Fair Debt Collection: 14.5.5 State Racketeering and Civil Theft Statutes
A number of states have civil RICO statutes that, like federal RICO, offer multiple damages and attorney fees.
A number of states have civil RICO statutes that, like federal RICO, offer multiple damages and attorney fees.
Reporting a debt to a credit bureau—known as a “consumer reporting agency” or CRA under the Fair Credit Reporting Act345—is a “powerful tool designed, in part, to wrench compliance with payment terms.”346 The collection industry has acknowledged this sentiment,347 and the CFPB noted that “furnishing information to the [nationwide CRAs] can provide an incentive for borrowers or debtors to meet their repayment obligations.”
Information reported by debt collectors can be uniquely unreliable, particularly tradelines reported by debt buyers, who purchase portfolios of defaulted debt and have neither first-hand knowledge of the accuracy of the information they provide, nor the documentation to support it.377
To initiate the FCRA’s formal reinvestigation process, the consumer must send a notice of dispute to the consumer reporting agency informing the agency that an item of information is inaccurate or incomplete.386 Taking this step can be an effective method to force a debt collector or creditor to correct its errors. It is also the essential first step for a claim against the furnisher under the FCRA.387
After a consumer reporting agency notifies a furnisher that an item of information the furnisher provided is disputed, the furnisher must conduct its own investigation into the accuracy and completeness of that information and must promptly report back to the CRA.395 The FCRA does not specify the standard for the investigation, but the federal courts uniformly have held that the furnisher must conduct a “reasonable investigation.”396 The investigation’s adequacy is a question of fact for jury de
The CRA’s reinvestigation must be completed within thirty days of receipt of the consumer’s formal dispute, with one fifteen-day extension allowed if, during the original thirty days, the consumer forwards additional relevant information. Furnishers thus have to act quickly enough to permit the CRA to meet its deadline, normally having to reinvestigate and respond to the CRA within fifteen to twenty days of their receipt of the notice of the dispute.407
One persistent problem that has plagued the credit reporting system for decades is the reinsertion in a consumer’s file of information that has previously been deleted.409 Congress has responded to this phenomenon by placing separate prophylactic duties on both the furnishers of such information and the CRAs.
Sometimes a question arises whether a debt collector or creditor has improperly acquired a credit report from a consumer reporting agency.
The FCRA gives consumers the right to require consumer reporting agencies to block information that resulted from fraud, including identity theft.421 Once properly notified by the consumer of the fraud, the CRA must also promptly notify the furnishers of the information, including debt collectors.422 That debt collector or other person then may not sell or transfer the debt, except as a repurchase to a prior assignor, and may not place it for further collection.
A collection agency or creditor will meet the definition of consumer reporting agency if it regularly furnishes information, beyond its own transactions or experiences with consumers, to third parties for use in connection with consumers’ transactions.431 But merely reporting its own experience with the consumer will not make it a consumer reporting agency.432
The FDCPA prohibits a debt collector from publicizing consumers’ indebtedness unless done in compliance with the FCRA.440 Also, a debt collector may not use a name that deceptively implies that the collector is a consumer reporting agency, for example, a name with the words “credit bureau.”441 More broadly, it prohibits the use of any “false representation or implication that a debt collector operates or is employed by a consumer reporting agency as defined by [the FCRA].”
A debt collector who receives a written dispute during the thirty-day verification period after its initial communication with the consumer must cease all collection activity until it provides the required verification.443 Since reporting the debt to a CRA is collection activity, it may be that the debt cannot be reported to a credit bureau until after the requested verification is provided.444 Even after verification is provided, the debt remains known to the collector to be disputed.
False threats to report the consumer to a CRA are, like all false threats, prohibited by the FDCPA446 and sometimes by state debt collection statutes447 or consumer protection acts.448 A lawyer who reports a client’s nonpayment of a fee to a CRA may be in violation of the confidentiality requirements of the rules of professional conduct.449
Consumers resolving their debt obligations need to consider the impact on their credit reports.
Consumers sometimes run into problems in connection with payments to debt collectors. The collector may have initiated a payment that the consumer did not authorize or expect. The collector may be repeatedly submitting a bounced payment, triggering nonsufficient funds fees. Or the consumer may wish to stop recurring payments. In addition to the specific FDCPA rules governing post-dated checks,456 other laws give consumers rights.
Check payments to debt collectors are most likely to pose problems for consumers when collectors obtain the consumer’s bank account and routing number and use that information to create a remotely created check.
Collection tactics may involve invidious discrimination. Such tactics could include the use of derogatory race or gender epithets in a collection call, or differential policies regarding renegotiation of credit terms. Generally speaking, the party attempting to collect a debt will either be the creditor or a third-party debt collector. The Equal Credit Opportunity Act (ECOA)487 forbids discrimination by creditors, while the FDCPA covers debt collectors.
The federal Credit Repair Organizations Act (CROA)512 is discussed in detail in NCLC’s Fair Credit Reporting.513 It may apply to debt buyers or debt collectors in two circumstances.
The statute defines “credit repair organization” as any person who uses any instrumentality of interstate commerce or the mails to perform or offer to perform any service, for a fee or other valuable consideration, for the express or implied purpose of:
A collector or creditor that meets the CROA’s definition of “credit repair organization” must make certain disclosures and include certain terms, such as a right to cancel any contract the consumer enters into with the organization.536 It may not charge or receive any payment for its services from the consumer until the service is fully performed.537
If a creditor or collector is covered by the CROA, it is liable for violations with respect to any person in the sum of:
The Internal Revenue Service is required by section 6306 of the Internal Revenue Code (IRC) to outsource the collection of certain federal tax debts to private collection agencies (PCAs). The IRS must enter into one or more “qualified tax collection contracts” with PCAs for the collection of “inactive tax receivables.”562 The IRS is required to contract with at least one of the PCAs on a list of companies designated by the Treasury Department for the collection of federal debts.563
Certain taxpayers are statutorily exempt from the program. Exemptions include: