Open Letter to Oklahoma House of Representatives Regarding Senate Bill 1430

Dear Oklahoma House of Representatives:

I am a consumer protection attorney practicing in Tulsa, Oklahoma.  Although my practice is now focused on representing consumers, I have represented both creditors and consumers. There are very few attorneys in Oklahoma that practice consumer advocacy. Unfortunately, a simple Google search will reveal that consumer protection attorneys in Oklahoma are greatly outnumbered by debt collection agencies residing and serving Oklahoma.

I am writing to you to bring your attention to several important aspects of the Bartmann Bill for Ethical Debt Collection (Senate Bill 1430) which was introduced by Sen. Stanislawski.  It is my understanding that this bill recently passed the Oklahoma Senate and is now ready for the house to modify and vote upon.  For the most part, the Bartmann Bill provides new protections to consumers, including the licensing and regulation of debt collection agencies within the state of Oklahoma. However, Senate Bill 1430 also contains additional, unnecessary protections for debt collectors. In order to provide true protection to consumers, there are several modifications to the bill which should be made.

As you know, Bill Bartmann operates one of the largest debt collection/debt brokerage agencies in the United States, CFS II.  Other industries have been known to introduce legislation that appears to impose stricter measures when the practical reality is that the proposed legislation creates greater hurdles for the consumer.  One example of this is the Homeowner Construction Defect Protection Act which (fortunately) failed to become law after lobbied for by the Oklahoma residential home construction industry.  SB 431 was the result of the homebuilding special interest lobby.  The proposed legislation created biased rules of evidence against homeowners and added red-tape to the wronged homeowners fight. Fortunately for Oklahomans, on May 25, 2005, then Oklahoma Governor Brad Henry vetoed builder-sponsored SB 431. In his veto message, Henry said the legislation “places substantial requirements on the consumer and unduly restricts the consumer’s rights when there are construction defects.”

Like SB 431, at first glance, the Bartmann Bill for Ethical Debt Collection seems to provide some stricter consumer protection than is afforded by the Federal Fair Debt Collection Practices Act (FDCPA).  However there are certain differences between Senate Bill 1430 and the FDCPA which may actually keep consumers from asserting the rights contained in this bill.

1.            Unfair Fee Shifting Provisions.

Section 7(B) of Senate Bill 1430 largely recites and restates 15 U.S.C. 1692k of the FDCPA with a couple of important exceptions. The first and most harmful change has been made in Senate Bill 1430 from the FDCPA is that the attorney fee provision has been modified to allow for attorney fees to be awarded against the consumer. Senate Bill1430, Section 7(B) currently reads:

B.  In the case of any action to enforce the foregoing liability, the prevailing party shall be entitled to the costs of the action, together with a reasonable attorney fee as determined by the court.

This is a significant change from the Federal FDCPA which attorney fee provision does not allow for creditors to seek their attorneys fees from consumers unless there has been a finding of bad faith. 15 USC 1692k(a)(3) states:

In the case of any successful action to enforce the foregoing liability, the [Court may award] costs of the action, together with a reasonable attorney’s fee as determined by the court.  On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorneys fees reasonable in relation to the work expended and costs.

The distinction between the two provisions is very important.  Currently, if a consumer brings a cause of action against a debt collector under the FDCPA and is unsuccessful, unless there is a finding of bad faith, the consumer will not be shouldered with the additional legal burden of paying the debt collector’s attorney fees and costs, which could easily be over $25,000 if the matter was to proceed to trial.  The possibility of such an award against a consumer will likely have a chilling effect on whether attorneys in the state will actually use this law if it is passed. Personally, I know that if the attorney fee provision is not changed prior to passage of Senate Bill 1430, I will not be recommending to my clients that we include claims under the new law due to the possibility of a large judgment be entered against my client in the event that we are “out-lawyered” by the debt collector’s big law firm. Instead, I would likely choose to continue filing lawsuits under the FDCPA even though the damages available to my my client would be significantly less.

Unfortunately, Congress provided no force mechanism for the FTC to prosecute individual claims of consumers, thus providing background for the explicit reason for the way that the attorney the provision has been written in the FDCPA. Instead, Congress intended the FDCPA to be self-enforcing by private attorney generals.   See S.Rep. No. 95-382 p.5 (describing FDCPA as “self-enforcing”);  see also Graziano v. Harrison, 950 F.2d 107, 113 (3d Cir.1991) (“[FDCPA] mandates an award of attorney’s fees as a means of fulfilling Congress’s intent that the Act should be enforced by debtors acting as private attorneys general.”).  Accordingly, without consumer protection attorneys to assisting consumers with standing up for their rights under Senate Bill 1430, it is very unlikely that there will be any enforcement this Bill.

The Federal attorney fee provision found in 15 USC 1692k(a) provides appropriate protection to debt collectors; debt collectors may petition the court for attorney’s fees upon a finding that a lawsuit has been brought in bad faith or for purposes of harassment.  I urge you to modify Section 7(B) of Senate Bill 1430 to conform with the FDCPA section 15 USC 1692k(a)(3) regarding the issue.

2.            Senate Bill 1430 adds Additional Defenses for debt buyers.

Under Federal Law 15 USC 1692k(c), a debt collector may not be held liable if it is able to show by a preponderance of evidence that the violation was 1) unintentional, and 2) resulted from a bona fide error notwithstanding maintenance of procedures to avoid such errors.

