Collector lies & threats

Common FDCPA violations in student loan collections

The total amount of federal student loan debt in the U.S. is about one trillion dollars. When a borrower falls behind on payments, the student loan collections process begins. Although federal student loan collectors have impressive collection powers, it's important for consumers to recognize that the Fair Debt Collection Practices Act still prevents a debt collector from making false or misleading statements or otherwise harassing or abusing a consumer. Here are some of the most frequent FDCPA violations in student loan collections:

Misleading threats to garnish wages

Debt collectors often mislead or lie to consumers about the imminence of a wage garnishment if the consumer doesn't pay immediately. A federal student loan collector may institute an administrative wage garnishment against a consumer who is delinquent. No judgment is required. But there are important steps that a collector must follow before starting an administrative wage garnishment. They must send the consumer a notice--at least 30 days before starting the garnishment--that advises the consumer of their right to inspect the records related to the debt, their right to a written repayment agreement, and their right to a hearing. The consumer then has 15 days to request a hearing. And a private student loan collector doesn't have the ability to do an administrative wage garnishment. They have to sue the consumer and get a court judgment first. So, a collector can't just start a wage garnishment immediately if the consumer doesn't pay and any threats to the contrary probably violate the FDCPA.

Lies about how to get a federal student loan out of default

Debt collectors often lie to or mislead consumers about the ability to get a loan out of student loan collections. A federal student loan is considered to be in "default" if the borrower goes 270 days without making a payment. Once the loan is in default, a 25% collection fee may be tacked on. But a borrower can get a federal student loan out of default by "rehabilitating" the loan. This means making nine voluntary, reasonable, and affordable monthly payments within 20 days of the due date during ten consecutive months. A borrower may also be able to get the loans out of default by consolidating into a single loan. Debt collectors often tell consumers that there's nothing they can do to get the loan out of default, or don't tell them about all of their options, which may violate the FDCPA.

Telling consumers that they can't discharge student loans in bankruptcy

Student loan collectors often tell consumers that student loans can't be discharged in bankruptcy. While this is often true, it isn't always true. A borrower may be able to get a student loan discharged if they can prove undue hardship. The burden of proving undue hardship is very difficult, but it can, and has, been done. A debt collector that tells you that student loans can never be eliminated in bankruptcy isn't telling the truth and is likely violating the FDCPA.

Illegal contacts with third parties

Under the FDCPA, a student loan collector (or any collector) can't communicate with your family members, co-workers, friends, or other third parties. Even threats to do so probably violate the FDCPA.

The bottom line

If a student loan collector chooses to give a consumer legal advice, they better get it right. Making false statements about the law or a consumer's options probably violates the FDCPA.

Debt collectors cannot lie to you

The Fair Debt Collection Practices Act forbids a debt collector from making any false or misleading statements when they are attempting to collect a debt. If a debt collector lied to you, here's what you need to know about your rights under the FDCPA.

The FDCPA applies to “debt collectors” collecting “consumer debts”

The FDCPA only covers a debt collector that is collecting a debt for someone else. It does not apply to a creditor collecting its own debts. So if the false statement was made by a bank or credit card company that is collecting its own debts, the FDCPA doesn’t apply. But the FDCPA does apply to collection agencies, debt buyers, and law firms who are collecting debts for someone else.

In addition, the FDCPA only applies when the debt being collected is a consumer debt. This is a debt used for personal, family, or household purposes. If the debt was incurred for a business, the FDCPA doesn’t apply.

Common debt collection lies

Although the FDCPA is clear that virtually any false statement is a violation, there are some collection lies and misleading statements that seem to happen frequently. These include:

  • Telling you that you owe a debt that you already paid or that was discharged in bankruptcy

  • Threatening to sue or garnish you after the statute of limitations has expired;

  • Incorrectly reporting information on your credit report;

  • Mis-stating your rights in student loan collections;

  • Claiming that you personally owe a debt you have no obligation to pay, such as a debt for an ex-spouse or a deceased relative;

  • Incorrectly stating the balance of your account (possibly because of unauthorized fees or uncredited payments);

  • Suggesting that they are affiliated with an attorney when they are not;

The false statement probably has to be "material"

Although the FDCPA doesn't say anything about it, many courts have adopted a rule that the false statement has to be "material." This generally means that it's not enough to show merely that the debt collector lied to you. You must also show that they lie impacted your ability to evaluate your options in some way. In my opinion, any statement about the balance of the account, the legal status of the account, your legal rights, or the collector's legal remedies should be considered material.

