Actions Creditors Should Avoid When Collecting a Consumer Debt
Creditors can be subject to significant liability if they improperly collect consumer debts. As such, they should be aware of both federal and state laws affecting the proper collection of consumer debts that apply to everyone - not just debt collectors.
Consumer debts are common, including credit card bills, car payments, rent, mortgages, doctors’ bills, homeowners’ association assessments, and more. Creditors include landlords, lenders, business owners, and associations.
Creditors often ask how to successfully collect money owed. Rarely do creditors start the conversation with, “How do I properly collect a consumer debt?" In a legal climate saturated with plaintiffs’ attorneys searching for debt collection violations and potential class action claims, properly collecting consumer debts is vitally important.
What is a debt collector? A debt collector is a third-party company or agency that is in the business of collecting debts for creditors. The Fair Debt Collection Practices Act (FDCPA) is a federal law protecting consumers from debt collectors engaging in abusive or deceptive collection tactics. However, the FDCPA applies to debt collectors only, not creditors. This distinction is significant because, with limited exceptions, the FDCPA does not apply to the aforementioned landlord, lender, business owner, or association.
Unlike the FDCPA, the Maryland Consumer Debt Collection Act (MCDCA) applies to creditors collecting consumer debts. The MCDCA broadly defines a “collector” as any person collecting or attempting to collect an alleged debt arising out of a consumer transaction. This means that any business attempting to collect an outstanding bill or invoice is subject to the MCDCA.
The MCDCA prohibits creditors from the following:
- Using or threatening force or violence.
- Threatening criminal prosecution, unless the transaction involved the violation of a criminal statute.
- Disclosing or threatening to disclose information that would negatively affect the debtor's reputation for credit worthiness with knowledge that the information is false.
- Generally, contacting a person's employer with respect to a delinquent indebtedness before obtaining final judgment against the debtor.
- Generally, disclosing or threatening to disclose to a person other than the debtor or his or her spouse or, if the debtor is a minor, his or her parent, information that affects the debtor's reputation, whether or not for credit worthiness, with knowledge that the other person does not have a legitimate business need for the information.
- Communicating with the debtor or a person related to him or her with frequency, at unusual hours, or in any other manner reasonably expected to abuse or harass the debtor.
- Using obscene or grossly abusive language in communicating with the debtor or a person related to him or her.
- Claiming, attempting, or threatening to enforce a right with knowledge that the right does not exist.
- Using a communication that simulates legal or judicial process or gives the appearance of being authorized, issued, or approved by a government, governmental agency, or lawyer when it is not.
A creditor who violates the MCDCA may be subject to monetary damages awarded to the consumer. A consumer lawsuit may seek actual damages proximately related to the creditor’s actions. Further, while punitive damages are not mentioned in the MCDCA, it provides for “damages for emotional distress or mental anguish suffered with or without accompanying physical injury.” Therefore, monetary damages for violating the MCDCA can far exceed a debt owed to a creditor. As such, it is extremely important for Maryland creditors to know what is prohibited when collecting consumer debts.
We recommend that all creditors consult with a debt collection attorney before pursuing collections on a consumer debt.
Charlie Lamari is a community associations attorney who leads collection efforts at Lerch Early. He helps condominiums, cooperatives, and homeowners associations with the collection of delinquent assessments and related issues in Maryland. For more informa- tion on appropriate steps to take when collecting consumer debt, contact Charlie at 301-841-3844 or firstname.lastname@example.org.