Worried About the Fair Debt Collection Practices Act?

By: John D. Waller

Do you work for a financial institution that collects debts? If so, do you know whether the Fair Debt Collection Practices Act, 15 U.S.C. 1692 (the “Act") (http://www.ftc.gov/os/statutes/fdcpa/fdcpact.htm) regulates what you do? Do you fear that your collection practices might subject you or your company to liability? Relax. The Act generally does not apply to commercial foreclosures or the collection of commercial debts. (See my 11-1-06 article “Just What Is Commercial Foreclosure Law?" for more background.)

Personal, Family or Household Purposes. The Act focuses on obligations arising from consumer transactions. Bass v. Stolper, et al., 111 F.3d 1322 (7th Cir. 1997). “Debt," for purposes of the Act, is defined as an obligation to pay money arising out of a transaction that is “primarily for personal, family, or household purposes…" 15 U.S.C. 1692a(5). A nice article in the American Law Reports Federal explains the concept in detail: “What Constitutes ‘Debt’ for Purposes of Fair Debt Collection?" 159 A.L.R. FED. 121 (2000). Even individual guarantors of an obligation do not fall within the scope of the Act if the guaranty is part of a commercial transaction. See the Federal Trade Commission’s website (http://www.ftc.gov/bcp/conline/pubs/credit/fdc.htm) for more discussion. My practice and blog are dedicated primarily to commercial deals, not consumer loans. If you’re in the same boat, then essentially all you need to know about the Act is (1) it’s out there, (2) a violation of it is a bad thing, but (3) it generally doesn’t apply to you.

Behave Appropriately. The legal industry has some very creative attorneys, as well as some judges inclined to protect debtors. There are gray areas in the law. Legal principles evolve, as can the interpretation of statutes like the Act. For instance, the ALR article cites a case from Mississippi in which a commercial debt essentially was transformed into a consumer debt covered by the Act when the debt collector made “harsh, abusive, foul, obscene, indecent, uncouth, violent, threatening, intimidating, and harassing" phone calls to the debtor. So don’t be reckless. Be mindful of the spirit of the Act, which Congress designed to eliminate abusive, deceptive, and unfair debt collection practices.

As a general proposition, however, you need not sweat the details of the Act if you’re confident that you’re dealing with a commercial transaction. When in doubt, however, follow the Act. Or, contact your lawyer for advice. In the past few years, there has been plenty of litigation involving the application and enforcement of the Act, so recent case law exists to help you or your lawyer determine whether your actions may be regulated.

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