Bankruptcy

The Benefits of Being Litigious

By Katie Porter

Adam and I have recently discussed our take on whether and why the Fair Debt Collection Practices Act (FDCPA) should apply to mortgage servicers. The take-away was that the current interpretation of the FDCPA, based on its legislative history, is that it does not typically apply to mortgage servicers.

But perhaps debtors should be challenging that interpretation. Although the weight of case law suggests it would be a difficult litigation victory, it turns out that suing under the FDCPA, regardless of outcome, has a crucial side effect. Columbia Financial International sent me an email a few months ago advertising a brand new feature--the opportunity to scrub a collection database against its FDCPA litigant database. Columbia Financial advertises that this Litigant Alert service "empowers you to protect yourself from overly-litigious debtors" and "find out immediately if you are collecting against anybody with a history of suing collection agencies."

What is the implication of this advertising? It suggests to me that if a debt collector found a match, i.e., was collecting from someone who was an FDCPA plaintiff, the debt collector should what . . . . either stop collecting or start complying with the FDCPA? The industry is supposed to already be complying with the FDCPA; we've heard lots of stories about the burden that it puts on collectors--to log and record their calls, to add a debt collection notice to their correspondence, etc. If a collector is in full compliance, why care if someone has sued another debt collector who may not have obeyed the FDCPA. Perhaps the suggestion is that debtors bring malicious and ungrounded lawsuits, alleging FDCPA allegations when there are none? The "overly litigious" description of FDCPA litigants certainly suggests that debtors have engaged in wrongdoing by filing claims. But notice the perverse incentive created for consumers--the apparent benefit of filing an FDCPA lawsuit is a respite from dunning and collection efforts.

Full post as published by Credit Slips on August 24, 2009 (boomark / email).