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In the current economic climate, there have been many debt collection scams. Furthermore, the line between fair debt collection practices and unlawful ones has been blurred and many law firms and debt collection agencies find themselves running afoul of the Fair Debt Collection Practices Act.
That's what happened in this Third Circuit Court of Appeals case.
The Kay Law Firm learned the hard way that fast cash isn't always the best kind of cash. The Kay Law Firm is a debt collection law firm within the Third Circuit. The law firm sent a letter to a debtor on January 11, 2009. The letter was sent to collect a debt on a Washington Mutual home equity loan.
The letter, while printed on law firm letterhead, never explicitly said that legal action would be taken or that a lawyer had even reviewed the case. On the contrary, the letters even had a disclaimer on the back, saying that no attorney had reviewed the case.
So what happened next, you may ask.
Well, for starters, the debtor sued under the FDCPA. Was the communication deceptive, though?
The FDCPA was enacted in response to the deceptive and unfair collection practices of debt collectors. As such, Congress gave individuals a private cause of action against debt collectors who didn’t comply with the law, writes the Third Circuit opinion.
The Third Circuit looked at the communications in this case under the “least sophisticated debtor” standard, citing that the purpose of the standard was to ensure FDCPA protection for all consumers, “the gullible as well as the shrewd.”
Specifically, under Section 1692(e) of the FDCPA, the law prohibits the use of “false, deceptive, or misleading representation or means in connection with the collection of any debt.” Included in the larger scope of this definition are representations or false implications that any communication is from an attorney; and any threats to take action that cannot legally be taken or that are not intended to be taken.
The Third Circuit found that The Kay Law Firm’s letters were in violation of these rules, under the applicable standard. The letters sent by an attorney’s office had the implication that there could be legal action.
This case serves as a fair warning to anyone looking to get involved in the debt negotiation business or to any attorneys who lend their name to such practices.