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The Fair Debt Collection Practices Act:
Who is a Debt Collector?

By: Jeffrey Wertheim

The Fair Debt Collections Practices Act, "FDCPA" or the "Act," is federal law codified at 15 U.S.C. ' 1692 et seq., that regulates the collection of consumer debts by third-party debt collectors.

The FDCPA is a strict liability statute, and one violation is sufficient to establish liability. Bentley v. Great Lakes Coll. Bureau, 6 F.3d 60 (2d Cir. 1993). A debt collector who violates the FDCPA is liable for actual damages, additional statutory damages up to $1,000 per action, attorney fees, and costs. 15 U.S.C. ' 1692k(a).

The definition of "debt" in the FDCPA covers credit transactions "primarily for personal, family, or household purposes"; that is, consumer debts. 15 U.S.C. ' 1692a(5). Congress intended that the term 'debt' should also "include consumer obligations paid by check or other non-credit consumer obligations. An example of a non-credit obligation is a doctor, dentist or hospital bill that is originally expected to be paid in full in one payment within 30 days."  House of Representatives Report No. 95-131. It does not cover or apply to commercial debts or transactions. The FDCPA has been held to apply to student loans, dishonored checks, rent, utility bills and credit cards but not to taxes, fines, alimony, child support, tort debts or tort subrogation claims. Hawthorne v. Mac Adjustment, 140 F.3d 1367 (11th Cir. 1998); Mabe v. G. C. Services Ltd. Partnership, 32 F.3d 86 (4th Cir. 1994); Zimmerman v. HBO Affiliate Group, 834 F.2d 1163 (3d Cir. 1987); Staub v. Harris, 626 F.2d 275 (3d Cir. 1980); Carrigan v. Central Adjustment Bureau, Inc., 494 F. Supp. 824 (N.D. Ga. 1980); Fair Debt Collection, 4th Edition, National Consumer Law Center, 2000, ' 4.4.2.1.

The FDCPA covers "debt collectors," defined as entities "the principal purpose of which is the collection of any debts, or who regularly collects . . . debts owed . . . another." 15 U.S.C. ' 1692a(6). Also covered are assignees of debts already in default and check guarantee and collection services. See Holmes v. Telecredit Service Corp., 736 F. Supp. 1289 (D. Del. 1990); Kimber v. Federal Fin. Corp., 668 F. Supp. 1480 (M.D. Ala. 1987).

The FDCPA does not apply to the original creditor collecting its own debts in its own name, government agencies, or assignees of debts not in default when assigned. 15 U.S.C. '' 1692a(4) & 1692a(6)(A)-(C), (F). Creditors collecting their own debts are generally exempt from the FDCPA. However, creditors may become liable under the Act in one of the following ways: (1) loss of the creditor's exemption from FDCPA coverage, (2) vicarious liability for wrongful acts of the creditor's "agents", or (3) direct liability under state law versions of the FDCPA.

Loss of the Creditor's Exemption

The Act's restrictions and limitations cover any debt collector who uses a name other than his own that would indicate that a third party is collecting or attempting to collect such a debt. Therefore, if an employee of the creditor represents that he or she is working for a third party, the creditor will become subject to the Act as a debt collector. Kempf v. Famous Barr Company, 676 F. Supp. 937 (E.D. Mo. 1988). In Dickenson v. Townside T.V. & Appliance, Inc., 770 F. Supp. 1122 (S.D. W.Va 1990), however, the creditor consistently conducted business under an assumed name rather than its incorporated name and attempted to collect under the assumed name. The court held the creditor's consistent use of a business assumed name or a trade name was permissible and collecting of debt under the same name commonly used by the business did not subject the creditor to the provisions of the Act.

Officers or employees who collect debts in the name of the creditor are not covered by the Act. 15 U.S.C. 1692a(6)(A). However, in-house counsel may lose this exemption if he or she sends demand letters that give the appearance that he or she is an independent counsel. Dorsey v. Morgan, 760 F. Supp. 509 (D. Md. 1991).

Creditor's Vicarious Liability for Wrongful Acts of "Agents"

If the creditor's third-party collector is found to be the creditor's "agent," the creditor may be liable for wrongful acts that were within the line and scope of the relationship. However, third-party collectors have generally been held not to be agents but rather independent contractors not subject to the creditor's control in the selection of collection methods. Lynch Jewelry Co. v. Bass, 220 Ala. 96, 124 So. 222 (1929). However, Alabama's general rule is that actions by attorneys are to be regarded as the acts of the client whom he represents. Kimber v. Federal Fin. Corp., supra; Bice v. Merchants Adj. Service, 85-0283-H-S (S.D. Ala. 11/20/85) (unpublished).

Although the Act exempts creditor from the definition of a debt collector, individual states often have enacted their own versions of the FDCPA that may have additional or greater application for creditors. At least 26 states have enacted debt collection restrictions that expressly cover or include creditors. Creditors with collection activities in multiple states should be aware of each state's laws as they pertain to debt collection regulation in that specific state.

Attorneys can be Debt Collectors

Attorneys who regularly collect consumer debts are debt collectors. See, e.g., Heintz v. Jenkins, 514 S.C. 291, 115 S. Ct. 1489 (1995); Wadlington v. Credit Acceptance Corp., 76 F.3d 103 (6th Cir. 1996); Tolentino v. Friedman, 46 F.3d 645 (7th Cir. 1995); Crossley v. Lieberman, 868 F.2d 566 (3d Cir. 1989). Since the 1986 amendment to the Act, attorneys have been subject to the FDCPA if they otherwise fall within the Act's definition of a "debt collector." Pub.L. 99-361, 100 Stat. 768. See Heintz v. Jenkins, supra; Wadlington v. Credit Acceptance Corp., supra; Tolentino v. Friedman, supra. Thus, attorneys collecting consumer debts must comply with the FDCPA if they regularly collect debts for others. The term "regularly" has been broadly interpreted to include attorneys for whom debt collection is a small part of their practice: "[A]ny attorney who engages in collection activities more than a handful of times per year must comply with the FDCPA. . . . [T]he Act appl[ies] not only to those attorneys who have collection practices but also to those who collect on an occasional basis and the small law firm which collects debts incidentally to the general practice of law."  Crossley v. Lieberman, 868 F.2d 566, 569 (3d Cir. 1989), quoting R. Hobbs, "Attorneys Must Now Comply with Fair Debt Collection Law," X Pa.J.L.Rptr. 46 at 3 (No. 21, 1987). Indeed, it appears that attorneys may be held to a higher standard than other debt collectors: "Abuses by attorney debt collectors are more egregious than those of lay collectors because a consumer reacts with far more duress to an attorney's improper threat of legal action than to a debt collection agency committing the same practice. A debt collection letter on an attorney's letterhead conveys authority and credibility." Crossley v. Lieberman, 868 F.2d at 570.

The United States Supreme Court in Heintz v. Jenkins, supra, unanimously ruled that a lawyer who regularly collects consumer debts through litigation is a "debt collector" subject to the FDCPA. Pursuant to Heintz, the fact that an attorney engages solely in litigation to collect consumer debts will not shield the attorney from FDCPA coverage.

Attempts to amend the FDCPA are regularly introduced. Attorneys practicing collection law or representing collection clients are well-advised to frequently check the current status of the FDCPA for amendments and appellate constructions.