USFN | Hot Topics in the FDCPA: Prohibited Communication with Borrowers and Third Parties

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Hot Topics in the FDCPA: Prohibited Communication with Borrowers and Third Parties
by Kurt M. Lewis and Bradley S. Anderson
South & Associates, P.C. — USFN Member (KS, MO)

Since Congress passed the Fair Debt Collection Practices Act (FDCPA) in 1977, the servicing industry has worked
hard to comply with provisions that have changed over time due to court interpretations and Congressional
amendments. This article is a reminder of the FDCPA’s daily impact on the default servicing industry, and a
refresher on some of its more difficult and evolving provisions.

1. Prohibited communication with represented consumer/borrowers

The FDCPA prohibits direct communication with a borrower when “the debt collector knows the consumer is
represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney’s
name and address, unless the attorney fails to respond within a reasonable period of time to a communication from
the debt collector.” 1 Simply stated, a servicer may not contact a consumer who is known to be represented by
counsel in regard to the debt owed between them.2 Accordingly, contact by a servicer to confirm representation by
counsel is not allowed. In fact, the prohibition on contact seemingly stretches so far that validation letters sent by
servicers in order to comply with the FDCPA must be sent to consumers’ counsel, instead of to the consumers
themselves. 3

When set out as a general topic, this section of the FDCPA seems easy to interpret and comply with; however, after
reviewing various cases with attorney-represented borrowers, it becomes apparent that this portion of the FDCPA is
quite complicated. In fact, careful reading of the statute shows Congress provided creditors with hedging and
unclear language throughout the provision, much of which cannot be understood without intense scrutiny.
Unfortunately, the difficulties presented by this provision are shown by the various interpretations given to it by
courts around the country.

It is important to note that this provision may be waived by consent of the consumer’s counsel, or by consent given
by the consumer himself.4 A waiver of this provision may also be made by an order of an applicable court.5 A debt
collector sending a writ of execution directly to a consumer post-judgment has been found by the court to have
been given express permission to do so when it is required by state law. 6 However, some courts have chosen to
view this final exception very narrowly.7 Other possible exceptions to this contact prohibition can occur:

a. when a consumer’s attorney fails to respond to contacts within a reasonable time (what constitutes a
reasonable time seems open to judicial interpretation);8
b. when a consumer is not clearly represented as to the debt between the parties; 9
c. if a servicer does not “know” a consumer is represented by counsel, though knowledge as set out in the
statute is under intensive judicial review. 10

2. Prohibited communication with third parties in connection with debt collection

Contacting third parties can also cause unique problems for debt collectors. 11 Communication can be either oral or
written and is defined as “the conveying of information regarding a debt directly or indirectly to any person through
any medium.”12 A debt collector is allowed to communicate with third parties without needing to first obtain the
borrower’s permission only when the purpose of the communication is to obtain location information. “Location
information” is defined as “a consumer’s place of abode and his telephone number at such place, or his place of
employment.” 13 When contacting third parties for any of these purposes, the debt collector is required to do the
following:

a. identify himself,
b. state that “we are confirming or correcting location information concerning” the individual, and

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USFN | Hot Topics in the FDCPA: Prohibited Communication with Borrowers and Third Parties

c. identify his employer, only if requested. 14

The debt collector cannot state that the consumer owes any debt and may only have one contact with the third
party.15 Further, once the debt collector has the consumer’s home address and phone number or work address, its
future activities do not fall within the location information criteria and any further contact is not permissible. Also,
the debt collector is not allowed to seek additional information, including the consumer’s employment status, salary,
or hiring date.16 Additionally, if the debt collector sends a written correspondence to the third party for the purpose
of obtaining location information, he may not use letterhead that would suggest that he is in the debt collection
business or that he is attempting to collect a debt. 17 Finally, once the debt collector knows that a consumer is
represented by an attorney with respect to the debt and can easily ascertain the attorney’s name and address, then
the debt collector’s ability to contact third parties for location information is terminated. 18

When communicating about the debt itself, such communication with a third party is strictly prohibited. Who is
considered a “third party”? It would be anyone who does not fall into one of the following categories:

a. the consumer,
b. the consumer’s spouse,
c. the consumer’s parent, if the consumer is considered a minor,
d. a guardian, executor or administrator,
e. the consumer’s attorney,
f. the creditor,
g. the creditor’s attorney,
h. the debt collector’s attorney,
i. a consumer reporting agency, if otherwise permitted by law.

Additionally, anyone who the consumer gives permission directly to the debt collector to contact is not considered a
third party. To date, the courts have not expanded the exception to the parent of a non-minor consumer, even if the
parent has assumed overall responsibility of the consumer. Further, there has not been a movement to expand the
listed categories to include other relatives or co-workers of the consumer.

In summary, both of the above topics are extremely important for servicers and their attorneys to keep in mind
when attempting to collect on defaulted loans in order to avoid possible violations of the FDCPA. The FDCPA is a
strict liability statute, and each violation carries a penalty of at least $1,000 per violation. Hopefully, this article will
cause readers to examine their procedures for contacting borrowers and ensure that violations are minimized to the
fullest extent possible.

1. 15 USCA § 1692c(a)(2)
2. Herbert v. Monterey Financial Services, Inc., 863 F. Supp. 76 (D. Conn., 1994)
3. Blum v. Fisher & Fisher, 961 F. Supp. 1218 (N.D. Ill. 1997)
4. 15 USCA § 1692c(a)(2)
5. 15 USCA § 1692c(a)
6. Resler v. Messerli & Kramer, P.A. 2003 WL 193498 (D. Minn., 2003)
7. Johnson v. Statewide Collections, Inc., 778 P.2d 93 (Wyo. 1989)
8. Phillips v. Amana Collection Services, 1992 WL 227839 (W.D.N.Y. 1992); Blum v. Fisher & Fisher, 961 F. Supp. 1218 (N.D.
Ill. 1997)
9. Hubbard v. National Bond and Collection Associates, Inc., 126 B.R. 422 (D. Del.,1991); Goodman v. Southern Credit
Recovery, Inc., 1999 WL 14004 (E.D. La., 1999); Robinson v. Transworld Sys., Inc., 876 F. Supp. 385 (N.D.N.Y. 1985)
10. Hubbard v. National Bond and Collection Associates, Inc., 126 B.R. 422 (D.Del.,1991); Schmitt v. FMA Alliance, 398 F.3d
995 (C.A.8 (Minn.), 2005); Randolph v. IMBS, Inc., 368 F.3d 726 (C.A.7 (Ill.), 2004)
11. Debt Collector is defined in 15 USCA § 1692a(6)
12. 15 USCA § 1692a(2)
13. 15 USCA § 1692a(7)
14. 15 USCA § 1692b
15. 15 USCA § 1692b(3)
16. Shaver v. Trauner, 1998 U.S. Dist. LEXIS 19647 (C.D.Ill. May 29, 1998)
17. 15 USCA § 1692b(5)
18. 15 USCA § 1692b(6)

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