Tag Archives: Fair Debt Collection Practices Act

Second Circuit Rules That Debt Dispute Need Not Be in Writing

The Fair Debt Collection Practices Act (FDCPA) requires debt collectors to send their debtors written notice containing certain information, including the amount of the debt, the name of the creditor, and a statement informing debtors that they have thirty (30) days to dispute the validity of the debt, or the debt collector will assume that the debt is valid.  Debt collectors have long taken the position that any dispute as to the validity of a debt must be in writing.  The Third Circuit (Delaware, New Jersey, Pennsylvania, and U.S. Virgin Islands) has agreed with this position; the Ninth Circuit (Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Northern Mariana Islands, Oregon, and Washington) has taken the opposite view.

This may seem like the sort of thing that would not come before the courts very often, and for the most part, that has been the case.  Debt collectors and debtors alike usually assume that any sort of dispute must be in writing, as the FDCPA specifies that other disputes must be in writing to be effective.

It is this failure on the part of the FDCPA’s drafters, whether or not it was intentional, to specify whether debt disputes must be in writing that appears to have doomed the traditional viewpoint of the debt collection industry and the Third Circuit, at least here in the Second Circuit (Connecticut, New York, and Vermont).  The Second Circuit recently ruled that the FDCPA does not require debt disputes to be in writing, in part because the plain language of the FDCPA specifically does not include a writing requirement, and in part because the right to dispute a debt is so fundamental that even those individuals who are unable to write, or who can write only with great difficulty, should not be deprived of the opportunity to exercise such an important right.

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Berman v. New York City: What Does it Mean for New York City Consumers?

New York City’s interest in regulating debt collectors is nothing new.  Back in 1984, the City passed Local Law 65, which required debt collection agencies to obtain licenses to perform collection activities within the five boroughs.  The City’s reasoning was set forth as follows:  “While the majority of those engaged in [the debt collection] business are honest and ethical in their dealings, there is a minority of unscrupulous collection agencies in operation that practice abusive tactics such as threatening delinquent debtors, or calling such people at outrageous times of the night.” N.Y. City Admin. Code § 20-488 (1984).

Much has changed since 1984.  In 1996, Congress passed the federal Fair Debt Collection Practices Act, which penalized abusive and harassing debt collection tactics, and many states, including New York, have since passed their own versions of this law. However, perhaps incentivized by the economic downturn and the general inability of the populace to timely repay debts, by many accounts, debt collectors have grown increasingly bold.  New York City, under Mayor Michael Bloomberg, determined that Local Law 65 was insufficient to stem the tide of aggressive and, at times, abusive collection activity.  According to the Urban Justice Center, in 2006 roughly 99% of collection lawsuits brought against consumers by third-party debt buyers relied upon invalid or falsified evidence. This was of great concern to the backers of Local Law 65, as third-party debt buyers, who are not concerned about maintaining long-term relationships with debtors, are more inclined to pursue litigation to collect debts, and frequently obtain default judgments against debtors who, it would appear, have not received proper notice of the claims against them and, accordingly, are denied any meaningful opportunity to appear and be heard by the courts.

In response to what the City viewed as a slippery slope of debt collection activities that were at best indifferent, and at worst actively predatory, in 2009 the City Council passed Local Law 15, which extended the reach of Local Law 65 to include third-party debt buyers and attorneys who collect debts under the umbrella of “debt collector.”  Promptly thereafter, certain New York law firms engaged in the collection of debts held by debt buyers, as well as a Delaware-based debt buyer, commenced an action in the United States District Court for the Eastern District of New York, captioned Berman v. NYC, 09-CV-3017 (ENV), challenging Local Law 15 and certain regulations passed in support thereof.  The plaintiffs alleged that Local Law 15 and its regulations were pre-empted by both New York State law and the United States Constitution’s Commerce, Contract and Due Process Clauses.

In Berman, decided September 29, 2012, Judge Eric N. Vitaliano sided with the plaintiffs in holding that Local Law 15 was pre-empted by both state and federal law.  In particular, Vitaliano held that New York State Judiciary Law §§ 53 and 90 already regulate the conduct of lawyers licensed to practice in New York, and that it remains firmly within the domain of the Supreme Court Appellate Divisions to sanction attorney conduct that does not conform with attorney ethical obligations.  Furthermore, noted Vitaliano, Local Law 15 violates the Contract Clause of the United States Constitution by interfering with contracts executed between debt holders and debt buyers, and is unconstitutionally vague. Vitaliano denied the plaintiffs’ motion for summary judgment for violation of the Commerce Clause of the United States Constitution.

I can almost hear you thinking – this is all a bunch of legalese; what does it really mean, in practice?  How will it affect me, as a New York City debtor tired of relentless collection activity by debt collectors?  Well, that remains to be seen.  Judge Vitaliano noted in the Berman decision that Local Law 15 was ambitious, but it was unclear whether Local Law 15 would have provided much, if any, benefit for consumers. Vitaliano did not doubt that abusive debt collection practices are rampant in New York City, but did doubt that Local Law 15 had the focus and the teeth to prevent these abuses from occurring. Furthermore, Vitaliano believed that the New York State courts and legislature are well equipped to address abusive debt collection tactics, and to regulate those who conduct debt collection practices within the State of New York. The fact remains that these matters are frequently litigated in state courts, and if recent studies are to be believed, virtually every default judgment obtained against New York City consumers is predicated on deficient evidence of the debt, service of process, or both. I can tell you first-hand, through my own experiences representing consumers in New York, that plaintiff debt collection agencies fail to properly serve defendants an extraordinarily high percentage of the time, and more consumers should take advantage of the opportunity to fight back against these tactics. Whether out of anxiety, shame or lack of funds, most consumers are not utilizing the full power of the courts described by Vitaliano, and the availability of this power was not affected by Vitaliano’s decision.

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