If you’ve been in this industry even for a brief period, you know that the only thing constant is change. While the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA) generally dictate the direction of our business, decisions made in current court cases often drive changes. Keeping up with those changes can be overwhelming when it comes to the disclaimer language in our notices.
Whether or not a disclosure is required when charging interest is an issue that has recently moved through the judicial system. In March of this year, the Second Circuit Court ruled on Taylor v. Financial Recovery Services and upheld the district court’s opinion that Financial Recovery Services did not violate the FDCPA by not including an interest disclosure. The biggest win in this ruling may have been the statement that the only impact such a disclosure would have is encouraging a consumer to delay repayment of their debts.
Avila v. Riexinger & Associates, LLC, which was also heard in the Second Circuit, suggests that collection agencies may invoke safe harbor by using disclosure language stating the “amount of the debt stated in the letter will increase over time,” or by clearly stating that payment of the amount set forth in the notice will be accepted as payment in full if paid by a specific date. In 2000 Miller v. McCalla, Raymer, Patrick, Cobb, Nichols and Clark LLC also offered safe harbor language:
“As of the date of this letter, you owe $[amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information write the undersigned or call 1-800- [phone number].”
In our agency, we utilize similar language, referencing additional charges and suggesting the consumer call to verify balance at time of payment.
Consider the opposite side of the safe harbor language for a minute. Do we then have an obligation to include language that the balance will not increase if no interest is charged? The Seventh Circuit’s decision in Boucher v. Fin. Sys. Of Green Bay, Inc. may suggest just that. If our notices include language, such as that listed above, it may be false, misleading, or deceptive, as it could imply an outcome which is not possible. The Seventh’s Circuit’s decision may set forth an interpretation that would require us to have a notice for each situation.
Creditors and debt purchasers may be required to file Form 1099c when discharging or settling more than $600.00. Certain triggering events that must occur as outlined in ACA’s SearchPoint number 2324. This SearchPoint states that, “while collection agencies are not required to file Form 1099c, their clients may contract with them to file Form 1099c or maintain the information necessary to file Form 1099c.”
There was a time in our industry when clients routinely required us to notify consumers of the potential tax consequences when settling their debt. The intent was to inform consumers that settlements over $600.00 would require a 1099c to be filed, and the IRS would consider the amount settled as income. This language became fodder for litigation, as consumer complaints claimed the least confiscated consumer could believe the IRS was involved.
Our agency does not routinely send Form 1099c unless it is requested by the consumer. Typically, it is requested by an attorney representing the consumer. This practice may not be recommended for your agency; please be sure you consult with an attorney prior to making the decision that best suits your business.
Courts currently do not agree as to whether a collection agency is required to include language notifying a consumer of the negative tax consequences. The Second Circuit ruled in Altman v. J.C. Christensen & Associations, Inc. that debt collectors have no obligation to warn the consumer of possible tax consequences. However, in Foster v. Alliance One Receivable Mgmt, the court denied the debt collector’s motion to dismiss, indicating that including language regarding the IRS could be construed as intimidation by the least-sophisticated consumer.
Out-of-Statute Debt Disclosures
Statutes of limitations define the time allowed to seek legal remedy for debt. They are set at the state level and vary greatly. Such statutes typically extinguish a debt collector’s ability to pursue legal action to collect. They generally do not prohibit debt collectors from continuing collection attempts, a fact which is often misunderstood by consumers.
Courts have ruled the FDCPA does not prohibit the collection of out-of-statute debts, but have not reached a similar agreement as to whether a debt collector must disclose the applicable statute of limitations when attempting to collect those debts. In addition, the Federal Trade Commission (FTC), in a settlement decree with an asset buyer, has required disclaimers to be used when collecting debts that are out-of-statute. The language to be used when reporting those debts to credit reporting agencies was:
The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, we [company name], may continue to report it to the credit bureaus as unpaid.
The language to be used when the not reporting to the credit reporting agencies was:
“The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency.”
The language examples above are only required by the asset buyer involved in the settlement agreement with the FTC, but other courts have found that a debt collector may violate the FDCPA by failing to note a debt is out-of-statute. Failing to disclose the status of the debt in a settlement offer could be understood by the least-sophisticated consumer as a chance to avoid legal action.
Cases in the Fifth, Sixth and Seventh Circuits have ruled that settlement letters that do not disclose limitations of the agency when collecting out-of-statute debt could violate the FDCPA. Additionally, those courts have also ruled that letters which are seeking partial payment on out-of-statute debt without disclosing the potential consequences of a partial payment could also constitute an FDCPA violation.
The agency I work for is currently discussing the best method to handle out-of-statute debt, including language required on notices. When making these decisions, we examine our personal litigation atmosphere, as well as the litigation atmosphere in the areas we operate, and we consult with our counsel to arrive at a decision that best suits the consumer, our clients and our business.
ACA has several SearchPoints with good information on out-of-statute debt.
Several states require special language in collection letters. We should always be aware of these requirements and comply. When providing any of the required language on the back of a letter, the front of the letter should include a reference to the back of the letter such as what our agency is currently using:
***SEE THE REVERSE SIDE OF THIS LETTER FOR IMPORTANT INFORMATION***.
Additionally, the font type and size should be the same on the back of the letter as it is on the front of the letter.
ACA SearchPoint documents number 2008 and number 3048 provide a starting point for your search into the specific language required by your state.
So, What Do We Do
Without clear laws and expectations from the courts, we must be cautious and diligent with our notices. Pay attention to court rulings both in and out of your circuit, as well as the consent orders issued by the Consumer Financial Protection Bureau (CFPB). Attend conferences, subscribe to newsletters, reach out and network with other professionals in our industry to keep informed of the language and practices others are using.
Changes are constant in our industry. Be vigilant in reviewing those changes that may affect the requirements of the notices you send. Make it a priority to consult with a qualified attorney to review your letters and update those letters when necessary. The time and money spent, and cost incurred could save you the cost of defending a lawsuit.