NY Times article on FDCPA suits

Uhm I cant view it I dont have a sign on

Just post it

 

Law to Protect Debtors Can Be a Windfall for Lawyers
By ADAM LIPTAK


ugh D. Brauer, 73, has a one-man legal practice in Highland, Ind. He does a little debt collection for a nearby furniture store, and he says he tries to treat people fairly.

"I conduct myself in a moral, appropriate way," Mr. Brauer said. Indeed, he said, many of those he has collected from have tried to hire him as a lawyer.

He was taken aback, then, when papers in a federal class-action lawsuit against him arrived not long ago, claiming the form letter he sends to debtors violates a federal law.

The law, the Fair Debt Collection Practices Act, was passed in 1977 to combat collection abuses like lying and making harassing calls at late hours or to neighbors and employers.

In the last decade, the law has also given rise to what some say is an unintended consequence: thousands of federal lawsuits taking issue with the wording of collection letters. So many lawsuits have been filed that one judge denounced them as a "cottage industry" for nitpicking lawyers exploiting the act to reap many tens of thousands of dollars in fees.

Class-action lawsuits often involve weighty issues like securities fraud, environmental damage and defective products, but the collection lawsuits turn on more arcane disputes, such as whether the words "Speed-O-Gram" or "Priority-Gram" add deceptive urgency to a collection letter.

(Rulings in theses cases have been inconsistent and unpredictable. "Speed-O-Gram" is illegal, but "Priority-Gram" is not. Urging a debtor to "send your payment today" passes muster, a federal appeals court ruled this year, partly because the phrase "was in the nature of a request rather than a demand" and "carried no sense of urgency.")

Successful plaintiffs in these cases are entitled to $1,000, but their lawyers can collect vastly larger sums.

"When they are successful, there is this bounty system in which the client gets $1,000 and the lawyers get their hourly rate, which is $40,000, $50,000 or more if the defendant decides to fight," said Richard J. Rubin, chairman of the National Association of Consumer Advocates, a sort of trade group for the plaintiffs' bar in this area. "I have no problem being the beneficiary of this bounty system as well as its instrument."

Some federal judges have expressed hostility to the law and to the lawyers who profit from it.

"While we do not profess to understand why the act refers such small cases to the busy federal courts rather than to an administrative body for determination," Judge Gerard L. Goettel wrote, "There is nothing in the act to suggest that it was intended to create a cottage industry for the production of attorneys' fees."

Other courts have given credit to Mr. Rubin for starting the collection-letter litigation industry.

The United States Court of Appeals for the Sixth Circuit, in Cincinnati, said the more than 50 lawsuits filed by a single Ohio lawyer under that act appeared to have been inspired by an article in an American Bar Association publication about a 1992 speech by Mr. Rubin.

The court quoted the article: "Rubin makes no apologies for his tactics, despite his own admission that he relies on technical violations of the law to bring a case, makes arbitrary settlement demands irrespective of damages and earns far more in attorneys' fees than his clients are entitled to collect."

Mr. Rubin said the account was incomplete, because the cases involved serious harm to his clients. He noted, though, that "a bunch of people told me they got into this business because of that speech."

Thomas Kane, a lawyer at the Federal Trade Commission who coordinates education and enforcement effort in this area, said the agency welcomed private lawsuits.

The suits are essential to enforce the law, Mr. Kane said. "We can't be everywhere. We believe that the private actions and the threat of private actions are powerful forces in regulating debt collectors."

He added: "A lot of those lawsuits are about notices that debt collectors must send to consumers. We believe those notices are very important."

In its most recent report to Congress on the law, the commission acknowledged the issue and proposed a solution, asking for authority to issue model letters that would offer collectors a safe harbor from such suits.

No one doubts that some debt collectors use extreme methods.

"The worst cases are where they make really scary threats â?? lawsuits, jail, physical harm," said Robert J. Hobbs, the deputy director of the National Consumer Law Center, which supports aggressive enforcement of the consumer laws by both regulators and private lawyers. "People have been asked to prostitute themselves and to sell drugs."

But a great many of the more than 150 reported decisions in these cases in the federal courts in 2001 involved the wording of collection letters.

Mr. Hobbs estimated that one in 50 claims results in litigation and that one in 10 litigations gives rise to a published decision. That would represent some 75,000 claims annually.

Clifford W. Shepard, one of the lawyers suing Mr. Brauer, said that of the 170 suits he has filed under the law since 1996, only about a dozen have resulted in published decisions. He said the cases are almost always settled, for $1,500 to more than $1 million, including forgiven debt.

Dean R. Brackenridge, an Indianapolis lawyer who represents collection agencies and lawyers, including Mr. Brauer, said claims against lawyers arising from collection and bankruptcy work had overtaken those arising from personal injury cases as the leading claims made under lawyers' insurance policies.

Plaintiffs' lawyers obtain leads for such suits by scouring the dockets in small claims courts for collection actions and by savvy questioning of people seeking to file bankruptcy actions, Mr. Brackenridge said.

"It is oftentimes like Christmas morning," he said, imagining the scene in the bankruptcy lawyers' offices. "They're opening up a grocery sack of collection letters that may give rise to these lawsuits."

Mr. Hobbs disagreed, saying that few debtors know their rights. "Most of those people are in financial distress, maybe they have health problems, they're depressed, they're not in a get-up-and-fight mood," he said.

The lawsuit against Mr. Brauer, which itself appears to be a form, does not disclose the flaw in his letter. The core problem, the lawyers who filed the suit said in an interview, was the implication that the debtors might have to pay lawyers' fees of $1,000 in addition to the $5,000 debt if the furniture store sued.

"This tough talk about dire consequences is meant to shake up the debtor," Mr. Shepard said.

As it happened, the store did sue, and it was awarded exactly what Mr. Brauer had predicted.

Mr. Brauer's insurance company has said his policy does not cover the claims in the class-action suit, though it is paying for his lawyer. The paralegal who handled most of his collection paperwork has quit for fear of getting sued herself.

He said his insurance company is urging him to settle the suit for as much as $35,000, given the risks and expense of litigation.

The experience of being sued for the first time in his life has left him angry and confused.

"No one has even yelled at me for anything before," he said, "and I've been practicing for 40 years."

 

Whoa,

"Plaintiffs' lawyers obtain leads for such suits by scouring the dockets in small claims courts for collection actions and by savvy questioning of people seeking to file bankruptcy actions, Mr. Brackenridge said."

NOW THAT IS SLICK. LOL

 

They're on our side - slick is good.