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Rhode Island Debt Collection Laws

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					Emerging Creditor and Servicer Issues
  Under the Fair Debt Collection
    Practices Act and State Law

            Arthur J. Rotatori
2006 Con$umer Finance Legal Conference


    Purpose of the Fair Debt
    Collection Practices Act

      Many debt collectors used abuse, deceptive, and unfair
       debt collection practices, contributing to the number of
       personal bankruptcies, marital instability, loss of jobs, and
       invasions of individual privacy
      Prior laws and procedures for redressing these injuries
       failed to protect consumers
2006 Con$umer Finance Legal Conference



    Purpose of the FDCPA (cont’d)

      FDCPA’s purpose is to eliminate abusive debt collection
       practices by debt collectors, insure that debt collectors who
       refrain from using abusive debt collection practices are not
       competitively disadvantaged, and promote consistent State
       action to protect consumers against debt collection abuses.
2006 Con$umer Finance Legal Conference



    Key Definitions

      A “consumer” is any natural person obligated or allegedly
       obligated to pay any debt.
      A “debt” means any obligation or alleged obligation of a
       consumer to pay money arising out of a transaction in
       which the subject money, property, or services are
       primarily for personal, family, or household purposes,
       whether or not reduced to judgment.
2006 Con$umer Finance Legal Conference



    Key Definitions – “Creditor”

      A “creditor” is any person who offers or extends credit
       creating a debt or to whom a debt is owed, but does NOT
       include any person to the extent that he receives an
       assignment or transfer of a debt in default solely for the
       purpose of facilitating collection of such debt for another.
2006 Con$umer Finance Legal Conference



    Key Definitions – “Debt Collector”

      A “debt collector” is any person who is engaged in any
       business
          the principal purpose of which is the collection of
           any debts, or
          who regularly collects or attempts to collect,
           directly or indirectly, debts owed or due or asserted
           to be owed or due another. (cont'd)
2006 Con$umer Finance Legal Conference


    Key Definitions – “Creditors” as
    “Debt Collectors”

         (cont'd) . . . Notwithstanding the exclusion in frame
          10 below, the term “debt collector” includes any
          creditor who, in the process of collecting his own
          debts, uses any name other than his own which
          would indicate that a third person is collecting or
          attempting to collect such debts.
2006 Con$umer Finance Legal Conference


    Key Definitions – “Debt Collector”
    (Exceptions)

      The term “debt collector” does not include any officer or
       employee of a creditor while, in the name of the creditor,
       collecting debts for such creditor; (cont'd)
2006 Con$umer Finance Legal Conference


    Key Definitions – “Debt Collector”
    (Exceptions) (cont’d)
      The term “debt collector” does NOT include any person
       while acting as a debt collector for another person, both of
       whom are related by common ownership or affiliated by
       corporate control, if:
         the person acting as a debt collector does so only for
          persons to whom it is so related or affiliated AND
         the principal business of such person is not the
          collection of debts; (cont'd)
2006 Con$umer Finance Legal Conference


    Key Definitions – “Debt Collector”
    (Exceptions) (cont’d)
      The term “debt collector” does NOT include any person
       collecting or attempting to collect any debt owed or due or
       asserted to be owed or due another to the extent such
       activity concerns a debt that:
          (i) was originated by such person; or
          (ii) was not in default at the time it was obtained by
           such person.
2006 Con$umer Finance Legal Conference



    Servicer Exemption

      The servicer does not lose the exemption if a loan
       becomes delinquent while being serviced
      Beware of delinquent loans when purchasing
       servicing portfolios
      Servicer exemption applies to FDCPA only, not
       state law
2006 Con$umer Finance Legal Conference



    Servicer Exemption (cont’d)

      Possible new development: H.R. 1025
      H.R. 1025, passed by the House, has been in the Senate for
       a year without activity
      The bill would expand the servicer exemption only for
       servicers of first mortgage loans
      Would preserve servicers exemption even if some loans
       were in default when the portfolio was acquired for
       servicing
2006 Con$umer Finance Legal Conference


    Key Provisions for “Debt
    Collectors”

      “Debt collectors” subject to limits on how and when they
       may:
      Communicate with persons other than the consumer (§
       804, § 805);
      Communicate with the consumer (§ 805)
2006 Con$umer Finance Legal Conference


