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How Collecting Consumer Debts Can Cost Your Business Big Money

Written by: Guy Piers Coburn

Reputation Level 9

Posted almost 3 years ago. Applies to Florida, 2 helpful votes, 0 comments

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What is a Consumer Debt?

The Florida Consumer Collection Practices Act (“FCCPA”), Fla. Stat. §§559.55-559.77, defines a consumer debt as a debt incurred for "personal, family or household use." Unlike the Federal Act, known as the FDCPA, the FCCPA applies to any “person,” which includes corporations or other legal entities, who collects consumer debts for itself. The Federal FDCPA only applies to someone or some company collecting the debts of another. Section 559.72 contains a list of nineteen subsections, describing prohibited actions. Every person who attempts to collect a consumer debt should learn what specific acts are prohibited. Every business in Florida that collects consumer debts should implement a training program on this law, as well as the corresponding federal law, or it may cost thousands to the business. Once source shows a 29% increase in cases filed under the federal act alone by consumer debtors against creditors in 2008 over 2007.

What is the Purpose of the Debt Collection Law?

The Florida Consumer Collection Practices Act (FCCPA), and the Federal Fair Debt Collecion Practices Act (FDCPA) were enacted to prohibit a lot of horrible misbehavior by Creditors and Collection Agencies. There is no question that many of these horrible practices happen every day. Debt Collectors are under pressure to collect as much as possible to keep their jobs or get decent bonuses. Small Businesses are struggling to survive, and are willing to "step over the line" to get paid what they feel they are entitled to. And some collectors are just plain dishonest or heartless. However, it is not enough for a Creditor to mean well when trying to collect a debt. Creditors need to know specifically what is allowed under the law and what is prohibited. Some of the provisions of the statute have subjective interpretations -- exactly when does a telephone call become "harassment"? The law does not set any specific guideline.

Unfair to Creditors

Even the smallest violation of one of these statutes can result in a lawsuit from a consumer lawyer who specializes in these cases. If the Consumer wins, then the court will award actual damages (most of the time, there are no actual damages), additional statutory damages of up to $1,000 (in effect, this is a fine that gets paid to the consumer), and attorneys' fees and court costs. In these cases, it is common for the attorneys' fees to exceed $5,000 if the case is settled early, or as much as $60,000 if the case goes to trial. So, if the Creditor loses, he has to pay the Debtor's attorneys' fees as well as his own, and that could add up to as much as $100,000 or more. If the creditor wins? Except in rare circumstances, the Creditor has to pay his own attorneys' fees. Only if the Creditor can prove that the Debtor's case had no merit whatsoever, can the creditor get an award of fees. And then, can the debtor pay this award? Probably not.

What is the practical effect?

If the creditor does anything that even remotely could be considered a violation, even if the alleged violation was completely innocent and only a mistake, then the attorneys who handle these cases for consumers will file a lawsuit. It will be far less expensive for the creditor to settle the case early and pay money to the debtor, even if the creditor has done nothing wrong, than to fight the lawsuit and win. At the very beginning of the case, these cases can usually be settled anywhere from $2,500 to $10,000. Later on, as the litigation expenses increase, the settlement costs rise, and the creditor will, of course, have to pay his own attorney as well. That is because, even if the creditor wants to fight, it can cost $20,000 to $60,000 just for his own attorney, with very little chance of getting anything from the other side.

How do you avoid Claims?

First, any creditor who collects any debts from consumers must become familiar with the law. Florida Statutes §559.72 has a list of 19 prohibitions that need to be avoided. Some are obvious, like not lying to the debtor that the collector is a police officer or a court official. Others seem easy to comply with, but can be tricky -- you cannot disclose the debt to any third party, so can you leave a message on a phone answering machine, where a roommate could pick it up? The Creditor also needs to understand the application of the Federal FDCPA and how it relates to the Florida Act. It is important for any Creditor to implement a training program, to teach all employees about this law, and update it regularly. Why? One defense to a claim under the statute is if the Creditor had procedures in place, but the Creditor's employee made a "bona fide error."