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Fair Debt Collection: 11.3.5.2 Refusing to Cooperate in the Arbitration Proceeding

The two major arbitration forums, the American Arbitration Association and JAMS (formerly known as Judicial Arbitration and Mediation Services, Inc.), require that the defendant business pay almost all of the arbitration fees and costs for consumer arbitrations (which can run into many thousands of dollars), with the consumer paying only $200 or $250. When the consumer proceeds to arbitration, the defendant may balk at the high arbitration fees and refuse to pay them or otherwise participate in the arbitration, which may result in AAA or JAMS refusing to proceed to arbitration.

Fair Debt Collection: 11.3.5.3 Waiver Based on Prior Collection Lawsuit

Where a collector first avails itself of the court system by bringing a collection action in state court, this may act as a waiver of the collector’s right to enforce an arbitration requirement where the consumer later sues the collector. The consumer will have a difficult time arguing for waiver where the consumer’s debt collection abuse claims are entirely distinct from the issues in the collector’s lawsuit.150

Fair Debt Collection: 11.3.6 Does the Consumer and the Nature of Consumer’s Claims Fall Under the Arbitration Agreement?

Because arbitration is a matter of contract, only disputes that the parties agree must go to arbitration must then go to arbitration. If a claim is outside the scope of disputes covered by the arbitration agreement, the consumer can bring that claim in court. In close cases, courts tend to favor finding that an arbitration agreement must be read carefully to determine what disputes it covers.

Fair Debt Collection: 11.3.7 Effect of Judgment in Prior Collection Action

The merger doctrine generally provides that, upon entry of a judgment, a plaintiff’s claims against a defendant are merged into the judgment. This means that when there is a judgment in a breach of contract collection action, at least certain of the collector’s rights under the contract cease. But courts generally find that the arbitration provision in the contract survives, even though other aspects of the contract (such as the obligation to pay money) is merged into the judgment.162

Fair Debt Collection: 11.3.9 Federal Law Prohibits Mandatory Arbitration in Mortgage Loans

The Truth in Lending Act (TILA) prohibits contract terms requiring the arbitration of disputes involving closed-end loans secured by a dwelling and open-end loans secured by a consumer’s principal dwelling.171 This TILA provision also provides that no other provision of such loans shall “bar a consumer from bringing an action” in court.172 TILA’s Regulation Z implements this provision, effective June 1, 2013.173 Because federal law limits a credito

Fair Debt Collection: 11.3.10 No Mandatory Arbitration Where Debt Incurred by Active-Duty Military Personnel or Their Dependents

The Talent-Nelson Military Lending Act prohibits creditors from enforcing mandatory arbitration agreements in certain types of consumer credit contracts against those who, at the time the agreement is made, were active -duty military personnel or their dependents.182 An arbitration requirement is unenforceable, even if the consumer is no longer a servicemember or a dependent of a servicemember, so long as the consumer was covered by the Act when the credit was originated.183 As a result, debt co

Fair Debt Collection: 11.3.11 Unavailability of the Sole Arbitration Provider?

Arbitration clauses in credit agreements typically specify one or two arbitration providers, such as the American Arbitration Association (AAA) or JAMS. Until a law enforcement action ended its ability to conduct consumer arbitrations in 2009, the National Arbitration Forum (NAF) was the preferred provider for many creditors.194

Fair Debt Collection: 11.3.12 Other Grounds to Challenge the Arbitration Clause’s Enforceability

In addition to challenges to an arbitration requirement set out earlier in this section, there are a number of other grounds to attack an arbitration requirement. The Federal Arbitration Act (FAA) finds arbitration clauses to be enforceable “save upon such grounds as exist at law or equity for the revocation of any contract.”197 One such ground to revoke any contract is unconscionability, and hundreds of decisions have found arbitration clauses unenforceable on this ground.198

Fair Debt Collection: 11.3.13 Does the Court or Arbitrator Decide the Challenge to the Arbitration Requirement?

In any challenge to an arbitration agreement, a preliminary issue is who decides the challenge, the court or the arbitrator. The Supreme Court has ruled that issues of enforceability are for the court unless there is a “delegation” clause giving the arbitrator authority to decide issues of enforceability of the arbitration agreement.205 Even if there is such a delegation clause, the issue is still for the court if the consumer’s challenge is whether an arbitration agreement was ever consummated.

Fair Debt Collection: 11.3.14 Bringing an Individual Case in Arbitration

While consumers typically are better off bringing a FDCPA or other debt collection harassment case before a court, rather than an arbitrator, sometimes there is no choice—either the arbitration clause is enforceable, or it is impractical to draw out the litigation by challenging the requirement’s enforceability. In that case, proper client representation may require that the case proceed in arbitration.

