No Shelter from the Storm: Dangers from the Fair Debt Collection Practices Act to Mortgage Industry Attorneys and a Call for Legislative Action

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I. INTRODUCTION

As the year 2009 nears its end, the international community is continuing to realize the devastating effects of what began as a subprime mortgage crisis that has developed into a worldwide financial crisis of historic proportions. Attorneys representing the mortgage industry are finding themselves on the front lines of this economic fallout and the ensuing litigation presents seemingly infinite causes of action and potential for liability. The bulk of this litigation is likely to be comprised of consumer class actions and shareholder lawsuits against the mortgage securitization industry and its counsel for their actions in constructing what has turned out to be a house of cards. The results of this ensuing litigation will undoubtedly inform legislative efforts to devise laws aimed at preventing a reoccurrence of a credit crunch. However, as the economic crisis continues, mortgage industry attorneys will be facing unfamiliar challenges and the scope of the crisis will require many more attorneys to become familiar with the relevant practice areas.

During the good times of the housing bubble, attorneys handling foreclosures for a client were likely to encounter very few obstacles. Many borrowers in default lack the resources and sophistication that is necessary to challenge a foreclosure proceeding under a consumer protection statute. However, in response to the dramatic increase in foreclosures, borrower attorneys and even municipalities have been evoking consumer protection statutes with success. ] Of these consumer protection statutes, the Fair Debt Collection Practices Act of 19772 ("FDCPA" or "the Act") is of particular importance to attorneys who will be involved in the estimated 4.3 million foreclosures anticipated to take place before the end of 20 10.3 While many attorneys have long thought of the FDCPA as a statute designed to arrest the abusive behavior of bill collectors, such as harassing phone calls to a debtor's place of employment, the expansive language of the Act and an examination of recent case law should lead more housing industry attorneys to examine whether they are subject to the Act's provisions. In reality they often are, although the provisions of the FDCPA usually do not apply to the mortgage lenders and servicers they represent.4 The expansion of the Act's application to attorneys has become an onerous regulation on the legal industry, presenting many traps for the unwary. As we undertake the somber task of examining the failures of policy and regulation that led us to our current economic state, we should revisit the FDCPA. This Note posits that the asymmetric regulation of the legal industry and nonregulation of the credit industry is failing to achieve the policy goals underpinning the Act's existence.

II. INTRODUCTION TO THE FALR DEBT COLLECTION PRACTICES ACT

The Act provides remedies against "debt collectors"5 for specified legal acts and omissions towards borrowers who undertake a "consumer debt," which is defined as being for primarily personal, family, or household purposes. The Act does not apply to commercial debts used for the purposes of business operations or investments. The Act's application is determined by whether the obligation that is sought from the plaintiff meets the statutory definition of "debt" and whether the defendant meets the statutory definition of "debt collector." A "debt collector" under the Act is a person who uses the instrumentality of interstate commerce or the mails in the business of collecting debts, or one who regularly collects or attempts to collect debts owed to another.7 For purposes of § 1692f(6) of the Act, the term "debt collector" also includes any person who uses any instrumentality of interstate commerce or the mails in the business of enforcing security interests.8 Section 1692f(6), referenced in the definition of "debt collector," prohibits

"[t]aking or threatening to take any non-judicial action to effect dispossession or disablement of property if . …