Consumer Debt Collection FDCPA Traps for the Unwary Nationwide Lender Loan Servicer Debt Collector Part II

Consumer Debt Collection FDCPA Traps for the Unwary Nationwide Lender Loan Servicer Debt Collector Part II

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State Debt Collection Laws

The federal Fair Debt Collection Practices Act (FDCPA) applies to debt-collection practices throughout the nation, even those that are purely intrastate in nature, and thus it essentially is a "uniform" law in every state. However, state laws governing debt-collection practices deemed to be "more protective" of the consumer than the FDCPA are exempt from federal preemption, and there is no uniformity in the state laws, which purport to govern the activities of nationwide lenders and loan servicers within the states. Only seven states have no statutes that address debt-collection practices.1 The remaining states regulate debt-collection practices by either direct regulation or indirect regulation via a general consumer-protection statute.2 Additionally, application of each state's law typically hinges on unique statutory definitions (and limitations) of the terms "debt collector" and "collection agency."

State laws regulating debt-collection practices vary considerably in definitions, exemptions, prohibited practices and penalties imposed for their violation. Moreover, many of the state laws are themselves not clear and can be subject to varying interpretation. Forty-one states (plus Puerto Rico) have statutes that can be fairly construed to regulate the debt-collection practices of "collection agencies" and other "third-party" debt collectors,3i.e., collectors other than the original creditor collecting in its own name. Thirty-two states have laws on their books that may reach the collection practices of creditors collecting their own debts in their own names.4 Additionally, the statutes in 38 states may be fairly construed to regulate the collection practices by creditors collecting their own debts if, in the process of collecting their own debts, the creditor "uses another name which would indicate that a third person is collecting or attempting to collect the debt."5

A detailed review of every state's laws governing collection practices is beyond the scope of this article. Nonetheless, the following provides insight as to how state laws may specifically affect lenders and creditors.

State Regulation of "Collection Agencies" and Creditors Collecting Their Own Debts Using Another Name

As is provided under the FDCPA, many states seek to exempt creditors collecting their debts in their own names from regulation, while still regulating creditors using names other than their own to collect their own debts. Several states do this by defining the terms "collection agency" or "debt collector" to include persons who, in the process of collecting their own debts, use names other than their own, indicating that a third person is collecting or attempting to collect the debts. The laws in the 38 states regulating the collection practices of creditors "collecting debts in names other than their own" can be a great source of confusion for lenders trying to determine whether or not they are subject to the state's regulations, in part due to exemptions that sometimes appear inconsistent with coverage.

For example, Arkansas regulates the practices of "collection agencies" and defines "collection agency" to include persons using a "fictitious" name or a name other than their own to collect their own debts.6 But Arkansas also provides an exemption from the regulations for "collection agencies" that is confusing and potentially inconsistent with the scope of who might be considered a "collection agency" under the state's definition of that term. Specifically, Arkansas law exempts "regular employees of a single creditor" from the regulations applicable to collection agencies.7 Whether this exemption means that an entity in the "exempted" category remains exempt if it collects debts using names other than its own is not clear from reading the statutes. Thus, the nationwide lender or loan servicer faces the difficult problem of determining whether or not it can be deemed a "debt collector" or a "collection agency" under a particular state's law, and if so, whether it is entitled to an exemption from regulation.

State Regulation of Creditors Collecting Debts in Their Own Name

Of more obvious concern to lenders are the majority of states whose laws govern all persons collecting debts, including creditors collecting their debts under their own names. Although there is less of an issue in these states as to whether the creditor is subject to the regulations, the prohibited practices and penalties vary widely, and the prohibited practices are usually more extensive than those prohibited under the FDCPA.

Some states regulating the actions of creditors in communicating with debtors partially mirror provisions of the federal FDCPA.8 For example, while Connecticut and New York laws cover creditors collecting debts in their own names, the prohibited practices and abusive conduct described in those states' laws essentially mirror the conduct prohibited by the FDCPA for third-party debt collectors under 15 U.S.C. §1692d.