Fair Debt Collection: 11.3.15 Punitive Damages in Arbitration

When a debt harassment case is forced into arbitration, and the facts are egregious, a consumer should not shy away from pursuing punitive damages. Typically, neither an arbitration agreement nor the rules of an arbitration service provider will limit the availability of punitive damages. (If there is such a limitation, this may be grounds to find the arbitration requirement unenforceable.)208

Fair Debt Collection: 11.3.16 Class Arbitration

The 2011 Supreme Court decision in Concepcion has made class arbitration much less available to consumers, by allowing businesses to require consumers to give up their right to join in a class action either in court or in arbitration.213 Concepcion holds that the Federal Arbitration Act preempts a state rule that an arbitration clause’s ban on class arbitration is unconscionable.

Fair Debt Collection: 11.3.16a Mass Arbitration

Because of difficulties engaging in class arbitration or individual arbitration on behalf of many individual consumers, an increasingly utilized option is a procedure sometimes called “mass arbitration.” The practice takes its name from “mass torts,” which involves the filing of many individual personal injury complaints, often for product liability, toxic tort, or similar cases that involve factually similar predicates, but do not lend themselves to class treatment. Another name for mass arbitration is an “arbitration swarm.”

Fair Debt Collection: 11.4.1 Overview

The FDCPA’s purpose is to protect consumers from collection misconduct and resulting injuries. If the Act is to continue to accomplish its purpose, counsel and consumers bringing FDCPA claims as private attorneys general should keep in mind the public interest embodied in the statute as well as their own claims. It may be important for counsel to discuss with clients the possible effect of an individual case on the development of the law construing the Act.

Fair Debt Collection: 11.4.2.2 Class Actions Seeking FDCPA Damages

The FDCPA expressly provides for class-wide statutory damages “without regard to a minimum individual recovery”228 and the number of class actions under the FDCPA for both actual and statutory has been growing.229 The increasing numbers of very large interstate debt collection agencies and collection law firms has stimulated an increase in FDCPA class actions for damages, because such firms often have substantial net worth, leading to the possibility of increased recoveries.

Fair Debt Collection: 15.1.2.2 Preemption by Federal Banking Laws, Higher Education Act, and the Bankruptcy Code

Federal banking laws—the National Bank Act (NBA) and the Home Owners Loan Act (HOLA)—may preempt state tort claims that challenge loan terms as unfair or violative of state law.17 However, the federal preemption regulations explicitly preserve state tort law as long as it is not inconsistent with the powers granted to banks,18 and a tort claim that alleges collection harassment or deception is likely to escape preemption.19 The Dodd-Frank Wall Street Ref

Fair Debt Collection: 11.8.1.2 Actual Damages and Settlement of Consumer’s Underlying Debt

A consumer’s damages claim may be used to leverage a reduction of the collector’s debt claim against the consumer. Canceling or reducing the underlying debt, if owed, can provide meaningful relief to the client, since the amount of the debt may well exceed the damages recoverable for debt collection abuse. Be mindful, however, as to whether a cancellation or reduction of a debt is taxable income to the consumer.

Fair Debt Collection: 7.2.6 False Implications as to a Debt Transfer, FDCPA § 1692e(6)

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:

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(6) The false representation or implication that a sale, referral, or other transfer of any interest in a debt shall cause the consumer to—

Fair Debt Collection: 15.2.2 What Constitutes Severe Mental Distress

To be actionable under the tort of intentional infliction of emotional distress, the plaintiff’s distress must be so severe that no reasonable person could be expected to endure it.94 Severe emotional distress is shown when it interferes with the plaintiff’s ability to attend to daily matters, such as working.95 Seeking professional treatment and a manifestation of physical symptoms can weigh in the plaintiff’s favor but are not required in every jurisdiction.96

Fair Debt Collection: 3.4.4.1 Overview

The Consumer Financial Protection Bureau (CFPB) has been interpreting and enforcing the FDCPA since it was established by the Dodd-Frank Act,163 and the Federal Trade Commission (FTC) has been interpreting and enforcing the FDCPA since the law was enacted in 1977.

Fair Debt Collection: 13.5.1 Overview

Lawsuits within a bankruptcy case are called “adversary proceedings.”268 Adversary proceedings are initiated by complaint and are governed by rules that closely parallel the Federal Rules of Civil Procedure. Depending on the specific circumstance of the case, the bankruptcy court may be a preferable forum for litigating claims related to abusive debt collection. Not only do bankruptcy judges regularly see the problem of debtors in trouble, but they are also generally more aware of the unfair creditor practices that often take place.

Fair Debt Collection: 13.5.2 The Supreme Court’s Decision in Stern v. Marshall

In Stern v. Marshall285 the Supreme Court issued another ruling in a series of decisions construing the bankruptcy courts’ authority to adjudicate fully certain types of legal claims raised in the course of a bankruptcy proceeding. Bankruptcy court judges are not “Article III” judges with life tenure, and the Supreme Court has on occasion found that this status imposes a limit on the types of controversies in which they can render final judgments.