If a debt collector lied to you, hold them accountable under the FDCPA

The FDCPA gives consumers the power to sue a debt collector that violates the law. It’s a great way to stop collection harassment cold and to hold the debt collector accountable for its illegal conduct. Under the FDCPA, a successful claim gets you:

  • Up to $1,000 in statutory damages (even if you’ve suffered no monetary loss);

  • Provable actual damages (including for emotional distress);

  • Your attorney fees and court costs must be paid by the collector

Most consumer lawyers, including me, handle FDCPA lawsuits on a contingency fee. This means that you don’t pay us any fees unless I recover money for you and those fees come from the collector’s pocket, not yours. Congress wrote the FDCPA this way to incentivize people to enforce the FDCPA and help the government regulate debt collectors and ensure compliance with the law.

Debt collectors are increasingly trying to collect debts from people that don't owe them

A recent Washington Post story highlights a growing problem, which the story calls debt "tagging". Debt tagging happens when a collection agency tries to collect from someone that doesn't owe the money. In some cases, it appears to be an honest mistake. For example, the collectors may accidentally pursue someone with the same name as the person who owes the money. In other cases, it appears to be intentional. The article tells the story of a Rhode Island woman who was pressured to give her social security number to a debt collector. Shortly after, she received a bill for $4,197 from a electric company for a home in Connecticut. The woman never lived in Connecticut. Only after many calls were made on the woman's behalf, did the collection agency stop.

And even when it's an honest mistake, the innocent consumer can have a very difficult getting the collector to stop. The main problem is the lack of information passed from collector to collector. It's well know that many debts are sold, often several times. As the debt bounces from collector to collector, very little information is passed along. So a consumer being pursued for a debt that she doesn't owe has a difficult time getting the debt collector to acknowledge its mistake because there's often no way for the collector to verify the consumer's story. And debt collectors are trained to assume the consumer owes the money unless they can prove otherwise.

The story advises that people being pursued for debts they don't owe should send a certified letter to the collector explaining why they don't owe the money. If the collection calls continue, the consumer should consult a lawyer.

'Debt tagging' by collection agencies a growing problem | The Washington Post | August 8, 2010

What is debt collection harassment?

Although it sounds like an easy question, there has been a lot of litigation over what exactly is considered debt collection harassment under the Fair Debt Collection Practices Act. It's often a question that turns on the unique facts and circumstances of each individual case. But based on the text of the FDCPA itself and the related court decisions, it can be said with some certainty that the following tactics are collection harassment:

  • Debt collectors cannot threaten violence to collect a debt. This one is pretty common-sense. This prohibition also covers threats against your children, friends, and other third parties.

  • Bill collectors can't use profane or abusive language. Obviously different people have different definitions of "profane or abusive". But at least one court has ruled that name calling and racial or ethnic slurs are profane and abusive.

  • Collectors can't call you repeatedly. This not only applies to actual telephone conversations, but also to causing the phone to ring. For example, redialing your number after you've hung up the phone.

  • Debt collectors must tell you who is calling. In virtually every communication, the debt collector must identify himself and notify you that he is a debt collector. But there is some debate about whether collectors can use a consistent alias. Not surprisingly, many collectors would rather not use their real name when on the job. So some courts have allowed the use of aliases.

  • Any other debt collection conduct where the "natural consequence" is to harass, oppress, or abuse. This is the catch-all provision. Again, it can be tough to define what conduct has the natural consequence to harass, oppress, or abuse. In some cases, it's easy. In other cases, it's more difficult. Courts have said that mere "bad manners" is not harassment. But the use of words like "liar", "deadbeat", or "crook" probably cross the line and would be considered harassment.

