Debt Collection Lawsuits Clogging the Courts, Indeed

There are way too many debt collection lawsuits in the court system right now. Everyone knows that. The FTC says so, the National Consumer Law Center says so, heck…I say so.

These cases, filed against consumers by collection agencies and their legal representatives, are going to be decreasing soon. Everyone also knows that. The FTC, or the new Consumer Financial Protection Bureau, or Congress will be passing new rules that make it more difficult to bring a collection suit against a debtor.

Fine. Maybe ARM firms should have more documentation to file suit. Or maybe consumers should be afforded a better opportunity to defend suits filed against them. The point is, the problem is being addressed.

Now that we’ve discussed that topic, let’s move on to another class of debt collection-related suits that is growing so rapidly, it has the potential to “clog” the court system before too long: FDCPA claims against ARM companies.

The volume of cases filed by consumers, and their legal representatives, against debt collectors has exploded in the past couple of years. Consumer attorneys have gotten super-aggressive in soliciting plaintiffs and bringing suits, so much so that there is now a sub market in the ARM to track such lawsuits that has attracted major information providers like LexisNexis and TransUnion, as well as more pure-play outfits such as FDCPA Case Listing Service and WebRecon (as a matter of coincidence, we’re running a WebRecon update press release today).

There is a massive caveat that I must mention before proceeding: civil cases are the exclusive remedy provided in the Fair Debt Collection Practices Act. In short, you can’t get arrested for violating the FDCPA, you can only get sued. Typically, state law enforcement officials and the FTC file suit against ARM companies, but consumers also have the right to sue…and sue they do.

According to the aforementioned WebRecon update, through July 31 there have been 6,267 cases filed by consumers claiming violations of the FDCPA, well on pace to exceed 10,000 for the year. Do some, if not most, of these cases have legitimate merit? Of course. Do all of them? Absolutely not.

A particular article, posted yesterday in a Texas legal journal, prompted this blog. A woman in the Lone Star State is suing a collection law firm. Awesome. Here’s the lead on the story:

“A professional collection law firm is being sued after placing telephone calls to a Texas resident without disclosing they were attempting to collect a debt.”

The horror! Indeed, the consumer was horrified. According to her attorney, she suffered “personal humiliation, embarrassment, mental anguish, and emotional distress,” so naturally, she’s seeking every type of damage imaginable: statutory, emotional and mental anguish, exemplary, attorney and court costs, along with actual damages and interest (those last two confused me as well). The attorney is, of course, seeking a jury trial.

Is that case legit? Failure to disclose is a violation of the FDCPA, and the firm should probably be liable for the $1,000 penalty attached to it. But damages for mental and emotional anguish? Sounds like a lawyer talking.

When those outside the ARM industry wonder why people in it constantly talk about frivolous FDCPA claims, they need look no further than this case. ARM professionals look at cases like this and can only shake their heads.  And it’s not as if knights in shining armor, gleaming with righteousness, are filing all these cases.

Don’t believe me? Look here. That’s just one very recent example of disciplinary action being taken against a professional FDCPA plaintiff’s attorney.

After the FTC and CFPB and Congress are done with the legal process on the ARM side, maybe they — or some other governing body — should take a look at the emergent cottage industry that specifically targets the ARM industry for consumer litigation. After all, if laws should be rewritten to combat the “bad apples” in the debt collection world, shouldn’t the just-as-bad apples on the consumer side be dealt with?