Category: Perspectives

Marx v. General Revenue Corporation:

The Supreme Court will hear arguments on November 7 for Marx v. General Revenue Corp. The grant of certiorari has been limited to a single question involving the right of a debt collector under federal law to recover its court costs if it wins a lawsuit against it over its collection practices.

Background:

The Plaintiff/Petitioner in the case is Olivea Marx, who defaulted on her student loan.  In September 2008 General Revenue Corp. (GRC) was hired to collect Ms. Marx’s account. Marx filed suit against GRC in October of 2008 for alleged violations of the Fair Debt Collection Practices Act (FDCPA). The Colorado district court found no violations of FDCPA and awarded costs to GRC in the amount of $4,543. Marx appealed both the finding of no FDCPA violations as well as the award of costs to GRC. Only the issue of costs has been granted cert.

The Language at Issue:

Two statutory provisions are at the root of this case:

•   FRCP Rule 54(d)(1) provides that “[u]nless a federal statute, these rules, or a court order provides otherwise, costs—other than attorney’s fees—should be allowed to the prevailing party.”
•   The FDCPA provides that, “[o]n a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.” 15 U.S.C. § 1692k(a)(3).

The Arguments:

Marx contends that the above provision of the FDCPA “provides otherwise” and as such costs may not be awarded to the prevailing party in cases brought under the FDCPA. Additionally, Marx argues that the FDCPA provision should be read to mean costs may only be awarded to a prevailing creditor/defendant upon a showing that the plaintiff brought the suit in bad faith and for the purpose of harassment.

GRC disagrees with Marx’s reading of the FDCPA, and argues the statute does not “provide otherwise” from FRCP Rule 54(d). GRC’s brief lays out their argument via analysis of the plain language, straightforward statutory construction, Congressional intent, as well as the purpose and history of not only the statute but also the precise provision at issue.  Additionally GRC counters Petitioner’s argument that affirming this holding would “chill enforcement” of the FDCPA – showing that even after the Marx decision, the number of cases filed by consumers in this district has been consistent.

What’s at Stake:

There is potentially a lot on the line for debt collectors. A SCOTUS opinion reversing the lower courts, and precluding innocent collection agencies from recovering costs absent a showing of bad faith and harassment would mean a lose-lose situation for debt collectors. GRC’s brief also looks at the potential of an unfavorable outcome in the context of an already pro-plaintiff ruling in Delta Airlines Inc., v. August. A result that, as GRC puts it, would mean defendant debt collectors would face FDCPA suits “with both hands tied behind their backs.”

Delta addresses FRCP Rule 68, which states that should a defendant offer to settle and the plaintiff declines, if that plaintiff is awarded less than the offered amount s/he is liable for costs incurred after the time the offer was made. The Delta opinion limits this rule to mean that if the defendant wins outright, such as the case here, Rule 68 is not applicable. Effectively this means that should the Supreme Court rule in favor of the petitioner, innocent debt collectors who are forced to defend meritless claims in court cannot be awarded costs through either Rule 54 or 68.

Statistics show consumer cases against debt collectors have been increasing and are continuing to rise. Without the small balance of allowing innocent defendants to be awarded costs, there is nothing to stop a slew of meritless attacks on the industry. GRC even points out that this was exactly what Congress intended to prevent in enacting the FDCPA.

Best Possible Outcome:

For both debt collectors and consumers, the best possible outcome for the long term would be for the Supreme Court to affirm the 10th Circuit’s decision, and to overrule Delta.

By affirming the lower court in this case it would send a clear message to plaintiff’s attorneys that the current trend of flooding the court houses and collection agencies with these law suits, regardless of the strength of their merit is not in the best interests of their clients. Additionally innocent debt collectors would have the peace of mind knowing they don’t have to give in to a meritless claim or suffer the entire cost of going to trial. It also encourages debt collectors to abide by the FDCPA and maintain good collection practices. When as in the case at hand you are a reputable and innocent debt collector, you will not be punished for successfully defending a meritless case against you. Otherwise, if these collectors lose money even when they win the case, debt collectors are not incentivized to adhere to the law. It becomes more cost effective to operate outside of the law when it seems you will lose money either way.

Furthermore, overruling Delta would encourage more legitimate settlement offers for plaintiffs. Encouraging consumers to settle claims if possible frees up valuable time and space in our crowded court systems. In many ways it is also better for the consumers as they most likely do not wish to expend the time and effort it requires to take the case all the way through court.