However, in addition to the bona fide error defense (which is copied verbatim from the FDCPA), Senate Bill 1430 also adds an additional defense for a debt buyer.  Section 7(D) adds the following defense available to debt buyers:

A debt buyer shall not be held liable in any action brought under this title if the debt buyer shows by a preponderance of evidence that the violation was the result of an employee or agent that acted with blatant disregard of rigorous and established policies and procedures implemented by the debt buyer to prevent the violation and to discipline employees and agents for such willful action.

Thus, when sued, a debt buyer will likely always point the finger at their “rogue” employee.  They will be able to introduce evidence that they have a policy and procedures manual which was not adhered to, and that they fired the employee as a result of the incident, knowing full well that the average job length of employment for collection agent is very short. They will also produce evidence that they require all of their employees sit through a two-day long class regarding these policies and procedures, despite the fact that they know that many of the employees will not be paying attention or that they maintain no monitoring requirements.

The consumer, on the other hand, will lose as consumer will have no way to rebut this one-sided testimony that their employee acted in “blatant disregard” of their internal policy and was thus fired.

Oklahoma case law is clear, “An employer may be held responsible for the tort committed by the employee where the act is incidental to and done in furtherance of the business of the employer even though the servant or agent acted in excess of the authority or willfully or maliciously committed the wrongs. Ada-Konawa Bridge Co. v. Cargo, 1932 OK 790, ¶31. Thus, the provision 7(D) is no more than a legislative attempt to overrule the well accepted legal doctrine respondeat superior, which states that an employer is responsible for the actions of employees performed within the course of their employment when they are acting furtherance of the business of the employer.

3.            Senate Bill 1430 provides Excessive Time for debt buyers to provide Validation of debts owed to the Consumer.

Section 6 of Senate Bill 1430 allows 180 days for a debt buyer to provide validation to the consumer that it has the legal right to collect the debt. While debt collection activities must stop during this time, the amount of time provided in Senate Bill 1430 is excessive in that nothing prevents the debt collector from listing debt on the consumer’s credit report during this time, even without any proof that the debt buyer actually owns the debt that it is trying to collect!  It is entirely foreseeable that a consumer may not even know that the debt is owed until such time that a credit check is run when the consumer attempts open a checking account, apply for job, or to obtain a loan or a mortgage. In such situations, the consumer likely does not have a half-year to wait for such validation and will be forced into simply pay the debt that a consumer may not owe in order to obtain the job, loan or mortgage. It is also foreseeable that once receiving a validation request from the consumer, the debt buyer will simply elect to sell the debt to another third-party debt buyer during this half year period, thus extending the process indefinitely. It is therefore my recommendation that the length of time that a debt buyer has to validate a debt be reduced to 30 days.

4.            Senate Bill 1430 does not contain any provisions relating to collection of debts by the Original Creditors.

Lastly, both the FDCPA and Senate Bill 1430 applies only to third-party debt buyers. Accordingly, nothing in these laws would prevent the in-house collections department of the original creditor from using abusive and unfair practices in debt collection in Oklahoma.

At least 17 states have enacted state fair debt collection bills which provide consumers from harassment by the original creditors of a debt. These states include Texas, Florida, California, Iowa, North Carolina, Washington D.C., Maryland, Massachusetts, Michigan, New Hampshire, New York (and NYC),  Oregon, Pennsylvania, South Carolina,  Vermont, West Virginia, and Wisconsin. For example, in California, the Rosenthal Fair Debt Collection Practices Act defines “debt collector” as “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection,” [California Civil Code Section 1788.2(c)]. The Act contains virtually all of the same prohibitions on debt collector conduct as does the FDCPA, although worded and organized differently. In Texas, the original creditor collecting own debt must comply with all the provisions of the FDCPA, except those provisions dealing with required disclosures. (For example, the original creditor does not have to verify the debt’s validity).  Oklahoma should join the ranks of these states in providing these additional protections from harassment.

5.            Passage of Senate Bill 1430 with its additional protections for debt collectors may actually remove the ability for consumers to be protected under the Federal FDCPA laws.

Although I am aware of no exemptions that have been granted to individual states, the FDCPA contains a provision that could allow for a state to request an exemption from the enforcement of the FDCPA as long as the state maintains “requirement substantially similar to those imposed by” the FDCPA. 15 USC 1692o.

As stated above, if Senate Bill 1430 is passed without modification, there are certain additional defenses that debt collectors would be able to argue against the consumer.  For those reasons, should the bill advance unmodified, and should Oklahoma request and be granted an exemption, passage of Senate Bill 1430 would greatly reduce consumer protection in Oklahoma due to the potential chilling effect of the attorney fee provisions and additional debt collector defenses contained within the Bill.

CONCLUSION

It is truly amazing to see how many lawsuits are filed against consumers by debt collectors in Oklahoma. A simple docket search for lawsuits filed under $10,000 (CS cases) on www.oscn.net for any given week in Tulsa or Oklahoma County will reveal literally hundreds of lawsuits filed by debt buyers seeking as little as $150, plus attorney fees and court costs against consumers. Many may have purchased this debt for mere pennies on the dollar.  The methodology of these debt collectors, the majority of whom maintain offices out of state, is to file suit for small debts, then add attorney fees and court costs.  They hope and pray that the consumer does not answer the lawsuit or obtain an attorney assist them.  In 30 days or less after service, they then obtained a default judgment against the consumer and court orders that allow them to garnish the wages and bank account of the consumer.

Thank you for your time in reviewing my concerns with the proposed law. I am happy to discuss this matter with you at any time. Please feel free to call me directly at (918) 200-9272.