Other states impose prohibitions on creditors that are broader than those applicable to third-party debt collectors under the FDCPA. California law, for example, regulates all those who collect debts and defines "debt collector" to mean "any person who, in the ordinary course of business, regularly on behalf of himself or others, engages in debt collection."9 California law thus specifically subjects creditors collecting their own debts to its reach. In collecting debts, California law prohibits, for example, communicating with the debtor "with such frequency as to be unreasonable and to constitute (sic) harassment to the debtor under the circumstances."10

Florida's "Consumer Collection Practices" statute also prohibits certain practices by "any person" in the collection of consumer debts,11 which has been interpreted by the courts to include creditors collecting debts in their own names.12 Practices prohibited under the Florida statute are broader and more ambiguous than those prohibited by the FDCPA. For example, in the collection of consumer debts, the Florida statute prohibits a creditor from, among other things, "willfully communicat[ing] with the debtor or any member of his family with such frequency as can reasonably be expected to abuse or harass the debtor or any member of his or her family."13 Given the subjective nature of this standard, how is the creditor to know what degree of communication "can reasonably be expected" to harass the debtor? Florida courts have held that this is a question for the jury.14

State Regulation of Debt Collection Through General Consumer Protection Statutes

Courts in several states have also broadly interpreted general consumer protection statutes to reach the conduct of creditors and third-party debt collectors while collecting consumer debt. Depending on the state, such statutes may provide remedies against debt collectors and creditors that include injunctive relief, attorney's fees and treble damages. Therefore, although a state may not have a specific "debt collection" law, powerful and intimidating statute-based liability may be imposed via a consumer protection claim. In Ohio, for example, the consumer protection regime has been interpreted to reach conduct by "both an original creditor and any collection agency hired by the original creditor."15 Likewise, the Montana Supreme Court has held that the state's Unfair Trade Practices and Consumer Protection applies to banks in the lending and collection of consumer loans.16


The preceding examples represent only a few of the variations within the state laws that regulate creditors and provide greater protection for consumers than the FDCPA. State statutes that reach debt-collection practices typically apply to such activities involving their residents, whether or not the debt collector is within the state, and include provisions awarding attorneys fees and statutory damages to aggrieved consumers. Therefore, nationwide lenders and loan servicers must thoroughly understand and comply with the laws in every state in which they communicate with debtors, or run the risk of expensive consumer lawsuits.


1 Alabama, Delaware, Mississippi, Oklahoma, Rhode Island, South Dakota and Virginia. Return to article

2 See Tables 2 and 3. Return to article

3 See Table 2. Return to article

4 See Table 1. Return to article

5 See Table 1. Return to article

6 See Ark. Code Ann. §17-24-101 (2004). Return to article

7 See Ark. Code Ann. §17-24-102(a)(1) (2004). Return to article

8 See Table 4. Return to article

9 Cal. Civ. Code §1788.2 (2004). Return to article

10 Cal. Civ. Code §1788.11 (2004). Return to article

11 Fla. Stat. Ann. §559.72 (2004). Return to article

12 See Schauer v. General Motors Acceptance Corp., 819 So. 2d 809 (Fla. 4th DCA 2002). Return to article

13 Fla. Stat. Ann. §559.72 (2004). Return to article

14 See Story v. J. M. Fields Inc., 343 So. 2d 675, 676-77 (Fla. App. 1977) ("We do not underestimate the difficulties presented by the deceptively simple language of [the statute, but]...for good or ill, this legislation largely commits to juries the double role of defining appropriate standards and applying them on a case-by-case basis, after considering not only the frequency of the calls but also the legitimacy of the creditor's claim, the plausibility of the debtor's excuse, the sensitivity or abrasiveness of the personalities and all other circumstances that color the transaction."). Return to article

15 See Liggins v. May Co., 373 N.E.2d 404, 405-06 (Ohio Ct. Common Pleas 1977). Return to article

16 See Baird v. Norwest Bank, 843 P.2d 327, 328 (Mont. 1992). Return to article

Journal Date: 
Sunday, May 1, 2005