Michigan

When is a collection notice not a collection notice?

In March of 2007, the U S Court of Appeals for the 6th circuit decided Mabbitt v Midwestern Audit Services. This was a very interesting case.

Ms. Mabbitt and her sister shared a home on Leota Blvd. Consumers Energy provided gas to that space. The bill was in Ms. Mabbitt's name. When she got over $900 in arrears, Consumers threatened to shut off her gas. She and her sister moved to a new space on Lake Ridge Drive.

At this new space, the lease was in the names of both sisters but the Consumers power bill was in the sister's name alone. Consumers got wise to this move and informed its collection agency, Midwestern Audit. The collection agency sent the sister a notice stating that Consumers had observed that a prior obligation existed for Ms. Mabbitt and that that balance would be transferred as a beginning balance on the sister's account with Consumers ("Balance Transfer Letter").

Ms. Mabbitt sued for violation of the Fair Debt Collection Practices Act. She was upset that Consumers had disclosed "her business" to her sister in the Balance Transfer Letter. The legal basis for her claim was that Midwest Audit had disclosed her debt to an unauthorized third party in violation of 15 U.S.C. 1692c(b).

The court held that Midwest Audit's letter advising of the balance transfer was not a communication "in connection with the collection of a debt." The court first looked at 15 U.S.C. 1692c(b), which governs communications in connection with the collection of a debt. The court then compared Midwestern Audit's initial demand letter with the Balance Transfer Letter and noted that the former was in connection with the collection of a debt while the latter was not. The court held that the Balance Transfer Letter was not an attempt to collect a debt. Rather, it was an attempt by a business to inform customers that a previous debt has been transferred to a current account without having to follow the dictates of the FDCPA. To hold otherwise would prevent business from seeking a peaceful resolution of debts and would do nothing to achieve the stated purpose of the FDCPA which is to eliminate abusive debt collection practices by debt collector." Yeah...so was I!!!

First of all, the court conveniently overlooked the fact that the letter was not sent by Consumers Energy, the creditor. Rather it was sent by its collection agency; an entity that is governed by the FDCPA. I would think that any actions or communications taken by a collection agency would be governed by the FDCPA. Was Midwest simply trying to be nice to Ms. Mabbitt's sister by graciously informing her of the balance transfer? C'mon! Midwestern is in the business of collecting debts and this was a debt that it was trying to collect. Did Midwestern walk away from its commission fee because the balance was now transfered to the sister's account? Do cows really jump over the moon? O.K. now that we have that issue solved, lets talk about the second issue this case presents.

What the hell is the difference between a debt collector merely informing someone of her payment options vs asking her to pay her bill? Give up? So do I. The court seems to think that this is the difference between a communication that is "in connection with the collection of a debt" and one that is merely a business's attempt to offer payment options without getting mired in the FDCPA. Boy, I sure did not see this coming. I wonder if Congress saw this coming when they promulgated the FDCPA.

I am a lawyer that collects debts for a living. I confess that I am appalled by this ruling. How about you?

Full post as published by Michigan Collection Law Blog on April 27, 2008 (boomark / email).