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Unfair and Deceptive Acts and Practices: 6.10.5 Misrepresentations Concerning Legal Consequences of Debt Nonpayment
Collectors may not misrepresent the legal consequences of nonpayment of a debt.676 Thus, it is deceptive to threaten that nonpayment will lead to garnishment of the debtor’s wages, without disclosing that garnishment requires a judicial order677 or when garnishment is unavailable for other reasons.678 It is deceptive to threaten falsely that goods can be seized679 or that a lien will be placed on ever
Unfair and Deceptive Acts and Practices: 6.10.6 Harassment
Also unfair or deceptive are telephone or personal harassment685 and abusive language.686 Some state UDAP regulations limit creditors’ telephone calls and visits to normal working hours and limit their number at the debtor’s residence and at other places.687 Contacting a consumer known to be represented by an attorney is a UDAP violation.688
Unfair and Deceptive Acts and Practices: 6.10.11 Unfair and Deceptive Means of Obtaining Default Judgments and Other Litigation Misconduct
Another unfair practice is “sewer service,” obtaining a default judgment because the defendant does not actually receive the summons.723 When a debtor contacts a creditor after receiving a summons and agrees to make payment, and the creditor tells the debtor to ignore the summons, it is unfair for the creditor not to file a notice of discontinuance but instead to obtain a default judgment.724 A court has also allowed a UDAP action to proceed challenging default judgments obtained through affidav
Unfair and Deceptive Acts and Practices: 6.11.2 Private UDAP Actions Utilizing the FTC Rule
There is generally no private right of action under the FTC Act for a violation of an FTC rule.740 It seems clear, however, that a consumer can challenge an FTC Credit Practices Rule violation under the many state UDAP statutes that prohibit “unfair” or “unconscionable” practices.741 The rule is an official FTC ruling that use of certain creditor remedies is an “unfair” trade practice. This FTC ruling guides courts in interpreting what is unfair under a state UDAP statute.
Unfair and Deceptive Acts and Practices: 6.11.3 Attempts to Circumvent FTC Credit Practices Rule
Some creditors seek to circumvent the FTC Credit Practices Rule. It is unfair and deceptive to try to evade the rule by taking a prohibited security interest in household goods, but then disclaiming the security interest in another part of the contract.745
Unfair and Deceptive Acts and Practices: 6.12.1 Using the FTC Unfairness Theory, As Applied in the Credit Practices Rule
The FTC’s Statement of Basis and Purpose for its Credit Practices Rule,749 recited at length at § 4.3.4.1, supra, is significant because it provides an “unfairness” approach that can apply to many kinds of adhesive consumer credit provisions, and not just the six creditor remedies prohibited by the rule.
Unfair and Deceptive Acts and Practices: 6.12.2 Case Law Finding Creditor Remedies Unfair or Deceptive
Other sections discuss when debt collection, repossession, or foreclosure is unfair or deceptive.756 This subsection examines when other creditor remedies such as waivers of exemption rights and default penalties are unfair or deceptive.
Unfair and Deceptive Acts and Practices: 6.13.1 Unfair Contract Provisions
Often a seemingly abusive repossession practice is authorized in a consumer credit contract signed by the debtor. A growing body of law finds these contract provisions unfair. The FTC Credit Practices Rule is the most important example, prohibiting non-purchase money security interests in household goods.772
Unfair and Deceptive Acts and Practices: 6.13.2 Deceptive Contract Provisions
Another approach is to challenge contract provisions as deceptive if they violate state law.
Unfair and Deceptive Acts and Practices: 6.13.4 Unfair or Deceptive Practices Relating to Redemption, Collateral Sales, Deficiencies, and Surpluses
It is a UDAP violation to sell repossessed collateral or to conduct a lien sale without complying with state law.800 Since state repossession requirements are very detailed, with numerous notice requirements, this is a ripe source of UDAP violations. Failure to send a required notice should not only be a per se UDAP violation, but also a deceptive nondisclosure of a material fact.
Unfair and Deceptive Acts and Practices: 6.13.5 Pawnbrokers’ Sale of Pawned Goods
The UDAP principles described in the preceding subsections regarding repossession practices apply to pawnshops as well when they dispose of pawned items. In addition, the FTC has accepted a number of consent agreements dealing with practices of trading posts serving Native Americans. These cases also have applicability to other pawnbroker situations.
Unfair and Deceptive Acts and Practices: 6.14.1 Introduction
Credit repair, credit counseling, debt settlement, and debt elimination providers all purport to help consumers resolve their debts or improve their credit ratings. These providers and the law applicable to them are summarized briefly here, but addressed in detail in other books in this series.
Unfair and Deceptive Acts and Practices: 6.14.2 Credit Repair Organizations
Credit repair organizations promise, for a fee, to improve a consumer’s credit rating or credit record. Generally, these agencies do nothing consumers cannot do for themselves free of charge.820 Sometimes, the “service” provided consists solely of advising consumers to barrage credit reporting agencies with form letters disputing most or all items in their files—letters that the reporting agencies usually ignore as frivolous.
Unfair and Deceptive Acts and Practices: 6.14.3 Credit Counseling and Debt Management Plans
Credit counseling agencies traditionally provided consumer financial education and counseling and offered low-cost debt management plans, by which the consumer paid off the full value of unsecured debts through regular payments to the agency. But the industry grew rapidly in the 1990s, adding players that used aggressive sales techniques to steer consumers into more costly plans or other products.
Unfair and Deceptive Acts and Practices: 6.14.4 Debt Settlement and Debt Negotiation
In contrast to credit counseling agencies, most debt settlement and debt negotiation companies claim to help consumers settle debts for less than the full amount owed. They usually encourage the consumer to stop paying their creditors and to send the money to the company instead. The company tells the consumer that it will hold the payments until enough has accumulated to offer a lump-sum settlement to the creditor. The company typically charges various fees that make saving difficult.
Unfair and Deceptive Acts and Practices: 6.14.5 Debt Elimination
Debt elimination companies are usually complete scams. They claim to eliminate debt without any payments to the creditor. Some schemes use bogus legal documents or fake arbitration programs. Another variant involves claiming damages for frivolous disputes under the Fair Credit Billing Act. Yet another version sells the consumer an instrument, such as a “bond for discharge of debt,” that the consumer is to present to the creditor and that supposedly forces the creditor to abandon the debt.
Unfair and Deceptive Acts and Practices: 3.2.7.6 Alleging That Practice Is Both a Per Se Violation and Unfair or Deceptive in Its Own Right
To be safe, consumer litigants should plead not only that the statutory violation is a per se UDAP violation, but that it is also an unfair or deceptive practice. The consumer can then explain how the specific injury caused by the specific law violation fits within either the “S&H” unfairness standard or the FTC’s unfairness interpretation or the state UDAP statute’s definition of deception.
Unfair and Deceptive Acts and Practices: 3.3.2 Develop the Facts
The most critical aspect of any UDAP case is to develop the facts. Unfairness is a question of fact for the jury or, in a non-jury case, the judge.163 Determining what is unfair is highly fact-specific and generally inappropriate for summary judgment.164 Too often consumer attorneys rely on one specific representation or practice to build a case.
Unfair and Deceptive Acts and Practices: 3.3.4 Point Out Breadth and Flexibility of General UDAP Standards
The third step in showing a UDAP violation is to explain to the court how the practice violates the UDAP statute’s general standards of deception or unfairness.