Collector - July 2017 - 40

BUSINESSOPERATIONS

Credit Listing
Considerations
Are your collection letters exposing you
to risk?
By Sidney Stern

M

ost U.S. collection agency letters
include a warning to consumers
stating that their debts, if not
paid, may be listed against their credit
reports.
For one thing, the warning is true. For
another, avoidance of having a debt listed
against their credit is often the only reason
many consumers pay.
It now appears the statement mentioned
above exposes collection agencies to
class-action lawsuits in which hundreds
or thousands of consumers join together,
claiming their rights have been violated.
How so?
The problem is that not all unpaid accounts
are listed on consumers' credit reports.
Some accounts are turned over in error
and are not listed. Some accounts are
owed by deceased consumers and are not
listed. Some accounts represent very small
balances and are not listed.
Here's the background: The Fair Debt
Collection Practices Act prohibits collection
agencies from threatening actions they do
not intend to take. In this case, this means
collection agencies cannot threaten to list
debts against consumers' credit unless they
intend to do so.
The FDCPA also requires language used in
collection letters to be understandable by the
"least sophisticated consumer."
Interpreting those two FDCPA
provisions together, it's possible a federal
court would rule that since not all unpaid
accounts are listed against consumers'
credit reports and that since some
consumers may not be able to distinguish
the word "may" from the word "will,"
consumers whose accounts are in fact not
listed will have been misled by the warning

40

that unpaid debts may be listed against
credit reports.
This interpretation may seem far-fetched
to the casual reader. However, a federal
court has ruled that a collection agency that
included in its collection letters the words
"failure to resolve this debt may result in a
lawsuit being filed against you" violated the
FDCPA since not all consumers who failed
to pay were sued.
A federal court might apply the same
"principle" to warnings about credit
listings. Would you want to risk hundreds
of thousands of dollars to find out how a
federal court would rule?
Given the possibility a federal court might
rule as described above, a consumer law firm
in Texas recently filed a class-action lawsuit
against a San Antonio collection agency,
alleging that hundreds of consumers whose
accounts were not listed against their credit
over a three-year period had been misled by
the collection agency's letter.
Because each FDCPA violation carries a
$1,000 penalty, potential damages against
the collection agency in the event of an
unfavorable outcome in federal court

ran to many hundreds of thousands of
dollars. That fact, along with the high
cost of defending such a lawsuit in federal
court, led the collection agency to settle
the lawsuit. The settlement amount
was confidential, but I estimate it was
approximately $75,000.
What had the collection agency done
wrong?
Nothing, in terms of actually harming
the consumers. Perhaps a few consumers,
motivated by the demand letter's
"questionable" warning that their accounts
may be listed on their credit, paid their
bills. But, in any event, those consumers
actually owed the money.
While this was a lawsuit based on a
technicality, it serves as a reminder that
collection agencies should be mindful of
court actions involving credit listings. Until
a federal appellate court rules conclusively
on this issue, including the credit listing
warning on your collection letters is,
ultimately, a business decision.
Sidney Stern is chairman of Stern Recovery
Services in Greensboro, N.C.

ACAINTERNATIONAL.ORG


http://www.ACAINTERNATIONAL.ORG

Table of Contents for the Digital Edition of Collector - July 2017

Upfront
Industry News
Best Practices
FYI
Collection Tips
What’s in Your Policy?
State Licensing Laws: What’s New and Trending
The Question of Rule 68
Calendar
Honor Roll
Healthcare Data at Risk
ACA Members Meet in D.C. to Advocate on Behalf of Industry
Fixing What’s Broken
Credit Listening Considerations
U.S. Supreme Court Hands Collection Industry a Win in ACA-Supported Case
Compliance
ACA SearchPoint
Last Word
Collector - July 2017 - Cover1
Collector - July 2017 - Cover2
Collector - July 2017 - 1
Collector - July 2017 - 2
Collector - July 2017 - Upfront
Collector - July 2017 - Industry News
Collector - July 2017 - 5
Collector - July 2017 - 6
Collector - July 2017 - 7
Collector - July 2017 - Best Practices
Collector - July 2017 - 9
Collector - July 2017 - FYI
Collector - July 2017 - 11
Collector - July 2017 - Collection Tips
Collector - July 2017 - 13
Collector - July 2017 - What’s in Your Policy?
Collector - July 2017 - 15
Collector - July 2017 - 16
Collector - July 2017 - 17
Collector - July 2017 - 18
Collector - July 2017 - 19
Collector - July 2017 - State Licensing Laws: What’s New and Trending
Collector - July 2017 - 21
Collector - July 2017 - 22
Collector - July 2017 - 23
Collector - July 2017 - The Question of Rule 68
Collector - July 2017 - 25
Collector - July 2017 - 26
Collector - July 2017 - 27
Collector - July 2017 - Calendar
Collector - July 2017 - Honor Roll
Collector - July 2017 - Healthcare Data at Risk
Collector - July 2017 - 31
Collector - July 2017 - ACA Members Meet in D.C. to Advocate on Behalf of Industry
Collector - July 2017 - 33
Collector - July 2017 - 34
Collector - July 2017 - 35
Collector - July 2017 - Fixing What’s Broken
Collector - July 2017 - 37
Collector - July 2017 - 38
Collector - July 2017 - 39
Collector - July 2017 - Credit Listening Considerations
Collector - July 2017 - 41
Collector - July 2017 - U.S. Supreme Court Hands Collection Industry a Win in ACA-Supported Case
Collector - July 2017 - 43
Collector - July 2017 - Compliance
Collector - July 2017 - 45
Collector - July 2017 - ACA SearchPoint
Collector - July 2017 - 47
Collector - July 2017 - Last Word
Collector - July 2017 - Cover3
Collector - July 2017 - Cover4
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