Fair Debt Collection: 16.2.5.1 Is There a Private Cause of Action?
The remedies provided by state debt collection statutes vary widely. Some statutes explicitly authorize private actions.
The remedies provided by state debt collection statutes vary widely. Some statutes explicitly authorize private actions.
When a private cause of action is available, it universally allows the consumer to recover actual damages.343 Damages may be awarded for the reasonably foreseeable harm caused by the violation regardless of whether the defendant intended to cause injury.344 Actual damages may include payments the debtor made in response to harassment or a false threat345 and expenses incurred in defending against an unfounded collection action.
Some state debt collection statutes provide for statutory damages.352 Under some of these statutes, actual damages are not a prerequisite to recovering such statutory damages.353 Other state debt collection statutes, however, require a showing of actual injury or damages as a precondition of any action, whether for statutory damages or otherwise.354
Some debt collection statutes authorize punitive damages.362 These statutes may be interpreted to require the elements necessary to establish punitive damages under the common law.363 When debt collection statutes are silent about the availability of punitive damages, some courts look to common law to determine whether punitive damages are available.364
Some collection statutes provide for an award of the consumer’s attorney fees in order to make assertion of claims under the statute economically feasible.367 However, some of these statutes, unlike the FDCPA, provide for fee awards to the prevailing party, which could be either the consumer or the debt collector.368
Injunctive and declaratory relief may be available under state debt collection statutes.369 Washington’s Collection Agency Act provides that a licensee that commits one of the practices prohibited by the statute is forever barred from recovering any interest, fees, or other charges on the claim, but is limited to the amount of the original claim.370 Class actions are typically allowed.371 Courts may impose individual liability on collection agency
Collectors may attempt to have a state debt collection practices claim dismissed by claiming that a judgment on the underlying debt is res judicata or that the debtor gave up their rights in a settlement agreement with the collector.
Many courts have held that UDAP statutes do not unconstitutionally impinge on the First Amendment’s protection of speech.404 The Noerr-Pennington doctrine, which bars antitrust liability for petitions to the government, does not protect a collector from UDAP liability for unfair and deceptive pre-litigation collection activity.405
The typical UDAP statute has a broad initial scope section, covering “trade or commerce” or “consumer transactions,” but then goes on to exempt certain sellers or types of transactions. Many UDAP statutes do not mention debt collection specifically, so courts must construe these general terms to determine whether debt collection is covered.
UDAP statutes that cover “trade or commerce” are generally construed to cover debt collection.416 Pennsylvania417 and Montana418 courts have held that debt collection activities are “in trade or commerce” even where this term is defined as the advertising, sale, offering for sale, or distribution of services, property, or other things of value.
A number of UDAP statutes apply only to “consumer transactions”—typically defined as those for personal, family, or household use.422 Many courts recognize that, as long as the underlying transaction is a “consumer transaction,” the UDAP statute applies to all phases of the transaction, including collection.423 Likewise, debt collection is in connection with the sale of merchandise where the underlying transaction arose from such a sale.424 The Mis
Unlike the FDCPA and some state debt collection laws,429 UDAP statutes generally cover creditors themselves, not just independent debt collectors.430 The UDAP statute may provide a basis for holding a creditor liable not only for its own collection abuses, but also for those of the collectors it hires.
A UDAP statute may protect out-of-state residents,454 although some UDAP statutes are limited to acts that occur in the state.455 Some courts have applied their UDAP statutes to actions that occur outside the state, but that affect state residents.456 Some state UDAP statutes protect businesses as well as consumers, but others protect only consumers.457
The following is a state-by-state summary of each state UDAP statute’s coverage of debt collection.
Numerous collection activities have been found to be “deceptive” under state UDAP statutes, including:
In a number of states, a violation of another debt collection statute—the FDCPA, a state debt collection statute, or another law or regulation dealing with collection—is a per se UDAP violation.648 The UDAP statute itself,649 or a UDAP regulation,650 may explicitly provide that a violation of another law is a UDAP violation.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act663 gives the Consumer Financial Protection Bureau (CFPB) the authority to write rules to prevent unfair, deceptive, and abusive practices in connection with consumer financial services and products.664 While consumers do not have a private right of action to enforce any rules the CFPB issues under this general rulemaking authority,665 courts are likely to give the CFPB’s rules and i
Most states have passed statutes to deal with abuses by credit repair organizations.692 These statutes, often termed the state Credit Services Organization Act, offer strong remedies and have the potential of applying to certain debt collection activities. They typically follow the federal Credit Repair Organizations Act693 closely in some respects, but differ in significant ways, often imposing additional requirements such as registration and bonding.
Like the federal Credit Repair Organizations Act, all or nearly all state credit repair statutes apply to organizations that offer to improve an individual’s credit rating in return for the payment of money or other valuable consideration. This language should be interpreted consistently with the federal statute to encompass debt collectors who represent to debtors that payment will improve their credit records.694
Debt collectors that fall under state credit repair statutes are likely to have made no attempt to comply with the statute’s substantive requirements. Typical requirements of state credit repair statutes include:
Almost all state credit repair statutes provide a private right of action to consumers. Some do so both by making a violation actionable under the state UDAP statute and by creating a special cause of action.
Every state has laws restricting the practice of law to licensed lawyers. While most unauthorized practice of law cases in the debt collection context have involved unauthorized practice of law by collection agencies, some cases have involved creditors.
States have taken very different positions as to what activities of a collection agency constitute unauthorized practice of law.702 Alabama considers demands for payment that do not threaten suit not to constitute the practice of law.703 Rhode Island prohibited any debt collection activities by third parties unless they were admitted to practice in the state, but this restriction was found to be an unconstitutional burden on interstate commerce.704
The collection activities of a lawyer may be unethical. Examples of collection activities for which attorneys have been sanctioned include: