The Fair Debt Collection Practices Act, which bans various abuses by debt collectors, gives collectors a defense to lawsuits: the "bona fide error." A collector who can show that it broke the law by mistake despite having "procedures reasonably adapted to avoid any such error" can avoid paying for its violation of the FDCPA.
Last month, the 11th Circuit dismissed an FDCPA action against a collector, Isaac v. RMB, Inc., reasoning that RMB's legal violation was the result of a "bona fide error." This "bona fide error" argument doesn't get brought to court very often. It's exciting stuff! In this case, the collector sent a consumer a collection letter even though it had received a "cease-and-desist" letter from the consumer a few days before. As it turns out, the two employees at the collection office able to process the letter were 1) out sick for the week and 2) out on maternity leave, meaning there was a few day's delay in processing the letter. Can't help that! The letter didn't get processed until a few days later than it should have. The court found that this was essentially a one-off gap in the collector's operations, not an abuse worth punishing, and dismissed it out of hand.
In Kaymark v. Bank of America, the Third Circuit ruled last week that a debt collector who sues a homeowner in a foreclosure case can be held liable for breaking the Fair Debt Collection Practices Act. In this case, Bank of America's lawsuit against Dale Kaymark to foreclosure his property included $2,050.00 in fees that hadn't yet been incurred. When it demanded these fees in its lawsuit, according to the Third Circuit, which convenes in downtown Philadelphia, Bank of America was misrepresenting the amount of money actually owed, in violation of the FDCPA.
Courts across the country are split on this issue, making the question of whether the FDCPA applies to foreclosures (or to court filings, like Complaints, for that matter) more and more attractive for the Supreme Court.
A class action lawsuit against a Minnesota debt collection law firm for breaking federal collection law will continue, reported Magistrate Judge Jeffrey Keyes last week.
The lawsuit alleges that Messerli & Kramer sent garnishment papers to the banks and employers of an unknown number of people which requested a freeze on their income for three months longer than allowed by law. Magistrate Keyes has recommended rejecting Messerli's attempt to dismiss the claims that this broke the federal Fair Debt Collection Practices Act.
"In this case," the court reported, "it is plausible that a debtor seeing that funds would be retained for 270 days, rather than 180 days, might feel more heavily pressured to pay the debt. In other words, the materiality of the violation is a question of fact, and therefore unsuitable for resolution on a motion to dismiss for failure to state a claim."
Bennett Hartz is an associate attorney at Drewes Law, PLLC who defends against debt collection and foreclosure. He can be reached by email at firstname.lastname@example.org.
Payday lending is a bit of a racket. The loans are small and ostensibly short-term-- mainly for those strapped for cash and unable to qualify for a line of credit who need a quick cash advance before receiving their paycheck. A car breaks down, a doctor needs visiting, bills pile up; lots of things can happen that makes someone working paycheck-to-paycheck need quick money before payday. The problem is that the interest rates on these loans run as high as 582%, and can create a "trap" where people end up constantly one paycheck behind, perpetually taking out payday loans to cover their living costs as their paychecks cover the prior week's payday loan and quickly mounting interest, leaving the borrower never actually able to pay the loans off.
The Consumer Financial Protection Bureau proposed new rules for the industry late last month intending to curb this practice. The new rules would give payday lenders a choice. Either:
1. Make sure borrows will have enough to pay back the loan and cover their household costs with their next paycheck before lending, or
2. Institute a series of checks on the "trap," including cooling-off periods between loans, caps on the number of loans that can roll over, and the creation of an "off-ramp" that allows borrowers to pay off a loan without incurring additional debt.
Are these methods as effective as shutting down the borderline-usurious payday lending industry for good? No. Are they better than nothing? Sure.
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