The Fair Debt Collection Practices Act (FDCPA) became effective in March, 1978 (15 U.S.C. 1692 et seq.). It was designed to eliminate abusive, deceptive, and unfair debt collection practices. It has been amended a few times, but the scope has not changed. The Federal Trade Commission (FTC) is the enforcement agency for the FDCPA. The FDCPA applies only to the collection of consumer debts (incurred by a consumer primarily for personal, family, or household purposes).
The FDCPA involves two parties, the debt collector and the consumer. Both are defined in the statute. The Fair Debt Collection Practices Act only applies to debt collectors. The FDCPA defines a debt collector as any person who regularly collects, or attempts to collect, consumer debts for another person or institution or uses some name other than its own when collecting its own consumer debts (15 U.S.C. 1692f).
A common myth assumes the Fair Debt Collection Practices Act does not apply to crematories, since they are a business collecting their own debts. However, crematory collections are potentially covered by the FDCPA. A simple situation comes to mind.
When a crematory collects a debt for cash advance items (death certificates or obituaries); the collection would be covered under the FDCPA. The crematory is the debt collector but the state agency/newspaper is the real creditor. A lawyer could claim these crematory collections amount to third party debt collections, and therefore subject to the act. It is prudent to act if the statute applies to you.
The term consumer as defined in the FDCPA includes the borrower’s spouse, parent (if the borrower is a minor), guardian, executor, or administrator. For the purposes of the FDCPA, the consumer is the individual who signs the contract, not the deceased, and not the deceased’s extended family. Since you consider “the family” to be the customer, the crematory operator must distinguish the actual consumer (who signed the contract) from the consumer’s family. Contacting other family members is prohibited.
When and Where
The FDCPA gives strict guidelines about the time and place to contact a consumer. A debt collector may not communicate with a consumer at any unusual time (generally before 8:00 a.m. or after 9:00 p.m. in the consumer’s time zone) or at any place that is inconvenient to the consumer, unless the consumer or a court has given permission for such contacts. You should keep a record of all your contacts with the consumer, including time/date of contact in case of a consumer complaint. Paper is cheap. Lawyers are expensive.
The FDCPA also restricts a collector from contacting a consumer at work. A debt collector may not contact the consumer at his or her place of employment if the collector has reason to believe the employer prohibits such communications. Since most employers have this restriction, it is good policy to avoid contacting a consumer at work unless the consumer first offers that as an option. If the debt collector knows that the consumer has retained an attorney to handle the debt, all contact must be with that attorney.
The FDCPA gives several other restrictions on debt collectors. When a consumer refuses in writing to pay a debt or requests that the debt collector cease further communication, the collector must cease all further communication. An oral request (“stop calling me”) does not have to be honored by the debt collector.
What to Say?
Debt collectors are required to give consumers notice about the debt, to whom the debt was owed, and that the consumer has a right to demand verification of the debt. The FTC also requires the debt collector to disclose he/she is a debt collector, attempting to collect a debt, and any information will be used for that purpose. You should include text like the box below in all correspondence with consumers.
THIS IS AN ATTEMPT TO COLLECT A DEBT. ANY INFORMATION OBTAINED MAY BE USED FOR THAT PURPOSE.
Unless you notify this office within 30 days after receiving this notice that you dispute the validity of the debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days from receiving this notice that you dispute the validity of this debt or any portion thereof, this office will obtain verification of the debt or obtain a copy of the judgment and mail you a copy of such judgment or verification. If you request this office in writing within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor if different from the current creditor.
Such statements should be pre-formatted on all collection correspondence (email or letter). By using preprinted text, a debt collector can easily avoid omitting any of the required information. (Note: Contact your local attorney to see if any changes have occurred since writing this article!)
What not to do!
The best way to examine the proper procedures for collections is to examine some hypothetical examples of overly zealous firms trying innovative means.
Scenario 1: Alpha Crematory is the sole provider in a rural area. The area has a strong religious presence. The crematory also suffers from many clients who do not pay their bills in a timely fashion. The crematory operator asks the local pastor what to do. The pastor indicates that those who are without funds deserve sympathy, but those who have the funds but refuse to pay should be exposed to the community. First, the crematory operator makes a list of the families with outstanding balances and posts the list on the church bulletin board. This encourages some of the families to pay. The crematory operator takes the remaining list and posts it on his website as “community deadbeats.” Are there any problems with this collection behavior?
