Appeals Court Sides with Collectors, But Ruling Creates Uncertainty

A federal appellate court upheld a lower court’s ruling that false, deceptive and misleading communications regarding a consumer’s debt made to a judge or court does not violate the Fair Debt Collection Practices Act (FDCPA).

The U.S. Court of Appeals for the Seventh Circuit last week ruled 2-1 that the statute which governs the debt collection industry’s behavior does not extend to courts and is specifically limited to protecting consumers and those with special relationships with the consumer.

The court, however, did note that its ruling contradicts opinions issued by the Sixth and Ninth Circuit courts. In McCollough v. Johnson, Rodenburg & Lauinger, LLC and Guerrero v. RJM Acquisitions, LLC the courts essentially said FDCPA trumps litigation efforts.

David Cherner, ACA International’s corporate counsel and director of state government affairs, said the Seventh Circuit court’s ruling in O’Rourke vs. Pallisades Acquisition and Pallisades Collections provides an important alternative perspective to what the other two appellate courts have ruled.

“A circuit decision has a lot of weight and is important for the membership to know about,” Cherner said. But Cherner cautioned the recent ruling also creates uncertainty about the industry’s legal communications in court and provides yet another example for why FDCPA needs to be updated.

“The fact that there is a circuit court split creates challenges for collection agencies to operate,” he said.

Joann Needleman, chair of the National Association of Retail Collection Attorney’s advocacy committee, said she doesn’t believe the Seventh Circuit’s ruling creates a true split on the issue because the court took a narrower view. She said the court focused only on whether the communication deceived the court under the FDCPA. Though Needleman believes the court’s summary comments paint an unflattering picture of the industry by accusing collection attorneys of seeking default judgments because they do not want to prove the case, she said it ruled correctly.

Needleman said NARCA’s biggest problem with such cases is that the federal court is adjudicating the practice of law through FDCPA.

“The Act is not there to regulate the practice of law. The Act applies to consumers and it begins and ends there,” she said.

Needleman said she does believe Congress will finally consider making changes to FDCPA this session after the Consumer Financial Protection Bureau, which has rulemaking authority over the Act, begins to issue rules. In the meantime, she said that industry members uncertain of what the latest court ruling means to their business simply should “do what the rules of procedures mandate when you litigate.”

Cherner advises agencies to review the case and confer with their attorney to decide what their business practices will be.