against debt collectors who break the law by calling too often, calling too early or too late, talking to third parties about someone's debt, or, by making false threats of jail time, garnishing a debtor's wages, or seizing someone's home.

In Houston, for example, suits filed in federal court against debt collectors pursuant to the Fair Debt Collection Practices Act (FDCPA) were up 60 percent in the spring of 2009 from the same point a year ago. The FDCPA provides statutory penalties of up to $1,000 per violation, and claimants can also recover their attorneys' fees from those engaging in wrongful debt collection conduct.

In some egregious examples, debt collectors have not only made harassing phone calls, but have gone after people who already paid the debt or didn't owe it in the first place. In others, the collectors have pursued debts long after the statute of limitations has run on any claim the creditor may have had.

For example, Texas has a four-year statute of limitations on breach of contract causes of action. If a creditor pursues debts were incurred more than four years previously, it may be violating the FDCPA since it has no valid claim.

In New York, which currently has a six-year-long statute of limitations on collectible debt, debt collection agencies have come under increased scrutiny in the wake of horror stories of outrageous practices.

Among other incidents, default judgments were taken against numerous debtors, leading to court orders freezing their bank accounts – even those containing Social Security disability payments, which are exempt from collection. One process service firm and its CEO were even charged criminally for allegedly never serving court papers on hundreds of debtors, who were later unknowingly hit with default judgments.

New York Attorney General Andrew Cuomo has initiated a probe of the debt collection industry, and has subpoenaed documents from at least 20 different companies. In addition, New York – which already has some of the toughest laws in the country for protecting consumers in debt collection cases – passed new legislation earlier this year to require licensing of debt collectors, reduce the statute of limitations on collecting debt to three years, and require that creditors prove consumers with a "debtors bill of rights."

I've defended debt collection companies charged with FDCPA violations, and I've defended individual debtors from overzealous collectors.

As with virtually any profession, a few bad apples can damage the reputation of an entire industry, and debt collection is no different. But in these troubled economic times, as collectors and the companies who hire them operate under increasing market pressures, it is more important than ever for those struggling to pay their debts to know that they have important legal rights and protections.

John Browning is a partner in the Dallas office of Thompson, Coe, Cousins & Irons LLP. He may be contacted at:

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