A creditor may not publish a list of consumers who allegedly refuse to pay debts, except to a consumer reporting agency under section 603(f) or 604(3) of the FDCPA. This section of the act is violated twice in this scenario. First, while it may be tempting to put a “wall of shame” on the crematory’s website, it is not only tacky, but a violation of the FDCPA. Second, displaying the list on the church bulletin board is also “publishing” and therefore also a violation of the FDCPA.
The only parties that a debt collector may contact when trying to collect a debt are:
- The consumer, (person who signed the contract)
- The consumer’s attorney,
- The consumer’s spouse,
- The consumer’s parent (if the consumer is a minor), and
- A consumer reporting agency.
Scenario 2: Beta Crematory is the only provider in a busy metro area. The crematory suffers from many clients who do not pay their bills in a timely fashion. Tired of sending form letters, the crematory operator decides to print some postcards, which simply say: “You owe me money. Send it now.” The crematory operator sends this to all accounts that are more than 30 days old. Are there any problems with this collection behavior?
There are two big problems with this behavior. First, using postcards are prohibited, since anyone can read the message. This amounts to “publication” which is prohibited by the FDCPA. Second, the wording on the postcard is another problem. The debt collector faces liability for failing to disclose that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose. By not including the mandatory disclosures, the postcards have violated the FDCPA.
What if you violate the FDCPA?
The consequences for violating the FDCPA can be quite severe. A debt collector who fails to comply with any provision of the FDCPA is liable for Actual damages and Punitive damages. Actual damages compensate for a loss. Punitive damages are in addition to actual damages and are designed to punish. Punitive damages are limited to $1,000. However, in a class action (where multiple consumers work together to sue one creditor), the punitive damages are allowed up to $500,000.
The punitive damage amount has not been adjusted for inflation for thirty years. Even without an adjustment for inflation, the FDCPA lawsuits against debt collectors have increased. Several law firms advertise on television about suing debt collectors. In addition, courts have allowed consumers to recover court costs and attorney’s fees in any such action. This further increases the potential liability for the debt collector.
Besides a civil suit (from harmed consumers), a debt collector also faces government regulatory action. If a debt collector fails to follow the demands of the FDCPA, the FTC may initiate legal action against the collector. The FTC has been active in pursuing firms that violate the FDCPA, bringing over 60 suits against collection firms.
Complaints against debt collector are reaching record numbers. In fact, of all the regulated industries under the auspices of the FTC, the most complaints are lodged against debt collectors. Last year, the FTC received over 140,000 complaints against debt collectors, or nearly 12,000 complaints a month. The FTC admits that the number of reported complaints actually under-states the problem.
Twenty-five states have enacted additional protections for their consumers. States that have added protection for consumers from debt collectors are Alabama, California, Colorado, Connecticut, Florida, Idaho, Illinois, Iowa, Maryland, Massachusetts, Michigan, Nebraska, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Washington, West Virginia, and Wisconsin. If you live in one of these states, check with a local attorney for your additional state requirements.
A prudent action for crematories (and all creditors) is to act in accordance with the Fair Debt Collection Practices Act. Relying on your memory is your kryptonite. Write everything down so you will not forget. Make a record of every contact with the debtor. Write down the date and time, and keep it in the file. Remember: Paper is cheap. Lawyers are expensive.
When contacting a debtor by mail, follow these rules:
- Be sure to include required notices;
- Be clear about the amount and what the debt is for; and
- Keep written copies of all contacts for your files.
- Do not use postcards;
When contacting a debtor by phone:
- Call during normal hours (9 am to 8 pm);
- Be clear about the amount owed and for what;
- Use a script to avoid veiled threats, intimidating language, or false claims;
- Keep a list of date/times of all contacts with debtors as well as detailed information to avoid any charge of harassment or abuse;
- Do not call third parties; and
- Do not call debtor at work.
We hope this project enlightens you about the pitfalls involved in collecting debts, and guides you to methods that are legal and proper. If you have any specific questions, please contact your local legal counsel.