Occasionally the issue arises for debt collectors where they need to send their debtors a billing statement but they have received a cease and desist letter from the debtor they must adhere to. The question then becomes whether a billing statement is a violation of a cease and desist request. While not addressed head on, one court in California appears to have held that it would not be. This article looks at the issue as applied to Florida and Federal Courts.

Relevant Statutory Provisions:

15 U.S.C. § 1692b(6) – “Any debt collector communicating with any person other than the consumer for the purpose of acquiring location information about the consumer shall— (6) after the debt collector knows the consumer is represented by an attorney with regard to the subject debt and has knowledge of, or can readily ascertain, such attorney’s name and address, not communicate with any person other than that attorney, unless the attorney fails to respond within a reasonable period of time to the communication from the debt collector.”

15 U.S.C. § 1692c(a)(2) – “(a) COMMUNICATION WITH THE CONSUMER GENERALLY. Without the prior consent of the consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt— (2) if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney’s name and address, unless the attorney fails to respond within a reasonable period of time to a communication from the debt collector or unless the attorney consents to direct communication with the consumer;”

15 U.S.C. § 1692c(c) – “(c) CEASING COMMUNICATION. If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except— (1) to advise the consumer that the debt collector’s further efforts are being terminated; (2) to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or (3) where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.”

Fla. Stat. § 559.72 “Prohibited practices generally.—In collecting consumer debts, no person shall: (18) Communicate with a debtor if the person knows that the debtor is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney’s name and address, unless the debtor’s attorney fails to respond within 30 days to a communication from the person, unless the debtor’s attorney consents to a direct communication with the debtor, or unless the debtor initiates the communication.”

Marcotte v. General Electric Capital Services

In April of 2010 the Southern District Court of California held that under the California Fair Debt Collection Practices Act (CFDCPA) debt collectors, collecting on their own behalf, may send billing statements to consumers even if represented by an attorney. The case was brought by Phillip Marcotte against GE Money Bank (GEMB) for a violation of the CFDCPA. Marcotte claimed G.E Capital violated the act by sending two billing statements to Marcotte after being informed that he was represented by an attorney, and all communications should go to the attorney. Plaintiff references 15 U.S.C. §§ 1692b(6), 1692c(a)(2), and 1692c(c) and the court pointed out that these “generally prohibit any communications from a debt collector once the debt collector knows the consumer has an attorney or once the consumer requests in writing that the debt collector cease communications.”

GEMB pointed to California Civil Code § 1788.14(c), which prohibits communications except “statements of account.” However, Plaintiff proceeded under section 1788.17, which incorporates by reference the federal Fair Debt Collection Practices Act (FDCPA) and there is no exception for billing statements in the prohibition of communication.

The court looked at the statutory structure, noting that the incorporation of the federal statute was later in date, and did not address the conflict regarding the billing statements. The court also noted that a repeal of a provision by implication is disfavored. Additionally, GEMB pointed to the Truth in Lending Act (TILA) provision that requires credit car companies to send monthly billing statements. GEMB also noted that under the FDCPA the definition for “debt collector” does not include collectors on their own behalf. These factors ultimately led the California court to find that the billing statements sent by GEMB did not violate the CFDCPA’s prohibition on communications to consumers once they are represented by counsel. By comparison, and seeing that the court referenced the two scenarios together, it would appear that the mailing of billing statements would also not violate a cease and desist request.

Applying Marcotte in Florida

One court in Florida addressed a circumstance where this would not hold true however. In Keliher v. Target National Bank, the defendants tried to use the Marcotte case, but the court found it did not apply. The difference between the two situations according to the Florida district court was that the billing statements sent by Target National Bank, also contained collection language that’s not part of the TILA requirements and violates the FDCPA as well as the Florida Consumer Collection Practices Act (FCCPA).

Interestingly, the defense in Marcotte argued that sending billing statements to the consumer rather than their attorney offered greater consumer protection due to the time constraints the consumer has to challenge the accuracy of any billing statement. Looking at these two cases along with the statutory language of both the FCCPA and the FDCPA it seems there is a fine line for creditors to walk. One important thing to note is that both cases addressed the prohibition on communication based on the creditor’s knowledge that the consumer is represented by counsel, and not based on a cease and desist request. Due to the fact that the language is similar for both situations, it can be inferred that courts may treat the two scenarios similarly. The safest solution for creditors is to carefully stick to the requirements of TILA and not include excess language that could be construed as a violation of either state or federal collections laws.