Fair Debt Collection: 16.5.4 Attorneys’ Unethical Practices When Collecting Their Own Fees
Lawyers may also violate legal ethics when attempting to collect their own fees.
Lawyers may also violate legal ethics when attempting to collect their own fees.
Courts are divided as to what remedies are available to consumers affected by a collection agency’s or creditor’s unauthorized practice of law. Most suits involving these issues are brought by bar associations or state attorneys general. Several courts have held that a consumer sued by a collection agency has no implied private right of action under a statute prohibiting unauthorized practice of law, because the statute was designed to protect the creditor, not the consumer.754
Some courts have held that a violation of an ethical rule, particularly by an adverse party’s attorney, does not, in and of itself, give rise to a private cause of action.770 Some even hold that violation of an ethical rule cannot be used as an element of a cause of action, for example, by establishing the standard of care for a negligence claim771 or by showing outrageous conduct for a claim of intentional infliction of emotional distress.772
A debt collector’s misconduct may be so extreme that it violates state criminal statutes or local criminal ordinances. Local criminal law may prohibit telephone abuse, unauthorized practice of law, larceny by trick, or simulation of official documents.779 Courts have convicted debt collectors of extortion and other crimes, even though the debts were legally due.780
Injunctive relief is available in most states to persons suffering or about to suffer irreparable injury for which there is no adequate remedy at law. Class relief is more likely to be available through injunction than through damage actions because damage actions are more likely to involve individual issues.
A collection agency may be liable for statutory penalties for usury.796 Usury laws are discussed in detail in NCLC’s Consumer Credit Regulation (3d ed. 2020), updated at www.nclc.org/library.
State laws and regulations protecting privacy may protect consumers from misuse of information by creditors and collectors.798 These statutes and regulations may protect privacy in general, or specific kinds of information, such as banking, health care, or receipt of public benefits.799 Privacy laws are discussed in detail in NCLC’s
Sometimes a collector will encourage the debtor to take out a loan—particularly a home equity loan—to pay the debt in question. The collector may even refer the debtor to a specific lender, or act as a go-between, for example by setting up a three-way call with the debtor, the lender, and the collector. In this situation, the collector may be violating state laws that require loan brokers to be licensed. The definitions and exemptions in these statutes vary widely, however, so the specific statutory language should be parsed carefully.
Most states have laws regulating telemarketing.801 These laws may, however, apply only to solicitations for the sale of goods or services, not to debt collection.802
In addition, many states have laws similar to the federal Telephone Consumer Protection Act803 that restrict the use of autodialers and artificial voice messages. These laws may apply to at least some debt collection situations.
Laws allowing creditors to obtain court orders garnishing judgment debtors’ wages or other property create a significant potential for misuse and abuse. Some states, recognizing this, provide specific statutory remedies when debtors are subjected to wrongful garnishment.804
State long-arm statutes subject nonresident individuals or corporations to the in personam jurisdiction of local courts on the basis of their having performed some act affecting the state. The plaintiff has the burden of establishing jurisdiction.34 Federal procedure uses the long-arm statute of the forum state,35 which may allow fairly extensive service on nonresidents.
Courts broadly construe provisions of long-arm statutes, allowing jurisdiction over parties who commit torts in whole or in part within the state as providing a basis for jurisdiction over FDCPA defendants.55 These cases follow similar holdings for claims under state tort and related state statutes.56 Tort-based personal jurisdiction in libel, slander, and misrepresentation cases in particular can provide useful analogies for supporting jurisdiction in debt collection cases.
Supplemental jurisdiction, defined in part by United Mine Workers of America v. Gibbs69 and in part by 28 U.S.C. § 1367, allows a federal court considering a federal claim to hear a closely related state claim that lacks an independent basis for federal jurisdiction.
The doctrine of supplemental jurisdiction over parties has given many federal courts a rationale for exercising supplemental jurisdiction over parties otherwise not subject to the federal claim in the case.85 Supplemental party jurisdiction gives the court discretion to allow the consumer to join in federal court a creditor not covered by the FDCPA, under a state claim closely related to an FDCPA claim.86 The most appropriate case for joinder is when the creditor and the debt collector are joint tor
This chapter summarizes state claims (other than tort actions for damages) for abusive collection practices. It provides only a starting point for explaining these remedies: local law varies and must be researched separately.
Courts are divided on the question of whether California’s broad statutory litigation privilege bars claims under the state debt collection statute that arise from litigation, such as suit on a time-barred claim or pre-litigation misrepresentations to induce settlement. Some courts have found some or all claims barred.22 Other courts,23 however, including the first published state appellate decision,24 hold that statutory claims are not barred.
Government entities may be immune when they are collecting their own debts,43 or the debt may not fall within the statute’s scope.44 States may also have special sovereign immunity statutes that protect state employees.45 Absolute judicial immunity is likely to protect persons acting under court order, such as guardians ad litem, from state statutory claims based on their attempts to collect debts.46 One cour
Regulated utilities, which must file tariffs with an administrative agency, may be protected by the filed-rate doctrine from state debt collection claims.49 Practitioners should, however, look closely to determine whether the conduct complained of is actually covered by a tariff.
In Harris v. Beneficial Finance Co.,60 the Florida Supreme Court upheld the Florida debt collection statute, a relatively broad and protective state statute, against a creditor’s claim that the statutory prohibition of employer contacts infringed upon its right of free speech under the First Amendment and that the remedy of $500 minimum statutory damages deprived it of property without due process of law.
Debt collection statutes are frequently limited in their coverage to a “claim” 68 or a “debt.” 69 A number of courts hold that the term “debt” includes rent70 and condominium and homeowner association assessments.71 If the statute merely requires a “claim” or a “debt” it will also probably apply to collection of dishonored checks72 and to collection of obligations
Some debt collection statutes apply only to debts arising from a “transaction.” Courts usually decline to apply these statutes to collection of tort claims,78 claims of debt based on shoplifting79 or unauthorized receipt of a subscription television service’s signals,80 benefit overpayments,81 or fines.82
FDCPA cases often involve proof of the content of phone conversations with debt collectors. Recordings can be an invaluable way to develop the chronology of facts in a case and support a consumer’s claims. This subsection examines:
In general, statutory, minimum, and multiple damages are taxable. There may be an exception if they can be viewed under state law as a proxy for non-taxable compensatory damages. Some state laws treat them as a proxy for a compensatory award when public policy requires the consumer to be fully compensated, but problems of proof exist. Also, consider the situation in which the statute awards minimum or actual damages, whichever is greater.
The term “adequate assurance” is not defined in the Code, except to the extent that examples are given. Those examples are a “deposit or other security.”557 Certainly, the former of these is the most common in consumer cases. However, it is clear from the statute that there are other possibilities, including the voluntary granting of a lien on property of the debtor to be available in the event of a postpetition delinquency.
Other questions also arise as to the necessity for adequate assurance. Several of these concern the interplay of section 366 with state customer service regulations that govern the utilities. One question is whether normal shut-off procedures required by such regulations can be omitted by the utility. While the utility may argue that section 366(b), which allows termination after twenty days, overrides state regulations, there are several reasons that this argument should not prevail.