Debts And The FDCPA

August 11, 2023


This article is my opinion, and not legal advice. I am a judgment broker, and am not a lawyer. If you ever need any legal advice or a strategy to use, please contact a lawyer. What are the differences between claims, debts, and judgments?

A claim is a documented obligation, a demand of something made by one person upon another, to do or to not do something. A claim is not a judgment, because a judgment must be decided and come from a government-backed court. One can take proof of their claim (which must include a cause of action) to court to attempt to get a judgment.

A debt is a money-related claim that arises from one party not paying the other as they both agreed. Debts are not judgments, although they can sometimes be used to get a judgment. When a debt becomes the basis of a lawsuit to get a judgment, the cause of action is almost always a default on paying the debt.

A judgment is decided by a court, and they do not always arise from a debt. For example, a judgment might compel a contractor to finish a job. Unlike debts and claims, money judgments may be recovered with the support of courts and Sheriffs.

The FDCPA (The Fair Debt Collection Practices Act) was designed to regulate third-party debt collections of past-due consumer debts. Consumer debts are debts for personal credit purchases of goods or services; including credit cards, auto loans, clothes, vacations, etc. Even if recovering a commercial debt or a judgment for a commercial debt, it makes sense to follow the FDCPA laws as much as possible, especially avoiding harassing or abusing anyone. Often in judgment recovery, there is no communication with the judgment debtor except for court notices of levy actions.

When you borrow money for consumer-related purchases, and keep your payments current, that is a simple debt, and the FDCPA laws are not designed for that situation. Once you stop making payments on a debt and it goes into default, the debt takes on a new form legally, becoming a claim that may become a cause of action (lawsuit) in a court. This happens when a judge decides the claim is rightfully owed, and the claim is converted into to a judgment. The FDCPA skips the claim issue, and states “whether or not reduced to judgment”.

The FDCPA laws seem to imply a debt is worth more than a judgment, which only makes sense for a non-defaulted debt. When your debtor is current on making payments, there would never be a reason to get a judgment. How the FDCPA laws affect debt collections, depends on how the debts are sold or serviced by third-parties, in three basic ways:

1) The creditor sells their defaulted consumer-related debt outright for cash upfront. Once a defaulted debt is sold and transferred to someone else, that new third-party buyer is no longer the original creditor, so that third-party buyer is subject to the FDCPA’s laws.

2) The creditor sells their non-defaulted (current) consumer debt to a funding company or a debt buyer. All current rights of the original creditor, then belong to the new buyer, and current (non-defaulted) debts are not subject to the FDCPA laws.

3) After a consumer debt becomes defaulted, the original creditor can attempt to collect it, try to sell it, or place the debt with a third-party collection agency or an attorney. Once a defaulted debt is placed with an attorney or collection agency, or is sold to a third-party debt buyer; the third-parties are all subject to the FDCPA’s collection laws.

Often, the only way to collect a debt is to sue the debtor to get a judgment, using the debt as the cause of action. Judgments come from lawsuits, that require the debtor to be served notice of the lawsuit; so they can choose to contest the judgment or let it be won by default.

Some experts believe that unlawful detainer (eviction or landlord) judgments do not fall under FDCPA; the exception would be commercial tenancies. Unlawful detainers are summary proceedings where the only issue at hand is possession, and any judgment stemming from the underlying case is not consumer debt.

The FDCPA considers consumer debts to be those that arise from a transaction primarily for personal, family, or household purposes. Many collectors are trained to treat every call or letter as if it fell under the FDCPA. If it does not, no harm done, but at least they only have to train people one way.

One should not always consider the FDCPA to be your enemy, except when you violate a law and get a big fine. Just know what you can do and what you cannot do. In a nutshell, these laws say be nice and polite, and use common sense, and do not make idle threats.

