Magazine article American Banker

Lenders Decry Curb on Dunning Letters

Magazine article American Banker

Lenders Decry Curb on Dunning Letters

Article excerpt

The banking industry is urging the federal appeals court in New York to overturn a decision that makes it tougher for lenders to collect debts.

At issue is the Fair Debt Collection Practices Act, which is intended to prevent creditors from using strong-arm tactics to persuade people to pay their bills.

One provision in the act bars creditors from sending out letters that purport to be from a lawyer but are really from the debt collector.

The rationale for the provision is that letters from lawyers are considered particularly threatening and therefore should be regulated more closely.

Banks often hire lawyers to send out letters as a last-ditch effort to avoid suing debtors in default. The letters urge the debtors to pay their bills or work out repayment plans.

For this task, Citicorp Retail Services Inc. hired Maria I. Moir, a New York-based lawyer who has represented the bank since 1987.

Ms. Moir created a computer program to help her identify which Citicorp borrowers should receive dunning letters. The program reviews the amount of outstanding balances, time past due, and other measurable standards. Citicorp runs this program on its computers and prints out letters demanding repayment on Ms. Moir's letterhead.

One of those letters went to Robin Young, who was in default on her Citicorp-issued Bradlees department store credit card.

The letter informed Ms. Young that her debt had been referred to Ms. Moir's office for collection. It provided Ms. Moir's phone number and address, and said payment could be sent either to her or to Citicorp.

Ms. Young sued Citicorp, arguing that the debt collection act requires a lawyer to personally review a debtor's file before mailing a collection letter.

U.S. District Judge Alan H. Nevas sided with Ms. Young, ruling that the law does not let lawyers use computers to decide which consumers should receive collection letters. …

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