Academic journal article Harvard Law Review

Improving Relief from Abusive Debt Collection Practices

Academic journal article Harvard Law Review

Improving Relief from Abusive Debt Collection Practices

Article excerpt

I. Introduction

Debt collection (1) is endemic in the United States: as of March 2012, approximately thirty million people held debt that had been subject to collection processes. (2) The Fair Debt Collection Practices Act (3) (FDCPA) protects individuals who might otherwise be the target of predatory debt collection tactics by establishing civil liability for such behavior. Courts may also vacate unlawfully obtained judgments as a means of providing additional relief to consumers. However, the structure and practices of the consumer debt industry interact with state and federal legal institutions to significantly limit the availability of effective relief for individuals who have been the target of predatory litigation tactics in state courts. Such practices have in recent years been deployed against millions of Americans, resulting in significant and widespread harms to consumers. These harms come in two basic types: direct financial harm in the form of money judgments entered against consumers who should not by law be required to pay them, and collateral harm through the effects of a default judgment on a consumer's credit report. (4)

First, a proposition about effective relief: While a total remedy from predatory litigation practices may theoretically be possible through a piecemeal combination of individual or class actions in state and federal courts, such a fragmented approach faces barriers in terms of complexity and transaction costs that are likely to reduce the relief (be it monetary or equitable) awarded to consumers and to decrease the deterrent effect of liability on the entities that make use of unlawful litigation tactics. Effectiveness, this Note argues, requires a system in which adequate relief can be obtained in a straightforward manner, without resort to a piecemeal and incomplete approach.

This Note explores a particular set of interactions operating in this area and illustrates their impact on the victims of predatory debt collection actions and on the private enforcement of the FDCPA. Part II of this Note presents a general description of the key statutory and institutional elements that give rise to the problem: the American debt collection industry, state small claims courts, and the provisions of the FDCPA intended to prevent predatory lawsuit-filing practices. Part III illustrates a set of practical and doctrinal forces that raise barriers to effective relief under the FDCPA, including the challenge of individually proving FDCPA claims on the merits, judicial federalism concerns, procedural barriers, and difficulties associated with calculating appropriate damages. These forces combine with the institutional and statutory framework to foreclose the likelihood of adequate and effective relief under the FDCPA for victims of predatory practices in state courts, thus weakening the deterrent effect of the FDCPA. Part IV presents a number of potential reform measures that may increase the effectiveness of the FDCPA at protecting consumers from predatory debt collection litigation practices. Part V concludes.

II. Debt collection and the FDCPA

The issue begins with the debt-purchasing market. The debt-purchasing process typically starts with the bundling of debts into portfolios by the issuer. (5) These portfolios are then purchased by debt buyers through a bidding process, usually at a steep discount to the face value of the debts. (6) Occasionally, debt buyers will repackage and resell debt portfolios to other debt buyers, subdividing or aggregating debts from various portfolios according to additional classification criteria. (7) Through this process of classification, aggregation, sale, repackaging, and further sale, information identifying consumers and the amount of debt owed frequently becomes separated from the underlying documentation about the debt, including the agreements that established the debt (containing information about applicable interest rates, fees, availability of fee shifting, choice of law, and other critical terms) as well as information on the consumer's history of payments against the debt. …

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