Debt collectors can't threaten to sue you unless they really mean it

The Fair Debt Collection Practices Act (FDCPA) prohibits a debt collector from threatening to do something that they don't really intend to do. The most common violation of this part of the FDCPA is when a debt collector threatens you with a lawsuit if you don't agree to pay the debt. This FDCPA violation requires two things: (1) that the debt collector threatened to sue you; and (2) that they didn't really mean it. So how do you know whether the debt collector is lying when they threaten legal action? Here are a couple of indications:

  • the amount of the debt is small;

  • the debt collector does not have an office in your state;

  • the debt collector does not have a licensed attorney in your state;

  • the collector threatened a lawsuit and months or even years went by before they sued you.

There are other indications as well, but its tough to know whether they apply before bringing a FDCPA lawsuit. For example, the debt collector may not have the creditor's authorization to sue you, but there's really no way to know that until you get into litigation and can use discovery to figure it out.

This part of the FDCPA probably also applies to many veiled or implied threats of a lawsuit. For example, courts have found FDCPA violations from the following statements:

  • The collector "can" or "may" sue

  • The debt would be referred to a lawyer "for collection action"

  • The collector is authorized to proceed with legal action

You cannot go to jail for not paying your debts

A fairly common tactic of shady debt collectors is to tell people that they will go to jail if they do not pay a debt. I've even heard about debt collectors impersonating the police and telling unsuspecting people that they have a warrant for them and that they will be arrested immediately unless they pay their debt.

You cannot go to jail for not paying your debts. Period. Any debt collector that tells you otherwise has violated the Fair Debt Collection Practices Act (FDCPA). The FDCPA prohibits false and misleading representations when attempting to collect a debt. This prohibition specifically includes telling you that the nonpayment of a debt will result in imprisonment.

Am I responsible for my deceased parent's debt?

When a person dies, their assets are pooled into what is known as an estate. The estate is responsible for paying the debts of the deceased. If there aren't enough assets in the estate to pay the debts, some creditors will hire a collection agency to pester the deceased's relatives for payment. These collectors will often imply that you, as a relative of the deceased, have a legal obligation to pay for the deceased's debts. This is almost always incorrect. You almost never have any obligation to pay for the debts of a deceased relative, even if you are named the representative of the estate. The only time you may have an obligation to pay for a deceased relative's debt is if it was a joint debt that you agreed to pay for, such as a joint bank account or if you co-signed a loan with the deceased.

No matter what the supposedly sympathetic bill collector tells you, it is rare for a person to be legally obligated to pay for a deceased relative's debt. You should consult with a lawyer before agreeing to pay anything.

Turning the tables on a debt collector

I recently sued a debt collection agency and one of its collectors for violating the FDCPA. The collector made some illegal threats to my client. The threats weren't the worst I've ever heard of, but my client was dealing with some other things in his life and was pretty shaken up by them. Right after they were served with our FDCPA suit, I got a call from the individual collector I had sued. He must have been really nervous during the call because he kept fumbling over his words and repeating himself. His voice faltered a few times. He told me that this was the first time that the agency had been sued and that they wanted to do the right thing and take care of the FDCPA lawsuit. He said that they were a small agency with only four employees, that their cash flow was tight, and that they were having a hard time making payroll. He made a settlement offer that was significantly lower than what I would typically settle the case for and asked if I would allow them to split the settlement amount into smaller monthly payments. He said that was really the best that they could do under the circumstances and that anything more would put them in a big financial bind. Based on my research of this agency, I believe that what he was telling me was largely true. There's no doubt in my mind that he was genuinely shaken up by getting sued. I felt bad for him.

I don't usually take any personal satisfaction in suing a debt collector. I really don't. But this situation was different. Although the irony was probably lost on the collector, I recognized it immediately. He finally experienced how a consumer feels when she gets sued by a debt collector. He experienced the shock of being served with a lawsuit and felt the stress of having to figure out how to pay on a tight budget. He worried about how the lawsuit would affect his ability to keep the company afloat. He begged me to be reasonable and accept a lower amount than I would normally take. I just hope he remembers how scared he felt the next time he is tempted to bully a consumer into paying a debt that she can't afford to pay.