17.4 Responding to Renewed Collection on the Same Debt

A creditor or debt buyer who loses a collection suit may improperly continue to seek collection on the debt itself¹¹⁵—or include the extinguished debt in a portfolio of accounts sold to another debt buyer. Of course, the consumer has a complete defense if sued a second time on the same debt after the first case was dismissed with prejudice.

In addition, when a collector covered by the FDCPA loses a collection suit with prejudice, it violates the FDCPA by continuing to seek collection on the debt. Reselling the debt without disclosure that the obligation has been extinguished should violate the FDCPA as well. The collector also violates the FDCPA when it reports to a credit bureau that the debt is still owed after it loses a collection action because it communicates credit information that it knew or should have known was false.¹¹⁶

Magrin v. Unifund CCR Partners, Inc. is the leading case finding an FDCPA violation where a debt buyer sold the debt after its action on the debt had been dismissed.¹¹⁷ The Ninth Circuit found that the essential ingredients of liability under the FDCPA for such a claim was that the debt seller sold the extinguished debt knowing that it was misrepresenting the debt’s legal status (either by affirmative false representation or by omission of the material fact that the debt had been extinguished) and with the knowledge that the second debt buyer would undertake efforts to collect the debt.

The FDCPA prohibits deceptive or misleading representations “in connection with the collection of any debt.”¹¹⁸ That the debt buyer selling the debt is not the one collecting on the debt is irrelevant because the debt buyer’s misrepresentation is in connection with the second debt buyer’s collection of the debt.

A debt seller covered by the FDCPA also violates the Act’s provision requiring a collector, whenever communicating “credit information,” to disclose that a debt is known to be disputed.¹¹⁹ The debt seller that lost the collection lawsuit can hardly deny that it knew that the consumer disputes the debt. Furthermore, the collector is communicating credit information when it completes the assignment documents selling the debt to the next buyer. Consequently, even if the collection suit was only dismissed without prejudice once the consumer filed an answer, the debt seller must disclose the fact that the debt is disputed when it assigns the account.¹²⁰

In bringing FDCPA claims against the debt buyer, the consumer can recover up to $1000 in statutory damages, attorney fees to pursue the FDCPA action, plus actual damages.¹²¹ Actual damages will depend on the facts of the case but should include the cost to the consumer of hiring an attorney to respond to the second debt buyer’s collection contacts plus any aggravation and suffering caused by those contacts. Moreover, a state deceptive practices (UDAP) claim should be available to challenge the same conduct, leading in some states to punitive or treble damages.¹²²

Any purchaser of that debt may also violate the FDCPA when it duns the consumer on an extinguished debt, though it will claim to be nothing more than an innocent victim of its assignor’s deception. The best course of action when one collector lost the first collection lawsuit and another collector is continuing collection is to bring both collectors into the FDCPA action as defendants.

In Magrin, the second debt buyer’s defense was that it too was an innocent victim of the first debt buyer.¹²³ The consumer may be able to convert that protestation into proof establishing the liability of the first debt buyer (the debt buyer that lost the collection action) since the first debt buyer did not disclose to the second that the debt was discharged.

In the highly unlikely event that the first debt buyer actually disclosed to its assignee that the debt had been extinguished, the second debt buyer, rather than the assignor, would become the principal target of the FDCPA litigation. More likely, the second debt buyer will produce the assignment documentation proving the first debt buyer’s misrepresentations and omissions. Either way, the consumer should be able to establish that one or the other debt buyer is culpable.

There may also be a violation of the Fair Credit Reporting Act (FCRA) if the collector in the first case continues to pull the consumer’s credit report after a judgment for the consumer, as there is no longer any debt, and the collector therefore has no permissible purpose to obtain the report. Requesting a credit report without a permissible purpose is a violation of the FCRA.¹²⁴ Consequently, it is prudent to review the inquiries section of the consumer’s credit report obtained a number of months after the judgment. It is best to review a report from the same credit bureau that the collector has used in the past.