    Key Provisions for “Debt
    Collectors” (cont’d)
      “Debt collectors” may not:
      Engage in conduct the natural consequence of which is to
       harass, oppress, or abuse any person in connection with
       debt collection (§ 806)
      Use any false, deceptive, or misleading representation or
       means in connection with the collection of any debt (§
       807)
2006 Con$umer Finance Legal Conference


    Key Provisions for “Debt
    Collectors” (cont’d)

      “Debt collectors” may not use unfair or unconscionable
       means to collect or attempt to collect any debt (§ 808)
      “Debt collectors” must cease communications with the
       consumer upon consumer’s written request, except for
       permitted follow-up communication
2006 Con$umer Finance Legal Conference


    Key Provisions for “Debt
    Collectors” (cont’d)

      “Debt collectors” must, in the initial communication or
       within 5 days after the initial communication with a
       consumer, send the consumer a written notice with
       information identifying debt and creditor, and consumer’s
       right to have debt collector “validate” debt.
2006 Con$umer Finance Legal Conference


    Key Provisions for “Debt
    Collectors” (cont’d)
      It is unlawful to design, compile, and furnish any form
       knowing that it will be used to create the false belief in a
       consumer that a person other than the creditor of such
       consumer is participating in the collection of or in an
       attempt to collect a debt such consumer allegedly owes
       such creditor, when in fact such person is not so
       participating.
2006 Con$umer Finance Legal Conference


    Key Provision for “Debt
    Collectors” (cont’d)

      “Debt collectors” may not use unfair or unconscionable
       means to collect a debt:
         Collection of amounts not expressly authorized by the

          agreement creating the debt
         Acceptance of a check post-dated more than 5 days

          unless the consumer is notified of intent to deposit
         Soliciting a post-dated check for the purpose of
          threatening or initiating criminal prosecution
2006 Con$umer Finance Legal Conference


    Key Provisions for “Debt
    Collectors” (cont’d)

         Depositing a post-dated check prior to the date on the
          check
         Causing communication charges by concealing the true
          purpose of the communication
         Threatening to repossess property without a right to do
          so
         Communicating with a debtor by postcard
2006 Con$umer Finance Legal Conference


    Key Provisions for “Debt
    Collectors” (cont’d)

         Using language or symbol on envelope indicating
          sender was a debt collector
2006 Con$umer Finance Legal Conference



    Calling Cell Phones

      FDCPA § 808 prohibits a debt collector from causing
       consumers to incur communication charges but only if the
       debt collector conceals the true purpose of the
       communication
      FCC Regulations 47 CFR § 4.1200 permit the manual
       dialing of cell phones, but apparently prohibit the use of
       automated dialers to call cell phones
2006 Con$umer Finance Legal Conference



    Calling Cell Phones (cont’d)

      Debt collection industry is attempting to get the regulation
       changed to permit the use of automated dialers with cell
       phones
2006 Con$umer Finance Legal Conference



    Civil Liability

      Civil liability for a debt collector’s noncompliance with
       FDCPA equals—
      (1) Actual damages; PLUS (2) Statutory damages of
       $1,000 (per individual as individual or in class action);
       PLUS (ii) the LESSER of $500,000 or 1 per centum of
       debt collector’s net worth (class action); PLUS (3) the
       plaintiff’s costs of a successful action and reasonable
       attorney's fees
2006 Con$umer Finance Legal Conference



    FTC Perspective

      The FTC receives more complaints about third-party debt collectors
       than any other industry- 19.1% of all complaints
      Combined complaints about third-party and in-house collections equal
       25.9% of all complaints
      While in-house collections are exempt from the FDCPA, the FTC can
       and will pursue creditors under the FTC Act for the use of “no-holds-
       barred collector tactics”
2006 Con$umer Finance Legal Conference



    Types of Complaints

      Demanding a larger payment then permitted by law
      Harassing the debtor or others
      Threatening dire consequences
      Making impermissible calls to debtor’s place of
       employment
      Revealing debt to third-parties
2006 Con$umer Finance Legal Conference



    Types of Complaints (cont’d)

    Failing to send consumer notice
    Failing to verify disputed debt
    Continuing to contact debtor after receiving
     a cease communication notice
2006 Con$umer Finance Legal Conference


