Nearly 18 months ago, U.S. District Judge Leo Glasser wrote in a decision that the FDCPA enables unscrupulous debtors and attorneys to file frivolous suits claiming collectors violated the act. The decision affirmed what many creditors and debt collection attorneys have argued for years and it appears to have set a precedent for collection cases since then.

In the case, Jacobson v. Healthcare Financial Services Inc., consumer Gershon Jacobson alleged that language in a collection letter from HFS constituted a violation of the FDCPA. Attorneys for HFS filed a motion in Glasser’s court for dismissal on the grounds the case was frivolous.

Glasser agreed with HFS, writing in his opinion that there was a “cottage industry” of debtors and debtor attorneys that sue collectors for FDCPA violations, noting the exponential growth of such lawsuits in his court over the past several years. For instance, Glasser wrote, he knew of a family that had dozens of cases currently pending, and Jacobson had a similar case pending against another defendant. He also noted that the volume of FDCPA violation cases in his court rose from a total of two in 2002 to 92 in 2005, and to 85 in the first five months of 2006.

Glasser noted that since the FDCPA is a “strict liability” statute it encourages frivolous suits because a consumer can seek civil compensation even if no true damage can be proven; there need only be a technical violation for consumers to get paid.

“When a defendant has unintentionally made only a technical mistake, cognizable only under a standard that indulges the hypothetical, logically fallacious, least sophisticated consumer, the misapplication of statutory damages based on strict liability tort principles can give rise to questionable awards,” Glasser wrote in his opinion. Read the entire ruling (PDF file).

The decision indicates a potential turning point in the consideration of FDCPA suits, Manny Newburger, partner in FDCPA specialist firm Barron & Newburger, told insideARM. “We may be seeing an environment where collectors can say, ‘maybe we will get a fair shake,’” he said.

This September, Glasser’s decision was cited in the Sixth Circuit Court of Appeals as a three-judge panel sided with collectors in the case Federal Home Loan Mortgage Corp. v. Lamar.

That use of Glasser’s decision as a precedent is important, said Alan Weinberg, managing partner of collection law firm Weltman, Weinberg & Reis. Precedents in collection suits had long favored consumers and judges not steeped in FDCPA minutiae usually follow precedent, said Weinberg.

“I think (Glasser’s ruling) may be a sign of judges saying ‘let’s be realistic folks,’” said Weinberg. “This is possibly a trend toward practically [on the part of judges].”

Newburger cautioned that the Glasser ruling must be taken in context. “The attorney for the plaintiff has lost a lot of FDCPA cases,” said Newburger. “If this had been a case brought by one of the larger plaintiffs’ attorneys, it would be a bigger deal. But it’s still great language.”

Newburger added that many FDCPA lawsuits brought by consumers have merit, and that repeat violators must be held accountable. “There are plenty of bad apples in the collection industry, and these cases are a reasonable way to deal with them,” he said. “But judges now seem to be judging each case on its merit and are less prone to award big money for unintentional technical violations.”

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