The Fair Debt Collections Practices Act (FDCPA) shields consumers from abusive, coercive, and deceptive efforts to collect debts. FDCPA violations can result in money damages. But a recent Sixth Circuit Court says before consumers can sue they must first show they suffered harm.
Federal Debt Collections Practices Act Gives Consumers Rights
The FDCPA is a federal law that protects consumers nationwide from unfair debt collection practices. It puts restrictions on when and how collections companies and creditors can contact consumers to get their debts paid. For example, under the FDCPA, a debt collector cannot generally:
- Call you before 8:00 a.m. or after 9:00 p.m. without permission
- Contact you at work
- Pretend to be someone else (including an attorney or government agency)
- Threaten or harass you
- Deceive you about the terms of your account or the balance owed
The FDCPA also requires debt collectors to disclose that they are trying to collect a debt whenever they contact you. This includes a written notice in any letter they send you connected with your debt. Violating this notice requirement gives consumers the legal right to sue the collection company to recover for any actual damages or injury suffered and additional damages of up to $1,000 for each violation.
Sixth Circuit Says U.S. Constitution Takes Away Standing to Sue
In a consumer protection lawsuit, the debtor must show:
- A duty (such as the duty to disclose that it is attempting to collect a debt)
- A breach of that duty (it failed to include that disclosure)
- Damages (harm done by the violation)
The FDCPA says that damages are created by the violation itself. Consumers may sue for up to $1,000 per violation even without financial hardship or other measurable harm. But a recent opinion entered by the Sixth Circuit Court of Appeals – which covers Michigan – says that procedural violation is not enough. Hagy v Demers & Adams says that the U.S. Constitution requires any plaintiff show that a harm was actually suffered before suing in federal or state court.
James and Patricia Hagy took out a mortgage in 2002 and defaulted in 2010. Their mortgage was assigned to Green Tree Servicing, a collections company, which was represented by the law firm Demers & Adams. The Hagys negotiated a settlement – giving up the property in lieu of foreclosure. But then Demers & Adams sent a letter confirming receipt of the deed and promising not to collect any deficiency still owed on the debt. That letter did not include the necessary collections notice.
After Green Tree had dismissed the foreclosure case the company kept calling the Hagys. This, combined with the letter, resulted in an FDCPA consumer protection lawsuit. The Hagys eventually settled with Green Tree in mandatory arbitration. But the law firm pushed the issue, appealing a decision that their letter had violated the FDCPA and state consumer protection laws. The issue was whether lawyer communications had to comply with the FDCPA notice requirements.
Three Sixth Circuit judges decided the case without even answering that question. Instead, it said that the FDCPA violated the U.S. Constitution’s “case and controversy” clause, which says federal courts only have authority over actual cases and controversies. Petitioners cannot make up hypothetical situations or ask the court to weigh in before a problem arises. Instead, before a person can file a case in court he or she must show a “particular and concrete injury,” caused by the defendants, that can be fixed by the courts.
According to the Sixth Circuit, the federal government is not allowed to create “particular and concrete injuries” simply by including a right to sue in a statute. Finding the missing notice to be a “bare procedural violation” the court said the Hagys had no standing to sue and therefore cut off their right to receive legally allowed damages for the FDCPA violation by the law firm.
The Hagy decision imposes a substantial burden on plaintiffs that was not intended by Congress – that they must show actual harm before they can collect for unfair debt collections practices. Because intangible damages – such as inconvenience or misunderstanding – can be difficult to prove, the case could cut consumers off from their much-needed right to be protected from abusive business practices.