    FTC Legislative
    Recommendations

      Make explicit the standard for clarity required for notices
       to consumers
      Clarify that debt collectors may continue their collection
       activities during 30 day period when consumers can
       dispute debts
      Exempt attorneys who pursue debtors solely through
       litigation or similar practices
2006 Con$umer Finance Legal Conference


    FTC Legislative
    Recommendations (cont’d)

      Authorize FTC to issue model debt collection letters
      Clarify that debt collectors may communicate with a
       consumer only once after receiving a cease communication
       notice
      Expressly require debt collectors take certain actions in
       response to a consumer’s oral notification of a disputed
       debt
2006 Con$umer Finance Legal Conference


    FTC Legislative
    Recommendations (cont’d)

      Require debt collection to itemize their changes to
       consumers
      Encourage debt collectors to provide the name and address
       of the original creditors in their first communication with
       consumers
2006 Con$umer Finance Legal Conference


    State Law Issues for Creditors and
    Servicers

    Debt Collector Licensing
    Debt Collection Practices
2006 Con$umer Finance Legal Conference


    State Law Issues for Creditors and
    Servicers (cont’d)

      Debt Collector Licensing Exemptions
          No state considers a creditor to be a debt
           collector (for licensing purposes) as long as
           the creditor does not use a fictitious or
           assumed name
2006 Con$umer Finance Legal Conference


    State Law Issues for Creditors and
    Servicers (cont’d)
      Debt Collector Licensing Exemptions
          28 states either have no debt collector licensing law
           or have some sort of exemption for loan servicers
             Express exemption for loan servicers
             State law tracks FDCPA

             State law applies only to collection of
              delinquent debt
2006 Con$umer Finance Legal Conference


    State Law Issues for Creditors and
    Servicers (cont’d)

      A state where a servicer is a debt collector
          One state, Massachusetts, expressly includes loan
           servicers in the scope of the debt collector statute
2006 Con$umer Finance Legal Conference


    State Law Issues for Creditors and
    Servicers (cont’d)

      A third party loan servicer must be registered with the
       Commissioner of Banks
          Third party loan servicing means receiving any
           scheduled periodic payments from a borrower
           pursuant to any type of loan and remitting
           payments to the loan holder
2006 Con$umer Finance Legal Conference


    State Law Issues for Creditors and
    Servicers (cont’d)
      Problem States
          22 states have debt collector licensing statutes with
           a very broad scope
             These statutes purport to apply to any person
              “collecting” payments owed to a third party;
              or
             Purport to apply to persons soliciting claims
              of any kind owed to the solicited parties
2006 Con$umer Finance Legal Conference


    State Law Issues for Creditors and
    Servicers (cont’d)

       The intent of these statutes is to reach traditional
        debt collectors, not servicers, but
       The language of these statutes is so broad as to
        arguably reach conventional servicers
       Some statutes have other exemptions that may limit
        scope
2006 Con$umer Finance Legal Conference



    Debt Collection Practices

      13 states do not have a law regulating debt collection
       practices: Delaware, Georgia, Kansas, Kentucky,
       Mississippi, Missouri, Montana, Ohio, Oklahoma, Rhode
       Island, South Dakota, Utah and Virginia
      Common law invasion of privacy or other torts may limit
       debt collection activity
2006 Con$umer Finance Legal Conference



    Debt Collection Practices (cont’d)

      Of the states that regulate debt collection practices, 11
       states arguably regulate the debt collection activities of
       creditors, at least in part: Arkansas, California,
       Connecticut, Iowa, Louisiana, Maryland, Massachusetts,
       New Hampshire, South Carolina, Texas and Vermont
      All of the remaining states regulate the debt collection
       practices of debt collectors
2006 Con$umer Finance Legal Conference



    Debt Collection Practices (cont’d)

      State laws vary in scope and detail
      Many track (roughly) the FDCPA
      Some states (Iowa and Massachusetts) have additional
       requirements or restrictions
          Iowa expressly regulates contact with the debtor’s
           neighbors and relatives, FDCPA does not
          Massachusetts limits frequency of telephone contacts
           and requires a special notice (beyond FDCPA
           requirements)
2006 Con$umer Finance Legal Conference



    Recommendations

      Do not assume federal preemption
      Do not assume that state law tracks federal law
      Do not assume that only conventional debt collectors need
       to follow these laws
      Analyze state law coverage and requirements in detail

				
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