Fair Debt Collection Practices Act Reform

Overview

For centuries, attorneys have been regulated and disciplined primarily by the state supreme courts that license them, not Congress or federal agencies. Consistent with this principle, the Fair Debt Collection Practices Act (FDCPA) originally contained a complete exemption for attorneys collecting debts on behalf of their clients. In 1986, Congress voted to eliminate the attorney exemption, based in part on its belief that the revised Act would only allow regulation of attorneys’ non-litigation collection activities. Despite Congress’ intent, however, the courts have since applied the FDCPA to creditor attorneys even when they are engaged in litigation activities on behalf of clients. As a result, many creditor attorneys who file lawsuits to collect legitimate debts are now being unfairly sued for alleged technical violations of the FDCPA even when consumers have suffered no actual harm. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA or Dodd-Frank Act), which granted the new Consumer Financial Protection Bureau (CFPB) broad authority to regulate debt collectors and to enforce the FDCPA. Although Section 1027(e) of the DFA exempts most consumer attorneys engaged in the practice of law from the CFPB’s authority, it does not appear to apply to creditor attorneys who file suit to collect legitimate debts owed to their clients.

To address these problems, the ABA and its allies in the National Creditors Bar Association (NCBA) are urging Congress to pass corrective legislation known as H.R. 5082, the Practice of Law Technical Clarification Act of 2018. The bipartisan bill, cosponsored by Reps. Alex Mooney (R-WV) and Vicente Gonzalez (D-TX), would preserve traditional state court regulation and oversight of the legal profession by clarifying that the FDCPA and the CFPB’s regulatory authority under the DFA do not apply to creditor attorneys when they are engaged in debt collection litigation and thus are under the direct supervision of the trial judge.

Status

On April 7, 2017, Rep. Dave Trott (R-MI) introduced the original version of the Practice of Law Technical Clarification Act as H.R. 1849, and the measure was referred to the House Financial Services Committee. The House Financial Services Subcommittee on Financial Institutions and Consumer Credit subsequently held a hearing on H.R. 1849 and six other bills on September 7, 2017. During the hearing, Anne Fortney, a former senior Federal Trade Commission official, testified in favor of the bill, while Ms. Chi Chi Wu, Staff Attorney of the National Consumer Law Center, expressed opposition. On November 16, 2017, the ABA also sent a letter to the House Financial Services and Judiciary Committees expressing its support for the legislation. In addition, the NCBA, the Receivables Management Association (RMA), the Commercial Law League of America and other stakeholders also expressed support for H.R. 1849.

After Rep. Trott announced his decision to not seek reelection, the legislation was revised and reintroduced by Reps. Mooney and Gonzalez on December 5, 2017 as H.R. 4550 and then again on February 23, 2018 as H.R. 5082. Both versions of the revised bill were then referred to the House Financial Services Committee.

On March 19, 2018, the ABA sent a letter to all members of the House Financial Services and Judiciary Committees urging them to support prompt passage of H.R. 5082, and similar letters of support were also submittted by the NCBA, the RMA and other groups. The House Financial Services Committee subsequently marked up and approved the bill on March 21 by a vote of 35-25. Prior to the vote, Rep. Alex Mooney made a statement explaining the need for the legislation and touting the ABA's strong support for the bill. In addition, Reps. Gonzalez and Trott and Chairman Jeb Hensarling (R-TX) also spoke in favor of the bill, while Rep. Stephen Lynch (D-MA) expressed opposition.

After the Committee approved the bill, the ABA sent a Legislative Action Alert to state and local bar leaders on April 3, 2018 and a second Action Alert on October 24 urging them to contact their Members of Congress and to request their support for the legislation. H.R. 5082 is now pending before the full House, and a floor vote is still possible before the 115th Congress adjourns in late December. Accordingly, the ABA sent a new letter to all Members of the House on September 19 urging them to support prompt passage of the bill. In addition, the ABA sent a Grassroots Action Alert and Toolkit to many ABA members on November 8 urging them to contact their Members of Congress and express support for the legislation. 