For a real education, do a web search for debtor forums and fighting creditor forums, and you will find stories where debtors hired lawyers to sue collectors for $25,000 for attempting to recover a small debt. When I used to recover judgments myself, sometimes after sending my “Hello, would you like to settle this judgment or set up a payment plan?” letter, I would get a registered letter from the debtor saying I violated the FDCPA laws by writing them, and to never contact them again. I did as they asked, and had the Sheriff levy their bank accounts and paychecks, without contacting them again.

Even unusual judgments, for example a debt for non-payment of fees to a divorce attorney can be considered to be consumer debt for FDCPA purposes. If you buy a judgment outright, you are recovering your own debt, if you work on contingency, you are a debt collector!

This is a hot topic with some judgment enforcers, however third-parties recovering judgments on contingency are third-party collectors. See the FTC opinion letter written on September 16, 1993, by staff attorney, John LeFevre, Esq. to Stuart K. Pratt.

Portions of that letter read: “We consider the purchase of a defaulted account … an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another. See Section 803(4) of the Act. As such, we do not believe that such a purchase removes the debt collector from Act coverage with respect to that account because it does not make the debt collector a creditor under Section 803(4).”

See also FTC opinion letter of December 22, 1993, from staff attorney Clarke W. Brinckerhoff to Kimberlee Arbuckle. The letter refers to a leading case on point. (Holmes v. Telecredit Service Corp., 736 F. Supp. 1289, 1293 (D. Del. 1990)

By use of the language “owed or due another” Congress was attempting to exclude those entities that extend credit from the effects of the Act. Congress intended to protect borrowers from “third persons who regularly collect debts for others.”

A judgment enforcer who does not own a judgment outright (the purchaser) is a third-party collecting a debt originally owed to another. It cannot escape the spirit of the FDCPA Act just from the technicality of purchasing the debt upon default so that title technically rests in itself.

Part of The Fair Debt Collection Practices Act, as amended by Public Law 104-208, 110 Stat. 3009 (Sept. 30, 1996) 15 USC 1692a:

“The term ‘debt’ means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” Given the ease of compliance with FDCPA, and to read the text of the FDCPA, why would anyone want to chance it?

There is a specific exception from the reach of the FDCPA for tort claims. FTC Commentary to the FDCPA specifically states that the FDCPA does not apply to “unpaid taxes, fines, alimony, or tort claims because they are not debts incurred from a transaction involving the purchase of property or services for personal, family or household purposes”. See www.palmerreiflerlaw.com/2011/08/tort-debt- request-civil-damages-arising-theft-constitute- collection-debt, which cites FTC Statements on the FDCPA, 53 Fed. Reg. 50,097 (Dec. 13 1988). Of course, it makes sense to ask a lawyer if your situation is covered by the FDCPA, and still be aware you must follow all laws, not only FDCPA laws.

For a judgment enforcer, whether you are collecting a debt for another person depends upon your Assignment and Agreement (contract) documents. If either are flawed then you might someday even be charged with UPL (Unlicensed Practice of Law).

If your Assignment is for all rights and title with no exceptions or contingencies you are generally considered collecting a third-party debt for yourself.

As much as an OJC (Original Judgment Creditor) wants you to, if your agreement has any contingencies like giving the judgment back if you are not successful, allowing the OJC to have any say in how you go about collecting the judgment, or any other kind of nonsense, then you open yourself up to potential problems, If you have any doubt about anything discussed in this article, please consult a qualified attorney who understands judgment recovery by third-parties.

Why would anyone want to risk having to defend a lawsuit from a debtor for alleged violations of FDCPA? Even if you have done everything right, if you get sued, it can cost a bunch of money to defend your position, most people sued for a FDCPA violation are better off financially paying it than defending it. It is best to treat every debtor as per the FDCPA laws, to minimize the chances of some debtor’s attorney suing for a FDCPA violation.

Of course, many recovery experts recover consumer debts, and some purchase insurance, usually in the form of a debt collection bond.

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