CBS Compliance Corner – November

Our clients often ask us about the legal aspect of accounts we work for them. With that in mind, this article is the first in an on-going series on the life of an account as it makes its way through the legal process at Collection Bureau Services, Inc.

As with any business, effective communication with consumers is also the key to running a successful collection agency, and the Fair Debt Collection Practices Act (FDCPA) is the foundation upon which communication between consumers and debt collectors is based. At the outset, the FDCPA requires Collection Bureau Services (CBS) to disclose the purpose of its initial written communication, which is that CBS “is attempting to collect a debt and that any information obtained will be used for that purpose.”

Along with this initial written disclosure to consumers (that CBS is attempting to collect a debt), the FDCPA requires CBS to include a validation notice that must state the amount of the debt, the name of the creditor, and a statement that the consumer may dispute the debt. Should a consumer choose to dispute a debt in writing within 30 days of his or her receipt of the validation notice, CBS is then required to obtain verification of the debt – confirmation from the creditor that the amount demanded from the consumer is the amount owed – and provide this verification to the consumer.

These disclosure and validation requirements were enacted to effectuate Congress’ stated policy of “‘eliminat[ing] the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid.’” Terran v. Kaplan, 109 F.3d 1428, 1431 (9th Cir. 1997).

It is interesting that Congress chose to use the verb “dun” when discussing the stated policy of the FDCPA, since dun, or dunning, is defined as “importun[ing] (a debtor) for payment: a dunning letter.” The American Heritage Dictionary of the English Language 554 (4th ed., Joseph P. Pickett ed., Houghton Mifflin Co. 2000). If CBS were to importune consumers, it would be pressing them for payment “urgently or repeatedly,” which could potentially violate the FDCPA’s proscriptions against both overshadowing and harassment.

In a nutshell, and keeping in mind Congress’ stated policy behind the FDCPA, CBS’ initial letter must: (1) be directed to the individual who is obligated to pay, i.e. the consumer; (2) accurately represent the amount and character of the debt; (3) clarify that the request for payment is from a debt collector and explain the verification process. Nor may CBS’ written communications, whether initial or subsequent, occur in a manner “the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.”

To remain compliant with the FDCPA, CBS’s policy concerning subsequent written communications with consumers is tiered so that small-balance accounts, while not receiving fewer than two written notices, are not repeatedly dunned for payment, and higher balance accounts – those starting at $160.00 or greater – are progressively sent increasing numbers of written demands, based on the amount of the balance. Such a tiered system ensures that consumers are contacted and notified of their obligations without CBS’ efforts becoming irksome or harassing and is done with the goal of receiving voluntary payment up front or progressing toward litigation when appropriate.