A Supreme Court Ruling May Discourage Consumers From Debt Collection Lawsuits

Since 1978, consumers have been protected from harassing creditors under a statute called the Fair Debt Collection Practices Act (FDCPA). According to this law, collection agencies are barred from using abusive tactics to attain monies allegedly owed to them. The consequences of not adhering to any aspect of this rule, which is overseen by the Federal Trade Commission (FTC), can include potential class action and individual lawsuits by consumers.

Over the years, there have been a significant number of lawsuits filed against creditors and collection agencies for ignoring the strict guidelines within the FDCPA. But now a case before the Supreme Court could make consumers think twice before entering such a legal battle.

The Case That Is Causing Doubts

In 2010, a plaintiff named Olivea Marx filed a complaint in Colorado against General Revenue Corporation (GRC), which is an agency that attempted to collect on her defaulted student loan. Marx claimed that this company sent a fax to her place of employment to get information about her work status. In addition, Marx noted that GRC made constant threats to garnish her wages. Therefore, she believed this behavior violated the terms of FDCPA laws. So she brought a lawsuit against the collections agency.

However, the court disagreed with the premise of her case. It concluded that GRC did not disobey FDCPA rules because Marx’s debt was never specifically mentioned to her employer. In the end, Marx was ordered to pay the $4,543.00 in court costs.

Usually, such a ruling wouldn’t be an issue. Most court cases are designed to allow the party who wins to be reimbursed for the costs and fees involved. So it makes sense for GRC to argue that Marx, as the loser in this instance, should compensate the company for the funds that had to be spent in its defense.

But some federal and private consumer groups feel that forcing Marx to pay these costs goes directly against the intentions of the FDCPA laws. That’s because collection agencies have historically been responsible for court costs unless it was determined that the consumer filed a case in bad faith or for the purposes of harassment. Regarding the Marx case, however, the judge decided that she didn’t concoct this lawsuit in order to avoid her debt. Yet she was still ordered to cover all of the costs of bringing this case to trial.

Now the Supreme Court is getting involved in this controversy. Arguments will take place in November, where the focus will be on whether a defendant who wins in an FDCPA case can be legally awarded costs, even when the plaintiff did not file the lawsuit in bad faith or to hassle a collections agency.

Federal Groups In Support of Marx’s Position

Both the FTC and the Consumer Financial Protection Board filed a brief earlier this month to support Marx and her case for not reimbursing GRC’s litigation costs. In addition, the American Association of Retired Persons (AARP) and the National Consumer Law Center (NCLC) have contributed their own brief to this cause.

One of the key arguments in the combined brief of the AARP and the NCLC concerns sending the wrong message to abused consumers. If Marx is forced to pay thousands of dollars in court fees, she is actually being punished for trying to defend herself from the alleged mistreatment. The AARP and the NCLC state that by upholding the original court’s decision, Marx will be “saddled with additional debt through the operation of a statute designed to protect” her.

The Possible Effect on FDCPA Lawsuits

If the Supreme Court allows this judgment in Colorado to stand, there could be a very negative effect on consumers who already suffer from aggressive treatment from debtors. The risk of having to pay the expensive court costs of collection agencies may make people decide to avoid filing lawsuits altogether.

By not having this weapon to keep creditors in check, collection agencies may feel they have the freedom to act aggressively and use illegal tactics without fear of any consequences. This would be a welcome result to collection agencies, if the Supreme Court does not intervene.

Problems Still Plague the Debt Collection Industry

But even if the Supreme Court does take GRC’s side, the collections industry still has big problems to overcome right now. Like the headaches surrounding the foreclosure process, credit card companies are facing the same kind of scrutiny due to lawsuits that are based on incomplete documents and records riddled with errors.

Judges are deciding against lenders and their collections agencies for pursuing consumers and not having their documents in order. Accuracy and proper documentation are secondary in a lot of these cases, which is getting collection agencies into trouble.

One of the most disturbing issues about this trend is that credit card companies seem to ignore the law in some instances, even when they are legitimately owed money. Many of the cases against consumers rely on generic documentation that does not contain any specific facts because collectors aren’t given actual evidence. So sloppy, haphazard cases against consumers are coming into the courts more often than not.

In the meantime, consumers, creditors and federal agencies wait for the Supreme Court to make its ruling on whether or not losing plaintiffs in FDCPA cases are accountable for hefty filing fees. This decision could have a major impact on the rights of people who live with debt and feel abused by creditors that use any approach to extract payments.