Key Points

The ABA supports H.R. 5082 and urges Congress to enact the legislation as soon as possible because:

  • State courts, not the CFPB or other agencies, are in the best position to regulate attorneys engaged in the practice of law. Attorneys practicing law have long been regulated primarily by the highest court of the state in which the attorney is licensed, not federal agencies or Congress. Over time, an extensive and effective system of judicial regulation of attorneys has developed—including admission requirements, ethical codes and disciplinary rules—which govern virtually every aspect of an attorney’s professional life. As “officers of the court,” attorneys are subject to strict ethical rules and disciplinary action for any misconduct, including potential suspension or disbarment. Therefore, further regulation by the CFPB, other agencies, or Congress is unnecessary and is likely to conflict with regulation and oversight by the judicial branch of government.
  • The legislation is consistent with Congress’ original intent not to regulate attorneys engaged in the practice of law. When Congress amended the FDCPA in 1986 to remove the original attorney exemption, the bill’s sponsor, Rep. Frank Annunzio (D-IL), explained that the purpose of the change was to regulate only attorneys’ non-litigation collection activities. Despite the sponsor’s clear intent, courts have applied the FDCPA to creditor attorneys even when they are engaged in litigation activities. As a result, many creditor attorneys pursuing legitimate collection actions for clients in state court are routinely sued in federal court for technical violations of the FDCPA, resulting in harsh statutory penalties and attorney fees. H.R. 5082 would restore Congress’ intent by clarifying that attorneys engaged in litigation are not covered by the strict requirements of the FDCPA, though they are still subject to extensive judicial oversight and discipline.
  • The scope of the legislation is narrowly tailored and would only exempt creditor attorneys engaged in litigation activities; it would not create a broad exemption for attorneys’ non-litigation debt collection activities. H.R. 5082 would clarify that while the FDCPA does not apply to attorneys’ filing of lawsuits and other litigation activities already subject to judicial oversight, the Act would still apply to attorneys’ extrajudicial collection activities, such as demand letters and phone calls to debtors. Similarly, while the bill would expand the current exemption in Section 1027(e) of the DFA to include both creditor and consumer attorneys, the CFPB would retain its existing authority over attorneys and others engaged in non-litigation collection activities.
  • For years, the Federal Trade Commission also recommended that the FDCPA be clarified to exempt creditor attorneys engaged in litigation. In each annual report on the FDCPA from 1998 through 2006—a period spanning both Democratic and Republican administrations—the FTC urged Congress to reexamine and amend the definition of “debt collector” to exclude such attorneys from the Act. The FTC’s 2005 and 2006 annual reports, for example, each made eight legislative proposals, including a recommendation that Congress “exempt from the FDCPA’s provisions attorneys who pursue debtors solely through litigation (or similar ‘legal’ practices).” (See Federal Trade Commission Annual Report 2006: Fair Debt Collection Practices Act, at pages 11-12.) Therefore, H.R. 5082 would implement the longstanding recommendations of one of our nation’s leading consumer protection agencies.

ABA Policy

The ABA believes that primary regulation and oversight of the legal profession should continue to be vested in the court of highest appellate authority of the state in which the attorney is licensed, not federal agencies or Congress, and that the courts are in the best position to fulfill that important function. Therefore, the ABA supports legislation like H.R. 5082 that would preserve traditional state court regulation and oversight of the legal profession by clarifying neither the FDCPA nor the CFPB’s regulatory authority under the Dodd-Frank Act applies to the litigation activities of creditor attorneys.

ABA Resources

Additional Resources and Articles

Links

Contact

Larson Frisby
Associate Director
Governmental Affairs Office
American Bar Association
1050 Connecticut Avenue, NW, Suite 400
Washington, DC 20005
Direct: (202) 662-1098
FAX: (202) 662-1762
larson.frisby@americanbar.org