DEBT COLLECTION RESTRICTIONS UNDER FEDERAL LAW - THE “MINI-MIRANDA WARNING”
Collecting debts is an onerous and difficult task and many debt collectors have developed various “tricks of the trade” to both determine assets that a debtor may possess and to convince a debtor to make payment. Some of these methods are perfectly legitimate, such as asset searches and warnings about the effect on a credit record that will ensue due to non-payment.
But, as with most professionals, there are always those that go too far. Debt collectors who intimidate by inappropriate threats, or seek to determine the location of assets by trickery, face both State and Federal law that prohibits and often punishes such activities.
A particularly vicious method to discover assets known to this writer involved the debt collector on the telephone indicating that a relative of the debtor was in the emergency room at the moment, that the caller was the admitting nurse, and that they needed to know the location of the bank account and amount in it before they could admit the relative. Another old trick was to call, state that the caller was a garage towing the car of a teenage son or daughter, and the car would be impounded immediately if proof of ability to pay was not provided over the telephone and asking for banking information, etc.
Such practices have led to increasingly stringent State and Federal restrictions on such debt collection tactics and the topic of this article involves the Federal duty to disclose information to the debtor imposed upon the debt collector, at times known as the “Mini-Miranda Warning,” named after the famous obligation imposed upon police when questioning a suspect.
The Basic Law:
The first notice from the debt collector to the debtor must include a warning known as the "Mini-Miranda Warning," which must state that the communication is from a debt collector and that any information obtained may be used to collect the debt. Except for pleadings associated with a legal action, all subsequent communication from the debt collector must also include this warning.
See the Fair Debt Collection Practices Act at 15 USC 1692e § 807 False or Misleading Representations, which states:
A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:
(11) The failure to disclose in the initial written communication with the consumer and, in addition, if the initial communication with the consumer is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector, except that this paragraph shall not apply to a formal pleading made in connection with a legal action.
15 USC 1692a § 803 Definitions
The definitions of terms relevant are:
(1) The term “Commission” means the Federal Trade Commission.
(6) The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 808(6), such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The term does not include—
(A) any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor;
(B) any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts;
(C) any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties;
(D) any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt;
(E) any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors; and
(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity
(i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement;
(ii) concerns a debt which was originated by such person;
(iii) concerns a debt which was not in default at the time it was obtained by such person; or
(iv) concerns a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor.
(Bolded emphasis added.)
15 USC 1692k § 813. Civil liability
(a) Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this title with respect to any person is liable to such person in an amount equal to the sum of—
(1) any actual damage sustained by such person as a result of such failure;
(2) (A) in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000; or *
(3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney’s fee as determined by the court. On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.
(b) In determining the amount of liability in any action under subsection (a), the court shall consider, among other relevant factors—
(1) in any individual action under subsection (a)(2)(A), the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, and the extent to which such noncompliance was intentional; or *
(c) A debt collector may not be held liable in any action brought under this title if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.
(d) An action to enforce any liability created by this title may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction, within one year from the date on which the violation occurs.
(e) No provision of this section imposing any liability shall apply to any act done or omitted in good faith in conformity with any advisory opinion of the Commission, notwithstanding that after such act or omission has occurred, such opinion is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.* Sections pertaining to class action omitted.
While the actual damages are limited in the above section, the deterrence effect on debt collectors is substantial. Note that jurisdiction is vested in the Federal Court which normally requires tens of thousands of dollars at issue before suit can be brought…but in this instance, a large amount is not required to be at issue to bring in the power of the Federal judge.
Federal judges are not happy to find such cases before them and can respond aggressively to the debt collector who knowingly failed to abide by the law. Indeed, the expense of appearing and defending oneself in a Federal court action can be high and few debts warrant that risk. Note that attorneys’ fees are awarded to the debtor…unless the Court finds that the action was only brought to harass the debt collector.
In such a Federal action, attorneys’ fees in excess of one hundred thousand dollars can be expected. Thus, the fight can easily become one over who pays the costs of fight…plus some relatively minor damages.
Again, the purpose is clearly deterrence and the wise debt collector will institute written procedures and instructions to the debt collection department to limit the chances of failure to abide by the law and to show the court, if necessary, that such procedures are in place.
Note that State law can also exist which can impose additional restrictions on debt collection practice.
These Articles are to give the reader a general description of certain areas of the law. Legal advice is necessary to apply these legal concepts to your particular situation. The Reader should obtain competent legal advice before relying on the Articles.
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