Understanding the Shift Toward Consumers in the ARM Legal Landscape

Members of the accounts receivable management industry are increasingly finding themselves under attack from state attorneys general and civil lawsuits brought by consumers alleging violations of the Fair Debt Collections Practices Act (FDCPA). ARM leaders have always been well-advised to understand the legal and regulatory environments applicable to the industry, but that need is even more important today.

Individual Lawsuits on the Rise

In most cases, the enforcement actions taken by authorities are a direct result of consumer complaints against collection agencies. Likewise, individual civil and class action lawsuits brought against debt collectors are driven by consumer complaints, the record of which is used in legal proceedings.   Over the past several years, a cottage industry has sprung up dedicated to helping consumers "deal with aggressive collectors."

Organizations like the National Association of Consumer Advocates (NACA) provide consumers with direct links to hundreds of lawyers’ websites, some of which provide calculated advice for consumers contacted by collection agencies. Some of these online resources urge consumers who speak with collection agents (“even if [they] want to pay the debt”) not to verify information, discuss the debt, or return collection calls. Also, many online groups teach consumers how to spot minor technical violations of the FDCPA. Lawsuits citing technical violations are often easier for consumer attorneys to win settlements than complicated cases of prolonged abuse which the FDCPA was enacted to curtail.

Furthermore, opportunistic consumers who, in efforts to dodge their financial obligations to creditors, have educated themselves on representative FDCPA violations, for example, and will use specific catchphrases to bait debt collectors into committing infractions of the law.

The result of this trend is an ever-increasing tally of civil lawsuits claiming violations of the FDCPA. By some estimates, lawsuits claiming violations of the FDCPA brought by consumers against collection agencies could be up as much as 30 percent in 2009 compared to 2008.

Many collection agencies view consumer litigation as a cost of doing business and elect to settle cases quickly rather than bearing the expense of defending claims are often difficult to dispel. But more and more are beginning to fight the charges as technical and frivolous claims become more commonplace.

Understanding debtors in these contexts expands ARM companies’ ability to gauge the nature of legal challenges as well as the motivations behind them in order to mount an appropriate response.  As a result of the U.S. economic situation, litigation-related expenses will continue to increase in coming years. Like other approaches for success in a highly regulated industry, ARM companies must continually evaluate their litigation exposure, assess the value of settling versus contesting legal challenges, and invest wisely in their businesses to minimize the financial and non-financial risks of consumer lawsuits.

Legislative and Regulatory Environment

The U.S. regulatory landscape is undeniably challenging for ARM companies to navigate, particularly in times of larger economic instability. The collection industry must conform to myriad state and Federal laws in order to successfully conduct business.

The Democratic majority in both houses of Congress is unlikely to approve any pro-ARM industry legislation anytime soon, leaning instead toward consumer-driven measures, some of which should grant further enforcement authority to federal agencies like the FTC or the new Consumer Financial Protection Agency (CFPA) that will regulate a range of financial products as well assume the responsibility to enforce the FDCPA, the Fair Credit Reporting Act (FCRA) and the Gramm-Leach-Bliley Act (GLBA).