Congress passed the Fair Debt Collection Practices Act in 1977 in response to the "abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors." "Existing laws and procedures for redressing these injuries," said the bill, "are inadequate to protect consumers."
35 years later, the very law created to address these issues has itself become inadequate to deter abuse.
Under the FDCPA, plaintiffs may recover actual damages, attorney's fees, costs, and statutory damages up to $1,000. While the first three are either market-flexible or regularly updated, the statutory damage cap has not changed since the law first took effect in 1978, and its stagnation means that as inflation has increased, it has become progressively cheaper for debt collectors to break the law.
Let's break down the cost of two FDCPA violations to a hypothetical debt collector, one occurring in 1978 and the other in 2013. Let's also say a harassing phone call is the basis for both violations.
The first cost is attorney's fees. Let's assume that a debt collector will pay a consumer's attorney for 20 billable hours in order to quickly and amicably resolve an FDCPA dispute. According to the DC Circuit, in the mid 1970s "[t]he average rate of $57.17 an hour [was] well within the local range for associates of larger firms." Copeland v. Marshall, 641 F.2d 880, 888 (DC Cir. 1980). Attorney's fees now are somewhat higher, and range anywhere from $50/hr for paralegal work to $500+/hr for partners at large firms. For our purposes, let's set a reasonable average rate for attorneys handling FDCPA suits at $300/hr.
Next are court costs. Filing a lawsuit in federal court in 2013 costs $350. In 1978 it was $60.
Actual damages vary. Let's take a standard harassing phone call case from 1980 where the court awarded a plaintiff $100 in actual damages for "indignation at the perceived violation of his legal rights." Carrigan v. Central Adjustment Bureau, 502 F. Supp. 468, 471 (ND Georgia 1980). An award for a similar transgression today would be around $500. See Schlacher v. Law Offices of Phillip J. Rotche, 574 F.3d 852, 855 (7th Cir. 2009) (the $3000 award in that case was for a debt collector who went well beyond the call of duty, calling the plaintiff "retarded" and telling her she would go to jail for not paying up. For uniformity's sake we'll take the $500 awarded to her daughter for a more standard harassing phone call).
The $1,000 statutory cap will be constant in both cases.
In 1978, with $1,000 in statutory damages, $100 in actual damages, a $60 filing fee, and 20 hours of attorney's fees at $57.17/hour, the total cost of an FDCPA violation to a debt collector was $2,303.40.
In 2013, with $1,000 in statutory damages, $500 in actual damages, a $350 filing fee, and 20 hours of attorney's fees at $300/hr, the total cost of an FDCPA violation to a debt collector is $7,850.
$7,850 seems like a lot, right? It's not-- at least not compared to 1978, the year Congress set out to establish an adequate deterrence against abusive debt collection. According to the Bureau of Labor Statistics, the 1978 award of $2,303.40 adjusted to present-day purchasing power is $8,824.61, almost $1,000 more than the amount awarded in our 2013 hypothetical. Of course actual damages, statutory filing costs, and the legal market have not evenly matched inflation and each increase the cost relative to the statutory damage cap, so let's apply the same actual damages, costs, and fees we used for 2013 and adjust only the $1,000 statutory cap for inflation-- to $3831.12. The total cost of an FDCPA suit under these circumstances would be $10,681.12. This is significantly higher than the actual award of $7,850, which means that because by the very nature of debt collection the bottom line tends to be the single incentive, debt collectors in 2013 have 27% less of a reason not to break the law than they would had the damage cap kept up with inflation.
The obvious reason the FDCPA is weaker now than it was when first passed is the statutory damage cap, which has been stuck at $1,000 for 35 years. To deter debt collector abuse as effectively as they set out to in 1977, Congress should raise the cap to $3800 and update it annually to meet inflation. Or, to convey the message that they have the public interest in mind at all when drafting legislation, they might consider raising it to $2000.
Of course, this entire hypothetical assumes that the plaintiff will receive the maximum statutory damage award. Would every FDCPA lawsuit merit nearly $4000 in statutory damages? Not likely, just at is it is not likely that every FDCPA lawsuit in 1978 merited $1000 in statutory damages. But plaintiffs had the option to request it and courts had the option to grant it then while they do not now.
As of this year, Americans have $850.9 billion in unsecured credit card debt and $986.8 billion in unsecured student loan debt. For comparison, total credit card debt in 1980 was $54 billion ($152 billion when adjusted for inflation). It's probably time to pay some attention to the primary federal collection law again.
The three major credit reporting agencies, Equifax, Experian, and TransUnion, will soon allow use of a new credit score algorithm called VantageScore. This scoring model appears to be beneficial for folks trying to recover from bad debt and those trying to build credit for the first time.
Currently, debts that go into collections, even if they are paid off, are factored into all credit scores for up to seven years, said John Ulzheimer, president of consumer education for SmartCredit.com. But VantageScore 3.0 will no longer factor these accounts into a consumer's score if the debt was paid in full or settled, just as long as the balance is zero.
The natural disaster protection is a nice touch.
The currently ubiquitous method of scoring, called FICO, will likely still be used by some lenders.
But the boost only matters if lenders use the new VantageScore. While FICO is still the most widely used scoring model, the VantageScore is gaining ground. It's currently used by seven of the top 10 financial institutions, six of the top 10 credit card issuers and four of the leading auto lenders and mortgage lenders, according to its website.
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